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Item 7. Management’s Discussion and Analysis

2025-03-11 compared with 2024-03-21 · 108 added, 64 removed, 201 unchanged (46% of the section changed)

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 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 (“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 clients in the United States government (“USG”), financial services, healthcare, and other users of large data applications with services which include intelligence analysis, software development, software engineering, program management, strategic and mission planning, information assurance, cybersecurity and policy support, data analytics, and MBSE.

We provide clients in the United States (“U.S.) government (“USG”), financial services, healthcare, and other users of large data applications with services which include intelligence analysis, software development, software engineering, program management, strategic and mission planning, information assurance, cybersecurity and policy support, data analytics, and model based systems engineering (“MBSE”).

In addition to constantly innovating and enhancing our organic capabilities, Castellum is executing strategic acquisitions of technology companies in the areas of cybersecurity, information technology (“IT”), electronic warfare, information warfare, and information operations with businesses in the defense, federal, civilian, and commercial markets that share our passionate commitment to U.S.

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333-267249) relating to the offering was declared effective by the U.S.

Securities and Exchange Commission on October 12, 2022.

Securities and Exchange Commission (“SEC”) on October 12, 2022.

On December 1, 2023, the Company filed a universal shelf registration statement on Form S-3 (File No.

333-275840) which was declared effective by the U.S.

Securities and Exchange Commission on December 12, 2023.

333-275840) which was declared effective by the SEC on December 12, 2023 pursuant to which the Company may offer and sell up to $10 million in the aggregate of equity securities.

Additionally, certain selling stockholders may offer and sell up to 1,425,000 shares in the aggregate of the Company’s common stock.

We will not receive any proceeds from the sale of our common stock by the selling stockholders.

On January 25, 2024 the Company entered into a securities purchase agreement with an institutional investor, pursuant to which the Company agreed to sell and issue, in a registered direct offering, an aggregate of (i) 5,243,967 shares of the Company’s common stock, at a purchase price of $0.32 per share and (ii) 3,193,534 pre-funded warrants (the “Pre-funded Warrant(s)”) to purchase up to an aggregate of 3,193,534 shares of common stock for aggregate gross proceeds to the Company of approximately $2.7 million, before deducting the placement agent fees and estimated offering expenses payable by the Company (the “Registered Offering”).

The Pre-funded Warrants were sold at an offering price of $0.319 per Pre-funded Warrant and are exercisable at a price of $0.001 per share.

As of December 31, 2024, all Pre-funded Warrants have been exercised.

In a concurrent private placement, the Company agreed to issue to the same institutional investor, for each ordinary share and Pre-funded Warrant purchased in the offering, an additional ordinary share purchase warrant (“Regular Warrants”).

The Regular Warrants have an exercise price of $0.35 and are exercisable to purchase an aggregate of 8,437,501 shares of common stock.

The Regular Warrants are exercisable for five years.

The shares, the Pre-funded Warrants, and the Pre-funded Warrant Shares are being offered pursuant to a shelf registration statement on Form S-3 (File No.

333-275840), which was declared effective by the SEC on December 12, 2023, and a related prospectus supplement dated January 25, 2024, related to the Registered Offering.

The Registered Offering closed on January 29, 2024.

Pursuant to a placement agency agreement dated as of January 25, 2024 (the “Placement Agency Agreement”), the Company engaged Maxim Group LLC (“Maxim”) to act as the lead placement agent in connection with the Registered Offering.

At closing, the Company paid Maxim (i) a cash fee equal to 7.0% of the aggregate gross proceeds of the Registered Offering and (ii) reimbursed Maxim for all reasonable and documented out-of-pocket expenses of $60,000, which included the reasonable fees, costs, and disbursements of its legal counsel.

In December of 2024, 6,437,501 of the Regular Warrants have been exercised to purchase an equal number of common shares, for total gross proceeds of $2.3 million and 700,000 warrants, issued in 2023, were exercised to purchase an equal number of common shares, which resulted in proceeds to the Company of approximately $966,000.

On December 22, 2024, the Company entered into a securities purchase agreement with several institutional investors, pursuant to which the Company agreed to sell and issue, in a registered direct offering, 9,473,700 shares of the Company’s common stock, at a purchase price of $0.38 per share (the “Second Registered Offering”).

This resulted in aggregate gross proceeds to the Company of approximately $3.6 million, The Second Registered Offering closed on December 24, 2024.

The shares are being offered pursuant to a shelf registration statement on Form S-3 (File No.

333-275840), which was declared effective by the SEC on December 12, 2023, and a related prospectus supplement, dated December 22, 2024, related to the Second Registered Offering.

On December 27, 2024, the Company entered into a securities purchase agreement with several institutional investors, pursuant to which the Company agreed to sell and issue, in a public offering that included certain additional other purchasers an aggregate of 4,355,000 shares of the Company’s common stock, at a purchase price of $0.85 per share (the “Public Offering”).

This resulted in aggregate gross proceeds to the Company of approximately $3.7 million.

The Public Offering closed on December 30, 2024.

The shares are being offered pursuant to a shelf registration statement on Form S-3 (File No.

333-275840), which was declared effective by the SEC on December 12, 2023, and a related prospectus supplement, dated December 27, 2024, related to the Public Offering.

Pursuant to placement agency agreements dated as of December 22, 2024 and December 27, 2024, respectively, the Company engaged Maxim to act as the lead placement agent in connection with the Second Registered Offering and the Public Offering.

In connection therewith, the Company has agreed to (i) pay Maxim a cash fee equal to 7.0% of the aggregate gross proceeds of the Second Registered Offering and the Public Offering, and (ii) reimburse Maxim for all reasonable and documented out-of-pocket expenses, including the reasonable fees, costs, and disbursements of its legal counsel in the aggregate of $120,000.

Key Components of Our Results of Operations

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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.

Interest expense consists of interest paid to servi ce our convertible promissory notes which include the amended trust note with the Buckhout Charitable Remainder Trust (the “Amended BCR Trust Note”), the term loan promissory note payable and revolving line of credit to the Live Oak Banking Company ("Live Oak Bank") (the “Term Loan Promissory Note Payable” and “Revolving Line of Credit,” respectively), two promissory notes payable to Robert Eisiminger, the note payable to Emil Kaunitz, and the note payable to Crom Cortana Fund LLC (“Crom”) net of interest earned from investments.

During 2024, the Amended BCR Trust Note was extinguished resulting in a new note, the note payable to Crom and the Term Loan Promissory Note Payable were paid off, and the two promissory notes payable to Robert Eisiminger were combined into one note payable.

Income Tax (Provision) Benefit

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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.

The federal and state income tax returns of the Company are subject to examination by the Internal Revenue Service (“IRS’) and state taxing authorities, generally for three years after they were filed.

We have filed our 2022 and 2023 federal and state tax returns.

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Loss from operations (7,244,627) (16,668,825) 9,424,198 (56.5) %

Other income (expense) (2,388,470) (4,124,506) 1,736,036 (42.1) %

Other expense (2,667,648) (2,388,470) (279,178) 11.7 %

Loss before income taxes and preferred stock dividends (9,912,275) (19,057,295) 9,145,020 (48.0) %

Income tax benefit (expense) 1,257,117 (819,596) 2,076,713 (253.4) %

Income tax (expense) benefit (68,032) 1,257,117 (1,325,149) (105.4) %

Net loss (9,980,307) (17,800,178) 7,819,871 (43.9) %

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Net loss to common shareholders $ (10,099,584) $ (17,918,330) $ 7,818,746 (43.6) %

Total revenues increased by $3,053,169 or 7.2% to $45,243,812 for the year ended December 31, 2023 from $42,190,643 for the year ended December 31, 2022.

This increase in revenue was due to the acquisition of GTMR (“GTMR Acquisition”), partially offset by lost positions on ongoing contracts principally at SSI and Corvus reducing revenue.

