UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2022

Or

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

For the transition period from ___ to ___

Commission File Number: 001-41526

CASTELLUM, INC.

(Exact Name of Registrant as Specified in Charter)

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

3 Bethesda Metro Center, Suite 700, Bethesda, MD 20814

(301) 961-4895

(Address and telephone number of principal executive offices)

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

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

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

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

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

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

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

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

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

Class	Outstanding as of November 10, 2022
Common Stock, par value $0.0001 per share	41,539,342

CASTELLUM, INC.

FORM 10-Q

For the Quarter Ended September 30, 2022

INDEX

PART I	4
Item 1. Unaudited Condensed Consolidated Financial Statements	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	39
Item 4. Controls and Procedures	39
PART II	40
Item 1. Legal Proceedings	40
Item 1A. Risk Factors	40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3. Defaults Upon Senior Securities	57
Item 4. Mine Safety Disclosures	57
Item 5. Other Information	57
Item 6. Exhibits	58
Signatures	62

EXPLANATORY NOTE REGARDING REVERSE STOCK SPLIT

On October 13, 2022, Castellum, Inc. (the “Company”, “our Company,” “we,” “our,” “us” and “Castellum”) effected a 1-for-20 reverse split of our authorized and outstanding shares of common stock (the “Reverse Stock Split”, “Offering”, “Uplisting”) by way of the filing on October 5, 2022 of an amendment to the Company’s amended and restated articles of incorporation to effect the Reverse Stock Split which was approved by Financial Industry Regulatory Authority on October 12, 2022 in connection with the closing of an underwritten public offering of our common stock and the commencement of the trading of our common stock on the NYSE American LLC (see Part II, Item 2 “Unregistered Sales of Equity Securities and Use of Proceeds”). As a result of the Reverse Stock Split, all authorized and outstanding common stock and per share amounts in this Quarterly Report on Form 10-Q, including but not limited to, the consolidated financial statements and footnotes included herein, have been adjusted to reflect the Reverse Stock Split for all periods presented. 

EXPLANATORY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

RISK FACTORS SUMMARY

Investing in our common stock involves a high degree of risk because our business is subject to numerous risks and uncertainties, as more fully described in “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10Q.  Below are some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects: 

· 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

Part I

Item 1. Unaudited Condensed Consolidated Financial Statements

 CASTELLUM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2022 (UNAUDITED) AND DECEMBER 31, 2021

	SEPTEMBER 30,			DECEMBER 31,
	2022			2021
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	1,853,388		$	2,017,915
Accounts receivable		8,465,979			5,414,401
Contract asset		-			591,055
Prepaid expenses and other current assets		310,569			185,824
Total current assets		10,629,936			8,209,195
Fixed assets, net		190,942			145,792
NON-CURRENT ASSETS:
Deferred tax asset		-			610,033
Right of use asset - operating lease		65,503			132,690
Intangible assets, net		7,131,860			7,595,599
Goodwill		15,533,964			14,062,964
Total non-current assets		22,731,327			22,401,286
TOTAL ASSETS	$	33,552,205		$	30,756,273
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	1,644,838		$	1,437,827
Accrued payroll and payroll related expenses		2,106,252			1,511,622
Contract liability		82,583			-
Due to seller		591,003			200,000
Obligation to issue common and preferred stock		125,000			25,000
Contingent consideration		-			275,000
Contingent earnout		1,121,000			257,000
Derivative liabilities		789,000			-
Revolving credit facility		300,025			-
Current portion of notes payable, net of discount		1,960,402			1,279,390
Current portion of lease liability - operating lease		47,617			111,999
Total current liabilities		8,767,720			5,097,838
NON-CURRENT LIABILITIES
Lease liability - operating lease, net of current portion		16,743			18,715
Note payable - related party, net of current portion		400,000			400,000
Convertible promissory notes - related parties, net of discount, net of current portion		696,826			2,805,184
Notes payable, net of discount, net of current portion		6,512,019			7,112,419
Total non-current liabilities		7,625,588			10,336,318
Total Liabilities		16,393,308			15,434,156
STOCKHOLDERS' EQUITY
Preferred stock, 50,000,000 shares authorized
Series A Preferred stock, par value $0.0001; 10,000,000 shares authorized;
5,875,000 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		588			588
Series B Preferred stock, par value $0.0001; 10,000,000 shares authorized;
3,075,000 and 3,610,000 issued and outstanding as of September 30, 2022 and
December 31, 2021, respectively		307			361
Series C Preferred stock, par value $0.0001; 10,000,000 shares authorized;
770,000 and 620,000 issued and outstanding as of September 30, 2022 and
December 31, 2021, respectively		77			62
Common stock, par value, $0.0001, 3,000,000,000 shares authorized,
24,788,132 and 19,960,632 issued and outstanding as of September 30, 2022 and
December 31, 2021, respectively		2,479			1,996
Additional paid in capital		37,546,787			26,405,126
Accumulated deficit		(20,391,341	)		(11,086,016	)
Total stockholders' equity		17,158,897			15,322,117
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	33,552,205		$	30,756,273

See notes to condensed consolidated financial statements.

4

CASTELLUM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

	THREE MONTHS ENDED						NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2022			2021			2022			2021
REVENUES	$	11,120,712		$	7,378,094		$	32,166,104		$	15,587,246
COST OF REVENUES		6,474,261			4,309,439			18,698,820			8,921,153
GROSS PROFIT		4,646,451			3,068,655			13,467,284			6,666,093
OPERATING EXPENSES
Indirect costs		2,130,513			738,239			7,458,319			1,512,370
Overhead		407,804			248,540			1,167,346			431,987
General and administrative expenses		3,297,319			6,682,034			9,633,064			10,389,922
Loss from change in fair value of contingent earnout		864,000			-			864,000			-
Total operating expenses		6,699,636			7,668,813			19,122,729			12,334,279
LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSE)		(2,053,185	)		(4,600,158	)		(5,655,445	)		(5,668,186	)
OTHER INCOME (EXPENSE)
Realized gain on investment		-			-			-			38,851
Gain on disposal of fixed assets		-			-			303			-
Change in fair value of derivative liability		76,000			-			(97,000	)		-
Interest expense, net of interest income		(978,314	)		(648,175	)		(2,579,915	)		(1,838,032	)
Total other income (expense)		(902,314	)		(648,175	)		(2,676,612	)		(1,799,181	)
LOSS FROM OPERATIONS BEFORE BENEFIT
FOR INCOME TAXES		(2,995,499	)		(5,248,333	)		(8,332,057	)		(7,467,367	)