What changed in this filing

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Item 1A. Risk Factors

2025-03-11 compared with 2024-03-21 · 76 added, 68 removed, 326 unchanged (31% of the section changed)

A description of some of the most important risks and uncertainties associated with our business is set forth below.

You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including our audited consolidated financial statements and related notes included in Part II, Item 8, and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7.

You should carefully consider the risks and uncertainties described below, together with all of the other information in this Form 10-K, including our audited consolidated financial statements and related notes included in “Part II, Item 8, Financial Statements” and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7.

The occurrence of any of the events or developments described below could materially and adversely affect our business, financial condition, results of operations, and growth prospects.

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We lack a long-term operating history on which to evaluate our consolidated business and determine if we will be able to execute our business plan, and we can give no assurance that our operations will result in sustained profitability.

We are focused on building a large, successful technology company in the areas of information technology (“IT”), electronic warfare, information warfare, and cybersecurity with businesses in the governmental and commercial markets.

We are focused on building a large, successful technology company in the areas of IT, electronic warfare, information warfare, and cybersecurity with businesses in the governmental and commercial markets.

Since November 2019, we have executed our business plan and completed seven acquisitions.

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We rely upon a few, select key employees who are instrumental to our ability to conduct and grow our business.

In the event any of those key employees would no longer be affiliated with the Company, and we did not replace them with equally capable replacements, it may have a material detrimental impact on our ability to successfully operate our business.

In the event any of those key employees would no longer be affiliated with the Company, and we did not replace them with

equally capable replacements, it may have a material detrimental impact on our ability to successfully operate our business.

Our future success will depend in large part on our ability to attract, retain, and motivate high-quality management, operations, and other personnel who are in high demand, are often subject to competing employment offers, and are attractive recruiting targets for our competitors.

The loss of qualified executives and key employees, or our inability to attract, retain, and motivate high-quality executives and employees required for the planned expansion of our business, may harm our operating results and impair our ability to grow.

We depend on the continued services of our key personnel, including Mark C.

Fuller, our CEO, David T.

Bell, our CFO, Glen R.

Ives, our Chief Operating Officer (“COO”), and Jay O.

Wright, our Chief Strategy Officer and General Counsel.

Effective July 1, 2024, Glen R.

Ives, the Company’s former chief operating officer (“COO”), was appointed as President and CEO, after which, on September 1, 2024, Andrew L.

Merriman was promoted to COO.

We depend on the continued services of our key personnel, including our CEO, David T.

Bell, our Chief Financial Officer (“CFO”), our COO, and Jay O.

Wright, our Executive Vice-President of Strategy and General Counsel.

Our work with each of these key personnel is subject to changes and/or termination, and our inability to effectively retain the services of our key management personnel, could materially and adversely affect our operating results and future prospects.

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We expect to continue to devote significant capital resources to fund our acquisition strategy.

In order to support the initiatives envisioned in our business plan, we will need to raise additional funds through the sale of public or private debt or equity financing or other arrangements.

To support the initiatives envisioned in our business plan, we will need to raise additional funds through the sale of public or private debt or equity financing or other arrangements.

Our ability to raise additional financing depends on many factors beyond our control, including the state of capital markets and the market price of our common stock.

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Additionally, we have certain potential dilutive instruments, of which the conversion of these instruments could result in dilution to stockholders:

As of March 15, 2024 the maximum potential dilution is 28,274,400 shares and includes Series A preferred stock convertible into approximately 587,500 shares of common stock, Series C preferred stock convertible into 481,250 shares of common stock, options granted convertible into 8,243,437 shares of common stock, and warrants granted convertible into 18,962,212 shares of common stock.

Failure to effectively manage any future any future growth could place strains on our managerial, operational, and financial resources and could adversely affect our business and operating results.

As of March 10, 2025 the maximum potential dilution is 15,873,277 shares and includes Series A preferred stock convertible into approximately 587,500 shares of common stock, Series C preferred stock convertib le into 356,250 shares of common stock, options granted exercisable into 9,515,000 shares of common stock, and warrants granted exercisable into 5,664,527 shares of common stock.

Failure to effectively manage any future growth could place strains on our managerial, operational, and financial resources and could adversely affect our business and operating results.

Our expected growth could place a strain on our managerial, operational, and financial resources.

Further, if our subsidiaries’ businesses grow, then we will be required to manage multiple relationships.

Any further growth by us or our subsidiaries, or any increase in the number of our strategic relationships, will increase the strain on our managerial, operational, and financial resources.

Any further growth by us or our subsidiaries, or any increase in the number of our strategic relationships, will increase the strain on our managerial,

operational, and financial resources.

This strain may inhibit our ability to achieve the rapid execution necessary to implement our business plan and could have a material adverse effect on our financial condition, business prospects, and operations, and the value of an investment in our Company.

We generate substantially all of our revenue from contracts with the United States federal, state, and local governments which are subject to a number of challenges and risks that may adversely impact our business, prospects, financial condition, and operating results.

Sales to U.S federal, state, and local governmental agencies have in the past accounted for, and may in the future account for, substantially all of our revenue.

We generate substantially all of our revenue from contracts with the U.S.

federal, state, and local governments which are subject to a number of challenges and risks that may adversely impact our business, prospects, financial condition, and operating results.

Sales to U.S.

federal, state, and local governmental agencies have in the past accounted for, and may in the future account for, substantially all of our revenue.

Sales to such government entities are subject to the following risks:

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• government demand and payment for our products and services may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products and services;

• governments can generally terminate our contracts “for convenience”, meaning we could lose part or all of our revenue on short notice;

• governments can generally terminate our contracts “for convenience”, meaning we could lose part or all of our revenue on short notice, and more specifically, the potential impact of the U.S.

DOGE Service Temporary Organization on government spending and terminating contracts for convenience;

• governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our services, which would adversely impact our revenue and results of operations, or institute fines or civil or criminal liability if the audit uncovers improper or illegal activities;

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We deal with numerous USG agencies and entities, and when working with these and other entities, we must comply with and are affected by unique laws and regulations relating to the formation, administration, and performance of government contracts.

Some significant law and regulations that affect us include the following:

Some significant laws and regulations that affect us include the following:

• the FAR, and agency regulations supplemental to FAR, which regulate the formation, administration, and performance of USG contracts;

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If we are unable to adequately control these risks, our business, results of operations, and financial condition could be harmed.

Our business could be adversely affected by changes in spending levels or budgetary priorities of the federal, state, and local governments or by the imposition by the USG of sequestration in the absence of an approved budget or continuing resolution.

Our business could be adversely affected by significant delays or reductions in appropriations for our programs or USG funding more broadly, including a prolonged continuing resolution, government shutdown, or breach of the debt ceiling, as well as the imposition by the USG of sequestration in the absence of an approved budget or CR.

USG programs are subject to annual congressional budget authorization and appropriation processes.

For many programs, Congress appropriates funds annually even though the program performance period may extend over several years.

Programs are often partially funded initially, with additional funds committed only as Congress makes further appropriations.

Because we derive substantially all of our revenue from contracts with the federal, state, and local governments, we believe that the success and development of our business will continue to depend on our successful participation in federal, state, and local contract programs.

Since the majority of our revenue comes from the USG, changes in USG budgetary priorities, such as for homeland security or to address Social Security or Medicare reform, or actions taken to address government budget deficits, the national debt, and/or prevailing economic conditions, could directly affect our financial performance.

When we or our subcontractors incur costs in excess of funds obligated on a contract, we are generally at risk for reimbursement unless and until additional funds are obligated to the contract.

We cannot predict what funding will ultimately be approved for individual programs.

In addition, pressures on, as well as laws and plans relating to the federal budget, potential changes in priorities and defense spending, the timing and substance of the appropriations process, use of continuing resolutions, and the federal debt limit (including a breach of the federal debt ceiling), could adversely affect the amount and timing of funding for individual programs and delay purchasing or payments by our customers.

continues to face a changing geopolitical environment, along with substantial fiscal, economic, and security challenges, which affect funding and budgetary priorities.

The budget and macroeconomic environment, global security environment, political instability, and uncertainty surrounding the appropriations processes and the debt ceiling, remain significant short and long-term risks.

Political, Budgetary, and Regulatory Environment” in MD&A.

In addition, high deficit levels and high debt servicing costs could drive cuts to federal spending.

Considerable uncertainty exists regarding how future budget and program decisions will unfold.

If annual appropriations bills are not timely enacted, the USG may continue to operate under a CR, (potentially of extended duration), restricting new contract or program starts, presenting resource allocation challenges and placing limitations on budgets.

We also may face a prolonged government shutdown that could lead to program cancellations, disruptions and/or stop work orders and could limit the USG’s ability to progress programs and make timely payments.

A prolonged shutdown could limit our ability to perform on our contracts and successfully compete for new work.

If the statutory debt limit is not increased adequately, we could be obligated to work without receiving timely payments, and a prolonged breach could have far-reaching adverse consequences.

If the USG imposes sequestration in the absence of an approved budget or CR, our participation in USG contract programs could be impaired.

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If we are unable to win particular contracts we may be prevented from providing services to customers that are purchased under those contracts for a number of years.

If we are unable to consistently win new contract awards over any extended period, our business and prospects will be adversely affected and that could cause our actual results to differ materially and adversely from those anticipated.

If we are unable to consistently win new contract awards over any extended

period, our business and prospects will be adversely affected and that could cause our actual results to differ materially and adversely from those anticipated.

If we are unable to win prime contracts, or acquire companies with prime contract vehicles, our business and prospects will be adversely affected.

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These changes could impair our ability to obtain new contracts or win re-competed contracts or adversely affect our future profit margin.

Any new contracting methods could be costly or

administratively difficult for us to satisfy and, as a result, could cause actual results to differ materially and adversely from those anticipated.

Any new contracting methods could be costly or administratively difficult for us to satisfy and, as a result, could cause actual results to differ materially and adversely from those anticipated.

Our contracts and administrative processes and systems are subject to audits and cost adjustments by the USG, which could reduce our revenue, disrupt our business, or otherwise adversely affect our operating results.

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They also evaluate the adequacy of internal controls over our business systems, including our purchasing, accounting, estimating, earned value management, and government property systems.

Any costs found to be improperly allocated or assigned to contracts will not be reimbursed, and any such costs already reimbursed must be refunded and certain penalties may be imposed.

Any costs found to be improperly allocated or assigned to contracts will not be reimbursed, and any such costs already reimbursed

must be refunded and certain penalties may be imposed.

Moreover, if any of the administrative processes and systems are found not to comply with requirements, we may be subjected to increased government scrutiny and approval that could delay or otherwise adversely affect our ability to compete for or perform contracts or collect our revenue in a timely manner.

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Our total backlog consists of funded and unfunded amounts.

Funded backlog represents contract value from funds appropriated by the U.S.

Congress (“Congress”) and obligated by the customer which is expected to be recognized as revenue.

Funded backlog represents contract value from funds appropriated by Congress and obligated by the customer which is expected to be recognized as revenue.

Unfunded backlog represents the sum of the unappropriated contract value on executed contracts and unexercised option years that is expected to be recognized as revenue.

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Many of the systems we work on involve managing and protecting information involved in national security and other sensitive government functions.

A security breach in one of these systems could

prevent us from having access to such critically sensitive systems.

A security breach in one of these systems could prevent us from having access to such critically sensitive systems.

Other examples of employee misconduct could include timecard fraud and violations of the Anti-Kickback Act of 1986.

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We obtain much of our business on the basis of proposals submitted in response to requests from potential and current customers, who may also receive proposals from other firms.

The market for our products and services is intensely competitive and characterized by rapid changes in technology, customer requirements, industry standards, and frequent new product introductions and improvements.

The market for our products and services is intensely competitive and characterized by rapid changes in technology, customer requirements, industry standards, and frequent

new product introductions and improvements.

We anticipate continued challenges from current competitors, which in many cases are more established and enjoy greater resources than us, as well as by new entrants into the industry.

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FFP contracts require us to price our contracts by predicting our expenditures in advance.

In addition, some of our engagements obligate us to provide ongoing maintenance and other supporting or ancillary services on a fixed-price basis or with limitations on our ability to increase prices.

In addition, some of our engagements obligate us to provide ongoing maintenance and other supporting or ancillary services on a FFP basis or with limitations on our ability to increase prices.

Many of our engagements are also on a T&M basis.

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Our earnings and margins may vary based on the mix of our contracts and programs.

At December 31, 2023, our backlog included cost reimbursable, T&M, and FFP contracts.

As of December 31, 2024, our backlog included cost reimbursable, T&M, and FFP contracts.

Cost reimbursable and T&M contracts generally have lower profit margins than FFP contracts.

Our earnings and margins may, therefore, vary materially and adversely depending on the relative mix of contract types, the costs incurred in their performance, the achievement of other performance objectives and the state of performance at which the right to receive fees, particularly under incentive and award fee contracts, is finally determined.

Inflation may cause the Fed to increase interest rates thereby increasing our interest expense.

Sustained inflation can cause the Federal Reserve Board and its Open Market Committee (“Fed”) to raise the target for the federal funds rate or keep it at a high level which normally translates into an increase in most banks’ “prime” rate.

Because our notes with Live Oak Banking Company are both variable interest rate instruments tied to the prime rate, actions by the Fed to increase the federal funds rate or keep it high may increase our cost of debt and our interest expense thereby reducing our pre-tax income and net income.

Our borrowing costs have recently increased and would increase with future Fed interest rate increases, although the impacts have been and are expected to continue to be immaterial.

Our contracts with U.S.

federal, state, and local government customers do not permit us to pass along our increased financing costs.

The increases to our borrowing costs have not impacted (and are not expected to impact) our ability to make timely payments.

Our self-insurance program may expose us to significant and unexpected costs and losses.

To help control our overall long-term costs associated with employee health benefits, we began maintaining our employee medical insurance benefits on a self-insured basis effective June 1, 2024.

To limit our exposure, we have third party stop-loss insurance coverage which sets a limit on our liability for both individual and aggregate claim costs.

We record a liability for our estimated cost of claims incurred but unpaid as of each balance sheets date.

Our estimated liability is based on assumptions we believe to be reasonable under the current circumstances and will be adjusted as warranted based on changing circumstances.

It is possible, however, that our actual liabilities may exceed our estimates of losses.

We may also experience an unexpectedly large number of claims that result in costs or liabilities in excess of our projections, which could cause us to record additional expenses.

Our self-insurance reserves could prove to be inadequate, resulting in liabilities in excess of our available insurance and self-insurance.

If a successful claim is made against us and is not covered by our insurance or exceeds our policy limits, our business may be negatively and materially impacted.

These fluctuations could have a material adverse effect on our business, operating results, and financial condition.

Risks Related to our Acquisitions

We may have difficulty identifying and executing acquisitions on favorable terms and therefore may grow more slowly than we historically have grown.

As part of our business strategy, we may acquire or make investments in complementary companies’ services, products, or technologies.

Through acquisitions, we have expanded our base of U.S.

federal, state, and local governments customers, increased the range of solutions we offer to our customers and deepened our penetration of existing markets and customers.

We may encounter difficulty identifying new acquisitions and executing suitable acquisitions due to lack of financing.

To the extent that management is involved in identifying acquisition opportunities or integrating new acquisitions into our business, our management may be diverted from operating our core business.

Without acquisitions, we may not grow as rapidly as we historically have grown, which could cause our actual results to differ materially and adversely from those anticipated.

We may encounter other risks in executing our acquisition strategy, including:

• increased competition for acquisitions may increase the costs for our acquisitions;

• unreasonable expectations of companies related to their perceived versus actual value;

• our failure to discover material liabilities during the due diligence process, including the failure of prior owners of any acquired businesses or their employees to comply with applicable laws or regulations, such as the FAR and health, safety, and environmental laws, or their failure to fulfill their contractual obligations to the USG or other customers;

• our acquisitions may not ultimately strengthen our competitive position or allow us to achieve our goals, and any acquisitions we complete could be viewed negatively by our customers, analysts, and investors;

• acquisition financing may not be available on reasonable terms or at all;

• failure to properly integrate our acquisitions with our existing business thereby preventing the realization of potential synergies with the acquired business;

• debt incurred in making acquisitions may reduce our financial flexibility to pursue other opportunities or invest in internal growth.

Each of these types of risks could cause our actual results to differ materially and adversely from those anticipated.

We may have difficulty integrating the operations of any companies we acquire, which could cause actual results to differ materially and adversely from what we anticipated.

The success of our acquisition strategy will depend on our ability to continue to successfully integrate any businesses we may acquire in the future.

The integration of these businesses into our operations may result in unforeseen operating difficulties, absorb significant management attention, and require significant financial resources that would otherwise be available for the ongoing development of our business.

The integration of these businesses into our operations may result in unforeseen operating

difficulties, absorb significant management attention, and require significant financial resources that would otherwise be available for the ongoing development of our business.

These integration difficulties include the integration of personnel with disparate business backgrounds, the transition of new information systems, coordination of geographically dispersed organizations, loss of key employees of acquired companies, and reconciliation of different corporate cultures.

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Goodwill accounts for $10,676,834 of our recorded total assets as of December 31, 2024.

We evaluate the recoverability of recorded goodwill amounts annually or when evidence of potential impairment exists.

We evaluate the recoverability of recorded goodwill amounts annually or more frequently, if evidence of potential impairment exists.

The annual impairment test is based on several factors requiring judgment.

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If there is an impairment, we would be required to write down the recorded amount of goodwill, which would be reflected as a charge against operating income and would reduce the value of our total assets and our total equity on our balance sheet.

During the third quarter of 2023, due to decline in stock price, Management determined that a triggering event occurred representing an indicator of goodwill impairment, resulting in a non-cash charge of $6,919,094.

No triggering events were identified during 2024.

Risks Related to our Indebtedness

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We have substantial indebtedness.

We have $12,456,407 of debt as of December 31, 2023, the majority of which originally matured in calendar year 2024 and the terms of which have subsequently been amended to extend the maturity date to calendar year 2026.

See subsequent events under Note 16 Part II Item 8.

Financial Statements on this Annual Report on Form 10-K.

Should our business fail to generate cash flow from operations sufficient to service our debt and make necessary capital expenditures we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining equity capital on terms that may be onerous or highly dilutive.

We have $10,399,944 of debt as of December 31, 2024, the majority of which originally matured in calendar year 2024 and the terms of which have been amended to extend the maturity date to calendar year 2026.

See “Notes Payable under N ote 7 , Part II, Item 8., Financial Statements” on this Form 10-K.

Should our bus iness fail to generate cash flow from operations sufficient to service our debt and make necessary capital expenditures we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining equity capital on terms that may be onerous or highly dilutive.

Such a “fire sale” would materially and adversely affect the value of our common stock.

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Our common stock was approved for listing on the NYSE American and began trading there on October 13, 2022.

The closing price of our common stock has been below $1.00 for more than thirty (30) consecutive trading days.

In the case of a company whose common stock sells for a low price per share for a substantial period of time, the NYSE American continued listing rules permit the exchange to de-list a listed company in the event it fails to effect a reverse split of such shares within a reasonable time after being notified that the exchange deems such action to be appropriate under the circumstances.

circumstances.

We have not received any such notification from the NYSE American but could receive it in the future.

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Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system.

The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a

standardized risk disclosure document containing specified information.

The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information.

In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement;

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We are a Nevada corporation and the anti-takeover provisions of the Nevada Revised Statutes may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders.

An interested stockholder is a person who, together with the affiliates and associates, beneficially owns (or within the prior two years, did beneficially own) 10 percent or more of the Company’s capital stock entitled to vote.

An interested stockholder is a person who, together with the affiliates and associates, beneficially owns (or within the prior two years, did beneficially own) ten percent or more of the Company’s capital stock entitled to vote.

In addition, our amended and restated articles of incorporation, as amended (the “Amended and Restated Articles of Incorporation”) and amended and restated bylaws (the “Amended and Restated Bylaws”) may discourage, delay, or prevent a change in our management or control over us that stockholders may consider favorable.

Our Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws (i) authorize the issuance of “blank check” preferred stock that could be issued by our Board to thwart a takeover attempt;

(ii) provide that vacancies on our Board, including newly created directorships, may be filled by a majority vote of directors then in office, (iii) provide that the Board shall

have the sole power to adopt, amend, or repeal the Amended and Restated Bylaws, and (iv) requires a stockholder to provide advance written notice of a stockholder proposal.

(ii) provide that vacancies on our Board, including newly created directorships, may be filled by a majority vote of directors then in office, (iii) provide that the Board shall have the sole power to adopt, amend, or repeal the Amended and Restated Bylaws, and (iv) requires a stockholder to provide advance written notice of a stockholder proposal.

Our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws contain an exclusive forum provision, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees, or agents.

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The choice of forum provision in our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers, employees, or agents, which may discourage such lawsuits against us and our directors, officers, employees, and agents even though an action, if successful, might benefit our stockholders.

The applicable courts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders.

The applicable courts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action

may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders.

With respect to the provision making the Eighth Judicial District Court of Clark County, Nevada the sole and exclusive forum for certain types of actions, stockholders who do bring a claim in the Eighth Judicial District Court of Clark County, Nevada could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Nevada.

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As a result, unless required by a stock exchange rule, investors may be prevented from affecting matters involving our Company, including:

• the composition of our Board of Directors (the “Board”) and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers;

• the composition of our Board and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers;

• any determination with respect to mergers or other business combinations;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors