Castellum, Inc.

Current report

Our business may suffer if we or our employees are unable to obtain the security clearances or other qualifications needed to perform services for our customers or we are unable to hire qualified personnel who possess the necessary security clearance.

Current report

Many of our USG contracts require us to have security clearances and employ personnel with specified levels of education, work experience, and security clearances. Depending on the level of clearance, security clearances can be difficult and time-consuming to obtain. If we or our employees lose or are unable to obtain necessary security clearances, or we are not able to hire employees who possess the necessary security clearance, we may not be able to win new business and our existing customers could terminate their contracts with us or decide not to renew them. To the extent we cannot obtain or maintain the required security clearances for our employees working on a particular contract, we may not generate the revenue anticipated from the contract which could cause our results to differ materially and adversely from those anticipated.

Current report

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.

Current report

We are focused on building a large, successful technology company in the areas of IT, electronic warfare, information warfare, and cybersecurity with businesses in the governmental and commercial markets. Since November 2019, we have executed our business plan and completed seven acquisitions. As a result, we have a limited operating history on a consolidated basis to evaluate our business and prospects. Our business operations are subject to numerous risks, uncertainties, expenses, and difficulties associated with early-stage enterprises. You should consider an investment in our Company in light of these risks, uncertainties, expenses, and difficulties. Such risks include:

Current report

•limited operating history at our current scale;

Current report

•our ability to raise capital to develop our business and fund our operations;

Current report

•our ability to anticipate and adapt to developing markets;

Current report

•acceptance by our customers;

Current report

•limited marketing experience;

Current report

•competition from competitors with substantially greater financial resources and assets; and

Current report

•the ability to identify, attract, and retain qualified personnel.

Current report

Because we are subject to these risks, and the other risks outlined below, you may have a difficult time evaluating our business and your investment in our Company.

Previous report

Our self-insurance program may expose us to significant and unexpected costs and losses.

Previous report

To help control our overall long-term costs associated with employee health benefits, we began maintaining our employee medical insurance benefits on a self-insured basis effective June 1, 2024. To limit our exposure, we have third party stop-loss insurance coverage which sets a limit on our liability for both individual and aggregate claim costs. We record a liability for our estimated cost of claims incurred but unpaid as of each balance sheets date. Our estimated liability is based on assumptions we believe to be reasonable under the current circumstances and will be adjusted as warranted based on changing circumstances. It is possible, however, that our actual liabilities may exceed our estimates of losses. We may also experience an unexpectedly large number of claims that result in costs or liabilities in excess of our projections, which could cause us to record additional expenses. Our self-insurance reserves could prove to be inadequate, resulting in liabilities in excess of our available insurance and self-insurance. If a successful claim is made against us and is not covered by our insurance or exceeds our policy limits, our business may be negatively and materially impacted. These fluctuations could have a material adverse effect on our business, operating results, and financial condition.

Previous report

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 on our ability to successfully operate our business.

Previous report

Our future success will depend in large part on our ability to attract, retain, and motivate high-quality management, operations, and other personnel who are in high demand, are often subject to competing employment offers, and are attractive recruiting targets for our competitors. The loss of qualified executives and key employees, or our inability to attract, retain, and motivate high-quality executives and employees required for the planned expansion of our business, may harm our operating results and impair our ability to grow.

Previous report

Effective July 1, 2024, Glen R. Ives, the Company's former chief operating officer, was appointed as President and Chief Executive Officer ("CEO") after which, on September 1, 2024 Andrew Merriman was promoted to Chief Operating Officer ("COO"). We depend on the continued services of our key personnel, including our CEO; David T. Bell, our CFO; our COO; and Jay O. Wright, our Executive Vice-President of Strategy and General Counsel. Our work with each of these key personnel is subject to changes and/or termination, and our inability to effectively retain the services of our key management personnel, could materially and adversely affect our operating results and future prospects.

Previous report

Inflation may cause the Fed to increase interest rates thereby increasing our interest expense.

Previous report

Sustained inflation can cause the Federal Reserve Board and its Open Market Committee (“Fed”) to raise the target for the federal funds rate or keep it at a high level which normally translates into an increase in most banks’ “prime” rate. Because our notes with Live Oak Banking Company are both variable interest rate instruments tied to the prime rate, actions by the Fed to increase the federal funds rate or keep it high may increase our cost of debt and our interest expense thereby reducing our pre-tax income and net income. Our borrowing costs have recently increased and would increase with future Fed interest rate increases, although the impacts have been and are expected to continue to be immaterial. Our contracts with U.S. federal, state, and local government customers do not permit us to pass along our increased financing costs. The increases to our borrowing costs have not impacted (and are not expected to impact) our ability to make timely payments.

Previous report — wording carried elsewhere

We have modified the following risk factors disclosed in Part I, Item 1A., Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2023: