CTM Castellum, Inc. - 10-K

Item 1A. Risk Factors

A description of some of the most important risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Form 10-K, including our audited consolidated financial statements and related notes included in “Part II, Item 8, Financial Statements” and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7. The occurrence of any of the events or developments described below could materially and adversely affect our business, financial condition, results of operations, and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently believe are not material may also impair our business, financial condition, results of operations, and growth prospects.

Risks Related to our Business, Industry and Operations

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

We are focused on building a large, successful technology company in the areas of IT, electronic warfare, information warfare, and cybersecurity with businesses in the governmental and commercial markets. Since November 2019, we have executed our business plan and completed seven acquisitions. As a result, we have a limited operating history on a consolidated basis to evaluate our business and prospects. Our business operations are subject to numerous risks, uncertainties, expenses, and difficulties associated with early-stage enterprises. You should consider an investment in our Company in light of these risks, uncertainties, expenses, and difficulties. Such risks include:

• limited operating history at our current scale;

• our ability to raise capital to develop our business and fund our operations;

• our ability to anticipate and adapt to developing markets;

• acceptance by our customers;

• limited marketing experience;

• competition from competitors with substantially greater financial resources and assets; and

• the ability to identify, attract, and retain qualified personnel.

Because we are subject to these risks, and the other risks outlined below, you may have a difficult time evaluating our business and your investment in our Company.

We have historically suffered net losses, and we may not be able to sustain profitability.

We had an accumulated deficit of $56,588,218 as of December 31, 2025, and we expect to continue to generate a net loss in the year ending December 31, 2025. As a result, we are incurring net losses, and it is possible that we may not be able to achieve the revenue levels necessary to achieve and sustain net profitability. If we fail to generate sufficient revenues to operate profitably on a consistent basis, or if we are unable to fund our continuing losses, you could lose all or part of your investment.

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

Our future success will depend in large part on our ability to attract, retain, and motivate high-quality management, operations, and other personnel who are in high demand, are often subject to competing employment offers, and are attractive recruiting targets for our competitors. The loss of qualified executives and key employees, or our inability to attract, retain, and motivate high-quality executives and employees required for the planned expansion of our business, may harm our operating results and impair our ability to grow.

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Effective July 1, 2024, Glen R. Ives, the Company’s former chief operating officer (“COO”), was appointed as President and CEO, after which, on September 1, 2024, Andrew L. Merriman was promoted to COO. Tammy L. Martin was appointed to serve as our General Counsel (“GC”) effective January 1, 2026. We depend on the continued services of our key personnel, including our CEO, CFO (David T. Bell), COO, and GC. Our work with each of these key personnel is subject to changes and/or termination, and our inability to effectively retain the services of our key management personnel could materially and adversely affect our operating results and future prospects.

We may have difficulty raising additional capital, which could deprive us of necessary resources.

We expect to continue to devote significant capital resources to fund our acquisition strategy. To support the initiatives envisioned in our business plan, we will need to raise additional funds through the sale of public or private debt, equity financing, or other arrangements. Our ability to raise additional financing depends on many factors beyond our control, including the state of capital markets and the market price of our common stock. Sufficient additional financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of our common stock. If we are unable to raise additional capital to implement our business plan it could have a material adverse effect on our financial condition, business prospects, and operations, and the value of an investment in our Company.

You may experience dilution, subordination of stockholder rights, preferences, and privileges, and decrease in market price of our common stock as a result of our financing efforts.

Any future equity financing may involve substantial dilution to our then existing stockholders. Any future debt financing could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. There can be no assurance that such additional capital will be available, on a timely basis, or on terms acceptable to us. If we are unsuccessful in raising additional capital or the terms of raising such capital are unacceptable, then we may have to modify our business plan and/or curtail our planned activities and other operations.

Sales of a substantial number of shares of our common stock in the public market could adversely affect the market price of our common stock. We may issue substantial amounts of common stock in the future, which would dilute the percentage ownership held by the investors who purchase shares of our common stock in any such offering. Additionally, we have certain potential dilutive instruments, of which the conversion of these instruments could result in dilution to stockholders: As of March 6, 2026 the maximum potential dilution is 19,950,231 shares and includes Series A preferred stock convertible into approximately 587,500 shares of common stock, Series C preferred stock convertible into 356,250 shares of common stock, options granted exercisable into 13,352,500 shares of common stock, and warrants granted exercisable into 5,653,981 shares of common stock.

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

Our expected growth could place a strain on our managerial, operational, and financial resources. Further, if our subsidiaries’ businesses grow, then we will be required to manage multiple relationships. Any further growth by us or our subsidiaries, or any increase in the number of our strategic relationships, will increase the strain on our managerial, operational, and financial resources. This strain may inhibit our ability to achieve the rapid execution necessary to implement our business plan and could have a material adverse effect on our financial condition, business prospects, and operations, and the value of an investment in our Company.

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

Sales to U.S. federal, state, and local governmental agencies have in the past accounted for, and may in the future account for, substantially all of our revenue. Sales to such government entities are subject to the following risks:

• selling to governmental agencies can be highly competitive, expensive, and time consuming, often requiring significant upfront time and expense without any assurance that such efforts will generate a sale. Our existing contracts typically expire after some period of time and must be “re-competed.” There is no guarantee that we will win such re-compete efforts;

• government certification requirements applicable to our service may change and in doing so restrict our ability to sell into the USG sector until we have attained the revised certification;

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

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

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

• when we are a subcontractor, we have less control over the execution and success of the contract with the government.

If we were suspended or debarred from contracting with the USG, if our reputation or relationship with government agencies was impaired, or if the government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our business, prospects, financial condition, and operating results would be materially and adversely affected.

We operate in an industry that is highly regulated and unexpected changes in laws could have a significant adverse impact on our business.

As a contractor to the USG, as well as state and local governments, we are heavily regulated in most fields in which we operate. We deal with numerous USG agencies and entities, and when working with these and other entities, we must comply with and are affected by unique laws and regulations relating to the formation, administration, and performance of government contracts. Some significant laws and regulations that affect us include the following:

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

• the False Statements Act, which imposes civil and criminal liability for making false statements to the USG;

• the Truthful Cost or Pricing Data Statute (formerly known as the “Truth in Negotiations Act”), which requires certification and disclosure of cost and pricing data in connection with the negotiation of certain contracts, modifications, or task orders;

• the Procurement Integrity Act, which regulates access to competitor bid and proposal information and certain internal government procurement sensitive information, and our ability to provide compensation to certain former government procurement officials;

• laws and regulations restricting the ability of a contractor to provide gifts or gratuities to employees of the USG, including the FCPA which prohibits U.S. citizens and entities from bribing foreign government officials to benefit their business interests;

• post-government employment laws and regulations, which restrict the ability of a contractor to recruit and hire current employees of the USG and deploy former employees of the USG;

• laws, regulations, and executive orders restricting the handling, use, and dissemination of information classified for national security purposes or determined to be “controlled unclassified information” or “for official use only,” and the export of certain products, services, and technical data, including requirements regarding any applicable licensing of our employees involved in such work;

• laws, regulations, and executive orders regulating the handling, use, and dissemination of personally identifiable information in the course of performing a USG contract;

• laws, regulations, and executive orders governing organizational conflicts of interest that may restrict our ability to compete for certain USG contracts because of the work that we currently perform for the USG or may require that we take measures such as firewalling off certain employees or restricting their future work activities due to the current work that they perform under a USG contract;

• laws, regulations, and executive orders that impose requirements on us to ensure compliance with requirements and protect the USG from risks related to our supply chain such as compliance with CMMC;

• laws, regulations, and mandatory contract provisions providing protections to employees or subcontractors seeking to report alleged fraud, waste, and abuse related to a USG contract;

• the Contractor Business Systems rule, which authorizes DoD agencies to withhold a portion of our payments if we are determined to have a significant deficiency in our accounting, cost estimating, purchasing, earned value management, material management and accounting, and/or property management system; and

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• the Cost Accounting Standards and Cost Principles, which impose accounting and allowability requirements that govern our right to reimbursement under certain cost-based USG contracts and require consistency of accounting practices over time.

Given the magnitude of our revenue derived from contracts with the DoD, the DCAA is our relevant government audit agency. The DCAA audits the adequacy of our internal control systems and policies including, among other areas, compensation. The DCMA, as our relevant government contract management agency, may determine that a portion of our employee compensation is unallowable based on the findings and recommendations in the DCAA’s audits. In addition, the DCMA directly reviews the adequacy of certain other business systems, such as our purchasing system. We are also subject to audit by Inspectors General of other USG agencies.

The USG may revise its procurement practices or adopt new contract rules and regulations at any time. When operating outside the U.S., we are subject to special USG laws and regulations (such as the FCPA), local government regulations and procurement policies and practices, including regulations relating to import-export control, investments, exchange controls, and repatriation of earnings, as well as varying currency, political, and economic risks.

USG contracts are, by the terms, subject to termination by the USG either for convenience or default by the contractor. In addition, USG contracts are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract performance could take many years. As is common in the industry, our Company is subject to business risk, including changes in governmental appropriations, national defense policies, service modernizations plans, military base reductions and closures, and availability of funds. Any of these factors could materially adversely affect our Company's business with the USG in the future.

The USG has a broad range of actions it can instigate to enforce its procurement law and policies. These include proposing a contractor, certain of its operations or individual employees for debarment or suspending or debarring a contractor, certain of its operations or individual employees from future government business. In addition to criminal, civil, and administrative actions by the USG, under The False Claims Act, an individual alleging fraud related to payments under a USG contract or program may file a qui tam lawsuit on behalf of the government against us; if successful in obtaining a judgment or settlement, the individual filing the suit may receive up to 30% of the amount recovered by the government. If we are subject to an enforcement action by the USG, it could materially and adversely affect our results of operations.

USG contracts contain numerous provisions that are unfavorable to us.

USG contracts contain provisions and are subject to laws and regulations that give the government rights and remedies, some of which are not typically found in commercial contracts, including allowing the government to:

• cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;

• claim rights in systems and software developed by us;

• suspend or debar us from doing business with the USG or with a governmental agency;

• impose fines and penalties and subject us to criminal prosecution; and

• control or prohibit the export of our data technology or proprietary service solutions.

If the government terminates a contract for convenience, we may recover only our incurred or committed costs, settlement expenses, and profit on work completed prior to the termination. If the government terminates a contract for default, we may be unable to recover even those amounts and instead may be liable for excess costs incurred by the government in procuring undelivered items and services from another source. Depending on the value of a contract, such termination could cause our actual results to differ materially and adversely from those anticipated. Certain contracts also contain organizational conflicts of interest (“OCI”) clauses that limit our ability to compete for or perform certain other contracts. OCIs arise any time we engage in activities that (i) make us unable or potentially unable to render impartial assistance or advice to the government; (ii) impair or might impair our objectivity in performing contract work; or (iii) provide us with an unfair competitive advantage. Depending upon the value of the matters affected, an OCI issue that precludes our participation in or performance of a program or contract could cause our actual results to differ materially and adversely from those anticipated.

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If we are unable to maintain successful relationships with our teaming partners, our ability to market, sell, and distribute our services will be limited, and our business, financial position, and results of operations will be harmed.

We expect that sales through teaming partners will continue to be a significant percentage of our revenue. Our agreements with our teaming partners are generally non-exclusive, meaning our teaming partners may offer customers services from several different companies, including services that compete with ours. The loss of a substantial number of our teaming partners, our possible inability to replace them, or the failure to recruit additional teaming partners could materially and adversely affect our results of operations.

We are exposed to the credit risk of some of our teaming partners, which could result in material losses.

Most of our sales for work performed for the USG are through our teaming partners and are on an open credit basis. We cannot assure an investor these programs will be effective in reducing our credit risks. If we are unable to adequately control these risks, our business, results of operations, and financial condition could be harmed.

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

USG programs are subject to annual congressional budget authorization and appropriation processes. For many programs, Congress appropriates funds annually even though the program performance period may extend over several years. Programs are often partially funded initially, with additional funds committed only as Congress makes further appropriations. Because we derive substantially all of our revenue from contracts with the federal, state, and local governments, we believe that the success and development of our business will continue to depend on our successful participation in federal, state, and local contract programs. Since the majority of our revenue comes from the USG, changes in USG budgetary priorities, such as for homeland security or to address Social Security or Medicare reform, or actions taken to address government budget deficits, the national debt, and/or prevailing economic conditions, could directly affect our financial performance.

When we or our subcontractors incur costs in excess of funds obligated on a contract, we are generally at risk for reimbursement unless and until additional funds are obligated to the contract. We cannot predict what funding will ultimately be approved for individual programs. In addition, pressures on, as well as laws and plans relating to the federal budget, potential changes in priorities and defense spending, the timing and substance of the appropriations process, use of continuing resolutions, and the federal debt limit (including a breach of the federal debt ceiling), could adversely affect the amount and timing of funding for individual programs and delay purchasing or payments by our customers.

The U.S. continues to face a changing geopolitical environment, along with substantial fiscal, economic, and security challenges, which affect funding and budgetary priorities. The budget and macroeconomic environment, global security environment, political instability, and uncertainty surrounding the appropriations processes and the debt ceiling, remain significant short and long-term risks. See “U.S. Political, Budgetary, and Regulatory Environment” in MD&A. In addition, high deficit levels and high debt servicing costs could drive cuts to federal spending. Considerable uncertainty exists regarding how future budget and program decisions will unfold. If annual appropriations bills are not timely enacted, the USG may continue to operate under a CR, (potentially of extended duration), restricting new contract or program starts, presenting resource allocation challenges and placing limitations on budgets.

We also may face a prolonged government shutdown that could lead to program cancellations, disruptions and/or stop work orders and could limit the USG’s ability to progress programs and make timely payments. A prolonged shutdown could limit our ability to perform on our contracts and successfully compete for new work. If the statutory debt limit is not increased adequately, we could be obligated to work without receiving timely payments, and a prolonged breach could have far-reaching adverse consequences.

If the USG imposes sequestration in the absence of an approved budget or CR, our participation in USG contract programs could be impaired. A significant decline in USG expenditures, a shift of expenditures away from programs that we support, or a change in USG contracting policies could cause USG agencies to reduce their purchases under contracts, to exercise their right to terminate contracts at any time without penalty or not to exercise options to renew contracts.

At times, we may continue to work without funding, and use our own internal funds to meet our customer’s desired delivery dates for products or services. It is uncertain at this time which of our programs’ funding could be reduced in future years or whether new legislation will be passed by Congress in the next fiscal year that could result in additional or alternative funding cuts.

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If we fail to establish and maintain important relationships with government entities and agencies, our ability to successfully bid for new business may be adversely affected.

To facilitate our ability to prepare bids for new business, we rely in part on establishing and maintaining relationships with officials of various government entities and agencies. These relationships enable us to provide informal input and advice to government entities and agencies prior to the development of a formal bid. We may be unable to successfully maintain our relationships with government entities and agencies, and any failure to do so may adversely affect our ability to bid successfully for new business and could cause our actual results to differ materially and adversely from those anticipated.

We derive significant revenue from contracts and task orders awarded through a competitive bidding process. If we are unable to consistently win new awards over any extended period, our business and prospects will be adversely affected.

Our contracts and task orders with the USG are typically awarded through a competitive bidding process. We expect that much of that business we will seek in the foreseeable future will continue to be awarded through competitive bidding. Budgetary pressures and changes in the procurement process have caused many government customers to increasingly purchase goods and services through IDIQ contracts, GSA schedule contracts, and other GWACs. These contracts, some of which are awarded to multiple contractors, have increased competition and pricing pressure, requiring that we make sustained post-award efforts to realize revenue under each such contract.

This competitive bidding process presents a number of risks, including the following:

• we bid on programs before the completion of their design, which may result in unforeseen technological difficulties and cost overruns;

• we expend substantial cost and managerial time and efforts to prepare bids and proposals for contracts that we may not win;

• we may be unable to estimate accurately the resources and cost structure that will be required to service any contract we win; and

• we may encounter expense and delay if our competitors protest or challenge awards or contracts to us in competitive bidding, and any such protest or challenge could result in the resubmission of bids on modified specifications, or in termination, reduction, or modification of the awarded contract.

If we are unable to win particular contracts we may be prevented from providing services to customers that are purchased under those contracts for a number of years. If we are unable to consistently win new contract awards over any extended period, our business and prospects will be adversely affected and that could cause our actual results to differ materially and adversely from those anticipated. If we are unable to win prime contracts, or acquire companies with prime contract vehicles, our business and prospects will be adversely affected. In addition, upon the expiration of a contract, if the customer requires further services of the type provided by the contract, there is frequently a competitive rebidding process. There can be no assurance that we will win any particular bid, or that we will be able to replace business lost upon expiration or completion of a contract and the termination or non-renewal of any of our significant contracts could cause our actual results to differ materially and adversely from those anticipated.

Our business may suffer if we or our employees are unable to obtain the security clearances or other qualifications needed to perform services for our customers.

Many of our USG contracts require us to have security clearances and employ personnel with specified levels of education, work experience, and security clearances. Depending on the level of clearance, security clearances can be difficult and time-consuming to obtain. If we or our employees lose or are unable to obtain necessary security clearances, we may not be able to win new business and our existing customers could terminate their contracts with us or decide not to renew them. To the extent we cannot obtain or maintain the required security clearances for our employees working on a particular contract, we may not generate the revenue anticipated from the contract which could cause our results to differ materially and adversely from those anticipated.

If our prime contractors fail to maintain their relationships with the applicable governmental agency and fulfill their contractual obligations, our performance as a subcontractor and our ability to obtain future business could be materially and adversely impacted and our actual results could differ materially and adversely from those anticipated.

Our performance as a subcontractor on a government contract is dependent on our prime contractor’s ability to satisfactorily maintain its relationship with the applicable government agency and fulfill its obligations under their contract.

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A failure by our prime contractor to fulfill its obligations under their contract could result in the termination of the prime contract, thereby resulting in the termination of our subcontract. If any significant subcontract is terminated in this manner, it could cause our actual results to differ materially and adversely from those anticipated.

The USG’s appropriation process and other factors may delay the collection of our receivables, and our business may be adversely affected if we cannot collect our receivables in a timely manner.

We depend on the timely collections of our receivables to generate cash flow, provide working capital, pay debt, and continue our business operations. If the USG or any of our other customers or any prime contractors for which we are a subcontractor fail to pay or delays the payment of their outstanding invoices for any reason, our business and financial condition may be materially and adversely affected. The USG may fail to pay outstanding invoices for a number of reasons, including lack of appropriated funds, administrative error, or lack of an approved budget. If we experience difficulties collecting receivables, it could cause our actual results to differ materially and adversely from those anticipated.

The USG may change its procurement or other practices in a manner adverse to us.

The USG may change its procurement practices or adopt new contracting rules and regulations, such as those related to cost accounting standards. It could also adopt new contracting methods relating to GSA contracts or other government-wide contracts, adopt new socio-economic requirements, or change the basis upon which it reimburses our compensation and other expenses or otherwise limit such reimbursements. In all such cases, there is uncertainty surrounding the changes and what actual impacts they may have on contractors. These changes could impair our ability to obtain new contracts or win re-competed contracts or adversely affect our future profit margin. Any new contracting methods could be costly or administratively difficult for us to satisfy and, as a result, could cause actual results to differ materially and adversely from those anticipated.

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

USG agencies routinely audit and investigate government contracts and government contractors’ administrative processes and systems. These agencies review our performance on contracts, pricing practices, cost structure, and compliance with applicable laws, regulations, and standards. They also evaluate the adequacy of internal controls over our business systems, including our purchasing, accounting, estimating, earned value management, and government property systems. Any costs found to be improperly allocated or assigned to contracts will not be reimbursed, and any such costs already reimbursed must be refunded and certain penalties may be imposed. Moreover, if any of the administrative processes and systems are found not to comply with requirements, we may be subjected to increased government scrutiny and approval that could delay or otherwise adversely affect our ability to compete for or perform contracts or collect our revenue in a timely manner. Therefore, an unfavorable outcome of an audit by the DCAA or another government agency could cause actual results to differ materially and adversely from those anticipated. If a government investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeitures of profits, suspension of payments, fines, and suspension or debarment from doing business with the USG. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. Each of these results could cause actual results to differ materially and adversely from those anticipated.

We may not receive the full amounts authorized under the contracts included in our backlog, which could reduce our revenue in future periods below the levels anticipated.

