Castellum Inc

Note 3: Acquisition

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

GTMR

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

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

The consideration paid for GTMR was as follows:

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

The Company paid $185,896 in transaction costs of GTMR, which was excluded from the purchase price, issued an accounts receivable note (the “Accounts Receivable Note”), and held back $350,000, the details of which have been discussed in amounts Due to Seller in Note 10, "Due to Seller and Contingent Earnout." As of June 30, 2024, the remaining balance under this note is $50,000.

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

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

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

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

Note 4: Fixed Assets

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

Depreciation expense for the three and six months ended June 30, 2024, was $39,826 and $81,087, and depreciation expense for the three and six months ended June 30, 2023, was $46,364 and $66,299, respectively.

Note 5: Intangible Assets and Goodwill

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

The intangible assets with the exception of the trademarks were recorded as part of the acquisitions of Corvus, MFSI, Merrison, SSI, LSG, and GTMR. Amortization expense for the three and six months ended June 30, 2024 was $529,218 and $1,085,942, respectively, and amortization expense for the three and six months ended June 30, 2023 was $634,044 and $1,124,675, respectively. The intangible assets are being amortized based on the estimated future lives as noted above.

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

The activity of goodwill for the six months ended June 30, 2024, is as follows:

When the Company acquires a controlling financial interest through a business combination, the Company uses the acquisition method of accounting to allocate the purchase consideration to the assets acquired and liabilities assumed, which are recorded at fair value. Any excess of purchase consideration over the net fair value of the net assets acquired is recognized as goodwill. There wereno additions of goodwill for the six months ended June 30, 2024. The Company has not disposed of any entities, nor has the Company recognized impairment on goodwill for the periods presented.

Note 6: Convertible Promissory Note - Related Party

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

Interest expense which includes amortization of discount for the three and six months ended June 30, 2024, was $0 and $245,438, respectively, and interest expense which includes amortization of discount for the three and six months ended June 30, 2023 was $336,202 and $676,322, respectively. There wasno accrued interest on the note payable as of June 30, 2024. The amount of the beneficial conversion feature ("BCF") discount recorded was evaluated for characteristics of liability or equity and was determined to be equity under ASC 470 and ASC 480. The Company recognized this as additional paid in capital, and the discount was being amortized over the life of the note.

On February 22, 2024, the Company entered into an agreement to amend the related party convertible promissory note with the Buckhout Charitable Remainder Trust, resulting in the elimination of the BCF discount feature, change in the interest rate, extension of the term, and change in the payoff schedule. As part of this amendment, a partial payment of $809,617 was made on the date of the agreement, resulting in an outstanding balance of $2,400,000 as of that date. The change in terms of the note were evaluated for characteristics of modification or extinguishment, and it was determined that under ASC 470, the debt amendment was considered to be an extinguishment, thus the amended note is considered a new note. As of February 22, 2024, the remaining unamortized carrying value of the BCF was $761,783, which was treated as a loss on debt extinguishment on the income statement. Concurrent with this amendment, we determined that the trustee of the Buckhout Charitable Remainder Trust (who resigned as an officer of the Company) is no longer a related party to the Company. See Note 7, "Notes Payable" for more information about the terms of the new note.

Note 7: Notes Payable

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

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

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

(c)On February 22, 2024, as a result of amending the Eisiminger Note 1 and the Eisiminger Note 2, the Company entered into the 2024 Eisiminger Note, with a principal balance of $6,000,000, maturing on

August 31, 2026, and bearing interest at 7.5% per annum until February 1, 2025, after which the interest rate will increase to 8% per annum.

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

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

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

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

Interest expense which includes amortization of discount for the three and six months ended June 30, 2024 was $150,456 and $383,966, respectively, and $809,663 and $1,634,783 for the three and six months ended June 30, 2023, respectively. Accrued interest on the notes payable as of June 30, 2024 was $0.

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

Note 8: Note Payable – Related Party

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

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

Interest expense for the three and six months ended June 30, 2024, was $4,973 and $9,945, respectively, and $4,984 and $9,912 for the three and six months ended June 30, 2023, respectively.

Note 9: Revolving Credit Facility

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

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

The Company incurred $68,541 in interest in the six months ended June 30, 2024, none of which is accrued as of June 30, 2024.

