United States securities and exchange commission logo
July 26, 2022
Mark Fuller
Chief Executive Officer
Castellum, Inc.
3 Bethesda Metro Center, Suite 700
Bethesda, MD 20814
Re: Castellum, Inc.
Draft Registration
Statement on Form S-1
Submitted June 29,
2022
CIK No. 0001877939
Dear Mr. Fuller:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Draft Registration Statement on Form S-1 Submitted June 29, 2022
Cover Page
1. Disclose the selling
stockholders information required by Item 501(b)(3) of Regulation S-
K. Please also
consolidate all of the disclosure required by Item 501 of Regulation S-K on
one page. Refer to Item
501(b) of Regulation S-K.
2. We note your disclosure
on page 31 that your officers and directors own or exercise
voting control of
approximately 63.1% of your outstanding common stock. Please revise
to disclose on your
cover page, prospectus summary, and elsewhere in your filing, as
applicable, the total
voting power of your officers and directors will control after this
offering, including
both common and preferred stock. Also disclose on your cover page
the super voting rights
of your Series A preferred stock and your Series C preferred stock.
Mark Fuller
FirstName
Castellum, LastNameMark Fuller
Inc.
Comapany
July NameCastellum, Inc.
26, 2022
July 26,
Page 2 2022 Page 2
FirstName LastName
In this regard, it appears your Series A preferred stock has two votes
per share and your
Series C preferred stock has 1.25 votes per share. Update your risk
factors to address any
risks related to your capital structure.
Risk Factors, page 14
3. We note your disclosure that "[c]ollectively, [y]our officers and
directors own or exercise
voting and investment control of approximately 63.1% of [y]our
outstanding common
stock." Please revise your cover page and risk factors to disclose
whether you intend to
utilize controlled company exemptions to governance rules under
exchange listing
standards.
U.S. Inflation is at a forty-year high which may adversely impact our business,
page 23
4. Please update your disclosure to identify actions planned or taken, if
any, to mitigate
inflationary pressures.
Customer systems failures could damage our reputation and adversely affect our
operating
results, page 25
5. We note your disclosure that "[you] often depend upon or use customer
systems that are
supported by the customer or third parties. Any security breach or
system failure in such
systems could result in an interruption of [y]our customer s
operations, significant delays
under a contract, and material adverse effect on [y]our results of
operations." Please
disclose the measures you have taken to mitigate these cybersecurity
risks, if any.
Anti-takeover provisions in our charter documents and Nevada law..., page 30
6. Revise this risk factor to address any risks or other impacts on
shareholders as a result of
your exclusive forum provision, including increased costs to bring a
claim and that these
provisions can discourage claims or limit shareholders ability to
bring a claim in a
judicial forum that they find favorable. Please also state that
investors cannot waive
compliance with the federal securities laws and the rules and
regulations thereunder. In
that regard, we note that Section 22 of the Securities Act creates
concurrent jurisdiction
for federal and state courts over all suits brought to enforce any
duty or liability created by
the Securities Act or the rules and regulations thereunder.
As a related matter, we note your disclosure here that "the Eighth
Judicial District Court
of Clark County, Nevada, shall be the exclusive forum for the
resolution of any complaint
asserting a cause of action arising under the Securities Act of 1933."
However, we note
your disclosure on page 91 that "the federal district courts of the
United States of America
shall be the exclusive forum for the resolution of any complaint
asserting a cause of action
arising under the Securities Act of 1933, as amended." Please revise
to ensure consistency
throughout the filing.
Mark Fuller
FirstName
Castellum, LastNameMark Fuller
Inc.
Comapany
July NameCastellum, Inc.
26, 2022
July 26,
Page 3 2022 Page 3
FirstName LastName
Capitalization, page 36
7. Please provide us with detailed calculations of the pro forma amounts
for cash,
convertible promissory notes, total debt, total liabilities,
additional paid in capital and
accumulated deficit.
8. Given the magnitude of transactions you are giving pro forma effect
to, please revise to
reference the line items impacted by each transaction.
Dilution, page 38
9. Please revise to include a comparison of the public contribution under
the proposed public
offering and the effective cash contribution of officers, directors,
promoters and affiliated
persons. Please refer to Item 506 of Regulation S-K.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Components of Our Results of Operations
Cost of Revenues, page 46
10. Please revise to disclose the nature of the direct costs included in
cost of revenues. In
doing so, address any software, technology and development costs,
labor and personnel
costs, cloud hosting costs, third party service fees, and depreciation
and amortization and
support your accounting.
Effects of Inflation, page 55
11. We note your disclosure regarding inflation on page 55. Please update
this disclosure to
specifically address and quantify how recent inflationary pressures
have impacted your
operations, if material.
Business, page 57
12. Please clearly describe each of your service offerings in greater
detail in this section. In
this regard, we note you have included a description of certain
contract highlights on page
60, but you have not described, in general, the services you offer.
13. We note your disclosure that the Company has developed a "qualified
business
opportunity pipeline of over $400 million." Please provide more detail
regarding this
opportunity pipeline, whether this is from acquisitions or organic
growth, how you have
calculated the value of those opportunities, and how they differ from
the backlog figures
included in your filing.
14. We note your disclosure that in the year ending December 31, 2021,
your top five
revenue-producing contracts accounted for 73 percent of your revenue.
Please describe
these agreements in this section and file the agreements as exhibits
to the registration
statement, or tell us why you are not required to do so. Refer to Item
601(b)(10) of
Regulation S-K.
Mark Fuller
FirstName
Castellum, LastNameMark Fuller
Inc.
Comapany
July NameCastellum, Inc.