Total revenues decreased by $(478,960) or (1.1)% to $44,764,852 for the year ended December 31, 2024 from $45,243,812 for the year ended December 31, 2023.

This decrease in revenue was mainly due to the sale of the Mainnerve Federal Services, Inc.

dba MFSI Government Group, a Delaware corporation, entity on September 11, 2024.

Cost of revenues

Total cost of revenues increased by $1,975,159 or 8.0% to $26,568,485 for the year ended December 31, 2023 from $24,593,326 for the year ended December 31, 2022.

This increase was driven primarily by the net increased level of effort on contracts proportionate to the changes in revenue noted above.

Total gross profit increased by $1,078,010 or 6.1% to $18,675,327 for the year ended December 31, 2023 from $17,597,317 for the year ended December 31, 2022.

This increase was driven by changes in revenue noted above.

Total cost of revenues decreased by $(70,048) or (0.3)% to $26,498,437 for the year ended December 31, 2024 from $26,568,485 for the year ended December 31, 2023.

This decrease was driven primarily by the sale of the Mainnerve Federal Services, Inc.

dba MFSI Government Group, a Delaware corporation, entity on September 11, 2024.

Total gross profit decreased by $(408,912) or (2.2)% to $18,266,415 for the year ended December 31, 2024 from $18,675,327 for the year ended December 31, 2023.

This decrease was driven by changes in revenue noted above.

Operating expenses

Total operating expenses increased by $7,782,899 or 28.2% to $35,344,152 for the year ended December 31, 2023 from $27,561,253 for the year ended December 31, 2022.

The decrease in indirect cost of $(2,924,288) was driven primarily by a reduction in acquisition based bonuses to certain executives from 2022, as well as cost savings implemented in 2023.

The increase in overhead costs of $323,807 is related to increases in lease expense due to the GTMR Acquisition.

The increase in general and administrative costs of $4,111,286 consist of increases in non cash stock based compensation granted to certain employees, as well as increases in general and administrative salary expense as we in-sourced certain functions such as accounting and business development.

The recognition of goodwill impairment resulted from a loss recorded during the

third quarter of 2023.

The decrease in the loss from change in fair value of contingent earnout is due to adjustments as we finalized the amount after the earnout period ended in late 2023.

Total operating expenses decreased by $(9,833,110) or (27.8)% to $25,511,042 for the year ended December 31, 2024 from $35,344,152 for the year ended December 31, 2023.

The increase in indirect cost of $340,575 was driven primarily by the increase in accrued paid leave resulting from the Company's implementation of a new paid time off policy that initially increased the accrued leave balance.

The decrease in general and administrative (“G&A”) costs of $(3,369,214) was primarily driven by a reduction in salaries, achieved through the implementation of strategic cost-saving initiatives and the enhancement of operational efficiencies across all G&A support departments, and a decrease in noncash stock based compensation granted to certain employees of $2,068,783.

In 2024, it was determined that no goodwill impairment expense

was required, the expense was $6,919,094 in 2023, and the contingent earnout was agreed to and noted as a liability in Due to Seller in the Consolidated Balance Sheets, under Part II, Item 8, of this Form 10-K.

Other income (expense)

Other income (expense) decreased by $1,736,036 or (42.1)% to $(2,388,470) for the year ended December 31, 2023 from $(4,124,506) for the year ended December 31, 2022.

This decrease was primarily driven by decreases in the fair value of the derivative liability offset by an increase in interest expense due to rate increases during 2023 on our variable rate debt under our agreement with Live Oak Bank.

Other income (expense) increased by $279,178 or 11.7% to $(2,667,648) for the year ended December 31, 2024 from $(2,388,470) for the year ended December 31, 2023.

This increase was primarily driven by the fair value of the derivative liability offset by the decrease in amortization of debt discounts, due to the restructuring of the Company’s debt as detailed in Note 7 , under Part II, Item 8, of this Form 10-K.

With the exception of $807,173 of interest expense paid in 2024, the remainder of other income (expense) is related to noncash items, such as the amortization of debt discount of $359,567, and the change in the fair value of the derivative of $725,600 as noted in Note 12, under Part II, Item 8, of this Form 10-K.

