UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

Or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File Number: 001-41526

CASTELLUM, INC.

(Exact Name of Registrant as Specified in Charter)

NEVADA	27-4079982
(STATE OF INCORPORATION)	(I.R.S Employer I.D.)

1934 Old Gallows Road, Suite 350, Vienna, VA 22182

(703) 752-6157

(Address and telephone number of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	CTM	NYSE American LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company x
	Emerging growth company x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of November 11, 2024
Common Stock, par value $0.0001 per share	56,109,928

CASTELLUM, INC.

FORM 10-Q

For the Quarter Ended September 30, 2024

INDEX

PART I	3
Item 1. Unaudited Consolidated Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3. Quantitative and Qualitative Disclosures About Market Risk	42
Item 4. Controls and Procedures	43
PART II	44
Item 1. Legal Proceedings	44
Item 1A. Risk Factors	44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3. Defaults Upon Senior Securities	46
Item 4. Mine Safety Disclosures	46
Item 5. Other Information	46
Item 6. Exhibits	47
Signatures	51

Explanatory Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the “Securities Act,” and Section 21E of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” which statements involve substantial risk and uncertainties. These statements do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. In particular, these statements relate to future actions, prospective products and services, market acceptance, future performance or results of current and anticipated products and services, sales efforts, expenses, and the outcome of contingencies such as legal proceedings and financial results.

Examples of forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, our expectations regarding our business strategy, business prospects, operating results, operating expenses, working capital, liquidity, and capital expenditure requirements. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products and services, the cost, terms, and availability of components, pricing levels, the timing and cost of capital expenditures, competitive conditions, and general economic conditions. These statements are based on our management’s expectations, beliefs, and assumptions concerning future events affecting us, which in turn are based on currently available information. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect.

Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:

•our limited operating history, ongoing net income losses, and growth trajectory;

•our ability to attract and retain senior management and other employees with suitable experience leading a public company;

•our ability to raise additional capital on acceptable terms and to service our ongoing debt obligations;

•changes in political, economic, or regulatory conditions generally and in the markets in which we operate including the 2024 elections and their aftermath;

•our ongoing relationships with government entities, agencies, and teaming partners;

•overall levels of government spending on defense spending and spending on IT services, including potential imposition of sequestration in the absence of an approved budget or continuing resolution;

•our ability to win new contracts amidst increased levels of competition in contract bidding process;

•delays due to the appropriation process, change in the procurement process, and audits or cost adjustments to our contracts;

•our inability to receive full amounts authorized, or ongoing lack of funding, for contracts in our backlog;

1

•potential systems failures, security breaches, or the inability of Company employees to obtain required clearances;

•our ability successfully to execute additional acquisitions and integrate those operations into our ongoing businesses; and

•the effect of ongoing financing efforts and volatility of our common stock share price.

We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this Quarterly Report on Form 10-Q are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise.

In this Quarterly Report on Form 10-Q, unless the context otherwise requires, all references to the “Company,” “our Company,” “we,” “our,” “us,” and “Castellum,” refer to Castellum, Inc., a Nevada corporation, and its wholly owned subsidiaries.

2

Part I

Item 1. Unaudited Consolidated Financial Statements

Castellum, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	September 30, 2024		December 31, 2023
	(unaudited)
Assets
Current Assets:
Cash	$	2,742,961	$	1,830,841
Accounts receivable, net	5,611,060		6,883,566
Contract asset	5,783		160,649
Due from buyer	205,897		—
Income tax receivable	238,817		—
Prepaid income taxes	—		216,909
Prepaid expenses and other current assets	525,347		404,228
Total current assets	9,329,865		9,496,193
Fixed assets, net	193,546		310,170
Non-Current Assets:
Due from buyer, net of current portion	191,470		—
Right of use asset - operating lease	1,147,883		613,143
Investment in captive insurance entity	52,110		—
Intangible assets, net	7,252,948		8,970,864
Goodwill	10,676,834		10,716,907
Total non-current assets	19,514,791		20,611,084
Total Assets	$	28,844,656	$	30,107,277
Liabilities and Stockholders' Equity
Liabilities
Current Liabilities
Accounts payable and accrued expenses	$	1,004,207	$	784,965
Accrued payroll and payroll related expenses	3,598,833		2,925,312
Due to seller	240,000		350,000
Obligation to issue common and preferred stock	402,708		255,940
Contingent earnout	—		380,000

3

Derivative liabilities	40,000		157,600
Revolving credit facility	1,514,818		625,025
Notes payable, related party	100,000		—
Current portion of convertible promissory notes - related parties, net of discount	—		238,212
Current portion of notes payable, net of discount	1,200,000		2,074,775
Current portion of lease liability - operating lease	301,136		185,263
Total current liabilities	8,401,702		7,977,092
Non-Current Liabilities
Deferred tax liability	—		6,292
Lease liability - operating lease, net of current portion	857,890		435,204
Due to Seller, net of current portion	160,000		—
Contingent earnout, net of current portion	—		340,000
Convertible promissory notes - related parties, net of discount, net of current portion	—		2,000,000
Notes payable, net of current portion	7,100,000		6,000,000
Notes payable, related party, net of current portion	300,000		400,000
Total non-current liabilities	8,417,890		9,181,496
Total Liabilities	$	16,819,592	$	17,158,588
Stockholders' Equity
Preferred stock, 50,000,000 shares authorized
Series A Preferred stock, par value $0.0001; 10,000,000 shares authorized; 5,875,000 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	588		588
Series C Preferred stock, par value $0.0001; 10,000,000 shares authorized; 770,000 and 770,000 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	77		77
Common stock, par value, $0.0001, 3,000,000,000 shares authorized, 56,109,928 and 47,672,427 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	5,611		4,767
Additional paid in capital	63,329,698		56,926,157
Accumulated deficit	(51,310,910)		(43,982,900)
Total stockholders' equity	12,025,064		12,948,689
Total Liabilities and Stockholders' Equity	$	28,844,656	$	30,107,277

See notes to unaudited consolidated financial statements.

