What changed in this filing

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Item 1. Business

2024-03-21 compared with 2023-03-17 · 55 added, 41 removed, 167 unchanged (37% of the section changed)

Castellum, Inc.

is focused on acquiring and growing technology companies in the areas of cybersecurity, IT, electronic warfare, information warfare, and information operations with businesses in the defense, federal, civilian, and commercial markets.

Services include intelligence analysis, software development, software engineering, program management, strategic and mission planning, information assurance, cybersecurity and policy support, and data analytics.

Castellum is focused on building a large, successful technology company in the areas of cybersecurity, IT, electronic warfare, information warfare, and information operations with businesses in the defense, federal, civilian, and commercial markets.

These services are applicable to customers in the United States government (“USG”), financial services, healthcare, and other users of large data applications.

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The Company has worked with multiple business brokers and contacts within their business network to identify potential acquisitions.

Due to our success in completing six acquisitions over the previous three years and given our executive officers’ and key managers’ networks of contacts in the IT, telecom, cybersecurity, and defense sectors, we believe that we are well positioned to continue to execute our business strategy given a pipeline of identified and acquisition targets.

Due to our success in completing seven acquisitions over the previous four years and given our executive officers’ and key managers’ networks of contacts in the IT, telecom, cybersecurity, and defense sectors, we believe that we are well positioned to continue to execute our business strategy given a pipeline of identified and acquisition targets.

Because of our executive officers’ and key managers’ prior experience growing businesses organically, we believe that we are well positioned to grow our existing business via internal growth as well.

The Company has developed a qualified business opportunity (the “Opportunity Pipeline”).

Although there can be no assurance that the Opportunity Pipeline can be converted to revenues, the Company expects that the total value of the Opportunity Pipeline to be approximately $475 million.

Although there can be no assurance that the Opportunity Pipeline can be converted to revenues, the Company believes that the total value of the Opportunity Pipeline to be approximately $527 million as of December 31, 2023.

The Opportunity Pipeline represents the revenue opportunity for the Company from potential future contracts obtained through organic growth from qualified customers based on the expected base year contract value plus the value of all option periods.

Our primary customers are agencies and departments of the USG.

Our primary customers are currently agencies and departments of the USG.

Our expertise and technology support national security missions and government modernization for intelligence, defense, and federal civilian customers.

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We use data analytics and visualization to provide insights and outcomes that optimize our customer’s operations.

• C4ISR, Cyber & Space – Castellum teams ensure information superiority by delivering multi-domain C4 technology and networks.

Our software-defined, full-spectrum cyber, electronic warfare, and C-UAS solutions provide electromagnetic spectrum advantage and deliver precision effects against national security

• C4ISR, Cyber & Space – Castellum helps ensure information superiority by delivering multi-domain C4 technology and networks.

Our software-defined, full-spectrum cyber, electronic warfare, and C-UAS solutions provide electromagnetic spectrum advantage and deliver precision effects against national security threats.

We are at the forefront of developing technologies that meet the challenges of 5G wireless communications both on and off the battlefield, millimeter wave, and the use of lasers for free space optical communications and long-range sensing.

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For example, Castellum performs software development and virtualization of infrastructure services for the U.S.

We maintain and monitor government owned data centers.

We are subject matter experts in electronic and electromagnetic warfare.

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International Presence .

We have previously supported international clients in Australia and other foreign countries and believe that future opportunities for providing our services internationally is growing given current record nominal levels of global spending on defense and the continued rising threat from cybersecurity breaches.

We currently support and have previously supported international clients in Australia and other foreign countries and believe that future opportunities for providing our services internationally is growing given current record nominal levels of global spending on defense and the continued rising threat from cybersecurity breaches.

Deep-Seated Government Relationships .

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Some of these business relationships have ultimately led to Castellum acquiring the teaming partner firm.

Our marketing and new business development is conducted by many of our officers and managers including the CEO, COO, other executive officers, and other key managers.

Our marketing and new business development is conducted by many of our officers and managers including the Chief Executive Officer (“CEO”), Chief Operating Officer (“COO”), Chief Strategy Officer and other executive officers, and other key managers.

We employ business development, capture and proposal writer professionals who identify and qualify major contract opportunities, primarily in the USG market and submit bids for those opportunities.

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In situations in which the customer-imposed contract type and/or terms appear to expose us to inappropriate risk or do not offer us a sufficient financial return, we may seek alternative arrangements or opt not to bid for the work.

Essentially all contracts with the USG, and many contracts with other

government entities, permit the government customer to terminate the contract at any time for the convenience of the government or for default by the contractor.

Essentially all contracts with the USG, and many contracts with other government entities, permit the government customer to terminate the contract at any time for the convenience of the government or for default by the contractor.

None of Castellum’s subsidiaries have had contract work terminated for non-performance.

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Additionally, as with other government contractors, our business is subject to government customer funding decisions and actions that are beyond our control.

Our contracts and subcontracts are composed of a wide range of contract types, including fixed firm price (“FFP”), cost plus fixed fee (“CPFF”), time and materials (“T&M”), labor hour, indefinite delivery/indefinite quantity (“IDIQ”) and government wide acquisition contracts (“GWACS”) such as U.S.

Our contracts and subcontracts are composed of a wide range of contract types, including firm fixed price (“FFP”), cost plus fixed fee (“CPFF”), time and materials (“T&M”), indefinite delivery/indefinite quantity (“IDIQ”), and government wide acquisition contracts (“GWACS”) such as U.S.

General Services Administration (“GSA”) schedule contracts, substantially all of which are annual contracts, with options to renew.

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We generated $25,631,786 (57%), $25,302,224 (61%), and $15,381,979 (78%) of our total revenues from T&M contracts in the years ended December 31, 2023, 2022, and 2021, respectively.

In the year ending December 31, 2022, the top three revenue-producing contracts, some of which consist of multiple task orders, accounted for forty-six percent (46%) of our revenue, or $19,223,528.

In the year ending December 31, 2023, the top three revenue-producing contracts, some of which consist of multiple task orders, accounted for fifty-two percent (52%) of our revenue, or $23,639,493.

Each of those contracts are associated with the Company’s areas of core expertise, as follows:

(i) an annual contract with NAVAIR that contains multiple renewal options is a CPFF contract that goes to the systems engineering and design/software engineering and development expertise where the Company has developed software that manages the aircraft launch and recovery operations on aircraft carriers, (ii) an annual contract with Perspecta with multiple renewal option periods is a T&M contract which supports the cyber and EW work done at the Army Staff Level, and (iii) an annual contract with CACI that contains multiple renewal options is a T&M contract that leverages expertise in EW and is associated with developing a 5G spectrum management strategy and policy.

(i) an annual contract with NAVAIR that contains multiple renewal options is a CPFF contract covering systems engineering, design/software engineering, and development expertise where the Company has developed software that manages the aircraft launch and recovery operations on aircraft carriers, (ii) an annual contract with Peraton with multiple renewal option periods is a T&M contract which supports the cyber and EW work done at the Army Staff Level, and (iii) an annual contract with NAVSEA that contains multiple renewal options is a CPFF contract covering engineering and technical services for the analysis, design, prototyping, test and evaluation, integration, project management, implementation, and documentation of various Command, Control, Communications, and Computer Intelligence Surveillance Reconnaissance (“C4ISR”) sensor systems and subsystems for Department of Defense.

Some of our key initiatives include the following:

• Continue our unwavering commitment to our customers while supporting the communities in which we work and live;

• Continue to grow organic revenue across our large, addressable market;

• Grow organic revenue across our large, addressable market;

• Recruit and hire a world class workforce to execute on our growing backlog;

• Differentiate ourselves through our investment, including our strategic mergers and acquisitions allowing us to enhance our current capabilities and create new customer access points.

• Differentiate ourselves through our investment, including our strategic mergers and acquisitions which allow us to enhance our current capabilities and create new customer access points.

Budgetary Environment

On December 29, 2022, President Joe Biden signed the Consolidated Appropriations Act of 2023 which was a $1.7 trillion omnibus spending bill.

Since that time, there have been a series of continuing resolutions (“CR or CRs”) in the absence of a budget.

While we cannot predict the passage of a budget, the CRs have had bipartisan support for the areas in which we support National Security interests.

Over 99% of our work is considered mission critical and has not been identified for employee furlough when faced with the risk of a government shutdown.

Depending on their scope, duration, and other factors, CRs can negatively impact our business due to delays in new program starts, delays in contract award decisions, and other factors.

The Company’s most recent experience with CRs is that organic growth is impacted, but the cybersecurity related operations remain core to what has become a bipartisan National Security focus.

However, there is the risk that when a CR expires, unless appropriations bills have been passed by Congress and signed by the then President, or a new CR is passed and signed into law, the government must cease operations, or shutdown, except in certain emergency situations or when the law authorizes continued activity.

During Covid our work was deemed a key component of National Security and continued unabated which would suggest that lacking a CR we are likely to continue to operate largely unaffected but such an assumption may prove to be incorrect.

We continuously review our operations in an attempt to identify programs potentially at risk from CRs so that we can consider appropriate contingency plans.

We believe that less than 5% of our employees would be at risk due to a CR.

Acquisition Strategy

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(6) adds technological capability in new areas which Castellum believes are high growth potential;

and (7) fills a need within Castellum to be able to serve current customers such as adding a prime contract vehicle or the capability to win new prime contract vehicles.

and (7) fills a need

within Castellum to be able to serve current customers such as adding a prime contract vehicle or the capability to win new prime contract vehicles.

In all cases, Castellum seeks acquisitions which are immediately accretive on a revenue, EBITDA (earnings before interest, depreciation, and amortization), and net income per share basis, as well as positive from a net present value perspective and which fit the culture of Castellum.

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Our clients call us to work on their hardest problems by providing innovative, intelligent, and agile cloud-ready capabilities across the DoD Information Network Operations, Electromagnetic Warfare, Cyberspace Operations, Intelligence, and Information Dominance community.

We specialize in intelligence analysis, software development, software engineering, turnkey system development, program management, strategic and mission planning, information assurance and cybersecurity and policy along with analysis support.

We specialize in intelligence analysis, software development, software engineering, turnkey system development, program management, strategic and mission planning, information assurance, cybersecurity, and policy along with analysis support.

Our government clients include cabinet-level departments of the USG, U.S.

Marine Corp, Special Operations, as well as other federal and civilian agencies.

We also serve state and local agencies and commercial clients, working to solve their hardest and most sophisticated cyber challenges, and have one international client.

We also serve state and local agencies and commercial clients, working to solve their hardest and most sophisticated cyber challenges, and currently support one international client.

Contract Backlog

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cost-cutting initiatives and other efforts to reduce USG spending, which could reduce or delay funding for orders for services;

and delayed funding of our contracts due to delays in the completion of the USG's budgeting process and the use of a Continuing Resolution (“CR”) by the USG to fund its operations.

and delayed funding of our contracts due to delays in the completion of the USG's budgeting process and the use of a CR by the USG to fund its operations.

The amount of our funded backlog is also subject to change, due to, among other factors:

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However, given the uncertainties discussed above, as well as the risks described in Budget Environment, we can give no assurance that we will be able to convert our backlog into revenue in any particular period, if at all.

We operate in a highly competitive industry that includes many firms, some of which are larger in size and have greater financial resources than we have.

We operate in a highly competitive industry that includes many entities, some of which are larger in size and have greater financial resources than we have.

We know of no single competitor that is dominant in our fields of technology.

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Some significant law and regulations that affect us include the following:

• the Federal Acquisition Regulation (“FAR”) and agency regulations supplemental to FAR, which regulate the formation, administration, and performance of USG contract;

• the Federal Acquisition Regulation (“FAR”) and agency regulations supplemental to FAR, which regulate the formation, administration, and performance of USG contracts;

• the False Claims Act, which imposes civil and criminal liability for violations, including substantial monetary penalties for, among other things, presenting false or fraudulent claims for payments or approval;

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• 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;

• 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 government from risks related to our supply chain most notably is compliance with Cybersecurity Maturity Model Certification (“CMMC”);

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 government from risks related to our supply chain, including 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 government contract;

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

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

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

Given the magnitude of our revenue derived from contracts with the DoD, the Defense Contract Audit Agency (“DCAA”) is our relevant government audit agency.

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Internationally, we are subject to special USG laws and regulations (such as The Foreign Corrupt Practices Act of 1977 (the “FCPA”), local government regulations and procurement policies and practices, including regulations relating to import-export control, investments, exchange controls, and repatriation of earnings, as well as varying currency, political, and economic risks.

To mitigate the risk of CMMC compliance the Company has employed a senior executive whose full-time responsibility is compliance.

Regarding CMMC compliance, this individual is considered a certified assessor and is preparing the Company for CMMC certification.

USG contracts are, by the terms, subject to termination by the USG either for convenience or default by the contractor.

To ensure CMMC compliance, the Company has a senior executive on its management team whose responsibility includes preparing the Company for CMMC certification.

USG contracts are, by their terms, subject to termination by the USG either for convenience or default by the contractor.

In addition, USG contracts are conditioned upon the continuing availability of Congressional appropriations.

Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract performance could take many years.

As is common in the industry, our Company is subject to business risk, including changes in governmental appropriations, national defense polices, service modernizations plans, and availability of funds.

As is common in the industry, our Company is subject to business risk, including changes in governmental appropriations, national defense polices, service modernization plans, and availability of funds.

Any of these factors could materially adversely affect our Company's business with the USG in the future.

The USG has a broad range of actions it can instigate to enforce its procurement law and policies.

These include proposing a contractor, certain of its operations or individual employees for debarment or suspending or debarring a contractor, certain of its operations or individual employees from future government business.

The USG has a broad range of actions it can utilize to enforce its procurement law and policies.

These include proposing a contractor, certain of its operations, or individual employees for debarment;

or, suspending or debarring a contractor, certain of its operations or individual employees from future government business.

In addition to criminal, civil, and administrative actions by the USG, under the False Claims act, an individual alleging fraud related to payments under a USG contract or program may file a qui tam lawsuit on behalf of the government against us;

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We are in continuing competition for highly skilled professionals in virtually all of our market areas.

The success and growth of our business are significantly correlated with our ability to recruit, train, promote and retain high quality people at all levels of the organization.

As of December 31, 2022, we employed 207 full and part-time employees with forty-nine percent (49%) of our employees holding degrees in science, technology, engineering, or mathematics fields, twenty-eight percent (28%) holding advanced degrees, and eighty-four percent (84%) of our employees holding security clearances.

The success and growth of our business are significantly correlated with our ability to

recruit, train, promote, and retain high quality people at all levels of the organization.

As of December 31, 2023, we employed 260 full and part-time employees with sixty-five percent (65%) of our employees holding degrees in science, technology, engineering, or mathematics fields, twenty-two percent (22%) holding advanced degrees, and eighty-four percent (84%) of our employees holding security clearances.

We also retain 11 independent contractors.

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Benefits are viewed as a critical tool for employee recruitment and retention.

To that end, Castellum has migrated over half of its employees from their legacy benefits programs to the ADP Professional Employer Organization (“PEO”), with the balance of its employees targeted to be migrated in 2023.

The implementation of the ADP PEO has allowed for the

extension of benefits not previously offered to include a broad suite of additional services at reduced cost to the employees (such as financial planning, legal services, additional life insurance, and long-term care).

To that end, Castellum has migrated all of its employees from their legacy benefits programs to the ADP Professional Employer Organization (“PEO”), prior to the acquisition of Global Technology and Management Resources, Inc.

(“GTMR”) in March of 2023.

The implementation of the ADP PEO has allowed for the extension of benefits not previously offered to include a broad suite of additional services at reduced cost to the employees (such as financial planning, legal services, additional life insurance, and long-term care).

At the time of the GTMR acquisition, the GTMR employees were subject to a legacy benefit program.

Through the open-enrollment process which will occur during the second quarter of 2024, the Company expects its employees, including the employees of GTMR, to migrate to the same benefit plan.

Available Information

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On February 23, 2021, Bayberry was dissolved with the Nevada Secretary of State as it was non-operational after the merger with the Company.

On November 21, 2019, we acquired Corvus Consulting, LLC, (“Corvus”), a Virginia limited liability company.

On November 21, 2019, we acquired Corvus Consulting, LLC, (“Corvus”), a Delaware limited liability company.

On December 26, 2019, following our acquisition of Corvus, we changed our name from BioNovelus, Inc.

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The SEC allows us to disclose important information by referring to it in this manner.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements for our annual stockholders’ meetings and amendments to those reports are available free of charge on our website www.castellumus.com / investor-relations.html , as soon as reasonably practical after we electronically file the material with, or furnish it to, the SEC.

[In addition, copies of our annual report will be made available, free of charge, upon written request.] The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including Castellum, Inc.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements for our annual stockholders’ meetings and amendments to those reports are available free of charge on our website www.castellumus.com / i nvestor-relations.html , as soon as reasonably practical after we electronically file the material with, or furnish it to, the SEC.

In addition, copies of our annual report will be made available, free of charge, upon written request.

The SEC also maintains a website at www.sec.gov that contains reports, proxy statements, and other information regarding SEC registrants, including Castellum, Inc.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business