POWW 10-K & 10-Q changes, risk factors and insider trading

The risk factors noted in this section and other factors noted throughout this Annual Report on Form 10-K (this "Annual Report"),10-K, including those risks identified in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe examples of risks, uncertainties and events that may cause our actual results to differ materially from those contained in any forward-looking statement. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, actual outcomes may vary materially from those included in this AnnualForm Report.10-K

Risk Related to Our Business Operations

If buyers do not find our platform appealing, for example, because of a negative experience, inadequate customer service, dissatisfaction with FFL transfer fees or marketplace fees, lack of buyer-friendly features, lack of desirable product listings, lack of product listing variety, lack of competitive shipping charges, delayed shipping times, or other factors, they may make fewer purchases and they may not refer others to us. Likewise, if sellers are dissatisfied with their experience on our platform, or feel they have more attractive alternatives, they may stop listing items in our Marketplace and using our services and may stop referring others to us, which could negatively impact our financial performance. Our brand and reputation are critical to our success, as they influence our ability to attract and retain buyers and sellers. User engagement may be impacted by factors including user experience, platform functionality, pricing, customer service, product availability, shipping costs, and competition. If buyers or sellers are dissatisfied or perceive more attractive alternatives, they may reduce activity or leave our platform.

Although we have integrated a variety of processes, technologies, and controls to assist in our efforts to assess, identify, and manage material cybersecurity-related risks, these efforts are not exhaustive, and our efforts may not be adequate to prevent or detect service interruption, system failure, data loss or theft, or other material adverse consequences, directly or through our vendors. Additionally, these measures have not always been in the past, and in the future may not be, sufficient to prevent or detect a cyberattack, system failure, or security breach particularly given the increasingly sophisticated tools and methods used by hackers, state actors, organized cyber criminals, and cyber terrorists. Possible impacts associated with a cybersecurity incident may include, among others, remediation costs related to lost, stolen, or compromised data, repairs to data processing systems, increased cybersecurity protection costs, reputationalreputation damage, and adverse effects on our compliance with applicable privacy and other laws and regulations. Geopolitical tensions and evolving global conflicts may increase the frequency, sophistication, and severity of cyber threats, including those originating from nation-state actors and affiliated groups. These actors are often well-resourced, highly persistent, and capable of conducting advanced cyber operations, including espionage, data exfiltration, distributed denial-of-service (DDoS) attacks, and efforts to disrupt or degrade critical infrastructure and commercial platforms. In periods of heightened geopolitical instability, such actors may broaden their targets to include private sector organizations, particularly those operating digital platforms and marketplaces.

We may at times be unsuccessful (or be perceived to have been unsuccessful) in our efforts to comply with our data privacy and security obligations. Moreover, despite our efforts, our personnel or third parties with whom we work may be unsuccessful in complying with such obligations, which could negatively impact our business operations. If we or the third parties with whom we work are unsuccessful, or are perceived to have been unsuccessful, to address or comply with applicable data privacy and security obligations, we could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims); additional reporting requirements and/or oversight;; bans on processing personal data; and orders to destroy or not use personal data. Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers;; inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial changes to our business model or operations.

We expect generative artificial intelligence (“Gen AI”) to have a significant impact on the future of e-commerce, as artificial intelligence technologies become increasingly important for consumers buying and selling goods online. If we are unable to identify appropriate Gen AI providers and artificial intelligence technologies, or if we fail to utilize those technologies or develop our own technologies, our business may be harmed. For example, consumers may increasingly search for products using chatbots, virtual assistants or other Gen AI technologies powered by large language models instead of using traditional search engines. If current and future artificial intelligence technologies do not send referrals to GunBroker at the rate of traditional search engines for any reason, the amount of buyer and seller traffic using our platform could decrease, which could negatively impact on our business and results of operations.

We have been and arecurrently currentlyremain engaged in legal proceedings that have caused the Company to dedicate significant resources to defend. Litigation or claims that may be made against the Company or its officers or directors, from time to time, could negatively affect our business, operations, or financial position. As we grow, we may see a rise in the number of litigation matters against us. These matters may include employment and labor claims, as well as consumer and securities class actions, each of which are typically expensive and time consuming to defend. Litigation and other disputes could cause us to incur unforeseen expenses and otherwise occupy a significant amount of our management’s time and attention, any of which could negatively affect our business operations and financial position.