26, 2022
July 26,
Page 4 2022 Page 4
FirstName LastName
15. We note your disclosure on page 18 that you expect that sales through
teaming partners
will continue to be a significant percentage of your revenue. Please
describe the general
terms of your teaming partner arrangements in this section.
16. We note your disclosure throughout the filing that "[y]our contracts
and subcontracts are
composed of a wide range of contract types" and on page 48 that
"[g]ross margin
decreased due to the loss of a number of higher margin T&M contract
positions that were
in place in Q1 2021." Given the different risk levels of these
contracts, please disclose the
highest percentage of revenue by contract type for each period
presented and clarify the
percentage of multi-year contracts by contract type, if material.
Executive Compensation, page 74
17. Please revise to disclose how the bonus amounts in the table were
determined. Refer to
Item 402(o) of Regulation S-K.
Principal Stockholders, page 81
18. We note that your Series A and Series C preferred stock will remain
outstanding after this
offering. Please revise the table to include the number and percentage
of shares of Series
A preferred stock and Series C preferred stock that will remain
outstanding after this
offering, as you have done for the common stock.
19. Please revise to identify the natural person(s) that hold voting
and/or dispositive power
over the shares held by Crom Cortana Fund, LLC.
Selling Stockholders, page 84
20. Please expand your disclosure to discuss how long the selling
shareholders have held the
shares and the circumstances under which the selling shareholders have
received their
shares.
Description of Securities, page 87
21. Here and in your risk factor on page 30, discuss the anti-takeover
provisions included in
your charter and bylaws, including the advance notice provisions for
stockholder
proposals and that the board has the sole power to amend your bylaws.
Castellum, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 15: Income Taxes, page F-52
22. We note your deferred tax asset balance of $2.5M and no related
valuation allowance.
Given your cumulative losses in recent years, explain to us how you
determined a deferred
tax asset valuation allowance was not needed. In doing so, provide us
an accounting
analysis that details the specific positive and negative evidence you
considered in
determining that your deferred tax assets will more likely than not be
realized. Please
Mark Fuller
Castellum, Inc.
July 26, 2022
Page 5
refer to ASC 740-10-30.
Unaudited Pro Forma Combined Financial Statements, page F-54
23. We note the pro forma statement of operations gives effect to the
acquisition of Specialty
Systems, Inc. ( SSI ), which was consummated on August 12, 2021.
Please explain why
you did not present SSI s preacquisition stub period January 1, 2021
through August 12,
2021 or revise to include.
24. Please provide us with a detailed calculation of adjustment (a),
intangible amortization
expense.
Exhibits
25. Please revise your exhibit index to include the form of underwriting
agreement, a legal
opinion, power of attorney, and the filing fee table, and file such
exhibits with your
registration statement. Refer to Item 601 of Regulation S-K. In
addition, we note that Ms.
Frost and Messrs. McMillen, Campbell, and Champoux are expected to
join the board
upon effectiveness of your registration statement. Please file a
consent for each director
nominee. Refer to Securities Act Rule 428.
General
26. We note the disclosure on your prospectus cover that the primary
shares will be offered at
a fixed price and the resale shares will be offered at prevailing
market prices. We also note
your disclosure that the underwriters will only purchase the primary
shares. Please revise
to include separate prospectuses in this registration statement for
each of the primary and
resale offerings. Include an explanatory note so that investors
receiving the IPO
prospectus understand that selling shareholders are conducting a
concurrent offering of
additional shares pursuant to a separate prospectus that also forms a
part of this
registration statement. Alternatively, to the extent you do not use a
separate prospectus,
please revise to ensure the disclosure clearly discusses both
transactions. For example,
revise the plan of distribution, use of proceeds and underwriting
sections to discuss both
offerings. Please also revise your references to "this offering"
throughout the registration
statement to specify if you are referring to the primary or resale
transaction.
27. We note your disclosure that the primary offering is contingent on
listing approval and
that the Selling Stockholders will not sell "until after the closing of
this public offering."
Please revise to clarify that that "this public offering" refers to your
primary offering, if
true. Please also clearly state that the resale transaction will only
occur if your shares are
listed and there is an established public trading market. In this
regard, we note that your
FirstName LastNameMark Fuller
common stock is currently quoted on the OTC Pink tier, which is not an
established public
Comapany NameCastellum,
trading Inc. selling stockholders may offer and sell
shares at other than a
market into which
July 26,fixed
2022price.
Page 5Refer to Item 501(b)(3) of Regulation S-K.
FirstName LastName
Mark Fuller
FirstName
Castellum, LastNameMark Fuller
Inc.
Comapany
July NameCastellum, Inc.
26, 2022
July 26,
Page 6 2022 Page 6
FirstName LastName
28. We note your disclosure that you have agreed to issue warrants to your
underwriter to
purchase a number of shares of your common stock. Please ensure that
such shares are
included in your fee table.
29. Please include the disclosure required by Item 201 of Regulation S-K.
Refer to Item 11(d)
of Form S-1.
30. Please supplementally provide us with copies of all written
communications, as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to
do so on your behalf,
present to potential investors in reliance on Section 5(d) of the
Securities Act, whether or
not they retain copies of the communications. Please contact the staff
member associated
with the review of this filing to discuss how to submit the materials,
if any, to us for our
review.
You may contact Scott Stringer at 202-551-3272 or Lyn Shenk at
202-551-3380 if you
have questions regarding comments on the financial statements and related
matters. Please
contact Taylor Beech at 202-551-4515 or Jennifer L pez Molina at 202-551-3792
with any other
questions.
Sincerely,
Division of
Corporation Finance
Office of Trade
& Services
cc: Steven Lipstein, Esq.