# Outdoor Holding Co: Form 10-Q for the period ended Jun 30, 2024

- Company: [Outdoor Holding Co](/companies/poww.md) (CIK 1015383)
- Form: 10-Q
- Filed: 2024-08-08
- Accepted by EDGAR: Aug 8, 2024, 21:25 ET
- Period: 2024-06-30
- Accession: 0001493152-24-030836
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1015383/000149315224030836/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1015383/000149315224030836/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $31.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $21.2m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $9.8m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-04-01 to 2024-06-30 | $16.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$9.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | −$2.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$7.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 119,105,502 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-04-01 to 2024-06-30 | −$547.5k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-04-01 to 2024-06-30 | $1.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2024-04-01 to 2024-06-30 | $366.2k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-06-30 | $50.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $134.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $402.4m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $42.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $54.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-06-30 | $348.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 29,820 characters.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided to assist the reader in understanding the results of operations, financial condition, and liquidity through the eyes of our management team. This section should be read in conjunction with other sections of this Quarterly Report, specifically, our condensed consolidated financial Statements and Supplementary Data.

### FORWARD-LOOKING STATEMENTS

This document contains certain “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies, goals and objectives of management for future operations; any statements concerning proposed new products and services or developments thereof; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

Forward looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect,” or “anticipate,” or other similar words, or the negative thereof. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures and risk factors we included in the section titled Risk Factors contained herein.

In our filings with the Securities and Exchange Commission, references to “AMMO, Inc.”, “AMMO”, “the Company”, “we,” “us,” “our” and similar terms refer to AMMO, Inc., a Delaware corporation, and its wholly owned consolidated subsidiaries.

### Overview

AMMO, Inc., owner of the GunBroker Marketplace, the largest online marketplace serving the firearms and shooting sports industries, and a vertically integrated producer of high-performance ammunition and premium components began its operations in 2017.

Through our GunBroker Marketplace segment (acquired in April 2021), we allow third party sellers to list items consisting of firearms, hunting gear, fishing equipment, outdoor gear, collectibles, and much more on our site, while facilitating compliance with federal and state laws that govern the sale of firearms and restricted items. This allows our base of over 8.1 million users to follow ownership policies and regulations through our network of over 31,000 federally licensed firearms dealers as transfer agents. The nature and operation of the Marketplace as an online auction and sales platform also affords our Company 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. Our vision is to expand the services on GunBroker and to become a peer to those in our industry. Recent expansions we have made to the platform are;

- Payment Processing – facilitating payment between parties allowing sellers to offer fast and secure electronic payments and allowing buyers to experience the ease of instant checkout.
- Carting Ability – enables our buyers to checkout multiple items from multiple sellers in a single transaction. Our buyers are able to finalize one transaction including both regulated and nonregulated items, while also affording them the ability to ship their purchases to more than one location.
- GunBroker Analytics – through the compilation and refinement of vast Marketplace data, we offer e-commerce market analytics to our industry peers allowing them to better manage business strategy and planning. The analytics offering will be rebranded to Outdoor Analytics during fiscal year 2025 to expand service offerings.
- GunBroker Advertising – content creation for manufactures, email campaigns and banner ads are all part of our advertising offerings to the outdoor industry.

Through our Ammunition segment, we are tailoring our focus of our manufacturing operations to the production of premium pistol and rifle ammunition and supporting industry partners with manufactured components such as premium pistol and rifle brass casings. We will continue to leverage our flagship brands that are proprietary in nature like STREAK VISUAL AMMUNITION™ , /stelTH/™, Signature-on-Target, and HUNT and extend our product offering with premium rifle lines and brands that complement our technologically innovative heritage. We also continue to ensure dynamic performance under the exacting standards of the U.S. military complex in support of our cutting-edge developmental ammunition programs as we seek out and effectively execute upon new governmental-based opportunities.

### Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following information should be read in conjunction with our condensed consolidated financial statements included in this Quarterly Report beginning on page 3.

