Karman Holdings Inc.

Formation and Nature of Business Operations

TCFIII Spaceco Holdings, LLC (the “Company”) conducts business through its wholly owned subsidiary, Karman Space and Defense (“Karman”). The Company is primarily owned by certain investment funds, with minority ownership held by certain former owners and employees of its subsidiaries. Karman was incorporated in Delaware in August 2020 for the purpose of acquiring and operating companies providing contract manufacturing services to the aerospace and defense industries. Karman is headquartered in Dallas, Texas. It currently operates five subsidiaries in Brea, El Monte, Huntington Beach, California, Mukilteo, Washington and Wilsonville, Oregon. The Company previously operated a subsidiary in Santa Ana, which was merged into AEC in 2022.

Karman specializes in the upfront design, testing, manufacturing, and sale of mission-critical systems for existing and emerging missile and defense, and space programs. Karman’s integrated payload protection, propulsion, and interstage system solutions are deployed across a wide variety of existing and emerging programs supporting important Department of Defense (“DoD”) and space sector initiatives.

Karman’s five wholly-owned subsidiaries are:

Aerospace Engineering, LLC (AEC), a limited liability company, purchased August 28, 2020

AMRO Fabricating Corporation (AMRO), a C-corporation, purchased October 28, 2020

American Automated Engineering, Inc. (AAE), a C-corporation, purchased December 21, 2020

Systima Technologies, Inc. (Systima), a C-corporation, purchased September 14, 2021

Rapid Machine Solutions – Wolcott Design Services, LLC (RMS), a limited liability company, purchased February 16, 2024

Initial Public Offering

On February 12, 2025 the Company’s Registration Statement on Form S-1 for its initial public offering (the “IPO”) was declared effective, see Note 16, Subsequent Events for additional information on the IPO. The Company operates as Karman Holdings Inc., a Delaware corporation. Prior to the effectiveness of this offering, the Company was a Delaware limited liability company named TCFIII Spaceco Holdings LLC. On February 12, 2025, the Company converted into a Delaware corporation and changed the name to Karman Holdings Inc. Pursuant to the conversion, all outstanding equity interests were reclassified into shares of common stock of Karman Holdings Inc.

Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Certain line items on the consolidated balance sheets, consolidated statements of operations and comprehensive income (loss) and the consolidated statements of cash flows are reclassified in the prior period to conform to current period presentation.

Principles of Consolidation

The consolidated financial statements include the operations of AEC, AMRO, AAE, Systima, RMS and Corporate. Corporate consists of centralized general and administrative functions, including executive management, finance, legal, human resources, information technology, facilities, fixed overhead expenses, taxes, and other corporate-level activities that support the Company’s operations. Intercompany accounts and transactions have been eliminated in consolidation.

Segment Reporting

Operating segments are identified as components of an enterprise that engage in business activities from which they may earn revenues and incur expenses, for which discrete financial information is available, and whose results are regularly reviewed by the chief operating decision maker to allocate resources and assess performance. The Company’s chief operating decision maker is the chief executive officer. The Company and the chief executive officer view the Company’s operations and manage its business as one reportable segment, the space and defense industry.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Management periodically evaluates estimates used in the preparation of the financial statements for continued reasonableness. Appropriate adjustments, if any, to estimates are made prospectively based upon such periodic evaluations. It is reasonably possible that changes may occur in the near term that would affect managements’ estimates with respect to revenue recognition, estimates of cost to complete contracts, allowance for credit losses, share-based payments, accrued expenses, inventory, deferred taxes, property and equipment and valuation of net assets acquired in business combinations, and the impairment assessment of goodwill and intangible assets.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposits, and short-term cash investments that are highly liquid in nature and have original maturities of three months or less.

The Company maintains cash deposits with major banking institutions, in which the deposits are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At times the Company had deposits in excess of the FDIC maximum. The Company has not experienced any losses in such accounts.

The estimated fair value of cash and cash equivalents approximates the carrying value due to their short maturities.

Business Combinations

The Company accounts for acquisitions by applying the acquisition method of accounting when the transaction or event is considered a business combination which requires that the assets acquired and liabilities assumed constitute a business. A defined business is generally an acquired group of assets with inputs and processes that make it capable of generating a return or economic benefit for the acquirer. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their fair values as of the closing date of the acquisition, with the excess cost recorded to goodwill. The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates of fair value are inherently uncertain and subject to refinement. Preliminary estimated fair values of the assets acquired and liabilities assumed are determined once a business is acquired, with the final determination of the estimated fair values being completed no later than one year from the date of acquisition.

Asset Acquisitions

Asset acquisitions are accounted for using the cost accumulation method. Determining whether the acquired set represents an asset acquisition, or a business combination requires quantitative and qualitative assessments subject to judgment. In an asset acquisition, acquisition costs are capitalized as part of the acquired set. The accounting for asset acquisitions requires estimates and judgment to allocate the incurred costs among the assets acquired using their relative fair value. As such, the values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.

Revenue and Costs Recognition

The Company recognizes revenue for each separately identifiable performance obligation in a contract representing a promise to transfer a distinct good to a customer. In most cases, goods provided under the Company’s contracts are accounted for as a single performance obligation due to the complex and integrated nature of its products. These contracts generally require significant integration of a group of goods to deliver a combined output. Warranties are provided on certain contracts, but do not typically provide for services beyond standard assurances and are therefore not considered to be a separate performance obligation. Assets recognized from costs to obtain or fulfill a contract are not material. Payment terms are typically forty-five days, but may vary.

The Company generates revenue under a range of contract types including fixed-price, time and material and cost-plus fixed fee contracts. Substantially all revenue is recognized as control is transferred to the customer over time based on an input measure of progress based on costs incurred compared to estimated total costs at completion. In general, the Company’s contracts contain termination clauses that entitle the Company to payment for work performed to-date for goods that do not have an alternative use. Amounts recoverable in the event of terminations include reasonable profit margins. Control is effectively transferred as the Company performs its contractual obligations. The Company generally recognizes revenues over time using the input method, measured by the percentage of total costs incurred to-date to estimated total anticipated costs for each contract. This method is used because the

Company considers total costs to be the best available measure of satisfaction of its performance obligations. Use of the input method requires the Company to make reasonable estimates regarding the revenue and costs associated with the design, manufacture, and delivery of its products. The Company estimates profit on these contracts as the difference between total estimated revenues and total estimated costs at completion (EAC) and recognizes profit as costs are incurred. Significant judgment is used to estimate total costs at completion. EAC’s are estimated using historical actual margins as a percentage of revenue, applied to open jobs. Unforeseen events and circumstances can alter the estimate of the costs and potential benefits associated with a particular contract.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as payroll taxes, employee benefits, equipment rental, indirect labor, rent, workers’ compensation insurance, utilities, and shop supplies. General operating, selling, and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

As of December 31, 2024, the Company had $375.8 million of remaining performance obligations. The Company expects to recognize approximately 58.4% of the remaining performance obligations as revenue in 2025,21.3% in 2026, and 20.3% thereafter.

