QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(STATE OF INCORPORATION) | (I.R.S Employer I.D.) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Large accelerated filer ¨ | Accelerated filer ¨ | ||
x | Smaller reporting company | ||
Emerging growth company |
Class | Outstanding as of November 10 , 2022 |
Common Stock, par value $0.0001 per share |
· |
changes in the market acceptance of our products and services; |
· |
overall levels of government spending, including defense spending and spending on IT services; |
· |
increased levels of competition; |
· |
changes in political, economic, or regulatory conditions generally and in the markets in which we operate; |
· |
adverse conditions in the industries in which our customers operate; |
· |
our ability to retain and attract senior management and other employees; |
1 |
· |
our ability to respond quickly and effectively to new technological developments; |
· |
our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; |
· |
United States government imposes sequestration in the absence of an approved budget or continuing resolution; |
· |
existing revenues related to small business are not replaced by other opportunities; |
· |
our Company fails to win prime contracts or acquire companies with prime contract vehicles; and |
· |
other risks, including those described in “Part II, Item 1A. Risk Factors” discussion of this Quarterly Report on Form 10-Q. |
|
· |
We lack a long-term operating history on which to evaluate our consolidated business and determine if we will be able to execute our business plan, and we can give no assurance that our operations will result in sustained profitability; |
|
· |
We have historically suffered net losses and we may not be able to sustain profitability; |
|
· |
We rely upon a few, select key employees who are instrumental to our ability to conduct and grow our business. In the event any of those key employees would no longer be affiliated with the Company, and we did not replace them with equally capable replacements, it may have a material detrimental impact as to our ability to successfully operate our business; |
|
· |
We generate substantially all of our revenue from contracts with the United States Federal, state, and local governments which are subject to a number of challenges and risks that may adversely impact our business, prospects, financial condition, and operating results; |
|
· |
We operate in an industry that is highly regulated and unexpected changes to laws could have a significant adverse impact on our business; |
2 |
|
· |
Our business could be adversely affected by changes in spending levels or budgetary priorities of the United States Federal, state, and local governments or by the imposition by the United States government of sequestration in the absence of an approved budget or continuing resolution; |
|
· |
We face intense competition and could fail to gain market share from our competitors, which could adversely affect our business, financial condition, and results of operations; |
|
· |
We may have difficulty identifying and executing acquisitions on favorable terms and therefore may grow slower than we historically have grown; and |
|
· |
We may have difficulty raising additional capital, which could deprive us of necessary resources, and you may experience dilution or subordinate stockholder rights, preferences, and privileges as a result of our financing efforts. |
3 |
|
|
SEPTEMBER 30, |
|
|
DECEMBER 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
|
|
(unaudited) |
|
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|
|
||
ASSETS |
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||
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|
|
CURRENT ASSETS: |
|
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|
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|
|
|
|
Cash |
|
$ |
|
|
|
$ |
|
|
Accounts receivable |
|
|
|
|
|
|
|
|
Contract asset |
|
|
- |
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
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|
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|
|
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|
|
|
|
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|
|
Fixed assets, net |
|
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|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Deferred tax asset |
|
|
- |
|
|
|
|
|
Right of use asset - operating lease |
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
|
|
|
|
|
|
Goodwill |
|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
Total non-current assets |
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
|
|
|
$ |
|
|
Accrued payroll and payroll related expenses |
|
|
|
|
|
|
|
|
Contract liability |
|
|
|
|
|
|
- |
|
Due to seller |
|
|
|
|
|
|
|
|
Obligation to issue common and preferred stock |
|
|
|
|
|
|
|
|
Contingent consideration |
|
|
- |
|
|
|
|
|
Contingent earnout |
|
|
|
|
|
|
|
|
Derivative liabilities |
|
|
|
|
|
|
- |
|
Revolving credit facility |
|
|
|
|
|
|
- |
|
Current portion of notes payable, net of discount |
|
|
|
|
|
|
|
|
Current portion of lease liability - operating lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Lease liability - operating lease, net of current portion |
|
|
|
|
|
|
|
|
Note payable - related party, net of current portion |
|
|
|
|
|
|
|
|
Convertible promissory notes - related parties, net of discount, net of current portion |
|
|
|
|
|
|
|
|
Notes payable, net of discount, net of current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, |
|
|
|
|
|
|
|
|
Series A Preferred stock, par value $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred stock, par value $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021, respectively |
|
|
|
|
|
|
|
|
Series C Preferred stock, par value $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021, respectively |
|
|
|
|
|
|
|
|
Common stock, par value, $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021, respectively |
|
|
|
|
|
|
|
|
Additional paid in capital |
|
|
|
|
|
|
|
|
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Total stockholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
|
$ |
|
|
|
$ |
|
|
4 |
THREE MONTHS ENDED | NINE MONTHS ENDED | |||||||||||||||
SEPTEMBER 30, | SEPTEMBER 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
REVENUES | $ | $ | $ | $ | ||||||||||||
COST OF REVENUES | ||||||||||||||||
GROSS PROFIT | ||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Indirect costs | ||||||||||||||||
Overhead | ||||||||||||||||
General and administrative expenses | ||||||||||||||||
Loss from change in fair value of contingent earnout | ||||||||||||||||
Total operating expenses | ||||||||||||||||
LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Realized gain on investment | ||||||||||||||||
Gain on disposal of fixed assets | ||||||||||||||||
Change in fair value of derivative liability | ( | ) | ||||||||||||||
Interest expense, net of interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
LOSS FROM OPERATIONS BEFORE BENEFIT | ||||||||||||||||
FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
INCOME TAX (EXPENSE) BENEFIT | ( | ) | ( | ) | ||||||||||||
NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Less: Preferred Stock Dividends | ||||||||||||||||
NET LOSS TO COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
NET LOSS PER SHARE - BASIC AND DILUTED | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
Series A Preferred |
|
|
Series B Preferred |
|
|
Series C Preferred |
|
|
Common Stock |
|
|
Paid-In |
|
|
Subscription |
|
|
Accumulated |
|
|
|
|
||||||||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Receivable |
|
|
Deficit |
|
|
Total |
|
||||||||||||
Balance - December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation - options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Stock-based compensation - warrants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in acquisition of MFSI |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Cancellation of shares in acquisition of MFSI |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Stock-based compensation - options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in acquisition of Merrison |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Shares issued in acquisition of SSI, net of transaction costs |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Shares issued for cash in Series C Preferred Subscription Agreements |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|
Stock-based compensation - options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Stock-based compensation - warrants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation - options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Stock-based compensation - warrants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock-based compensation - restricted shares |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Shares issued in acquisition of MFSI |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cancellation of shares in acquisition of MFSI |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Shares issued for service, net of amounts prepaid |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Shares issued in exercise of stock options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Shares issued for cash in Series C Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription Agreement |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services, net of amounts prepaid |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Shares issued for cash, including fair value adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Shares issued for commitment fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Shares issued to satisfy obligation to issue common stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Shares issued to acquire LSG |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Common shares issued in conversion of Series B Preferred Stock |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock-based compensation - options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Stock-based compensation - warrants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Stock-based compensation - restricted shares |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Gain on extinguishment of related party convertible note |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2022 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation - options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Stock-based compensation - warrants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Stock-based compensation - restricted shares |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Gain on extinguishment of related party convertible note |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2022 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(
