CISO Global, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q includes a number of forward-looking statements that reflect management’s current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2021, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation: ● our ability to achieve and sustain profitability of the existing lines of business through expansion; ● our ability to raise sufficient capital to acquire world-class engineer-owned cybersecurity companies; ● our ability to attract and retain world-class cybersecurity talent; ● our ability to identify potential acquisition targets within predetermined parameters; ● our ability to successfully execute acquisitions, integrate the acquired businesses and create synergies as a nationwide cybersecurity consolidator; ● our ability to attract and retain key technology or management personnel and to expand our management team; ● the accuracy of estimates regarding expenses, future revenue, capital requirements, profitability, and needs for additional financing; ● business interruptions resulting from geo-political actions, including war, and terrorism or disease outbreaks (such as the outbreak of COVID-19 or any of its variants); ● our ability to attract and retain clients; and ● our ability to navigate through the increasingly complex cybersecurity regulatory environment. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes in the future operating results over time, except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our” refer to Cerberus Cyber Sentinel Corporation, a Delaware corporation, and its wholly owned subsidiaries including GenResults, LLC, an Arizona limited liability company (“GenResults”), TalaTek, LLC, a Virginia limited liability company (“TalaTek”), Technologyville, Inc., an Illinois corporation (“Techville”), Clear Skies Security, LLC, a Georgia limited liability company (“Clear Skies”), and Alpine Security, LLC, an Illinois limited liability company (“Alpine”). Unless otherwise specified, all dollar amounts are expressed in United States dollars. 22 Corporate History Cerberus Cyber Sentinel Corporation (“Cerberus Sentinel”) was formed on March 5, 2019 as a Delaware corporation. Our principal offices are located at 6900 E. Camelback Road, Suite 240, Scottsdale, AZ 85251. Effective May 25, 2020, we entered into a Stock Purchase Agreement with Techville and its sole shareholder, pursuant to which Techville became a wholly owned subsidiary of the Company (the “Techville Acquisition”). Under the terms of the Techville Acquisition, all issued and outstanding common stock of Techville was exchanged for an aggregate of 3,392,271 shares of our common stock. Effective August 1, 2020, we entered into a Stock Purchase Agreement with Clear Skies and its equity holders, pursuant to which Clear Skies became a wholly owned subsidiary of the Company (the “Clear Skies Acquisition”). Under the terms of the Clear Skies Acquisition, all issued and outstanding equity securities in Clear Skies were exchanged for an aggregate of 2,330,000 shares of our common stock. On December 16, 2020, we entered into an Agreement and Plan of Merger pursuant to which Alpine became a wholly owned subsidiary of the Company. All units representing membership interests of Alpine issued and outstanding were converted into 900,000 shares of our common stock. Our Business We are a security services company comprised of highly trained security professionals who work with clients to create a continuously aware security culture. We do not sell cybersecurity products. We position ourselves as a trusted cybersecurity advisor and are committed to delivering tailored security solutions to organizations of different sizes and across all geographies and industries to fit their budgetary needs and limit their cyber threat exposure. We currently provide a multitude of cybersecurity services including managed security service, cybersecurity consulting, technology consulting, compliance auditing, vulnerability assessment, penetration testing, security remediation, Security Operations Center (“SOC”) set-up and consulting and cybersecurity training. We differentiate ourselves from competitors by staying technology agnostic. We believe that many cybersecurity service providers in the market today are committed to a specific technology solution which limits their service scope and ability to quickly respond to any emerging cybersecurity challenges. In addition, as we continue to serve our clients within our existing capacities, we plan to continue making strategic acquisitions of small-to-medium-sized engineer-led cybersecurity service businesses to continue to expand our service scope and geographical coverage. We believe that having a world-class technology team with multi-faceted expertise is key to providing technology agnostic solutions to our clients and maximizing their return on investment from cybersecurity and information technology (“IT”) spending. Cybersecurity Market As the world has become increasingly connected through the Internet and the Internet of Things (“IoT”), cyberattacks have prevailed and evolved over the years, in different forms, causing uncontainable threats to the integrity and privacy of enterprise and personal data and resulted in significant economic losses globally. In response to the increasing economic damage caused by heightened cybersecurity risks, regulatory bodies have pushed the implementation of new cybersecurity legislations, and cyber insurance companies have increased minimum cybersecurity requirements. We believe that we are well positioned in a fast-growing industry to provide businesses with a wide scope of cybersecurity services and with significant opportunities for growth. Service Offering We currently offer two major types of services to clients: Managed Services and Consulting Services. 