4

Castellum, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenues	$	11,608,691	$	11,741,164	$	34,466,131	$	34,153,979
Cost of Revenues	6,650,035		6,903,689		20,318,846		20,066,904
Gross Profit	4,958,656		4,837,475		14,147,285		14,087,075
Operating Expenses
Indirect costs	2,449,974		2,258,082		7,152,304		6,710,421
Overhead	495,482		493,706		1,464,363		1,498,325
General and administrative	3,396,297		3,739,975		11,155,142		14,030,818
Goodwill impairment loss	—		6,919,094		—		6,919,094
Gain from change in fair value of contingent earnout	—		—		—		65,000
Total operating expenses	6,341,753		13,410,857		19,771,809		29,223,658
Loss From Operations Before Other Income (Expense)	(1,383,097)		(8,573,382)		(5,624,524)		(15,136,583)
Other Income (Expense)
Loss on induced conversion	—		—		—		(300,000)
Loss on extinguishment of debt	—		—		(822,847)		—
Gain from change in fair value of derivative liability	15,000		241,700		117,400		1,086,325
Gain from sale of subsidiary	39,234		—		39,234		—
Other income, net	—		85,230		—		84,157
Interest expense, net of interest income	(208,709)		(843,148)		(950,905)		(2,484,263)
Total other income (expense)	(154,475)		(516,218)		(1,617,118)		(1,613,781)
Loss From Operations Before Benefit For Income Taxes	(1,537,572)		(9,089,600)		(7,241,642)		(16,750,364)
Income tax benefit (expense)	257,480		(102,584)		3,090		1,136,345
Net Loss	(1,280,092)		(9,192,184)		(7,238,552)		(15,614,019)
Less: preferred stock dividends	29,819		28,719		89,458		88,858
Net Loss To Common Shareholders	$	(1,309,911)	$	(9,220,903)	$	(7,328,010)	$	(15,702,877)
Net Loss Per Share - Basic And Diluted	$	(0.02)	$	(0.19)	$	(0.13)	$	(0.34)
Weighted Average Shares Outstanding - Basic And Diluted	57,190,645		48,527,472		54,845,606		46,673,959

5

See notes to unaudited consolidated financial statements.

6

Castellum, Inc. and Subsidiaries

Consolidated Statement of Changes in Stockholders' Equity

(Unaudited)

	Series A Preferred			Series B Preferred			Series C Preferred			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance - December 31, 2022	5,875,000	$	588	—	$	—	770,000	$	77	41,699,363	$	4,170	$	43,621,651	$	(26,094,570)	$	17,531,916
Stock-based compensation - options	—	—		—	—		—	—		—	—		2,436,299		—		2,436,299
Stock-based compensation - warrants	—	—		—	—		—	—		—	—		1,076,969		—		1,076,969
Stock-based compensation - restricted stock and shares issued for services	—	—		—	—		—	—		125,504	12		149,987		—		149,999
Shares issued to acquire GTMR	—	—		—	—		—	—		4,866,570	487		5,304,075		—		5,304,562
Shares issued in induced conversion of Crom Note	—	—		—	—		—	—		556,250	56		589,944		—		590,000
Loss on induced conversion	—	—		—	—		—	—		—	—		300,000		—		300,000
Extinguishment of debt discount - derivative liability	—	—		—	—		—	—		—	—		(171,128)		—		(171,128)
Extinguishment of debt discount - debt issuance costs		—		—	—		—	—		—	—		(8,034)		—		(8,034)
Extinguishment of derivative liability	—	—		—	—		—	—		—	—		33,375		—		33,375
Net loss for the period	—	—		—	—		—	—		—	—		—		(4,353,710)		(4,353,710)
Balance - March 31, 2023	5,875,000	588		—	—		770,000	77		47,247,687	4,725		53,333,138		(30,448,280)		22,890,248
Stock-based compensation - options	—	—		—	—		—	—		—	—		1,089,163		—		1,089,163
Stock-based compensation - restricted stock and shares issued for services	—	—		—	—		—	—		63,025	6		74,994		—		75,000
Shares issued in private placement	—	—		—	—		—	—		63,000	6		125,994		—		126,000

7

Net loss for the period	—	—		—	—		—	—		—	—		—		(2,128,266)		(2,128,266)
Balance - June 30, 2023	5,875,000	588		—	—		770,000	77		47,373,712	4,737		54,623,289		(32,576,546)		22,052,145
Stock-based compensation - options	—	—		—	—		—	—		—	—		1,089,163		—		1,089,163
Stock-based compensation - shares issued to advisory board	—	—		—	—		—	—		48,000	5		17,275		—		17,280
Stock-based compensation - restricted shares	—	—		—	—		—	—		132,690	13		100,066		—		100,079
Shares issued to Crom Cortana in Crom Transaction	—	—		—	—		—	—		25,000	3		10,997		—		11,000
Balance sheet reclassification adjustment (Note 2)	—	—		—	—		—	—		—	—		(304,500)		30,000		(274,500)
Net loss for the period	—	—		—	—		—	—		—	—		—		(9,220,903)		(9,220,903)
Balance - September 30, 2023	5,875,000	$	588	—	$	—	770,000	$	77	47,579,402	$	4,758	$	55,536,290	$	(41,767,449)	$	13,774,264
Balance - December 31, 2023	5,875,000	$	588	—	$	—	770,000	$	77	47,672,427	$	4,767	$	56,926,161	$	(43,982,904)	$	12,948,689
Stock-based compensation - options	—	—		—	—		—	—		—	—		1,657,822		—		1,657,822
Shares issued to institutional investor	—	—		—	—		—	—		5,357,487	536		755,231		—		755,767
Private warrants issued to institutional investor	—	—		—	—		—	—		—	—		1,081,471		—		1,081,471
Pre-funded warrants issued to institutional investor	—	—		—	—		—	—		—	—		525,905		—		525,905
Net loss for the period	—	—		—	—		—	—		—	—		—		(4,141,541)		(4,141,541)
Balance - March 31, 2024	5,875,000	588		—	—		770,000	77		53,029,914	5,303		60,946,590		(48,124,445)		12,828,113

8

Stock-based compensation - options	—	—		—	—		—	—		—	—		1,127,762		—		1,127,762
Net loss for the period	—	—		—	—		—	—		—	—		—		(1,876,554)		(1,876,554)
Balance - June 30 2024	5,875,000	588		—	—		770,000	77		53,029,914	5,303		62,074,352		(50,000,999)		12,079,321
Stock-based compensation - options	—	—		—	—		—	—		—	—		1,252,574		—		1,252,574
Shares issued to institutional investor	—	—		—	—		—	—		3,080,014	308		2,772		—		3,080
Net loss for the period	—	—		—	—		—	—		—	—		—		(1,309,911)		(1,309,911)
Balance - September 30, 2024	5,875,000	$	588	—	$	—	770,000	$	77	56,109,928	$	5,611	$	63,329,698	$	(51,310,910)	$	12,025,064

See notes to unaudited consolidated financial statements.