|
) |
|
$ |
|
|
6 |
|
|
2022 |
|
|
2021 |
|
||
CASH FLOW FROM OPERATING ACTIVIITES |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
Amortization of discounts, premium and deferred costs |
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
Deferred tax provision |
|
|
|
|
|
|
( |
) |
Gain on disposal of fixed assets |
|
|
( |
) |
|
|
- |
|
Financing fee and bank charges for note payable and advances on revolving credit line |
|
|
|
|
|
|
- |
|
Realized gain on investment |
|
|
- |
|
|
|
( |
) |
Lease cost |
|
|
|
|
|
|
|
|
Legal fees paid out of proceeds from a note payable |
|
|
|
|
|
|
- |
|
Change in fair value of contingent earnout |
|
|
|
|
|
|
- |
|
Change in fair value of derivative liability |
|
|
|
|
|
|
- |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( |
) |
|
|
|
|
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
( |
) |
Contract asset (liability) |
|
|
|
|
|
|
( |
) |
Payment of transaction costs in acquisition of SSI |
|
|
|
|
|
|
( |
) |
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITES |
|
|
|
|
|
|
|
|
Cash received in acquisition of MFSI |
|
|
- |
|
|
|
|
|
Cash received in acquisition of Merrison, net of amounts paid |
|
|
- |
|
|
|
|
|
Cash received in acquisition of SSI, net of amounts paid |
|
|
- |
|
|
|
|
|
Cash paid in acquisition of LSG |
|
|
( |
) |
|
|
- |
|
Sale of investment |
|
|
- |
|
|
|
|
|
Purchase of fixed assets |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITES |
|
|
|
|
|
|
|
|
Proceeds from revolving credit line |
|
|
|
|
|
|
- |
|
Proceeds from issuance of preferred and common stock |
|
|
|
|
|
|
|
|
Proceeds from note s payable |
|
|
|
|
|
|
- |
|
Preferred stock dividend |
|
|
( |
) |
|
|
( |
) |
Proceeds from exercise of stock options |
|
|
|
|
|
|
- |
|
Repayment of convertible note payable - related parties |
|
|
( |
) |
|
|
( |
) |
Repayment of amounts due to seller |
|
|
( |
) |
|
|
- |
|
Repayment of line of credit, net |
|
|
- |
|
|
|
( |
) |
Repayment of note payable |
|
|
( |
) |
|
|
( |
) |
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH - BEGINNING OF PERIOD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH - END OF PERIOD |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES |
|
|
|
|
|
|
|
|
Cash paid for interest expense |
|
$ |
|
|
|
$ |
|
|
Cash paid for income taxes |
|
$ |
118,885 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
SUMMARY OF NON-CASH ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt discount on note payable applied to obligation to issue common stock |
|
$ |
|
|
|
$ |
- |
|
Adjustment to contingent consideration and customer relationships |
|
$ |
|
|
|
$ |
- |
|
Gain on extinguishment of convertible note payable - related party applied to APIC |
|
$ |
|
|
|
$ |
- |
|
Common shares issued for obligation to issue common stock |
|
$ |
|
|
|
$ |
- |
|
Derivative liability recognized as discount of note payable |
|
$ |
|
|
|
$ |
- |
|
Deferred issuance costs recognized for note payable |
|
$ |
|
|
|
$ |
- |
|
Fair value adjustment recognized on issuance of common stock in Securities Purchase Agreement |
|
$ |
|
|
|
$ |
- |
|
Common shares issued in conversion of Series B Preferred shares |
|
$ |
|
|
|
$ |
- |
|
Cancellation of shares offsetting acquisition of MFSI |
|
$ |
- |
|
|
$ |
|
|
7 |
· |
Corvus Consulting, LLC (“Corvus”), |
· |
Mainnerve Federal Services, Inc. dba MFSI Government Group (“MFSI), |
· |
Merrison Technologies, LLC (“Merrison”), |
· |
Specialty Systems, Inc. (“SSI”), |
· |
the business assets of Pax River from The Albers Group (“Pax River”), and |
· |
Lexington Solutions Group, LLC (“LSG”). |
8 |
9 |
|
|
2022 |
|
|
2021 |
|
||
Revenue: |
|
|
|
|
|
|
||
Time and material |
|
$ |
|
|
|
$ |
|
|
Firm fixed price |
|
|
|
|
|
|
|
|
Cost plus fixed fee |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
10 |
11 |
Cash |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Unbilled receivable |
|
|
|
|
Other assets |
|
|
|
|
Right of use asset – operating lease |
|
|
|
|
Customer relationships |
|
|
|
|
Non-compete agreement |
|
|
|
|
Goodwill |
|
|
|
|
Deferred tax liability |
|
|
( |
) |
Line of credit |
|
|
( |
) |
Lease liability – operating lease |
|
|
( |
) |
Accounts payable and accrued expenses |
|
|
( |
) |
Net assets acquired |
|
$ |
|
|
Common stock |
|
$ |
|
|
12 |
Cash |
|
$ |
|
|
Accounts receivable and unbilled receivables |
|
|
|
|
Customer relationships |
|
|
|
|
Non-compete agreements |
|
|
|
|
Trademarks |
|
|
|
|
Backlog |
|
|
|
|
Goodwill |
|
|
|
|
Deferred tax liability |
|
|
( |
) |
Accounts payable and accrued expenses |
|
|
( |
) |
Net assets acquired |
|
$ |
|
|
Common stock |
|
$ |
|
|
Cash |
|
|
|
|
$ |
|
|
13 |
Cash |
|
$ |
|
|
Accounts receivable and unbilled receivables |
|
|
|
|
Prepaid expenses |
|
|
|
|
Other asset |
|
|
|
|
Furniture and equipment |
|
|
|
|
Right of use asset – operating lease |
|
|
|
|
Customer relationships |
|
|
|
|
Non-compete agreements |
|
|
|
|
Trademarks |
|
|
|
|
Backlog |
|
|
|
|
Goodwill |
|
|
|
|
Deferred tax liability |
|
|
( |
) |
Lease liability – operating lease |
|
|
( |
) |
Contract liability |
|
|
( |
) |
Accounts payable and accrued expenses |
|
|
( |
) |
Net assets acquired |
|
$ |
|
|
Common stock |
|
$ |
|
|
Seller note |
|
|
|
|
Cash |
|
|
|
|
Contingent earnout |
|
|
|
|
Lender financing |
|
|
|
|
|
|
$ |
|
|
14 |
Customer relationships (contracts) (a) |
|
$ |
|
|
Net assets acquired |
|
$ |
|
|
Common stock |
|
$ |
|
|
Contingent consideration represented by obligation to issue shares (a) |
|
|
|
|
Cash (included in amounts due to seller as of December 31, 2021) (b) |
|
|
|
|
$ |
|
|
(a) |
It was determined that on March 31, 2022, that the requirements under section 1.5(b) of the acquisition agreement had not been achieved, and as a result the contingent consideration to issue the additional 68,750 common shares valued at $ |
(b) |
As of September 30, 2022, $ |
Receivable from Seller |
|
$ |
|
|
Due from Employee/Travel Advance |
|
|
|
|
Miscellaneous license |
|
|
|
|
Customer relationships |
|
|
|
|
Non-compete agreements |
|
|
|
|
Backlog |
|
|
|
|
Goodwill |
|
|
|
|
Net assets acquired |
|
$ |
|
|
Common stock ( |
|
$ |
|
|
Holdback shares ( |
|
|
|
|
Cash |
|
|
|
|
Due to seller (cash) |
|
|
|
|
|
|
$ |
|
|
15 |
For the nine months ended September 30, 2022 |
|
|||
Revenues |
|
$ |
|
|
Net loss |
|
$ |
( |
) |
Net loss per share - basic |
|
$ |
( |
) |
For the nine months ended September 30, 2021 |
|
|
|
|
Revenues |
|
$ |
|
|
Net loss |
|
$ |
( |
) |
Net loss per share - basic |
|
$ |
( |
) |
|
|
September 30, 2022 (unaudited) |
|
|
December 31, 2021 |
|
||
Equipment |
|
$ |
|
|
|
$ |
|
|
Furniture |
|
|
|
|
|
|
|
|
Software |
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
|
|
|
|
|
|
Total fixed assets |
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Fixed assets, net |
|
$ |
|
|
|
$ |
|
|
16 |
|
|
|
|
|
September 30, 2022 (unaudited) |
|
|
December 31, 2021 |
|
|||
Customer relationships |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Trade name |
|
|
|
|
|
|
|
|
|
|
|
|
Trademark |
|
|
|
|
|
|
|
|
|
|
|
|
Backlog |
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Intangible assets, net |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
September 30, 2023 |
|
$ |
|
|
September 30, 2024 |
|
|
|
|
September 30, 2025 |
|
|
|
|
September 30, 2026 |
|
|
|
|
September 30, 2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
|
|
2022 |
|
|
2021 |
|
||
Balance – beginning of period |
|
$ |
|
|
|
$ |
|
|
Additions |
|
|
|
|
|
|
|
|
Disposals |
|
|
|
|
|
|
|
|
Impairment |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
17 |
|
|
September 30, 2022 (unaudited) |
|
|
December 31, 2021 |
|
||
Convertible note payable with a trust related to one of the Company’s directors, convertible at $ |
|
$ |
|
|
|
|
|
|
Convertible note payable with a trust related to one of the Company’s directors, convertible at $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Notes Payable – Related Parties |
|
$ |
|
|
|
$ |
|
|
Add: Premiums recorded on convertible note due to fair value adjustment at date of acquisition of Corvus |
|
|
|
|
|
|
|
|
Less: BCF Discount |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
|
$ |
|
|
(a) |
On February 1, 2021, the two promissory notes with The Buckhout Charitable Remainder Trust (Laurie Buckhout – Trustee), were combined into one new note in the principal balance of $ |
18 |
|
|
September 30, 2022 (unaudited) |
|
|
December 31, 2021 |
|
||
Note payable at |
|
$ |
|
|
|
$ |
|
|
Note payable at and matures the earlier of (i) |
|
|
|
|
|
|
|
|
Convertible note payable, convertible at $ |
|
|
|
|
|
|
|
|
Term note payable , at prime plus , applied on a deferred basis ( |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
Total Notes Payable |
|
|
|
|
|
|
|
|
Less: Debt Discount |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
|
$ |
|
|
(a) |
on August 12, 2021, the note payable was amended to extend the debt to |
(b) |
on February 28, 2022, the Company was obligated to issue |
(c) |
on April 4, 2022, the Company entered into a Securities Purchase Agreement (“SPA”) with Crom. The SPA includes (a) a Convertible Promissory Note dated |
September 30, 2023 |
|
$ |
|
|
September 30, 2024 |
|
|
|
|
Total |
|
$ |
|
|
19 |
|
|
September 30, 2022 (unaudited) |
|
|
December 31, 2021 |
|
||
Note payable at |
|
$ |
|
|
|
$ |
|
|
20 |
21 |
|
|
Nine Months Ended September 30, 2022 |
|
Year Ended December 31, 2021 |
|
||||||||||
|
|
Number |
|
|
Weighted Average Exercise Price |
|
Number |
|
Weighted Average Exercise Price |
|
|||||
Beginning balance |
|
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised Cashless |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrants exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Intrinsic value of warrants |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
||
Weighted Average Remaining Contractual Life (Years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22 |
Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||||||||||
Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||||||||||||
Beginning balance | $ | $ | ||||||||||||||
Granted | ||||||||||||||||
Exercised | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Forfeited | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Expired | ||||||||||||||||
Ending balance | $ | $ | ||||||||||||||
Vested options | ||||||||||||||||
Nonvested options | ||||||||||||||||
Intrinsic value of options | $ | $ | ||||||||||||||
Weighted Average Remaining Contractual Life (Years) |
23 |
Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||
Expected term | ||||||||
Expected volatility | % | |||||||
Expected dividend yield | ||||||||
Risk-free interest rate | % |
Fair Value Measurements at September 30, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Crom Derivative Liabilities | $ | $ | $ | $ | ||||||||||||
Contingent Earnout | $ | $ | $ | $ | ||||||||||||
Total | $ | $ | $ | $ |
Fair Value Measurements at December 31, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Crom Derivative Liabilities | $ | $ | $ | $ | ||||||||||||
Contingent Earnout | $ | $ | $ | $ | ||||||||||||
Total | $ | $ | $ | $ |
September 30, 2022 (unaudited) | December 31, 2021 | Inception | ||||||||||
Fair value of conversion option of Crom Cortana Fund LLC convertible note | $ | ( | ) | $ | $ | ( | ) | |||||
Fair value of | ( | ) | ( | ) | ||||||||
$ | ( | ) | $ | ( | ) |
24 |
Beginning balance as of December 31, 2021 |
|
$ |
|
|
Issuances of convertible note/warrants – derivative liabilities |
|
|
( |
) |
Warrants exchanged for common stock |
|
|
|
|
Change in fair value of warrant derivative liabilities |
|
|
( |
) |
Ending balance as of September 30, 2022 |
|
$ |
( |
) |
|
|
September 30, 2022 |
|
|
Inception – April 4, 2022 |
|
||
Expected term – conversion option |
|
|
|
|
|
|
|
|
Expected term - warrants |
|
|
|
|
|
|
|
|
Stock price as of Measurement Date |
|
$ |
|
|
|
$ |
|
|
Equity volatility - unadjusted |
|
|
|
% |
|
|
|
% |
Volatility haircut |
|
|
|
% |
|
|
|
% |
Selected volatility – post haircut |
|
|
|
% |
|
|
|
% |
Senior unsecured synthetic credit rating |
|
|
CCC + |
|
|
|
CCC + |
|
B- market yield |
|
|
|
% |
|
|
|
% |
OAS differential between CCC+ and B- bonds |
|
|
|
|
|
|
|
bps
|
Risk adjusted rate |
|
|
|
% |
|
|
|
% |
Risk-free interest rate |
|
|
|
% |
|
|
|
% |
25 |
26 |
· | On October 13, 2022, the Company effectuated the Reverse Stock Split and commenced trading of its common stock on the NYSE American LLC. |
· | On October 17, 2022, the Company closed on its public offering of ed common stock to stockholders with fractional shares resulting from the reverse stock split. |
· | On October 17, 2022 the Company issued a total of |
· | In October 2022, t he Company made an advanced principal payment of $ |
· | In October 2022 , the Company made a payment of $ |
· | In November 2022, t he Company made an advanced principal payment of $ |
· | On November 7, 2022, the Company announced the signing of a non-binding letter of intent to acquire an East-Coast-based government contractor. |
27 |
|
· |
Enterprise – We provide capabilities that enable the internal operations of a government agency. This includes digital solutions, such as business systems, agency-unique applications, investigative solutions, and enterprise IT. For example, Castellum customizes, implements, and maintains commercial-off-the-shelf (“COTS”) and customer enterprise resource planning (“ERP”) systems. This includes, financial, human capital, and supply chain management systems. Castellum also designs, integrates, deploys, and sustains enterprise-wide IT systems in a variety of models. |
28 |
|
· |
Mission – Castellum provides capabilities that enable the execution of a government agency’s primary function, or “mission”. For example, we support strategic and tactical mission customers with capabilities in areas such as command and control, communications, intelligence collection and analysis, signal intelligence (“SIGINT”), electronic warfare (“EW”), and cyber operations. Castellum develops tools and offerings in an open, software-defined architecture with multi-domain and multi-mission capabilities. |
|
· |
Expertise – Castellum provides expertise to both enterprise and mission customers. For enterprise customers, we deliver talent with the specific technical and functional knowledge to support internal agency operations. And for mission customers, we deliver talent with technical and domain knowledge to support the execution of an agency’s mission. We also deliver actionable intelligence through multi-source collection, aggregation, and analysis. |
|
· |
Technology – Castellum delivers technology to both enterprise and mission customers. For enterprise customers, technology includes developing and implementing digital solutions (business systems, agency-unique applications) and end-to-end enterprise IT systems. We continually advance infrastructure through migration to the cloud network modernization, active cyber defense, and the application of data operations and analytics. For mission customers, technology includes developing and deploying multi-domain offerings for signals intelligence, resilient communications, fee space optical communications, electronic warfare, and cyber operations. Castellum invests ahead of customer needs with research and development to generate unique intellectual property and differentiated technology addressing critical national security mission needs. |
29 |
· |
the three months ended September 30, 2022 compared to the three months ended September 30, 2021. |
· |
the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. |
30 |
· |
Indirect costs consist of expenses generally associated with bonuses and fringe benefits, including employee health and medical insurance, 401k matching contributions, and payroll taxes. |
· |
Overhead consists of expenses associated with the support of operations or production, including labor for management of contracts, operations, training, supplies, and certain facilities to perform customer work. |
· |
General and administrative expenses consist primarily of corporate and administrative labor expenses, administrative bonuses, legal expenses, IT expenses, and insurance expenses. |
31 |
32 |
THREE MONTHS ENDED |
|
|
||||||||||||||
SEPTEMBER 30, |
|
|
Change |
|
||||||||||||
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||||
Revenues |
|
$ |
11,120,712 |
|
|
$ |
7,378,094 |
|
|
$ |
3,742,618 |
|
|
|
51 |
% |
Cost of revenues |
|
|
6,474,261 |
|
|
|
4,309,439 |
|
|
|
2,164,822 |
|
|
|
50 |
% |
Gross Profit |
|
|
4,646,451 |
|
|
|
3,068,655 |
|
|
|
1,577,796 |
|
|
|
51 |
% |
Operating expenses: |
|
|
|
|||||||||||||
Indirect costs |
|
|
2,130,513 |
|
|
|
738,239 |
|
|
|
1,392,274 |
|
|
|
189 |
% |
Overhead |
|
|
407,804 |
|
|
|
248,540 |
|
|
|
159,264 |
|
|
|
64 |
% |
General and administrative expenses |
|
|
3,297,319 |
|
|
|
6,682,034 |
|
|
|
( 3,384,715 |
) |
|
|
(51 |
)% |
Loss from change in fair value of contingent earnout |
|
|
864,000 |
|
|
|
- |
|
|
|
864,000 |
|
|
|
100 |
% |
Total operating expenses |
|
|
6,699,636 |
|
|
|
7,668,813 |
|
|
|
( 969,177 |
) |
|
|
(13 |
)% |
Income (loss) from operations: |
|
|
(2, 053,185 |
) |
|
|
(4,600,158 |
) |
|
|
2,546,973 |
|
|
|
(55 |
)% |
|
||||||||||||||||
Other income (expense) |
|
|
( 902,314 |
) |
|
|
(648,175 |
) |
|
|
( 254,139 |
) |
|
|
39 |
% |
|
||||||||||||||||
Income (loss) before income taxes and preferred stock dividends |
|
|
( 2,955,499 |
) |
|
|
(5,248,333 |
) |
|
|
2, 292,834 |
|
|
|
(44 |
)% |
|
||||||||||||||||
Income tax benefit (expense) |
|
|
(159,025) |
|
|
|
328,735 |
|
|
|
(487,760 |
) |
|
|
(148 |
)% |
Preferred stock dividend |
|
|
29,911 |
|
|
|
3,320 |
|
|
|
26,591 |
|
|
|
801 |
% |
Net loss |
|
$ |
(3,144,435 |
) |
|
$ |
(4,922,918 |
) |
|
$ |
1,778,483 |
|
|
|
-36 |
% |
33 |
NINE MONTHS ENDED |
|
|
||||||||||||||
SEPTEMBER 30, |
|
|
Change |
|
||||||||||||
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||||
Revenues |
|
$ |
32,166,104 |
|
|
$ |
15,587,246 |
|
|
$ |
16,578,858 |
|
|
|
106 |
% |
Cost of revenues |
|
$ |
18,698,820 |
|
|
|
8,921,153 |
|
|
|
9,777,667 |
|
|
|
110 |
% |
Gross Profit |
|
$ |
13,467,284 |
|
|
|
6,666,093 |
|
|
|
6,801,191 |
|
|
|
102 |
% |
Operating expenses: |
|
|
|
|||||||||||||
Indirect costs |
|
|
7,458,319 |
|
|
|
1,512,370 |
|
|
|
5,945,949 |
|
|
|
393 |
% |
Overhead |
|
|
1,167,346 |
|
|
|
431,987 |
|
|
|
735,359 |
|
|
|
170 |
% |
General and administrative expenses |
|
|
9, 633,064 |
|
|
|
10,389,922 |
|
|
|
( 756 , 858 |
) |
|
|
( 7 |
)% |
Loss from change in fair value of contingent earnout |
|
|
864,000 |
|
|
|
- |
|
|
|
864,000 |
|
|
|
100 |
%
|
Total operating expenses |
|
|
19,122,729 |
|
|
|
12,334,279 |
|
|
|
6,788,450 |
|
|
|
55 |
% |
Income (loss) from operations: |
|
|
( 5,655,445 |
) |
|
|
(5,668,186 |
) |
|
|
12,741 |
|
|
|
0 |
% |
|
||||||||||||||||
Other income (expense) |
|
|
(2, 676 ,612 |
) |
|
|
(1,799,181 |
) |
|
|
( 877,431 |
) |
|
|
49 |
% |
|
||||||||||||||||
Income (loss) before income taxes and preferred stock dividends |
|
|
(8, 332,057 |
) |
|
|
(7,467,367 |
) |
|
|
( 864,690 |
) |
|
|
( 1 2 |
)% |
|
||||||||||||||||
Income tax benefit (expense) |
|
|
( 902,820 |
) |
|
|
890,995 |
|
|
|
(1, 793,815 |
) |
|
|
( 201 |
)% |
Preferred stock dividend |
|
|
70,447 |
|
|
|
3,320 |
|
|
|
67,127 |
|
|
|
2022 |
% |
Net loss |
|
$ |
(9, 305,324 |
) |
|
$ |
(6,579,692 |
) |
|
$ |
(2, 725,632 |
) |
|
|
41 |
% |
34 |
· |
Funded Backlog - Funded backlog represents the revenue value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts. |
· |
Unfunded Backlog - Unfunded backlog represents the revenue value of orders (including optional orders) for services under existing contracts for which funding has not been appropriated or otherwise authorized. |
· |
Priced Options - Priced contract options represent 100% of the revenue value of all future contract option periods under existing contracts that may be exercised at our clients’ option and for which funding has not been appropriated or otherwise authorized. |
Funded |
|
$ |
15,687,679 |
|
Unfunded |
|
|
10,372,982 |
|
Priced Options |
|
|
62,093,312 |
|
Total Backlog |
|
$ |
88,153,973 |
|
35 |
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||||
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||||
Net cash provided (used) by operating activities |
|
$ |
(554,647 |
) |
|
$ |
167,612 |
|
|
$ |
(722,259 |
) |
|
|
-431 |
% |
Net cash provided (used) by investing activities |
|
|
(342,436 |
) |
|
|
835,989 |
|
|
$ |
(1,178,425 |
) |
|
|
-141 |
% |
Net cash provided (used) by financing activities |
|
|
732,556 |
|
|
|
238,976 |
|
|
$ |
493,580 |
|
|
|
207 |
% |
Change in cash |
|
$ |
(164,527 |
) |
|
$ |
1,242,577 |
|
|
$ |
(1,407,104 |
) |
|
|
-113 |
% |
36 |
37 |
38 |
39 |
|
· |
limited operating history at our current scale; |
|
· |
our ability to raise capital to develop our business and fund our operations; |
|
· |
our ability to anticipate and adapt to developing markets; |
|
· |
acceptance by our customers; |
|
· |
limited marketing experience; |
|
· |
competition from competitors with substantially greater financial resources and assets; and |
|
· |
the ability to identify, attract, and retain qualified personnel. |
40 |
41 |
· |
selling to governmental agencies can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that such efforts will generate a sale. Our existing contracts typically expire after some period of time and must be “re-competed.” There is no guarantee that we will win such re-compete efforts; |
· |
government certification requirements applicable to our products may change and in doing so restrict our ability to sell into the U.S. Federal government (“USG”) sector until we have attained the revised certification; |
· |
government demand and payment for our products and services may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products and services; |
· |
governments can generally terminate our contracts “for convenience” meaning we could lose part or all of our revenue on short notice; |
· |
governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our platform, which would adversely impact our revenue and results of operations, or institute fines or civil or criminal liability if the audit uncovers improper or illegal activities; and |
· |
when we are a subcontractor, we have less control over the execution and success of the contract with the government. |
42 |
|
· |
the Federal Acquisition Regulation (“FAR”), and agency regulations supplemental to FAR, which regulate the formation, administration, and performance of USG contracts; |
|
· |
the False Statements Act, which imposes civil and criminal liability for making false statements to the USG; |
|
· |
the Truthful Cost or Pricing Data Statute (formerly known as the “Truth in Negotiations Act”), which requires certification and disclosure of cost and pricing data in connection with the negotiation of certain contracts, modifications, or task orders; |
|
· |
the Procurement Integrity Act, which regulates access to competitor bid and proposal information and certain internal government procurement sensitive information, and our ability to provide compensation to certain former government procurement officials; |
|
· |
laws and regulations restricting the ability of a contractor to provide gifts or gratuities to employees of the USG, including The Foreign Corrupt Practices Act of 1977 (the “FCPA”) which prohibits U.S. citizens and entities from bribing foreign government officials to benefit their business interests; |
|
· |
post-government employment laws and regulations, which restrict the ability of a contractor to recruit and hire current employees of the USG and deploy former employees of the USG; |
|
· |
laws, regulations, and executive orders restricting the handling, use, and dissemination of information classified for national security purposes or determined to be “controlled unclassified information” or “for official use only,” and the export of certain products, services, and technical data, including requirements regarding any applicable licensing of our employees involved in such work; |
|
· |
laws, regulations, and executive orders regulating the handling, use, and dissemination of personally identifiable information in the course of performing a USG contract; |
|
· |
international trade compliance laws, regulations, and executive orders that prohibit business with certain sanctioned entities and require authorization for certain exports or imports in order to protect national security and global stability, including The International Traffic in Arms Regulations (“ITAR”) that controls the manufacture, sale, and distribution of defense and space-related articles and services as defined in the United States Munitions List (“USML”); |
|
· |
laws, regulations, and executive orders governing organizational conflicts of interest that may restrict our ability to compete for certain USG contracts because of the work that we currently perform for the USG or may require that we take measures such as firewalling off certain employees or restricting their future work activities due to the current work that they perform under a USG contract; |
|
· |
laws, regulations, and executive orders that impose requirements on us to ensure compliance with requirements and protect the USG from risks related to our supply chain such as compliance with Cybersecurity Maturity Model Certification (“CMMC”); |
|
· |
laws, regulations, and mandatory contract provisions providing protections to employees or subcontractors seeking to report alleged fraud, waste, and abuse related to a USG contract; |
|
· |
the Contractor Business Systems rule, which authorizes U.S. Department of Defense (“DoD”) agencies to withhold a portion of or payments if we are determined to have a significant deficiency in our accounting, cost estimating, purchasing, earned value management, material management and accounting, and/or property management system; and |
43 |
|
· |
the Cost Accounting Standards and Cost Principles, which impose accounting and allowability requirements that govern our right to reimbursement under certain cost-based USG contracts and require consistency of accounting practices over time. |
· |
cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable; |
· |
claim rights in systems and software developed by us; |
· |
suspend or debar us from doing business with the USG or with a governmental agency; |
· |
impose fines and penalties and subject us to criminal prosecution; and |
· |
control or prohibit the export of our data technology or proprietary service solutions. |
44 |
45 |
|
· |
we bid on programs before the completion of their design, which may result in unforeseen technological difficulties and cost overruns; |
|
· |
we expend substantial cost and managerial time and efforts to prepare bids and proposals for contracts that we may not win; |
|
· |
we may be unable to estimate accurately the resources and cost structure that will be required to service any contract we win; and |
|
· |
we may encounter expense and delay if our competitors protest or challenge awards or contracts to us in competitive bidding, and any such protest or challenge could result in the resubmission of bids on modified specifications, or in termination, reduction, or modification of the awarded contract. |
46 |
47 |
48 |
49 |
|
· |
increased competition for acquisitions may increase the costs for our acquisitions; |
|
· |
unreasonable expectations of companies related to their perceived versus actual value; |
50 |
|
· |
our failure to discover material liabilities during the due diligence process, including the failure of prior owners of any acquired businesses or their employees to comply with applicable laws or regulations, such as the FAR and health, safety, and environmental laws, or their failure to fulfill their contractual obligations to the USG or other customers; |
|
· |
our acquisitions may not ultimately strengthen our competitive position or allow us to achieve our goals, and any acquisitions we complete could be viewed negatively by our customers, analysts, and investors; |
|
· |
acquisition financing may not be available on reasonable terms or at all; |
|
· |
failure to properly integrate our acquisitions with our existing business thereby preventing the realization of potential synergies with the acquired business; and |
|
· |
debt incurred in making acquisitions may reduce our financial flexibility to pursue other opportunities or invest in internal growth. |
51 |
· |
whether our results of operations meet the expectations of securities analysts or investors; |
· |
departures of key personnel; |
· |
actual or anticipated changes in the expectations or securities analysts; |
· |
litigation involving us, our industry, or both; |
· |
regulatory developments in the U.S., foreign countries or both; |
· |
price and volume fluctuations in the overall stock market from time to time; |
· |
fluctuations in the trading volume of our shares or the size of the public float; |
· |
variations in our revenue and operating expenses; |
· |
market conditions in our industry and the economy as a whole; |
· |
actual or expected changes in our growth rates or our competitors’ growth rates; |
· |
developments or disputes concerning intellectual and proprietary rights; |
· |
developments in the financial markets and worldwide or regional economies; |
· |
variations in our financial results or those of companies that are perceived to be similar to us; |
· |
announcements by the government relating to regulations that govern our industry; |
· |
sales of our common stock or other securities by us or in the open market; |
· |
changes in the market valuations of other comparable companies; |
· |
general economic, industry, and market conditions; |
· |
major catastrophic events; and |
· |
the other factors described in this “Risk Factors” section. |
52 |
53 |
54 |
55 |
· |
the composition of our Board of Directors and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers; |
· |
any determination with respect to mergers or other business combinations; |
· |
our acquisition or disposition of assets; and |
· |
our corporate financing activities. |
56 |
(a) |
Recent Sales of Unregistered Securities. |
(b) |
Use of Proceeds from the Public Offering. |
(a) |
On August 30, 2022 the Registrant filed an Amended and Restated Articles of Incorporation (the “Restated Articles of Incorporation”) with the Secretary of State of Nevada. In connection with the Public Offering, the Company’s Board of Directors and stockholders approved the Restated Articles of Incorporation on July 27, 2022. The Restated Articles of Incorporation are attached hereto as Exhibit 3.1 and is incorporated herein by reference. |
(b) |
On and effective September 27, 2022 the Registrant’s Board of Directors adopted the Amended and Restated Bylaws of the Registrant (the “Restated Bylaws”), as follows: |
1. |
Set forth procedures with respect to stockholder nominations of directors and submissions of stockholder proposals at meetings of stockholders which requires a stockholder to provide advance written notice of a proposal to nominate a person for election to the Registrant’s Board of Directors; and |
2. |
Specify additional types of information and representations that a nominating stockholder or its proposed director nominee must provide to the Registrant in connection with a director nomination. |
57 |
|
|
|
|
|
Incorporated by Reference |
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60 |
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|
104 |
The cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, has been formatted in Inline XBRL and contained in Exhibits 101 |
++ |
Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because such information is (i) not material and (ii) the type of information the Company treats as confidential. The Company will furnish supplementally an unredacted copy of such exhibit to the Securities and Exchange Commission or its staff upon its request. |
61 |
Date: November 14, 2022 |
CASTELLUM, INC. |
|
|
|
/s/ Mark C. Fuller |
|
Mark C. Fuller |
|
Chief Executive Officer (Principal Executive Officer) |
|
|
|
/s/ David T. Bell |
|
David T. Bell |
|
Chief Financial Officer (Principal Financial Officer) |
62 |