Castellum, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the historical financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those expressed or contemplated in those forward-looking statements as a result of certain factors, including those set forth under the headings “Forward-Looking Statements” and “Risk Factors” elsewhere in this Annual Report on Form 10-K. Business Overview We are a technology company focused on leveraging the power of information technology to help solve our nation’s most pressing national security challenges. We provide USG and commercial clients with Cybersecurity, Software Development, Systems Engineering, Information / Electronic Warfare, Program Support, and Data Analytics services. We also offer subject matter expertise in artificial intelligence / machine learning, 5G technologies, model-based systems engineering, program management, information assurance, intelligence analysis, and CMMC compliance. In addition to constantly innovating and enhancing our organic capabilities, Castellum is executing strategic acquisitions of firms that share our passionate commitment to U.S. national security and have a history of bringing exceptional value to their clients. Recent Developments On October 17, 2022, the Company closed its public offering of 1,500,000 shares of common stock consisting of 1,350,000 shares sold by the Company and 150,000 shares sold by certain selling stockholders, at a public offering price of $2.00 per share. The Company’s registration statement on Form S-1, as amended (File No. 333-267249) relating to the offering was declared effective by the U.S. Securities and Exchange Commission on October 12, 2022. 29 Table of Contents Key Components of Our Results of Operations Revenues Our revenues are primarily derived from services provided to the U.S. federal, state and local governments. We currently generate our revenue from three different types of contractual arrangements: Cost Plus Fixed Fee (“CPFF”), Fixed Firm Price (“FFP”) and Time and Materials (“T&M”) contracts. For CPFF contracts, we use input progress measures to derive revenue based on hours worked on contract performance as follows: direct costs plus Defense Contract Audit Agency (“DCAA”)-approved provisional burdens plus fee. The provisional indirect rates are adjusted and billed at actual at year end. Revenue from FFP contracts is generally recognized ratably over the contract term, using a time-based measure of progress, even if billing is based on other metrics or milestones, including specific deliverables. For T&M contracts, we use input progress measures to estimate revenue earned based on hours worked on contract performance at negotiated billing rates, plus direct costs and indirect cost burdens associated with materials and the direct expenses incurred in performance of the contract. Cost of Revenues Cost of Revenues include direct costs incurred to provide goods and services related to contracts, specifically labor, contracted labor, materials, and other direct costs, which includes rent, insurance, and software licenses. Cost of Revenues related to contracts is recognized as expense when incurred or at the time a performance obligation is satisfied. Gross Profit and Gross Profit Margin Our gross profit comprises our revenues less our cost of revenues. Gross profit margin is our gross profit divided by our revenues. Operating Expenses Our operating expenses include indirect costs, overhead, and general and administrative expenses. • Indirect costs consist of expenses generally associated with bonuses and fringe benefits, including employee health and medical insurance, 401k matching contributions, and payroll taxes. • Overhead consists of expenses associated with the support of operations or production, including labor for management of contracts, operations, training, supplies, and certain facilities to perform customer work. • General and administrative expenses consist primarily of corporate and administrative labor expenses, administrative bonuses, legal expenses, IT expenses, and insurance expenses. Realized Gain on Investment Realized gain on investment related to a sale of an investment in a private company held by MFSI. Interest Expense, Net of Interest Income Interest expense consists of interest paid to service our convertible promissory notes which include the Amended BCR Trust Note, the Term Loan Promissory Note payable and revolving line of credit to Live Oak Banking Company, two promissory notes payable to Robert Eisiminger, the note payable to Emil Kaunitz, and the note payable to Crom Cortana Fund LLC net of interest earned from investments. Income Tax (Provision) Benefit Income taxes are accounted for under the asset and liability method. The current charge for income tax expense is calculated in accordance with the relevant tax regulations applicable to the entity. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in 30 Table of Contents tax rates is recognized in income in the period that includes the enactment date. Differences between statutory tax rates and effective tax rates relate to permanent tax differences. We follow ASC 740-10 Accounting for Uncertainty in Income Taxes. This requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates their tax positions on a quarterly basis. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax reporting purposes, net operating loss carryforwards, and other tax credits measured by applying currently enacted tax laws. When necessary, a valuation allowance is provided to reduce deferred tax assets to an amount that is more likely than not to be realized. We file income tax returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed. We have filed our 2020 and 2021 federal and state tax returns. Results of Operations The year to year comparisons of our results of operations have been prepared using the historical periods included in our audited consolidated financial statements. The following discussion should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this document. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Year Ended December 31, Amount of Increase (Decrease) % Change 2022 2021 Revenues $ 42,190,643 $ 25,067,450 $ 17,123,193 68.3 % Cost of revenues 24,593,326 13,992,898 10,600,428 75.8 % Gross profit 17,597,317 11,074,552 6,522,765 58.9 % Operating expenses: Indirect costs 11,859,401 3,409,649 8,449,752 247.8 % Overhead 1,560,252 850,999 709,253 83.3 % General and administrative expenses 13,586,600 14,539,053 (952,453) (6.6) % Loss from change in fair value of contingent earnout 555,000 — 555,000 100.0 % Total operating expenses 27,561,253 18,799,701 8,761,552 46.6 % Loss from operations (9,963,936) (7,725,149) (2,238,787) 29.0 % Other income (expense) (4,124,506) (2,477,924) (1,646,582) 66.5 % Loss before income taxes and preferred stock dividends (14,088,442) (10,203,073) (3,885,369) 38.1 % Income tax benefit (expense) (819,596) 2,656,643 (3,476,239) (130.9) % Net loss (14,908,038) (7,546,430) (7,361,608) 97.6 % Preferred stock dividend 100,516 12,290 88,226 717.9 % Net loss to common shareholders $ (15,008,554) $ (7,558,720) $ (7,449,834) 98.6 % Revenue Total revenues increased by $17,123,193 or 68.3% to $42,190,643 for the year ended December 31, 2022 from $25,067,450 for the year ended December 31, 2021. This increase was driven largely by the contributions from the acquisitions of SSI and Merrison during the third quarter of 2021 as well as the contributions from LSG acquired during the second quarter of 2022. 31 Table of Contents Cost of revenues Total cost of revenues increased by $10,600,428 or 75.8% to $24,593,326 for the year ended December 31, 2022 from $13,992,898 for the year ended December 31, 2021. This increase was driven primarily by the increased level of effort on contracts proportionate to the growth of revenues due to the acquisition activity noted above. Gross Profit Total gross profit increased by $6,522,765 or 58.9% to $17,597,317 for the year ended December 31, 2022 from $11,074,552 for the year ended December 31, 2021. This increase was driven primarily by the growth in revenues due to contributions from SSI, Merrison and LSG, offset by costs of revenues as noted above. Operating expenses Total operating expenses increased by $8,761,552 or 46.6% to $27,561,253 for the year ended December 31, 2022 from $18,799,701 for the year ended December 31, 2021. This fluctuation was primarily driven by an increase of $8,449,752 in indirect costs during the year ended December 31, 2022, largely attributable to the increase in benefits expense related to the Company’s growth in headcount year over year. In addition, this increase was also driven by increases in non-cash stock based compensation related to executive bonuses. This increase was offset by a decrease in general and administrative expenses of $952,453, or 6.6%, which was primarily due to a decrease in acquisition fees from the prior year as well as less acquisition-based stock based compensation in 2022 paid to executives due to less acquisition activity in 2022. The increase of $709,253 in overhead was primarily driven by an increase in overhead salaries related to our growth in headcount compared to 2021. Other income (expense) Other income (expense) increased by $(1,646,582) or 66.5% to $(4,124,506) for the year ended December 31, 2022 from $(2,477,924) for the year ended December 31, 2021. This increase was primarily driven by the increase in the amount of debt outstanding during 2022 as well as rate increases during 2022 on its variable rate debt under its agreement with Live Oak Bank. Income tax (expense) benefit Income tax (expense) benefit increased by $(3,476,239) or (130.9)% to $(819,596) for the year ended December 31, 2022 from $2,656,643 for the year ended December 31, 2021. This increase was primarily driven by the increase in deferred tax expense as well as overall revenue growth from the prior year through inorganic contributions from SSI, Merrison and LSG. 32 Table of Contents Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Year Ended December 31, Amount of Increase (Decrease) % Change 2021 2020 Revenues $ 25,067,450 $ 13,338,667 $ 11,728,783 87.9 % Cost of revenues 13,992,898 7,161,627 6,831,271 95.4 % Gross profit 11,074,552 6,177,040 4,897,512 79.3 % Operating expenses: Indirect costs 3,409,649 1,679,783 1,729,866 103.0 % Overhead 850,999 276,855 574,144 207.4 % General and administrative expenses 14,539,053 5,688,551 8,850,502 155.6 % Loss from change in fair value of contingent earnout — — — 100.0 % Total operating expenses 18,799,701 7,645,189 11,154,512 145.9 % Loss from operations (7,725,149) (1,468,149) (6,257,000) 426.2 % Other income (expense) (2,477,924) (2,295,906) (182,018) 7.9 % Loss before income taxes and preferred stock dividends (10,203,073) (3,764,055) (6,439,018) 171.1 % Income tax benefit (expense) 2,656,643 1,056,562 1,600,081 151.4 % Net loss (7,546,430) (2,707,493) (4,838,937) 178.7 % Preferred stock dividend 12,290 — 12,290 100.0 % Net loss to common shareholders $ (7,558,720) $ (2,707,493) $ (4,851,227) 179.2 % Revenues Revenues were $25,067,450 for 2021 as compared to $13,338,667 for 2020. This $11,728,783 increase was primarily driven by the contribution from acquisitions completed in Q3 