Our total backlog consists of funded and unfunded amounts. Funded backlog represents contract value from funds appropriated by Congress and obligated by the customer which is expected to be recognized as revenue. Unfunded backlog represents the sum of the unappropriated contract value on executed contracts and unexercised option years that is expected to be recognized as revenue. The primary risks that could affect our ability to recognize revenue from backlog on a timely basis or at all are: program schedule changes, contract modifications, and our ability to assimilate and deploy new consulting staff against funded backlog; cost-cutting initiatives and other efforts to reduce USG spending, which could reduce or delay funding for orders for services; and delayed funding of our contracts due to delays in the completion of the USG's budgeting process and the use of CRs by the USG to fund its operations. The amount of our funded backlog is also subject to change, due to, among other factors: changes in congressional appropriations that reflect changes in USG policies or priorities resulting from various military, political, economic, or international developments; changes in the use of USG contracting vehicles, and the provisions therein used to procure our services and adjustments to the scope of services, or cancellation of contracts, by the USG at any time. In addition, contract backlog includes orders under contracts for which the period of performance has expired, and we may not recognize revenue on the funded backlog that includes

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such orders due to, among other reasons, the tardy submission of invoices by our subcontractors and the expiration of the relevant appropriated funding in accordance with a predetermined expiration date such as the end of the USG's fiscal year. Our backlog may not result in actual revenue in any particular period, or at all, which could cause our actual results to differ materially and adversely from those anticipated.

Without additional Congressional appropriations, some of the contracts included in our backlog will remain unfunded, which could materially and adversely affect our future operating results.

Many of our USG contracts include multi-year performance periods in which Congress appropriates funds on an annual basis. A majority of our contracts are only partially funded at any point during their full performance period and unfunded contract work is subject to future appropriations by Congress. As a result of a lack of appropriated funds or efforts to reduce USG spending, our backlog may not result in revenue or may be delayed. If our backlog estimate is inaccurate and we fail to realize those amounts as revenue, our future operating results could be materially and adversely affected.

Employee misconduct, including security breaches, could result in the loss of customers and our suspension or debarment from contracting with the USG.

We may be unable to prevent our employees from engaging in misconduct, fraud, or other improper activities that could adversely affect our business and reputation. Misconduct could include the failure to comply with USG procurement regulations, regulations regarding the protection of classified information, and legislation regarding the pricing of labor and other costs in government contracts. Many of the systems we work on involve managing and protecting information involved in national security and other sensitive government functions. A security breach in one of these systems could prevent us from having access to such critically sensitive systems. Other examples of employee misconduct could include timecard fraud and violations of the Anti-Kickback Act of 1986. The precautions we take to prevent and detect this activity may not be effective, and we could face unknown risks or losses. As a result of employee misconduct, we could face fines and penalties, loss of security clearance, and suspension or debarment from contracting with the USG, which could cause our actual results to differ materially and adversely from those anticipated.

We face intense competition and could fail to gain market share from our competitors, which could adversely affect our business, financial condition, and results of operations.

We obtain much of our business on the basis of proposals submitted in response to requests from potential and current customers, who may also receive proposals from other firms. The market for our products and services is intensely competitive and characterized by rapid changes in technology, customer requirements, industry standards, and frequent new product introductions and improvements. We anticipate continued challenges from current competitors, which in many cases are more established and enjoy greater resources than we do, as well as by new entrants into the industry. Non-traditional players have entered the market and have established positions related to such areas as cloud computing, cyber, satellite operations, and business systems. We also face indirect competition from certain government agencies that perform services for themselves similar to those marketed by us. If we are unable to anticipate or effectively react to these competitive challenges, our competitive position could weaken, and we could experience a decline in our growth rate or revenue that could adversely affect our business and results of operations.

In addition, some of our larger competitors have substantially broader product and service offerings and may be able to leverage their relationships with distribution partners and customers based on other products or services, or incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our products, subscriptions and services, including by selling at zero or negative margins, product bundling, or offering closed technology platforms. Potential customers may also prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. As a result, even if the features of our platform or the quality of our services are superior, customers may not purchase our products or services. In addition, new innovative start-up companies, and larger companies that are making significant investments in research and development, may invent similar or superior products and technologies that compete with our platform. Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources. If we are unable to compete successfully, or if competing successfully requires us to take costly actions in response to the actions of our competitors, our business, financial condition, and results of operations could be adversely affected.

Systems failures may disrupt our business and have an adverse effect on our operating results.

Any systems failures, including network, software, or hardware failures, whether caused by us, a third-party service provider, unauthorized intruders and hackers, computer viruses, natural disasters, power shortages, or terrorist attacks,

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could cause loss of data or interruptions or delays in our business or that of our customers. Like other companies, we have experienced cyber security threats to our data and systems, our Company sensitive information, and our IT infrastructure, including attempted malware and computer virus attacks, unauthorized access, systems failures, and temporary disruptions. Prior attempted cyber-attacks directed at us have not had a material adverse impact on our business and financial results.

Many of the systems that we develop, integrate, maintain, otherwise support or use involve managing and protecting intelligence, national security, and other sensitive government information. A security breach or system failure in a system that we develop, integrate, maintain or otherwise support could result in a loss of revenue, remediation costs, claims for damages or contract termination and our errors and omissions liability insurance may be inadequate to compensate us from all the damages that we might incur. Any such event could also cause serious damage to our reputation and prevent us from having access to or being eligible further work on such sensitive systems for government customers.

In addition, to provide services to our customers, we often depend upon or use customer systems that are supported by the customer or third parties. Any security breach or system failure in such systems could result in an interruption of our customer’s operations, significant delays under a contract, loss of revenue, claims for damages, contract termination, and have a material adverse effect on our results of operations.

Our insurance, including for errors and omissions liability and property and business interruption, may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, our actual results could differ materially and adversely from those anticipated.

Our failure to adequately protect our confidential information and proprietary rights may harm our competitive position.

Our success depends, in part, upon our ability to protect our proprietary information. Although our employees are subject to confidentiality obligations, this protection may be inadequate to deter misappropriation of our proprietary information. In addition, we may be unable to detect unauthorized use of our proprietary information in order to take appropriate steps to enforce our rights. If we are unable to prevent third parties from infringing or misappropriating our proprietary information, our competitive position could be harmed, and our actual results could differ materially and adversely from those anticipated.

Our annual revenue and operating results could be volatile due to the unpredictability of the USG’s budgeting process and policy priorities.

Our annual revenue and operating results may fluctuate significantly and unpredictably in the future. If the USG does not adopt, or delays adoption of, a budget for each fiscal year beginning on October 1, or fails to pass a CR, federal agencies may be forced to suspend our contracts and delay the award of new and follow-on contracts and orders due to a lack of funding. Further, the rate at which the USG procures technology may be negatively affected following changes in presidential administrations and senior government officials or by “divided government” where one political party controls the White House and another party controls Congress. Therefore, period-to-period comparisons of our operating results may not be a good indication of our future performance. Our annual operating results may not meet the expectations of securities analysts or investors, which in turn may have an adverse effect on the market price of our common stock.

We may lose money or generate less than anticipated profits if we do not accurately estimate the cost of an engagement which is conducted on a fixed-price basis.

