What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-04-15 · 93 added, 131 removed, 219 unchanged (51% of the section changed)

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following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with

our financial statements and the related notes contained elsewhere in this Annual Report and is intended to provide information necessary

to understand our audited consolidated financial statements for the year ended December 31, 2021 compared to the year ended December

31, 2020 and highlight certain other information which, will enhance a reader’s understanding of our financial condition, changes

in financial condition, and results of operations.

In particular, the discussion is intended to provide an analysis of significant trends

and material changes in our financial position and the operating results of our business during the year ended December 31, 2021, as

compared to the year ended December 31, 2020.

These historical financial statements may not be indicative of our future performance.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains numerous forward-looking statements,

all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing,

particularly in “Item 1A.

our consolidated financial statements and the related notes contained elsewhere in this Annual Report and is intended to provide information

necessary to understand our audited consolidated financial statements for the year ended December 31, 2022 compared to the year ended

December 31, 2021 and highlight certain other information which will enhance a reader’s understanding of our financial condition,

changes in financial condition, and results of operations.

In particular, the discussion is intended to provide an analysis of significant

trends and material changes in our financial position and the operating results of our business during the year ended December 31, 2022 compared to the year ended December 31, 2021.

These historical consolidated financial statements may not be indicative of our future

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains numerous forward-looking

statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout

this filing, particularly in “Item 1A.

Risk Factors.”

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around the battle cry:

“Cybersecurity is a Culture, not a Product.”

“Cyber security is a Culture, not a Product.”

operating results for the year ended December 31, 2022 included the following:

revenue increased by $7.9 million to $15.1 million for the year ended December 31, 2021, as compared to the year ended December 31,

gross profit decreased by $1.1 million to $1.8 million for the year ended December 31, 2021, as compared to the year

ended December 31, 2020.

acquired VelocIT, Atlantic, RED74, and Arkavia, all of which are now wholly owned subsidiaries of our company.

revenue increased by $31.4 million to $46.5 million for the year ended December 31, 2022,

as compared to the year ended December 31, 2021.

gross profit increased by $0.9 million to $2.7 million for the year ended December 31, 2022,

as compared to the year ended December 31, 2021.

of Operations

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Cost of payroll

Stock based compensation

Total cost of revenue

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Impairment of goodwill

(22,078,064 )

Total operating expenses

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Total other income (expense)

$ (39,145,650 )

Loss before income taxes

$ (33,775,731 )

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managed services revenue increased by $29,122,701, or 247%, for the year ended December 31, 2022, as compared to the year ended December

31, 2020, primarily due to the acquisitions of Alpine, VelocIT, Atlantic, RED74, and Arkavia, which were consummated on December 16,

2020, August 12, 2021, November 9, 2021, October 1, 2021, and December 1, 2021, respectively.

An aggregate of $4,238,631 in revenue

was the result of these acquisitions for the year ended December 31, 2021.

The additional increase in revenue was the result of additional

customers and usage increases within existing customers.

31, 2021, primarily due to revenue acquired through our completion of five acquisitions over the last 12 months and new and existing

customer revenue growth.

services revenue increased by $2,284,357, or 68%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021,

primarily due to the acquisitions of Alpine, VelocIT, Atlantic, RED74, and Arkavia , which were consummated on December 16, 2020, August

12, 2021, November 9, 2021, October 1, 2021, and December 1, 2021, respectively.

primarily due to revenue acquired through our completion of five acquisitions over the last 12 months.

managed services cost of revenue increased by $12,341,924, or 399%, for the year ended December 31, 2022, as compared to the year ended

December 31, 2020, primarily due to the acquisitions of VelocIT, Atlantic, RED74, and Arkavia, which were consummated on August 12, 2021,

November 9, 2021, October 1, 2021, and December 1, 2021, respectively.

As a result of these acquisitions, we incurred cost of revenue

of $1,750,169 for the year ended December 31, 2021.

In addition, we anticipated a lower margin during the year ended December 31, 2021,

due to VelocIT’s hardware revenue stream having a low margin, as well as Technologyville’s planned territory expansion which

created upfront costs.

December 31, 2021, due primarily to our completion of five acquisitions over the last 12 months, which increased our revenues from hardware

and software sales and their related costs.

services cost of revenue increased by $329,116, or 64%, for the year ended December 31, 2022, as compared to the year ended December

31, 2020, primarily due to the acquisitions of Alpine, VelocIT, and Arkavia, which were consummated on December 16, 2020, August 12,

2021, and December 1, 2021, respectively.