and Q4 2021. Incremental contributions from those acquisitions were $10,938,015, which was complemented by a $790,7668 increase in organic sales, which were $14,129,435 in 2021. Cost of revenues Cost of revenues was $13,992,898 for 2021 as compared to $7,161,627 for 2020. This $6,831,271 increase was primarily driven by the revenue increases contributed by the acquisitions noted above, accounting for $6,250,769 of the total increase. As a percentage of revenue, cost of revenue was 55.8% for 2021 (54.8% for organic and 57.1% for acquisition activity), an increase of 2.1% from 53.7% for 2020, which was driven primarily by a higher-cost contract mix resident at Merrison and SSI. Gross Profit Gross profit was $11,074,552 for 2021 as compared to $6,177,040 for 2020. This $4,897,512 increase was primarily driven by acquisitions, contributing $4,687,246 in total, which was complemented by a $210,266 increase in organic gross profit, for a total of $6,387,306. Gross profit margin was 44.2% for 2021 (45.2% for organic and 42.9% for acquisition activity), a decrease of 2.1% from 46.3% for 2020, which was driven primarily by the higher cost contract mix present at Merrison and SSI. Operating expenses Indirect costs were $3,409,649 for 2021 as compared to $1,679,783 for 2020. This $1,729,866 increase resulted from a $2,068,091 increase from acquisition activity, which was slightly offset by a $338,225 decrease in organic activity, which 33 Table of Contents totaled $1,341,558 for 2021. This decrease in indirect costs for legacy is primarily due to a $537,998 decrease in costs related to policy changes to vacation, holiday, and sick leave, offset by an increase of $199,773 in other fringe benefits costs consisting primarily of health insurance costs driven by an increase in headcount. Overhead was $850,999 for 2021 as compared to $276,855 for 2020. This $574,144 increase was primarily due to an increase of $420,324 resulting from activity related to acquisitions, with legacy activities contributing a $127,113 thousand increase in recruiting expenses related to scope of work changes related to existing contracts. General and administrative expenses were $14,539,054 for 2021 as compared to $5,688,551 for 2020. $2,324,663 of this increase was due to activity related to acquisitions, while $4,448,632 related to executive compensation increases (with newly hired executives’ base pay and other executive bonuses), and $1,886,167 related to stock-based compensation (arising primarily from time-based vesting for newly hired executives and for performance-based compensation for other executives). Other income (expense) Realized gain on investment was $38,851 for 2021 as compared to $0 for 2020. This $38,851 increase was due to a gain from an investment in a private company sold by MFSI in 2021. Interest expense, net of interest income was $2,516,775 for 2021 as compared to $2,295,906 for 2020. This $220,869 increase relates to $106,149 of interest expense relating to an acquisition, the majority of which related to interest on the Live Oak Term Banking Company note secured to acquire SSI. $112,025 of the increase related to amortization of discounts for legacy debt. Income tax (expense) benefit Benefit from income taxes was $2,656,643 for 2021 as compared to $1,056,562 for 2020. This $1,600,081 increase was the result of the overall increase in operating expenses relative to revenues, (the largest driver being certain general and administrative expenses (“G&A”) expense referenced above), with an immaterial impact from changes in the effective tax rate. Contract Backlog We define backlog to include the following three components: • Funded Backlog . Funded backlog represents the revenue value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts. • Unfunded Backlog . Unfunded backlog represents the revenue value of orders (including optional orders) for services under existing contracts for which funding has not been appropriated or otherwise authorized. • Priced Options . Priced contract options represent 100% of the revenue value of all future contract option periods under existing contracts that may be exercised at our clients’ option and for which funding has not been appropriated or otherwise authorized. Our backlog does not include contracts that have been awarded but are currently under protest and also does not include any task orders under IDIQ contracts, except to the extent that task orders have been awarded to us under those contracts. The following table summarizes the value of our contract backlog as of December 31, 2022: Backlog Funded $ 15,015,214 Unfunded $ 8,903,289 Priced Options $ 57,426,973 Total Backlog $ 81,345,476 Our total backlog consists of remaining performance obligations, certain orders under contracts for which the original period of performance has expired, and unexercised option periods and other unexercised optional orders. As of December 31, 2022, the Company had $81,345,476 of remaining performance obligations. We expect to recognize 34 Table of Contents approximately 52% of the remaining performance obligations over the next 12 months, and approximately 75% over the next 24 months. The remainder is expected to be recognized thereafter. As with all government contracts there is no guarantee the customer will have future funding or exercise their contract option in the out-years. Other budget risks are discussed in the Budget Environment. Our backlog includes orders under contracts that in some cases extend for several years. Congress generally appropriates funds for our clients on a yearly basis, even though their contracts with us may call for performance that is expected to take a number of years to complete. As a result, contracts typically are only partially funded at any point during their term and all or some of the work to be performed under the contracts may remain unfunded unless and until the U.S. Congress makes subsequent appropriations and the procuring agency allocates funding to the contract. Liquidity and Capital Resources Sources We have historically sourced our liquidity requirements with cash flows from operations, borrowings under our current credit facilities, and in October 2022, with an equity issuance through the listing of our common stock on the NYSE American LLC. As of December 31, 2022, we had $4,640,896 of cash and cash equivalents on hand and unused borrowing capacity of $649,975 from our revolving line of credit. We believe our existing cash and cash equivalents provided by our ongoing operations together with funds available under our credit facilities will be sufficient to meet our working capital, capital expenditures and cash needs for the next 12 months and beyond. Uses Our material cash requirements from known contractual and other obligations primarily relate to payments on our credit facilities. For information related to these cash requirements, refer to Note 6, Note 7, Note 8 and Note 9 under Part II, Item 8, of this Annual Report on Form 10-K. Information about our cash flows is presented in our statements of cash flows and is summarized in the following table: Twelve Months Ended December 31, 2022 2021 2020 Net cash provided by (used in): Operating activities $ 990,163 $ (1,350,136) $ 1,006,091 Investing activities (339,282) 808,834 (5,450) Financing activities $ 1,972,100 $ 146,835 $ 109,000 Comparison of the Years Ended December 31, 2022 and 2021 Operating activities Net cash provided by operating activities increased to $990,163, for the year ended December 31, 2022, from $(1,350,136) for the year ended December 31, 2021. This increase in net cash provided by operating activities was primarily driven by an increase in revenues, decreases in accounts receivables (due to timing of collections), as well as noncash adjustments related to stock based compensation, depreciation and amortization, and a change in accounts receivable during the year ended December 31, 2022. Investing activities Net cash provided by (used in) investing activities decreased to $(339,282), for the year ended December 31, 2022, from $808,834, for the year ended December 31, 2021. The decrease in net cash provided by (used in) investing activities was primarily due to the cash paid in the acquisition of LSG during 2022 and the cash received from the acquisitions of MFSI, Merrison, and SSI as well as the sale of an investment in a private company held by MFSI in 2021. Financing activities 35 Table of Contents Net cash provided by financing activities increased to $1,972,100, for the year ended December 31, 2022, from $146,835, for the year ended December 31, 2021. The increase in net cash provided (used) by financing activities was primarily due to the proceeds from uplisting to the NYSE American, proceeds from notes payable obtained in 2022, and issuance of preferred and common stock. This increase was partially offset by repayments of notes payable and a repayment of amounts to due to seller. Comparison of the Years Ended December 31, 2021 and 2020 Operating activities Net cash used in operations in 2021 increased to $(1,350,136) compared to net cash flow provided by operations in 2020 of $1,006,091, a difference of $(2,356,227). This decrease in operating cash flows period over period is driven by an increase in net loss of $(4,838,937), decreases in accounts receivables (primarily due to the timing of collections) and contract assets of $(2,295,437), a $(1,664,647) decrease in deferred tax provision (our deferred tax benefit increased), offset by $5,982,475 increase in non-cash stock-based compensation expense. Investing activities Net cash provided by investing activities for 2021 was $808,834 compared to net cash flow used in investing activities for 2020 of $(5,450), a difference of $814,284. This increase in investing cash flows primarily resulted from $453,480 received in 2021 resulting from acquisitions of MFSI, Merrison, and SSI (net of amounts paid), as well as $365,572 received from the sale of two investments in private companies held by MFSI. Financing activities Net cash flow provided by financing activities was $146,835 in 2021 compared to net cash flow of $109,000 provided by financing activities in 2020, a difference of $37,835. This increase in financing cash flows was primarily a result of 2021 activities, including a $525,000 increase in proceeds from issuance of preferred and common stock over 2020 related to acquisition funding and capital raised from accredited investors, offset by decreases of $(470,626) due to repayments of notes payable related to the acquisitions of SSI and Corvus. Critical Accounting Policies and Estimates The following is not intended to be a comprehensive list of our accounting policies or estimates. Our significant accounting policies are more fully described in Note 2 — Summary of Significant Accounting Policies to our annual audited consolidated financial statements, included elsewhere in the document. In preparing our financial statements and accounting for the underlying transactions and balances, we apply our accounting policies and estimates as disclosed in the Notes. We consider the policies and estimates discussed below as critical to an understanding of our financial statements because their application places the most significant demands