Our financial results for the three months ended June 30, 2024, reflect our transition into our new operational strategic position, focusing on higher brass casing production and sales. We believe that we have hired a strong team of professionals and developed innovative products to establish our presence as a high-quality ammunition provider and marketplace. We continue to focus on building profitability through our rifle brass manufacturing. We experienced a 9.6% decrease in our Net Revenues for the three months ended June 30, 2024, compared with the three months ended June 30, 2023. This was the result of decreased revenue in both of our reporting segments due to changes in market demand as discussed below, and specifically for our ammunition division, changes in pricing, and sales mix. We believe that the shift in our operational strategy focusing on higher brass casing production and sales negatively impacted our sales in the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. Our focus on creating profitability is in contrast to revenue growth.

The following table presents summarized financial information taken from our consolidated statements of operations for the three months ended June 30, 2024, compared with the three months ended June 30, 2023:

*(Unaudited)*

*(Unaudited)*

|  | For the Three Months Ended June 30, 2024 | June 30, 2023 |
| --- | ---: | ---: |
| Net Revenues | $30,953,550 | $34,254,575 |
| Cost of Revenues | 21,164,428 | 20,230,035 |
| Gross Margin | 9,789,122 | 14,024,540 |
| Sales, General and Administrative Expenses | 19,465,461 | 15,703,467 |
| Loss from Operations | (9,676,339) | (1,678,927) |
| Other income (expense) |  |  |
| Other expense | 55,710 | 488,750 |
| Loss before provision for income taxes | $(9,620,629) | $(1,190,177) |
| Benefit for income taxes | (2,559,342) | (97,144) |
| Net Loss | $(7,061,287) | $(1,093,033) |

### 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. We have included these non-GAAP financial measures in this Annual Report on Form 10-K because they are key measures we use 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

| Reconciliation of GAAP net loss to Adjusted EBITDA | For the Three Months Ended 30-Jun-24 | 30-Jun-23 |
| --- | ---: | ---: |
| Net Loss | $(7,061,287) | $(1,093,033) |
| Benefit for income taxes | (2,559,342) | (97,144) |
| Depreciation and amortization | 4,692,556 | 4,620,087 |
| Interest expense, net | 196,522 | 204,201 |
| Employee stock awards | 606,199 | 822,797 |
| Stock grants | 68,750 | 50,750 |
| Common stock purchase options | 41,055 | - |
| Other income (expense), net | (252,232) | (692,951) |
| Contingent consideration fair value | (19,986) | (21,024) |
| Other nonrecurring expenses(1) | 6,249,893 | 2,759,726 |
| Adjusted EBITDA | $1,962,128 | $6,553,409 |

(1) For the three months ended June 30, 2024 and 2023, other nonrecurring expenses consist of professional and legal fees that are nonrecurring in nature. There were $3.2 million in expenses related to the settlement contingency included in other nonrecurring expenses for the three months ended June 30, 2024.

Adjusted EBITDA is a non-GAAP financial measure that displays our net loss, adjusted to eliminate the effect of certain items as described below.

We have excluded the following non-cash expenses from our non-GAAP financial measures: provision or benefit for income taxes; depreciation and amortization; share-based or warrant-based compensation expenses; and changes to the contingent consideration fair value. Adjusted EBITDA as a non-GAAP financial measure also excludes other cash interest income and expense, and non-recurring expenses related to professional and legal fees as the nature of these items are not components of our core operations. We believe that it is useful to exclude these non-cash expenses and non-recurring 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, stock grants, and common stock purchase options expense has been, and will continue to be for the foreseeable future, a significant recurring expense in 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

The following table shows our revenues by the various categories that comprise our total revenues for the three months ended June 30, 2024 and June 30, 2023. “Proprietary ammunition” includes those lines of ammunition that we manufacture at our facilities and sell under the brand names “STREAK VISUAL AMMUNITION™” and “/stelTH/™”. We define “standard ammunition” as non-proprietary ammunition that directly competes with other brand manufacturers. Our “standard ammunition” includes ammunition that we manufacture at our facilities as well as any completed ammunition that we acquire in the open market for sale to others. Also included in this category is low-cost target pistol and rifle ammunition as well as bulk packaged ammunition that we manufacture using reprocessed brass casings. Ammunition within the standard ammunition product line typically carries much lower gross margins than our proprietary ammunition.