We generated 5% of our total revenue in the year ended December 31, 2025, 6% of our total revenue in the year ended December 31, 2024, and 7% of our total revenue in the year ended December 31, 2023, from FFP contracts. FFP contracts require us to price our contracts by predicting our expenditures in advance. In addition, some of our engagements obligate us to provide ongoing maintenance and other supporting or ancillary services on a FFP basis or with limitations on our ability to increase prices. Many of our engagements are also on a T&M basis. To the extent that our actual labor costs are higher than the contract rates, our actual results could differ materially and adversely from those anticipated.

When making proposals for engagements on a FFP basis, we rely on our estimates of costs and timing for completing the projects. These estimates reflect our best judgment regarding our capability to complete the task efficiently. Any increased or unexpected costs or unanticipated delays in connection with the performance of FFP contracts, including delays caused by factors outside of our control, could make these contracts less profitable or unprofitable. If we encounter such problems in the future, our actual results could differ materially and adversely from those anticipated.

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

As of December 31, 2025, our backlog included cost reimbursable, T&M, and FFP contracts. Cost reimbursable and T&M contracts generally have lower profit margins than FFP contracts. Our earnings and margins may, therefore, vary materially and adversely depending on the relative mix of contract types, the costs incurred in their performance, the achievement of other performance objectives and the state of performance at which the right to receive fees, particularly under incentive and award fee contracts, is finally determined.

Risks Related to our Acquisitions

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

The success of our acquisition strategy will depend on our ability to continue to successfully integrate any businesses we may acquire in the future. The integration of these businesses into our operations may result in unforeseen operating difficulties, absorb significant management attention, and require significant financial resources that would otherwise be available for the ongoing development of our business. These integration difficulties include the integration of personnel with disparate business backgrounds, the transition of new information systems, coordination of geographically dispersed organizations, loss of key employees of acquired companies, and reconciliation of different corporate cultures. For these or other reasons, we may be unable to retain key customers of acquired companies. Moreover, any acquired business may fail to generate the revenue or net income we expected or produce the efficiencies or cost-savings we anticipated. Any of these outcomes could cause our actual results to differ materially and adversely from those anticipated.

We have substantial investments in recorded goodwill as a result of prior acquisitions and a change in future business conditions could cause these investments to become impaired, requiring substantial write-downs that would reduce our operating income.

Goodwill accounts for $10,676,834 of our recorded total assets as of December 31, 2025. We evaluate the recoverability of recorded goodwill amounts annually or more frequently, if evidence of potential impairment exists. The annual impairment test is based on several factors requiring judgment. Principally, a decrease in expected reporting unit cash flows or changes in market conditions may indicate potential impairment of recorded goodwill. If there is an impairment, we would be required to write down the recorded amount of goodwill, which would be reflected as a charge against operating income and would reduce the value of our total assets and our total equity on our balance sheet. During the third quarter of 2023, due to decline in stock price, Management determined that a triggering event occurred representing an indicator of goodwill impairment, resulting in a noncash charge of $0. No triggering events were identified during 2024 or 2025.

Risks Related to our Common Stock and Preferred Stock

Future sales or potential sales of our common stock in the public market could cause our share price to decline.

If the existing holders of our common stock sell a large number of shares, they could adversely affect the market price for our common stock. Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline.

Because we will not pay dividends on our common stock in the foreseeable future, holders of common stock will only benefit from owning common stock if it appreciates.

We have never paid cash dividends on our common stock, and we do not intend to do so in the foreseeable future. We intend to retain any future earnings to finance our growth. However, the holders of our Series A preferred stock and Series C preferred stock receive cash dividends and have seniority in liquidation preference to the holders of our common stock. Accordingly, any potential investor who anticipates the need for current dividends from his investment should not purchase our common stock.

Low Trading Price of Common Stock on the NYSE American

Our common stock was approved for listing on the NYSE American and began trading there on October 13, 2022. In the case of a company whose common stock sells for a low price per share for a substantial period of time, the NYSE American continued listing rules permit the exchange to de-list a listed company in the event it fails to effect a reverse split

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of such shares within a reasonable time after being notified that the exchange deems such action to be appropriate under the circumstances. We have not received any such notification from the NYSE American but could receive it in the future. In the event we received such a notice from the NYSE American and failed to comply within a reasonable time after receiving such notice with its request to effect a reverse stock split of our common shares, our shares of common stock could be delisted from the NYSE American.

Our failure to meet the continued listing requirements of the NYSE American could result in a delisting of our common stock and subject us to the penny stock rules.

Our common stock was approved for listing on the NYSE American and began trading there on October 13, 2022; however, if we subsequently fail to meet any of NYSE American’s continued listing requirements, our common stock may be delisted. In addition, our Board may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our common stock from the NYSE American may materially impair our stockholders’ ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. The delisting of our common stock could significantly impair our ability to raise capital and the value of your investment. The delisting of our common stock would also subject us to the rules adopted by the SEC that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and as a result, stockholders may have difficulty selling their shares.

Although our Company does not intend to utilize the controlled company exemptions to the NYSE American corporate governance listing standards, if we are eligible to utilize the controlled company exemptions in the future, we may choose to do so. In such instance we would be exempted from, among other things, the requirements to have a board with a majority of independent members and the requirement that we have a nominating and governance committee and compensation committee that are composed entirely of independent directors and have written charters addressing the respective committee’s purpose and responsibilities. Our Company’s reliance on such exemption would likely result in a reduction in transparency to shareholders on various governance matters which could negatively impact their investment decisions.

We are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of  (i) the last day of the fiscal year in which we have total annual gross revenues of  $1,235,000,000 or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of the public offering; (iii) the date on which we have issued more than $1,000,000,000 in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

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Unanticipated changes in our tax provisions or exposure to additional income tax liabilities could affect our financial condition and profitability and we may take tax positions that the Internal Revenue Service or other tax authorities may contest.

We are subject to income taxes in the U.S. Significant judgments and estimates are required to be made in determining our provision for income taxes. Changes in estimates of projected future operating results, loss of deductibility of items, recapture of prior deductions, limitations on our ability to utilize tax net operating losses in the future, or changes in assumptions regarding our ability to generate future taxable income could result in significant increases to our tax expense and liabilities that could adversely affect our financial condition and profitability.

We have in the past and may in the future take tax positions that the Internal Revenue Service (“IRS”) or other tax authorities may contest. We are required by an IRS regulation to disclose particular tax positions to the IRS as part of our tax returns for that year and future years. If the IRS or other tax authority successfully contests a tax position that we take, we may be required to pay additional taxes, interest, or fines that may adversely affect our results of operations and financial position.

Anti-takeover provisions in our charter documents and Nevada law could discourage, delay, or prevent a change in control of our Company and may affect the trading price of our common stock.

We are a Nevada corporation and the anti-takeover provisions of the Nevada Revised Statutes may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. An interested stockholder is a person who, together with the affiliates and associates, beneficially owns (or within the prior two years, did beneficially own) ten percent or more of the Company’s capital stock entitled to vote. In addition, our amended and restated articles of incorporation, as amended (the “Amended and Restated Articles of Incorporation”) and amended and restated bylaws (the “Amended and Restated Bylaws”) may discourage, delay, or prevent a change in our management or control over us that stockholders may consider favorable. Our Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws (i) authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors (“Board”) to thwart a takeover attempt; (ii) provide that vacancies on our Board, including newly created directorships, may be filled by a majority vote of directors then in office, (iii) provide that the Board shall have the sole power to adopt, amend, or repeal the Amended and Restated Bylaws, and (iv) requires a stockholder to provide advance written notice of a stockholder proposal.

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

Our Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws provide that, to the fullest extent permitted by law, and unless the Company consents in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada, shall, to the fullest extent permitted by law, be the sole and exclusive forum for state law claims with respect to: (a) any derivative action or proceeding brought in the name or right of the Company or on its behalf, (b) any action asserting a claim for breach of any fiduciary duty owed by any director, officer, employee, or agent of the Company to the Company or the Company’s stockholders, (c) any action arising or asserting a claim arising pursuant to any provision of Nevada Revised Statutes Chapters 78 or 92A or any provision of the Amended and Restated Articles of Incorporation or the Amended and Restated Bylaws, or (d) any action asserting a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforce, or determine the validity of the Amended and Restated Articles of Incorporation or the Amended and Restated Bylaws. Pursuant to Article IX of the Amended and Restated Articles of Incorporation and pursuant to Article XIII of the Amended and Restated Bylaws, and for the avoidance of doubt, this exclusive forum provision shall not be applicable to any action brought under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and that unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act or the Exchange Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Company shall be deemed to have

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notice of and consented to the provisions of Article IX of our Amended and Restated Articles of Incorporation and Article XIII of our Amended and Restated Bylaws. There exists uncertainty, however, as to whether such forum selection provisions of our Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws would be enforced by a court.

The choice of forum provision in our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers, employees, or agents, which may discourage such lawsuits against us and our directors, officers, employees, and agents even though an action, if successful, might benefit our stockholders. The applicable courts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. With respect to the provision making the Eighth Judicial District Court of Clark County, Nevada the sole and exclusive forum for certain types of actions, stockholders who do bring a claim in the Eighth Judicial District Court of Clark County, Nevada could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Nevada. Finally, if a court were to find this provision of our Amended and Restated Articles of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could have a material adverse effect on us.

If we fail to establish and maintain an effective system of internal control or disclosure controls and procedures are not effective, we may not be able to report our financial results accurately and timely or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.

Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), requires that we maintain internal control over financial reporting that meets applicable standards. We may err in the design or operation of our controls, and all internal control systems, no matter how well designed and operated, can provide only reasonable assurance that the objectives of the control system are met. Because there are inherent limitations in all control systems, there can be no assurance that all control issues have been or will be detected. If we are unable, or are perceived as unable, to produce reliable financial reports due to internal control deficiencies, investors could lose confidence in our reported financial information and operating results, which could result in a negative market reaction and a decrease in our stock price.

There can be no assurances that weakness in our internal controls will not occur in the future. If we identify new material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting (if and when required), we may be late with the filing of our periodic reports, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. As a result of such failures, we could also become subject to investigations by the NYSE American, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition, or divert financial and management resources from our core business and would have a material adverse effect on our business, financial condition, and results of operations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the historical financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K (“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 Form 10-K.

Business Overview

We are a technology services and solutions 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 (“U.S.) government (“USG”), financial services, legal, and other users of large data applications with services which include intelligence analysis, software development, software engineering, system modernization, 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

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that share our passionate commitment to U.S. national security and have a history of bringing exceptional value to their clients.

Recent Developments

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 (“SEC”) on December 12, 2023 and remains effective. Pursuant to this registration statement, 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.

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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.

On September 17, 2025, the Company filed a registration statement on Form S-8 (File No. 333-290331) to register an aggregate of 3,000,000 shares of the Company’s common stock to be issued pursuant to the Castellum, Inc. 2025 Employee Stock Purchase Plan (the “ESPP”). The ESPP was adopted by the Company’s Board of Directors on March 11, 2025 and approved by the Company’s stockholders at the annual meeting held on May 28, 2025. The ESPP is a voluntary employee benefit program that permits eligible employees to contribute up to 5% of their eligible compensation through payroll deductions each pay period. Payroll deductions and purchases of Company common stock under the ESPP did not commence until 2026. Shares are purchased on behalf of participating employees on a quarterly basis at a price equal to 85% of the fair market value on the applicable purchase date. The ESPP is intended to provide employees with an opportunity to acquire an ownership interest in the Company and is not a component of executive compensation.

On September 17, 2025, the Company filed a registration statement on Form S-8 (File No. 333-290332) to register an aggregate of 9,000,000 shares of the Company's common stock to be issued pursuant to the Castellum, Inc. Second Amended 2021 Stock Incentive Plan.

On March 19, 2025, the Company closed on the public offering (the "March 2025 Public Offering") of 4,500,000 units ("Unit(s)") at a public offering price of $1.00 per Unit. Each Unit consisted of one share of common stock and one warrant to purchase one share of common stock (the "March 2025 Warrants"). The March 2025 Warrants were immediately exercisable at $1.08 per share and expired 60 days from the date of issuance. The shares of common stock and 2025 Warrants were immediately separable and issued separately. Gross proceeds from the March 2025 Public Offering were approximately $4.5 million before deducting placement agent fees and offering expenses. Castellum intends to use the net proceeds of the offering for working capital and general corporate purposes.

Of the 4,500,000 March 2025 Warrants issued during the March Public Offering, 1,755,543 warrants were exercised at $1.08 per share prior to June 30, 2025 for gross proceeds of $1.90 million before deducting placement agent fees. The remaining 2,744,457 warrants expired on May 19, 2025.

On June 13, 2025, the Company closed on the public offering (the "June 2025 Public Offering") of 4,166,667 units ("Unit(s)") at a public offering price of $1.20 per Unit. Each Unit consisted of one share of common stock and one warrant to purchase one share of common stock (the "June 2025 Warrants"). The June 2025 Warrants were immediately exercisable at $1.22 per share and expired 60 days from the date of issuance. The shares of common stock and June 2025 Warrants were immediately separable and issued separately. Gross proceeds from the June 2025 Public Offering were approximately $5.0 million before deducting placement agent fees and offering expenses. Castellum intends to use the net proceeds of the June 2025 Public Offering for working capital and general corporate purposes.

Of the 4,166,667 June 2025 Warrants issued during the June Public Offering, 3,673,666 warrants were exercised at $1.22 per share prior to September 30, 2025 for gross proceeds of $4.48 million before deducting placement agent fees. The remaining 493,001 warrants expired on August 12, 2025.

Key Components of Our Results of Operations

Revenues

Our revenues are primarily derived from services provided to the U.S. federal, state and local governments. We currently generate our revenue from three different types of contractual arrangements: Cost Plus Fixed Fee (“CPFF”), Fixed Firm Price (“FFP”) and Time and Materials (“T&M”) contracts. For CPFF contracts, we use input progress measures to derive revenue based on hours worked on contract performance as follows: direct costs plus Defense Contract Audit Agency (“DCAA”) approved provisional burdens plus fee. The provisional indirect rates are adjusted and billed at actual at year end. Revenue from FFP contracts is generally recognized ratably over the contract term, using a time-based measure of progress, even if billing is based on other metrics or milestones, including specific deliverables. For T&M contracts, we use input progress measures to estimate revenue earned based on hours worked on contract performance at negotiated

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billing rates, plus direct costs and indirect cost burdens associated with materials and the direct expenses incurred in performance of the contract.

Cost of Revenues

Cost of Revenues include direct costs incurred to provide goods and services related to contracts, specifically labor, contracted labor, materials, and other direct costs, which includes rent, insurance, and software licenses. Cost of Revenues related to contracts is recognized as expense when incurred or at the time a performance obligation is satisfied.

Gross Profit and Gross Profit Margin

Our gross profit comprises our revenues less our cost of revenues. Gross profit margin is our gross profit divided by our revenues.

Operating Expenses

Our operating expenses include indirect costs, overhead, and general and administrative expenses.

• Indirect costs consist of expenses generally associated with bonuses and fringe benefits, including employee health and medical insurance, 401k matching contributions, and payroll taxes.

• Overhead consists of expenses associated with the support of operations or production, including labor for management of contracts, operations, training, supplies, and certain facilities to perform customer work.

• General and administrative expenses consist primarily of corporate and administrative labor expenses, administrative bonuses, legal expenses, IT expenses, and insurance expenses.

Interest Income (Expense)

Interest income consists of interest earned from savings accounts, net of interest paid on the note payable between the Company and the Buckhout Charitable Remainder Trust, two promissory notes payable to Robert Eisiminger, and the related party note payable to Emil Kaunitz. During 2025, the note payable with the Buckhout Charitable Remainder Trust and the two promissory notes payable to Robert Eisiminger were paid off.

Income Tax (Provision) Benefit

Income taxes are accounted for under the asset and liability method. The current charge for income tax expense is calculated in accordance with the relevant tax regulations applicable to the entity. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Differences between statutory tax rates and effective tax rates relate to permanent tax differences.

We follow ASC 740-10 Accounting for Uncertainty in Income Taxes. This requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates their tax positions on a quarterly basis.

Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax reporting purposes, net operating loss carryforwards, and other tax credits measured by applying currently enacted tax laws. When necessary, a valuation allowance is provided to reduce deferred tax assets to an amount that is more likely than not to be realized.

We file income tax returns in the U.S. federal tax jurisdiction and various state tax jurisdictions. The federal and state income tax returns of the Company are subject to examination by the Internal Revenue Service (“IRS’) and state taxing authorities, generally for three years after they were filed. We have filed our 2023 and 2024 federal and state tax returns.

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Results of Operations

The year to year comparisons of our results of operations have been prepared using the historical periods included in our audited consolidated financial statements. The following discussion should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this document.

Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

Year Ended December 31,

Amount of Increase (Decrease)

% Change

Revenues

Cost of revenues

Gross profit

Operating expenses:

Indirect costs

Overhead

General and administrative expenses

Total operating expenses

Loss from operations

Other income (expense)

Loss before income taxes and preferred stock dividends

Income tax expense

Net loss

Preferred stock dividend

Net loss to common shareholders

Revenue

Total revenues increased by $8,101,149 or 18.1% to $52,866,001 for the year ended December 31, 2025 from $44,764,852 for the year ended December 31, 2024. This increase in revenue was driven primarily by the award in March 2024, to the Company's subsidiary, Global Technologies Management Resources, Inc. (“GTMR”) of a $103.3 million, five and one-half year contract for Special Missions Management of On-Site Services in support of the Naval Air Systems Command (“NAVAIR”) Program Office 290 (“PMA-290”) Special Missions which ramped up during 2025 and additional direct labor growth on existing contracts.

Cost of revenues

Total cost of revenues increased by $6,998,707 or 26.4% to $33,497,144 for the year ended December 31, 2025 from $26,498,437 for the year ended December 31, 2024. This increase generally followed the growth in revenue; however, the percentage increase exceeded revenue growth primarily due to higher subcontractor and labor costs associated with the PMA-290 contract.

Gross profit

Total gross profit increased by $1,102,442 or 6.0% to $19,368,857 for the year ended December 31, 2025 from $18,266,415 for the year ended December 31, 2024. This increase was driven by the changes in revenue and cost of revenues noted above; however, higher subcontractor and labor costs resulted in margin compression during the period.

Operating expenses

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Total operating expenses decreased by $(3,327,623) or (13.0)% to $22,183,419 for the year ended December 31, 2025 from $25,511,042 for the year ended December 31, 2024. The increase in indirect cost of $148,643 was driven primarily by the increase costs of medical insurance year over year, offset by a decrease in bonus expense. The increase in overhead of $156,660 was primarily driven by an expected increase in office costs due to the additional labor force and the standard compensation adjustments for overhead labor. The decrease in general and administrative (“G&A”) costs of $(3,632,926) was primarily driven by a decrease in noncash stock based compensation granted to certain employees of $3,079,501 and a decrease in depreciation as fixed assets become fully depreciated.

Other income (expense)

Other income (expense) increased by $3,291,898 or 123.4%, to other income of $624,250 for the year ended December 31, 2025 from other expense of $(2,667,648) for the year ended December 31, 2024. This improvement was primarily driven by the payoff of the Company’s debt as detailed in Note 7 , under Part II, Item 8, of this Form 10-K, which reduced interest expense and the increase in interest income due to interest earned on the Company’s higher cash balances. In addition, other income (expense) includes a noncash gain, of $621,000 related to the change in the fair value of a derivative, as noted in Note 12 , under Part II, Item 8, of this Form 10-K.

Income tax expense

Income tax expense increased by $139,948 or 205.7% to $(207,980) for the year ended December 31, 2025 from $(68,032) for the year ended December 31, 2024. This increase was primarily driven by the increase in state taxes and the increase in valuation allowance. The Company continues to pay current tax while maintaining a valuation allowance on its net deferred tax assets.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Year Ended December 31,

Amount of Increase (Decrease)

% Change

Revenues

Cost of revenues

Gross profit

Operating expenses:

Indirect costs

Overhead

General and administrative expenses

Loss from change in fair value of contingent earnout

Total operating expenses

Loss from operations

Other expense

Loss before income taxes and preferred stock dividends

Income tax benefit (expense)

Net loss

Preferred stock dividend

Net loss to common shareholders

Revenues

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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 Company’s subsidiary, Mainnerve Federal Services, Inc. (MFSI”) dba MFSI Government Group on September 11, 2024.

Cost of revenues

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 MFSI on September 11, 2024.

Gross profit

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 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 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 expense

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 (expense) benefit

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.

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Contract Backlog

We define backlog to include the following three components:

• Funded Backlog . Funded backlog represents the revenue value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts.

• Unfunded Backlog . Unfunded backlog represents the revenue value of orders (including optional orders) for services under existing contracts for which funding has not been appropriated or otherwise authorized.

• Priced Options . Priced contract options represent 100% of the potential revenue value of all scheduled and unscheduled future contract option periods or orders under existing contracts that may be exercised at our clients’ option and for which funding has not been appropriated or otherwise authorized.