on our judgment, with financial reporting results dependent on estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Specific risks for these critical accounting estimates are described in the following paragraphs. Preparation of our financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. Besides estimates that meet the “critical” accounting estimate criteria, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenue, and expenses as well as disclosures of contingent assets and liabilities. Estimates are based on experience and other information available prior to the issuance of the financial statements. Materially different results can occur as circumstances change and additional information becomes known, including for estimates that we do not deem “critical.” Revenue Recognition The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers . (Topic 606). Topic 606 requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The principles in the standard are applied in five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the 36 Table of Contents performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Our revenue recognition policies are consistent with this five-step framework. Understanding the complex terms of agreements and determining the appropriate time, amount, and method to recognize revenue for each transaction requires judgment. These significant judgments include: (1) determining what point in time or what measure of progress depicts the transfer of control to the customer; (2) estimating contract revenue and costs and assumptions for schedule and technical issues; (3) selecting the appropriate method to measure progress; and (4) estimating how and when contingencies, or other forms of variable consideration, will impact the timing and amount of recognition of revenue. The timing and revenue recognition in a period could vary if different judgments were made. Goodwill and Intangible Assets We account for goodwill and intangible assets in accordance with ASC 350, Intangibles-Goodwill and Other (ASC 350). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. Our acquisitions require the application of purchase accounting, which results in tangible and identifiable intangible assets and liabilities of the acquired entity being recorded at fair value. The difference between the purchase price and the fair value of net assets acquired is recorded as goodwill. We are responsible for determining the valuation of assets and liabilities and for the allocation of purchase price to assets acquired and liabilities assumed. Assumptions must be made in determining fair values, particularly where observable market values do not exist. Assumptions may include discount rates, growth rates, cost of capital, tax rates, and remaining useful lives. These assumptions can have a significant impact on the value of identifiable assets and accordingly can impact the value of goodwill recorded. Different assumptions could result in different values being attributed to assets and liabilities. Since these values impact the amount of annual depreciation and amortization expense, different assumptions could also impact our statement of operations and could impact the results of future asset impairment reviews. Due to the many variables inherent in the estimation of a business’s fair value and the relative size of our goodwill, if different assumptions and estimates were used, it could have an adverse effect on our impairment analysis. Income Taxes and Uncertain Tax Positions Income taxes and uncertain tax positions are accounted for in accordance with ASC 740, Income Taxes (ASC 740). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Differences between statutory tax rates and effective tax rates relate to permanent tax differences. Management determines recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. This approach to estimate the potential outcome of any uncertain tax issue is subject to its assessment of relevant risks, facts, and circumstances existing at that time. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax reporting purposes, net operating loss carryforwards, and other tax credits measured by applying currently enacted tax laws. When necessary, a valuation allowance is provided to reduce deferred tax assets to an amount that is more likely than not to be realized. Share-Based Compensation We account for share-based compensation in accordance with ASC 718 Compensation – Stock Compensation . We calculate compensation expense for all awards granted, but not yet vested, based on the grant-date fair values. The Company recognizes these compensation costs, on a pro rata basis over the requisite service period of each vesting tranche of each award for service-based grants, and as the criteria is achieved for performance-based grants. 37 Table of Contents In determining the grant date fair value of share-based awards, we must estimate the expected volatility, forfeitures, and performance attributes. Since share-based compensation expense can be material to our financial condition, different assumptions and estimates could have a material adverse effect on our financial statements. Principles of Consolidation Refer to Note 1 of the notes to our audited consolidated financial statements included in Part II, Item 8 within this Annual Report on Form 10-K for a discussion of principles of consolidation. Recently Issued Accounting Standards Refer to Note 1 of the notes to our audited consolidated financial statements included in Part II, Item 8 within this Annual Report on Form 10-K for our assessment of recently issued and adopted accounting standards.