9

Castellum, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2024 and 2023

(Unaudited)

	2024		2023
Cash Flow From Operating Activities
Net loss	$	(7,238,552)	$	(15,614,019)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	1,723,553		1,865,839
Amortization of discounts, premium and deferred costs	1,118,194		1,746,019
Stock-based compensation	4,184,930		6,112,184
Deferred tax provision	(6,290)		(1,486,460)
Goodwill impairment loss	—		6,919,094
Lease cost	214,672		128,403
Gain on sale of subsidiary	(39,234)		—
Gain from timing difference on issuance of shares	—		(85,231)
Change in fair value of contingent earnout	—		65,000
Change in fair value of derivative liability	(117,400)		(1,086,325)
Gain on lease termination	(9,225)		—
Changes in assets and liabilities, net of acquisition
Accounts receivable	932,912		(2,118,021)
Proceeds from factoring accounts receivable	—		850,141
Prepaid expenses and other current assets	(134,336)		335,262
Contract asset (liability)	154,865		(318,509)
Accounts payable and accrued expenses	932,076		(354,502)
Lease liability	(201,628)		(94,295)
Net cash provided by (used in) operating activities	1,514,537		(3,135,420)
Cash Flows From Investing Activities
Acquisition of business, cash paid to seller	—		(485,739)
Sale of subsidiary, cash received from buyer	109,523		—
Cash paid to seller from factoring	—		(411,975)
Cash received in acquisition of GTMR	—		475,000
Purchases of fixed assets	(3,317)		(20,526)
Investment in captive insurance entity	(54,534)		—
Net cash provided by (used in) in investing activities	51,672		(443,240)
Cash Flows From Financing Activities
Proceeds from revolving credit line	889,793		325,000
Payment of debt issuance costs	(19,266)		(15,000)
Proceeds from issuance of common stock, prefunded warrants and regular warrants, net of issuance costs	2,366,223		126,000
Proceeds from notes payable	—		1,200,000

10

Preferred stock dividend	(89,458)		(88,858)
Repayment of amounts due to seller	(670,000)		(280,000)
Loss on induced conversion			300,000
Repayment of convertible note payable - related party	(809,617)		—
Repayment of note payable	(2,321,764)		(1,293,401)
Net cash provided by (used in) financing activities	(654,089)		273,741
Net increase (decrease ) in cash	912,120		(3,304,919)
Cash - Beginning of Period	1,830,841		4,640,896
Cash - End of Period	$	2,742,961	$	1,335,977
Supplemental Disclosures
Cash paid for interest expense	$	607,133	$	749,465
Cash refunded (paid) from income taxes	$	25,813	$	(4,751)
Summary of Non-Cash Activities:
Debt discount on note payable applied to obligation to issue common stock	$	—	$	28,000
Derivative liability incurred for note payable	$	—	$	421,000
Extinguishment of debt discount - derivative liability	$	—	$	171,128
Extinguishment of debt discount - debt issuance costs	$	—	$	8,034
Extinguishment of derivative liability on Crom note	$	—	$	33,375
Gain on lease termination	$	9,225	$	—
Derecognition of lease liability	$	396,388	$	—
Derecognition of right of use asset	$	387,164	$	—

For the non-cash activities related to the Company's debt transactions see Note 6, "Convertible Promissory Notes - Related Party" and Note 7, "Notes Payable".

See notes to unaudited consolidated financial statements.

11

Castellum, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2024 and 2023

Note 1: Nature of Operations

Castellum, Inc. (the “Company”) is focused on building a large, successful technology company in the areas of cybersecurity, information technology, electronic warfare, information warfare, and information operations with businesses in the defense, federal, civilian, and commercial markets (the "Markets"). Services 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"). These services, which largely focus on securing data and establishing related policies, are applicable to customers in the United States ("U.S.") government, financial services, healthcare, and other users of large data applications. The services can be delivered to legacy, customer owned networks, or customers who rely upon cloud-based infrastructures. The Company works with multiple business brokers and contacts within its business network to identify potential acquisitions.

Since November 2019, the Company has made the following acquisitions that specialize in the areas noted above:

•Corvus Consulting, LLC (“Corvus”),

•Mainnerve Federal Services, Inc. dba MFSI Government Group (“MFSI"),

•Merrison Technologies, LLC ("Merrison"),

•Specialty Systems, Inc. (“SSI”),

•the business assets of Pax River from The Albers Group (“Pax River”),

•Lexington Solutions Group, LLC (“LSG”), and

•Global Technology and Management Resources, Inc. ("GTMR").

With the exception of Pax River, all of these acquisitions were considered business combinations under Topic 805 Business Combinations of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). See Note 3, “Acquisition and Disposition” for greater detail on the GTMR acquisition and the disposition of MFSI.

Note 2: Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements, including the notes, include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation for Interim Periods

Certain information and footnote disclosures normally included for the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted for the interim periods presented. We believe that the unaudited interim financial statements include all adjustments (which are normal and recurring in nature) necessary to present fairly our financial position and the results of operations and cash flows for the periods presented.

The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for the year or future periods. The financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year then ended. We have continued to follow the accounting policies set forth in those financial statements.

12

Business Segments

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) and in deciding how to allocate resources and in assessing performance. The Company’s CODM, the Chief Executive Officer, conducts a review of the consolidated results of operations to make decisions. The Company maintains one operating and reportable segment, which is the delivery of products and services in the Markets.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, management’s estimate of provisions required for uncollectible accounts receivable, the acquired value of the intangible assets and goodwill, impaired value of intangible assets, self-insurance expense and accruals, liabilities to accrue, cost incurred in the satisfaction of performance obligations, fair value for consideration elements of business combinations, permanent and temporary differences related to income taxes, and determination of the fair value of stock awards. Actual results could differ from these estimates.

Revenue Recognition

The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers ("ASC 606").

The Company accounts for a contract with a customer that is within the scope of this Topic only when the five steps of revenue recognition under ASC 606 are met.

The five core principles will be evaluated for each service provided by the Company and is further supported by applicable guidance in ASC 606 to support the Company’s recognition of revenue.

Revenue is derived primarily from services provided to the Federal government. The Company enters into agreements with customers that create enforceable rights and obligations and for which it is probable that the Company will collect the consideration to which it will be entitled as services and solutions are transferred to the customer. The Company also evaluates whether two or more agreements should be accounted for as one single contract.

When determining the total transaction price, the Company identifies both fixed and variable consideration elements within the contract. The Company estimates variable consideration as the most likely amount to which the Company expects to be entitled, limited to the extent that it is probable that a significant reversal will not occur in a subsequent period.

At contract inception, the Company determines whether the goods or services to be provided are to be accounted for as a single performance obligation or as multiple performance obligations. For most contracts, the customers require the Company to perform several tasks in providing an integrated output and, hence, each of these contracts are deemed as having only one performance obligation. When contracts are separated into multiple performance obligations, the Company allocates the total transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised services underlying each performance obligation.

This evaluation requires professional judgment, and it may impact the timing and pattern of revenue recognition. If multiple performance obligations are identified, the Company generally uses the cost plus a margin approach to determine the relative standalone selling price of each performance obligation. The Company does not assess whether a contract contains a significant financing component if the Company

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expects, at contract inception, that the period between when payment by the client and the transfer of promised services to the client occur will be less than one year.

The Company currently generates its revenue from three different types of contractual arrangements: cost plus fixed fee (“CPFF”), firm-fixed-price contracts (“FFP”), and time-and-materials (“T&M”) contracts. The Company generally recognizes revenue over time as control is transferred to the customer, based on the extent of progress towards satisfaction of the performance obligation. The selection of the method used to measure progress requires judgment and is dependent on the contract type and the nature of the goods or services to be provided.

For CPFF contracts, the Company uses 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 a 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. FFP contracts require the use of an input method based on estimated costs to complete. For T&M contracts, the Company uses 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.

These arrangements generally qualify for the “right-to-invoice” practical expedient where revenue is recognized in proportion to billable consideration. FFP level-of-effort contracts are substantially similar to T&M contracts except that the Company is required to deliver a specified level-of-effort over a stated period. For these contracts, the Company estimates revenue earned using contract hours worked at negotiated bill rates as the Company delivers the contractually required manpower.

Revenue generated by contract support service contracts is recognized over time as services are provided, based on the transfer of control. Revenue generated by FFP contracts is recognized over time as performance obligations are satisfied. Most contracts do not contain variable consideration and contract modifications are generally minimal. For these reasons, there is not a significant impact of electing these transition practical expedients.

Revenue generated from contracts with Federal, state, and local governments is recorded over time, rather than at a point in time. Under the contract support services contracts, the Company performs software design work as it is assigned by the customer, and bills the customer, generally semi-monthly, on either a CPFF or T&M basis, as labor hours are expended. Certain other government contracts for software development have specific deliverables and are structured as FFP contracts, which are generally billed as the performance obligations under the contract are met. Revenue recognition under FFP contracts requires judgment to allocate the transaction price to the performance obligations. Contracts may have terms of up to five years.

Contract accounting requires judgment relative to assessing risks and estimating contract revenue, as well as costs and assumptions for schedule and technical issues. Due to the size and nature of contracts, estimates of revenue and costs are subject to a number of variables. For contract change orders, claims, or similar items, judgment is required for estimating the amounts, assessing the potential for realization and determining whether realization is probable. Estimates of total contract revenue and costs are continuously monitored during the term of the contract and are subject to revision as the contract progresses. From time to time, facts develop that require revisions of revenue recognized or cost estimates. To the extent that a revised estimate affects the current or an earlier period, the cumulative effect of the revision is recognized in the period in which the facts requiring the revision become known.

The Company accounts for contract costs in accordance with ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers. The Company recognizes the cost of sales of a contract as an expense when incurred or at the time a performance obligation is satisfied. The Company recognizes an asset from the costs to fulfill a contract only if the costs relate directly to a contract, the costs generate or enhance resources that will be used in

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satisfying a performance obligation in the future, and the costs are expected to be recovered. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained.

The following table disaggregates the Company's revenue by contract type for the three months ended September 30:

	2024		2023
Revenue:
Time and material	$	6,254,135	$	6,546,903
Firm fixed price	810,812		811,404
Cost plus fixed fee	4,543,744		4,382,857
Total	$	11,608,691	$	11,741,164

The following table disaggregates the Company’s revenue by contract type for the nine months ended September 30:

	2024		2023
Revenue:
Time and material	$	18,945,698	$	19,481,565
Firm fixed price	2,323,228		2,452,726
Cost plus fixed fee	13,197,205		12,219,688
Total	$	34,466,131	$	34,153,979

Accounting for Income Taxes

Income taxes are accounted for under the asset and liability method. We estimate our income taxes in each of the jurisdictions where the Company operates. This process involves estimating our current tax expense or benefit together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets. 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. When assessing the realizability of deferred tax assets, we consider if it is more likely than not that some or all of the deferred tax assets will not be realized. In making this assessment, we consider the availability of loss carryforwards, projected reversals of deferred tax liabilities, projected future taxable income, and ongoing prudent and feasible tax planning strategies.

We are subject to income taxes in the Federal and state tax jurisdictions based upon our business operations in those jurisdictions. Significant judgment is required in evaluating uncertain tax positions. We record uncertain tax positions in accordance with ASC 740-10, Income Taxes - Overall, on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) with respect to those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is greater than 50% likely to be realized up on ultimate settlement with the related tax authority. Management evaluates its tax positions on a quarterly basis.

The Company files 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 Internal Revenue Service (“IRS”) and state taxing authorities, generally for three years after they were filed.

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Recent Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This update requires disaggregated information about a reporting entity’s effective tax rate reconciliations as well as information on income taxes paid. This update is effective for annual periods beginning in our fiscal year ending December 31, 2025. Early adoption is permitted. We are currently evaluating the impact that this update will have on our financial statement disclosures.

Reclassification Adjustment

The Company identified an immaterial error in its annual and interim financial statements for the year ended December 31, 2022 and the first and second quarters of 2023, whereby additional paid in capital was overstated by $304,500 and the obligation to issue common shares account and the accumulated deficit account were understated by $274,500 and $30,000 respectively. These immaterial amounts have been adjusted and the corrected balances are reflected in the Company's Consolidated Balance Sheets, Consolidated Statements of Cash Flows, and the Consolidated Statement of Changes in Stockholders' Equity.

Note 3: Acquisition and Disposition

Since January 1, 2023, the Company has completed the following acquisition and disposition to achieve its business purposes as discussed in Note 1.

GTMR

On March 22, 2023, the Company entered into an agreement and plan of merger with GTMR (the "GTMR Acquisition"). The GTMR Acquisition was accounted for as a business combination whereby GTMR became a 100% owned subsidiary of the Company. The Company acquired GTMR to expand its capabilities, increase market share, gain access to new contracts, and achieve cost efficiencies through synergies and economies of scale.

The following represents the assets and liabilities acquired in this acquisition:

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	March 31, 2023		Adjustments		March 22, 2024
Cash	$	475,000	$	—	$	475,000
Accounts receivable and other receivables	1,380,203		(9,384)		1,370,819
Income tax receivable	155,449		(127,992)		27,457
Prepaid expenses	116,892		(30,856)		86,036
Other asset	17,182		—		17,182
Furniture and equipment	163,301		103,760		267,061
Right of use asset – operating lease	—		641,392		641,392
Customer relationships	2,426,000		—		2,426,000
Right of use asset - finance lease	—		17,456		17,456
Tradename	517,000		—		517,000
Backlog	1,774,000		—		1,774,000
Goodwill	1,822,466		279,571		2,102,037
Deferred tax liability	(1,244,368)		(242,093)		(1,486,461)
Lease liability – operating lease	(17,608)		(603,799)		(621,407)
Lease liability – finance lease	—		(12,549)		(12,549)
Accounts payable and accrued expenses	(1,030,957)		141,341		(889,616)
Net assets acquired	$	6,554,560	$	156,847	$	6,711,407

The consideration paid for GTMR was as follows:

Cash	$	470,233
Due to Seller	350,000
Other consideration	17,791
Cash from factoring	411,975
Common stock	5,304,561
Accounts receivable note	156,847
Total consideration paid	$	6,711,407

The GTMR Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. The fair value measurements utilize estimates based on key assumptions of the GTMR Acquisition, and historical and current market data. The excess of the purchase price over the total of the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed is recognized as goodwill. To determine the fair values of tangible and intangible assets acquired and liabilities assumed for GTMR, we engaged a third-party independent valuation specialist. Intangible assets, which are primarily comprised of customer relationships and backlog, were valued using the excess earnings discounted cash flow method. On the date of the GTMR Acquisition, the Company simultaneously factored $411,975 of the accounts receivable from GTMR to finance the GTMR Acquisition.

The Company paid $185,896 in transaction costs of GTMR, which was excluded from the purchase price, issued an accounts receivable note (the “Accounts Receivable Note”), and held back $350,000, the details of which have been discussed in amounts Due to Seller in Note 10, "Due to Seller and Contingent Earnout." As of September 30, 2024, the remaining balance under this note is $0.

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During the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these assets or liabilities as of that date. The measurement period for the GTMR Acquisition closed as of March 22, 2024.

During the measurement period, the Company recorded several adjustments to goodwill as a result of GTMR's adoption of ASC 842, Leases, tax adjustments, and an update to the fair value of acquired furniture and equipment. These measurement period adjustments were subsequently identified as a result of the completion of third party accounting evaluation.

The Company also recorded a measurement period adjustment to goodwill as a result of finalizing the transaction price. The Company entered into the Accounts Receivable Note due to the sellers four months after the closing date of the transaction, subject to the adjustment of any net working capital deficiencies. This amount was determined to be $156,847.

The following table shows unaudited pro-forma results for the nine months ended September 30, 2023, as if the acquisition of GTMR had occurred on January 1, 2023. These unaudited pro forma results of operations are based on the historical financial statements of each of the companies.

For the nine months ended September 30, 2023
Revenues	$	36,521,201
Net loss	$	(15,523,013)
Net loss per share - basic	$	(0.32)

MFSI

On September 11, 2024, the Company entered into a stock purchase agreement with Lead-Risk Millenia, LLC (the "Buyer") for the sale of one of its subsidiaries, MFSI (the "MFSI Divestiture"). The stock purchase agreement, approved by the Board of Directors on September 13, 2024, was for the purchase and sale of 100% of the issued and outstanding stock of MFSI, which became effective on September 16, 2024. The stock purchase agreement requires an initial cash payment of $15,000. Additionally, the Company will receive future consideration equal to 6% of all revenue generated by MFSI until September 30, 2029, or until total payments reach $705,000, whichever comes first. As part of the MFSI Divestiture, the Company retained all of MFSI's cash deposits and accounts receivable in excess of $150,000.

Management estimated the present value of future consideration to be received, recognizing short and long term components of a receivable, which we will accrete over time and reassess periodically. An 8.5% discount rate was applied to calculate the present value of the receivable, totaling $296,009 ("Anticipated Receivable"). The Company recorded a gain of $39,234 from the MFSI Divestiture. The balance of the Anticipated Receivable, accounts receivable in excess of $150,000, and any payments made by the Company on behalf of the Buyer, are reflected in Due from Buyer on the Consolidated Balance Sheets.

After considering qualitative and quantitative aspects of MFSI and its sale relative to the Guidance of ASC 205-20, Presentation of Financial Statements - Discontinued Operations, Management concluded MFSI should not be reported or disclosed as a discontinued operation. Further, because MFSI represented less than 5% of the total revenue for the Company, and as such was immaterial to the Company's financial statements and pro forma financial statements are not required.

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Note 4: Fixed Assets

Fixed assets consisted of the following as of September 30, 2024 and December 31, 2023:

	September 30, 2024		December 31, 2023
Equipment and software	$	261,408	$	258,091
Furniture	43,119		43,119
Automobile	43,928		43,928
Leasehold improvements	192,959		192,959
Total fixed assets	541,414		538,097
Accumulated depreciation	(347,868)		(227,927)
Fixed assets, net	$	193,546	$	310,170

Depreciation expense for the three and nine months ended September 30, 2024, was $38,855 and $119,942, and depreciation expense for the three and nine months ended September 30, 2023, was $40,822 and $107,121, respectively.

Note 5: Intangible Assets and Goodwill

Intangible assets consisted of the following as of September 30, 2024 and December 31, 2023:

		September 30, 2024		December 31, 2023
Customer relationships	4.5– 15 years	$	11,613,000	$	11,961,000
Tradename	4.5 years	783,000		783,000
Trademark	10-15 years	533,863		533,864
Backlog	2-5 years	3,210,000		3,210,000
Non-compete agreement	3-5 years	680,000		684,000
		16,819,863		17,171,864
Accumulated amortization		(9,566,915)		(8,201,000)
Intangible assets, net		$	7,252,948	$	8,970,864

The intangible assets with the exception of the trademarks were recorded as part of the acquisitions of Corvus, MFSI, Merrison, SSI, LSG, and GTMR. Amortization expense for the three and nine months ended September 30, 2024 was $517,669 and $1,603,611, respectively, and amortization expense for the three and nine months ended September 30, 2023 was $634,043 and $1,758,718, respectively. Upon the MFSI Divestiture as disclosed in Note 3, “Acquisition and Disposition” the intangible assets of MFSI were removed. The intangible assets are being amortized based on the estimated future lives as noted above.

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Future amortization of the intangible assets for the next five years as of September 30 are as follows:

Remainder of the year ending December 31, 2024	$	221,501
Year ending 2025	1,422,149
Year ending 2026	1,218,182
Year ending 2027	1,014,558
Year ending 2028	528,784
Year ending 2029 and thereafter	2,847,774
Total	$	7,252,948

The activity of goodwill for the nine months ended September 30, 2024, is as follows:

	Corvus		SSI		MFSI		Total
December 31, 2023	$	1,958,741	$	8,718,093	$	40,073	$	10,716,907
Goodwill removed through dispositions	—		—		(40,073)		(40,073)
September 30, 2024	$	1,958,741	$	8,718,093	$	—	$	10,676,834

When the Company acquires a controlling financial interest through a business combination, the Company uses the acquisition method of accounting to allocate the purchase consideration to the assets acquired and liabilities assumed, which are recorded at fair value. Any excess of purchase consideration over the net fair value of the net assets acquired is recognized as goodwill. There were no additions of goodwill for the nine months ended September 30, 2024. Upon the MFSI Divestiture as disclosed in Note 3, “Acquisition and Disposition”, goodwill associated with MFSI was removed.

Note 6: Convertible Promissory Note - Related Party

We had the following promissory note as of September 30, 2024 and December 31, 2023:

	September 30, 2024		December 31, 2023
Convertible note payable with a trust related to one of the Company’s directors, convertible at $0.26 per share, at 5% interest (amended April 4, 2022, maturity date September 30, 2024)	—		3,209,617
Less: Beneficial conversion feature discount	—		(971,405)
	$	—	$	2,238,212

Interest expense which includes amortization of discount for the three and nine months ended September 30, 2024, was $0 and $245,438, respectively, and interest expense which includes amortization of discount for the three and nine months ended September 30, 2023 was $354,230 and $1,030,552, respectively. There was no accrued interest on the note payable as of September 30, 2024. The amount of the beneficial conversion feature ("BCF") discount recorded was evaluated for characteristics of liability or equity and was determined to be equity under ASC 470, Debt ("ASC 470") and ASC 480, Distinguishing Liabilities from Equity ("ASC 480"). The Company recognized this as additional paid in capital, and the discount was being amortized over the life of the note.

On February 22, 2024, the Company entered into an agreement to amend the related party convertible promissory note with the Buckhout Charitable Remainder Trust, resulting in the elimination of the BCF discount feature, change in the interest rate, extension of the term, and change in the payoff schedule. As part of this amendment, a partial payment of $809,617 was made on the date of the agreement, resulting in an outstanding balance of $2,400,000 as of that date. The change in terms of the note were evaluated for

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characteristics of modification or extinguishment, and it was determined that under ASC 470, the debt amendment was considered to be an extinguishment, thus the amended note is considered a new note. As of February 22, 2024, the remaining unamortized carrying value of the BCF was $761,783, which was treated as a loss on debt extinguishment on the income statement. Concurrent with this amendment, we determined that the trustee of the Buckhout Charitable Remainder Trust (who resigned as an officer of the Company) is no longer a related party to the Company. See Note 7, "Notes Payable" for more information about the terms of the new note.

Note 7: Notes Payable

Our notes payable consists of the following as of September 30, 2024 and December 31, 2023:

	September 30, 2024		December 31, 2023
Note payable at 7% originally due November 2023, maturing September 30, 2024 (a)	$	—	$	5,600,000
Note payable at 10% interest dated February 28, 2022 and matures the earlier of (i) September 30, 2024 or (ii) the acceleration of the obligations as contemplated under the promissory note including the successful completion of an equity offering of at least $15,000,000 (b)	—		400,000
Note payable at 7.5% dated February 22, 2024, maturing August 31, 2026 (c)	6,000,000		-
Note payable at 12% interest dated April 6, 2023 and matures the earlier of (i) September 30, 2024 or (ii) the acceleration of the obligations as contemplated under the promissory note (d)	—		400,000
Convertible note payable, convertible at $1.60 per share, at 7%, maturing April 4, 2023 (e)	—		840,000
Promissory note payable (f)	2,300,000		—
Term note payable, at prime plus 3% interest, applied on a deferred basis (11.50% at September 30, 2024 and 6.25% at December 31, 2023) maturing August 11, 2024 (g)	—		981,764
Total Notes Payable	8,300,000		8,221,764
Less: Debt Discount	—		(146,989)
	$	8,300,000	$	8,074,775

(a)On August 12, 2021, the note payable was amended to extend the maturity date to September 30, 2024 (the "Eisiminger Note 1"). It was determined that under ASC 470, the debt amendment was considered a modification. The amount of the debt discount recorded related to the warrants granted to the note holder was evaluated for characteristics of liability or equity and was determined to be equity under ASC 470 and ASC 480 and the entire balance was fully amortized as of December 31, 2023. On February 22, 2024, the Company entered into an agreement to amend the Eisiminger Note 1, resulting in a change to the interest rate and an extension of the maturity date. The amended note was evaluated for characteristics of debt modification or extinguishment and it was determined that under ASC 470, the debt amendment was considered an extinguishment. As a result of the amendment, the Eisiminger Note 1 was combined with Eisiminger Note 2 as defined and described in (b) below, resulting in a new note, (the "2024 Eisiminger Note"). See (c) below.

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(b)On February 28, 2022, the Company was obligated to issue 125,000 shares of common stock as further consideration for making this loan to the Company (the "Eisiminger Note 2"). The shares were issued in April 2022. On February 22, 2024, the Company entered into an agreement to amend the Eisiminger Note 2 resulting in a change to the interest rate and an extension of the maturity date. The Eisiminger Note 2 was evaluated for characteristics of debt modification or extinguishment and it was determined that under ASC 470, the debt amendment was considered an extinguishment. Therefore, the remaining unamortized debt discount balance of $61,263 was recorded as a loss in the income statement. As a result of the amendment, the principal balances of the Eisiminger Note 2 was combined with the Eisminger Note 1 as described in (a) above, resulting in the 2024 Eisiminger Note. See (c) below.