The nature of Company’s business can give rise to significant contract modifications, which can impact performance obligations and transaction price. Management considers revenue recognizable on contract modifications that have not yet been formerly approved, but for which approval is considered perfunctory.

The timing of Company billings is generally dependent upon agreed-upon contractual terms, milestone billings based on the completion of certain phases of the work, or when products are provided. Billing can occur prior to revenue recognition, resulting in deferred revenue or subsequent to revenue recognition, resulting in unbilled revenue. The asset, “contract assets” represents revenues recognized in excess of amounts billed. These contract assets are not considered a significant financing component of the Company’s contracts as the payment terms are intended to protect the customer in the event the Company does not fulfill its obligations under the contract. The liability, “contract liabilities” represents amounts billed in excess of revenues recognized. Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements.

The following table summarizes our contract assets and liabilities:

Changes in contract asset and contract liabilities are primarily due to the timing of payments from customers and the Company satisfying performance obligations during the normal course of business. The amount of revenue recognized from changes in the transaction price associated with performance obligations satisfied in prior year during the years ended December 31, 2024, 2023 and 2022 was not material. Changes in contract assets and contract liabilities were as follows:

The Company’s contracts with customers relate to the design, manufacturing and delivery of its products in the following markets:

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Hypersonics and Strategic Missile Defense – Hypersonic missiles, large diameter missile deterrent technologies and intercontinental strategic missile defense systems

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Space and Launch – Traditional and new space launch rocket systems, space capsules, vehicles and payloads

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Tactical Missile and Integrated Defense Systems – Precision guided missiles, small diameter rocket and missile technologies and integrated defense systems

Substantially all of the Company’s customers are government or commercial enterprises based in the United States.

The following table presents our revenue disaggregated into markets as of December 31,2024, 2023 and 2022:

Revenue growth by market is presented in the tables below:

Contract Estimates and Modifications

The Company recognizes changes in contract estimates on a cumulative “catch-up” basis in the period in which the changes are identified. Such changes in contract estimates can result in the recognition of revenue in a current period for performance obligations which were satisfied or partially satisfied in a prior period. Changes in contract estimates may also result in the reversal of previously recognized revenue if the current estimate differs from the previous estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the consolidated statements of operations in the period in which it is identified.

A contract modification exists when the parties to a contract agree to a change in the scope and/or price of a contract. Contracts are often modified for changes in contract specifications or requirements. Most of the Company’s contract modifications are for goods that are not distinct in the context of the contract and are therefore accounted for as part of the original performance obligation through a cumulative catch-up adjustment.

Inventory

The Company determines the cost basis for inventory using the lower of cost or net realizable value. Cost is determined by using the weighted average method. The Company recognizes raw materials within inventory. As of December 31, 2024, the balance of raw materials and work in progress was $9,485,315 and $398,061, respectively, and as of December 31,2023, inventory consisted entirely of raw materials of $9,839,569.

Prepaid and other current assets

Within prepaid and other current assets, the Company recognizes prepaid expenses for prepayments for goods that are expected to be consumed within 12 months.

The following table summarizes our prepaid and other current assets:

Investments

The Company accounts for its investments in securities under the provisions of FASB ASC Topic 320, Investments in Debt Securities and FASB ASC Topic 321, Investments in Equity Securities. Topic 320 requires that management determines the appropriate classification of securities at the date individual investment securities are acquired, and that the appropriateness of such classifications be reassessed at each balance sheet date.

Accounts Receivable and Credit Loss Reserves

Accounts receivable are comprised of unsecured amounts due from customers and presented net of any allowance for credit losses. In 2023, the Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), commonly referred to as Current Expected Credit Losses (CECL). In consideration of the new standard, management has implemented a new methodology to recognize estimated losses on accounts receivable when created. Under the new methodology all accounts receivable balances 180 days beyond the contractual due date will be reserved at 50% and balances one year beyond the contractual due date will be reserved at 100%. For contract assets, the Company establishes a reserve for contract assets when a job exceeds a certain length of inactivity unless there is persuasive evidence the balance will still be recoverable.

Management will also continue to evaluate specific balances and, if facts and circumstances indicate they may be impaired, will record an allowance for the estimated losses. The adoption of CECL did not have a material impact on the Company’s financial statements. Accordingly, prior year reported financial results and disclosures have not been restated. A cumulative effect adjustment was recorded to beginning retained earnings as of January 1, 2023, as required under the modified retrospective adoption method, but this adjustment was not material to the consolidated financial statements. Expected credit losses are written off in the period in which the financial asset is no longer recoverable. Total write offs are immaterial to the consolidated financial statements.

The following table summarizes our allowance for credit losses:

Property and Equipment

Property and equipment is carried at cost less accumulated depreciation. Depreciation is computed using the straight- line method over the assets’ estimated useful lives which range from 3 to 15 years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the respective asset. Expenditures for repairs are expensed as incurred and major additions, renewals, and betterments are capitalized in the consolidated balance sheets. The costs and accumulated depreciation of assets retired or disposed are removed from the assets and related accumulated depreciation accounts, and gains or losses associated with the retirement or disposal are included in other income (expense) in the Company’s statements of operations.

Lease Obligations

Under the provisions of ASC 842, the Company has both finance and operating leases. An arrangement is determined to be a lease at inception if it conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Right-of-use (ROU) assets represent the right to use an underlying asset over the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. The Company has recorded both a right-of-use asset for each applicable lease and an associated liability for the right to use the asset and the obligation for future lease payments. Separate ROU assets and liabilities have been recorded for finance and operating leases. ROUs for both lease categories are included in ROU asset on the financial statements. The Company has elected not to recognize an ROU asset and lease liability for leases with terms of 12 months or less.

Liabilities for both finance and operating leases are included in their respective short-term lease liabilities for amounts due within one year and in noncurrent lease liabilities, net of current portion for remaining amounts due. ROU calculations include management’s assessment of the probability of exercise of lease extensions ranging from 1 to 18 years. No leases include variable lease payments.