Note 10: Due to Seller and Contingent Earnout

As part of the GTMR Acquisition, the Company was obligated to pay $1,250,000 which included $350,000 held back to satisfy any net working capital deficiencies. This balance was originally scheduled to be paidsix months following the closing date, however, payment had been postponed and the unpaid balance of $350,000 will accrue interest at an annual rate equal to the rate of interest announced publicly by Citibank N.A. in New York, plus 2% until it is paid in full in July of 2024. As of June 30, 2024, the remaining unpaid balance of $50,000, is recorded as Due to Seller in current liabilities on the Company's Consolidated Balance Sheets. Refer to Note 16, "Subsequent Events" for information of full repayment of this liability in July 2024.

As part of the acquisition of SSI (the "SSI Acquisition"), the Company was obligated to pay an earnout contingent on the results of operations of SSI through August 2023. On February 15, 2024, the Company entered into an agreement with the former shareholders of SSI concerning the amount and timing of the contingent earnout included in total consideration for the SSI Acquisition in August 12, 2021. The parties agreed to settle the amount for a total of $720,000, with an initial payment of $180,000 that was made by the Company at signing of the agreement, plus starting in March 2024, monthly payments of $20,000 plus interest payable at 5% per annum for 27 months. As a result, $240,000 is recorded as Due to Seller in current liabilities and $220,000 is reflected in non-current liabilities as of June 30, 2024. Prior to the February 15, 2024 agreement, this earnout was recorded as Contingent Earnout on the Consolidated Balance Sheets.

Note 11: Stockholders’ Equity

January 2024 Registered Offering

On January 25, 2024 the Company entered into a securities purchase agreement (the “SPA”) with an institutional investor, pursuant to which the Company agreed to sell and issue, in a registered direct offering, an aggregate of (i)5,243,967 shares of the Company’s common stock, at a purchase price of $0.32 per share and (ii)3,193,534 pre-funded warrants (the “Pre-funded Warrant(s)”) to purchase up to an aggregate of 3,193,534 shares of common stock for aggregate gross proceeds to the Company of approximately $2.7 million, before deducting the placement agent fees and estimated offering expenses payable by the Company (the “Registered Offering”). The Pre-funded Warrants were sold at an offering price of $0.319 per Pre-funded Warrant and are exercisable at a price of $0.001 per share.

In a concurrent private placement, the Company agreed to issue to the same institutional investor, for each ordinary share and Pre-funded Warrant purchased in the offering, an additional ordinary share purchase warrant (“Regular Warrants”). The Regular Warrants have an exercise price of $0.35 and are exercisable to purchase an aggregate of 8,437,501 shares of common stock.

Preferred Stock

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

Series A Preferred Stock

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

For the six months ended June 30, 2024, the Company recognized $36,539 in Series A dividends, all of which have been paid as of June 30, 2024.

Series B Preferred Stock

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

Series C Preferred Stock

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

For the six months ended June 30, 2024, the Company recognized $23,100 in Series C dividends, all of which have been paid as of June 30, 2024.

Common Stock

The Company has 3,000,000,000 shares of common stock, par value $0.0001 authorized. The Company has 53,029,915 and 47,672,427 shares issued and outstanding as of June 30, 2024, and December 31, 2023, respectively.

During the six months ended June 30, 2024,5,357,488 shares of common stock were issued, all in connection with the SPA.

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

Warrants

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

The Pre-funded Warrants that the Company sold related to the Registered Offering were immediately exercisable and do not have an expiration date. As noted above, the Company sold Pre-funded Warrants to purchase up to an aggregate of 3,193,534 shares of common stock at an offering price of $0.319 per Pre-funded Warrant, which are exercisable at a price of $0.001 per share, of which 113,521 were exercised on February 6, 2024. See Note 16, "Subsequent Events" for additional information regarding exercise of the remaining Pre-funded warrants in July 2024.

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

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

Options

The Company on November 9, 2021, approved the 2021 Stock Incentive Plan (the "Plan"), that authorized the Company to issue up to 2,500,000 shares of the Company's common stock in the form of restricted stock, stock options, and other stock awards as set forth in the Plan. On November 9, 2023 the Board of Directors approved an amendment to the Plan to increase the aggregate number of shares available for issuance from 2,500,000 to 6,000,000 (the "Amended Plan"), which was approved by the Company's shareholders at its annual meeting on May 29, 2024. As of June, 30, 2024,2,132,500 stock options have been granted under the Amended Plan. See Note 16, "Subsequent Events" for additional information regarding options granted to board members and officers in July 2024.

The following represents a summary of options for the six months ended June 30, 2024 and the year ended December 31, 2023:

During the six months ended June 30, 2024, the Company recognized $1,127,760 of noncash stock based compensation related to the vesting of service-based stock options. No options were exercised during the six months ended June 30, 2024.

The fair value of each option and warrant is estimated using the Black-Scholes valuation model. Changes to these inputs could produce a significantly higher or lower fair value measurement. The following assumptions were used for the periods as follows:

Note 12: Fair Value

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. U.S. GAAP sets forth a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three levels are as follows:

Level 1 – defined as observable inputs, such as quoted market prices in active markets.

Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable.

Level 3 – defined as unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.

Our financial assets and liabilities subject to the three-level fair value hierarchy consist principally of cash and cash equivalents, accounts receivable, accounts payable, contingent consideration, and derivative liabilities. The estimated fair value of cash and cash equivalents, accounts receivable, and accounts payable approximates their carrying value.

On April 4, 2022, the Company issued common stock, a convertible note, and warrants in a SPA with Crom (“2022 Crom SPA”). The Company had evaluated the conversion option liability in the convertible note and the warrants to determine proper accounting treatment and determined them to be derivative liabilities ("Derivative Liabilities").

On February 13, 2023, the 2022 Crom SPA was terminated through an induced conversion thereby extinguishing the conversion option liability associated with the 2022 Crom note; the warrants were not affected. Concurrent with the termination of the 2022 Crom SPA, the Company issued common stock, the 2023 Note Payable, and warrants in the 2023 SPA with Crom. The Company evaluated the conversion option in the 2023 Note Payable and these warrants to determine proper accounting treatment and determined them to be derivative liabilities (also “Derivative Liabilities”). The Derivative Liabilities had and have been accounted for utilizing ASC 815 “Derivatives and Hedging.”

On February 13, 2024, the Company paid the outstanding principal and accrued interest owed on the 2023 Note Payable to Crom, thereby extinguishing the conversion feature associated with this note; the warrants were not affected.

The Company recognized liabilities for the estimated fair values of the Derivative Liabilities. The estimated fair values of these liabilities were calculated using a binomial pricing model with key input variables by an independent third party, as of the date of issuance, with changes in fair value recorded as gains or losses on revaluation in other income (expense).

The Company determined that the significant inputs used to value the Derivative Liabilities fall within Level 3 of the fair value hierarchy. As a result, the Company has determined that the valuation of its Derivative Liabilities are classified in Level 3 of the fair value hierarchy as shown in the table below:

The Company’s derivative liabilities as of June 30, 2024 and December 31, 2023 associated with the Derivative Liabilities are as follows.

Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each Derivative Instrument is estimated using a binomial valuation model. The following assumptions were used for the period as follows:

Note 13: Concentrations

Concentration of Credit Risk. The Company’s customer base is concentrated with a relatively small number of customers. The Company does not generally require collateral or other security to support accounts receivable. To reduce credit risk, the Company performs ongoing credit evaluations on its customers’ financial condition. The Company establishes allowance for credit losses based upon factors surrounding the credit risk of customers, historical trends, and other information.

For the six months ended June 30, 2024, the Company had three customers representing 55% of revenue earned, and for the six months ended June 30, 2023, the Company had two customers representing 44% of revenue earned. Any customer that represents 10% or greater of total revenue represents a risk. The Company also has three customers that represent 48% and three customers that represent 54% of the total accounts receivable as of June 30, 2024, and December 31, 2023, respectively.

Note 14: Income Taxes

The Company's quarterly provision for income taxes is measured using an estimated annual effective tax rate adjusted for discrete items that occur within the quarter. The effective income tax rate was (7.00)% and (0.70)% for the three months ended June 30, 2024, and 2023, respectively. The increase in the effective tax for the three months ended June 30, 2024, was primarily due to the decrease in permanent adjustments offset by increased profitability during the year as the Company maintains a full valuation allowance against its' deferred tax assets. The effective income tax rate was (4.50)% and 16.40% for the six months ended June 30, 2024, and 2023, respectively. The decrease in the effective tax rate was primarily due to the partial release of the valuation allowance in 2023 due to the increase in deferred tax liabilities that related to the GTMR acquisition resulting in a $1.2 million net income tax benefit.

Note 15: Factoring of Accounts Receivable

On January 24, 2023, GTMR (acquired by the Company on March 22, 2023 and discussed in Note 3, "Acquisitions" entered into a factoring agreement (the “Factoring Agreement”) with Republic Capital Access LLC (“RCA”) wherein GTMR agreed to sell certain of its accounts receivable, up to a limit of $1,000,000 without recourse.

During the six-months ended June 30, 2023, total receivables sold under the Factoring Agreement was $1,335,813. Without recourse indicates that the Company assigns and transfers its rights, title, and interest in and to the accounts receivable to RCA, meaning that the Company will not be liable to repay all or any portion of the advance amount if any portion of the accounts receivable is not paid by the Company’s customer(s). Information on accounts receivable identified for factoring are provided and verified by RCA prior to being accepted for factoring. Pursuant to the Factoring Agreement, the Company received an initial payment of 90% or 85% on prime contracts or subcontracts, respectively. The remaining balance of the receivable is paid upon receipt of payment by RCA, less RCA factoring fees.

The Company pays factoring fees associated with the sale of receivables based on the dollar value of the receivables sold. Factoring fees paid under this arrangement were $8,257 for the six months ended June 30, 2023.

The Company did not factor any receivables under the Factoring Agreement for the three- and six-months ended June 30, 2024. The Company terminated this agreement in February 2024.

Note 16: Subsequent Events

On July 1, 2024 the Company entered into aone-year employment agreement with Glen R. Ives (the "Ives Employment Agreement") to serve as President and Chief Executive Officer of the Company, at which time Mark Fuller resigned from those positions. Mr. Fuller will remain a member of the board of directors of the Company. Pursuant to the Ives Employment Agreement, Mr. Ives will be entitled to an annual base salary of $300,000, and will be eligible for a maximum annual cash incentive and discretionary bonus equal to up to 100% of his annual base salary. To be eligible to receive the annual cash incentive bonus amount, which is up to 50% of his annual base salary, the Company must achieve certain performance thresholds. The discretionary bonus, which is also equal to up to 50% of his base salary, is at the sole discretion of the Company's Compensation, Culture, and People Committee (the "Compensation Committee"). Additionally, Mr. Ives will be granted stock options under the Amended Plan to purchase 750,000 shares of the Company's restricted common stock at an exercise price of $0.212. The stock options vest ratably over theone-year employment period and expire on June 30, 2031. Upon a change of control, as defined in the Amended Plan, all unvested options issued to Mr. Ives shall become fully vested upon such change of control.

On July 1, 2024 the Company also entered into anine-month employment agreement with Jay O. Wright (the "Wright Employment Agreement"), who serves as the Company's General Counsel and Executive Vice President-Strategy, pursuant to which Mr. Wright will be entitled to an annual base salary of $270,000, a monthly health insurance stipend of $4,000, and an annual discretionary bonus at the sole discretion of the Company's Compensation Committee.

If Messrs. Ives and Wright terminate their employment with the Company without good reason or their employment is terminated (i) as a result of their death, (ii) by the Company after a determination of a disability, or (iii) by the Company for cause, the Company will pay or provide Messrs. Ives and Wright (a) those benefits as required by law, (b) for any earned but unpaid base salary, (c) for the reimbursement of unreimbursed business expenses, and (d) for the payment of unpaid performance bonus for any fiscal year ended prior to the termination date. In addition, if Messrs. Ives’s or Wright's employment is terminated by the Company without cause or by him for good reason, then Messrs. Ives and Wright shall be entitled to receive the executives' base salary for a period equal to the earlier of (x) twelve (12) months following the termination date and (y) the date on which the employment period would have expired had the employment period not been terminated earlier by the Company without cause or by Messrs. Ives or Wright without good reason (the “Executives' Severance Payments”). In order to qualify for the Executives' Severance Payments the executive must execute and not revoke a mutual release agreement in a form reasonably acceptable to the Company. The Ives Employment Agreement and the Wright Employment Agreement each contain customary confidentiality restrictions, non-disparagement covenants, and non-solicitation covenants with respect to our employees, consultants, and customers and permit Mr. Ives and Mr. Wright to participate in those benefit plans generally available to all employees of the Company.

The term note payable with a balance of $252,678 as of June 30, 2024, at 3% maturing August 11, 2024, as discussed under Note 7, "Notes Payable", was repaid in full on July 8, 2024, to Live Oak Bank.

As of July 11, 2024, the remaining balance of $50,000 due to the seller of GTMR as discussed under Note 10, "Due to Seller and Contingent Earnout", was repaid in full.

As of July 2024, the remaining 3,080,013 Pre-funded Warrants discussed under Note 11, "Stockholders' Equity" issued in connection with the January 2024 Registered Offering were exercised for $3,080.01.