|  | For the Three Months Ended June 30, 2024 | June 30, 2023 |
| --- | ---: | ---: |
| **Proprietary Ammunition** | $1,359,263 | $1,154,802 |
| **Standard Ammunition** | 12,000,291 | 12,951,227 |
| **Ammunition Casings** | 5,312,005 | 6,236,344 |
| **Marketplace Revenue** | 12,281,991 | 13,912,202 |
| **Total Sales** | $30,953,550 | $34,254,575 |

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Net Revenues for the three months ended June 30, 2024, decreased by $3.4 million, or 9.6%, from the prior year due to changes in market conditions. This was due to the result of a decrease of $1.0 million in sales of bulk pistol and rifle ammunition, $1.0 million in our casing sales and $1.6 million in sales generated from our GunBroker Marketplace, which primarily consists of auction revenue, as well as payment processing revenue, and shipping income, partially offset by an increase of $0.2 million in sales of Proprietary Ammunition. We believe that the shift in our operational strategy focusing on higher brass casing production and sales negatively impacted our sales in the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. Additionally, equipment malfunction related to rifle production in our manufacturing facility in Manitowoc caused lower production output contributing to lower sales results. Management anticipates an increase in ammunition casings sales as capacities come online in its new Manitowoc facility.

The opening in August 2022 of our manufacturing plant in Manitowoc, WI, grants us the ability to increase capacity based upon the needs of the market and through further expansion of our casing and loading lines and allow us to continue to expand distribution into commercial markets, introduce new product lines, and continue to initiate sales to U.S. law enforcement, military, and international markets.

For example, through our acquisition of SWK, the Company has developed and deployed a line of tactical armor piercing (“AP”) and hard armor piercing incendiary (“HAPI”) precision ammunition to meet the lethality requirements of both the U.S. and foreign military customers. We continue to demonstrate our AP and HAPI ammunition to military personnel at scheduled and invite only events, resulting in increased interest and procurement discussions. The Company has since developed the ballistic match (“BMMPR”) and Signature-on-Target rounds under contract with the U.S. Government in support of U.S. special operations which have been publicly announced pursuant to governmental authorization. Additional work continues in support of the military operations of the U.S. and its ally military components which is not currently subject to disclosure.

It is important to note that, although U.S. law enforcement, military and international markets represent significant opportunities for our Company, they also have a long sales cycle. The Company’s sales team has been effective in establishing sales and distribution channels, both in the United States and abroad, that we anticipated will drive sustained sales opportunity in the military, law enforcement, and commercial markets.

### Cost of Revenues

Cost of Revenues decreased by approximately $1.0 million from $21.2 million to $20.2 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. This was the result of a decrease in net sales as well increases to non-cash depreciation related to increases in production equipment, expensing of increased labor, and overhead used to produce finished product during 2024 as compared to 2023. Cost of Revenues for our ammunition segment consists of product cost and cost directly and indirectly associated with getting those products to a sellable state and for our marketplace segment, consists of cost associated with facilitating transactions on the platform.

### Gross Margin

Our gross margin percentage, which measures our gross profit as a percentage of sales decreased to 31.6% during the three months ended June 30, 2024, from 40.9% for the three months ended June 30, 2023. This was a result of increased cost of materials, labor, and overhead in our ammunition segment, which was offset by our marketplace, GunBroker.com which, by nature has significantly higher margins than our manufactured products.

We believe that as we grow ammunition segment sales through new markets and expanded distribution that our gross margins will continue to increase. Our goal in the next 12 to 24 months is to continue to improve our gross margins. This will be accomplished through the following:

- Capacity improvements at our manufacturing plant and expansion of our rifle casing and loading lines;
- Increased product sales, specifically of proprietary and flagship lines of ammunition, like the STREAK VISUAL AMMUNITION™, /stelTH/™, Signature-on-Target, and HUNT all of which carry higher margins as a percentage of their selling price;
- Introduction of new lines of ammunition that carry higher margins in the consumer and government sectors;
- Reduced component costs through insourced operations of our ammunition segment and expansion of strategic relationships with component providers resulting in cost savings;
- Expanded use of automation equipment that reduces the total labor required to assemble finished products;
- Vertical integration into tooling manufacturing and annealing of rifle cases that have previously been outsourced;
- Better leverage of our fixed costs through expanded production to support the sales objectives
- With the addition of the multi-item cart, the payment processing, we’ve adjusted our category fees for nonregulated items that will enable us to increase our take rate across the platform as we enable cross selling;
- And, we are growing our advertising sales, financing partnerships, and bringing shipping options to our community.

### Operating Expenses

Operating expenses consists of selling and marketing expenses, corporate general & administrative, and employee salaries and related expenses. Operating expenses increased by approximately $3.8 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, and increased as a percentage of sales to 62.9% from 45.8% for the three months ended June 30, 2024 and 2023, respectively. This increase was primarily due to the $3.2 million expenses recognized for the settlement contingency and a $0.3 million, or 8.4%, increase in employee salaries and related expenses during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Selling and marketing expenses consist of commissions related to our sales, as well as advertising and marketing expenses. During the three months ended June 30, 2024, our selling and marketing expense remained constant primarily due to the varying volumes product sales affecting the amounts of sales commissions.

The increase in our corporate general and administrative expenses was due primarily to the $3.2 million expenses recognized for the settlement contingency and an increase of $0.2 million of nonrecurring expenses, consisting of professional and legal fees that are nonrecurring in nature.

### Other Income and Expenses

Total other expenses for the three months ended June 30, 2024, decreased by $0.4 million compared to the three months ended June 30, 2023. This was primarily the result of $0.3 decrease in other income.

Interest expense remained constant for the three months ended June 30, 2024, compared to the prior year period.

### Income Taxes

For the three months ended June 30, 2024 and 2023, we recorded a benefit for federal and state income taxes of approximately $2.6 million and $0.1 million, respectively.

### Net Loss

We ended the three months ended June 30, 2024, with a Net Loss of approximately $7.1 million compared with a Net Loss of approximately $1.1 million for the three months ended June 30, 2023.

Our goal is to continue to improve our operating results as we focus on increasing sales and reducing our operating expenses.

### Liquidity and Capital Resources

As of June 30, 2024, we had $50,754,570 of cash and cash equivalents, a decrease of $4,831,871 from March 31, 2024.

Working Capital is summarized and compared as follows:

|  | June 30, 2024 | March 31, 2024 |
| --- | ---: | ---: |
| Current assets | $133,953,188 | $131,525,266 |
| Current liabilities | 42,266,339 | 30,940,272 |
|  | $91,686,849 | $100,584,994 |

### Changes in cash flows are summarized as follows:

### Operating Activities

For the three months ended June 30, 2024, net cash used in operations totaled $0.5 million. This was primarily the result of our net loss of $7.1 million, increases in inventories of $9.2 million, accrued liabilities of $5.2 million, deposits of $1.0 million, and due from related parties of $4.8 million offset by decreases to our accounts receivable of $8.7 million. The cash provided by operations included the benefit of non-cash expenses for depreciation and amortization of $4.7 million, deferred tax benefits of $2.6 million and employee stock compensation of $0.6 million.

For the three months ended June 30, 2023, net cash provided by operations totaled approximately $13.0 million. This was primarily the result of net loss of approximately $1.1 million, which was offset by decreases in our accounts receivable of approximately $7.1 million, decreases in prepaid expenses of approximately $0.9 million, and decreases in our accounts payable of approximately $1.7 million, increases in our inventories of approximately $1.6 million, and decreases in deposits of approximately $3.0 million. Non-cash expenses for depreciation and amortization totaled approximately $4.6 million and non-cash expenses for employee stock awards totaled $0.8 million.

### Investing Activities

For the three months ended June 30, 2024, we used $1.4 million in net cash for investing activities. Net cash used in investing activities consisted of $1.4 million related to purchases of production equipment, and capitalized development costs related to our marketplace, GunBroker.