Income tax benefit (expense)

Income tax benefit (expense) increased by $1,325,149 or (105.4)% to $(68,032) for the year ended December 31, 2024 from $1,257,117 for the year ended December 31, 2023.

This increase was primarily driven by the increase in deferred tax liabilities from the acquisition of GTMR and subsequent release of valuation allowance.

This increase was primarily driven by the increase in deferred tax liabilities from the acquisition of Global Technology Management Resources, Inc.

(“GTMR”) and subsequent release of valuation allowance.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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Loss from operations (16,668,825) (9,963,936) (6,704,889) 67.3 %

Other income (expense) (4,124,506) (2,477,924) (1,646,582) 66.5 %

Other expense (2,388,470) (4,124,506) 1,736,036 (42.1) %

Loss before income taxes and preferred stock dividends (19,057,295) (14,088,442) (4,968,853) 35.3 %

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Total revenues increased by $3,053,169 or 7.2% to $45,243,812 for the year ended December 31, 2023 from $42,190,643 for the year ended December 31, 2022.

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.

This increase in revenue was due to the acquisition of GTMR (“GTMR Acquisition”), partially offset by a reduction in revenue from lost positions on ongoing contracts principally at SSI and Corvus.

Cost of revenues

Total cost of revenues increased by $1,975,159 or 8.0% to $26,568,485 for the year ended December 31, 2023 from $24,593,326 for the year ended December 31, 2022.

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.

This increase was driven primarily by the net increased level of effort on contracts proportionate to the changes in revenue noted above.

Total gross profit increased by $1,078,010 or 6.1% to $18,675,327 for the year ended December 31, 2023 from $17,597,317 for the year ended December 31, 2022.

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.

This increase was driven by changes in revenue noted above.

Operating expenses

Total operating expenses increased by $7,782,899 or 28.2% to $35,344,152 for the year ended December 31, 2023 from $27,561,253 for the year ended December 31, 2022.

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.

The decrease in indirect cost of $(2,924,288) was driven primarily by a reduction in acquisition based bonuses to certain executives from 2022, as well as cost savings implemented in 2023.

The increase in overhead costs of $323,807 is related to increases in lease expense due to the GTMR Acquisition.

The increase in general and administrative costs of $4,111,286 consist of increases in noncash stock based compensation granted to certain employees, as well as increases in general and administrative salary expense as we in-sourced certain functions such as accounting and business development.

The recognition of goodwill impairment resulted from a loss recorded during the third quarter of 2023.

The decrease in the loss from change in fair value of contingent earnout is due to adjustments as we finalized the amount after the earnout period ended in late 2023.

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.

Other income (expense) decreased by $1,736,036 or (42.1)% to $(2,388,470) for the year ended December 31, 2023 from $(4,124,506) for the year ended December 31, 2022.

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 due to the Company establishing a full valuation allowance against its deferred tax assets.

Income tax benefit (expense) increased by $2,076,713 or (253.4)% to $1,257,117 for the year ended December 31, 2023 from $(819,596) for the year ended December 31, 2022.

This increase was primarily driven by the increase in deferred tax liabilities from the acquisition of GTMR and subsequent release of valuation allowance.

Contract Backlog

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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.

Other budget risks are discussed in “Part I, Item1.

Political, Budgetary, and Regulatory 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.

Congress (“Congress”) makes subsequent appropriations and the procuring agency allocates funding to the contract.

Liquidity and Capital Resources

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As of December 31, 2024, we had $12,005,048 of cash and cash equivalents on hand and unused borrowing capacity of $0 from our revolving line of credit.

In January and February of 2024, we undertook the following significant equity and debt transactions that enhance our liquidity and sources of funds:

During the fiscal year 2024, we undertook the following significant equity and debt transactions that enhanced our liquidity and sources of funds:

• In January 2024, after filing a universal shelf registration statement on Form S-3 with the SEC in December of 2023 allowing us to issue additional equity (“Security Offering”), we raised net proceeds of approximately $2,200,000.

