Castellum Inc.

05/08/2026 | Press release | Distributed by Public on 05/08/2026 14:06

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations is provided to enhance the understanding of, and should be read together with, our financial statements and related notes included in our Annual Report on Form 10-K for fiscal year 2025 filed with the Securities and Exchange Commission ("SEC") on March 9, 2026 and elsewhere in this Quarterly Report on Form 10-Q, as applicable.
Business Overview
Castellum, Inc. is a technology and solutions company focused on leveraging the power of information technology to help solve the nation's most pressing national security challenges. The Company provides clients in the United States ("U.S.") government ("USG"), financial services, legal, and other users of large data applications with services which include intelligence analysis, software development, software engineering, system modernization, program management, strategic and mission planning, information assurance, cybersecurity and policy support, data analytics, and model based systems engineering ("MBSE"). In addition to constantly innovating and enhancing our organic capabilities, Castellum is executing strategic acquisitions of technology companies in the areas of cybersecurity, information technology ("IT"), electronic warfare, information warfare, and information operations with businesses in the defense, federal, civilian, and commercial markets that share our passionate commitment to U.S. national security and have a history of bringing exceptional value to their clients. The Company is actively working with business brokers and contacts within their business network to identify potential acquisitions.
Recent Developments
On September 17, 2025, the Company filed a registration statement on Form S-8 (File No. 333-290331) to register an aggregate of 3,000,000 shares of the Company's common stock to be issued pursuant to the Castellum, Inc. 2025 Employee Stock Purchase Plan.
On September 17, 2025, the Company filed a registration statement on Form S-8 (File No. 333-290332) to register an aggregate of 9,000,000 shares of the Company's common stock to be issued pursuant to the Castellum, Inc. Second Amended 2021 Stock Incentive Plan.
On March 19, 2025, the Company closed on the public offering (the "March 2025 Public Offering") of 4,500,000 units ("Unit(s)") at a public offering price of $1.00 per Unit. Each Unit consisted of one share of common stock and one warrant to purchase one share of common stock (the "March 2025 Warrants"). The March 2025 Warrants were immediately exercisable at $1.08 per share and expired 60 days from the date of issuance. The shares of common stock and March 2025 Warrants were immediately separable and issued separately. Gross proceeds from the March 2025 Public Offering were approximately $4.5 million before deducting placement agent fees and offering expenses. Castellum used the net proceeds of the March 2025 Public Offering for working capital and general corporate purposes.
Of the 4,500,000 March 2025 Warrants issued during the March 2025 Public Offering, 1,755,543 warrants were exercised at $1.08 per share for gross proceeds of $1.90 million before deducting placement agent fees. The remaining 2,744,457 warrants expired on May 19, 2025.
On June 13, 2025, the Company closed on the public offering (the "June 2025 Public Offering") of 4,166,667 units ("Unit(s)") at a public offering price of $1.20 per Unit. Each Unit consists of one share of common stock and one warrant to purchase one share of common stock (the "June 2025 Warrants"). The June 2025 Warrants are immediately exercisable at $1.22 per share and expired 60 days from the date of issuance. The shares of common stock and June 2025 Warrants were immediately separable and issued separately. Gross proceeds from the June 2025 Public Offering were approximately $5.0 million before deducting placement agent fees and offering expenses. Castellum used the net proceeds of the June 2025 Public Offering for working capital and general corporate purposes.
Of the 4,166,667 June 2025 Warrants issued during the June Public Offering, 3,673,666 warrants were exercised at $1.22 per share for gross proceeds of $4.48 million before deducting placement agent fees. The remaining 493,001 warrants expired on August 12, 2025.
