What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-04-16 compared with 2023-03-31 · 136 added, 135 removed, 177 unchanged (60% of the section changed)

6 unchanged sentences

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.

trends and material changes in our financial position and the operating results of our business during the year ended December 31, 2023

compared to the year ended December 31, 2022.

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

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Risk Factors.”

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.

Cybersecurity, also known as computer security or information technology security,

is the protection of computer systems and networks from information disclosure, theft of or damage to their hardware, software, or electronic

data, as well as from the disruption or misdirection of the services they provide.

The cybersecurity industry has a supply and demand

issue wherein there is more demand for cybersecurity services than there are expert and seasoned compliance and cybersecurity professionals

available in the market.

We seek to identify, attract, and retain highly skilled cyber and compliance teams and bring them together to

provide holistic cyber services.

We accomplish this through acquisitions, direct hiring, and incentivizing employees with stock options

to help retain them.

On an ongoing basis, we seek to identify cyber talent that is culturally aligned and that offers operating leverage

through both existing customer revenue and relationships.

We have invested in enterprise solutions and executive talent to integrate

our different organizations into an ecosystem that works together to provide complete and holistic cybersecurity through cross pollination

of solutions.

The ecosystem is intended to provide additional revenue opportunities and drive overall recurring revenue.

provide a full range of cybersecurity consulting and related services, encompassing all three pillars of compliance, cybersecurity, and

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,

a comprehensive suite of cybersecurity consulting and related services that encompass all three critical pillars:

compliance, cybersecurity,

and organizational culture.

include managed security, compliance assessments, SOC support, vCISO services, incident response, digital forensics, technical assessments,

and cybersecurity training.

We believe that culture is the foundation of every successful cybersecurity and compliance program.

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.

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:

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

We’ve developed a unique offering called MCCP+ that delivers all three of these pillars through a dedicated

team of subject matter experts.

cybersecurity firms focused on specific technologies or services, we remain technology-agnostic.

Instead, we concentrate on building a

world-class team of cybersecurity and compliance experts with diverse skillsets.

Our goal is to provide our clients with truly holistic

solutions that address the chronic shortage of highly skilled cybersecurity professionals.

our services is a steadfast belief that establishing a strong culture of security is essential for organizational resilience.

closely with our clients to cultivate this security-first mindset, helping them quantify the return on their cybersecurity investments.

developed innovative software-based IP powered by machine learning, AI, and dark web threat intelligence.

These multilayered technologies

aim to enhance cyber effectiveness and drive greater resiliency for enterprises.

comprehensive portfolio of scalable IP solutions and an end-to-end team of experts, we are poised for organic growth.

By optimizing

the user experience and leveraging digital interfaces, we can expand our client base without adding strain to our services team.

This scalability will enable us to drive increased revenue and margins concurrently.

operating results for the year ended December 31, 2023 included the following:

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.

revenue increased by $10.5 million to $57.1 million for the year ended December 31, 2023, as compared to the year ended December

gross profit increased by $3.3 million to $6.0 million for the year ended December 31, 2023, as compared to the year ended December

of Operations

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Impairment of goodwill

(22,078,064 )

Total operating expenses

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(33,138,142 )

(44,633,563 )

Other income (expense):

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Interest expense, net

PPP loan forgiveness

Total other income (expense)

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$ (33,775,731 )

$ (46,891,030 )

managed services revenue increased by $9,158,505, or 22%, for the year ended December 31, 2023, as compared to the year ended December

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

31, 2022, primarily due to having a full year of ownership of CUATROi and NLT Secure, and new and existing

customer revenue growth.

services revenue increased by $1,350,635, or 24%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022,

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

primarily due to having a full year of ownership of CUATROi and NLT Secure.

managed services cost of revenue increased by $8,240,082, or 53%, for the year ended December 31, 2023, as compared to the year ended

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

December 31, 2022, due primarily to having a full year of ownership of CUATROi and NLT Secure compared to only four months in 2022, which increased our revenues from hardware

and software sales and their related costs.

services cost of revenue increased by $56,295, or 7%, for the year ended December 31, 2023, as compared to the year ended December 31,

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,

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.

2022, due to our increase in revenue from professional services from having a full year of ownership of CUATROi and NLT Secure compared to only four months in 2022.

of payroll increased by $1,577,025, or 8%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022, due

to headcount costs of CUATROi and NLT Secure having a full year of ownership compared to only four months in 2022.

compensation decreased by $2,688,475, or 36%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022,

due to the timing of recognition of the reversal of expense for options forfeited by former employees, a decrease in the number of options

granted in 2023, and a decline in the fair value of new options granted resulting from the decline in our share price.

fees increased by $1,627,584, or 79%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022, 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

capital, offset by a reduction in accounting and audit fees.

and marketing expenses decreased by $330,097, or 41%, for the year ended December 31, 2023, as compared to December 31, 2022, due to utilizing 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,

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.

general, and administrative expenses increased $3,638,092, or 16%, for the year ended December 31, 2023, as compared to the year

ended December 31, 2022, due to the costs of CUATROi and NLT Secure having a full year of ownership compared to only four months in

compensation expenses decreased by $2,172,520, or 22%, for the year ended December 31, 2023, as compared to the year ended December 31,

2022, due to the timing of recognition of the reversal of expense for options forfeited by former employees, a decrease in the number

of options granted in 2023, and a decline in the fair value of new options granted resulting from the decline in our share price.

of goodwill increased by $45,194,717, or 100%, for the year ended December 31, 2023, as compared to the year ended December 31,

2022, due to the fair value of our reporting units falling below their carrying value in 2023, whereas in the carrying fair value of

these reporting units exceeded their carrying value in 2022.

Income (Expense)

expense, net increased by $2,200,495, or 323%, during the year ended December 31, 2023, as compared to the year ended December 31, 2022,

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

due to an increase in our debt assumed through acquisitions during 2022 and obtaining short-term loans to fund operating capital in 2023.

working capital as of December 31, 2023, as compared to our working capital as of December 31, 2022, is summarized as follows:

December 31, 2023

December 31, 2022

Current assets

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$ (15,113,288 )

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, 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.

$ (8,814,244 )

decrease in current assets is primarily due to a decrease in cash and cash equivalents, accounts receivable and prepaid expenses and

other current assets of $770,721, $2,176,570, and $524,379 respectively.

The increase in current liabilities is primarily due to the

increase in accounts payable and accrued expenses of $7,640,990, offset by a decrease in loans and convertible notes payable of $4,567,367

cash flows for the year ended December 31, 2023, as compared to our cash flows for the year ended December 31, 2022, can be summarized

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$ (10,681,007 )

Net cash (used in)/provided by investing activities

Net cash used in investing activities

Net cash provided by financing activities

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Decrease in cash

$ (2,471,995 )

cash used in operating activities was $5,920,112 for the year ended December 31, 2023 and was primarily due to cash used to fund a net

loss of $80,231,083, adjusted for non-cash expenses in the aggregate of $64,085,528 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.

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 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,

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.

levels of operating assets and liabilities in the aggregate of $10,225,443, primarily as a result of an increase in accounts receivable,

accounts payable and accrued expenses, and deferred revenue.

Net 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.

cash used in investing activities of $160,158 for the year ended December 31, 2023, was primarily due to cash paid to purchase

property and equipment.

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

to cash paid as part of the acquisition of True Digital.

cash provided by financing activities for the year ended December 31, 2023 was $6,193,046, which was primarily due to cash received from

the sale of our common stock, and net proceeds from loans and convertible notes payable of $6,655,493 and $11,975,631, respectively,

and offset by the payment of loans and convertible notes payable of $12,929,931.

Net 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 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.

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

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of $158,018,687 and working capital deficit of $15,113,288.

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 2023.

For the year ended December 31, 2023, we had negative cash flows from operations of $5,920,112.

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

to incur further losses through the end of 2024.

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.

During the year ended December 31, 2023, we received $6,655,493 from public and private offerings of our common

stock, $11,975,631 in net proceeds from our loans and convertible notes payable, and $491,853 from the exercise of stock options.

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, 2023, we had $291,351,048 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.

However, due to losses incurred, substantial doubt about the Company’s ability

to continue as a going concern exists.

are evaluating strategies to obtain the required additional funding for future operations.

These strategies may include, obtaining equity

financing, issuing debt or entering into other financing arrangements, and restructuring of operations to grow revenues and decrease

However, we may be unable to access further equity or debt financing when needed.

As such, there can be no assurance that we

will be able to obtain additional liquidity when needed or under acceptable terms, if at all.

ability for us to continue as a going concern is dependent upon our ability to successfully accomplish the plan described in the Growth

Strategy paragraph and eventually attain profitable operations.

The consolidated financial statements do not include any adjustments

to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable

to continue as a going concern.

Issued Accounting Pronouncements

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on a straight-line basis.

represents the excess of the purchase price of the acquired business over the estimated fair value of the identifiable net assets acquired.

Goodwill is not amortized but is tested for impairment at least annually at year end, at the reporting unit level or more frequently

if events or changes in circumstances indicate that the asset might be impaired.

Goodwill is tested for impairment at the reporting level

by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit

is less than its carrying value.

If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying

value is compared to its fair value.

The fair values of the reporting units are estimated using market and discounted cash flow approaches.

represents the excess of the purchase price of the acquired business over the estimated fair value of the identifiable net assets

Goodwill is not amortized but is tested for impairment at least annually at year end, at the reporting unit level or more

frequently if events or changes in circumstances indicate that the asset might be impaired.

Goodwill is tested for impairment at the

reporting level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of

the reporting unit is less than its carrying value.

If the reporting unit does not pass the qualitative assessment, then the

reporting unit’s carrying value is compared to its fair value.

The fair values of the reporting units are estimated using a

market approach.

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

Failure to maintain a similar market value may cause a future impairment

of goodwill at the reporting unit.

of Long-lived Assets

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manner, except that fair values are reduced for the cost to dispose.

measure the cost of services received in exchange for an award of equity instruments based on the fair value of the award.

For employees

and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally

re-measured on vesting dates and interim financial reporting dates until the service period is complete.

Awards granted to directors

are treated on the same basis as awards granted to employees.

agreements with clients are primarily service contracts that range in duration from a few months to one year.

We recognize revenue when

control of these services is transferred to the client for an amount, referred to as the transaction price, which reflects the consideration

to which we are expected to be entitled in exchange for those goods or services.

We measure and recognize compensation

expense for equity-based awards based on the grant date fair values of the awards.

For options with service or performance-based vesting

conditions, the grant date fair value is estimated using the Black-Scholes option-pricing model, which requires management to make assumptions

and apply judgment in determining the grant date fair value.

The most significant assumptions

and judgments include estimating the expected option term, the expected stock price volatility and the risk-free interest rates.

The assumptions

used in our option pricing model represent management’s best estimates.

If factors change and different assumptions are used, our equity-based

compensation expense could be materially different in the future.

We record forfeitures when they occur, based on our lack of historical

data available to estimate an appropriate forfeiture rate.

Changes in our forfeiture rate can have a significant impact on our equity-based

compensation expense since the cumulative effect of adjusting the forfeiture rate is recognized in the period in which the estimate is

We will continue

to use judgment in evaluating the assumptions related to our equity-based awards on a prospective basis.

As we continue to accumulate

additional data related to our awards, we may refine our estimates, which could materially impact our future equity-based compensation

agreements with clients are primarily service contracts that range in duration from a few months to three years.

We recognize revenue

when control of these services is transferred to the client for an amount, referred to as the transaction price, which reflects the

consideration to which we are expected to be entitled in exchange for those goods or services.

contract with a client exists only when:

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in Stock-Based Compensation

volatility is based on historical volatilities of companies in comparable stages as well as the historical volatility of companies in

the industry and, by statistical analysis of the daily share-pricing model.

The volatility of stock-based compensation at any point in

time is based on historical volatility of similar companies in the industry for the last two to five years.

We determine the expected stock

price volatility based on the historical volatilities of our peer group, blended with our historical volatility, since there is not a

sufficient trading history for our common stock.

Industry peers consist of several public companies in the technology industry similar

to us in size, stage of life cycle and financial leverage.

We intend to continue to consistently apply this process using the same or

similar public companies and continue increasing the blended proportion of our historical volatility until a sufficient trading history

of our common stock becomes available.

If circumstances change such that the identified companies are no longer similar to us, we will

revise our peer group to substitute more suitable companies in this calculation.

Sheet Arrangements

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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