TheLitigation mattersand relatingother disputes could cause us to theincur restatementunforeseen of our financial statements have required,expenses and mayotherwise continue to require,occupy a significant amount of managementour management’s time and accounting,attention, financialany and legal resources,of which could adverselynegatively affect our business,business operations and financial condition and results of operations.position.

OnAs or afterof May 18, 2026, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time. Also, upon the occurrence of a Change of Control (as defined in the certificate of designations with respect to the Series A Preferred Stock), we may, at our option, redeem the Series A Preferred Stock, in whole or in part, within 120 days after the first date on which such Change of Control occurred. We may have an incentive to redeem the Series A Preferred Stock voluntarily if market conditions allow us to issue other preferred stock or debt securities at a rate that is lower than the dividend on the Series A Preferred Stock. If we redeem the Series A Preferred Stock, then from and after the redemption date, dividends will cease to accrue on shares of Series A Preferred Stock, the shares of Series A Preferred Stock will no longer be deemed outstanding and all rights as a holder of those shares will terminate, except the right to receive the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption.

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 the audited consolidated financial statements (prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and related notes included elsewhere in this Annual Report on Form 10-K (this "Form 10-K"). 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 Form 10-K, 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.

Outdoor Holding CompanyWe began itsour operations in 2017 as a vertically integrated producer of high-performance ammunition and premium components. Following the acquisition of the GunBroker.com business in 2021, the Companywe 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 auctione-commerce marketplace site, supports the lawful sale of firearms, ammunition, and hunting/shooting accessories.

In fiscal year 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 AgreementAgreement, 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 Companywe changed itsour 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 consolidated financial statements under the caption “Assets Held for Sale and Discontinued Operations” and Note 4, "“Discontinued Operations"”.

Settlement of Delaware Litigation

As described in ItemNote 3,8, “LegalRelated ProceedingsParty 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. As described below, 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”). In the year ended March 31, 2025, we recorded an estimated liability of $29.1 million related to the Delaware Litigation.

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 bearsbore 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 iswas 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,anniversary of the Settlement Effective Date. Pursuant to the terms of Note 1 and Note 2,1, 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 theNote Notes1 without penalty.

With respect to Note 2, the Company also hashad 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 Commoncommon Stockstock (the “Prepayment Option”). On September 17, 2025, the independent and disinterested members of the Board of Directors approved the exercise of the Prepayment Option, and we issued the Additional Warrant Shares”),to providedMr. thatUrvan’s theaffiliated Companydesignee. must first obtain stockholder approval of theUpon issuance of the Additional WarrantWarrant, all remaining obligations under Note 2 were deemed satisfied with the same force and theeffect as a prepayment of all principal and accrued and unpaid interest under Note 2. The Additional Warrant Shares pursuant to Nasdaq Listing Rule 5635. The Additional Warrant, if issued, would havehas 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 beis exercisable at the holder’s discretion, in whole or in part, on or after theSeptember first17, anniversary2026, ofsubject theto issuanceaccelerated date.vesting in certain circumstances. Except with respect to the exercise price and the vesting date, the terms of the Additional Warrant and the Warrant are substantially similar.

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 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 AnnualForm Report10-K 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. The Adjusted EBITDA reconciliation presented below begins with loss from continuing operations, which the Company believes is the most directly comparable GAAP financial measure. This reconciliation is consistent with the presentation in the Company’s first and second quarter fiscal 2026 earnings releases. In the third quarter fiscal 2026 earnings release, the Company presented the reconciliation beginning with net loss before discontinued operations and included the preferred stock dividend as a reconciling item. The Company has reverted to the prior presentation for clarity and consistency, as the preferred stock dividend does not impact Adjusted EBITDA under any period’s calculation. The definition of Adjusted EBITDA has not changed.

Adjusted EBITDA is a non-GAAP financial measure that displays our net loss from continuing operations,operations (the most directly comparable financial measure prepared in accordance with GAAP), 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-basedstock-based compensation expenses relating to employee stock awards and common stock purchase options, (vvi) interest and other income (expense), net,income, (vi) expenses related to acquisition and divestitures, (vii) gain on extinguishment of debt, (viii) 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 (viiix) other nonrecurring expenses, such as the contingent liabilitycontingencies associated with thelitigation Delawareor Litigationsettlements and professionalcorporate servicerestructuring and legal feescosts related to theheadcount Delawarereductions, Litigationseverance, and theexpense SEC Investigation.consolidation.

employeestock-based stock awards and common stock purchase optionscompensation 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;

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

We generate revenue from marketplace fees, which includes auctionmarketplace revenue, compliancemarketplace service fee revenue, banner advertising campaign revenue and shipping revenue. AuctionMarketplace 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. ComplianceMarketplace service fee revenueis consistsassessed by GunBroker and added to the price of feesthe chargeditem toat customersthe time of purchase for all buyers, based on a percentage of the final price of an item at the time of purchase. BannerThe advertisingmarketplace campaignservice fee helps offset increased costs associated with compliance with new state laws related to taxation, privacy, and firearms, which have significantly increased GunBroker’s operational compliance expenses. 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 year ended March 31, 20252026 decreasedincreased by $4.5$1.7 million, or 8.4%,3.5%, from the prioryear year.ended March 31, 2025. This decreaseincrease was due to a decrease inhigher gross merchandise sales volume generated from ourincreased Marketplacefirearms partiallysales offset by a minor increase inon our take rate. We believe the reduction in gross merchandise sales was a result of economic conditions and reduced discretionary spending among our customer base.Marketplace.

Cost of revenues decreasedincreased by approximately $1.2$0.1 million, or 15.6%,0.9%, for the year ended March 31, 20252026 compared to the year ended March 31, 2024.2025. This decreaseincrease was the result of aan reductionincrease in advertisinghigher expensestransaction as well as a decrease in credit card fees.volume.

Our gross margin, which measures our gross profit as a percentage of net revenues, increased to 86.9% during the year ended March 31, 2025 from 85.8%87.2% for the year ended March 31, 2024.2026 from 86.9% for the year ended March 31, 2025. This increase was primarily athe result of ourplatform increasedmonetization, takean rate.increasing mix of high-margin seller services, such as advertising, and reduced fraud credits.

Operating expenses consist of (i) selling and marketing expenses, which include tradeshows and marketing expenses, (ii) corporate general and administrative expenses, which include legal and professional fees and as well as insurance and rent, (iii) employee salaries and related expenses, which include salaries, benefits and stockstock-based basedcompensation, compensationand as well as(iv) depreciation and amortization expenses.

Other Income and ExpensesExpenses, Net

Except as set forth below, thereThere were no material changes to the risk factors disclosed in Part I, Item 1A "Risk Factors" of the Form 10-K.

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 and nine months ended DecemberJune 31,30, 2025,2026, (ii) the audited consolidated financial statements and notes thereto for the year ended March 31, 20252026 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on June 16,22, 20252026 (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, 2025,2026, 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.

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 8.78.9 million users to follow ownership policies and regulations through oura network of approximately 31,000 federally licensed firearms dealers ("FFLs") 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, marketplace service fee revenue (previously referred to as compliance fee revenue),revenue, advertising campaign revenuerevenue, FFL transfer revenue, and shipping revenue. Our key strategic initiatives for the remainder of fiscal year 2026 and first two quarters of fiscal year 2027 include: launching universal payment processing to drivefacilitate electronic transactions, decrease transaction friction, increase gross merchandise value ("GMV"), improve the user experience with the use of AI, and accelerate user adoption; deploydeploying capital opportunistically by repurchasing shares; advancing our restructuring efforts to further streamlinestreamlining the business to increase operational efficiency 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.Asexperiences. As part of our key strategic initiatives, the Companywe invested in a platform integration with Master FFL beginning in November 2025. Master FFL integration allows us to provide platform users access to a larger network of Federal Firearms License ("FFL") dealers, centralizing FFL dealer verification and compliance, and allowing streamlined firearm transfers through automatic verification of federally-licensed firearm dealers. While integration is in progress and may temporarily affect gross margins, the initiative supports long-term marketplace scalability, enhances federal compliance, and improves operational efficiency across our Marketplace.

As previously disclosed, thewe Company waswere subject to an investigation by the U.S. Securities and Exchange Commission (the “SEC”) relating to certain accounting, disclosure, and internal control issues primarily arising during periods prior to the tenure of the Company’sour current management team.team The(the Company"SEC Investigation"). We made an Offer of Settlement to the SEC, and on December 15, 2025, the SEC instituted settled cease-and-desist proceedings that fully resolved the investigation. The CompanyWe consented to the entry of the cease-and-desist order (the “SEC Order”) without admitting or denying the SEC’s findings, except as to jurisdiction.

Under the terms of the settlement, the SEC did not impose any civil penalty or monetary sanction. The CompanyWe agreed to cease and desist from committing or causing any future violations of certain provisions of the federal securities laws and related rules. The SEC’s findings relate primarily to historical disclosure failures, accounting misstatements, non-GAAP financial metric disclosures, and deficiencies in internal accounting controls during the period from August 2020 through July 2023. As part of the SEC settlement, the Companywe agreed to undertakings requiring itus to engage a third-party compliance consultant to review and make recommendations concerning the remediation of material weaknesses in internal control over financial reporting. TheWe Company isare required to cooperate fully with the consultant, adopt and implement the consultant’s recommendations within two years of the SEC Order, and provide written certifications of compliance to the SEC staff.

The CompanyWe began significant remediation efforts prior to the settlement and has continued those efforts following the resolution of the SEC matter. These actions have included, among other measures, conducting an independent internal investigation, restating affected historical financial statements, replacing prior senior leadership, expanding and enhancing the accounting and external reporting function, retaining external accounting and internal control advisors, strengthening policies and procedures related to expense classification, capitalization, and stock-based compensation, enhancing period-end close and reconciliation controls, establishing a formal disclosure committee, and implementing a more robust process for identifying and disclosing related-party transactions. In July 2026, we delivered a certification and supporting documentation to the SEC Staff that, in the Company’s opinion, it had fully complied with the undertakings concerning the remediation of material weaknesses in internal control over financial reporting as required by the SEC Order. The SEC Staff is currently evaluating the Company’s certification and supporting documentation.

The settlement with the SEC did not result in any civil penalty or disgorgement and, accordingly, did not have any direct adverse impact on the Company’sour liquidity or capital resources. However, the Company haswe incurred, and expectsexpect to continue to incur, costs related to compliance with the settlement undertakings and indemnification of three former directors and officers. These costs include fees and expenses associated with the compliance consultant and ongoing internal control remediation activities, along with advancement of legal expenses to former directors and officers against whom the SEC has instituted a separate enforcement action. These costs may be material in individual reporting periods but are not expected to impair the Company’sour ability to meet itsour obligations or execute itsour business strategy.

Management believes that the resolution of the SEC investigationInvestigation eliminates a significant source of uncertainty and allows the Companyus to focus on operating itsour business, enhancing itsour control environment, and pursuing itsour strategic objectives. While management cannot provide assurance regarding the timing or ultimate effectiveness of all remediation efforts, the Company believes it has made, and will continue to make, appropriate progress in remediating the identified internal accounting control deficiencies and strengthening its governance, disclosure and financial reporting processes.

The following table presents summarized financial information taken from our unaudited condensed consolidated statements of operations for the three and nine months ended DecemberJune 31,30, 2025,2026, compared with the three and nine months ended DecemberJune 31,30, 20242025:

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,income (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'sour 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.

To more clearly present Adjusted EBITDA, we have updated the table to begin with our net income (loss) before discontinued operations and now include the preferred stock dividend as an adjustment. This update has no impact on the Adjusted EBITDA amount, rather, it improves the alignment of the presentation with our consolidated statement of operations. Adjusted EBITDA is a non-GAAP financial measure that displays our net income (loss) before discontinued operations, adjusted to eliminate the effect of certain items as described below. We define Adjusted EBITDA as net income (loss) beforefrom discontinuedcontinuing operations excluding (i) provision or benefit for income taxes, (ii) preferred stock dividend (iii) depreciation and amortization, (iviii) interest expense, net, (viv) stock-based compensation expenses relating to stock awards and common stock purchase options, (viv) interest and other income (expense), net, (viivi) expenses related to acquisition and divestitures, (viiivii) gain on extinguishment of debt, (xiviii) 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 (xxi) other nonrecurring expenses, such as contingencies associated with litigation or settlements and (x) corporate restructuring costs related to headcount reductions, severance, and expense consolidation.