The Company evaluates leases at their inception to determine if they are to be accounted for as an operating lease or a finance lease. A lease is accounted for as a finance lease if it meets one of the following five criteria: (i) the lease has a purchase option that is reasonably certain of being exercised, (ii) the present value of the future cash flows is substantially all of the fair market value of the underlying asset, (iii) the lease term is for a significant portion of the remaining economic life of the underlying asset, (iv) the title to the underlying asset transfers at the end of the lease term, or (v) if the underlying asset is of such a specialized nature that it is expected to have no alternative uses to the lessor at the end of the term. Leases that do not meet the finance lease criteria are accounted for as an operating lease. Operating lease ROU assets and liabilities were recognized based on the present value of the remaining lease payments over the lease term. When the Company's lease did not provide an implicit rate, the Company used its incremental borrowing rate in determining the present value of lease payments. The Company used the implicit rate when readily determinable. The operating lease ROU asset excludes lease incentives. When the Company is reasonable certain that it will exercise the options to extend or terminate a lease, the extended or shortened periods is factored into the recognized lease terms. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. When applicable, lease payments are allocated between lease and non-lease components. For all types of leases, non-lease components are excluded from our ROU assets and lease liabilities and expensed as incurred.

Other current liabilities

Within other current liabilities, the Company recognizes certain accrued expenses and liabilities due within 12 months. The following table summarizes our other current liabilities:

Goodwill

Goodwill is the excess of the consideration transferred over the fair value of the acquired assets and assumed liabilities in a business combination. Goodwill is allocated to the Company’s single reporting unit and tested for impairment annually. In evaluating goodwill for impairment, the Company may first assess the qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test.

Alternatively, the Company may bypass the qualitative assessment and apply the quantitative impairment test to determine whether the carrying value of the reporting unit exceeds the fair value of the reporting unit.

Quantitative assessments of fair value rely upon various valuation methods, including market-based valuation methods or income-based valuation methods. These assessments require significant assumptions including projected growth rates, profitability margins and discount rates, which are subject to variability year over year and are impacted by market and industry conditions.

Intangible Assets

Intangible assets consist of customer relationships, customer production backlog, patents and know-how. Useful lives of amortized intangible assets are estimated based on the nature of the asset and the pattern in which the economic benefits of the assets are consumed. If a pattern of economic benefit cannot be reliably determined or if a straight-line amortization approximates the pattern of economic benefit, straight line amortization is used. Intangible assets are amortized to cost of sales or depreciation and amortization expense within operating expenses on a straight-line basis over the applicable useful lives.

Intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment testing annually, or more frequently if events or changes in circumstances indicate the asset might be impaired. The impairment test compares carrying values of the reporting unit and indefinite-lived intangible assets to their estimated fair values. If the carrying value exceeds the fair value, then the carrying value is reduced to fair value. In testing our reporting unit and indefinite-lived intangible assets for impairment, we may perform both qualitative and quantitative assessments. For the quantitative assessments of indefinite-lived intangible assets, fair value is primarily based on the relief from royalty method. These quantitative assessments incorporate significant assumptions that include sales growth rates, projected operating profit, terminal growth rates, discount rates, royalty rates, and comparable multiples from publicly traded companies in our industry. Such assumptions are subject to variability from year to year and are directly impacted by, among other things, global market conditions.

Impairment of Long-Lived Assets

The Company evaluates the recoverability of long-lived assets, including amortized intangible assets, whenever changes in circumstances indicate that the carrying value of such assets may not be recoverable. Management also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. The Company evaluates the recoverability of its long-lived assets based on estimated undiscounted future cash flow. If the expected undiscounted future cash flows are less than the carrying value, a write-down would be recorded to reduce the carrying value to its estimated fair value. There wasno impairment of long-lived assets during the years ended December 31,2024, 2023 and 2022.

Impairment assessment inherently involves management judgments as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Accordingly, due to the many variables inherent in developing the estimates used in our impairment analyses, differences in assumptions may have a material effect on the results of those impairment analyses.

Income Taxes

The Company is not a taxable entity for federal or state income tax purposes, with the exception of its AMRO, AAE, and Systima subsidiaries. Those subsidiaries are taxed separately and are liable for income taxes on their results of operations. Income taxes on the Company’s, RMS’s, and AEC’s operations are borne by the Parent’s members in proportion to their membership interests.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets (DTAs) and deferred tax liabilities (DTLs) for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date.

The Company recognizes DTAs to the extent that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. If it is determined that the Company would be able to realize its DTAs in the future in excess of their net recorded amount, an adjustment to the DTA valuation allowance would be necessary, which would reduce the provision for income taxes.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it’s determined whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses, and the revolving line of credit. Carrying amounts approximate their fair values due to their short-term nature. The Company’s financial instruments also include notes payable. The fair value of the notes payable is estimated based on current rates offered for notes of similar terms, risks, and maturities and approximates the carrying value.

Concentration of Credit Risk

Revenue from a few customers will typically represent a significant portion of the Company’s total revenue in any given fiscal year.

For the year ended December 31, 2024, the Company had three customers with greater than 10% of the Company’s revenues, these customers comprised 27.8%,11.9% and 11.1% of the Company’stotal revenues during the year.

For the year ended December 31, 2023, the Company had three customers with greater than 10% of the Company’s revenues, these customers comprised 23.5%,16.4% and 15.3% of the Company’s total revenues during the year.

For the year ended December 31, 2022, the Company had three customers with greater than 10% of the Company’s revenues, these customers comprised 20.6%,18.6% and 16.8% of the Company’s total revenues during the year.

As of December 31, 2024, these three customers accounted for 51.0% of accounts receivable. As of December 31,2023, these three customers accounted for 58.7% of accounts receivable.

One supplier accounted approximately 19.6% of accounts payable as of December 31,2024. One supplier accounted for approximately 37.5% of accounts payable as of December 31,2023.

Advertising

Advertising costs are charged to expense as incurred. Advertising costs are insignificant for the years ended December 31, 2024, 2023 and 2022, respectively.

Share-Based Compensation

The Company accounts for share-based compensation under the fair value recognition provisions of ASC 718, Compensation - Stock Compensation. Under the fair value provisions, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite vesting period.

Net Income (Loss) Per Common Unit

The Company uses the two-class method in calculating earnings per unit when it issues securities other than common units that contractually entitle the holder to participate in distributions and earnings of the Company. The Company has issued Profit Interest

Units (PIUs) in the form of Class P LLC Membership Units (“P Units”) that, once vested, participate in its distributions and earnings after the common units receive their return of capital plus a specified threshold amount. As neither the Company’s undistributed or distributed earnings have exceeded the P Units’ thresholds for any periods presented, no earnings were allocated to the P Units in the computation of basic and diluted earnings per unit.