For the three months ended June 30, 2023, we used approximately $1.3 million in net cash for investing activities. Net cash used in investing activities consisted of approximately $1.3 million related to purchases of production equipment for our new manufacturing facility in Manitowoc, WI and capitalized development costs related to our marketplace, GunBroker.

### Financing Activities

For the three months ended June 30, 2024, net cash used in financing activities was $2.9 million, consisting of $0.7 million of insurance premium note payments, $0.6 million of preferred stock dividends paid, $1.1 million used to repurchase shares of Common Stock pursuant to our repurchase plan, and $0.4 million used in the repurchase of common shares.

For the three months ended June 30, 2023, net cash used in financing activities was approximately $3.3 million. This was the net effect of approximately $1.5 million used in our common stock repurchased plan, $1.0 million from insurance premium note payments, approximately $0.6 million of Preferred Stock dividends paid, and the generation of approximately $14.6 million from accounts receivable factoring, which was offset by payments of approximately $14.6 million.

### Liquidity

Existing working capital, cash flow from operations, bank borrowings, and sales of equity and debt securities are expected to be adequate to fund our operations over the next year. Generally, we have financed operations to date through the proceeds of stock sales, bank financings, 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. We intend to continue to use the aforementioned sources of funding for capital expenditures, debt repayments, share repurchases and any potential acquisitions.

#### Leases

We lease three locations that are used for our offices, production, and warehousing. As of June 30, 2024, we had $2.3 million of fixed lease payment obligations with $0.5 million payable within the next 12 months. Please refer to Note 8 – Leases in our financial statements for additional information.

#### Construction Note Payable

We have financed a portion of our new production facility with our Construction Note Payable. We expect to make $0.8 million in principal and interest payments within the next 12 months. The principal balance of the Construction Note will mature on October 14, 2026.

#### Revolving Loan

We have obtained a Revolving Loan with Sunflower Bank, National Association (“N.A.”) for up to $20,000,000 in December of 2023. The proceeds may be used for working capital, general corporate purposes, Permitted Acquisitions, to pay fees and expenses incurred in connection with the Revolving Line, to facilitate our stock repurchase program and to fund our general business requirements. We have not made use of the Revolving Loan as of the date of this filing.

### Off-Balance Sheet Arrangements

As of June 30, 2024, 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 and Policies

Our discussion and analysis of our financial condition and results of operation are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, however actual results may differ from these estimates. We have identified several accounting principles that we believe are key to the understanding of our financial statements. These important accounting policies and estimates require our most difficult subjective judgements.

We believe that certain assumptions and estimates associated with the valuation of allowances for credit losses, valuation of deferred tax assets, inventories, useful lives of assets, goodwill, intangible assets, stock-based compensation, and warrant-based compensation are material in nature due to the subjectivity associated with them and have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider the assumptions and estimates associated with these (as further detailed below) to be our critical accounting estimates. Please refer to Note 2 – Summary of Significant Accounting Policies of our condensed consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2024.

### Goodwill

We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. In testing for goodwill impairment, we may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a two-step impairment test. We test goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting unit. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions. Due to the declines in the value of our stock price and market capitalization in the year ended March 31, 2023, we assessed qualitative factors to determine if it is more likely than not that the fair value of the Marketplace segment is less than its carrying amount. Through our analysis we determined our stock price and market capitalization decline it is not indicative of a decrease in the fair value of our Marketplace segment and a fair value calculation using the discounted cash flows was more appropriate due to the operational performance of the reporting segment. Accordingly, the impairment of Goodwill was not warranted the three months ended June 30, 2024. As of June 2024, the Company has a goodwill carrying value of $90,870,094 , all of which is assigned to the Marketplace segment. However, it is possible that the book values of our Marketplace segment could exceed its fair value, which may result in the recognition of a material, noncash impairment of goodwill for the year ending March 31, 2025.

## Market risk

As filed, 295 characters.

Our market risks are similar to those disclosed under the caption “Quantitative And Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the year ended March 31, 2024 and filed with the SEC on June 13, 2024 and is hereby incorporated by reference.

## Controls and procedures

As filed, 7,839 characters.

### Evaluation of Disclosure Controls and Procedures

Our management evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(c) and 15d-15(e) under the Exchange Act, as of June 30, 2024. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Based on this evaluation, and because of the material weaknesses described below, our CEO and CFO have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of June 30, 2024.

Notwithstanding the material weaknesses that were identified and continued to exist as of June 30, 2024, management believes that the financial statements included in this report present fairly in all material respects our financial position, results of operations and cash flows for the period presented, nor were there changes to previously released financial results.

### Material weaknesses and management’s remediation plan

A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard AS 2201, 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.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. The following material weaknesses in our internal control over financial reporting remained as of June 30, 2024:

The Company failed to maintain an effective control environment due to the following:

- the Company 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 around logging could not be relied upon for select Company systems.
- the Company failed to maintain effectively designed Information Technology General Controls (“ITGCs”) in the areas of user access, application change management, logical access controls, and segregation of duties for one of the Company’s third-party information technology system that supports the Company’s financial reporting process.
- the Company failed to effectively execute management review procedures 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.

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### Management’s Remediation Initiatives

We have concluded that these material weaknesses arose because we did not have the necessary business processes, systems, personnel, and related internal controls.

In response to the material weaknesses, management, with the oversight of the Audit Committee of the Board of Directors, has continued the process of, and is committed to, designing and implementing effective measures to strengthen our internal controls over financial reporting and remediate the material weaknesses. The Company is committed to ensuring that a proper, consistent tone is communicated throughout the organization, which emphasizes the expectation that previously existing deficiencies will be rectified through implementation of processes and controls to ensure strict compliance with U.S. GAAP and regulatory requirements.

Our third–party consulting firm that specializes in internal audit work, and more specifically internal controls over financial reporting work, has assisted management and will continue to assist management with our risk assessment of internal control over financial reporting as well as documentation and testing of our internal control structure and evaluation of material weaknesses, with special focus on assisting management in the establishment and evaluation of proper segregation of duties procedures and monitoring and controls over ITGCs for the systems that support our financial reporting process. Specifically, with the right compliment of accounting and finance team members now in place, our entire control environment is being evaluated for enhancement of our internal controls over financial reporting.

In addition to the measures noted above, we have made progress in our remediation plan including the following items:

We continue to make enhancements to our control environment by improving guidance, communication of expectations, and importance of internal controls. The Company continues to hire personnel in key positions, and management continues to assess the hiring of additional personnel to ensure that the Company has a sufficient complement of qualified personnel at the right levels, based on any identified gaps in personnel requirements.

As previously disclosed in our Annual Report on Form 10-K for the year ended March 31, 2024, due to accounting system limitations, management is limited in its ability to effectively design and implement general information technology controls around select systems that support the underlying business cycle controls. Management is planning an evaluation of a new accounting system during the current fiscal period for adoption in the next fiscal period. The new system will allow management to effectively design and implement appropriate general information technology controls including enforced segregation of duties. Management has continued 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. In addition, management will continue to evaluate organization structure and hiring of personnel, and enhancement of management review procedures to validate completeness and accuracy of transactions at the time of review.

Commencing during the second quarter of fiscal year 2025, management, with the help of our third-party consulting firm, will perform walkthroughs of our key controls, including those that would be necessary to effectively remediate the existing material weaknesses. A walkthrough is performed to gain comfort regarding the design effectiveness of the key controls. Based on our assessment of the walkthrough results, we will determine if our key controls have been designed effectively. Further assessments will be made of these controls to ascertain operating effectiveness, after which we will be able to determine if the existing material weaknesses have been remediated.

While these actions and planned actions are subject to ongoing management evaluation and 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 and will continue to diligently review our internal control over financial reporting.

### Changes in Internal Controls

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 quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 306 characters.

Our market risks are similar to those disclosed under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2024, and filed with the SEC on June 13, 2024. There have been no material changes to our Risk Factors disclosed in Annual Report on Form 10-K.

Filed Aug 8, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-030836. Last ingested by Listed: Oct 24, 2026, 15:02 ET. No prices; not investment advice.