We generate revenue from marketplace fees, which includes marketplace revenue, marketplace service fee revenue, FFL transfer 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. Marketplace service fee revenue consists of fees charged to customers based on the final price of an item at the time of purchase. Effective as of the current reporting period, the fee previously referred to as the compliance fee is now called theThe marketplace service fee. This fee is assessed by GunBroker and added to the price of the item at the time of purchase for all buyers, based on the final price of an item at the time of purchase. The change in terminology reflects the nature of the fee as a service-related charge rather than a regulatory compliance charge. The marketplace service fee helps offset increased costs associated with compliance with new state laws related to taxation, privacy, and firearms, which have significantly increased GunBroker’s operational compliance expenses. FFL transfer revenue is a variable per unit fee associated with transactions requiring FFL transfers. Advertising revenue consists of fees charged for advertisement placement and impressions generated through the GunBroker website. Shipping revenue consists of fees for the shipping of items sold on the GunBroker website.

Net revenues for the three months ended DecemberJune 31,30, 20252026 increased $0.9by $2.6 million, or 7.0%,22.1%, from the three months ended DecemberJune 31,30, 20242025 due to the addition of FFL transfer revenue and increased GMV from our Marketplace primarily driven by increases in firearms sales.

Cost of revenues increased $0.1$0.7 million for the three months ended DecemberJune 31,30, 20252026 compared to the three months ended DecemberJune 31,30, 2024.2025. The increase is associated with higher transaction volume and investments in the platform.GunBroker platform and higher transaction volume.

Our gross margin, which measures our gross profit as a percentage of sales, decreased slightly to 87.1%84.5% for the three months ended DecemberJune 31,30, 20252026 compared to 87.4%87.2% for the three months ended DecemberJune 31,30, 2024.2025. This decrease in gross margin was primarily the result of costs relating to the efforts aroundto the implementation ofimplement the Master FFL platform. For the nine months ended December 31, 2025, our gross margin increased to 87.1% from 86.6% for the nine months ended December 31, 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 decreased by $21.8$7.4 million for the three months ended DecemberJune 31,30, 20252026 compared to the three months ended DecemberJune 31,30, 2024.2025. The decrease in operating expenses was the result of a reduction of $11.0 million in settlement contingencies that were recorded in the three months ended December 31, 2024 without a corresponding expense in the three months ended December 31, 2025, a decrease of $9.3$3.7 million in legal and professional fees primarily related to the completion of the Delaware Litigation, the Special Committee Investigation and restatementaccounting and the SEC Investigation,restatement, a reduction of stock-based compensation expense of $0.5$0.4 million due to a reduction in stock award grants, a $0.5reduction of $0.6 million related to one-time sales tax audit expenses recorded in the prior year and a $2.7 million reduction in salaries and related expenses also due to reduced headcount,headcount and restructuring efforts as well as a $0.2 million reduction in corporate insurance expense due to the salenumber of the Ammunition Manufacturing Business, and a $0.5 million reduction in bad debt expense as a result of increased collection efforts. These decreases were partially offset by a $0.2 million increase in depreciation and amortization expense due to increased capitalized software development costs.directors.

Total other income, net for the three months ended DecemberJune 31,30, 20252026 increased by $0.1$0.2 million compared to the three months ended DecemberJune 31,30, 2024.2025. This increase was the result of an increase in interest income of $0.3$0.1 million generated from holding a higher cash balance,balance partiallyand offseta by the increasedecrease in interest expense of $0.2$0.1 million relatedas toa theresult interestof obligationno fromlonger Notesfinancing issuedcorporate ininsurance thepremium Delaware Litigation settlement.payments.