The Company presents both basic and diluted earnings per unit amounts. Basic earnings per unit is computed by dividing the net income attributable to common units by the weighted-average number of units outstanding during the period.

Diluted earnings per unit represents net income divided by the weighted-average number of units outstanding, inclusive of the effect of dilutive units and contingently issuable units. For the years ended December 31, 2024, 2023 and 2022, the Company hadno potentially dilutive securities.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements Adopted

In 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands the segment reporting disclosures and requires disclosure of segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss, amounts and description of its composition for other segment items, and interim disclosure of a reportable segment’s profit or loss and assets. Additionally, the amendments require the disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing performance and deciding how to allocate resources. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis. Early adoption is permitted. The Company has adopted this ASU and has included the required disclosures within these financial statements. See Note 13, Segment Reportingfor additional information.

In June 2022, FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for all non-emerging growth public business entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. On January 1, 2024, the Company adopted ASU 2022-03. The standard didnot have any material impact on the Company’s financial position, results of operations or cash flows. The Company has updated its fair value measurement policies to exclude the effects of contractual sale restrictions and has included the required disclosures in the Notes to the consolidated financial statements.

In October 2021, FASB issued ASU 2021-08, ASU 2021-08 – Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The new guidance creates an exception to the general recognition and measurement principles of ASC 805, Business Combinations. This ASU is effective for all non-emerging growth public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. On January 1, 2024, the Company adopted ASU 2021-08. The standard didnot have any material impact on the Company’s financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other areas of the standard. ASU 2019-12 is effective beginning as of January 2022. The adoption didnot have a material impact on our financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, “Income Statement (Topic 220): Disaggregation of Income Statement Expenses” which requires additional disclosures of certain amounts included in the expense captions presented on the Statement of Operations as well as disclosures about selling expenses. The ASU is effective on a prospective basis, with the option for retrospective application, for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, and early adoption is permitted. The Company is currently evaluating the impacts of adopting this guidance on its financial statement disclosures.

In March 2024, the SEC adopted final rules requiring public entities to provide certain climate-related information in their registration statements and annual reports. As part of the disclosures, entities will be required to quantify certain effects of severe weather events and other natural conditions in a note to their audited financial statements. The rules will be effective for emerging growth company in annual periods beginning in calendar-year 2027. On April 4, 2024, the SEC voluntarily stayed implementation of the final rule to facilitate the orderly judicial resolution of pending legal challenges to the rule. The Company is assessing the effect of the new rules on our consolidated financial statements and related disclosures.

In March 2024, the FASB issued ASU 2024-02 “Codification Improvements-Amendments to Remove References to the Concepts Statements”, which removes various references to concepts statements from the FASB Accounting Standards Codification. This ASU is effective for the Company beginning in the first quarter of fiscal year 2026, with early adoption permitted. The Company expects the new guidance will have an immaterial impact on its consolidated financial statements and intends to adopt the guidance when it becomes effective in the first quarter of fiscal year 2026.

In March 2024, the FASB issued ASU 2024-01, Compensation-Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. This update clarifies the scope of “Profit Interest” and similar awards and adds an illustrative example to the existing ASC 718 standard that includes four fact patterns to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether a profits interest award should be accounted for in accordance with Topic 718. The amendments in this ASU are effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted for interim and annual financial statements not yet issued or made available for issuance. The amendments in this ASU should be applied either (1) retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or (2) modified on or after the date at which the entity first applies the amendments. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public entities with annual periods beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the impact and will adopt this standard in its 2025 financial statements.

In 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which, for a limited period of time, adds ASC 848 to GAAP providing entities with certain practical expedients and exceptions from applying modification accounting if certain criteria are met. The guidance in ASC 848 was initially codified with a sunset date of December 31, 2022. However, such was subsequently deferred through December 31, 2024, as a result of ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The Company is evaluating the potential impact to the financial statements of adopting this standard.

Investments and Fair Value Measurements

The Company applies the provisions under ASC 820, Fair Value Measurements, for financial assets and liabilities that are remeasured and reported at fair value each reporting period, and for nonfinancial assets and liabilities that are remeasured and reported at fair value on a nonrecurring basis. ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. Where quoted market prices for identical assets and liabilities are available in active markets, securities are classified in Level 1 of the valuation hierarchy. Level 1 securities include exchange traded securities and mutual funds for which there are quoted prices in active markets. If quoted market prices are not available for the specific security, but are based on other observable inputs, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows and would generally be classified within Level 2 of the valuation hierarchy. Level 3 securities are securities where the inputs to the valuation methodology are unobservable inputs based on best estimates of inputs market participants that would be used in pricing the asset or liability as of the measurement date, including assumptions about risk. There were no transfers between Level 1, Level 2, or Level 3 for the years ended December 31, 2024 or December 31, 2023.

Level 3 fair value methodologies were used in the calculation of contingent consideration. The Company’s contingent consideration liability is primarily determined based on the achievement of certain negotiated financial performance targets considered to be Level 3 inputs. As of December 31, 2023, the Company had contingent consideration of $750,000 related to earn-outs attributable to the 2020 AEC acquisition included in other long-term liabilities. The fair value of the contingent consideration liability related to the AEC acquisition was determined using a Monte-Carlo simulation model. An additional $1,000,000 in liabilities related to the 2022 purchase of patents from Cornerstone Research Group included in accrued expenses as of December 31, 2023.

As of December 31, 2024 contingent consideration related to the AEC acquisition was reduced to $0 and liabilities related to the purchase of patents was also reduced to $0 due to payments made during the current year. There were no other changes to the fair value of these liabilities during the year ended December 31,2024.

Available-for-sale securities are immaterial to the consolidated financial statements.

Property and Equipment

Property and equipment consisted of the following as of December 31,2024 and 2023:

The Company’s construction in process consists of costs to purchase, construct, deliver and prepare an asset for its intended use. Assets recorded in construction in process are not depreciated. Once these assets are ready to be placed into service, they are transferred from construction in process to the appropriate fixed asset account and depreciation of these assets will begin the first day of the month following the in-service date.

Depreciation expense associated with property and equipment amounted to $9,630,222 for the years ended December 31, 2024, $7,808,066 for the years ended December 31,2023 and $5,369,512 for the years ended December 31,2022.