Our backlog does not include contracts that have been awarded but are currently under protest and also does not include any task orders under IDIQ contracts, except to the extent that task orders have been awarded to us under those contracts.

The following table summarizes the value of our contract backlog as of December 31, 2025:

Backlog

Funded

Unfunded

Priced Options

Total Backlog

Our total backlog consists of remaining performance obligations, certain orders under contracts for which the original period of performance has expired, unexercised option periods, and other unexercised or unscheduled optional orders. Excluding unscheduled options orders, as of December 31, 2025, the Company had $258,194,285 of funded, unfunded, and scheduled priced options. We expect to recognize approximately 18% of the remaining performance obligations over the next 12 months, and approximately 52% over the next 24 months. Including priced options that have been awarded but not yet scheduled of $7,215,912, our grand total backlog is $265,410,197. The remainder is expected to be recognized thereafter. As with all government contracts there is no guarantee the customer will have future funding or exercise their contract option in the out-years. Other budget risks are discussed in “Part I, Item1. U.S. Political, Budgetary, and Regulatory Environment.” Our backlog includes orders under contracts that in some cases extend for several years. U.S. Congress (“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 Congress makes subsequent appropriations and the procuring agency allocates funding to the contract.

Liquidity and Capital Resources

Sources

We have historically sourced our liquidity requirements with cash flows from operations, borrowings under our current credit facilities, and in October 2022, with an equity issuance through the listing of our common stock on the NYSE American. As of December 31, 2025, we had $14,884,778 of cash on hand. During the fiscal year 2025, we undertook the following significant equity and debt transactions that enhanced our liquidity and sources of funds:

• 2,000,000 warrants were exercised in February of 2025 to purchase 2,000,000 shares of the Company’s common stock, which resulted in aggregate proceeds to the Company of $700,000.

• Gross proceeds from the March 2025 Public Offering were approximately $4.5 million before deducting placement agent fees and offering expenses.

• Gross proceeds from the March 2025 Warrants were $1.90 million before deducing placement agent fees.

• Gross proceeds from the June 2025 Public Offering were approximately $5.0 million before deducting placement agent fees and offering expenses.

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• Gross proceeds from the June 2025 Warrants were $4.48 million before deducing placement agent fees.

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

Uses

Our material cash requirements from known contractual and other obligations primarily relate to payments on our credit facilities. For information related to these cash requirements, refer to Note 6 , Note 7 , Note 8 , and Note 9 , under Part II, Item 8., 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:

Twelve Months Ended December 31,

Net cash provided (used in) by:

Operating activities

Investing activities

Financing activities

Comparison of the Years Ended December 31, 2025 and 2024

Operating activities

Net cash used in operating activities was $(1,948,377) for the year ended December 31, 2025, compared to $1,120,105 provided by operating activities for the year ended December 31, 2024. The net cash used in operating activities was primarily driven by an increase 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, 2025.

Investing activities

Net cash used in investing activities was $(159,773), for the year ended December 31, 2025, compared to $221,356, for the year ended December 31, 2024. The net cash used in investing activities was primarily due to the purchase of fixed assets and the investment in joint ventures.

Financing activities

During the year ended December 31, 2025, $4,737,880 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 the full repayment of notes payable, the revolving line of credit with Live Oak Banking Company, and amounts due to seller, compared to net cash provided by financing activities of $9,082,746, for the year ended December 31, 2024.

Comparison of the Years Ended December 31, 2024 and 2023

Operating activities

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

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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, 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 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. We consider the policies and estimates discussed below as critical to an understanding of our financial statements because their application places the most significant demands on our judgment, with financial reporting results dependent on estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Specific risks for these critical accounting estimates are described in the following paragraphs. Preparation of our financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.

Besides estimates that meet the “critical” accounting estimate criteria, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenue, and expenses as well as disclosures of contingent assets and liabilities. Estimates are based on experience and other information available prior to the issuance of the financial statements. Materially different results can occur as circumstances change and additional information becomes known, including for estimates that we do not deem “critical.”

Revenue Recognition

The Company accounts for revenue in accordance with ASC Topic 606,  Revenue from Contracts with Customers . (“Topic 606”). Topic 606 requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The principles in the standard are applied in five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

Our revenue recognition policies are consistent with this five-step framework. Understanding the complex terms of agreements and determining the appropriate time, amount, and method to recognize revenue for each transaction requires judgment. These significant judgments include: (1) determining what point in time or what measure of progress depicts the transfer of control to the customer; (2) estimating contract revenue, costs, and assumptions for schedule and technical issues; (3) selecting the appropriate method to measure progress; and (4) estimating how and when contingencies, or other forms of variable consideration, will impact the timing and amount of recognition of revenue. The timing and revenue recognition in a period could vary if different judgments were made.

Goodwill and Intangible Assets

We account for goodwill and intangible assets in accordance with ASC 350,  Intangibles-Goodwill and Other  (“ASC 350”). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.

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Our acquisitions require the application of purchase accounting, which results in tangible and identifiable intangible assets and liabilities of the acquired entity being recorded at fair value. The difference between the purchase price and the fair value of net assets acquired is recorded as goodwill. We are responsible for determining the valuation of assets and liabilities and for the allocation of purchase price to assets acquired and liabilities assumed.

Assumptions must be made in determining fair values, particularly where observable market values do not exist. Assumptions may include discount rates, growth rates, cost of capital, tax rates, and remaining useful lives. These assumptions can have a significant impact on the value of identifiable assets and accordingly can impact the value of goodwill recorded. Different assumptions could result in different values being attributed to assets and liabilities. Since these values impact the amount of annual depreciation and amortization expense, different assumptions could also impact our statement of operations and could impact the results of future asset impairment reviews. Due to the many variables inherent in the estimation of a business’s fair value and the relative size of our goodwill, if different assumptions and estimates were used, it could have an adverse effect on our impairment analysis.

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 and 2025, no triggering events were noted.

Income Taxes and Uncertain Tax Positions

Income taxes and uncertain tax positions are accounted for in accordance with ASC 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Differences between statutory tax rates and effective tax rates relate to permanent tax differences.

Management determines recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. This approach to estimate the potential outcome of any uncertain tax issue is subject to its assessment of relevant risks, facts, and circumstances existing at that time. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax reporting purposes, net operating loss carryforwards, and other tax credits measured by applying currently enacted tax laws. When necessary, a valuation allowance is provided to reduce deferred tax assets to an amount that is more likely than not to be realized.

Share-Based Compensation

We account for share-based compensation in accordance with ASC 718  Compensation – Stock Compensation . We calculate compensation expense for all awards granted, but not yet vested, based on the grant-date fair values. The Company recognizes these compensation costs, on a pro rata basis over the requisite service period of each vesting tranche of each award for service-based grants, and as the criteria is achieved for performance-based grants.

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., Financial Statements within this Form 10-K for a discussion of principles of consolidation.

Recently Issued Accounting Standards

The Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the Company’s income tax disclosures, including disaggregation of the effective tax rate reconciliation and income taxes paid.

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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 other recently issued and adopted accounting standards.