As of DecemberJune 31,30, 2025,2026, we had $69.9$68.8 million of cash and cash equivalents, an increase of $39.6$0.7 million from March 31, 2025.2026. The increase was primarily attributable to thecash net proceeds receivedgenerated from the sale of the Ammunition Manufacturing Business of $42.9 million partially offset by cash used in operations.

For the ninethree months ended DecemberJune 31,30, 2025,2026, net cash provided by operations was primarily the result of the benefit of non-cash expensesexpense for depreciation and amortization,amortization stockas basedwell compensationas andour anet reductionincome infrom the allowance for doubtful accounts,operations, partially offset by a reduction in accounts payable and accrued liabilities primarily associated with a decrease in legal and professional fees, as well as an increase in prepaid expenses and other current assets associated with payments for annual insurance and a receivable due from claims under the directors and officers insurance policy.fees.

For the ninethree months ended DecemberJune 31,30, 2024,2025, net cash providedused byin operations was primarily the result of ana increasereduction in accounts payable and accrued liabilities andprimarily accountsassociated payable related to unpaidwith legal and professional fees.fees Theas cashwell providedas by operations also included the benefit of non-cash expensespayments for depreciationinsurance and amortization, employee stock compensation, and the changeresulting in thean valuationincrease allowancein placedprepaid on deferred income taxes.expenses.

For the ninethree months ended DecemberJune 31,30, 2024,2026, net cash used in investing activities consisted primarily of $3.0$0.7 million related toin capitalized development costs forrelated to our Marketplace.

For the ninethree months ended DecemberJune 31,30, 2025,2026, net cash used in financing activities consisted of $2.2$0.8 million in payments of preferred stock dividendsdividends, $0.2 million to make principal payments on related party notes, $2.0 million to purchase shares under our share repurchase program and $0.3$0.1 million used in the repurchase of common stock to cover taxes on shares issued to employees.

For the ninethree months ended DecemberJune 31,30, 2024,2025, net cash used in financing activities consisted of $2.2 million of insurance premium note payments, $2.2$0.6 million in payments of preferred stock dividends, $5.9 million used to repurchase shares of common stock pursuant to our then-existing repurchase plan,dividends and $0.5$0.2 million used in the repurchase of common shares to cover taxes on shares issued to employees.

We currently lease three locations, two of which are office space and one thatof which is a 2,660 square-foot mixed-use warehouse space in Marietta, GA. The lease for the mixed-use warehouseoffice space commencedin onScottsdale Octoberis 1,our 2025former headquarters and expiresis incurrently Octobernot 2028.being On October 1, 2025, we moved our corporate headquarters to our leased facility in Atlanta, Georgia.utilized. We have vacated the premises of our Scottsdale, Arizona leased office property and intendattempted to sublease it.the Scottsdale office space but such efforts have proven unsuccessful thus far and we recorded an impairment of the lease asset in the year ended March 31, 2026. As of Decemberthree 31,months 2025,ended June 30, 2026, we had $1.4$1.1 million of fixed lease payment obligations with $0.6$0.5 million payable within the next 12 months. Please refer to Note 6, "Leases" for additional information.

For the three months ended DecemberJune 31,30, 2026 and 2025, we recorded interest expense of $245,865$244,363 and $81,955 on Note 11, and no interest expense on Note 2.respectively. For the ninethree months ended DecemberJune 31,30, 2026 and 2025, we recorded interest expense of $573,685zero and $950,070$266,375 on Note 1 and Note 2, respectively.

OnWe Septembermade 17,a 2025,$220,000 theprincipal independentpayment and disinterested$780,000 membersinterest ofpayment the Board of Directors approved the exercise of the Prepayment Option, and we issued the Additional Warrant in satisfaction ofon Note 2. The prepayment of Note 2 was accounted for as an extinguishment of debt and a gain of $801,894 was recognized1 on theMay condensed29, consolidated statement of operations.2026. The remaining principal balance on Note 1 is $12.0$11.8 million and we are required to make an annual prepayment of $1.0 million on Note 1 beginningannually on May 30 until Note 1 matures on May 30, 2026.2027.

As of DecemberJune 31,30, 20252026 and March 31, 2025,2026, 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.