As a result of these acquisitions, we incurred cost of revenue of $106,211 for the year ended

December 31, 2021.

The additional increase in revenue was a result of additional customers and usage increases within existing customers.

In addition, we anticipated lower margins during the year ended December 31, 2021 due to increased training costs as a result of the

increase in new employees.

31, 2021, due to our increase in revenue from professional services from acquisitions completed over the last 12 months.

of payroll increased by $12,439,210, or 164%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021,

31, 2020, primarily due to the acquisitions of Technologyville, Clear Skies, VelocIT, Atlantic, RED74, and Arkavia, which were

consummated on May 25, 2020, August 1, 2020, August 12, 2021, November 9, 2021, and October 1, 2021, respectively.

In addition, $2,132,554

of compensation expense related to options was recorded during the year ended December 31, 2021.

As a result of these acquisitions,

we incurred cost of revenue of $3,574,942 for the year ended December 31, 2021.

fees increased by $262,793, or 28%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020, as a result

of increased expenses resulting from preparation for our uplist to Nasdaq and our public offering.

and marketing expenses increased by $284,780, or 190%, for the year ended December 31, 2021, as compared to December 31, 2020, as a result

of additional spend on public relations.

general, and administrative expenses increased $6,500,114, or 196%, for the year ended December 31, 2021, as compared to

the year ended December 31, 2020, as a result of an increase in payroll due to our ability to recognize a full year of Clear Skies’

and Alpine’s payroll, as well as a portion of VelocIT’s, Atlantic’s, RED74’s, and Arkavia’s payroll.

due to headcount added primarily through our completion of five acquisitions over the last 12 months.

compensation increased by $5,379,750, or 252%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021,

due to an increase of stock options awarded to our growing base of revenue generating employees.

fees increased by $878,284, or 74%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to an

increase in accounting, legal and other professional fees incurred related to our periodic SEC filings and our efforts to raise additional

and marketing expenses increased by $369,202, or 85%, for the year ended December 31, 2022, as compared to December 31, 2021, due to

our current marketing campaign initiatives to stimulate organic revenue growth, and an increased effort to utilize more internal resources

for advertising and marketing activities.

general, and administrative expenses increased $13,297,251, or 136%, for the year ended December 31, 2022, as compared to the year ended

December 31, 2021, primarily due to head count added through the completion of five acquisitions over the last 12 months.

compensation expenses increased by $1,808,503, or 22%, for the year ended December 31, 2022, as compared to the year ended December 31,

31, 2020, primarily as a result of an increase in stock options awarded during the year ended December 31, 2021.

of goodwill increased by $22,078,064, or 100%, for the year ended December 31, 2021, as compared to the year ended December 31, 2021,

as a result of our analysis of our carrying amount of goodwill being impaired.

2021, due to an increase in stock options awarded to employees through the completion of five acquisitions of the last 12 months and

shares issued to consultants for marketing services provided.

of goodwill decreased by $22,078,064, or 100%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021,

due to impairment recognized in our goodwill in 2021 whereas impairment was not present in 2022.

Income (Expense)

expense increased by $290,212, or 1,692%, during the year ended December 31, 2021, as compared to the year ended December 31, 2020, as

a result of the recording of a full year of interest related to our $3,000,000 related party convertible note.

expense, net increased by $373,558, or 122%, during the year ended December 31, 2022, as compared to the year ended December 31, 2021,

due to an increase in our debt assumed through acquisition during 2022 and obtaining $6,000,000 of short-term loans to fund operating

working capital as of December 31, 2022, as compared to our working capital as of December 31, 2021, is summarized as follows:

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Current liabilities

Working capital surplus

Working capital (deficit)/surplus

$ (8,814,244 )

increase in current assets is primarily due to a decrease in cash and cash equivalents of $891,872, offset by an increase in accounts

receivable, inventory and prepaid expenses and other current assets of $3,833,968, $727,974, and $818,821, respectively.

in current liabilities is primarily due to the increase in accounts payable and accrued expense, and the settlement liability of $1,899,262

and $470,000, respectively.

receivable, prepaid cost of revenue and prepaid expenses and other current assets of $3,021,495, $2,622,428, and $775,924, respectively.