(c)On February 22, 2024, as a result of amending the Eisiminger Note 1 and the Eisiminger Note 2, the Company entered into the 2024 Eisiminger Note, with a principal balance of $6,000,000, maturing on August 31, 2026, and bearing interest at 7.5% per annum until February 1, 2025, after which the interest rate will increase to 8% per annum.

(d)On April 6, 2023, the Company entered into a promissory note with a principal balance of $400,000 bearing interest at 12% per annum (the "Eisiminger Note 3"). On February 22, 2024, the Company paid the outstanding principal and accrued interest owed on the Eisiminger Note 3.

(e)On February 13, 2023, the Company entered into a series of transactions with Crom Cortana Fund LLC (“Crom”), the primary purpose of which was related to the GTMR Acquisition entered into on March 22, 2023. In connection therewith, the Company and Crom entered into an agreement to pay off the amount owed to Crom under the terms of the convertible promissory note in the original principal amount of $1,050,000 due April 4, 2023 ("Prior Crom Note"). In consideration of a $300,000 cash payment and 556,250 shares of common stock representing conversion of the remaining principal balance thereunder, the Company’s obligations under the Prior Crom Note was deemed satisfied reducing the balance to zero; we induced conversion of the debt, which effectively extinguished the debt. Simultaneously therewith, the parties entered into the Securities Purchase Agreement (the “2023 SPA”) pursuant to which Crom purchased (a) a convertible promissory note in the principal amount of $840,000 (the “2023 Note Payable”), which matured February 13, 2024 and bears interest at a per annum rate equal to 10% to be paid monthly, and (b) a warrant pursuant to which Crom has the right to purchase up to 700,000 shares of the Company’s common stock (the “2023 Warrant”) at an exercise price of $1.38 which expires 60 months from the date of issuance. The proceeds of the 2023 Note Payable were used primarily to fund the GTMR Acquisition, as well as fund the aforementioned debt repayment. On January 25, 2024, the Company paid the outstanding principal and accrued interest owed on the 2023 Note Payable to Crom.

(f)On February 22, 2024, the Company and the Buckhout Charitable Remainder Trust entered into a new note payable in the principal amount of $2,400,000 (the "Buckhout February 2024 Note") which matures on August 31, 2026, and accrues interest at a per annum rate of 5% through January 1, 2025, 8% per annum through January 1, 2026, and 12% per annum thereafter. The principal amount will be amortized at the rate of $100,000 per month, commencing in September 2024 until the final payment is made in August 2026. The terms of the Buckhout February 2024 Note do not permit the principal amount to be converted into common stock. Refer to Note 6, "Convertible Promissory Notes - Related Party" for relevant information regarding the previous note with the Buckhout Charitable Remainder Trust.

(g)Refer to Note 16, "Subsequent Events" for information about early payoff of this note.

Interest expense which includes amortization of discount for the three and nine months ended September 30, 2024 was $181,474 and $565,440, respectively, and $486,079 and $1,444,540 for the three and nine months ended September 30, 2023, respectively. Accrued interest on the notes payable as of September 30, 2024 was $0.

Future principal payments are scheduled to be $652,678 (out of which $252,679 was paid in July 2024, refer to Note 16, "Subsequent Events" for additional information regarding the payoff) in 2024, $1,200,000 in 2025, with the remainder being paid off in 2026.

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Note 8: Note Payable – Related Party

The Company entered into a note payable with a related party in August 2021 with balances as of September 30, 2024 (unaudited) and December 31, 2023, as follows:

	September 30, 2024 (unaudited)		December 31, 2023
Note payable at 5%, amended to ultimately mature in March 31, 2026	$	400,000	$	400,000

On February 16, 2024, the Company entered into a letter agreement to (i) extend the maturity date from December 31, 2024 to August 1, 2025 and (ii) require subsequent monthly principal payments of $50,000 for eight months commencing on the maturity date, with the final payment by March 31, 2026. All other terms of the note payable remain unchanged. As a result, $100,000 is reflected in current liabilities and the remaining balance is reflected in non-current liabilities.

Interest expense for the three and nine months ended September 30, 2024, was $5,027 and $14,973, respectively, and $5,092 and $15,004 for the three and nine months ended September 30, 2023, respectively.

Note 9: Revolving Credit Facility

On April 4, 2022, the Company secured a $950,000 revolving credit facility with Live Oak Banking Company ("Live Oak Bank" and the “Revolving Credit Facility”). The Revolving Credit Facility was to mature on March 28, 2029, and draws on it are charged interest at the rate of prime plus 2.75% per annum. Interest is payable monthly. As of December 31, 2023, the Company had $625,025 outstanding on the Revolving Credit Facility.

On February 22, 2024 the Company entered into a $4,000,000 revolving credit facility with Live Oak Bank that bears interest at prime plus 2% interest and matures on February 22, 2025 (the “New Live Oak Revolver"). The New Live Oak Revolver replaces the Revolving Credit Facility. The Company rolled over the principal balance outstanding of approximately $625,000 on the Revolving Credit Facility and was advanced an additional amount of $904,793, the majority of which was used to make the partial payment on the convertible promissory note with the Buckhout Charitable Remainder Trust. See Note 6, "Convertible Promissory Notes - Related Party". As of September 30, 2024, the total amount outstanding on the New Live Oak Revolver was $1,529,818.

Effective August 15, 2024, the Company modified the terms of the New Live Oak Revolver with Live Oak Bank. Under the terms of the modified agreement, the Company is required to (i) establish a collateral account with a balance of not less than $250,000 until such time as the senior debt service covenant is replaced by a total debt service covenant of 1.15:1.00 at which time funds shall be released at lender's sole discretion, (ii) modified the frequency of the reporting of the borrowing base certificate from once a month to twice a month, and (iii) reduced the borrowing capacity from $4,000,000 to $2,000,000.

The Company incurred $109,512 in interest in the nine months ended September 30, 2024, none of which is accrued as of September 30, 2024.

Note 10: Due to Seller and Contingent Earnout

As part of the GTMR Acquisition, the Company was obligated to pay $1,250,000 which included $350,000 held back to satisfy any net working capital deficiencies. This balance was originally scheduled to be paid six months following the closing date, however, payment had been postponed and the unpaid balance of $350,000

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accrued interest at an annual rate equal to the rate of interest announced publicly by Citibank N.A. in New York, plus 2% until it was paid in full in July of 2024.

As part of the acquisition of SSI (the "SSI Acquisition"), the Company was obligated to pay an earnout contingent on the results of operations of SSI through August 2023. On February 15, 2024, the Company entered into an agreement with the former shareholders of SSI concerning the amount and timing of the contingent earnout included in total consideration for the SSI Acquisition in August 12, 2021. The parties agreed to settle the amount for a total of $720,000, with an initial payment of $180,000 that was made by the Company at signing of the agreement, plus starting in March 2024, monthly payments of $20,000 plus interest payable at 5% per annum for 27 months. As a result, $240,000 is recorded as Due to Seller in current liabilities and $160,000 is reflected in non-current liabilities as of September 30, 2024. Prior to the February 15, 2024 agreement, this earnout was recorded as Contingent Earnout on the Consolidated Balance Sheets.

Note 11: Stockholders’ Equity

January 2024 Registered Offering

On January 25, 2024 the Company entered into a securities purchase agreement (the “SPA”) 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.

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.

Preferred Stock

The Company has 50,000,000 shares of preferred stock authorized. The Company has designated a Series A Preferred Stock, Series B Preferred Stock, and a Series C Preferred Stock.

Series A Preferred Stock

The Company has designated 10,000,000 shares of Series A Preferred Stock, par value of $0.0001. As of September 30, 2024 and December 31, 2023, the Company has 5,875,000 shares of Series A Preferred Stock issued and outstanding, which is convertible into 587,500 shares of the Company's common stock.

For the nine months ended September 30, 2024, the Company recognized $54,808 in Series A dividends, all of which have been paid as of September 30, 2024.

Series B Preferred Stock

The Company has designated 10,000,000 shares of Series B Preferred Stock, par value of $0.0001. As of September 30, 2024 and December 31, 2023, the Company has 0 shares of Series B Preferred Stock issued and outstanding.

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Series C Preferred Stock

The Company has designated 10,000,000 shares of Series C Preferred Stock, par value of $0.0001. As of September 30, 2024 and December 31, 2023, the Company has 770,000 shares of Series C Preferred Stock issued and outstanding, which is convertible into 481,250 shares of the Company's common stock.

For the nine months ended September 30, 2024, the Company recognized $34,650 in Series C dividends, all of which have been paid as of September 30, 2024.

Common Stock

The Company has 3,000,000,000 shares of common stock, par value $0.0001 authorized. The Company has 56,109,928 and 47,672,427 shares issued and outstanding as of September 30, 2024, and December 31, 2023, respectively.

During the nine months ended September 30, 2024, 8,437,501 shares of common stock were issued, all in connection with the SPA. 3,193,534 of these related to the Pre-funded Warrants.

During the nine months ended September 30, 2024, the Company recorded an obligation to issue 515,464 restricted shares of common stock, that vest ratably over a period of one year, to its Board of Directors for their service on the Board from January 1, 2024, through June 30, 2024. The total expense booked to record this obligation was $146,768. The shares were not issued as of June 30, 2024. Once issued, any unvested restricted shares of common stock are forfeited upon termination of the Board members position on the Board of Directors prior to the end of 2024.

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Warrants

The following table represents a summary of warrants for the nine months ended September 30, 2024 and the year ended December 31, 2023:

	Nine Months Ended September 30, 2024				Year Ended December 31, 2023
	Number		Weighted Average Exercise Price		Number		Weighted Average Exercise Price
Beginning balance	7,444,698		$	1.68	5,678,836		$	1.84
Warrants	8,437,501		0.25		1,765,862		1.17
Pre-funded Warrants	3,193,534		0.09		—		—
Total Granted	11,631,035		0.34		1,765,862		1.17
Warrants	—		—		—		—
Pre-funded Warrants	(3,193,534)		0.32		—		—
Total Exercised	(3,193,534)		0.32		—		—
Ending balance	15,882,199		$	0.97	7,444,698		$	1.68
Warrants exercisable	15,882,199				7,444,698
Intrinsic value of warrants	$	185,421			$	327,214
Weighted Average Remaining Contractual Life (Years)	4.23				4.70

The Pre-funded Warrants that the Company sold related to the Registered Offering were immediately exercisable and do not have an expiration date. As noted above, the Company sold Pre-funded Warrants to purchase up to an aggregate of 3,193,534 shares of common stock at an offering price of $0.319 per Pre-funded Warrant, which are exercisable at a price of $0.001 per share. As of September 30, 2024, all Pre-funded Warrants have been exercised.

The Regular Warrants related to the Registered Offering became exercisable on March 20, 2024, upon effectiveness of shareholder approval which was obtained on February 12, 2024. The Regular Warrants expire on March 20, 2029, and have an exercise price of $0.35 per share.

The Regular Warrants and the Pre-funded Warrants do not require a cash settlement for the warrants. Based on the terms of the agreements, both the Regular Warrants and the Pre-funded warrants were freestanding, equity-linked instruments that represented separate units of account. The Company allocated the value of the net proceeds from the offering to the ordinary shares and Regular Warrants and Pre-funded warrants based on relative fair value. The value allocated to the Regular Warrants and Pre-funded warrants was recorded in Additional Paid-In Capital in the Consolidated Balance Sheets.

Options

The Company on November 9, 2021, approved the 2021 Stock Incentive Plan (the "Plan"), that authorized the Company to issue up to 2,500,000 shares of the Company's common stock in the form of restricted stock, stock options, and other stock awards as set forth in the Plan. On November 9, 2023 the Board of Directors approved

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an amendment to the Plan to increase the aggregate number of shares available for issuance from 2,500,000 to 6,000,000 (the "Amended Plan"), which was approved by the Company's shareholders at its annual meeting on May 29, 2024. As of September, 30, 2024, 4,032,500 stock options have been granted under the Amended Plan.

The following represents a summary of options for the Amended Plan and additional options granted outside of the Amended Plan, for the nine months ended September 30, 2024 and the year ended December 31, 2023:

	Number	Weighted Average Exercise Price		Weighted-Average Remaining Contractual Term (in Years)	Weighted Average Fair Value
Outstanding, December 31, 2023	8,243,437	$	2.41	4.98	$	3.58
Granted	150,000	0.35		6.92	0.31
Exercised	—	—		—	—
Forfeited	(65,938)	1.72		—	—
Outstanding. March 31, 2024	8,327,499	2.38		4.76	3.55
Granted	—	—		—	—
Exercised	—	—		—	—
Forfeited	(150,000)	0.35		—	—