CISO Global, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of its principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. - 32 - Material Weakness in Internal Control over Financial Reporting Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting as of December 31, 2021 was not effective. A material weakness, as defined in the standards established by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which are indicative of many small companies with small number of staff: ● lack of risk assessment procedures on internal controls to detect financial reporting risks in a timely manner; and ● lack of documentation on policies and procedures that are critical to the accomplishment of financial reporting objectives. Management’s Plan to Remediate the Material Weakness Our management plans to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned include: ● identify gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company; and ● develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Changes in Internal Control Over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2021 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. During the year ended December 31, 2021, report, we have hired additional finance and accounting staff that we expect will positively impact our segregation of duties in the coming quarters. In addition, we have established an audit committee in the first quarter of 2021. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. - 33 - PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table sets forth certain information regarding our Directors and Executive Officers. The age of each Director and Executive Officer listed below is given as of April 13, 2022. Name Age Position David G. Jemmett 55 Chief Executive Officer and Director Rory V. Sanchez 60 President David A. Bennett 58 Chief Operating Officer Debra L. Smith 51 Chief Financial Officer Ashley N. Devoto 38 Chief Information Security Officer and Director Stephen H. Scott, Jr. 53 Director Ret. General Robert C. Oaks (3) 84 Director R. Scott Holbrook (1) (2) (3) 72 Director Andrew K. McCain (1) (2) 59 Director Ernst M. (KiKi) VanDeWeghe, III (1) (2) (3) 62 Director (1) Member of the Audit Committee (2) Member of the Compensation Committee (3) Member of the Governance and Nominating Committee Our Executive Officers David G. Jemmett – Chief Executive Officer and Director Mr. Jemmett has served as our Chief Executive Officer and a director of our company since our formation in March 2019. He also founded GenResults in June 2015, which we subsequently acquired in April 2019. From January 2014 to December 2014, Mr. Jemmett served as Chief Executive Officer of NantCloud, LLC, a provider of secure cloud-hosted applications for healthcare customers, and Chief Technology Officer of NantWorks, LLC, a parent company for the “Nant” family of companies. From 2005 to 2013, Mr. Jemmett served as founder and Chief Executive Officer of ClearDATA Networks Corporation, a HIPAA compliant hosting company specializing in healthcare. He has been a guest speaker on CBS, CNN, MSNBC and CSPAN, and has spoken before the U.S. Senate Subcommittee on Telecommunications and Internet Security regarding internet technologies in 1998. We believe Mr. Jemmett is qualified to serve as a director of our company due to his extensive business background, his experience in the cybersecurity industry, and his significant equity ownership in our company. Rory V. Sanchez - President Mr. Sanchez has served as our President since February 2022. Since March 2018, he has served as Chief Executive Officer of True Digital, an entity which we acquired in January 2022. Prior to that, from March 2000 to February 2018, Mr. Sanchez was Chief Executive Officer and President of SLPowers, the predecessor company to True Digital, a managed cybersecurity and compliance provider that helps organizations manage risk and compliance. David A. Bennett – Chief Operating Officer Mr. Bennett has served as our Chief Operating Officer since February 2022. From August 2021 to February 2022, he served as Chief Product Officer at Experian Health, a leader in healthcare revenue cycle solutions and digital health. From October 2020 to August 2021, Mr. Bennett served as Senior Vice President, Product at Gainwell Technologies, a leader in Medicaid management systems and payer analytics. From March 2018 to October 2020, Mr. Bennett served as Vice President, Global Build Healthcare & Life Sciences at DXC Technologies, which is an information technology services and consulting company. From November 2013 to March 2018, Mr. Bennett served as Executive Vice President, Product & Strategy for Orion Health, a software company that is a leader in health information exchanges, digital health, and healthcare analytics. He also serves on the Grand Canyon University President’s STEM Advisory Board. Mr. Bennett received a degree in Computer Information Science from DeVry University in 1985. - 34 - Debra L. Smith – Chief Financial Officer Ms. Smith has served as our Chief Financial Officer since June 2021. Ms. Smith served as our Executive Vice President of Finance and Accounting from February 2021 to June 2021. Prior to joining our 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. Ashley N. Devoto – Chief Information Security Officer and Director Ms. Devoto has served as our Chief Information Security Officer and a director of our company since March 2022. Ms. Devoto has served in various roles at Booz Allen Hamilton, a U.S.-based government contractor, from June 2018 to March 2022, most recently serving as its Chief Information Security Officer. From April 2017 to June 2018, Ms. Devoto served as Business Information Security officer for Bank of America, a financial services company. Ms. Devoto has served in the U.S. Air Force Cyberspace Operations since March 2010, and she served as defensive cyber operations planner at 24th Air Force and NORAD/USNORTHCOM. Ms. Devoto continues to serve in a reserve capacity by leading strategic cyber force development initiatives in her current assignment at the Pentagon. Ms. Devoto holds a bachelor’s degree in Computer Engineering from Vanderbilt University and a master’s degree in Engineering Management from Southern Methodist University. We believe Ms. Devoto is qualified for service as a director of our company due to her cybersecurity experience, as well as her extensive experience across military, financial services, and professional services organizations. Our Directors Stephen H. Scott, Jr. – Director Mr. Scott has served as a founder and director of our company since April 2019. Mr. Scott has been a Partner with Advisor ID (formerly BRI Partners), a financial services technology firm, since 2016. Mr. Scott was Managing Director of Longboard Asset Management from 2016 to 2017. From 2009 to 2016, Mr. Scott was at Van Eck Global, where he served as the Co-Head of the Alternatives Committee and as portfolio manager. Mr. Scott has founded and managed several investment partnerships focused on both private and public investment strategies since 1995. Mr. Scott holds a Bachelor of Science in 1991 from the University of Florida. Mr. Scott is qualified for service as a director of our company due to his background in both the financial services and technology industries. Ret. General Robert C. Oaks – Director Ret. General Oaks has served as a director of our company since May 2019. He is a retired U.S. Air Force general who served as commander in chief of the U.S. Air Forces in Europe, and commander, Allied Air Forces Central Europe, with headquarters at Ramstein Air Base, Germany. He retired as a four-star General and Commander and Chief of U.S. Air Forces Europe and NATO Central Europe in 1994 after serving 34 years. Following his retirement, Ret. General Oaks was employed at U.S. Airways as Senior Vice President from 1994 to 2000. In 2000, Oaks resigned from this position when he was called to serve the LDS Church, where he served until 2009, when he was released as a general authority. He earned a Bachelor of Science degree in Military Science from the U.S. Air Force Academy and a Master’s degree in Business Administration from Ohio State University prior to graduating from the Naval War College. Ret. General Oaks currently serves as the official Liaison for the Church of Jesus Christ to the U.S. Armed Forces. We believe Ret. General Oaks is qualified for service as a director of our company due to his experience with national security issues, including cybersecurity, through his extensive military service. - 35 - R. Scott Holbrook – Director Mr. Holbrook has served as a director of our company since May 2019. Since 2013, Mr. Holbrook has been a Principal at Mountain Summit Advisors, a specialty firm focused on mergers and acquisitions of primarily healthcare technology and services companies, and a strategic advisor to Health Catalyst, a company focused on data analytics and warehousing primarily in healthcare. He served as the Executive Vice President of Medicity, a population health management company with solutions for health information exchange, business intelligence, and provider and patient engagement, from 2002 to 2013. In 1998, Mr. Holbrook founded KLAS where he remains as a board member. He has served in executive positions at IHC, GTE, Sunquest Information Systems, Integrated Medical Networks and is a founder of Park City Solutions. Mr. Holbrook is a HIMSS Fellow. He holds a Master of Science from Utah State University and a Bachelor of Science from Brigham Young University. We believe Mr. Holbrook is qualified for service as a director of our company as a result of his significant experience in the healthcare technology sector. Andrew K. McCain – Director Mr. McCain has served as a director of our company since May 2019. He has served as the President and Chief Operating Officer for Hensley Beverage Company since 2014. He is a board member of the Arizona Super Bowl Host Committee, the Arizona 2016 College Football Championship Local Organizing Committee, Chairman of Hensley Employee Foundation, and a Patrons Committee member of United Methodist Outreach Ministries’ New Day Centers. He is past Chairman of the Board of the Fiesta Bowl, past Chairman of the Anheuser-Busch National Wholesaler Advisory Panel, and past Chairman of the Greater Phoenix Chamber of Commerce. Mr. McCain received his Bachelor of Arts in Mathematics in 1984 and an MBA in 1986 from Vanderbilt University. We believe Mr. McCain is qualified for service as a director of our company due to his significant business experience and leadership. Ernst M. (Kiki) VanDeWeghe, III – Director Mr. VanDeWeghe has served as a director of our company since May 2021. 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. We believe Mr. VanDeWeghe is qualified for service as a director of our company due to his business acumen and experience as an organizational leader. Board Constitution Our Board of Directors currently consists of seven members. All directors hold office until the next annual meeting of stockholders. At each annual meeting of stockholders, the successors to directors whose terms then expire are elected to serve from the time of election and qualification until the next annual meeting following election. Director Independence Our Board of Directors is comprised of a majority of independent directors, as “independence,” is defined by the listing standards of The Nasdaq Stock Market and by the SEC. Our Board of Directors has concluded that each of Messrs. Oaks, Holbrook, McCain, and Mr. VanDeWeghe are “independent”, having concluded that any relationship between such director and our company, in its opinion, does not interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Mr. Jemmett and Ms. Devoto are employee directors. Mr. Scott is considered independent as he has served as a founder and director of our company since April 2019. Sandra D. Morgan served on our Board of Directors in fiscal 2021 and resigned in March 2022. Ms. Morgan was independent director. - 36 - Board Committees Our Board of Directors has three standing committees: the Audit Committee, the Compensation Committee, and Governance and Nominating Committee. Audit Committee The Audit Committee of our Board of Directors was established in accordance with Rule 10A-3 promulgated under the Exchange Act. The current members of our Audit Committee are Messrs. McCain, Holbrook, and VanDeWeghe with Mr. McCain serving as the chair. Ms. Morgan served on the Audit Committee during fiscal 2021 but resigned from our Board of Directors in March 2022. Mr. VanDeWeghe was appointed to the Audit Committee in March 2022 following Ms. Morgan’s resignation. Each member of the Audit Committee meets the independence and other requirements to serve on our Audit Committee under The Nasdaq Stock Market Rules and the rules of the SEC. In addition, our Board of Directors determined that each of Messrs. McCain and Holbrook and Ms. Morgan is considered an “audit committee financial expert” as defined in the rules of the SEC. The Audit Committee was formed in 2021. Our Board of Directors has adopted a written charter for the Audit Committee, a copy of which is posted in the Investor Resources and Corporate Governance section of our website at www.cerberussentinel.com/charter-of- the-audit-committee. The principal functions of the Audit Committee are to oversee our accounting and financial reporting processes and the audits of our consolidated financial statements; oversee our relationship with our independent auditors, including selecting, evaluating, and setting the compensation of, and approving all audit and non-audit services to be performed by the independent auditors; and facilitate communication among our independent auditors and our financial and senior management. Compensation Committee We have a standing Compensation Committee of our Board of Directors. The members of our Compensation Committee are Messrs. Holbrook, VanDeWeghe, and McCain with Mr. Holbrook serving as the chair. Each member of the Compensation Committee meets the independence and other requirements to serve on our Compensation Committee under The Nasdaq Stock Market Rules and the rules of the SEC. The Compensation Committee was formed in 2021. Our Board of Directors has adopted a written charter for the Compensation Committee, a copy of which is posted in the Investor Resources and Corporate Governance section of our website at www.cerberussentinel.com/charter-of-the-compensation-committee. The Compensation Committee has responsibilities relating to the performance evaluation and the compensation of our Chief Executive Officer; the compensation of our executive officers and directors; and our significant compensation arrangements, plans, policies, and programs, including our stock compensation plans. Certain of our executive officers, our outside counsel, and consultants may occasionally attend the meetings of the Compensation Committee. However, no officer of our company is present during discussions or deliberations regarding that officer’s own compensation. Governance and Nominating Committee We have a standing Governance and Nominating Committee of our Board of Directors. The current members of our Governance and Nominating Committee are Messrs. Oaks, Holbrook and VanDeWeghe with Mr. VanDeWeghe serving as the chair. Ms. Morgan serve on the Governance and Nominating Committee during fiscal 2021 but resigned from our Board of Directors in March 2022. Mr. VanDeWeghe was appointed to the Governance and Nominating Committee in March 2022 following Ms. Morgan’s resignation. Each of Messrs. Oaks, Holbrook, VanDeWeghe and Ms. Morgan meets the independence and other requirements to serve on our Governance and Nominating Committee under The Nasdaq Stock Market Rules and the rules of the SEC. The Governance and Nominating Committee was formed in 2021. Our Board of Directors has adopted a written charter for the Governance and Nominating Committee, a copy of which is posted in the Investor Resources and Corporate Governance section of our website at https://www.cerberussentinel.com/investor-relations/charter-of-the-nominating-and-corporate-governance-committee . The Governance and Nominating Committee considers the performance of the members of our Board of Directors and nominees for director positions and evaluates and oversees corporate governance and related issues. - 37 - The goal of the Governance and Nominating Committee is to ensure that our directors possess a variety of perspectives and skills derived from high-quality business and professional experience. The Governance and Nominating Committee seeks to achieve a balance of knowledge, experience, and capability on our Board of Directors. To this end, the Governance and Nominating Committee seeks nominees with the highest professional and personal ethics and values, an understanding of our business and industry, diversity of business experience and expertise, a high level of education, broad-based business acumen, and the ability to think strategically. Although the Governance and Nominating Committee uses these and other criteria to evaluate potential nominees to our Board of Directors, it has no stated minimum criteria for such nominees. The Governance and Nominating Committee does not use different standards to evaluate nominees depending on whether they are proposed by our directors and management or by our stockholders. To date, we have not paid any third parties to assist us in this process. Code of Ethics We have adopted a Code of Ethics and Business Conduct (“Code of Ethics”) that sets forth various policies and procedures to promote ethical behavior and that applies to all our directors, officers and employees. The Code of Ethics is publicly available on our website at www.cerberussentinel.com. Amendments to the Code of Ethics and any grant of a waiver from a provision of the Code of Ethics requiring disclosure under applicable SEC rules will be disclosed on our website. Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act, requires officers and directors of our company and persons who beneficially own more than 10% of a registered class of our company’s equity securities to file initial statements of beneficial ownership of common stock (Form 3) and statements of changes in beneficial ownership of common stock (Forms 4 or 5) with the SEC. Officers, directors, and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all such forms they file. During fiscal 2021, each of Ms. Smith and Messrs. Jemmett, Scott, Oaks, Holbrook, McCain and VanDeWeghe failed to file all reports which were required to be filed pursuant to Section 16(a) of the Exchange Act. ITEM 11. EXECUTIVE COMPENSATION The following table shows the total compensation paid or accrued during the years ended December 31, 2021 and 2020 to our Chief Executive Officer, our next two most highly compensated executive officers who were serving as executive officers on December 31, 2021 and one additional individual who served as an executive officer during the year ended December 31, 2021 but was not serving as an executive officer on December 31, 2021 (our “named executive officers”). - 38 - Summary Compensation Table Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($) Option Awards ($) (1) Non-Equity Incentive Plan Compensation ($) Non-qualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) David G. Jemmett 2021 250,000 90,213 - - - - - 340,213 Chief Executive Officer 2020 208,958 - - - - - - 208,958 William Santos 2021 121,875 7,500 - - - - 28,125 157,500 Former President (2) 2020 247,708 - - 180,744 - - - 428,452 Bryce Hancock 2021 225,000 - - - - - - 225,000 Former President and Chief Operating Officer (3) 2020 9,375 - - 3,333,345 - - - 3,342,720 Debra L. Smith 2021 183,333 55,000 - 532,611 - - - 532,611 Chief Financial Officer (4) 2020 - - - - - - - - (1) The amounts in this column reflect the fair value on the grant date of the option awards granted to the named executive officer, calculated in accordance with ASC Topic 718. Stock options were valued using the Black-Scholes model. The grant-date fair value does not necessarily reflect the value of shares which may be received in the future with respect to these awards. The grant-date fair value of the stock options in this column is a non-cash expense that reflects the fair value of the stock options on the grant date and therefore does not affect our cash balance. The fair value of the stock options will likely vary from the actual value the holder receives because the actual value depends on the number of options exercised and the market price of our common stock on the date of exercise. For a discussion of the assumptions made in the valuation of the stock options, see Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2021. (2) Mr. Santos resigned on July 16, 2021. In connection with his resignation, he received a portion of his guaranteed bonus, or $7,500, and a severance payment of $28,125. (3) Mr. Hancock resigned on February 15, 2022. (4) Ms. Smith was appointed to serve as our Vice President of Finance on February 1, 2021 and as our Chief Financial Officer on June 18, 2021. - 39 - Outstanding Equity Awards as of December 31, 2021 The following table summarizes the outstanding equity awards held by each named executive officer as of December 31, 2021. Name Grant Date Number of Shares Underlying Unexercised Options (#) Exercisable Number of Shares Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date David G. Jemmett - - - - - William Santos July 15, 2019 (1) (3) 2,832,500 167,500 $ 0.38 July 15, 2024 January 29, 2020 (2) (3) 469,583 530,417 $ 0.50 January 20, 2025 Bryce Hancock December 15, 2020 (4) (5) 900,000 2,100,000 $ 2.00 December 15, 2025 Debra L. Smith February 1, 2021 (6) - 500,000 $ 2.00 February 1, 2026 (1) 33% of the shares underlying this option vested on the one year anniversary from the grant date, with the remainder vesting in 24 equal installments on the last day of each month thereafter. (2) 33% of the shares underlying this option vested on the one year anniversary of the grant date with the remainder vesting monthly over the subsequent 12-month period. (3) On July 16, 2021, Mr. Santos resigned and, as of such date, 3,302,083 of Mr. Santos’ aggregate options to purchase 4,000,000 shares of our common stock had vested and the remainder of unvested options, or 697,917, were forfeited. (4) 30% of the shares underlying this option vested on the one year anniversary from the grant date of December 15, 2020, with the remainder vesting in 24 equal installments on the last day of each month thereafter. (5) On February 15, 2022, Mr. Hancock resigned and, as of such date, 1,075,000 of Mr. Hancock’s aggregate options to purchase 3,000,000 shares of our common stock had vested and remainder of unvested options of Mr. Hancock’s 1,925,000 shares were forfeited. (6) 30% of the shares underlying this option vested at the one year anniversary from the grant date of February 1, 2021, with the remainder vesting in 24 equal installments on the last day of each month thereafter. Employment Agreements with our Named Executive Officers David G. Jemmett On September 30, 2019, we entered into an employment agreement with Mr. Jemmett to serve as our Chief Executive Officer (the “Jemmett Employment Agreement”). The Jemmett Employment Agreement is evergreen and can be terminated by either party. Pursuant to the Jemmett Employment Agreement, Mr. Jemmett earned an initial annual base salary of $225,000, which was increased to an annual base salary of $250,000 upon our common stock becoming quoted on the OTC Markets. Mr. Jemmett’s base salary may be increased in accordance with our normal compensation and performance review policies. He is entitled to receive a discretionary annual bonus of up to 100% of his annual base salary, at the discretion of our Board of Directors, based on performance and our objectives. Subject to approval by our Board of Directors, Mr. Jemmett is entitled to additional stock options under our 2019 Equity Incentive Plan. The stock options will vest at 33% on the one-year anniversary of the Jemmett Employment Agreement and the remaining 66% of the options will vest monthly over the next 12 months. As of December 31, 2021, our Board of Directors had not approved or granted any stock options to Mr. Jemmett. On July 31, 2021, a bonus of $90,213 was accrued for Mr. Jemmett and subsequently paid on February 15, 2022. Mr. Jemmett is also eligible to participate in our standard benefit plans. William Santos On May 15, 2019, we entered into an employment agreement with Mr. Santos to serve as our Chief Operating Officer (the “Santos Employment Agreement”). The Santos Employment Agreement is evergreen and could be terminated by either party. Pursuant to the Santos Employment Agreement, as amended, Mr. Santos earned an initial base annual salary of $225,000, with an annual guaranteed bonus of $15,000, which could be increased to an annual base salary of $245,000 upon our company achieving gross annual revenue of $20,000,000 in any calendar year and an increase to an annual base salary of $300,000 upon our company achieving gross annual revenue of $40,000,000 in any calendar year. Mr. Santos was entitled to receive a discretionary annual bonus of up to 100% of his annual base salary, at the discretion of our Board of Directors, based on performance and company objectives. Subject to approval by our Board of Directors, Mr. Santos was entitled to stock options to purchase 3,000,000 shares of our common stock under our 2019 Equity Incentive Plan. Mr. Santos was also eligible to participate in our standard benefit plans. Mr. Santos resigned on July 16, 2021 in connection with his resignation, he received a portion of his guaranteed bonus, or $7,500, and a severance payment of $28,125. - 40 - Bryce Hancock On December 14, 2020, we entered into an employment agreement with Mr. Hancock to serve as our Chief Operating Officer (the “Hancock Employment Agreement”). The Hancock Employment Agreement was evergreen and could be terminated by either party. Pursuant to the Hancock Employment Agreement, Mr. Hancock earned an initial base annual salary of $225,000, which could be increased at the discretion of our Board of Directors. Mr. Hancock was also eligible to participate in our standard benefit plans. Mr. Hancock resigned on February 15, 2022. Debra L. Smith On December 31, 2020, we entered into an employment agreement with Ms. Smith to serve as our Executive Vice President of Finance, effective as of February 1, 2021 (the “Smith Employment Agreement”). Pursuant to the Smith Employment Agreement, Ms. Smith earns an initial base annual salary of $200,000, with an increase upon our listing to a national exchange, subject to approval by the Company’s Board of Directors, a guaranteed bonus of $60,000 to be paid quarterly, and an additional $60,000 at the end of each fiscal year at the discretion of our Board of Directors. Ms. Smith is also eligible to participate in our standard benefit plans. On June 18, 2021, we appointed Ms. Smith to serve as Chief Financial Officer. The terms of the original Smith Employment Agreement remained in force. Director Compensation [2] The following table sets forth for each director certain information concerning their compensation for the year ended December 31, 2021: Name (2) Fees Earned or Paid in Cash ($) Stock Awards ($) Option Awards ($) (1) Non-equity Incentive Plan Compensation ($) Nonqualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) David G. Jemmett - - - - - - - Stephen Scott - - - - - - - Robert C. Oaks - - - - - - - Scott Holbrook - - - - - - - Andy McCain - - - - - - - Sandra Morgan - - 205,919 - - - 205,919 Kiki VanDeWeghe - - 237,734 - - - 237,734 Notes: (1) The amounts in this column reflect the fair value on the grant date of the option awards granted to the named executive, calculated in accordance with ASC Topic 718. Stock options were valued using the Black-Scholes model. The grant-date fair value does not necessarily reflect the value of shares which may be received in the future with respect to these awards. The grant-date fair value of the stock options in this column is a non-cash expense that reflects the fair value of the stock options on the grant date and therefore does not affect our cash balance. The fair value of the stock options will likely vary from the actual value the holder receives because the actual value depends on the number of options exercised and the market price of our common stock on the date of exercise. For a discussion of the assumptions made in the valuation of the stock options, see Note 10 to our consolidated financial statements, which are included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2021. (2) All directors receive reimbursement for reasonable out of pocket expenses in attending Board meetings and for participating in our business. 2 Note to CISO: An introductory paragraph should be added summarizing director compensation (e.g., whether they receive, options, cash, etc. or whether they receive an initial grant upon appointment and then yearly thereafter). Issuer confirmed that there is no commitment or expectation, so no policy in place and is essentially random. - 41 - ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth certain information with respect to the beneficial ownership of our common stock as of April 13, 2022 for (a) the named executive officers, (b) each of our directors, (c) all of our current directors and executive officers as a group and (d) each stockholder known by us to own beneficially more than 5% of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. We deem shares of common stock that may be acquired by an individual or group within 60 days of April 13, 2022 pursuant to the exercise of options or warrants to be outstanding for the purpose of computing the percentage ownership of such individual or group but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them based on information provided to us by these stockholders. Percentage of ownership is based on 136,719,649 shares of common stock outstanding on April 13, 2022. Security Ownership of Certain Beneficial Holders Name and Address of Beneficial Owner (1) Amount and Nature of Beneficial Ownership Percent Jemmett Enterprises, LLC 66,435,000 (2) 48.59 % Security Ownership of Directors and Executive Officers Name and Address of Beneficial Owner (1) Amount and Nature of Beneficial Ownership Percent David G. Jemmett 66,435,000 (2) 48.59 % Debra L. Smith 193,750 (3) * Ashley N. Devoto 62,500 (4) * Stephen H. Scott, Jr. 18,650,000 (5) 13.64 % Ret. General Robert C. Oaks 400,000 (6) * R. Scott Holbrook 400,000 (6) * Andrew K. McCain 3,775,000 (7) 2.75 % Kiki VanDeWeghe 100,000 (8) * Directors & Executive Officers as a Group (10 persons) 91,416,250 66.85 % - 42 - Notes: * Less than 1% of the outstanding shares of common stock. (1) Unless otherwise indicated, the address of record is c/o Cerberus Cyber Sentinel Corporation, 6900 E. Camelback Road, Suite 240, Scottsdale, Arizona 85251. (2) Consists of 66,435,000 shares, Mr. Jemmett is the managing member of Jemmett Enterprises, LLC and has voting and dispositive power over such shares. (3) Consists of 193,750 shares issuable upon exercise of options exercisable within 60 days after April 13, 2022 . (4) Consists of 62,500 shares held directly by Ms. Devoto. (5) Consists of 12,900,000 shares held directly by Mr. Scott, 5,000,000 shares beneficially held by TVMT LLC, 500,000 shares beneficially held by Scott Revocable Trust and 250,000 shares beneficially held by JLS 401k Trust. (6) Consists of 400,000 shares issuable upon the exercise of options exercisable within 60 days after April 13, 2022 . (7) Consists of (i) 375,000 shares held indirectly as executor of the Andrew and Lucy McCain Family Trust, for which Mr. McCain has voting and dispositive power; (ii) 3,000,000 shares held by Hensley & Company, for which Mr. McCain has voting and dispositive power; and (iii) 400,000 shares issuable upon the exercise of options exercisable within 60 days after April 13, 2022 . (8) Consists of 100,000 shares issuable upon the exercise of options exercisable within 60 days after April 13, 2022. Securities Authorized for Issuance Under Existing Equity Compensation Plan The following table summarizes certain information regarding our equity compensation plan as of December 31, 2021: Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options Weighted-Average Exercise Price of Outstanding Options Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (a) (b) (c) Equity compensation plans approved by security holders (1) 25,000,000 $ 1.11 - Equity compensation plans not approved by security holders 9,546,283 $ 4.01 - Total 34,546,283 $ 1.94 - (1) Consists of the 2019 Equity Incentive Plan. The aggregate number of shares of common stock that may be issued pursuant to options granted under this Plan or Bonus Stock Awards under this Plan shall not exceed 25,000,000 shares. For a description of this plan, see Note 10 to our 2021 Consolidated Financial Statements included in this Annual Report on Form 10-K for the year ended December 31, 2021. - 43 - ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Transactions with Related Persons Except as set out below, during the year ended December 31, 2021, there were no transactions, or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect material interest: ● any director or executive officer of our company; ● any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock; ● any promoters and control persons; and ● any member of the immediate family (including spouse, parents, children, siblings and in laws) of any of the foregoing persons. Note Payable with Jemmett Enterprises, LLC On December 31, 2018, GenResults entered into an unsecured note payable with Jemmett Enterprises, LLC, an entity affiliated with Mr. Jemmett, Chief Executive Officer and Director, and majority stockholder of our company, for a principal amount of $200,000. The note had an original maturity date of June 30, 2020 and had an interest rate of 6% per annum. On June 29, 2020, the note payable was extended to July 30, 2021. During the year ended December 31, 2021 and 2020, we made cash payments of $59,787 and $50,000, respectively, under the note. The outstanding principal balance of this loan was zero and $59,787 as of December 31, 2021 and 2020, respectively. Note Payable with Hensley & Company On December 23, 2020, we issued a 6% unsecured convertible note to Hensley & Company (the “Lender”), in consideration of the Lender lending us $3,000,000 (the “Principal Amount”). The Principal Amount, together with accrued and unpaid interest, was due on December 31, 2021 (the “Maturity Date”), with no prepayment option. Interest was calculated at 6% per annum (based on a 360-day year) and was payable monthly. The Maturity Date was extendable at our election to December 31, 2022. At any time prior to or on the Maturity Date, the Lender was permitted to convert all or any portion of the outstanding Principal Amount and all accrued but unpaid interest thereon into shares of our common stock at a conversion price of $2.00 per share. During the years ended December 31, 2021 and 2020, we paid the Lender interest payments of $182,500 and zero, respectively. On December 31, 2021, the Lender converted the total Principal Amount under the note into 1,500,000 shares of common stock of our company. Mr. McCain, a Director of our company, is President and Chief Operating Officer of the Lender. Sale of Common Stock to Hensley & Company On September 22, 2020, we issued 250,000 shares of common stock to Hensley & Company, an entity affiliated with Mr. McCain, a Director of our company, for a purchase price of $2.00 per share, or aggregate cash proceeds of $500,000. Director Independence See “Directors, Executive Officers and Corporate Governance – Director Independence” and “Directors, Executive Officers and Corporate Governance – Board Committees” in Item 10 above. - 44 - ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Our Audit Committee has appointed Semple, Marchal & Cooper, LLP (“SMC”) as our independent registered public accounting firm (the “Independent Auditor”) for the year ended December 31, 2021. The following table sets forth the fees billed to our company for professional services rendered by SMC for the years ended December 31, 2021 and 2020: Services 2021 2020 Audit fees (1) $ 132,098 $ 97,958 Audit-related fees (2) 3,440 90,821 Tax fees (3) 2,690 12,708 All other fees (4) 102,817 - Total fees $ 241,045 $ 201,487 (1) Audit fees consisted of billing for professional services normally provided in connection with statutory and regulatory filings, including (i) fees associated with the audits of our financial statements for the years ended December 31, 2021 and 2020 and, (ii) fees associated with quarterly reviews for the quarters ended March 31, 2021 and 2020, June 30, 2021 and 2020, and September 30, 2021 and 2020. (2) Audit related fees consisted of billings for professional services for reviews of our periodic filings under form 10-K and 10-Q and acquisition audits for the years ended December 31, 2021 and 2020. (3) Tax fees consisted primarily of tax related advisory and preparation services. (4) All Other Fees consist of fees billed for products and services provided by our independent registered public accountants, other than those disclosed above. Pre-Approval Policies and Procedures The charter of our Audit Committee provides that the authority and responsibilities of our Audit Committee include the pre-approval of all audit and permitted non-audit and tax services that may be provided by our independent auditors or other registered public accounting firms, and the establishment of policies and procedures for the Audit Committee’s pre-approval of permitted services by our independent auditors or other registered public accounting firms on an on-going basis. For audit services, each year our independent auditor provides our Audit Committee with an engagement letter outlining the scope of the audit services proposed to be performed during the year, which must be formally accepted by our Audit Committee before the audit commences prior to engagement of an independent auditor for next year’s audit, management will submit an aggregate of services expected to be rendered during that year for each of three categories of services to our Audit Committee for approval. - 45 - PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES [1] (a) The following documents are filed as a part of the report: (1) For a list of the financial statements included herein, see the index to the financial statements beginning on page F-1 of this Annual Report on Form 10-K, incorporated into this Item by reference. (2) Financial statement schedules have been omitted because they are either not required or not applicable or the information is included in the consolidated financial statements or the notes thereto. (b) Exhibits. Incorporated by Reference Exhibit Number Exhibit Description Form Exhibit Filing Date 2.1 Agreement for the Purchase and Sale of Limited Liability Company Interests of GenResults, LLC dated April 12, 2019 10-12G 10.1 10/2/2019 2.2** Agreement and Plan of Merger by and among the Registrant, TalaTek, LLC, TalaTek Merger Sub and Baan Alsinawi dated September 23, 2019 10-12G 10.1 10/2/2019 2.3 Stock Purchase Agreement by and among the Registrant, Technologyville, Inc. and Brian Yelm dated May 25, 2020 8-K 10.1 5/29/2020 2.4 Share Purchase Agreement among the Registrant, Clear Skies Security, LLC and all of its Members dated July 31, 2020 8-K 10.1 8/6/2020 2.5** Agreement and Plan of Merger by and among Cerberus Cyber Sentinel Corporation, Alpine Merger Sub, LLC, Alpine Security, LLC and Christian Espinosa dated December 16, 2020 8-K 10.1 12/21/2020 2.6** Amended and Restated Agreement and Plan of Merger by and among the Registrant, Catapult Acquisition Merger Sub, LLC, Catapult Acquisition Corporation, the shareholders of Catapult Acquisition Corporation and Darek Hahn dated July 26, 2021 8-K 10.1 08/02/2020 2.7** Stock Purchase Agreement by and among the Registrant, Atlantic Technology Systems, Inc., Atlantic Technology Enterprises, Inc., and James Montagne and Miriam Montagne as sole shareholders, dated October 1, 2021 8-K 10.1 10/07/2021 2.8** Agreement and Plan of Merger by and among the Registrant, RED74 Merger Sub, LLC, RED74 LLC, Ticato Holdings, Inc. and Tim Coleman dated October 8, 2021 8-K 10.1 11/15/2021 2.9** Stock Purchase Agreement by and among the Registrant, Southford Equities, Inc., a British Virgin Islands based company and David Esteban Alfaro Medina, Roberto Andrés Arriagada Poblete and Camilo Orlando Garrido Briones dated December 1, 2021 8-K 10.1 12/06/2021 2.10 Stock Purchase Agreement among the Registrant and certain shareholders of True Digital Security Inc. dated January 5, 2022 8-K 10.1 01/06/2022 2.11** Agreement and Plan of Merger among the Registrant and certain shareholders of True Digital Security Inc. dated January 5, 2022 8-K 10.2 01/06/2022 3 Note to CISO: To be discussed if any agreements are completed with no further obligations. Material leases for real property should as also be filed as exhibits. [Note to CISO/Eventus: Can you please confirm if there are material leases for real property that should be included as exhibits?] - 46 - 3.1(a) Certificate of Incorporation of the Registrant dated March 4, 2019 10-12G 3.1 10/2/2019 3.1(b) Certificate of Amendment of Certificate of Incorporation of the Registrant dated April 12, 2019 10-12G 3.2 10/2/2019 3.1(c) Certificate of Amendment of Certificate of Incorporation of the Registrant dated September 25, 2019 10-12G 3.3 10/2/2019 3.2 By-laws of the Registrant 10-12G 3.4 10/2/2019 4.1 Form of Common Stock Certificate of the Registrant 10-K 4.1 3/30/2020 4.2 Description of Securities Registered under Section 12 of the Exchange Act 10-K 4.2 3/30/2020 10.1 Unsecured Note Agreement between the Registrant and Jemmett Enterprises, LLC dated December 31, 2018 10-K 10.3 3/30/2020 10.2 Stock Repurchase Agreement between the Registrant and Alan Kierman dated September 1, 2019 10-K 10.4 3/30/2020 10.3# 2019 Equity Incentive Plan 10-K 10.5 3/30/2020 10.3(a)#* Form of Stock Option Agreement 10.4# Employment Agreement between the Registrant and David G. Jemmett dated September 30, 2019 10-12G 10.2 10/2/2019 10.5# Employment Agreement between the Registrant and William Santos dated August 13, 2019 10-12G 10.3 10/2/2019 10.6 Engagement for Financial Services between the Registrant and Eventus Consulting, P.C. dated November 8, 2019 10-K 10.8 3/30/2020 10.7 6% Unsecured Convertible Note by the Registrant payable to Hensley & Company, dated December 23, 2020 8-K 10.1 12/29/2020 10.8#* Employment Agreement by and between Bryce Hancock and the Registrant dated December 14, 2020 10.9 Purchase Agreement and 5% Unsecured Convertible Note by the Registrant payable to Neil Stinchcombe dated October 27, 2021 8-K 10.1 11/02/2021 10.10#* Employment Agreement by and between Debra L. Smith and the Registrant dated December 31, 2020 21.1* Subsidiaries of the Registrant 31.1* Rule 13a-14(a) / 15d-14(a) Certification of Principal Executive Officer 31.2* Rule 13a-14(a) / 15d-14(a) Certification of Principal Financial Officer 32.1 Section 1350 Certification of Principal Executive Officer 32.2 Section 1350 Certification of Principal Financial Officer 101.INS* Inline XBRL Instance Document 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) *Filed herewith. **Certain exhibits, annexes, and/or s chedules have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. We agree to furnish supplementally a copy of any omitted exhibit, annex, or schedule to the Securities and Exchange Commission upon request. # Management contracts and compensatory plans and arrangements. ITEM 16. FORM 10-K SUMMARY Not applicable. - 47 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CERBERUS CYBER SENTINEL CORPORATION By: /s/ David G. Jemmett Name: David G. Jemmett Title: Chief Executive Officer (Principal Executive Officer) Date: April 15, 2022 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ David G. Jemmett Name: David G. Jemmett Title: Chief Executive Officer and Director (Principal Executive Officer) Date: April 15, 2022 By: /s/ Debra L. Smith Name: Debra L. Smith Title: Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Date: April 15, 2022 By: /s/ Ashley N. Devoto Name: Ashley N. Devoto Title: Chief Information Security Officer and Director Date: April 15, 2022 By: /s/ Stephen H. Scott, Jr. Name: Stephen H. Scott, Jr. Title: Director Date: April 15, 2022 By: /s/ Robert C. Oaks Name: Ret. General Robert C. Oaks Title: Director Date: April 15, 2022 By: /s/ R. Scott Holbrook Name: R. Scott Holbrook Title: Director Date: April 15, 2022 By: /s/ Andrew K. McCain Name: Andrew K. McCain Title: Director Date: April 15, 2022 By: /s/ Ernest M. (Kiki) VanDeWeghe, III Name: Ernest M. (Kiki) VanDeWeghe, III Title: Director Date: April 15, 2022 - 48 - CERBERUS CYBER SENTINEL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2021 AND 2020 TABLE OF CONTENTS Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID # 178 ) F-2 REPORT OF THE INDEPENDENT AUDITORS F-3 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets as of December 31, 2021 and 2020 F-5 Consolidated Statements of Operations For the Years Ended December 31, 2021 and 2020 F-6 Consolidated Statements of Stockholders’ Equity For the Years Ended December 31, 2021 and 2020 F-7 Consolidated Statements of Cash Flows For the Years Ended December 31, 2021 and 2020 F-8 Notes to Consolidated Financial Statements For the Years Ended December 31, 2021 and 2020 F-9 F- 1 Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders of Cerberus Cyber Sentinel Corporation and Subsidiaries Scottsdale, Arizona Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Cerberus Cyber Sentinel Corporation (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, based on our audits and the report of the other auditor, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2021 and 2020, and the results of its consolidated operations and its cash flows for the years then ended , in conformity with accounting principles generally accepted in the United States of America. We did not audit the financial statements of Arkavia Networks, SpA, a wholly-owned subsidiary, which statements reflect total assets of $12.1 million at December 31, 2021, and total revenues of $1.3 million for the month then ended. Those statements were audited by another auditor whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Arkavia Networks, SpA, is based solely on the report of the other auditor. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. /s/ Semple, Marchal & Cooper, LLP Certified Public Accountants We have served as the Company’s auditor since 2019. Phoenix, Arizona April 15, 2022 F- 2 F- 3 F- 4 CERBERUS CYBER SENTINEL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, December 31, 2021 2020 ASSETS Current Assets: Cash and cash equivalents $ 2,725,035 $ 5,197,030 Accounts receivable, net of allowances for doubtful accounts of $ 77,811 and $ 40,000 , respectively 4,840,802 1,006,834 Inventory 727,974 - Prepaid expenses and other current assets 960,965 142,144 Total Current Assets 9,254,776 6,346,008 Notes receivable, related party 1,090,903 - Property and equipment, net of accumulated depreciation of $ 102,000 and $ 14,000 , respectively 1,856,046 80,630 Right of use asset, net 277,578 13,426 Intangible assets, net of accumulated amortization of $ 323,000 and $ 116,000 , respectively 6,540,269 2,105,432 Goodwill 16,792,535 4,101,369 Total Assets $ 35,812,107 $ 12,646,865 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable and accrued expenses $ 2,709,066 $ 809,804 Deferred revenue 52,824 - Stock payable - 46,000 Settlement liability 470,000 - Lease liability, current portion 196,472 8,989 Loans payable, current portion 213,199 9,405 Line of credit - 3,000 Convertible note payable, net of debt discount, related party 1,500,000 2,926,609 Note payable, related party - 59,787 Total Current Liabilities 5,141,561 3,863,594 Long-term Liabilities: Loans payable, net of current portion 5,284,301 1,037,115 Lease liability, net of current portion 88,040 4,693 Total Liabilities 10,513,902 4,905,402 Commitments and Contingencies - - Stockholders’ Equity: Common stock, $ .00001 par value; 250,000,000 shares authorized; 125,852,971 and 116,104,971 shares issued and outstanding on December 31, 2021 and 2020, respectively 1,258 1,161 Additional paid-in capital 69,309,369 12,607,074 Accumulated deficit ( 44,012,422 ) ( 4,866,772 ) Total Stockholders’ Equity 25,298,205 7,741,463 Total Liabilities and Stockholders’ Equity $ 35,812,107 $ 12,646,865 The accompanying notes are an integral part of these consolidated financial statements. F- 5 CERBERUS CYBER SENTINEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2021 December 31, 2020 Revenue: Security managed services $ 11,797,719 $ 5,359,101 Professional services 3,344,840 1,881,727 Total revenue 15,142,559 7,240,828 Cost of revenue: Security managed services 3,089,599 991,275 Professional services 515,171 87,271 Cost of payroll 9,729,526 3,287,020 Total cost of revenue 13,334,296 4,365,566 Total gross profit 1,808,263 2,875,262 Operating expenses: Professional fees 1,189,319 926,526 Advertising and marketing 435,016 150,236 Selling, general and administrative 9,809,200 3,309,086 Stock based compensation 8,076,688 1,896,276 Impairment of goodwill (Note 6) 22,078,064 - Total operating expenses 41,588,287 6,282,124 Loss from operations ( 39,780,024 ) ( 3,406,862 ) Other income (expense): Other income (expense) ( 39,063 ) 10,751 Interest expense, net ( 307,363 ) ( 17,151 ) PPP loan forgiveness 980,800 - Total other income (expense) 634,374 ( 6,400 ) Net loss $ ( 39,145,650 ) $ ( 3,413,262 ) Net loss per common share - basic $ ( 0.33 ) $ ( 0.03 ) Net loss per common share - diluted $ ( 0.33 ) $ ( 0.03 ) Weighted average shares outstanding - basic 118,906,765 111,511,895 Weighted average shares outstanding - diluted 118,906,765 111,511,895 The accompanying notes are an integral part of these consolidated financial statements. F- 6 CERBERUS CYBER SENTINEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Shares Amount Capital Earnings Stock Total Additional Common Stock Paid-in Retained Treasury Shares Amount Capital Earnings Stock Total Balance at January 1, 2020 107,912,500 $ 1,139 $ 7,770,902 $ ( 1,453,510 ) $ ( 2,400,000 ) $ 3,918,531 Stock based compensation - stock options - - 1,533,777 - - 1,533,777 Stock based compensation - common stock 725,000 7 362,493 - - 362,500 Stock issued for cash 845,200 9 1,131,000 - - 1,131,009 Stock issued for Technologyville acquisition 3,392,271 34 1,356,874 - - 1,356,908 Stock issued for Clear Skies acquisition 2,330,000 23 931,977 - - 932,000 Stock issued for Alpine Security acquisition 900,000 9 1,844,991 - - 1,845,000 Return of treasury stock to authorized capital - ( 60 ) ( 2,399,940 ) - 2,400,000 - Beneficial conversion feature related to convertible note - - 75,000 - - 75,000 Net loss - - - ( 3,413,262 ) - ( 3,413,262 ) Balance as of December 31, 2020 116,104,971 1,161 12,607,074 ( 4,866,772 ) - 7,741,463 Stock based compensation - stock options - - 7,802,096 - - 7,802,096 Stock based compensation - common stock 392,900 4 2,407,142 - - 2,407,146 Exercise of stock options 100,000 1 49,999 - - 50,000 Stock issued for conversion of convertible debt 1,500,000 15 2,999,985 - - 3,000,000 Stock issued for cash 1,625,000 16 3,249,984 - - 3,250,000 Stock issued for VelocIT acquisition 2,310,100 23 13,603,924 - - 13,603,947 Stock issued for Atlantic acquisition 200,000 2 1,049,998 - - 1,050,000 Stock issued for Red74 acquisition 306,000 3 2,107,997 - - 2,108,000 Stock issued for Arkavia acquisition 2,914,000 29 14,569,971 - - 14,570,000 Stock issued for settlement agreement 400,000 4 1,999,996 - - 2,000,000 Replacement options issued in VelocIT acquisition - - 6,861,203 - - 6,861,203 Net loss - - - ( 39,145,650 ) - ( 39,145,650 ) Balance as of December 31, 2021 125,852,971 $ 1,258 $ 69,309,369 $ ( 44,012,422 ) $ - $ 25,298,205 The accompanying notes are an integral part of these consolidated financial statements. F- 7 CERBERUS CYBER SENTINEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS December 31, 2021 December 31, 2020 Cash flows from operating activities: Net loss $ ( 39,145,650 ) $ ( 3,413,262 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation - stock options 7,802,096 1,533,777 Stock based compensation - common stock 2,407,146 362,500 Issuance of common stock for services - 46,000 Depreciation and amortization 294,858 116,145 Right of use amortization 123,378 5,967 Amortization of debt discount 73,391 - Settlement liability 2,000,000 - Forgiveness of PPP Loan ( 980,800 ) - Loss on write-off of accounts receivable 55,528 - Impairment of goodwill 22,078,064 - Changes in operating assets and liabilities: Accounts receivable, net ( 2,358,896 ) ( 107,262 ) Inventory 497,893 Other current assets ( 229,813 ) ( 71,867 ) Accounts payable and accrued expenses ( 405,915 ) ( 168,366 ) Lease liability ( 111,749 ) ( 5,711 ) Deferred revenue 45,340 - Settlement liability 470,000 Net cash used in operating activities ( 7,385,129 ) ( 1,702,079 ) Cash flows from investing activities: Purchases of property and equipment - ( 249 ) Cash acquired in acquisitions, net 2,050,057 285,546 Net cash provided by investing activities 2,050,057 285,297 Cash flows from financing activities: Proceeds from sale of common stock 3,250,000 1,131,009 Proceeds from stock option exercise 50,000 Proceeds from PPP loans - 709,600 Proceeds from loan payable 9,110 - Proceeds from notes payable, related party 133,018 - Proceeds from convertible note payable, related party 1,500,000 3,000,000 Proceeds from line of credit 221,346 63,000 Payment on line of credit ( 224,346 ) ( 93,705 ) Payment on loans payable ( 1,859,820 ) ( 2,737 ) Payment on notes payable, related party ( 216,231 ) ( 50,000 ) Distributions to member - ( 20,000 ) Net cash provided by financing activities 2,863,077 4,737,167 Net increase (decrease) in cash and cash equivalents ( 2,471,995 ) 3,320,385 Cash and cash equivalents - beginning of the period 5,197,030 1,876,645 Cash and cash equivalents - end of the period $ 2,725,035 $ 5,197,030 Supplemental cash flow information: Cash paid for: Interest $ 91,490 $ - Income taxes $ - $ - Non-cash investing and financing activities: Right of use asset and lease liability $ 387,530 $ 19,393 Forgiveness of PPP Loan $ 980,800 $ - Beneficial conversion feature $ - $ 75,000 Common stock issued in Technologyville acquisition $ - $ 1,356,908 Common stock issued in Clear Skies acquisition $ - $ 932,000 Common stock issued in Alpine Security acquisition $ - $ 1,845,000 Common stock issued in VelocIT acquisition $ 13,603,947 $ - Common stock issued in Atlantic acquisition $ 1,050,000 $ - Common stock issued in RED 74 acquisition $ 2,108,000 $ - Common stock issued in Arkavia acquisition $ 14,570,000 $ - Options issued for VelocIT acquistion $ 6,861,203 $ - The accompanying notes are an integral part of these consolidated financial statements. F- 8 CERBERUS CYBER SENTINEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unless otherwise indicated or the context requires otherwise, the terms “we,” “us,” “our,” and “our company” refer to Cerberus Cyber Sentinel Corporation, a Delaware corporation (“Cerberus”), 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”), Alpine Security, LLC, an Illinois limited liability company (“Alpine”), Catapult Acquisition Corporation, a New Jersey corporation (“VelocIT”), Southford Equities, Inc., a British Virgin Islands company (“Arkavia”), True Digital Security, Inc., a Delaware corporation (“True Digital”), RED74 LLC, a New Jersey limited liability company (“RED74”), Atlantic Technology Systems, Inc., a New Jersey corporation (“ATS”), and Atlantic Technology Enterprises, Inc., a New Jersey corporation (“ATE” and together with ATS, “Atlantic”). Unless otherwise specified, all dollar amounts are expressed in United States dollars. NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS Nature of the Business We are a cybersecurity and compliance company comprised of highly trained and seasoned security professionals who work with clients to enhance or create a better cyber posture in their organization. We provide a full range of cybersecurity consulting and related services, encompassing all three pillars of compliance, cybersecurity, and culture. Our services include secured managed services, compliance services, security operations center (“SOC”) services, virtual Chief Information Security Officer (“vCISO”) services, incident response, certified forensics, technical assessments, and cybersecurity training. We believe that culture is the foundation of every successful cybersecurity and compliance program. To deliver that outcome, we developed our unique offering of MCCP+ (“Managed Compliance & Cybersecurity Provider + Culture”), which is the only holistic solution that provides all three of these pillars under one roof from a dedicated team of subject matter experts. In contrast to the majority of cybersecurity firms that are focused on a specific technology or service, we seek to differentiate ourselves by remaining technology agnostic, focusing on accumulating highly sought-after topic experts. We continually seek to identify and acquire cybersecurity talent to expand our service scope and geographical coverage to provide the best possible service for our clients. We believe that bringing together a world-class team of technological experts with multi-faceted expertise in the critical aspects of cybersecurity is key to providing technology agnostic solutions to our clients in a business environment that has suffered from a chronic lack of highly skilled professionals, thereby setting us apart from competitors and in-house security teams. Our goal is to create a culture of security and to help quantify, define, and capture a return on investment from information technology and cybersecurity spending. Our brand rallies around the battle cry: “Cybersecurity is a Culture, not a Product.” Corporate and Acquisition History We were formed on March 5, 2019 as a Delaware corporation. Our principal offices are located at 6900 East Camelback Road, Suite 240, Scottsdale, Arizona 85251. On April 1, 2019, we acquired GenResults. GenResults was established on June 22, 2015. Prior to our acquisition of GenResults, GenResults was wholly owned by an entity affiliated with David G. Jemmett, our Chief Executive Officer and a director of our company. Due to the companies being under common control, we accounted for the acquisition as a reorganization. On April 12, 2019, we consummated a transaction whereby VCAB Six Corporation, a Texas corporation, (“VCAB”) merged with and into us (the “VCAB Merger”). At the time of the VCAB Merger, VCAB was subject to a bankruptcy proceeding and had minimal assets, no equity owners, and no liabilities, except for approximately 1,500 holders of Class 5 Allowed General Unsecured Claims and a holder of allowed administrative expenses (collectively the “Claim Holders”). Pursuant to the terms of the VCAB Merger, and in accordance with the bankruptcy plan, we issued an aggregate of 2,000,000 shares of our common stock (the “Plan Shares”) to the Claim Holders as full settlement and satisfaction of their respective claims. As provided in the bankruptcy plan, the Plan Shares were issued pursuant to Section 1145 of the United States Bankruptcy Code. As a result of the VCAB Merger, the separate corporate existence of VCAB was terminated. We entered into the VCAB Merger to increase our stockholder base to, among other things, assist us in satisfying the listing standards of a national securities exchange. F- 9 On October 1, 2019, we entered into an agreement and plan of merger with TalaTek (the “TalaTek Merger”) pursuant to which TalaTek became our wholly owned subsidiary. Under the TalaTek Merger, all issued and outstanding units representing membership interests in TalaTek were converted into an aggregate of 6,200,000 shares of our common stock. On October 2, 2019, we filed a registration statement on Form 10-12G with the SEC to effect registration of our common stock, par value $ 0.00001 per share, under the Exchange Act. The registration statement became effective on December 1, 2019. On May 25, 2020, we entered into a stock purchase agreement with Techville and its sole shareholder, pursuant to which we acquired all of the issued and outstanding common stock of Techville (the “Techville Acquisition”) (see Note 3). On August 1, 2020, we entered into a stock purchase agreement with Clear Skies and its equity holders, pursuant to which we acquired all of the issued and outstanding equity securities of Clear Skies (the “Clear Skies Acquisition”) (see Note 3). On December 16, 2020, we entered into an agreement and plan of merger with Alpine and its sole member, pursuant to which Alpine became our wholly owned subsidiary (the “Alpine Acquisition”) (see Note 3). On October 1, 2021, we entered into a stock purchase agreement with ATS, ATE, James Montagne as the sole shareholder of ATS, and James Montagne and Miriam Montagne, as the sole shareholders of ATE (the “Shareholders”) (see Note 3). On October 8, 2021, we entered into a merger agreement with RED74 and Ticato Holdings, Inc., a New Jersey corporation (“Ticato”), and Tim Coleman, as sole shareholder of Ticato. Tim Coleman and Ticato were the sole shareholders of RED74 (see Note 3). On July 26, 2021, we entered into an agreement and plan of merger with VelocIT, pursuant to which VelocIT became a wholly owned subsidiary of our company (see Note 3). On December 1, 2021, we entered into a stock purchase agreement with Arkavia and all of the owners of Arkavia, pursuant to which we acquired all of the issued and outstanding equity securities of Arkavia (the “Arkavia Acquisition”) (see Note 3). On January 5, 2022, we entered into a stock purchase agreement (the “True Digital Stock Purchase Agreement”) with certain stockholders of True Digital and an agreement and plan of merger (the “True Digital Merger Agreement”) with True Digital and certain of its other stockholders. On January 19, 2022, the transactions contemplated by the True Digital Stock Purchase Agreement and the True Digital Merger Agreement were consummated, with True Digital becoming a wholly owned subsidiary of our company. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The summary of significant accounting policies presented below is designed to assist in understanding our consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of our management, who is responsible for their integrity and objectivity. We operate in one business segment, which is cybersecurity. F- 10 Consolidation The consolidated financial statements include the accounts of our company and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Reclassifications Certain reclassifications have been made to the financial statements for the year ended December 31, 2020 to conform to the financial statement presentation for the year ended December 31, 2021. These reclassifications had no effect on net loss or cash flows as previously reported. Use of Estimates Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the accompanying consolidated financial statements. Significant estimates include the allowance for doubtful accounts, the carrying value of intangible assets and goodwill, deferred tax asset and valuation allowance, the estimated fair value of assets acquired, liabilities assumed and stock issued in business combinations, and assumptions used in the Black-Scholes-Merton pricing model, such as expected volatility, risk-free interest rate, share price, and expected dividend rate. Revenue Our revenue is derived from two major types of services to clients: security managed services and professional services. With respect to Security Managed Services, we provide culture education and enablement, tools and technology provisioning, data and privacy monitoring, regulations and compliance monitoring, remote infrastructure administration, and cybersecurity services including, but not limited to, antivirus and patch management. With respect to Professional Services, we provide cybersecurity consulting, compliance auditing, vulnerability assessment and penetration testing, and disaster recovery and data backup solutions. Security Managed Services We have four distinct revenue streams under security managed services: compliance, secured managed services, SOC managed services, and vCISO. We derive revenue from compliance by ensuring our customers are implementing the right controls, properly prioritizing risks, and investing in the appropriate remediation, so our customers can achieve compliance, adhere to industry standards and guidelines, and manage continuous monitoring over time. We derive revenue from secured managed services through security focused end-to-end network and device management solutions for companies that want to outsource their administration needs to a team of senior engineers who provide modern strategy, insights, and support. We derive revenue from SOC managed services by offering SOC-as-a-service, which is a subscription-based service that manages and monitors clients’ logs, devices, clouds, network, and assets for possible cyber threats. We derive revenue from vCISO when corporations are in need of cybersecurity services, but many do not have the capital resources or knowledge base to hire a Chief Information Security Officer. We offer this service to companies on an ongoing managed service basis as a resource to augment their management team. vCISO services include road mapping the future state for the client and providing our knowledgeable expertise to help them achieve their security needs. Performance Obligations Our contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. We have determined the performance obligations for the following services: Compliance : We have determined that services provided under compliance contains a single performance obligation. We recognize revenue as earned based on time and material. F- 11 Secured Managed Services : We consider these services to be one performance obligation, although they may include various parts (e.g., support desk, vulnerability identification and patching, firewall management, etc. (referred to generally as the “parts”)). These parts are not viewed as being distinct, but rather a collection of interrelated parts that are combined to fill a functional need over a period of time (annual managed IT service). As such, the parts are not viewed as distinct as the parts are not separable in the contract. We bill the client on a monthly basis under the annual contract, and revenue is recognized as earned ratably over the contract term. SOC Managed Services : We have determined that SOC managed services is viewed by our company as one performance obligation, although it may include various parts (e.g., architecture, design, security, etc. (referred to generally as the “parts”)). This position is based on the fact that these various parts are not viewed as being distinct. Revenue is recognized as earned ratably over the contract term. vCISO : We have determined that SOC managed services is viewed by our company as one performance obligation, although it may include various parts (e.g., strategy, advisory, and oversight (referred to generally as the “parts”)). This position is based on the fact that these various parts are not viewed as being distinct. Revenue is recognized as earned based on time and materials. Professional Services We have four distinct revenue streams under professional services: technical assessments, incident response and forensics, training, and other cybersecurity services. We derive revenue from technical assessments by utilizing the same tools and techniques a malicious cybercriminal would use to try to gain unauthorized access to highly guarded corporate systems and data to evaluate technical controls and quantify business risks in a meaningful way. We derive revenue from incident response and forensics by providing our customers with certified experts experienced in locating and neutralizing threat actors who have breached their environments. Our team is able to identify and contain a cyberattack quickly, implement patches or configuration changes to prevent re-infection, perform forensic analysis to determine root cause, and provide a plan of attack for improvements that will prevent a similar attack from succeeding in the future. We derive revenue from training by offering cybersecurity awareness training required under most compliance frameworks, and recommended as a best practice under National Institute of Standards and Technology standards, to help reduce the risk of a successful cyber-attack. We derive revenue from other cybersecurity services for hardware and software for customers IT infrastructure along with occasional staffing services. Performance Obligations Our contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. We have determined the performance obligations for the following services: Technical Assessments : We have determined that a technical assessment is viewed by our company as one performance obligation. Revenue is recognized at a point in time when the result of the assessment is turned over to the customer. Incident Response and Forensics : We consider these services to be one performance obligation, although they may include various parts (e.g., determine the source, cause, and prevention of recurrence etc. (referred to generally as the “parts”)). These parts are not viewed as being distinct. We recognize revenue as earned based on time and material. Training : We have determined that services provided under compliance contains a single performance obligation. We recognize revenue as earned based on time and material. Other Cybersecurity Services : We have determined that services provided under other cyber security is comprised of hardware and software sales and contains a single performance obligation. We recognize revenue on delivery of equipment to the client. The staffing services offered contains a single performance obligation based on time and materials and revenue is recognized as invoices are approved and generated. F- 12 Disaggregated Revenue Revenue consisted of the following by service offering for the year ended December 31, 2021: SCHEDULE OF DISAGGREGATION OF REVENUES Security Managed Services Professional Services Total Primary Sector Markets Public $ 3,389,899 $ 44,579 $ 3,434,478 Private 8,052,315 3,226,641 11,278,956 Not-for-profit 355,505 73,620 429,125 Revenue $ 11,797,719 $ 3,344,840 $ 15,142,559 Major Service Lines Compliance $ 4,234,839 $ - $ 4,234,839 Secured managed services 6,990,306 - 6,990,306 SOC managed services 375,644 - 375,644 vCISO 196,930 - 196,930 Technical assessments - 2,641,171 2,641,171 Incident response and forensics - 523,080 523,080 Training - 149,529 149,529 Other cybersecurity services - 31,060 31,060 Revenue $ 11,797,719 $ 3,344,840 $ 15,142,559 Revenue consisted of the following by service offering for the year ended December 31, 2020: Security Managed Services Professional Services Total Primary Sector Markets Public $ 3,390,166 $ 5,068 $ 3,395,234 Private 1,823,530 1,867,659 3,691,189 Not-for-profit 145,405 9,000 154,405 Revenue $ 5,359,101 $ 1,881,727 $ 7,240,828 Major Service Lines Compliance $ 3,446,157 $ - $ 3,446,157 Secured managed services 1,340,468 - 1,340,468 SOC managed services 496,050 - 496,050 vCISO 76,426 - 76,426 Technical assessments - 801,055 801,055 Incident response and forensics - 750,069 750,069 Training - 97,706 97,706 Other cybersecurity services - 232,897 232,897 Revenue $ 5,359,101 $ 1,881,727 $ 7,240,828 Cash and Cash Equivalents We consider all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Accounts Receivable Accounts receivable are reported at their outstanding unpaid principal balances, net of allowances for doubtful accounts. Receivables are unsecured and non-interest bearing. We provide for allowances for doubtful receivables based on our estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. Payments are generally due within 30 days of invoice. We write off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. As of December 31, 2021 and 2020, our allowance for doubtful accounts was $ 77,811 and $ 40,000 , respectively. F- 13 Property and Equipment Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, generally between three and five years. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. Maintenance and repairs are charged to expense as incurred. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations. Impairment of Long-Lived Assets We review long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. During the year ended December 31, 2021, we recognized a loss on impairment of goodwill of $ 22,078,064 (see Note 6). During the year ended December 31, 2020, we did not record a loss on impairment. Intangible Assets We record its intangible assets at estimated fair value in accordance with Accounting Standards Code (“ASC”) 350, Intangibles – Goodwill and Other . Finite lived intangible assets are amortized over their estimated useful life using the straight-line method, which is determined by identifying the period over which the cash flows from the asset are expected to be generated. 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 unit 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 level (See Note 6). Advertising and Marketing Costs We expense advertising and marketing costs as they are incurred. Advertising and marketing expenses were $ 435,016 and $ 150,236 for the years ended December 31, 2021 and 2020, respectively, and are recorded in operating expenses on the consolidated statements of operations. F- 14 Fair Value Measurements As defined in ASC 820, Fair Value Measurements and Disclosures , fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs 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 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement. Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2: Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Level 3: Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash flow methodologies and similar techniques. Fair Value of Financial Instruments The carrying value of cash, accounts receivable, accounts payable and accrued expenses, and other current liabilities approximate their fair values using Level 3 inputs, based on the short-term maturity of these instruments. The carrying amount of notes payable approximate the estimated fair value for this financial instrument as management believes that such debt and interest payable on the notes approximates our incremental borrowing rate. The long-lived assets (i.e., goodwill and intangible assets) were valued utilizing Level 3 inputs. Significant unobservable inputs used in fair value measurement of the intangible assets include projected revenue, gross profit and operating expenses, income tax rates, discount rates, royalty rates, and attrition rates. Net Loss per Common Share Net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. All outstanding options are considered potentially outstanding common stock. The dilutive effect, if any, of stock options is calculated using the treasury stock method. All outstanding convertible notes are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. Since the effect of common stock equivalents is anti-dilutive with respect to losses, the options and shares issuable upon conversion have been excluded from our computation of net loss per common share for the years ended December 31, 2021 and 2020. The following tables summarize the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive due to our net loss position even though the exercise price could be less than the average market price of the common shares: SUMMARY OF SECURITIES EXCLUDED FROM DILUTED PER SHARE CALCULATION December 31, 2021 December 31, 2020 Stock options 31,372,148 24,573,700 Convertible debt 300,000 1,500,000 Total 31,672,148 26,073,700 F- 15 Stock-Based Compensation We apply the provisions of ASC 718, Compensation - Stock Compensation , which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the statements of operations. For stock options issued to employees and members of our Board of Directors for their services, we estimate the grant date fair value of each option using the Black-Scholes-Merton option pricing model. The use of the Black-Scholes-Merton option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, we recognize stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised. Due to our company’s limited history and lack of public market for its common stock, we used the average of historical share prices of similar companies within its industry to calculate volatility for use in the Black-Scholes-Merton option pricing model. Pursuant to Accounting Standards Update (“ASU”) 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting , we account for stock options issued to non-employees for their services in accordance with ASC 718. We use valuation methods and assumptions to value the stock options that are in line with the process for valuing employee stock options noted above. Leases Leases in which our company is the lessee are comprised of corporate offices and property and equipment. All of the leases are classified as operating leases. We lease multiple office spaces with a remaining weighted average term of 1.47 years. We lease a vehicle with a remaining term of 0.5 years. Right-of-use (“ROU”) assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that we will exercise that option. In accordance with ASC 842, Leases , we recognized a ROU asset and corresponding lease liability on its consolidated balance sheet for long-term office leases and a vehicle operating lease agreement. See Note 13 – Leases for further discussion, including the impact on our consolidated financial statements and related disclosures. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We utilize ASC 740, Income Taxes , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. We account for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely than not” that a deferred tax asset will not be realized. At December 31, 2021 and 2020, our net deferred tax asset has been fully reserved. For uncertain tax positions that meet a “more likely than not” threshold, we recognize the benefit of uncertain tax positions in the consolidated financial statements. Our practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the consolidated statements of operations when a determination is made that such expense is likely. F- 16 Emerging Growth Company Status We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The JOBS Act does not preclude an emerging growth company from early adopting new or revised accounting standards. We expect to use the extended transition period for any new or revised accounting standards during the period which we remain an emerging growth company. Recently Issued Accounting Standards In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) – Accounting for Convertible Instruments and Contracts in an Entity’s Own Entity. The ASU simplified the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. The standard eliminates the liability and equity separation model for convertible instruments with a beneficial or cash conversion feature. As a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Additionally, the embedded conversion feature will no longer be amortized into income as interest expense over the instrument’s life. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, the standard requires applying the if-converted method to calculate convertible instruments’ impact on diluted earnings per share (“EPS”). The standard is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020. It can be adopted on either a full retrospective or modified retrospective basis. We adopted this standard on January 1, 2021 on a modified retrospective basis. The adoption of this standard did not have a material effect on the consolidated financial statements. In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the Emerging Issues Task Force). The ASU requires issuers to account for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. Under the ASU, an issuer determines the accounting for the modification or exchange based on whether the transaction was done to issue equity, to issue or modify debt, or for other reasons. The ASU is applied prospectively and is effective for us for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that adopting this standard will have on the consolidated financial statements. In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with ASC Topic 606 as if the acquirer had originated the contracts. The ASU is applied prospectively and is effective for us for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that adopting this standard will have on the consolidated financial statements. F- 17 NOTE 3 – ACQUISITIONS 4 2020 Acquisitions Technologyville, Inc. Acquisition On May 25, 2020, we entered into a stock purchase agreement with Techville and its sole shareholder, pursuant to which we acquired all of the issued and outstanding common stock of Techville (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. The following table summarizes the allocation of the purchase price to the fair values of the assets acquired and the liabilities assumed as of the transaction date: SCHEDULE OF FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED 1 Consideration paid $ 1,356,908 Tangible assets acquired: Cash 65,037 Accounts receivable 80,289 Inventory - Prepaid expenses - Other receivables - Property and equipment - Vehicle 58,693 Total tangible assets 204,019 Intangible assets acquired: Tradename - trademarks 330,300 IP/Technology 224,000 Customer base 164,000 Non-competes 32,800 Total intangible assets 751,100 Assumed liabilities: Line of credit 33,705 Accounts payable - Accrued expenses 117,742 Loan payable 50,896 Member distributions - SBA loan payoff - Other liabilities 1,128 Total assumed liabilities 203,471 Net assets acquired 751,648 Net liabilities acquired - Goodwill (a) $ 605,260 (a) Goodwill is not deductible for tax purposes. Clear Skies Security LLC Acquisition On August 1, 2020, we entered into a stock purchase agreement with Clear Skies and its equity holders, pursuant to which we acquired all of the issued and outstanding equity securities of Clear Skies (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. 4 Note to CISO: We revised acquisition descriptions to be consistent with other disclosures herein, such as the Business section. F- 18 The following table summarizes the allocation of the purchase price to the fair values of the assets acquired and the liabilities assumed as of the transaction date: SCHEDULE OF FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED Consideration paid $ 932,000 Tangible assets acquired: Cash 189,143 Accounts receivable 189,150 Total tangible assets 378,293 Intangible assets acquired: Tradename - trademarks 175,000 IP/Technology 175,000 Non-competes 20,300 Total intangible assets 370,300 Assumed liabilities: Accounts payable 21,340 Loan payable 134,200 Member distributions 297,451 Total assumed liabilities 452,991 Net assets acquired 295,602 Goodwill (a) $ 636,398 (a) Goodwill is not deductible for tax purposes. Alpine Security, LLC Acquisition On December 16, 2020, we entered into an agreement and plan of merger with Alpine and its sole member, pursuant to which Alpine became our wholly owned subsidiary (the “Alpine Acquisition”). Under the terms of the Alpine Acquisition, all issued and outstanding membership units in Alpine were exchanged for an aggregate of 900,000 shares of our common stock. The following table summarizes the allocation of the purchase price to the fair values of the assets acquired and the liabilities assumed as of the transaction date: SCHEDULE OF FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED Consideration paid $ 1,845,000 Tangible assets acquired: Cash 31,366 Accounts receivable 98,168 Property and equipment 24,503 Total tangible assets 154,037 Intangible assets acquired: Tradename - trademarks 117,300 IP/Technology 93,000 Customer base 14,000 Non-competes 5,700 Total intangible assets 230,000 Loans payable 151,051 Accrued expenses 95,118 Total assumed liabilities 246,169 Net assets acquired 137,868 Goodwill (a) $ 1,707,132 (a) Goodwill is not deductible for tax purposes. F- 19 2021 Acquisitions Catapult Acquisition Corporation On July 26, 2021, we entered into an agreement and plan of merger with VelocIT, pursuant to which VelocIT became a wholly owned subsidiary of our company. All issued and outstanding shares of common stock of VelocIT were converted into the right to receive an aggregate of up to 2,566,778 shares of common stock, subject to a holdback of 256,678 shares of our common stock. In addition, the Company issued replacement options to various VelocIT employees to purchase and aggregate of 1,542,251 shares of the Company’s common stock with a fair value of $ 6,861,203 which was included in the purchase price of the transaction. The acquisition of VelocIT provided the Company potential sales synergies resulting from the Company’s access to VelocIT’s current client-base to offer additional services. The transaction closed on August 12, 2021. The following table summarizes the allocation of the purchase price to the fair values of the assets acquired and the liabilities assumed as of the transaction date: SCHEDULE OF FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED Consideration paid $ 20,465,150 Tangible assets acquired: Cash 270,397 Accounts receivable 649,810 Prepaid expenses 26,282 Property and equipment 24,862 IT assets 10,780 Total tangible assets 982,131 Intangible assets acquired: Tradename - trademarks 542,800 Intellectual property 355,000 Non-competes 59,100 Total intangible assets 956,900 Assumed liabilities: Accounts payable 351,190 Accrued expenses 192,034 Loans payable 549,507 SBA loan payoff 1,056,960 Total assumed liabilities 2,149,691 Net liabilities acquired 210,660 Goodwill (a) $ 20,675,810 (a) Goodwill is not deductible for tax purposes. Atlantic Technology Systems, Inc. Acquisition On October 1, 2021, we entered into a stock purchase agreement with ATS, ATE, James Montagne as the sole shareholder of ATS, and James Montagne and Miriam Montagne, as the sole shareholders of ATE (the “Shareholders”). Pursuant to the agreement, we purchased from the Shareholders all of the outstanding shares of ATE and ATS. The aggregate purchase price for the shares was 200,000 shares of our common stock and $ 75,000 in cash. Furthermore, the Shareholders shall receive an additional 100,000 shares of our common stock based upon Atlantic achieving certain revenue and earnings thresholds and an additional $ 150,000 in cash upon our listing to a national exchange. The acquisition of Atlantic provided the Company potential sales synergies resulting from the Company’s access to Atlantic’s current client-base to offer additional services. At December 31, 2021, the Company noted that Atlantic would not achieve the certain revenue and earnings threshold for additional equity consideration and, therefore, was not included in the transaction price. F- 20 The following table summarizes the allocation of the purchase price to the fair values of the assets acquired and the liabilities assumed as of the transaction date: SCHEDULE OF FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED Consideration paid $ 1,260,000 Tangible assets acquired: Cash 30,612 Accounts receivable 20,778 Prepaid expenses 4,311 Inventory 15,425 Property and equipment 54,023 Total tangible assets 125,149 Intangible assets acquired: Tradename - trademarks 115,500 Intellectual property 29,000 Non-competes 18,800 Total intangible assets 163,300 Assumed liabilities: Accounts payable 4,314 Accrued expenses 3,212 Total assumed liabilities 7,526 Net assets acquired 280,923 Goodwill (a) $ 979,077 (a) Goodwill is the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. Goodwill is not deductible for tax purposes. RED74 LLC Acquisition On October 8, 2021, we entered into a merger agreement with RED74 and Ticato Holdings, Inc., a New Jersey corporation (“Ticato”), and Tim Coleman, as sole shareholder of Ticato. Tim Coleman and Ticato were the sole shareholders of RED74. Pursuant to the agreement, the merger became effective at such time as a certificate of merger was accepted by the Secretary of State of New Jersey, or November 9, 2021 (the “Effective Time”). All shares of RED74 issued and outstanding immediately prior to the Effective Time were converted into the right to receive an aggregate of 340,000 shares of our common stock and $ 50,000 in cash, subject to a 10 % holdback. In the event that no claim is made by any Cerberus Indemnitee (as defined in the merger agreement) within one year from the closing, then we shall pay the entire amount of the 10% holdback to Tim Coleman. RED74 provides secured managed services and key IT security management expertise to small-to-mid-market businesses in New Jersey. RED74 focuses primarily on clients within two industry verticals: financial services and distribution/warehouse management. RED74 offers strategic solutions that address the specific needs of these smaller enterprises made possible by their experienced and personable staff and industry-leading technology processes. Its experienced staff members are well-versed in either partial or total secured managed solutions for businesses. RED74 has a single office location in Pennington, New Jersey and supports clients in New Jersey, Manhattan, and Eastern Pennsylvania. F- 21 The following table summarizes the allocation of the purchase price to the fair values of the assets acquired and the liabilities assumed as of the transaction date: SCHEDULE OF FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED Consideration paid $ 2,158,000 Tangible assets acquired: Cash 115,855 Accounts receivable 115,612 Other assets 81,844 Property and equipment 1,539 Total tangible assets 314,850 Intangible assets acquired: Tradename - trademarks 328,900 Intellectual property 70,000 Customer base 279,000 Non-competes 42,500 Total intangible assets 720,400 Assumed liabilities: Accounts payable 36,119 Accrued expenses 12,249 Total assumed liabilities 48,368 Net assets acquired 986,882 Goodwill (a) $ 1,171,118 (a) Goodwill is not deductible for tax purposes. Southford Equities, Inc. (Arkavia) Acquisition On December 1, 2021, we entered into a stock purchase agreement with Arkavia and all of the owners of Arkavia, pursuant to which we acquired all of the issued and outstanding equity securities of Arkavia (the “Arkavia Acquisition”). Under the terms of the Arkavia Acquisition, all of the issued and outstanding equity securities of Arkavia were exchanged for an aggregate of 2,914,000 shares of our common stock. Arkavia, a cybersecurity services company headquartered in Santiago, Chile, is oriented to solve problems with the best technological alternatives and their recognized IT Engineering services. Founded in 2010, Arkavia provides consulting, delivery, managed security service provider, and network monitoring services to a diversified client base throughout South America. With years of experience backed by multiple certifications of its specialists, Arkavia’s customers include multiple leading brands in the market in each important business segment. F- 22 The following table summarizes the allocation of the purchase price to the fair values of the assets acquired and the liabilities assumed as of the transaction date: SCHEDULE OF FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED Consideration paid $ 14,570,000 Tangible assets acquired: Cash 1,753,193 Accounts receivable 744,400 Inventory 1,210,442 Prepaids 465,791 Other receivables 1,067,477 Property and equipment 1,424,760 Total tangible assets 6,666,063 Intangible assets acquired: Tradename - trademarks 811,100 Intellectual property 460,000 Customer base 987,000 Non-competes 313,000 Intangible assets Total intangible assets 2,571,100 Assumed liabilities: Accounts payable 1,125,396 Accrued liabilities 460,496 Other 98,268 Long-term debt 5,156,228 Total assumed liabilities 6,840,388 Net assets acquired 2,396,775 Goodwill (a) $ 12,173,225 (a) Goodwill is not deductible for tax purposes. Unaudited Pro Forma Financial Information The following unaudited pro forma information presents the consolidated results of operations of our company, VelocIT, Atlantic, RED74, and Arkavia as if the acquisitions consummated on August 12, 2021, October 1, 2021, November 9, 2021, and December 1, 2021, respectively, had been consummated on January 1, 2020. Such unaudited pro forma information is based on historical unaudited financial information with respect to the 2021 acquisitions and does not include operational or other charges which might have been affected by us. The unaudited pro forma information for the years ended December 31, 2021 and 2020 presented below is for illustrative purposes only and is not necessarily indicative of the results that would have been achieved or results that may be achieved in the future: SCHEDULE OF UNAUDITED PRO FORMA FINANCIAL INFORMATION Year Ended December 31, Year Ended December 31, 2021 2020 (unaudited) (unaudited) Net revenue $ 28,441,648 $ 26,949,996 Net loss $ ( 30,723,427 ) $ ( 23,040,252 ) F- 23 NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consisted of: SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS December 31, 2021 December 31, 2020 Prepaid expenses $ 453,498 $ 124,874 Prepaid taxes 231,014 3,524 Prepaid insurance 46,751 13,746 Deferred interest 229,702 - Total prepaid expenses and other current assets $ 960,965 $ 142,144 NOTE 5 – PROPERTY AND EQUIPMENT Property and equipment consisted of the following: SCHEDULE OF PROPERTY AND EQUIPMENT December 31, 2021 December 31, 2020 Computer equipment $ 495,235 $ - Building 1,047,020 - Leasehold improvements 109,626 - Vehicle 63,052 63,052 Furniture and fixtures 33,358 6,224 Software 210,221 10,092 Property and equipment gross 1,958,512 95,103 Less: accumulated depreciation ( 102,466 ) ( 14,473 ) Property and equipment, net $ 1,856,046 $ 80,630 Total depreciation expense was $ 87,993 and $ 13,715 for the years ended December 31, 2021 and 2020, respectively. NOTE 6 – INTANGIBLE ASSETS AND GOODWILL At December 31, 2021, we engaged a third-party valuation firm to assist in performing a quantitative assessment to determine whether it was more likely than not that the carrying value of goodwill in our reporting units was impaired as of December 31, 2021. We deem the Company to be one reporting unit. The fair value estimates for the reporting unit was based on a blended analysis of the present value of future cash flows and the market value approach. The significant estimates used in the discounted cash flows model included our weighted average cost of capital, projected cash flows, and the long-term rate of growth. The significant estimates used in the market approach model included identifying public companies engaged in businesses that are considered comparable to those of the reporting unit and assessing comparable revenue and earnings multiples in estimating the fair value of the reporting unit. The excess of the reporting unit’s carrying value over the estimate of the fair value was recorded as goodwill impairment of $ 22,078,064 . The following table summarizes the changes in goodwill during the years ended December 31, 2021 and 2020, respectively: SCHEDULE OF CHANGES IN GOODWILL Balance December 31, 2019 $ 922,579 Acquisition of goodwill 3,178,790 Impairment - Balance December 31, 2020 4,101,369 Acquisition of goodwill 34,999,230 Impairment ( 22,078,064 ) Reclassification based on valuation report (1) ( 230,000 ) Ending balance, December 31, 2021 $ 16,792,535 (1) During the year ended December 31, 2021, we obtained a third-party valuation for the December 16, 2020 acquisition of Alpine. As such, the purchase price allocation disclosed in our Annual Report in Form 10-K for December 31, 2020, filed on March 31, 2021, changed and, therefore, goodwill changed. F- 24 The following table summarizes the identifiable intangible assets as of December 31, 2021 and 2020: SUMMARY OF IDENTIFIABLE INTANGIBLE ASSETS Useful life 2021 2020 Tradenames – trademarks Indefinite $ 3,010,100 $ 1,094,500 Customer base 15 years 1,650,000 370,000 Non-compete agreements 2 years 675,500 236,400 Intellectual property/technology 10 years 1,528,000 521,000 6,863,600 2,221,900 Less accumulated amortization ( 323,331 ) ( 116,468 ) Total $ 6,540,269 $ 2,105,432 The weighted average useful life remaining of identifiable amortizable intangible assets remaining is 10.13 years as of December 31, 2021. Accumulated amortization was as follows for the years ended December 31, 2021 and 2020. SCHEDULE OF ACCUMULATED AMORTIZATION OF INTANGIBLE ASSETS Tradenames - Trademarks Customer Base Non-Compete Agreements Intellectual Property/Technology Accumulated Amortization Balance as of January 1, 2020 $ - $ 3,433 $ 9,165 $ 3,050 $ 15,648 Amortization expense - 20,111 49,610 31,100 100,821 Balance as of December 31, 2020 - 23,544 58,775 34,150 116,469 Amortization expense - 33,717 95,878 77,267 206,862 Balance as of December 31, 2021 $ - $ 57,261 $ 154,653 $ 111,417 $ 323,331 Amortization expense of identifiable intangible assets for the years ended December 31, 2021 and 2020, was $ 206,862 and $ 100,821 , respectively. The below table summarizes the future amortization expense as of December 31, 2021 for the next five years and thereafter: SCHEDULE OF FUTURE AMORTIZATION EXPENSE 2022 $ 532,610 2023 486,339 2024 290,295 2025 262,800 2026 262,800 Thereafter 1,695,325 Future Amortization Expense $ 3,530,169 NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following amounts: SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES December 31, 2021 December 31, 2020 Accounts payable $ 1,700,260 $ 328,368 Accrued payroll 482,588 39,670 Accrued expenses 513,718 417,832 Accrued interest – related party 12,500 23,934 Total accounts payable and accrued expenses $ 2,709,066 $ 809,804 F- 25 Note 8 - RELATED PARTY TRANSACTIONS Note Payable – Related Party On December 31, 2018, GenResults entered into an unsecured note payable with Jemmett Enterprises, LLC, an entity controlled by our majority stockholder, in the original principal amount of $ 200,000 . The note had an original maturity date of June 30, 2020 and had an interest rate of 6 % per annum. On June 29, 2020, the note payable was extended to July 30, 2021. The outstanding principal balance of this loan was zero and $ 59,787 as of December 31, 2021 and 2020, respectively. At December 31, 2021 and 2020, we recorded accrued interest of $ 0 and $ 23,934 , respectively, with respect to this note payable. We recorded interest expense of $ 4,595 and $ 12,812 during the years ended December 31, 2021 and 2020, respectively. Convertible Note Payable – Related Party On December 23, 2020, we issued an unsecured convertible note to Hensley & Company in the principal amount of $ 3,000,000 bearing an interest rate at 6 % per annum payable at maturity with a maturity date of December 31, 2021 , with a conversion price of $ 2.00 per share. The outstanding principal balance of this loan was $ 3,000,000 at December 31, 2020 (see Note 12). On December 31, 2021, Hensley & Company converted the principal amount of $ 3,000,000 for 1,500,000 shares of our common stock at a conversion price of $ 2.00 per share (see Note 9). Convertible Note Payable, Consulting, and Stock Payable – Related Party On November 1, 2021, we entered into a two-year consulting agreement with Smile on Fridays LLP (“Smile”) pursuant to which Smile will represent us as the Chief Marketing Officer. Upon execution of the agreement, we were to issue a total of 432,000 shares of our restricted common stock, valued at $ 2,311,200 . The shares shall be deemed vested and earned to 25 % upon the execution of the agreement and 25% at the beginning of each subsequent six-month period. As of December 31, 2021, 108,000 shares of our restricted stock have been issued (see Note 9). On January 16, 2020, we entered into a consulting agreement, with Eskenzi PR Limited (“Eskenzi”), whose sole owner is also the sole owner of Smile, pursuant to which Eskenzi will provide various marketing and public relations services to us. The initial term of the agreement was for twelve months and automatically renews for an additional twelve months unless either we or Eskenzi provides at least three months advance written notice of termination. Upon execution of the agreement, we were to issue 120,000 shares of our restricted common stock, valued at $ 48,000 to Eskenzi. As of December 31, 2020, these shares had yet to be issued. As such, we recorded a stock payable in the amount of $ 0 and $ 46,000 representing the fair value of services performed during the years ended December 31, 2021 and 2020, respectively. On January 1, 2021, we entered into a two-year consulting agreement with Smile, pursuant to which Smile will provide marketing and public relations services to us. Upon execution of the agreement, we were to issue a total of 312,000 shares of our restricted common stock, valued at $ 639,600 . As of December 31, 2021, 52,000 shares of our common stock have been issued (see Note 9). On October 27, 2021, we issued to Neil Stinchcombe, the sole owner of Smile, a convertible note in the principal amount of $ 1,500,000 bearing an interest rate of 5 % per annum payable at maturity with an original maturity date of January 27, 2022 , with a conversion price of $ 5.00 per share. Pursuant to the note, the maturity date, at the Company’s election, was extended to April 22, 2022. On March 10, 2022, we entered into an amendment to the note pursuant to which the maturity date was extended to October 27, 2022. The outstanding principal of this note was $ 1,500,000 on December 31, 2021. On December 31, 2021, we recorded accrued interest of $ 12,500 with respect to this note. We recorded interest expense of $ 12,500 during the year ended December 31, 2021. Note Receivable – Related Party During the year ended December 31, 2021, Arkavia provided cash infusions to a related party to fund an intended wholly-owned subsidiary, Arkavia Peru, for start-up and operational costs. As of December 31, 2021, the subsidiary has yet to be incorporated and as such, Arkavia has recorded the amount as a receivable. The amount outstanding at December 31, 2021, is $ 1,090,903 , and is considered short-term and non-interest bearing. Note 9 - STOCKHOLDERS’ EQUITY Equity Transactions During the year ended December 31, 2020, we issued an aggregate of 350,000 and 495,200 shares of common stock with a fair value of $ 0.40 and $ 2.00 per share, respectively, to investors for cash proceeds of $ 1,131,009 . F- 26 During the year ended December 31, 2021, we issued 1,625,000 shares of common stock with a fair value of $ 2.00 per share to investors for cash proceeds of $ 3,250,000 . During the year ended December 31, 2021, we issued an aggregate of 392,900 shares of common stock with a fair value of $ 2.05 per share to a related party consultant for services rendered. On December 31, 2021, we issued an aggregate of 1,500,000 shares of common stock for the conversion of a convertible note of $ 3,000,000 (see Note 8). Note 10 – STOCK-BASED COMPENSATION We account for our stock-based compensation in accordance with the fair value recognition provisions of ASC 718. 2019 Equity Incentive Plan Our Board of Directors approved our 2019 Equity Incentive Plan (the “2019 Plan”) on June 6, 2019, and our stockholders holding a majority of the outstanding shares of our common stock approved and adopted the 2019 Plan. The maximum number of shares of our common stock that may be issued under our 2019 Plan is 25,000,000 shares. The 2019 Plan has a term of ten years from the date it was adopted. Shares issued under the 2019 Plan shall be made available from (i) authorized but unissued shares of common stock, (ii) common stock held in our treasury, or (iii) previously issued shares of common stock reacquired by us, including shares purchased on the open market. Options We granted options for the purchase of 11,091,691 shares of common stock during the year ended December 31, 2021. We granted options for the purchase of 10,593,700 shares of common stock during the year ended December 31, 2020. In applying the Black-Scholes option pricing model to stock options granted, we used the following assumptions: SCHEDULE OF BLACK-SCHOLES STOCK OPTIONS GRANTED For the Year Ended For the Year Ended December 31, 2021 December 31, 2020 Risk free interest rate 0.42 % - 1.34 % 0.21 % - 1.67 % Contractual term (years) 5.00 – 10.00 3.00 – 10.00 Expected volatility 73.43 % - 85.22 % 71.51 % - 74.28 % The weighted average grant date fair value of options issued and vested during the year ended December 31, 2021 was $ 12,472,505 and $ 2,136,509 , respectively. The weighted average grant date fair value of options issued and vested during the year ended December 31, 2020 was $ 2,030,144 and $ 776,925 , respectively. F- 27 Compensation-based stock option activity for qualified and nonqualified stock options is summarized as follows: SCHEDULE OF STOCK OPTION ACTIVITY Weighted Average Shares Exercise Price Outstanding at January 1, 2020 17,245,000 $ 0.46 Granted 10,593,700 1.43 Exercised - - Expired or cancelled ( 3,265,000 ) 0.53 Outstanding at December 31, 2020 24,573,700 0.86 Granted 11,091,691 3.60 Exercised ( 100,000 ) 0.50 Expired or cancelled ( 4,193,243 ) 0.83 Outstanding at December 31, 2021 31,372,148 $ 1.84 The following table summarizes information about options to purchase shares of our common stock outstanding and exercisable at December 31, 2021: SUMMARY OF OPTIONS TO PURCHASE SHARES OF COMMON STOCK OUTSTANDING AND EXERCISABLE Weighted-Average Exercise Prices Outstanding Options Remaining Life In Years Weighted-Average Exercise Price Number Exercisable $ 0.38 2,833,333 2.62 $ 0.38 2,833,333 0.40 3,600,000 2.56 0.40 3,600,000 0.50 9,014,424 3.09 0.50 7,173,190 1.40 1,417,251 5.64 1.40 1,371,145 2.00 6,107,700 3.89 2.00 1,393,473 2.05 1,552,000 4.28 2.05 247,500 3.05 170,000 4.57 3.05 - 3.60 155,000 4.58 3.60 - 4.00 624,340 4.55 4.00 - 5.00 5,803,100 9.77 5.00 34,000 6.75 95,000 4.57 6.75 - 31,372,148 4.60 $ 1.84 16,652,642 The compensation expense attributed to the issuance of the options is recognized ratably over the vesting period. Options granted under the 2019 Plan are exercisable for a specified period, generally five to ten years from the grant date, and generally vest over three to four years from the grant date. Total compensation expense related to the options was $ 7,802,096 and $ 1,533,777 for the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, the Company attributed $ 2,132,554 and $ 5,669,542 of compensation expense related to the options to cost of payroll and selling, general and administrative expenses, respectively, on the consolidated statement of operations. As of December 31, 2021, there was future compensation expense of $ 30,481,049 with a weighted average recognition period of 2.26 years related to the options. The aggregate intrinsic value totaled $ 96,269,656 and $ 71,776,022 , for total outstanding and exercisable options, respectively, was based on our estimated fair value of the common stock of $ 5.00 as of December 31, 2021, which is the aggregate fair value of the common stock that would have been received by the option holders had all option holders exercised their options as of that date, net of the aggregate exercise price. NOTE 11 – COMMITMENTS AND CONTINGENCIES Maxim Settlement Agreement On October 27, 2020, we entered into an advisory agreement (the “Advisory Agreement”) with Maxim Group LLC (“Maxim”), pursuant to which the parties agreed to certain compensation obligations in the form of our common stock, cash and future rights. Certain disputes arose between the parties regarding the duties and obligations pursuant to the Advisory Agreement, resulting in the parties agreeing to enter into a settlement and release agreement on January 13, 2022 (see Note 16). As a result, we recorded a settlement liability at December 31, 2021 of $ 470,000 on the statement of operations. Subsequent to December 31, 2021, the Company issued 400,000 shares of common stock, with a fair value of $ 5.00 per share, pursuant to the settlement. F- 28 Legal Claims There are no material pending legal proceedings in which we or any of our subsidiaries is a party or in which any of our directors, officers or affiliates, any owner of record or beneficially of more than 5% of any class of its voting securities , or security holder is a party adverse to us or has a material interest adverse to us. NOTE 12 – LOANS PAYABLE, CONVERTIBLE NOTE PAYABLE AND LINES OF CREDIT Lines of Credit TalaTek, Inc. On July 29, 2019, TalaTek entered into a secured line of credit with SunTrust Bank (“SunTrust”) for $ 500,000 . The line of credit bears interest at LIBOR plus 2.25 %. The line of credit is an open-end revolving line of credit and may be terminated at any time by SunTrust without notice to TalaTek. At December 31, 2021 and 2020, no amounts were drawn on the line of credit. Technologyville, Inc. On August 2, 2017, Techville entered into a secured revolving line of credit with Wintrust Bank (“Wintrust”) for $ 75,000 . The line of credit was renewed on August 11, 2020. The line of credit bears interest at Prime plus 1.75 % with a floor rate of 6 % and a maturity date of August 24, 2021 and as of the maturity date the line of credit was terminated. The interest rate at December 31, 2020 was 6 %. The line of credit is collateralized by all of Techville’s assets. During the year ended December 31, 2021 Techville drew $ 220,776 against the line of credit and made payments of $ 223,766 . At December 31, 2021 and 2020, there was $ 0 and $ 3,000 outstanding, respectively. Loans Payable Technologyville, Inc. On April 29, 2019, Techville entered into a note payable with VCI Account Services, that subsequently was assigned to U.S. Bancorp, in the original principal amount of $ 59,905 . The note has a maturity date of May 12, 2025 and bears an interest rate of 5.77 % per annum. During the years ended December 31, 2021 and 2020, we made cash payments of $ 13,629 and $ 5,567 , respectively, of which $ 13,407 and $ 222 and $ 5,010 and $ 557 was attributed to principal and interest, respectively. The loan is collateralized by a vehicle. At December 31, 2021 and 2020, $ 32,474 and $ 45,881 was outstanding, respectively. On June 22, 2020, under the U.S. Small Business Administration’s Paycheck Protection Program, Techville entered into a note payable with a financial institution for $ 179,600 at an interest rate of 1 % per annum and a maturity date of June 22, 2025 . Pursuant to the note, principal and interest payments are deferred for ten months, which, at that time Techville may apply for loan forgiveness. At December 31, 2020, $ 179,600 was outstanding. Techville applied for loan forgiveness on a timely basis, and at December 31, 2021, the total amount due of $ 179,600 had been forgiven. Cerberus Cyber Sentinel Corporation On April 17, 2020, under the U.S. Small Business Administration’s Paycheck Protection Program, Cerberus entered into a note payable with a financial institution for $ 530,000 at an interest rate of 1 % per annum and a maturity date of April 17, 2022 . Pursuant to the note, principal and interest payments are deferred for six months. Cerberus may apply for loan forgiveness any time during the ten-month period after October 2, 2020. At December 31, 2020, $ 530,000 was outstanding. Cerberus applied for loan forgiveness on a timely basis, and at December 31, 2021, the total amount due of $ 530,000 had been forgiven. F- 29 Clear Skies Security LLC On May 8, 2020, under the U.S. Small Business Administration’s Paycheck Protection Program, Clear Skies entered into a loan payable with a financial institution for $ 134,200 at an interest rate of 1 % per annum and a maturity date of May 8, 2022 . Pursuant to the loan, principal and interest payments are deferred for six months. Clear Skies may apply for loan forgiveness at any time during the ten-month period after November 5, 2020. At December 31, 2020, $ 134,200 was outstanding. Clear Skies applied for loan forgiveness on a timely basis, and at December 31, 2021, the total amount due of $ 134,200 had been forgiven. Alpine Security, LLC On April 18, 2020, under the U.S. Small Business Administration’s Paycheck Protection Program, Alpine entered into a loan payable with a financial institution for $ 137,000 at an interest rate of 1 % per annum and a maturity date of April 8, 2022 . Pursuant to the loan, principal and interest payments are deferred for six months. Alpine may apply for loan forgiveness at any time during the ten-month period after October 18, 2020. At December 31, 2020, $ 137,000 was outstanding. Alpine applied for loan forgiveness on a timely basis, and at December 31, 2021, the total amount due of $ 137,000 had been forgiven. On August 21, 2020, Alpine entered into a Future Receipts Sale Agreement with a financial institution for $ 70,000 bearing no interest and a maturity date of March 12, 2021. We received net aggregate proceeds of $ 38,755 (including $ 50,000 approved amount less outstanding amounts owed of $ 10,350 ). We are required to make daily payments pursuant to the following schedule: (i) $ 575 per day from August 18, 2020 through August 21, 2020, (ii) $ 500 per day from August 25, 2020 through March 10, 2021, and (iii) $ 200 per day for March 12, 2021. At December 31, 2020, the remaining balance on the agreement was $ 19,840 . The remaining outstanding balance was repaid during the year ended December 31, 2021. Catapult Acquisition Corp. On July 9, 2016, Catapult Acquisition Corp. entered into several seller notes payable with shareholders of VelocIT. The total borrowing amount was $ 600,000 and each loan bears interest at 5 % per annum with a maturity date of July 31, 2023 . Pursuant to the terms of the loans, principal and interest payments were deferred for two years on three of the loans, making up $ 150,000 of the $ 600,000 total amount borrowed. The amount outstanding as of December 31, 2021 was $ 446,239 . As part of the VelocIT Acquisition, the Company assumed $ 1,056,960 of SBA loans previously held by VelocIT. These loans were repaid in full during the year ended December 31, 2021. Arkavia At December 31, 2021, notes payable consist of the following amounts: SCHEDULE OF NOTES PAYABLE December 31, 2021 Total notes payable 5,018,788 4.22 % Note payable, due March 30, 2026 $ 607,915 4.22 % Note payable, due March 30, 2026 437,178 4.81 % Note payable, due April 10, 2028 148,665 4.81 % Note payable, due April 10, 2028 168,308 4.20 % Note payable, due June 3, 2024 33,418 4.20 % Note payable, due March 6, 2026 998,759 3.48 % Note payable, due May 15, 2023 129,692 4.88 % Note payable, due August 8, 2024 179,591 3.50 % Note payable, due May 26, 2021 5,817 3.50 % Note payable, due December 1, 2023 58,805 4.69 % Note payable, due April 15, 2024 206,993 6.48 % Note payable, due February 17, 2022 191,792 3.50 % Note payable, due April 15, 2024 182,088 7.14 % Note payable, due December 3, 2029 557,445 7.14 % Note payable, due December 3, 2029 99,574 7.14 % Note payable, due December 3, 2029 869,179 7.14 % Note payable, due December 3, 2029 143,569 Total notes payable 5,018,788 Less current portion ( 213,199 ) Long term notes payable $ 4,805,589 F- 30 At various times during the period December 1, 2021 (date of acquisition) through December 31, 2021, Arkavia paid an aggregate of $ 137,411 in cash towards outstanding principal. Convertible Note Payable On December 23, 2020, we issued to Hensley & Company an unsecured convertible note payable in the principal amount of $ 3,000,000 . The convertible note bears interest at 6 % per annum, with an effective interest rate of 8.5 % per annum, payable at maturity with a maturity date of December 31, 2021 . Amounts due under the note may be converted into shares of our common stock at any time at the option of the Holder, at a conversion price of $ 2.00 per share. At December 31, 2020, the if converted value of the note, at the market price of $ 2.05 per share, would be $ 3,075,000 . The issuance of the note resulted in a discount from the beneficial conversion feature totaling $ 75,000 . Total straight-line amortization of this discount totaled $ 73,391 and $ 1,609 during the years ended December 31, 2021 and 2020, respectively. Total interest expense on the note was approximately $ 182,500 and $ 4,000 for the years ended December 31, 2021 and 2020. On December 31, 2021, Hensley & Company converted the principal amount of $ 3,000,000 for 1,500,000 shares of our common stock at a conversion price of $ 2.00 per share (see Note 9). On October 27, 2021, we issued to Neil Stinchcombe, the sole owner of Smile, a convertible note in the principal amount of $ 1,500,000 bearing an interest rate of 5 % per annum payable at maturity with a maturity date of January 27, 2022 , with a conversion price of $ 5.00 per share. On March 10, 2022, we entered into an amendment to the note pursuant to which the maturity date was extended to October 27, 2022 . The outstanding principal of this note was $ 1,500,000 at December 31, 2021. At December 31, 2021, we recorded accrued interest of $ 12,500 with respect to this note. We recorded interest expense of $ 12,500 during the year ended December 31, 2021. Future minimum payments under the above notes payable following the year ended December 31, 2021, are as follows: SCHEDULE OF FUTURE PAYMENTS UNDER NOTES PAYABLE December 31, 2021 2022 $ 2,972,754 2023 1,023,084 2024 835,606 2025 708,973 2026 263,945 Thereafter 1,193,138 Total future minimum payments 6,997,500 Les: discount - Loans payable 6,997,500 Less: current ( 1,713,199 ) Total future minimum payments $ 5,284,301 NOTE 13 – LEASES During the years ended December 31, 2021 and 2020, we recognized offsetting ROU assets and lease liabilities of $ 387,543 and $ 19,393 , respectively. We elected to not recognize ROU assets and lease liabilities arising from short-term office leases, leases with initial terms of twelve months or less (deemed immaterial) on the consolidated balance sheets. When measuring lease liabilities for leases that were classified as operating leases, we discounted lease payments using our estimated incremental borrowing rate at the recognition dates during the years ended December 31, 2021 and 2020. The weighted average incremental borrowing rate applied was 5.77 %. As of December 31, 2021, our leases had a remaining weighted average term of 1.51 years. F- 31 The following table presents net lease cost and other supplemental lease information: SCHEDULE OF LEASE COST AND OTHER SUPPLEMENT LEASE INFORMATION Year Ended December 31, 2021 Year Ended December 31, 2020 Lease cost Operating lease cost (cost resulting from lease payments) $ 130,289 $ 6,362 Short term lease cost 59,306 36,983 Net lease cost $ 189,595 $ 43,345 Operating lease – operating cash flows (fixed payments) $ 130,289 $ 6,362 Operating lease – operating cash flows (liability reduction) $ 118,252 $ 5,712 Non-current leases – right of use assets $ 277,578 $ 13,426 Current liabilities – operating lease liabilities $ 196,472 $ 8,989 Non-current liabilities – operating lease liabilities $ 88,040 $ 4,693 Future minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the year ended December 31, 2021, are as follows: SCHEDULE OF FUTURE MINIMUM UNDER NON-CANCELLABLE LEASES FOR OPERATING LEASES December 31, 2021 Fiscal Year Operating Leases 2022 $ 207,995 2023 88,938 Total future minimum lease payments 296,933 Amount representing interest ( 12,421 ) Present value of net future minimum lease payments $ 284,512 NOTE 14 – INCOME TAXES We identified our federal and Arizona and Virginia state tax returns as our “major” tax jurisdictions. The periods for income tax returns that are subject to examination for these jurisdictions is 2018 through 2021. We believe our income tax filing positions and deductions will be sustained on audit, and we do not anticipate any adjustments that would result in a material change to our financial position. Therefore, no liabilities for uncertain tax positions have been recorded. At December 31, 2021, we had approximately $ 5,500,000 in net operating loss carry-forwards for federal and state income tax reporting purposes. As a result of the Tax Cuts Job Act 2017 (the Act), certain future carry-forwards do not expire. We have not performed a formal analysis, but believes our ability to use such net operating losses and tax credit carry-forwards in the future is subject to annual limitations due to change of control provisions under Sections 382 and 383 of the Internal Revenue Code, which will significantly impact our ability to realize these deferred tax assets. Our net deferred tax assets, liabilities and valuation allowance as of December 31, 2021 and 2020 are summarized as follows: SCHEDULE OF DEFERRED TAX ASSETS, LIABILITIES AND VALUATION ALLOWANCE Year Ended December 31, 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 1,035,400 $ 765,000 Stock compensation expense 2,791,900 703,500 Accounts payable and accrued expenses 657,700 30,600 Goodwill impairment 5,587,000 - Depreciation 391,900 - Amortization 37,900 25,900 Allowance for doubtful accounts 19,700 7,800 Total deferred tax assets 10,521,500 1,532,800 Valuation allowance ( 10,521,500 ) ( 1,341,300 ) Deferred tax assets after valuation allowance $ - $ 191,500 Deferred tax liabilities: Accounts receivable $ - $ ( 156,400 ) Prepaid expenses - ( 35,000 ) Total deferred tax liabilities - ( 191,500 ) Net deferred tax assets $ - $ 100 We recorded a valuation allowance in the full amount of our net deferred tax assets since realization of such tax benefits has been determined by our management to be less likely than not. The valuation allowance increased by $ 9,180,200 and $ 1,003,500 during the years ended December 31, 2021 and 2020, respectively. A reconciliation of the statutory federal income tax benefit to actual tax benefit for the years ended December 31, 2021 and 2020 is as follows: SCHEDULE OF RECONCILIATION OF THE STATUTORY FEDERAL INCOME TAX BENEFIT TO ACTUAL TAX BENEFIT 2021 2020 Federal statutory blended income tax rates ( 21 )% ( 21 )% State statutory income tax rate, net of federal benefit ( 4 ) ( 4 ) Change in valuation allowance 25 25 Effective tax rate - % - % As of the date of this filing, we have not filed our 2021 federal and state corporate income tax returns. We expect to file these documents as soon as practicable. NOTE 15 – CONCENTRATION OF CREDIT RISK Cash Deposits Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250,000 . As of December 31, 2021 and 2020, we had approximately $ 1,119,000 and $ 4,252,000 , respectively, in excess of the FDIC insured limit. SCHEDULES OF CONCENTRATION OF RISK, BY RISK FACTOR Revenue One client accounted for 20 % of revenue for the year ended December 31, 2021, as set forth below: Client A 20 % Two clients accounted for 59 % of revenue for the year ended December 31, 2020, as set forth below: Client A 44 % Client B 15 % F- 32 Accounts Receivable There were no accounts receivable concentrations as of December 31, 2021. Two clients accounted for 41 % of the accounts receivable as of December 31, 2020, as set forth below: Client A 25 % Client B 16 % Vendors Two vendors accounted for 48 % of the accounts payable as of December 31, 2021, as set forth below: Vendor A 32 % Vendor B 16 % Two vendors accounted for 32 % of the accounts payable as of December 31, 2020, as set forth below: Vendor A 20 % Vendor B 12 % NOTE 16 – SUBSEQUENT EVENTS Acquisition On January 5, 2022, we entered into a stock purchase agreement (the “True Digital Stock Purchase Agreement”) with certain stockholders of True Digital and an agreement and plan of merger (the “True Digital Merger Agreement”) with True Digital and certain of its other stockholders. On January 19, 2022, the transactions contemplated by the True Digital Stock Purchase Agreement and the True Digital Merger Agreement were consummated, with True Digital becoming a wholly owned subsidiary of our company. In connection with consummation of the transactions, we paid aggregate consideration of $ 6,153,000 in cash and 8,229,000 shares of our common stock. Uplist and Public Offering On January 19, 2022, we completed a public offering of our common stock. Pursuant to the public offering, we issued and sold 2,000,000 shares of common stock at a public offering price of $ 5.00 per share and granted to the underwriter warrants for the purchase of 161,000 shares of common stock at an exercise price of $ 5.00 per share. We received net proceeds of approximately $ 9,471,000 from the public offering, after deducting underwriting discounts and commissions of $ 721,000 and estimated offering costs of $ 108,000 . On January 14, 2022, we were approved to list our common stock on The Nasdaq Capital Market (“Nasdaq”) under the symbol “CISO.” Option Grants During January 2022, we issued options to purchase an aggregate of 1,000,000 shares of our common stock to two employees. The options have a ten -year term, an exercise price of $ 2.00 per share, and vest at 30% at the one-year anniversary of our uplist to Nasdaq and then linearly for 24 months. Resignations and Appointments of Certain Directors or Officers Effective February 15, 2022, Bryce Hancock resigned as our President and Chief Operating Officer. As a result of his resignation, Mr. Hancock forfeited 2,156,250 stock options. On February 18, 2022, our Board of Directors appointed David Bennett as our Chief Operating Officer. Effective March 15, 2022, Sandra D. Morgan resigned from her position as a member of our Board of Directors. At the time of her resignation, Ms. Morgan served on the Audit Committee and the Governance and Nominating Committee. Effective March 21, 2022, our Board of Directors appointed Ashley N. Devoto as our Chief Information Security Officer and as a director our company. Settlement Agreement On January 13, 2022, we entered into a settlement and release agreement with Maxim regarding a dispute between the parties in connection with our public offering, pursuant to which we will pay Maxim (i) $ 470,000 in cash upon closing of the public offering (see Note 11) and (ii) 400,000 shares of our common stock with a fair value of $ 5.00 per share. F- 33