23 Managed Services Our Managed Services focus on a holistic approach to cybersecurity based on an upfront gap analysis of our clients’ existing cybersecurity practices. We provide multiple offerings in the managed service portfolio including the following: ● CISO-as-a-service: Many companies need cybersecurity services but do not have the capital resources or knowledge base to hire a Chief Information Security Officer (“CISO”). We offer this service to companies on an ongoing consulting basis as a resource to augment their management team. CISO-as-a-service includes road mapping the future needs for the client and providing our knowledge and expertise to help them achieve their security needs; ● Culture education and enablement offering: This targets the root cause for approximately 75% of cyber breach events by starting with a culture of security-forward thinking; ● Tools and technology provisioning offering: We provide technology-agnostic solutions catering to a client’s existing products and to enhance the cyber defense system by making carefully selected additions without bias and to fit their financial profile; ● Data and privacy offering: This ensures that a client’s data security and privacy are properly managed to alleviate risks of data loss and breach; ● Regulations and compliance offering: We evaluate a client’s policies and procedures and implement the appropriate compliance framework based on the latest industry regulations and obligations; and ● SOC services: We offer SOC-as-a-service, which is a subscription-based service that manages and monitors client’s logs, devices, clouds, network and assets for possible cyber threats. This service provides the clients with the knowledge and skills necessary to combat cybersecurity threats. Consulting Services Our consulting services include a wide array of tailored solutions for organizations of all sizes. Our in-depth industry expertise allows us to act as the trusted advisor of our clients to help them lower their risk profile, minimize cost impact to organizations and meet regulatory compliance demands. We specialize in: ● Cybersecurity consulting: Bringing the culture of cybersecurity to a client’s leadership team and penetrating throughout the organization is a critical first step of building any cybersecurity system. Through our consulting service, we dive in both at the cultural and technical aspects of cybersecurity within the organization. We help our clients build effective policies and best practices, design or enhance a cybersecurity system and train the executive management team so that the culture at the top is set to facilitate diligent implementation of cybersecurity awareness. ● Compliance auditing: We provide auditing services under several compliance frameworks as follows: ○ Service Organization 2 – This is an auditing procedure that focuses on a business’ non-financial reporting controls related to security, availability, processing, integrity, confidentiality, and privacy of a system; ○ Payment Card Industry Data Security Standard– This is a standard administered by the Payment Card Industry Security Standards Council; ○ Health Insurance Portability and Accountability Act of 1996 and The Health Information Technology for Economic and Clinical Health Act of 2009 – These are laws regulated by the Department of Health and Human Services to secure the privacy and confidentiality of protected health information; ○ HITRUST CSF – This is a comprehensive security framework developed by the Health Information Trust Alliance in collaboration with healthcare, technology and information security leaders, to create, access, store and exchange sensitive and/or regulated data; and ○ The National Institute of Standards and Technology – This was formally known as the National Bureau of Standards, which is a federal agency that promotes and maintains measurement standards while encouraging and assisting industry and science to develop and use these standards. 24 ● Gap and risk assessment: We perform security risk gap analysis and advanced threat intelligence and analytics to identify potential areas of security risk and monitor potential breaches on a frequent basis. Evaluating all aspects of the business from executive management, finance, legal, human resources, compliance, operations and then IT. This is to ensure the organization has a holistic understanding of their company’s security posture. ● Penetration testing: We offer network and application-level penetration testing performed through industry tools and verified by certified security experts. At the network level, we conduct network scans for clients at pre-defined intervals based on their preference. Subsequent automatic scans are performed at the same IP address. We also make further attempts to exploit any vulnerability found by the network scan to eliminate false positives. At the application level, we utilize techniques such as parameter tampering, cookie poisoning, session hijacking, user privilege escalation, credential manipulation, forceful browsing, backdoors and debug options, configuration subversion, input validation bypass, SQL injection, and cross-site scripting to assess the application for known vulnerabilities. Significant Developments During the Quarter Appointment of Director On May 5, 2021, our Board of Directors appointed Kiki VanDeWeghe as a director. Mr. VanDeWeghe, 62, is an American former professional basketball player, coach and executive in the National Basketball Association. He has served as the Executive Vice President, Basketball Operations of the National Basketball Association since 2013. Prior to that, Mr. VanDeWeghe was the general manager of the Denver Nuggets and the New Jersey Nets, and a head coach of the New Jersey Nets. Prior to that he played professionally for the Los Angeles Clippers, New York Knicks, Portland Trail Blazers and the Denver Nuggets. Mr. VanDeWeghe attended UCLA where he received a degree in Economics. Mr. VanDeWeghe is qualified for service as a director of the Company due to his business acumen and experience as an organizational leader. Appointment of Chief Financial Officer On June 18, 2021, the Board of Directors appointed Deb Smith as Chief Financial Officer. Ms. Smith, 51, has served as Executive Vice President of Finance and Accounting at the Company since February 2021. Prior to joining the Company, Ms. Smith served as Executive Vice President of Finance at Arrivia Inc. from January 2020 to February 2021 and Controller and, subsequently, Chief Accounting Officer at BeyondTrust from October 2016 to January 2020. Ms. Smith received a Bachelor of Science degree in Accounting, Summa Cum Laude, from DeVry University and a Master’s degree in Counseling with Honors from Argosy University. Results of Operations Comparison of the Three Months Ended June 30, 2021 to the Three Months Ended June 30, 2020 Our financial results for the three months ended June 30, 2021 are summarized as follows in comparison to the three months ended June 30, 2020: For the Three Months Ended June 30, 2021 Cerberus TalaTek Techville Other (1) Total Revenue $ 322,378 $ 1,005,652 $ 735,685 $ 885,962 $ 2,949,677 Cost of revenue 485,860 653,814 543,673 328,997 2,012,344 Gross profit (163,482 ) 351,838 192,012 556,965 937,333 Operating expenses 2,187,169 425,945 242,676 134,943 2,990,733 Operating income (loss) (2,350,651 ) (74,107 ) (50,664 ) 422,022 (2,053,400 ) Other income (expense) (62,730 ) 4 (186 ) (550 ) (63,462 ) Loss before income taxes $ (2,413,381 ) $ (74,103 ) $ (50,850 ) 421,472 $ (2,116,862 ) 25 For the Three Months Ended June 30, 2020 Cerberus TalaTek Techville Other (1) Total Revenue $ 538,781 $ 856,574 $ 155,132 $ - $ 1,550,487 Cost of revenue 277,060 541,144 40,297 - 858,501 Gross profit 261,721 315,430 114,835 - 691,986 Operating expenses 827,656 265,623 150,373 - 1,243,652 Operating loss (565,935 ) 49,807 (35,538 ) - (551,666 ) Other income (expense) 6,629 35 (1,101 ) - 5,563 Loss before income taxes $ (559,306 ) $ 49,842 $ (36,639 ) $ - $ (546,103 ) Variance Cerberus TalaTek Techville Other (1) Total Revenue $ (216,403 ) $ 149,078 $ 580,553 $ 885,962 $ 1,399,190 Cost of revenue 208,800 112,670 503,376 328,997 1,153,843 Gross profit (425,203 ) 36,408 77,177 556,965 245,347 Operating expenses 1,359,513 160,322 92,303 134,943 1,747,081 Operating loss (1,784,716 ) (123,914 ) (15,126 ) 422,022 (1,501,734 ) Other expense (69,359 ) (31 ) 915 (550 ) (69,025 ) Loss before income taxes $ (1,854,075 ) $ (123,945 ) $ (14,211 ) $ 421,472 $ (1,570,759 ) (1) Based on the insignificant nature of the operational activities of Clear Skies and Alpine in comparison to the entity as a whole during the three months ended June 30, 2021, the Company has combined them into one category, titled Other, for the purposes of this presentation. Revenues For the Three Months Ended June 30, 2021 Cerberus TalaTek Techville Other (1) Total Managed services $ 17,791 $ 204 $ 536,773 $ - $ 554,768 Consulting services 304,587 1,005,448 198,912 885,962 2,394,909 Total revenue $ 322,378 $ 1,005,652 $ 735,685 $ 885,962 $ 2,949,677 For the Three Months Ended June 30, 2020 Cerberus TalaTek Techville Other (1) Total Managed services $ 521,577 $ 158 $ 94,609 $ - $ 616,344 Consulting services 17,204 856,416 60,523 - 934,143 Total revenue $ 538,781 $ 856,574 $ 155,132 $ - $ 1,550,487 Variance Cerberus TalaTek Techville Other (1) Total Managed services $ (503,786 ) $ 46 $ 442,164 $ - $ (61,576 ) Consulting services 287,383 149,032 138,389 885,962 1,460,766 Total revenue $ (216,403 ) $ 149,078 $ 580,553 $ 885,962 $ 1,399,190 (1) Based on the insignificant nature of the operational activities of Clear Skies and Alpine in comparison to the entity as a whole during the three months ended June 30, 2021, the Company has combined them into one category, titled Other, for the purposes of this presentation. 26 Revenues decreased for Cerberus by $216,403, or 40%, for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, due to one of the Company’s largest customers decreasing its required services as compared to the three months ended June 30, 2020. Revenues increased for TalaTek by $149,078, or 17%, for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, as a result of (i) an increase in contract revenue from a significant client of approximately $113,000 and (ii) various contracts that were active during the three months ended June 30, 2021 that were entered into subsequent to June 30, 2020. Revenues increased for Techville by $580,553 for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, as a result of Techville only having one month of operations due to the acquisition consummated on May 25, 2020. Approximately $537,000 was a result of Techville’s managed service offerings and approximately $200,000 was a result of Techville’s miscellaneous hardware sales associated with Techville’s consulting service offerings. Revenues for Clear Skies and Alpine were $885,962 for the three months ended June 30, 2021. We did not recognize any revenue attributable to Clear Skies or Alpine during the three months ended June 30, 2020, because of the acquisitions consummated on August 1, 2020 and December 16, 2020, respectively. Virtually all of these revenues were a result of Clear Skies’ and Alpine’s gap and risk assessment offerings. Expenses Cost of Revenues For the Three Months Ended June 30, 2021 Cerberus TalaTek Techville Other (1) Total Managed services $ - $ - $ 264,452 $ - $ 264,452 Consulting services 154,483 33,587 - 27,912 215,982 Cost of payroll 331,378 620,228 279,221 301,083 1,531,910 Total cost of revenue $ 485,861 $ 653,815 $ 543,673 $ 328,995 $ 2,012,344 For the Three Months Ended June 30, 2020 Cerberus TalaTek Techville Other (1) Total Managed services $ (14,130 ) $ - $ 40,297 $ - $ 26,167 Consulting services 122,979 82,898 - - 205,877 Cost of payroll 168,210 458,247 - - 626,457 Total cost of revenue $ 277,059 $ 541,145 $ 40,297 $ - $ 858,501 Variance Cerberus TalaTek Techville Other (1) Total Managed services $ 14,130 $ - $ 224,155 $ - $ 238,285 Consulting services 31,504 (49,311 ) - 27,912 10,105 Cost of payroll 163,168 161,981 279,221 301,083 905,453 Total cost of revenue $ 208,802 $ 112,670 $ 503,376 $ 328,995 $ 1,153,843 (1) Based on the insignificant nature of the operational activities of Clear Skies and Alpine in comparison to the entity as a whole during the three months ended June 30, 2021, the Company has combined them into one category, titled Other, for the purposes of this presentation. 27 Cost of revenues increased for Cerberus by $208,802, or 75%, for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, and was primarily the result of an increase in employees due to Alpine’s employees being accounted for under Cerberus. Cost of revenues increased for TalaTek by $112,670, or 21%, for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, as a result of an increase in employees resulting in an increase in salaries. Cost of revenues increased for Techville by $503,376 for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, which reflected only one month of operations following consummation of the acquisition of Techville on May 25, 2020.. Cost of revenues for Clear Skies and Alpine were $328,995 for the three months ended June 30, 2021. We did not recognize any costs of revenues for Clear Skies or Alpine for the three months ended June 30, 2020, because the acquisitions were consummated on August 1, 2020 and December 16, 2020, respectively. Operating Expenses For the Three Months Ended June 30, 2021 Cerberus TalaTek Techville Other (1) Total Professional fees $ 232,445 $ 405 $ 4,530 $ 6,881 $ 244,261 Advertising and marketing 118,270 27,833 86 26,279 172,468 Selling, general and administrative 930,064 397,707 238,060 101,783 1,667,614 Stock based compensation 891,126 - - - 891,126 Loss on write-off of account receivable 15,264 - - - 15,264 Total operating expenses $ 2,187,169 $ 425,945 $ 242,676 $ 134,943 $ 2,990,733 For the Three Months Ended June 30, 2020 Cerberus TalaTek Techville Other (1) Total Professional fees $ 186,504 $ 1,902 $ 16,550 $ - $ 204,956 Advertising and marketing 16,024 29,684 - - 45,708 Selling, general and administrative 266,216 234,037 133,825 - 634,078 Stock based compensation 343,910 - - - 343,910 Loss on write-off of account receivable 15,000 - - - 15,000 Total operating expenses $ 827,654 $ 265,623 $ 150,375 $ - $ 1,243,652 Variance Cerberus TalaTek Techville Other (1) Total Professional fees $ 45,941 $ (1,497 ) $ (12,020 ) $ 6,881 $ 39,305 Advertising and marketing 102,246 (1,851 ) 86 26,279 126,760 Selling, general and administrative 663,848 163,670 104,235 101,783 1,033,536 Stock based compensation 547,216 - - - 547,216 Loss on write-off of account receivable 264 - - - 264 Total operating expenses $ 1,359,515 $ 160,322 $ 92,301 $ 134,943 $ 1,747,081 (1) Based on the insignificant nature of the operational activities of Clear Skies and Alpine in comparison to the entity as a whole during the three months ended June 30, 2021, the Company has combined them into one category, titled Other, for the purposes of this presentation. 28 Operating expenses increased for Cerberus by $1,359,515 or 164%, for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, primarily as a result of (i) an increase in payroll due to Alpine’s employees being accounted for under Cerberus, and (ii) an increase in stock-based compensation of $547,216 due to an increase in stock option grants as a result of the Techville, Clear Skies, and Alpine acquisitions. Operating expenses increased for TalaTek by $160,322, or 60%, for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, as a result of an increase in employees resulting in an increase in salaries. Operating expenses increased for Techville by $92,301, or 61%, for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, which reflected only one month of operations following consummation of the acquisition of Techville on May 25, 2020. Approximately $105,402 was attributable to Techville’s administrative payroll and benefits. Operating expenses for Clear Skies and Alpine were $134,943 for the three months ended June 30, 2021. We did not recognize any operating expenses for Clear Skies or Alpine for the three months ended June 30, 2020, because the acquisitions were consummated on August 1, 2020 and December 16, 2020, respectively. Approximately $91,000 was attributable to Clear Skies and Alpine’s administrative payroll and benefits. Comparison of the Six Months Ended June 30, 2021 to the Six Months Ended June 30, 2020 Our financial results for the six months ended June 30, 2021 are summarized as follows in comparison to the six months ended June 30, 2020: For the Six Months Ended June 30, 2021 Cerberus TalaTek Techville Other (1) Total Revenue $ 760,138 $ 1,990,086 $ 1,305,975 $ 1,453,256 $ 5,509,455 Cost of revenue 983,707 1,294,476 867,630 605,694 3,751,507 Gross profit (223,569 ) 695,610 438,345 847,562 1,767,948 Operating expenses 3,840,969 876,916 508,013 293,819 5,519,717 Operating income (loss) (4,064,538 ) (181,306 ) (69,668 ) 553,743 (3,761,769 ) Other income (expense) (129,480 ) 10 (595 ) (1,887 ) (131,952 ) Loss before income taxes $ (4,194,018 ) $ (181,296 ) $ (70,263 ) 551,856 $ (3,893,721 ) 29 For the Six Months Ended June 30, 2020 Cerberus TalaTek Techville Other (1) Total Revenue $ 886,497 $ 1,577,079 $ 155,132 $ - $ 2,618,708 Cost of revenue 511,867 1,081,578 40,297 - 1,633,742 Gross profit 374,630 495,501 114,835 - 984,966 Operating expenses 1,662,539 560,583 150,373 - 2,373,495 Operating loss (1,287,909 ) (65,082 ) (35,538 ) - (1,388,529 ) Other income (expense) 4,310 73 (1,101 ) - 3,282 Loss before income taxes $ (1,283,599 ) $ (65,009 ) $ (36,639 ) $ - $ (1,385,247 ) Variance Cerberus TalaTek Techville Other (1) Total Revenue $ (126,359 ) $ 413,007 $ 1,150,843 $ 1,453,256 $ 2,890,747 Cost of revenue 471,840 212,898 827,333 605,694 2,117,765 Gross profit (598,199 ) 200,109 323,510 847,562 772,982 Operating expenses 2,178,430 316,333 357,640 293,819 3,146,222 Operating loss (2,776,629 ) (116,224 ) (34,130 ) 553,743 (2,373,240 ) Other expense (133,790 ) (63 ) 506 (1,887 ) (135,234 ) Loss before income taxes $ (2,910,419 ) $ (116,287 ) $ (33,624 ) $ 551,856 $ (2,508,474 ) (1) Based on the insignificant nature of the operational activities of Clear Skies and Alpine in comparison to the entity as a whole during the six months ended June30, 2021, the Company has combined them into one category, titled Other, for the purposes of this presentation. Revenues For the Six Months Ended June 30, 2021 Cerberus TalaTek Techville Other (1) Total Managed services $ 17,791 $ 303 $ 977,091 $ - $ 995,185 Consulting services 742,347 1,989,783 328,884 1,453,256 4,514,270 Total revenue $ 760,138 $ 1,990,086 $ 1,305,975 $ 1,453,256 $ 5,509,455 For the Six Months Ended June 30, 2020 Cerberus TalaTek Techville Other (1) Total Managed services $ 659,388 $ 260 $ 94,609 $ - $ 754,257 Consulting services 227,109 1,576,819 60,523 - 1,864,451 Total revenue $ 886,497 $ 1,577,079 $ 155,132 $ - $ 2,618,708 Variance Cerberus TalaTek Techville Other (1) Total Managed services $ (641,597 ) $ 43 $ 882,482 $ - $ 240,928 Consulting services 515,238 412,964 268,361 1,453,256 2,649,819 Total revenue $ (126,359 ) $ 413,007 $ 1,150,843 $ 1,453,256 $ 2,890,747 (1) Based on the insignificant nature of the operational activities of Clear Skies and Alpine in comparison to the entity as a whole during the six months ended June 30, 2021, the Company has combined them into one category, titled Other, for the purposes of this presentation. 30 Revenues decreased for Cerberus by $126,359, or 14%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, due to one of the Company’s largest customers decreasing its required services compared to the six months ended June 30, 2020. Revenues increased for TalaTek by $413,007, or 26%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, as a result of (i) an increase in contract revenue from a significant client of approximately $88,000 and (ii) various contracts that were active during the six months ended June 30, 2021 that were entered into subsequent to June 30, 2020. Revenues increased for Techville by $1,150,843, or 742%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, which reflected only one month of operations following consummation of the acquisition of Techville on May 25, 2020. Approximately $977,000 was a result of Techville’s managed service offerings and approximately $329,000 was a result of Techville’s miscellaneous hardware sales associated with Techville’s consulting service offerings.. Revenues for Clear Skies and Alpine were $1,453,256 for the six months ended June 30, 2021. We did not recognize any revenue attributable to Clear Skies or Alpine during the six months ended June 30, 2020, because the acquisitions were consummated on August 1, 2020 and December 16, 2020, respectively. Virtually all of these revenues were a result of Clear Skies’ and Alpine’s gap and risk assessment offerings. Expenses Cost of Revenues For the Six Months Ended June 30, 2021 Cerberus TalaTek Techville Other (1) Total Managed services $ - $ - $ 458,119 $ - $ 458,119 Consulting services 213,953 68,579 - 51,244 333,776 Cost of payroll 769,754 1,225,897 409,511 554,450 2,959,612 Total cost of revenue $ 983,707 $ 1,294,476 $ 867,630 $ 605,694 $ 3,751,507 For the Six Months Ended June 30, 2020 Cerberus TalaTek Techville Other (1) Total Managed services $ 4,840 $ - $ 40,297 $ - $ 45,137 Consulting services 149,465 172,259 - - 321,724 Cost of payroll 357,561 909,320 - - 1,266,881 Total cost of revenue $ 511,866 $ 1,081,579 $ 40,297 $ - $ 1,633,742 Variance Cerberus TalaTek Techville Other (1) Total Managed services $ (4,840 ) $ - $ 417,822 $ - $ 412,982 Consulting services 64,488 (103,680 ) - 51,244 12,052 Cost of payroll 412,193 316,577 409,511 554,450 1,692,731 Total cost of revenue $ 471,841 $ 212,897 $ 827,333 $ 605,694 $ 2,117,765 (1) Based on the insignificant nature of the operational activities of Clear Skies and Alpine in comparison to the entity as a whole during the six months ended June 30, 2021, the Company has combined them into one category, titled Other, for the purposes of this presentation. 31 Cost of revenues increased for Cerberus by $471,841, or 92%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, and was primarily the result of Alpine employees being accounted for under Cerberus. Cost of revenues increased for TalaTek by $212,897, or 20%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, as a result of an increase in employees resulting in an increase in salaries. Cost of revenues increased for Techville by $827,333, or 2,053%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, which reflected only one month of operations following consummation of the acquisition of Techville on May 25, 2020. Cost of revenues for Clear Skies and Alpine were $605,694 for the six months ended June 30, 2021. We did not recognize any costs of revenues for Clear Skies or Alpine for the six months ended June 30, 2020, because the acquisitions were consummated on August 1, 2020 and December 16, 2020, respectively. Operating Expenses For the Six Months Ended June 30, 2021 Cerberus TalaTek Techville Other (1) Total Professional fees $ 367,809 $ 766 $ 9,184 $ 23,856 $ 401,615 Advertising and marketing 126,700 56,714 1,437 32,844 217,695 Selling, general and administrative 1,601,308 819,436 497,392 237,119 3,155,255 Stock based compensation 1,729,888 - - - 1,729,888 Loss on write-off of account receivable 15,264 - - - 15,264 Total operating expenses $ 3,840,969 $ 876,916 $ 508,013 $ 293,819 $ 5,519,717 For the Six Months Ended June 30, 2020 Cerberus TalaTek Techville Other (1) Total Professional fees $ 381,755 $ 3,005 $ 16,550 $ - $ 401,310 Advertising and marketing 21,462 52,108 - - 73,570 Selling, general and administrative 574,981 505,470 133,825 - 1,214,276 Stock based compensation 669,339 - - - 669,339 Loss on write-off of account receivable 15,000 - - - 15,000 Total operating expenses $ 1,662,537 $ 560,583 $ 150,375 $ - $ 2,373,495 Variance Cerberus TalaTek Techville Other (1) Total Professional fees $ (13,946 ) $ (2,239 ) $ (7,366 ) $ 23,856 $ 305 Advertising and marketing 105,238 4,606 1,437 32,844 144,125 Selling, general and administrative 1,026,327 313,966 363,567 237,119 1,940,979 Stock based compensation 1,060,549 - - - 1,060,549 Loss on write-off of account receivable 264 - - - 264 Total operating expenses $ 2,178,432 $ 316,333 $ 357,638 $ 293,819 $ 3,146,222 (1) Based on the insignificant nature of the operational activities of Clear Skies and Alpine in comparison to the entity as a whole during the six months ended June 30, 2021, the Company has combined them into one category, titled Other, for the purposes of this presentation. 32 Operating expenses increased for Cerberus by $2,178,432 or 131%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, primarily as a result of (i) an increase in payroll due to Alpine’s employees being accounted for under Cerberus, and (ii) an increase in stock-based compensation of $1,060,549 due to an increase in stock option grants as a result of the Techville, Clear Skies, and Alpine acquisitions. Operating expenses increased for TalaTek by $316,333, or 56%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, as a result of an increase in employees resulting in an increase in salaries. Operating expenses increased for Techville by $357,638, or 238%, for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, as a result of only having one month of operations due to the acquisition consummated on May 25, 2020. Approximately $329,000 was attributable to Techville’s administrative payroll and benefits. Operating expenses for Clear Skies and Alpine were $293,819 for the six months ended June 30, 2021. We did not recognize any operating expenses for Clear Skies or Alpine for the six months ended June 30, 2020, because the acquisitions were consummated on August 1, 2020 and December 16, 2020, respectively. Approximately $91,000 was attributable to Clear Skies and Alpine’s administrative payroll and benefits. Working Capital Surplus Our working capital surplus as of June 30, 2021, in comparison to our working capital surplus as of December 31, 2020, is summarized as follows: As of June 30, December 31, 2021 2020 Current assets $ 7,636,759 $ 6,346,008 Current liabilities 4,105,124 3,863,594 Working capital surplus $ 3,531,635 $ 2,482,414 The increase in current assets is primarily due to increases in cash and cash equivalents and accounts receivable of $527,719 and $617,769, respectively. The increase in current liabilities is primarily due to the increase in stock payable and the current portion of lease liabilities of $114,750 and $94,781, respectively. Cash Flows Our cash flows for the six months ended June 30, 2021, in comparison to our cash flows for the six months ended June 30, 2020, can be summarized as follows: Six months ended June 30, 2021 2020 Net cash used in operating activities $ (2,646,739 ) $ (740,120 ) Net cash provided by investing activities - 65,037 Net cash provided by financing activities 3,174,458 841,907 Increase in cash $ 527,719 $ 166,824 33 Operating Activities Net cash used in operating activities was $2,646,739 for the six months ended June 30, 2021 and was primarily due to cash used to fund a net loss of $3,893,721, adjusted for non-cash expenses in the aggregate of $2,013,960 and additional cash outlaid by changes in the levels of operating assets and liabilities, primarily as a result of an increase in accounts receivable. Net cash used in operating activities was $740,120 for the six months ended June 30, 2020 and was primarily due to cash used to fund a net loss of $1,385,247, adjusted for non-cash expenses in the aggregate of $742,507, partially offset by cash generated by changes in the levels of operating assets and liabilities, primarily as a result of an increase in accounts payable. Investing Activities There was no cash used in or provided by investing activities for the six months ended June 30, 2021. Net cash provided by investing activities of $65,037 for the six months ended June 30, 2020, was due to cash acquired in the Techville Acquisition. Financing Activities Net cash provided by financing activities for the six months ended June 30, 2021 was $3,174,458, which was primarily due to cash received from the sale of the Company’s common stock of $3,250,000. Net cash provided by financing activities for the six months ended June 30, 2020 was $841,907 and was due to cash received from the sale of the Company’s common stock of $140,000 and proceeds from PPP loans of $709,600. Liquidity The accompanying unaudited condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates realization of assets and satisfying liabilities in the normal course of business. At June 30, 2021, the Company had an accumulated deficit of approximately $8,760,000 and working capital surplus of approximately $3,532,000. For the six months ended June 30, 2021, the Company had a loss from operations of approximately $3,762,000 and negative cash flows from operations of approximately $2,647,000. Although the Company is showing positive revenues and gross profit trends, the Company expects to incur further losses through the end of 2021. To date the Company has been funding operations primarily through the sale of equity in private placements and revenues generated by the Company’s services. During the six months ended June 30, 2021, the Company received $3,250,000 from private placements of the Company’s common stock. Based on its current cash resources and commitments, the Company believes it will be able to maintain its current planned development and corresponding level of expenditure for at least twelve months from the date of the issuance of these unaudited condensed consolidated financial statements, although no assurance can be given that it will not need additional funds prior to such time. Effects of Inflation We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented. Significant Accounting Policies and Estimates Our significant accounting policies are more fully described in the notes to our condensed consolidated financial statements included herein for the quarter and six months ended June 30, 2021 and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 31, 2021. 34 Fair Value Measurement The fair value measurement guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in the valuation of an asset or liability. It establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the fair value measurement guidance are described below: Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities; Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; or Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). Business Combination The Company allocates the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred. The allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. The Company includes the results of operations of the business that it has acquired in its consolidated results prospectively from the date of acquisition. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized in profit or loss. Goodwill Goodwill represents the excess of the purchase price of the acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at year end, at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is tested for impairment at the reporting level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit. Impairment of Long-lived Assets We will periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances warrant such a review and at least annually. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. 35 Revenue Recognition The Company’s agreements with its clients are primarily service contracts that range in duration from a few months to one year. The Company recognizes revenue when control of these services is transferred to the client for an amount, referred to as the transaction price, which reflects the consideration to which the Company is expected to be entitled in exchange for those goods or services. A contract with a client exists only when: ● the parties to the contract have approved it and are committed to perform their respective obligations; ● the Company can identify each party’s rights regarding the distinct services to be transferred (“performance obligations”); ● the Company can determine the transaction price for the services to be transferred; and ● the contract has commercial substance, and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the client. For the majority of its contracts, the Company receives non-refundable upfront payments. The Company does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between the time of transfer of the promised goods or services to the client and the time the client pays for these goods or services to be generally one year or less. The Company’s credit terms to clients generally average thirty days, although in some cases payments are required in 15 days. The Company does not disclose the value of unsatisfied performance obligations for contracts with original expected duration of one year or less. Disaggregation of Revenue Revenue consists of the following by service offering for the six months ended June 30, 2021: Managed Services Consulting Services Total Primary Sector Markets Public $ - $ 2,019,470 $ 2,019,470 Private 920,674 2,224,751 3,145,425 Not-for-Profit 74,511 270,049 344,560 $ 995,185 $ 4,514,270 $ 5,509,455 Major Service Lines Gap and Risk Assessment $ - $ 4,185,885 $ 4,185,885 Managed Security Services - - - Tech Connect 977,090 - 977,090 Hardware - 320,833 320,833 Other 18,095 7,552 25,647 $ 995,185 $ 4,514,270 $ 5,509,455 36 Revenue consists of the following by service offering for the six months ended June 30, 2020: Managed Services Consulting Services Total Primary Sector Markets Public $ 3,250 $ 1,593,598 $ 1,596,848 Private 740,849 268,259 1,009,108 Not-for-Profit 10,158 2,594 12,752 $ 754,257 $ 1,864,451 $ 2,618,708 Major Service Lines Gap and Risk Assessment $ - $ 1,803,928 $ 1,803,928 Managed Security Services 657,226 - 657,226 Tech Connect 96,771 22,263 119,034 Hardware - 13,253 13,253 Other 260 25,007 25,267 $ 754,257 $ 1,864,451 $ 2,618,708 Practical Expedients As part of ASC 606, the Company has adopted several practical expedients including the following: (i) the Company has determined that it need not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised service to the customer and when the customer pays for that service will be one year or less and (ii) the Company recognizes any incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. Reimbursed Expenses The Company includes reimbursed expenses in revenues and costs of revenue as the Company is primarily responsible for fulfilling the promise to provide the specified service, including the integration of the related services into a combined output to the client, which are inseparable from the integrated service. These costs include such items as consumables, transportation and travel expenses, over which the Company has discretion in establishing prices. Costs of Revenue Costs of revenue include (i) compensation and benefits for billable employees and consultants directly involved with delivering services offerings and engagements; (ii) consumables used for the services; and (iii) other expenses directly related to service contracts such as professional services, meals and travel expenses. Volatility in Stock-Based Compensation The volatility is based on historical volatilities of companies in comparable stages as well as the historical volatility of companies in the industry and, by statistical analysis of the daily share-pricing model. The volatility of stock-based compensation at any point in time is based on historical volatility of similar companies in the industry for the last two to five years. New and Recently Adopted Accounting Pronouncements Any new and recently adopted accounting pronouncements are more fully described in Note 2 to our unaudited condensed consolidated financial statements herein for the quarter ended June 30, 2021. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item. 37