• In February 2024, we used the proceeds from the Security Offering to pay the outstanding principal and accrued interest owed on a Note Payable to Crom in the amount of $847,000.

• In February 2024, we used cash on hand to pay the outstanding principal and accrued interest owed on a note payable to Crom in the amount of $847,000.

• In February 2024, we agreed with Emil Kaunitz to extend the maturity date of a $400,000 note payable from December 31, 2024, to August 1, 2025, after which we will make monthly principal payments of $50,000 per month for eight months.

• In February 2024, we entered into a new $4,000,000 revolving credit facility with Live Oak Banking Company which matures on February 22, 2025 (the “New Live Oak Revolver”).

The New Live Oak Revolver replaces the $950,000 revolving credit facility noted above (“Old Live Oak Revolver”), and we rolled over the $625,025 outstanding principal balance outstanding on the Old Live Oak Revolver.

We also made payments of $1,209,617

to the holders of two notes payable noted below.

We have unused borrowing capacity of approximately $2,165,383 under the New Live Oak Revolver.

• In February 2024, we entered into a new $4,000,000 revolving credit facility with Live Oak Bank which matures on February 22, 2025 (the “New Live Oak Revolver”).

The New Live Oak Revolver replaces the $2,000,000 Revolving Line of Credit , and we rolled over the $625,000 outstanding principal balance on the Revolving Line

of Credit and was advanced an additional amount of $904,793.

We also made payments of $1,209,617 to the holders of two notes payable noted below.

• In February 2024, we agreed with Robert Eisiminger to extend the maturity dates of two notes payable totaling $6,000,000 from September 30, 2024, to August 31, 2026.

The change in the terms of the two notes resulted in the debt extinguishment of both the old notes and resulted in the establishment of one note totaling $6,000,000.

We also accessed the New Live Oak Revolver to pay off a third note totaling $400,000.

• In February 2024, we agreed with the Buckhout Charitable Remainder Trust to pay down and amend a convertible promissory note payable totaling $3,209,617.

• In February 2024, we agreed with the Buckhout Charitable Remainder Trust to pay down and amend a convertible promissory note payable.

We accessed the New Live Oak Revolver to pay down principal of $809,617.

We simultaneously agreed to enter into a new note payable in the principal amount of $2,400,000 which matures on August 31, 2026, and may not be converted into common stock.

Commencing in September 2024, we will monthly principal payments of $100,000 for 24 months.

For more information related to these transactions, refer to Note 16 under Part II, Item 8, of this Annual Report on Form 10-K.

Commencing in September 2024, we began making monthly principal payments of $100,000 for 24 months.

• In May 2024, the Company entered in to a program to self-insure some of its healthcare risk up to a certain limit, with the use of a stop loss policy.

In June 2024, the Company made an equity investment of $54,533 in a captive insurance company.

To mitigate risks, the Company created a reserve as of December 31, 2024, of $79,217 based on six months of claims data.

Additionally, the Company has engaged with a third-party actuarial firm to assist in providing reports related to claims incurred but not reported.

Losses will be accrued based on the Company's historical claims experience and reports provided by the actuaries.

• On July 8, 2024, we repaid the balance owed on the Term Loan Promissory Note Payable of $252,678, that was due to mature on August 11, 2024.

This payment retired the Term Loan Promissory Note Payable with Live Oak bank.

• In December 2024, the Company entered into a securities purchase agreements with several institutional investors, pursuant to which the Company agreed to sell and issue, in a registered direct offering, 9,473,700 shares of the Company’s common stock, at a purchase price of $0.38 per share.

This resulted in aggregate gross proceeds to the Company of approximately $3.6 million, The offering closed on December 24, 2024

• In December 2024, the Company entered into a securities purchase agreement with several institutional investors, pursuant to which the Company agreed to sell and issue, in a public offering that included certain additional other purchasers, 4,355,000 shares of the Company’s common stock, at a purchase price of $0.85 per share.

This resulted in aggregate gross proceeds t o the Company of approximately $3.7 million.

The offering closed on December 30, 2024.

• As of December 31, 2024, 6,437,501 of the Regular Warrants have been exerc ised, resulting in $2.3 million net proceeds.

In addition, 700,000 warrants issued in 2023 were exercised which resulted in aggregate proceeds to the Company of approxima tely $966,000.

We believe our existing cash and cash equivalents provided by our ongoing operations, together with funds available through the transactions noted above, will be sufficient to meet our working capital, capital expenditures, and cash needs for the next 12 months and beyond.

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 , Note 9 , and Note 16 under Part II, Item 8, of this Annual Report on Form 10-K.

For information related to these cash requirements, refer to Note 6 , Note 7 , Note 8 , and Note 9 , under Part II, Item 8., Financial Statements of this Form 10-K.

Information about our cash flows is presented in our statements of cash flows and is summarized in the following table:

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2024 2023 2022

Net cash (used in) provided by:

Net cash provided (used in) by:

Operating activities

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Operating activities

We used $(2,264,447) in operating activities for the year ended December 31, 2023, compared to $990,163 provided by operating activities for the year ended December 31, 2022.

This decrease in net cash from operating activities was primarily driven by an increase in net loss, increases in accounts receivables (due to timing of collections), as well as noncash adjustments related to changes in the fair value of derivative liabilities and contingent earnout during the year ended December 31, 2023.

Net cash provided by operating activities increased to $1,120,105 for the year ended December 31, 2024, compared to $(2,264,447) used in operating activities for the year ended December 31, 2023.

This increase in net cash from operating activities was primarily driven by a decrease in net loss, decreases in accounts receivables (due to timing of collections), as well as noncash adjustments related to changes in the fair value of derivative liabilities during the year ended December 31, 2024, and goodwill impairment recognized during the year ended December 31, 2023.

Investing activities

Net cash used in investing activities increased to $(440,985), for the year ended December 31, 2023, from $(339,282), for the year ended December 31, 2022.

The increase in net cash used in investing activities was primarily due to the cash paid in the acquisition of GTMR during 2023.

Net cash provided by investing activities increased to $221,356, for the year ended December 31, 2024, from $(440,985), for the year ended December 31, 2023.

The decrease in net cash used in investing activities was primarily due to the cash paid in the acquisition of GTMR during 2023.

Financing activities

During the year ended December 31, 2023, we used $(104,623) in financing activities, primarily due to reduction in proceeds from issuance of preferred and common stock, the reduction in proceeds from notes payable, and an increase in payments on notes payable, compared to net cash provided by financing activities of $1,972,100, for the year ended December 31, 2022.

During the year ended December 31, 2024, $9,082,746 net cash was provided by financing activities, primarily due to the proceeds from the issuance of common stock, pre-funded warrants, and the exercise of regular warrants, offset by an increase in repayment of notes payable, notes payable - related party, and repayments of amounts due to seller, compared to net cash provided used in financing activities of $(104,623), for the year ended December 31, 2023.

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.

Our significant accounting policies are more fully described in Part II, Item 8.

Financial Statements, 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.

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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.

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(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;

(2) estimating contract revenue, costs, and assumptions for schedule and technical issues;

(3) selecting the appropriate method to measure progress;

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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.

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.

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 noncash charge of $6,919,094.

During 2024, no triggering events were noted.

Income Taxes and Uncertain Tax Positions

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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.

In determining the grant date fair value of share-based awards, we must estimate the expected volatility, forfeitures, and performance attributes.

In determining the grant date fair value of share-based awards, we must estimate the 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.

Refer to Note 1 of the notes to our audited consolidated financial statements included in Part II, Item 8., Financial Statements within this 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.

Refer to Note 1 of the notes to our audited consolidated financial statements included in Part II, Item 8., Financial Statements within this Form 10-K for our assessment of recently issued and adopted accounting standards.

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 7. Management’s Discussion and Analysis