Business Operations and Trends
We believe that the following trends and developments in the USG services industry and our markets may influence our future results of operations:
•budget deficits and the growing U.S. national debt increasing pressure on the USG to reduce federal spending across all federal agencies together with associated uncertainty about the size and timing of those reductions;
•cost-cutting and efficiency initiatives, current and future budget restrictions, and other efforts to reduce USG spending could cause clients to reduce or delay funding for orders for services or invest appropriated funds on a less consistent or rapid basis or not at all, particularly when considering long-term initiatives and in light of current uncertainty around Congressional efforts to craft a long-term agreement on the USG's ability to incur indebtedness in excess of its current limits, and generally in the current political environment, there is a risk that it will not issue task orders in sufficient volume to reach current contract ceilings, alter historical patterns of contract awards, including the typical increase in the award of task orders or completion of other contract actions by the USG in the period before the end of the USG's fiscal year on September 30, delay requests for new proposals and contract awards, rely on short-term extensions and funding of current contracts, or reduce staffing levels and hours of operation;
•government customers consolidation of smaller contract vehicles into larger contract vehicles could result in a lack of opportunity to re-compete for the existing business if the larger contract vehicle is not held by the Company;
•delays in the completion of USG's budget processes for FY 2027, which has in the past and could in the future delay procurement of the products, services, and solutions we provide;
•changes in the relative mix of overall USG spending and areas of spending growth, with lower spending on homeland security, intelligence, defense-related programs as certain overseas operations end, and continued increased spending on cybersecurity, command, control, communications, computers, intelligence, surveillance, and reconnaissance, advanced analytics, technology integration, and healthcare, including as a result of the presidential and administration transition;
•consolidation of acquisition authority in areas directly related to the core business of the Company could limit access to new business and re-competing for existing business;
•increased inflationary pressure that could impact the cost of doing business and/or reduce customer buying power;
•risks related to a possible recession and volatility or instability of the global financial system, including bank failures and the resulting impact on counterparties and business conditions generally;
•legislative and regulatory changes, or shifts in regulatory priorities as a result of U.S. administration transitions, including limitations on the amount of allowable executive compensation permitted under flexibly priced contracts following implementation of interim rules adopted by federal agencies pursuant to the Bipartisan Budget Act of 2013, which substantially further reduce the amount of allowable executive compensation under these contracts and extend these limitations to a larger segment of our executives and our entire contract base;
•efforts by the USG to address organizational conflicts of interest and related issues and the impact of those efforts on us and our competitors;
•increased audit, review, and general scrutiny by USG agencies of government contractors' performance under USG contracts and compliance with the terms of those contracts and applicable laws;
•the inability of the government to make timely awards on contracts for which the Company has submitted proposals could affect the rate of revenue growth;
•USG agencies awarding contracts on a technically acceptable/lowest cost basis, which could have a negative impact on our ability to win certain contracts;
•increased competition from other government contractors and market entrants seeking to take advantage of certain of the trends identified above, and an industry trend towards consolidation, which may result in the emergence of companies that are better able to compete against us;
•restrictions by the USG on the ability of federal agencies to use lead system integrators, in response to cost, schedule, and performance problems with large defense acquisition programs where contractors were performing the lead system integrator role; and
•increasingly complex requirements and enforcement and reporting landscapes of the Department of Defense including cybersecurity, managing federal health care cost growth, competition, and focus on reforming existing government regulation of various sectors of the economy, such as financial regulation and healthcare.
In the course of conducting our business operations, we are exposed to a variety of risks. Any of the risk factors we described in Part II, Item 1A. on this Quarterly Report on Form 10Q and Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2025 filed on March 9, 2026 have affected or could materially adversely affect our business, prospects, operating results, and financial condition.
Budgetary Environment
The U.S. continues to face an uncertain and evolving political, budgetary, and regulatory environment, making it difficult to predict the future course of defense budgets. Ongoing conflicts in Ukraine and the Middle East, threats in the Pacific region, macroeconomic pressures, the national debt, and competing domestic priorities will continue to shape our customers' budgets and spending decisions. Executive branch cost reduction initiatives and the administration's focus on government efficiency and contract management add further uncertainty, and we anticipate that debates over budgetary priorities, the debt ceiling, and discretionary spending constraints will remain significant, with potentially meaningful impacts on our programs and the Company.
Despite the uncertainty and while we believe the underlying budget environment remains supportive of defense and national security spending with backing from both sides of the aisle, the timing of appropriations bills remains unpredictable. When appropriations are not enacted, government agencies operate under continuing resolutions ("CRs"), temporary measures that fund operations at prior-year levels, which can negatively affect our business through delays in new program starts and contract award decisions. If a CR expires without a new CR or appropriations bill being signed into law, the government must shut down except in limited circumstances, and we continuously review our operations to identify programs at risk and develop appropriate contingency plans.
On May 2, 2025, President Trump submitted the Government Fiscal Year 2026 ("GFY26") Presidential Budget Request ("PBR") to Congress, holding defense spending flat at the Government Fiscal Year 2025 ("GFY25") enacted level of $893 billion. On July 4, 2025, President Trump signed the One Big Beautiful Bill Act ("OBBBA"), a reconciliation measure separate from standard government appropriations legislation that provides approximately $156 billion in additional defense funding above the PBR. These funds remain available in GFY26 and beyond regardless of whether normal appropriations or a CR is enacted, or even in the event of a government shutdown.
The U.S. government entered a shutdown on October 1, 2025, which ended on November 12, 2025, when President Trump signed a CR restoring federal operations at GFY25 funding levels through January 30, 2026. Following the expiration of that CR, a partial shutdown occurred until February 3, 2026, when President Trump signed five of the six remaining GFY26 full-year appropriations bills along with a two-week CR for the Department of Homeland Security (DHS). The enacted defense appropriations bill provided full-year DoD funding of $838.7 billion. On February 14, 2026, DHS funding lapsed and the department entered a shutdown; on April 30, 2026, the President signed a bipartisan bill ending the 75-day shutdown and funding most DHS operations through September 30, 2026. The Company currently does not maintain contracts with DHS.
The Company continues to monitor the evolving appropriations environment and assess potential effects on its programs, operations, and liquidity. A prolonged failure to resolve outstanding appropriations disputes is expected to have a negative impact on our business, financial condition, and operating results.
Basis of presentation
We have presented results of operations, including the related discussion and analysis, for the following periods:
•the three months ended March 31, 2026 compared to the three months ended March 31, 2025.
Key Components of Revenue and Expenses
Revenues
Our revenues are primarily derived from services provided to the U.S. Federal, state, and local governments. We currently generate our revenue from three different types of contractual arrangements: Cost Plus Fixed Fee ("CPFF"), Fixed Firm Price ("FFP"), and Time and Materials ("T&M") contracts. For CPFF contracts, the Company uses input progress measures to derive revenue based on hours worked on contract performance as follows: direct costs plus Defense Contract Audit Agency ("DCAA") approved provisional burdens plus a fee. The provisional indirect rates are adjusted and billed at actual at year end. Revenue from FFP contracts is generally recognized ratably over the contract term, using a time-based measure of progress, even if billing is based on other metrics or milestones, including specific deliverables. Certain FFP contracts require the use of an input method based on estimated costs to complete. For T&M contracts, the Company uses input progress measures to estimate revenue earned based on hours worked on contract performance at negotiated billing rates, plus direct costs and indirect cost burdens associated with materials and the direct expenses incurred in performance of the contract.
Cost of Revenues
Cost of Revenues include direct costs incurred to provide goods and services related to contracts, specifically labor, contracted labor, materials, and other direct costs, which includes rent, insurance, and software licenses. Cost of Revenues related to contracts is recognized as an expense when incurred or at the time a performance obligation is satisfied.
Gross Profit and Gross Profit Margin
Our gross profit comprises our revenues less our cost of revenues. Gross profit margin is our gross profit divided by our revenues.
Operating Expenses
Our operating expenses include indirect costs, overhead, and general and administrative expenses.
•Indirect costs consist of expenses generally associated with bonuses and fringe benefits, including employee health and medical insurance, 401(k) 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, information technology ("IT") expenses, and insurance expenses.
Results of operations
The period to period comparisons of our results of operations have been prepared using the historical periods included in our unaudited consolidated financial statements. The following discussion should be read in conjunction with the unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.
Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025
Three Months Ended March 31, Change
2026 2025 Amount %
Revenues $ 14,291,961 $ 11,664,365 $ 2,627,596 23 %
Cost of revenues 9,229,741 7,109,749 2,119,992 30 %
Gross Profit 5,062,220 4,554,616 507,604 11 %
Operating expenses:
Indirect costs 2,461,140 2,385,544 75,596 3 %
Overhead 644,356 512,924 131,432 26 %
General and administrative expenses 2,654,722 3,142,155 (487,433) (16) %
Total operating expenses 5,760,218 6,040,623 (280,405) (5) %
Loss from operations: (697,998) (1,486,007) 788,009 (53) %
Other income, net 353,400 390,236 (36,836) (9) %
Loss before income taxes and preferred stock dividends (344,598) (1,095,771) 751,173 (69) %
Income tax expense (6,676) (74,276) 67,600 (91) %
Preferred stock dividend 26,819 26,984 (165) (1) %
Net Loss $ (378,093) $ (1,197,031) $ 818,938 (68) %
Revenue
Total revenue was $14,291,961 for the three months ended March 31, 2026 as compared to total revenue of $11,664,365 for the three months ended March 31, 2025. The increase of $2,627,596 or 23%, was driven primarily by the award in March 2024 to the Company's subsidiary Global Technology and Management Resources, Inc. ("GTMR") of a $103.3 million, five and one-half year contract for Special Missions Management of On-Site Services in support of the Naval Air Systems Command ("NAVAIR") Program Office 290 ("PMA-290") Special Missions which ramped in 2025 and the award in October 2025, to the Company's Specialty Systems, Inc. ("SSI") subsidiary of a $66.2 million full and open, five year contract for logistics, engineering, cyber support services needed in support of the Naval Air Warfare Center Aircraft Division ("NAWCAD") Lakehurst ("LKE") Mission Operations & Integration ("MO&I") Department and additional direct labor growth on existing contracts.
Cost of revenues
Total cost of revenues was $9,229,741 for the three months ended March 31, 2026 as compared to total cost of revenues of $7,109,749 for the three months ended March 31, 2025. The increase of $2,119,992, or 30%, is in line with the change in revenue noted above, driven by additional labor and subcontractor costs for the PMA-290 award, which typically carry a lower margin than direct labor.
Gross Profit
Total gross profit was $5,062,220 for the three months ended March 31, 2026 as compared to total gross profit of $4,554,616 for the three months ended March 31, 2025. The increase of $507,604, or 11%, was driven primarily by the increase of revenue noted above offset by the lower margin of increased subcontractor costs.
Operating expenses
Total operating expenses were $5,760,218 for the three months ended March 31, 2026 as compared to total operating expense of $6,040,623 for the three months ended March 31, 2025. The decrease of $280,405, or 5%, was primarily driven by a decrease in the amount of noncash stock-based compensation granted to certain employees.
Other income (expense)
Total other income was $353,400 for the three months ended March 31, 2026 as compared to total other income of $390,236 for the three months ended March 31, 2025. The decrease in (expense) of $(36,836) or 9%, was primarily driven by the decrease in interest expense due to the overall decrease in debt, offset by the decrease in expense due to the reduction in the fair value of derivative liability.
Income tax expense
Income tax expense was $(6,676) for the three months ended March 31, 2026, as compared to an expense of $(74,276) for the three months ended March 31, 2025. The decrease in expense of $67,600 or 91% was primarily related to related to the Company utilizing it's tax attributes to decrease its current taxable income.
Contract backlog
We define backlog to include the following three components:
•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 potential revenue value of all scheduled future contract option periods or orders under existing contracts that may be exercised at our clients' option and for which funding has not been appropriated or otherwise authorized.
Our backlog does not include contracts that have been awarded but are currently under protest and also does not include any task orders under indefinite delivery indefinite quantity contracts, except to the extent that task orders have been awarded to us under those contracts.
Contract Backlog
Funded $ 22,397,810
Unfunded 38,300,351
Priced Options 212,561,804
Total Scheduled Backlog $ 273,259,965
Total backlog
Our total scheduled backlog consists of remaining performance obligations, certain orders under contracts for which the original period of performance has expired, unexercised option periods, and other unexercised or optional orders. Excluding unscheduled options orders, as of March 31, 2026, the Company had a total backlog of $273,259,965 which includes funded, unfunded, and scheduled priced options. We expect to recognize approximately 16.0% of the remaining performance obligations over the next 12 months, and approximately 49.0% over the next 24 months. The remainder is expected to be recognized thereafter. As with all government contracts there is no guarantee the customer will have future funding or exercise their contract option in the out-years. Our backlog includes orders under contracts that in some cases extend for several years. Congress generally appropriates funds for our clients on a yearly basis, even though their contracts with us may call for performance that is expected to take a number of years to complete. As a result, contracts typically are only partially funded at any point during their term and all or some of the work to be performed under the contracts may remain unfunded unless and until the U.S. Congress makes subsequent appropriations and the procuring agency allocates funding to the contract.
We cannot predict with any certainty the portion of our backlog that we expect to recognize as revenue in any future period and we cannot guarantee that we will recognize any revenue from our backlog. The primary risks that could affect our ability to recognize such revenue on a timely basis or at all are: program schedule changes, contract modifications, and our ability to assimilate and deploy new consulting staff against funded backlog; 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 CR's by the USG to fund its operations. The amount of our funded backlog is also subject to change, due to, among other factors: changes in congressional appropriations that reflect changes in USG policies or priorities resulting from various military, political, economic, or international developments; changes in the use of USG contracting vehicles, and the provisions therein used to procure our services and adjustments to the scope of services, or cancellation of contracts by the USG at any time. In our recent experience, none of the following additional risks have had a material negative effect on our ability to realize revenue from our funded backlog: the unilateral right of the USG to cancel multi-year contracts and related orders or to terminate existing contracts for convenience or default; in the case of unfunded backlog, the potential that funding will not be made available; and, in the case of priced options, the risk that our clients will not exercise their options.
In addition, contract backlog includes orders under contracts for which the period of performance has expired, and we may not recognize revenue on the funded backlog that includes such orders due to, among other reasons, the tardy submission of invoices by our subcontractors and the expiration of the relevant appropriated funding in accordance with a predetermined expiration date such as the end of the USG's fiscal year.
We expect to recognize revenue from a substantial portion of funded backlog within the next 24 months. However, given the uncertainties discussed above, we can give no assurance that we will be able to convert our backlog into revenue in any particular period, if at all.
Liquidity and capital resources
Sources
We have historically sourced our liquidity requirements with cash flows from operations, borrowings under our previous credit facilities, and in October, 2022, with an equity issuance through the listing of our common stock on the NYSE American LLC. As of March 31, 2026, we had $15,772,974 of cash on hand. During the fiscal year 2025, we undertook the following significant equity and debt transactions that enhanced our liquidity and sources of funds:
•2,000,000 warrants were exercised in February of 2025 to purchase 2,000,000 shares of the Company's common stock, which resulted in aggregate proceeds to the Company of $700,000.
•Gross proceeds from the March 2025 Public Offering were approximately $4.5 million before deducting placement agent fees and offering expenses.
•Gross proceeds from the March 2025 Warrants were $1.90 million before deducing placement agent fees.
•Gross proceeds from the June 2025 Public Offering were approximately $5.0 million before deducting placement agent fees and offering expenses.
•Gross proceeds from the June 2025 Warrants were $4.48 million before deducing placement agent fees.
We believe our existing cash provided by our ongoing operations, together with funds available from the transactions noted above, will be sufficient to meet our working capital, capital expenditures, and cash needs for the next 12 months and beyond.
Uses
Management believes that cash flows from operating activities, existing cash on hand, and available borrowings under our revolving credit facility will be sufficient to meet our anticipated cash requirements for at least the next twelve months. Our primary uses of cash include:
•Compensation and employee-related costs, which represent the substantial majority of our operating expenses;
•Subcontractor and other direct contract costs;
•Working capital requirements to support organic revenue growth and new contract ramp-up;
•Capital expenditures, which have historically been minimal given the labor-intensive nature of our business; and
•Strategic acquisitions, which we continue to evaluate as part of our growth strategy.
Shares of our common stock included in our public float as of May 7, 2026 was 93,357,103 which excludes 1,341,836 shares held by officers, directors, and affiliates.
Cash flows
The following tables present a summary of cash flows from operating, investing, and financing activities for the following comparative periods.
Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025
Three Months Ended March 31, 2026 Change
2026 2025 Amount %
Net cash provided by (used in) operating activities $ 1,290,696 $ (2,502,640) $ 3,793,336 -152 %
Net cash provided by (used in) investing activities 24,319 4,435 $ 19,884 NM
Net cash provided by (used in) financing activities (426,819) 3,532,757 $ (3,959,576) -112 %
Change in cash $ 888,196 $ 1,034,552 $ (146,356) -14 %
NM - Not Meaningful
Operating activities
Net cash provided by operating activities was $1,290,696 for the three months ended March 31, 2026, compared to $(2,502,640) net cash used in for the three months ended March 31, 2025. This increase in net cash provided by operating activities was primarily driven by a decrease in accounts receivable for the three months ended March 31, 2026 due to collections on existing business and a decrease in net loss.
Investing activities
Net cash provided by investing activities was $24,319 for the three months ended March 31, 2026, compared to $4,435 net cash provided by for the three months ended March 31, 2025. The increase in net cash provided by investing activities was primarily due to the cash received from the sale of Mainnerve Federal Services, Inc. dba MFSI Government Group ("MFSI").
Financing activities
Net cash used in financing activities was $(426,819), for the three months ended March 31, 2026, compared to $3,532,757 net cash provided by financing activities for the three months ended March 31, 2025. The increase in net cash used in financing activities was primarily due to the pay off of the related party note payable as detailed in Note 7, "Notes Payable - Related Party" in this Quarterly Report on Form 10-Q, as compared to the proceeds from the issuance of common stock and warrants issued in the March 2025 Public Offering in 2025.
Critical Accounting Policies and Estimates
A summary of our critical accounting estimates is included in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year-ended December 31, 2024. There have been no material changes to the critical accounting estimates disclosed in our Annual Report on Form 10-K for the year-ended December 31, 2025.
Principles of Consolidation
Refer to Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year-ended December 31, 2025. There have been no material changes to our principles of consolidation disclosed in our Annual Report on Form 10-K for the year-ended December 31, 2025.
Recently Issued Accounting Standards
In September 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-06, which makes targeted updates to the accounting and disclosure requirements for internal-use software under Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40). The standard becomes effective for the Company beginning in fiscal year 2029, including interim periods, and permits either prospective or retrospective adoption. We are currently assessing the impact on our financial statements.
Other accounting standards updates adopted and/or issued, but not effective until after March 31, 2026, are not expected to have a material effect on the Company's consolidated financial position, annual results of operations, and/or cash flows.
Castellum Inc. published this content on May 08, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 08, 2026 at 20:06 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]