Asset Acquisitions

On June 7,2022, the Company entered into an Asset Purchase Agreement (the “Agreement”) whereby certain assets including equipment, inventory, and intellectual property of Cornerstone Research Group, Incorporated were acquired by Systima Technologies, Inc., a wholly-owned subsidiary of the Company. The acquisition met the requirements to be considered an asset acquisition under US GAAP. Accordingly, the acquisition was accounted for using the cost accumulation method, as prescribed in ASC 805. The cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values. The initial payment was equal to $2,000,000, offset by minor adjustments including Seller Equipment Indebtedness payoff amounts and Seller transaction expenses. Seller is also entitled tofour additional payments of $1,000,000 pending the completion of milestone events as described in the purchase agreement, as well as royalty payments up to 5% of net revenue each quarter forten years following the closing date, not to exceed a maximum of $15,000,000. Net revenue is defined in the purchase agreement as costs required to produce specified compounds multiplied by 120%. In 2023, the Company made payments of $3,000,000 related to the completion of three milestone events, as well as immaterial royalty payments. In 2024, the Company made payments of $800,000 related to the completion of three milestone events, as well as immaterial royalty payments.

Below is a summary of the intangible assets acquired in the asset acquisition:

The fair value of the patents and know-how intangible assets are determined utilizing the relief from royalty method. Intangible assets acquired are being amortized over their respective estimated useful life. During the years ended December 31, 2024, 2023 and 2022, the Company has recorded amortization on these intangibles of $531,044, $531,044, and $296,500, respectively.

Business Combination

On February 16, 2024 (the “Acquisition Date” or “Closing”), the Company acquired 100% of the equity interests of Rapid Machining Solutions - Wolcott Design Services (RMS) pursuant to the terms of a Securities Purchase Agreement (the “Agreement”) in exchange for cash consideration (the “Acquisition”). The primary purpose of the business combination was to create synergies based on RMS’s expertise in Aviation and Aerospace industry and expand the Company’s design and manufacturing capabilities.

The Acquisition met the requirements to be considered a business combination under ASC 805. The assets and liabilities acquired, affected for adjustments to reflect fair values assigned to assets purchased and liabilities assumed, and results of operations, are included in the Company’s consolidated financial statements from the Acquisition Date. The Company recorded the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the acquisition date as required under ASC 805.

The Acquisition was accounted for using the acquisition method of accounting. To fund the business combination, the Company increased its TCW Term Note by $35,000,000. The fair value of the total purchase consideration transferred was $31,334,151 in cash. The Acquisition does not have any contingent consideration arrangements.

The Company also incurred $1,605,420 of direct acquisition-related expenses, recognized asgeneral, and administrative expenses on the consolidated statements of operations and comprehensive income (loss).

The following table sets forth the estimated fair values of the assets acquired, and liabilities assumed in connection with the Acquisition:

The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets was recorded as goodwill and is fully deductible for tax purposes. The components of goodwill do not qualify as a separately recognized intangible asset.

Below is a summary of the intangible assets acquired in the Acquisition:

The fair value for both the customer backlog and the customer relationships were determined using the multi-period excess earnings method (“MPEEM”). This method reflects the present value of the operating cash flows generated by the intangible assets after considering the cost to realize the revenue, and an appropriate discount rate to reflect the time value and risk associated with the invested capital. In total, the intangible assets acquired subject to amortization have a weighted average life of 12.1 years.

Since the Acquisition Date through December 31, 2024, RMS revenues and net income were $11,692,260 and $1,658,060, respectively. Supplemental unaudited pro forma financial information is not presented as the historical financial information of RMS forthe year ended December 31, 2023 would be impractical to prepare under public company accounting standards, and the results of RMS are substantially smaller than those of the Company.

Goodwill and Intangibles

The Company completed the annual goodwill impairment testing in the fourth quarter of 2024 and 2023 and determined that no adjustments to the carrying value of goodwill were necessary. The Company performs its goodwill impairment test at the reporting unit level, which is the same as or one level below the operating segment level. The Company hasone operating and reportable segment, and for the years ended December 31,2024, 2023 and 2022, the Company hadone reporting unit for goodwill impairment testing purposes. For the impairment testing in the fourth quarter of 2024, the Company elected to bypass the qualitative assessment and performed a quantitative goodwill impairment test (Step 1), as permitted under ASC 350, which also indicated that the fair value of the reporting unit exceeded its carrying amount, and no impairment charge was recognized. For the impairment testing in the fourth quarter of 2023, the Company assessed the reporting unit using qualitative factors to determine whether it was more likely than not that the reporting unit’s fair value is less than its carrying value (step 0) and determined that no further testing was required.

The Company continuously monitors and evaluates relevant events and circumstances that could unfavorably impact our significant assumptions used in testing goodwill, including changes to U.S. treasury rates and equity risk premiums, tax rates, recent market valuations from transactions by comparable companies, volatility in the Company’s market capitalization, and general industry, market, and macro-economic conditions. It is possible that future changes in such circumstances, or in the inputs and assumptions used in estimating the fair value of our reporting units, could require the Company to record a non-cash impairment charge. The Company recordedno impairment losses during the years ended December 31,2024, 2023 and 2022.

The table below summarizes the changes in the Company’s goodwill balances:

The table below summarizes the carrying amounts of the Company’s identifiable intangible assets:

Amortization expense amounted to $16,920,595, $14,405,904 and $24,855,801 for the years ended December 31,2024, 2023 and 2022, respectively. In total, the intangible assets acquired subject to amortization have a weighted average useful life of 15.9 years. The table below summarizes the annual amortization expense of the Company for the next five years:

Debt

Notes Payable

The Company’s Notes Payable consisted of the following as of December 31,2024 and 2023:

The Company has a term note payable under the TCW Credit Agreement (the “TCW Term Note”). The TCW Term Note was used to consolidate debt and finance the Company’s historical acquisitions. The note was issued in December 2020 with an original maturity date of December 2025. On February 16, 2024, the Company increased its TCW Term Note by $35,000,000 to fund the acquisition of RMS and related closing costs. All other terms of the credit agreement are unchanged.

The TCW Term Note carries variable interest payments based on specified benchmark reference rates. Interest rates were 11.01% and 12.55% as of December 31,2024 and 2023, respectively.

The TCW Term Note has financial covenants such as total leverage ratios and fixed charge coverage ratios, which apply for any consecutive twelve fiscal months. As of December 31, 2024 and 2023, the Company maintained all leverage ratios and fixed charge coverage ratios. A prepayment penalty on any principal amounts repaid prior to maturity will expire in April 2025. The TCW Term Note has mandatory quarterly principal repayments of $2,062,500. Upon achieving certain measurements of cash flows, the Company is required to use the cash to repay principal amounts of the TCW Term Note. Optional principal repayments above certain minimum cash thresholds are also permitted. As of December 31, 2024 and 2023, no optional principal repayments have been made.

In the first quarter of 2025, the Company extended the final maturity date of the TCW Term Note to April 2026 and extinguished the TCW Term Note using the proceeds of the new Citi Credit Agreement. See Note 16, Subsequent Eventsfor additional information.

The Company holds a note payable to one of the sellers (the “Seller Note”) from the June 25, 2021 acquisition for $6,554,847. The note bears interest at 7.5% and is capitalized annually on the anniversary date of the acquisition. The outstanding principal and interest balance as of December 31,2024 and 2023 was $10,452,997 and $7,894,852, respectively. The note plus all capitalized interest amounts is due and payable March 22, 2026. Total principal and capitalized interest expected to be paid is $9,269,172.

Principal repayment requirements on the notes payable as of December 31,2024 consisted of the following:

Revolving Line of Credit

The Company has a revolving line of credit under the TCW Credit Agreement to provide for working capital needs. This line of credit had an initial borrowing limit of $20,000,000 and expiration date in December 2025, which is the date the principal amounts are due. On December 27, 2024, the Company increased the borrowing limit of its revolving line of credit from $20,000,000 to

$25,000,000 and borrowed an additional $5,000,000 in cash net of financing expenses of $100,000. All other terms of the credit agreement are unchanged. Amounts outstanding were $25,000,000 and $20,000,000 as of December 31,2024 and 2023, respectively.

The Company’s revolving line of credit carries variable interest payments based on specified benchmark reference rates. Borrowings under the line of credit bear interest based on the Secured Overnight Financing Rate (SOFR) and the Company’s leverage ratio. Interest rates were 11.01% and 12.55% as of December 31,2024 and 2023, respectively.

The revolving line of credit has financial covenants such as total leverage ratios and fixed charge coverage ratios, which apply for any consecutive twelve fiscal months. As of December 31,2024 and 2023, the Company maintained all leverage ratios and fixed charge coverage ratios. Depending on the amount of cash generated from operations, disposition of assets, or sale of operation, the Company is required to use certain excess amounts to repay the outstanding principal balance of the revolving credit line. Additionally, optional principal repayments above certain minimum cash thresholds are also permitted. Debt repayment can be made before the due date without penalties.

In January 2025, the Company extended the final maturity date of the revolving line of credit to March 2026. See Note 16, Subsequent Events for additional information.

Total interest expense related to the revolving line of credit, finance leases (Note 8) and notes payable amounted to $50,888,814, $48,115,589 and $37,610,154 for the years ended December 31,2024, 2023 and 2022, respectively. Through December 31, 2024, debt origination fees related to the Term Note were $10,889,575, which are being amortized over the life of the loan using the straight-line method, as the difference between use of the effective interest and straight-line method is not material. Amortization of debt origination fees, related to the Term Note, of $2,301,239, $1,985,413 and $1,985,415 were recorded as part of interest expense for the years ended December 31,2024, 2023 and 2022, respectively.

No accrued interest was recorded under the revolving line of credit and the TCW Term Note as of both December 31,2024 and 2023.

On April 1, 2025, the Company entered into a new Credit Agreement (the “Citi Credit Agreement”) by and among Karman, the lenders from time to time party thereto and Citibank, N.A. (“Citi”), as the administrative agent for the lenders, and, substantially contemporaneously therewith, certain direct and indirect subsidiaries of Karman terminated all outstanding commitments and repaid all outstanding obligations under the TCW Credit Agreement. This transaction resulted in the extinguishment of the aforementioned facilities under the TCW Credit Agreement and the issuance of a new $300.0 million term loan and $50.0 million revolving line of credit. The new term loan will mature on April 1, 2032 and the new revolving line of credit will mature on April 1, 2030.

Lease Obligations

The Company has certain property leases, with former owners and members for facilities of the Company’s subsidiaries. Most of these leases are accounted for as finance leases except for facilities leased by AEC and a plane hangar leased by Systima, which are accounted for as operating leases. Total lease payments amounted to$11,281,976, $6,221,525 and $6,024,177 for the years ended December 31,2024, 2023 and 2022. The Company has month-to-month rentals and other short-term leases, which are expensed as incurred. Expenses associated with short term leases were $581,733, $426,415 and $1,056,490 for the years ended December 31, 2024,2023 and 2022, respectively.

Consolidated Lease Summary

On a consolidated basis, lease activity for the years ended December 31,2024, 2023 and 2022 were as follows:

Amortization of ROU assets are included in the depreciation and amortization expense line of the Consolidated Statements of Operations.

On a consolidated basis, supplemental cash flow information for the years ended December 31,2024, 2023 and 2022 were as follows:

On a consolidated basis, maturities of lease liabilities are as follows:

Retirement Plans

Employee Benefit Plan

The Company maintains 401(k) Plans for all employees who have completed three months of service and have reached age 18. Qualified employees may contribute up to 90% of their pre-tax annual compensation to this plan, not to exceed the dollar limit set by law. The Company may make discretionary matching contributions and discretionary non-elective contributions to this plan. There were contributions of $2,615,206, $1,629,089 and $477,120 made to the plans during the years ended December 31,2024, December 31, 2023 and 2022, respectively. Retirement plan contribution expense is included within either Cost of Goods Sold or General and Administrative expenses on the consolidated statement of operations and comprehensive income (loss), depending on the nature of the employee’s work.

Nonqualified Deferred Compensation Plan

The Company implemented a nonqualified deferred compensation plan (the Deferred Plan) under which a select group of management may make voluntary contributions that defer a portion of their compensation up to the maximum dollar amount under Section 409A of the Internal Revenue Code (IRC). The assets of the plan are the legal assets of the Company until they are distributed to the participants, and, therefore, the plan assets and a corresponding liability are reported on the accompanying consolidated balance sheets. Amounts owed to plan participants are unsecured obligations of the Company. The Company has established a rabbi trust in which it will make contributions to fund its obligations under the Deferred Plan. Pursuant to the terms of the trust, the Company will be required to make contributions each year to fully match its obligations under the Deferred Plan. The trust’s funds are invested in corporate owned life insurance (COLI) and the Company plans to hold the policies until the death of the insured.

The Company’s investments in COLI policies totaled $882,339 and $816,280 as of December 31,2024 and 2023, respectively. There are no significant actuarial assumptions that affect the values of the Deferred Plan and given the limited number of participants, the impacts of the Deferred Plan are not material to the Company’s financial statements.

Membership Units

The Company has issued membership units both in conjunction with purchases of subsidiaries and to reflect further investment in the Company’s operations. The Company has issued Class A, Class B, and Class C units with substantially identical rights, privileges and liquidation preferences. No member shall be liable for the debts, liabilities or obligations of the Company beyond the member’s contributions. The Company has an employee receivable which is secured by the Company’s units, with an employee who was also a manager of the Company (but no longer was a manager as of the completion of the Company’s initial public offering). The receivable is accounted for as a component of members’ equity totaling $1,318,907 as of December 31, 2024 and 2023, respectively. Pursuant to the Third Amended and Restated Limited Liability Company Agreement of TCFIII Spaceco Holdings LLC, all Membership Units entitle unitholders to share in the proceeds from capital transactions, including a sale of the Company, and grant them voting rights on matters requiring the consent of Members. The following table summarizes membership units issued as of December 31, 2024 and 2023:

Share-Based Compensation

Effective July 29, 2023 and July 29, 2022 the Company through Spaceco Management Equity LLC (the “Management Company”) under the Spaceco Management Equity LLC Equity Incentive Plan (the "Equity Incentive Plan"), granted P Units to certain employees of the Company and its subsidiaries, in exchange for their services to the Company. Management Company has an economic interest in the Company, but no other interests or business operations other than issuing P Units directly to management employees on behalf of the Company.

The accounting for grants of P Units by the Company to Management Company and Management Company’s contemporaneous issuance of P Units to individual Company employees represents a distribution from the Company immediately followed by a contribution from Management Company, which together would have no financial statement impact.

As a result of the above, the Company refers to P Units issued to Management Company as though the Company had issued P Units directly to the employee.

The P Units entitle the holder to receive cash distributions from the Company, including, but not limited to upon a sale or change in control of the Company, provided that the proceeds received exceed the defined threshold value in the individual award agreements. Vesting is dependent on service-based and performance-based vesting conditions, as discussed in further detail below.

The total P Units authorized is 18,526,369, of which 18,063,207 are issued and outstanding as of December 31,2024 and 2023.463,162 units are unallocated as of December 31,2024 and 2023.

The P Units are subject to time-based vesting conditions (Time-Based Units). The Time-Based Units generally vest over 5 years with 20% vesting at each annual vesting date. In some cases, the Company recognizes expense as of the grant date for the portion of an award that is legally vested on the grant date as a result of years of service performed prior to the grant date. Time-Based Units are also subject to an accelerated vesting upon a change of control event, which includes an initial public offering. A corporate conversion will cause all P units to be converted into new shares of the Company based upon the fair market value of the P Units immediately prior to such conversion.

The Company records compensation cost for Time-Based Units over the requisite service period using the straight-line method.

The P Units are equity-classified and the Company has made a policy election to account for forfeitures as they occur. The Company estimates grant date fair value using a Black-Scholes Option Pricing Model. Thefollowing assumptions were used for the determinationof grant date fair value for the P Units granted during the years ended December 31, 2023 and 2022. There wereno grants of P Units during the year ended December 31,2024.

Because the Company was not publicly traded, expected volatility was calculated using the historical volatilities of similar, publicly traded companies.

A summary of the Company’s vested and nonvested Incentive Units for the years ended December 31,2024 and year ended December 31, 2023 is presented below:

Compensation cost related to the P Units is recognized in general and administrative expenses in the Consolidated Statement of Operations. The Company expensed $993,143, $1,291,244 and $1,603,000 during the years ended December 31,2024, December 31, 2023 and 2022, respectively.

As of December 31, 2024, there was $1,410,087 of unrecognized compensation expense related to the unvested P Units. The unrecognized compensation cost associated with the P Units is expected to be recognized over a weighted-average period of 1.08 years. In connection with the Company’s IPO in February 2025, all unrecognized compensation expense related to the P Units was recognized as expense subsequently.

Phantom Plan

On September 23, 2024 the Company adopted a Transaction Bonuses plan (the “Phantom Plan”), pursuant to which the Company granted Phantom Units through Management Company to select employees providing services to the Company and/or its subsidiaries.

The Phantom Units are subject to service and performance-based vesting conditions. The Phantom Units are entitled to payment if the recipient is employed in the period in which a distribution event to P Unit holders, such as a change in control, initial public offering or liquidation event is consummated. The Phantom Units are not entitled to any payments until a distribution to the Company’s unitholders in excess of the $470,186,054 threshold value occurs. The Company does not recognize any compensation cost for Phantom Units as these events are not considered probable, until the event actually occurs.

The Company estimates grant date fair value using a Black-Scholes Option Pricing Model and probability weighted expected returns for various exit scenarios. The following assumptions were used for the determination of grant date fair value for the Phantom Units granted during the year ended December 31,2024.

A summary of the Phantom Unit activity during the year ended December 31,2024, is shown below (fair value is a weighted average per unit).

As of December 31, 2024, there was $1,408,012 of unrecognized compensation expense related to the unvested Phantom Units. No compensation expense was recognized for the year ended December 31,2024 as the payment to Phantom unitholders is contingent upon future events that are not probable. In connection with the Company’s IPO in February 2025, the Phantom Units were settled for $6,571,829, which was recognized as share-based compensation expense subsequently.

Net Income (Loss) Per Common Unit

Net income (loss) per common unit was computed as follows:

The Company hadno potentially dilutive securities in any period presented.

Segment Reporting

ASC Subtopic 280-10, “Segment Reporting,” establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available. This information is regularly evaluated by the chief operating decision maker (“CODM”) to allocate resources and assess performance. The Company’s Chief Executive Officer serves as the CODM, and reviews financial information on an operating segment basis to make operational decisions and assess financial performance. The Company operates asone segment. The accounting policies of the Company’s segment are the same as those described in the summary of significant accounting policies.

The CODM assesses performance at a consolidated level and decides how to allocate resources based on consolidated net income. The measure of segment assets is reported on the balance sheet as total consolidated assets.

The following table summarizes the Company’s revenues, net income (loss) and significant expenses:

General and administrative expenses include share-based compensation of $994,143, $1,291,244, and for the years ended December 31, 2024, 2023, and 2022, respectively.

Other income (expense) for the year ended December 31, 2024, and 2023, was $1,502,156 and $563,772, respectively. The increase was primarily attributable to the settlement of a shareholder loan in 2024.

Capital expenditures, which include purchases of property, plant, and equipment, are assessed and managed at the enterprise level. Refer to “Investing Activities” in the Consolidated Statement of Cash Flows for the amount of cash paid for capital expenditures.

Interest income during the periods presented is insignificant.

Provision for Income Taxes

The provision for income taxes for the years ended December 31,2024, 2023 and 2022 consists of the following:

A reconciliation of the Company’s effective tax rate and federal statutory tax rate is summarized as follows:

(1)

The return to provision line item included in the rate reconciliation relates to changes in estimates related to transfer pricing, net costs in excess of billings, research and development tax credits, other deferred tax and income tax payable true-ups

Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial reporting and the amounts used for tax purposes. Significant components of the Company’s deferred tax assets and liabilities are summarized as follows:

The Company determines its valuation allowance on deferred tax assets by considering both positive and negative evidence in order to ascertain whether it is more likely than not that deferred tax assets will be realized. Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain. Because of the Company’s history of net taxable income, the Company believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently likely to be realized and, accordingly, has not provided a valuation allowance on its deferred tax assets.

Utilization of the interest expense and net operating losses carryforwards may be subject to annual limitations due to ownership changes that have occurred or that could occur in the future, as required by Sections 382 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as similar state provisions. These ownership changes may limit the amount of interest expense and net operating losses that can be utilized annually to offset future taxable income. In general, an "ownership change" as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of outstanding stock of a company by certain stockholders.

NOLs and tax credit carryforwards as of December 31,2024 are as follows:

A reconciliation of the beginning and ending balance of total gross unrecognized tax benefits is as follows:

Included in the balance of unrecognized tax benefits as of December 31, 2024, 2023 and 2022 are $1,669 thousands, $579 thousands and $459 thousands, respectively, of unrecognized tax benefits that would affect the ETR.

The Company recognized interest expense related to uncertain tax positions as tax expense of $331,179 and $15,758 for the years ended December 31,2024 and 2023, respectively. The total accrued interest liability was $353,688, $22,510 and $6,752 as of December 31,2024, 2023 and 2022, respectively.

The Company does not believe that it is reasonably possible that a decrease of unrecognized tax benefits may be necessary within the coming year. In addition, the company does not believe that it is reasonably possible that any of current other remaining unrecognized tax benefits, each of which is individually insignificant, may be recognized by the following year as a result of a lapse of the statute of limitations.

The Company files income tax returns in the United States, California, Alabama, and Texas. The Company is subject to income tax examination by federal and state tax authorities for years beginning in 2021 and 2020, respectively. With few exceptions, as of December 31,2024, the Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2021 and 2020, respectively.

Commitments and Contingencies

In the course of doing business, the Company enters into various agreements. These agreements typically include commitments and indemnifications, which could create a liability for the Company in the event of damages or injuries related to providing these services. Management believes the Company is adequately insured. However, future claims related to these agreements could significantly affect the Company’s financial results if a loss is incurred as a result of these agreements.

The Company accrues a liability for legal contingencies when it is both probable that a liability has been incurred and the amount of loss is reasonably estimable. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained and our views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in our accrued liabilities would be recorded in the period in which such determination is made. For certain matters, the liability is not probable, or the amount cannot be reasonably estimated, and therefore, accruals have not been made. In addition, in accordance with the relevant authoritative guidance, for any matters in which the likelihood of a material loss is at least reasonably possible, the Company will provide disclosure of the possible loss or range of loss. If a reasonable estimate cannot be made, however, the Company will provide disclosure to that effect. As of December 31, 2024 and 2023, the Company has no material reserves for legal contingencies and does not believe it is subject to material litigation risk. Legal fees are expensed as incurred.

Subsequent Events

The following material subsequent events were noted:

On January 13, 2025, the Company extended the final maturity date of the term note payable and revolving line of credit with TCW from December 21, 2025 to March 20, 2026. On March 25, 2025, the Company extended the final maturity date of the term note payable and revolving line of credit with TCW from March 20, 2026 to April 15, 2026. All other material terms of the term note and revolving line of credit are unchanged.

On February 14, 2025, the Company closed its IPO of its common stock pursuant to which the Company issued and sold 23,000,000 shares of common stock at a price to the public of $22.00 per share. The aggregate proceeds from the IPO net of underwriting discounts and commissions were $473,110,000 which includes $173,221,060 proceeds to the Company and $299,888,940 proceeds to the selling stockholders. After deducting other offering expenses, the Company received approximately $147.3 million net proceeds. On February 13, 2025 the Company’s common stock began trading on the New York Stock Exchange (the “NYSE”) under the symbol “KRMN”. On February 12, 2025, the Company converted to a Delaware corporation under the name Karman Holdings Inc., with all outstanding equity interests reclassified into shares of its common stockand the Company’s TMX Engineering, LLC, Wolcott Design Services, LLC, and Aerospace Engineering, LLC legal entities will become subject to corporate income taxes.

In connection with the IPO on February 14, 2025, all of the Company’s outstanding P Units and Phantom Units immediately vested. All 18,063,207 P Units were exchanged for 11,187,501 shares of Karman Holdings Inc. The Company recognized all unrecognized compensation costs associated with the P Units subsequently. In addition, all Phantom Units were settled in cash for $6,571,829. As this cash settlement of the Phantom Units was within 6 months of vesting, upon settlement the Company reclassified the awards to liabilities and recognized the full settlement amount as share-based compensation expense subsequently.

On February 27, 2025, the Company entered into a $6.0 million convertible promissory note (the “Note”) with an unrelated party (the “Issuer”), which will mature on the fifth anniversary of the Note’s issuance. The Note bearsno interest andis convertible into the Issuer’s shares prior to the maturity date at the Company’s discretion or upon the occurrence of certain future events.

In April 1, 2025, the Company entered into a new Credit Agreement (the “Citi Credit Agreement”) by and among Karman, the lenders from time to time party thereto and Citibank, N.A. (“Citi”), as the administrative agent for the lenders, and, substantially contemporaneously therewith, certain direct and indirect subsidiaries of Karman terminated all outstanding commitments and repaid all outstanding obligations under the TCW Credit Agreement. This transaction resulted in the extinguishment of the aforementioned facilities under the TCW Credit Agreement and the issuance of a new $300.0 million term loan and $50.0 million revolving line of credit. The new term loan will mature on April 1, 2032 and the new revolving line of credit will mature on April 1, 2030.

On April 2, 2025, the Company and MTI Holdings LLC (“MTI”) entered into a Securities Purchase Agreement (the “Agreement”) under which the Company has agreed to purchase, and MTI has agreed to sell, all of the issued and outstanding equity interests in MTI Partners LLC and Metal Machining LLC d/b/a Innovative Precision, for approximately $90 million in cash, subject to the satisfaction or waiver of certain customary closing adjustments. The Agreement contains customary representations, warranties and covenants of both the Company and MTI. The acquisition is expected to be accounted for as a business combination and the Company is in the process of preparing its preliminary purchase price allocation.