The increase in current liabilities is primarily due to the increase in accounts payable and accrued expense, deferred revenue, and loans

and convertible notes payable of $5,601,271, $4,419,316 and $8,595,632, respectively.

cash flows for the year ended December 31, 2022, as compared to our cash flows for the year ended December 31, 2021, can be summarized

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$ (7,385,129 )

Net cash provided by investing activities

Net cash (used in)/provided by investing activities

Net cash provided by financing activities

Increase (decrease) in cash

Effect of exchange rates on cash and cash equivalents

Decrease in cash

$ (2,471,995 )

cash used in operating activities was $7,385,129 for the year ended December 31, 2021 and was primarily due to cash used to fund

a net loss of $39,145,650, adjusted for non-cash expenses in the aggregate of $33,853,661 and additional cash outlaid by

changes in the levels of operating assets and liabilities in the aggregate of $2,093,140, primarily as a result of an increase

cash used in operating activities was $10,681,007 for the year ended December 31, 2022 and was primarily due to cash used to fund a net

loss of $33,775,182, adjusted for non-cash expenses in the aggregate of $20,752,668 and additional cash increases from changes in the

levels of operating assets and liabilities in the aggregate of $2,341,507, primarily as a result of an increase in accounts payable and

other deferred revenue.

Net cash used in operating activities was $7,385,129 for the year ended December 31, 2021 and was primarily due

to cash used to fund a net loss of $39,145,650, adjusted for non-cash expenses in the aggregate of $33,853,661, partially offset by cash

generated by changes in the levels of operating assets and liabilities in the aggregate of $2,093,140, primarily as a result of an increase

in accounts receivable and other current assets.

Net cash used in operating activities was $1,702,079 for the year ended December 31,

2020 and was primarily due to cash used to fund a net loss of $3,413,262, adjusted for non-cash expenses in the aggregate of $2,064,389,

partially offset by cash generated by changes in the levels of operating assets and liabilities in the aggregate of $353,206, primarily

as a result of an increase in accounts payable.

cash provided by investing activities of $2,050,057 for the year ended December 31, 2021, was primarily due to the cash

acquired in the acquisitions of VelocIT, Atlantic, RED74, and Arkavia.

Net cash provided by investing activities of

$285,297 for the year ended December 31, 2020, was due to cash acquired in the Techville and Clear Skies Acquisitions.

cash used in investing activities of $6,048,944 for the year ended December 31, 2022, was primarily due cash paid as part of the acquisition

of True Digital.

Net cash provided by investing activities of $2,050,057 for the year ended December 31, 2021, was due to cash acquired

in the acquisitions of VelocIT, Atlantic, RED74 and Arkavia.

cash provided by financing activities for the year ended December 31, 2022 was $15,777,909, which was primarily due to cash received

from the sale of our common stock, and proceeds from loans and notes payable of $3,250,000 and $1,863,474, respectively, and offset

from the sale of our common stock, and net proceeds from loans and notes payable of $10,689,087 and $6,061,585, respectively, and offset

by the payment of loans of $2,452,905.

Net cash provided by financing activities for the year ended December 31, 2021 was $2,863,077,

and was due to cash received from the sale of our common stock of $1,131,009 and proceeds from a convertible note of $3,000,000.

Company has considered its material cash requirements from known contractual obligations, such as lease obligations, purchase obligations,

and other liabilities reflected on the company’s balance sheet as of December 31, 2021 and has determined that none exist other

than the Company’s commitment to pay $150,000 to the Atlantic Shareholders as part of the Company’s listing to a national

exchange, $5,497,500 of future minimum payments of non-convertible outstanding debt and $284,512 in outstanding lease obligations.

which was primarily due to cash received from the sale of our common stock, and proceeds from loans and notes payable of $3,250,000 and

$1,863,474, respectively, and offset by payments on loans of $2,300,397.

accompanying consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates

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At December 31, 2022, we had an accumulated deficit

of $44,012,422 and working capital surplus of $4,113,215.

of $77,787,604 and working capital deficit of $8,814,244.

For the year ended December 31, 2022, we had a loss from operations of $33,138,142

and negative cash flows from operations of $10,681,007.

Although our company is showing positive revenue and gross profit trends,

we expect to incur further losses through the end of 2022.

date, we have funded operations primarily through the sale of equity in private placements and revenue generated by our services.

the year ended December 31, 2021, we received $3,250,000 from private placements of our common stock.

believe that our existing cash and cash equivalents and cash generated by operating activities will be sufficient to meet our operating

and capital requirements for at least the next 12 months as well as our longer-term expected future cash requirements and obligations.

future capital requirements, both near-term and long-term, will depend on many factors, in addition to our recurring operating expenses,

include our growth rate, the continued expansion of sales and marketing activities, the introduction of new and enhanced products and

service offerings, and the costs of any future acquisitions in complementary businesses and technologies.

To the extent existing cash

and cash equivalents are not sufficient to fund future activities, we may seek to raise additional funds through equity, equity-linked

or debt financings.

Any additional equity financing may be dilutive to our existing stockholders.

We may enter into agreements or letters

of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, which could

also require us to seek additional equity financing, incur indebtedness or use cash resources.

In the event that additional financing

is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

If we are unable to raise additional

capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient

capital, our business, operating results and financial condition would be adversely affected.

do not believe that inflation has had a material impact on our business, revenue, or operating results during the periods presented.

Although our company is showing positive revenue and gross profit trends, we

expect to incur further losses through the end of 2023.

date, we have funded operations primarily through the sale of equity in public offerings, private placements, loan proceeds, and revenue

generated by our services.

During the year ended December 31, 2022, we received $10,689,087 from our public offerings of our common stock,

$5,975,000 in net proceeds from our bridge loans, and $1,480,142 from the exercise of stock options.

On June 27, 2022, our Registration

Statement on Form S-3 was declared effective, and we may offer and sell from time to time, in one or more series, any of our securities,

for total gross proceeds up to $300,000,000.

As of December 31, 2022, we had $298,734,727 of available funding from our S-3 Registration

Statement from which we may issue our securities to fund current and future operations.

accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction

of liabilities in the normal course of business.

For the year ended December 31, 2022, we incurred a net loss of $33,775,182,

had negative cash flows from operations of $10,681,007, and working capital deficit of $8,814,244.

These matters raise substantial doubt

as to our ability to continue as a going concern.

Our existence is dependent upon our ability to develop profitable operations.

We are devoting substantially all of our efforts to developing our business,

reducing overhead costs, and raising capital, although there can be no assurance that our efforts will be successful.

No assurance can be given that our actions will result in profitable operations

or the resolution of liquidity problems.

The accompanying consolidated financial statements do not include any adjustments that might

result should we be unable to continue as a going concern.

order to improve our liquidity, in addition to a planned reduction in overhead costs, we are actively pursuing additional debt and/or equity financing through discussions with investment bankers and private investors.

can be no assurance that we will be successful in our efforts to secure additional financing.

financial statements do not include any adjustments relating to the recoverability of assets and the amount or classification of liabilities

that might be necessary should we be unable to continue as a going concern.

Issued Accounting Pronouncements

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Failure to achieve these expected results may cause a future impairment of goodwill at the reporting

Due to the Company determining that the reporting unit’s carrying value was over the estimate of the fair value recorded,

we recognized a loss on impairment of goodwill of $22,078,064 at December 31, 2021.

of Long-lived Assets

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do not disclose the value of unsatisfied performance obligations for contracts with original expected duration of one year or less.

Disaggregation

consisted of the following by service offering for year ended December 31, 2021:

Security Managed

Primary Sector Markets

Not-for-profit

Major Service Lines

Secured managed services

SOC managed services

Technical assessments

Incident response and forensics

Other cybersecurity services

consisted of the following by service offering for the year ended December 31, 2020:

Security Managed

Primary Sector Markets

Not-for-profit

Major Service Lines

Secured managed services

SOC managed services

Technical assessments

Incident response and forensics

Other cybersecurity services

part of Accounting Standards Code (“ASC”) 606, we have adopted practical expedients, including the following:

determined that we need not adjust the promised amount of consideration for the effects of a significant financing component since we

expect, at contract inception, that the period between when we transfer a promised service to the customer and when the customer pays

for that service will be one year or less and (ii) we recognize any incremental costs of obtaining a contract as an expense when incurred

if the amortization period of the asset that the entity otherwise would have recognized is one year or less.

Note 3 to our consolidated financial statements for the years ended December 31, 2022 and 2021 included elsewhere in this Annual Report

for additional information regarding revenue recognition and deferred revenue.

include reimbursed expenses in revenue and costs of revenue as we are primarily responsible for fulfilling the promise to provide the

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis