EDGAR 10-K Filing

Company CIK: 1777319
Filing Year: 2021
Filename: 1777319_10-K_2021_0001493152-21-007433.json

---

ITEM 1. BUSINESS
ITEM 1. BUSINESS
Corporate History
Cerberus Cyber Sentinel Corporation (“Cerberus Sentinel”) was formed on March 5, 2019 as a Delaware corporation. Our principal offices are located at 6900 E. Camelback Road, Suite 240, Scottsdale, AZ 85251.
Effective 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 the Company. As of December 31, 2019, GenResults is a wholly owned subsidiary of Cerberus Sentinel. Due to the companies being under common control, the Company 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 merger in order to increase our shareholder base in order to, among other things, assist us in satisfying the listing standards of a national securities exchange.
Effective as of October 1, 2019, we entered into an Agreement and Plan of Merger (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 (the “Registration Statement”) with the Securities and Exchange Commission (“SEC”) to register our common stock, par value $0.00001, under the Exchange Act. The Registration Statement became effective on December 1, 2019.
Effective May 25, 2020, we entered into a Stock Purchase Agreement with Techville and its sole shareholder, pursuant to which Techville became a wholly owned subsidiary of the Company (the “Techville Acquisition”). Under the terms of the Techville Acquisition, all issued and outstanding common stock of Techville was exchanged for an aggregate of 3,392,271 shares of the Company’s common stock.
Effective August 1, 2020, we entered into a Stock Purchase Agreement with Clear Skies and its equity holders, pursuant to which Clear Skies became a wholly owned subsidiary of the Company (the “Clear Skies Acquisition”). Under the terms of the Clear Skies Acquisition, all issued and outstanding equity securities in Clear Skies were exchanged for an aggregate of 2,330,000 shares of the Company’s common stock.
On December 16, 2020, we entered into an Agreement and Plan of Merger (the “Alpine Merger Agreement”) pursuant to which Alpine became a wholly owned subsidiary of the Company. All units representing membership interests of Alpine issued and outstanding were converted into 900,000 shares of our common stock.
Our Business
We are a security services company comprised of highly trained security professionals who work with clients to create a continuously aware security culture. We do not sell cybersecurity products. We position ourselves as a trusted cybersecurity advisor and are committed to delivering tailored security solutions to organizations of different sizes and across all geographies and industries to fit their budgetary needs and limit their cyber threat exposure.
We currently provide a multitude of cybersecurity services including managed security service, cybersecurity consulting, technology consulting, compliance auditing, vulnerability assessment, penetration testing, security remediation, Security Operations Center (“SOC”) set-up and consulting and cybersecurity training. We differentiate ourselves from competitors by staying technology agnostic. We believe that many cybersecurity service providers in the market today are committed to a specific technology solution which limits their service scope and ability to quickly respond to any emerging cybersecurity challenges. In addition, as we continue to serve our clients within our existing capacities, we plan to continue making strategic acquisitions of small-to-medium-sized engineer-led cybersecurity service businesses to continue to expand our service scope and geographical coverage. We believe that having a world-class technology team with multi-faceted expertise is key to providing technology agnostic solutions to our clients and maximizing their return on investment from cybersecurity and information technology (“IT”) spending.
Cybersecurity Market
As the world has become increasingly connected through the Internet and the Internet of Things (“IoT”), cyberattacks have prevailed and evolved over the years, in different forms, causing uncontainable threats to the integrity and privacy of enterprise and personal data and resulted in significant economic losses globally. The number IoT devices worldwide is forecast to almost triple from 8.74 billion in 2020 to more than 25.4 billion IoT devices in 2030. In 2020, the highest number of IoT devices is found in China with 3.17 billion devices. IoT devices are used in all types of industry verticals and consumer markets, with the consumer segment accounting for around 60 percent of all IoT connected devices in 2020. This share is projected to stay at this level over the next ten years.
In response to the increasing economic damage caused by heightened cybersecurity risks, regulatory bodies have pushed the implementation of new cybersecurity legislations, and cyber insurance companies have increased minimum cybersecurity requirements. We believe that we are well positioned in a fast-growing industry to provide businesses with a wide scope of cybersecurity services and with significant opportunities for growth.
Service Offering
We currently offer two major types of services to clients: Managed Services and Consulting Services.
Managed Services
Our Managed Services focus on a holistic approach to cybersecurity based on an upfront gap analysis of our clients’ existing cybersecurity practices. We provide multiple offerings in the service portfolio including the following:
● CISO-as-a-service: Many companies are in need of cybersecurity services but do not have the capital resources or knowledge base to hire a Chief Information Security Officer (“CISO”). We offer this service to companies on an ongoing consulting basis as a resource to augment their management team. CISO-as-a-service includes road mapping the future state for the client and providing our knowledge and expertise to help them achieve their security needs;
● Culture education and enablement offering: This targets the root cause for 75% of cyber breach events by starting with a culture of security-forward thinking;
● Tools and technology provisioning offering: We provide technology-agnostic solutions catering to a client’s existing products and enhances the cyber defense system by making carefully selected additions without bias and to fit their financial profile;
● Data and privacy offering: This ensures that a client’s data security and privacy are properly managed to alleviate risks of data loss and breach;
● Regulations and compliance offering: We evaluate a client’s policies and procedures and implement the appropriate compliance framework based on the latest industry regulations and obligations; and
● SOC services: We offer SOC-as-a-service, which is a subscription-based service that manages and monitors client’s logs, devices, clouds, network and assets for possible cyber threats. This service provides the clients with the knowledge and skills necessary to combat cybersecurity threats.
Consulting Services
Our consulting services include a wide array of tailored solutions for organizations of all sizes. Our in-depth industry expertise allows us to act as the trusted advisor of our clients to help them lower their risk profile, minimize cost impact to organizations and meet regulatory compliance demands. We specialize in:
● Cybersecurity consulting: Bringing the culture of cybersecurity to a client’s leadership team and penetrating throughout the organization is a critical first step of building any cybersecurity system. Through our consulting service, we dive in both at the cultural and technical aspects of cybersecurity within the organization. We help our clients build effective policies and best practices, design or enhance a cybersecurity system and train the executive management team so that the culture at the top is set to facilitate diligent implementation of cybersecurity awareness.
● Compliance auditing: We provide auditing services under several compliance frameworks as follows:
○ Service Organization 2 (“SOC 2”) - This is an auditing procedure that focuses on a business’ non-financial reporting controls related to security, availability, processing, integrity, confidentiality, and privacy of a system;
○ Payment Card Industry Data Security Standard (“PCI DSS”) - This is a standard administered by the Payment Card Industry Security Standards Council;
○ Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and The Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”) - These are laws regulated by the Department of Health and Human Services (“HHS”) to secure the privacy and confidentiality of protected health information (“PHI”);
○ HITRUST CSF - This is a comprehensive security framework (“CSF”) developed by the Health Information Trust Alliance (“HITRUST”) in collaboration with healthcare, technology and information security leaders, to create, access, store and exchange sensitive and/or regulated data; and
○ The National Institute of Standards and Technology (“NIST”) - This was formally known as the National Bureau of Standards, which is a federal agency that promotes and maintains measurement standards while encouraging and assisting industry and science to develop and use these standards.
● Gap and risk assessment: We perform security risk gap analysis and advanced threat intelligence and analytics to identify potential areas of security risk and monitor potential breaches on a frequent basis. Evaluating all aspects of the business from executive management, finance, legal, human resources, compliance, operations and then IT. This is to ensure the organization has a holistic understanding of their company’s security posture.
● Penetration testing: We offer network and application-level penetration testing performed through industry tools and verified by certified security experts. At the network level, we conduct network scans for clients at pre-defined intervals based on their preference. Subsequent automatic scans are performed at the same IP address. We also make further attempts to exploit any vulnerability found by the network scan to eliminate false positives. At the application level, we utilize techniques such as parameter tampering, cookie poisoning, session hijacking, user privilege escalation, credential manipulation, forceful browsing, backdoors and debug options, configuration subversion, input validation bypass, SQL injection, and cross-site scripting to assess the application for known vulnerabilities.
Growth Strategy
Cybersecurity service and consulting firms operate on various forms of business models. Cerberus Sentinel does not sell product; we promote a cybersecurity culture. Our growth strategy will focus on external acquisition and internal scalability to drive that culture within our clients’ organizations. Therefore, our revenue streams mainly come from service and consulting fees. As the cybersecurity market grows over years, we continue to see an increasing number of players entering the market with different sets of qualifications. However, organizations facing cybersecurity issues also usually lack the expertise to identify the right service provider or do not have the capital resources to hire a qualified CISO. We believe that this is where our growth opportunity lies since the lack of expertise leads to information asymmetry which causes additional noise in the cybersecurity marketplace and exposes organizations to greater risks if found issues are not mitigated with the right group of experts. Furthermore, the industry is in need of highly qualified technology professionals in the cybersecurity field. A limited pool of talent results in increasing compensation and cost to retain such talent which in turn compromises companies’ bottom-line profitability and then increases the need to work externally with a partner such as Cerberus Sentinel. We believe that cybersecurity threats worsen with time. With the cost of cybercrime estimated to reach $6 trillion globally in 2021, there is a significant demand for skilled cybersecurity professionals to combat these threats and manage cyber defenses. The New York Times estimates that there will be approximately 3.5 million open cybersecurity jobs across the globe in 2021.
Our external acquisition strategy targets engineer-owned cybersecurity firms in the top thirty U.S. markets with existing revenue in the range of $2 million to $15 million and profit margin of at least 15% to 25%, although there could be opportunities beyond the larger end of this range. We expect each acquisition to be strategic and accretive, and we expect to obtain direct access to a pool of ready-to-deploy and seasoned cybersecurity talent and enhanced access to a larger client base geographically.
Our internal scalability strategy focuses on exploring and capitalizing on synergies with the acquired companies. With strategic acquisitions, on the topline, we expect to provide a broadened service offering which translates into more diverse revenue streams and a larger client base. We also anticipate that we will be able to broaden our geographical sales coverage and reduce client acquisition costs. We also intend to synergize best practices across the platform which will enhance client experience and client loyalty. On the bottom line, we plan to centralize general and administrative support functions in one location which we expect to improve net margins across service lines. We believe that this will allow our management to focus on sales initiatives and accelerate internal operations scalability. We believe that our acquisition strategy will allow us to realize annual savings on centralized operations, generate additional revenue from upselling to existing clients, and add revenue from new clients.
Acquisitions During 2020 and 2019
On December 16, 2020, we entered into the Alpine Merger Agreement pursuant to which Alpine became a wholly owned subsidiary of the Company. All units representing membership interests of Alpine issued and outstanding were converted into 900,000 shares of our common stock. Alpine provides tailored cybersecurity solutions that meet clients’ objectives and reduce cyberattack risk. Alpine’s flagship services include CISO-as-a-Service, Penetration Testing, and Private Cybersecurity Training. Alpine has broad experience and capabilities and focuses on the following areas: cybersecurity assessment and testing for medical device manufacturers, healthcare cybersecurity, and private certification training, such as CEH, CISSP, and Security+. Alpine is based in O’Fallon, Illinois.
Effective August 1, 2020, we entered into a Stock Purchase Agreement with Clear Skies, pursuant to which Clear Skies became a wholly owned subsidiary of the Company (the “Clear Skies Acquisition”). Under the terms of the Clear Skies Acquisition, all issued and outstanding equity securities in Clear Skies were exchanged for an aggregate of 2,330,000 shares of our common stock. Clear Skies is an information technology consulting firm specializing in identifying security vulnerabilities by extensive testing of their clients. This can be used for exposing security loopholes in the client’s systems and is a process that is crucial to safeguard important data. One such extensive test is Penetration Testing, or a Pen Test, which refers to the simulated cyber-attack that is made to exploit a data system at a certain point to detect the exploitable vulnerabilities within a client’s system security. After a vulnerability is found that could possibly be used to exploit the system to gain access to the client’s data, Clear Skies then creates mediation or remedies or immediate corrective measures for resolving vulnerability. Clear Skies also performs remediation, future cybersecurity road mapping and proactive planning with their clients to protect clients from possible future exposures. Clear Skies is based in Alpharetta, Georgia and has a regional office in Stuart, Florida.
Effective May 25, 2020, we entered into a Stock Purchase Agreement pursuant to which Techville became a wholly owned subsidiary of the Company (the “Techville Acquisition”). Under the terms of the Techville Acquisition, all issued and outstanding common stock of Techville was exchanged for an aggregate of 3,392,271 shares of our common stock. Techville is an information technology consulting firm specializing in automated managed services for businesses through various product and service offerings including Tech Connect Pro, Tech Connect Cloud Services, Tech Connect Drive and Tech Connect Security. Techville operates from three offices located in Algonquin, Illinois, Mesa, Arizona and New Braunfels, Texas. Techville’s staff of 12 people consists of a multi-disciplinary group with expertise in engineering, operations and sales. Techville’s client-base of over 50 companies spans a range of industries from behavioral health, manufacturing, communications and financial services.
Effective October 1, 2019, we entered into an Agreement and Plan of Merger (the “TalaTek Merger Agreement”) pursuant to which TalaTek became a wholly owned subsidiary of the Company. Under the TalaTek Merger Agreement, all issued and outstanding units representing membership interests in TalaTek were converted into an aggregate of 6,200,000 shares of our common stock. TalaTek provides complete integrated enterprise risk management services by leveraging their specialized combination of methodologies, processes and technology, collectively known as Enterprise Compliance Management Solution (“ECMS”). ECMS enables efficient and repeatable risk, compliance and information security management, facilitating continuous improvement and empowering clients to make better informed risk decisions. These services are currently provided primarily to the public sector.
Implications of Being an Emerging Growth Company
We are an “emerging growth company,” as that term is used in the Jumpstart Our Business Startups Act of 2012, or “JOBS Act.” An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies, and we have elected to comply with these reduced reporting and other burdens. These provisions include:
● A requirement to have only two years of audited financial statements and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;
● Exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002; and
● Reduced disclosure about the emerging growth company’s executive compensation arrangements and an exemption from various stockholder voting requirements with respect to executive compensation arrangements.
We could remain an emerging growth company until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of common stock under a registration statement under the Securities Act of 1933, (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period. The foregoing amounts are subject to adjustment for inflation.
In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act and Section 13(a) of the Exchange Act for complying with new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. We have elected to take advantage of the extended transition period for complying with the revised accounting standards. As a result, our financial statements may not be comparable to companies that comply with public company effective dates.
Competition in the Cybersecurity Market
The cybersecurity market is highly fragmented. In the top quartile, the market is dominated by several major global companies such as Mandiant, IBM Corporation, Cisco Systems, AVG Technologies, Broadcom and Dell. The rest of the market is highly competitive without dominant players. We face direct competition from all small-to-medium-sized cybersecurity service providers nationwide given the broad service scope we currently provide. Many competitors provide cloud-based services which means our competition is not restricted by regions. It is critical for our executive management team to identify and attract strategic acquisition targets in order to strengthen our competitive advantage as a cybersecurity consolidator, which we believe brings higher service quality, more diverse service scope, and broader geographical coverage at a lower cost.
Intellectual Property
We intend to take appropriate steps to protect our intellectual property. We have registered the trademark “Cyber security is a culture, not a product,” which has been approved with an official registration date of October 29, 2019.
Government Regulation
The Company is not aware of any specific regulations that govern cybersecurity firms or the areas in which the Company operates. While there are a few federal cybersecurity regulations, they govern industries that the Company serves and exist to focus on specific industries.
The three main cybersecurity regulations are HIPAA, the 1999 Gramm-Leach-Bliley Act, and the 2002 Homeland Security Act, which included the Federal Information Security Management Act (“FISMA”). The three regulations mandate that healthcare organizations, financial institutions and federal agencies protect their systems and information. FISMA, which applies to every government agency, requires the development and implementation of mandatory policies, principles, standards, and guidelines on information security. However, the regulations do not address numerous computer related industries, such as internet service providers and software companies. Furthermore, the regulations do not specify what cybersecurity measures must be implemented and require only a “reasonable” level of security.
In addition, the National Cyber Security Division is another regulatory body that is a division of the Office of Cyber Security & Communications within the United States Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency. The major attack this year targeted at SolarWinds has become a focal point for adhering to industry standard in compliance. From a regulatory compliance standpoint, data loss or exposure in the network opens a company up to potentially heavy fines resulting from violations of data privacy laws, including the European Union’s General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), or the Health Insurance Portability and Accountability Act (HIPAA).
COVID-19 Response
On March 13, 2020, the United States declared a national emergency in response to the COVID-19 pandemic. Subsequently, states enacted stay-at-home orders to slow the spread of the virus that causes COVID-19, and reduce the burden on the U.S. health care system. In response to COVID-19, our senior leadership assessed the impact across our entire team and no additional measures were deemed necessary to take. Our objective was to ensure the health, safety and well-being of our employees, customers, and the communities we service. We believe that our response to COVID-19 and financial performance in 2020 was a direct result of the dedication and strength of our team members and our strong culture.
Human Capital Initiative
We are a trusted cybersecurity expert providing safe, efficient, and sustainable services to our existing and new communities. Our success is the direct result of the dedication and strength of our team and promotes equity, diversity, integrity, inclusion, reliability and accountability. We believe that a combination of diverse team members and an inclusive culture contributes to our success. Each member is a valued part of our team bringing a diverse perspective to help grow business and achieve our goals. Our tradition of serving employees, customers and investors is at the core of our culture.
Employees
As of December 31, 2020, we had 61 employees. In addition, we utilize independent contractors for projects of short duration or where specialized knowledge, or experience is needed for a complex project. We are not dependent on any independent contractor, and we believe adequate replacements would be available in the event any such contractor becomes unavailable to us. We believe our relations with our employees is good.
Transfer Agent
Our stock transfer agent is Securities Transfer Corporation, located at 2901 N. Dallas Parkway, Plano, Texas 75093. Its telephone number is (469) 633-0101, and its website is www.stctransfer.com.
Corporate and Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports will be available free of charge through our website (http://cerberussentinel.com) as soon as practicable after such material is electronically filed with, or furnished to, the SEC. Except as otherwise stated in these documents, the information contained on our website or available by hyperlink from our website is not incorporated by reference into this report or any other documents we file, with or furnish to, the SEC.

---

ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
An investment in our common stock involves a number of very significant risks. Readers of this Annual Report on Form 10-K should carefully consider the following risks and uncertainties in addition to other information in this report in evaluating our company and its business before purchasing shares of our common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. An investor in our common stock could lose all or part of their investment due to any of these risks.
Risks Related to Our Business and Industry
We will need to raise capital to realize our business plan and growth strategy, the failure of which could adversely impact our operations.
For the year ended December 31, 2020 and as of the date of this report, we assessed our financial condition and concluded that we have sufficient resources for the next twelve months from the date of this report. Our auditor’s report for the year ended December 31, 2020 does not include a going concern opinion on the matter. However, management is still required to assess our ability to continue as a going concern. We had a net loss of $3,413,262 for the year ended December 31, 2020. During the same period, cash used in operations was $1,702,080 and our accumulated deficit as of December 31, 2020 was $4,866,772. Management is unable to predict if and when we will be able to generate significant positive cash flow or achieve profitability. Our plan regarding these matters is to strengthen our revenues and continue improving operational efficiencies across the business. There can be no assurances that we will be successful in increasing revenues, improving operational efficiencies or that financing will be available or, if available, that such financing will be available under favorable terms. In the event that we are unable to generate adequate revenues to cover expenses and cannot obtain additional financing into calendar year 2021, we may need to cut back or curtail our expansion plans.
We may need to raise additional capital in the future by issuing equity or other forms of securities, which could significantly reduce the percentage ownership of our existing shareholders. Furthermore, any newly issued securities could have rights, preferences and privileges senior to those of our existing common stock. We may have difficulty obtaining additional funds as and when needed, and we may have to accept terms that would adversely affect our shareholders. In addition, any adverse conditions in the credit and equity markets may adversely affect our ability to raise funds when needed. Any failure to achieve adequate funding will delay our acquisition efforts and could lead to abandonment of one or more of our acquisition initiatives, as well as prevent us from responding to competitive pressures or take advantage of unanticipated acquisition opportunities.
We will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth.
As of December 31, 2020, we had 61 employees. As a result of acquisitions, we must continue to carefully integrate managerial, operational, sales, marketing, financial, and other personnel in the expanded organization and manage cost. Future growth will impose significant added responsibilities on members of management, including:
● identifying, integrating, managing and motivating qualified employees, particularly strong sales force and cybersecurity talent;
● executing post-acquisition integration effectively and managing integration costs;
● managing our internal development efforts effectively, including those of our current and future acquirees, while complying with our contractual obligations to contractors and other third parties; and
● improving our operational, financial and management controls, reporting systems, and procedures.
Our future financial performance will depend, in part, on our ability to effectively manage any future growth, which might be impacted by the COVID-19 outbreak, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities. This lack of long-term experience working together may adversely impact our senior management team’s ability to effectively manage our business and growth.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services. There can be no assurance that the services of these independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, we may not be able to advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, if at all. If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further scale our business or effectively integrate acquisitions.
We depend on key personnel who would be difficult to replace, and our business plans will likely be harmed if we lose their services or cannot hire additional qualified personnel.
Our success depends substantially on the efforts and abilities of our senior management and certain key personnel, including, but not limited to our Chief Executive Officer, David G. Jemmett, our President, William Santos, and our Chief Operating Officer, Bryce Hancock. We currently do not hold any key man insurance for them. The competition for qualified management and key personnel is intense. The loss of services of one or more of our key employees, or the inability to hire, train, and retain key personnel, especially executive managers with cybersecurity industry knowledge, could delay the execution of new acquisitions, launch of new service programs, disrupt our business, and interfere with our ability to execute our business plan.
We operate in an industry that is experiencing a shortage of qualified engineers. If we are unable to recruit and retain key management, technical and sales personnel, our business would be negatively affected.
To execute our growth strategy, we must continue to attract and retain highly skilled employees. Competition for these employees is intense, especially for cybersecurity engineers, as there is a global shortage of engineers who can provide the technical and strategic skills required for us to deliver high levels of services to our clients and potential clients. We may not be successful in attracting and retaining qualified employees. We have from time-to-time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Many of the companies with which we compete for these highly skilled employees have greater resources than we have. In addition, in making employment decisions, particularly in the high-technology industry, job candidates often consider the value of the stock options, restricted stock grants or other stock-based compensation they are to receive in connection with their employment. Declines in the value of our stock could adversely affect our ability to attract or retain key employees and result in increased employee compensation expenses. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed.
We depend on independent contractors to provide certain services for which we do not have the necessary expertise or capacity. Any compromise in service quality as a result of our dependence on independent contractors may harm our business.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services. There can be no assurance that the services of these independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, some of our business activities may be delayed, or terminated, and we may not be able to mitigate negative impacts or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, if at all. If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to continue to expand our business and, accordingly, may not achieve our business goals.
We have recently acquired several businesses. Our growth strategy is driven by successful acquisitions of businesses that provide comparable or complementary services. Our ability to fulfill this strategy will be limited if we fail to identify and consummate acquisitions.
We intend to consider additional potential strategic transactions, which could involve acquisitions of businesses or assets, joint ventures or investments in businesses or technologies that expand, complement or otherwise relate to our business. We may also consider, from time to time, opportunities to engage in joint ventures or other business collaborations with third parties. Should our relationships fail to materialize into significant agreements, or should we fail to work efficiently with these companies, we may lose sales and marketing opportunities and our business, results of operations and financial condition could be adversely affected.
Any business acquisition creates risks such as, among others: (i) the need to integrate and manage the businesses acquired with our own business; (ii) additional demands on our resources, systems, procedures and controls; (iii) disruption of our ongoing business; and (iv) diversion of management’s attention from other business concerns. Moreover, these transactions could involve: (a) substantial investment of funds or financings by issuance of debt or equity securities; (b) substantial investment with respect to technology transfers and operational integration; and (c) the acquisition or disposition of lines of businesses. Also, such activities could result in one-time charges and expenses and have the potential to either dilute the interests of our existing stockholders or result in the issuance of, or assumption of debt. Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and other resources. Any such activities may not be successful in generating revenue, income or other returns, and any resources we commit to such activities will not be available to us for other purposes. Moreover, if we are unable to access the capital markets on acceptable terms or at all, we may not be able to consummate acquisitions, or may have to do so on the basis of a less than optimal capital structure. Our inability to take advantage of growth opportunities or address risks associated with acquisitions or investments in businesses may negatively affect our operating results.
Additionally, any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment, or charges to earnings associated with any acquisition or investment activity, may materially reduce our earnings. Future acquisitions or joint ventures may not result in their anticipated benefits and we may not be able to properly integrate acquired technologies or businesses with our existing operations or successfully combine personnel and cultures. Failure to do so could deprive us of the intended benefits of those acquisitions.
We intend to grow our client base significantly through acquisitions of other service providers. If we fail to retain existing clients and attract new clients through acquisitions, we may never be profitable.
If we are able to consummate additional acquisitions of other service providers, we believe that our increased client base would create cross-selling and up-selling opportunities. We need high-quality service and exemplary client management to retain and grow our client base. We also plan to launch sales and marketing efforts including trade show appearance, sales demo and advertising campaigns in various forms to promote our brand name. If our marketing efforts are not successful, we may lose existing clients or fail to obtain new clients. Our inability to grow sales as the Company expands in operations may result in loss, and we may not become profitable.
Our business strategy may impose limitations in our ability to accurately forecast future revenue and operating results.
Our operating results are dependent on a variety of factors including purchasing patterns of our clients, competitive pricing, debt servicing, and general economic trends. Our revenue and operating results may fluctuate if our sales targets are not met, new service offerings receive poor client response, or client acquisition costs increase due to competition. In addition to these factors, our acquisition strategy may impose additional risks to the predictability of our operating results. Revenue streams may be volatile given uncertainty in the closing timeline of new acquisitions. Unexpected expenses may be incurred during due diligence and post-acquisition. We cannot provide assurances that we will be successful in managing these risks.
Our future results may be affected by various legal and regulatory proceedings and legal compliance risks, including those involving intellectual property, environmental, governmental regulations and other anti-bribery, anti-corruption, or other matters.
The outcome of these legal proceedings may differ from our expectations because the outcomes of litigation, including regulatory matters, are often difficult to reliably predict. Various factors or developments can lead us to change current estimates of liabilities and related insurance requirements where applicable, or make such estimates for matters previously not susceptible of reasonable estimates, such as a significant judicial ruling or judgment, a significant settlement, significant regulatory developments or changes in applicable law. A future adverse ruling, settlement or unfavorable development could result in future charges that could have a material adverse effect on our results of operations or cash flows in any particular period.
A pandemic, epidemic or outbreak of an infectious disease in the United States or elsewhere may adversely affect our business.
If a pandemic, epidemic or outbreak of an infectious disease occurs in the United States or elsewhere, our business may be adversely affected. The spread of COVID-19 has caused many countries around the world to impose quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. Employers (including us) are also required to prepare and increase, as much as possible, the capacity and arrangement for employees to work remotely. We are still assessing the effect on our business, along with the potential impact of recent vaccines that may impact any such effects on the spread of COVID-19 and the actions implemented by the government of the United States and elsewhere across the globe.
The spread of an infectious disease, including COVID-19, may also result in a period of business disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. The extent to which COVID-19 impacts our business, and the business of our clients, will depend on future developments including recent vaccines, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.
The COVID-19 outbreak and mitigation measures also have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition. The extent to which the COVID-19 outbreak impacts our business and operations will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
Breaches of network or information technology security could have an adverse effect on our business.
Cyber-attacks or other breaches of network or IT security may cause equipment failures or disrupt the systems and operations of us and our clients. The potential liabilities associated with these events could exceed the insurance coverage we or our clients maintain, if any. An inability to operate as a result of such events, even for a limited period of time, may result in significant expenses or loss of clients. In addition, a failure to protect our, or our client’s, enterprises, networks, privacy of customer and employee confidential data against breaches of network or IT security could result in damage to our reputation. To date, we have not been subject to cyber-attacks or other cyber incidents which, individually or in the aggregate, resulted in a material adverse effect on our business, operating results and financial condition.
Security threats to our own IT infrastructure may affect our clients indirectly. A party who is able to compromise the security measures on our networks or the security of our infrastructure could misappropriate our proprietary information or the personal information of our clients, cause interruptions or malfunctions in our operations or our clients’ operations or damage our computers or systems and those of our clients. As security is a primary competitive factor in our industry, such a compromise could be particularly harmful to our brand and reputation. We may be required to expend significant resources to protect against such threats or to alleviate problems caused by breaches in security. As techniques used to breach security change frequently, and are generally not recognized until launched against a target, we may not be able to implement security measures in a timely manner or, if and when implemented, we may not be able to determine the extent to which these measures could be circumvented. If we are unable to protect sensitive information, our clients or governmental authorities could question the adequacy of our threat mitigation and detection processes and procedures. Any breaches that may occur could expose us to increased risk of lawsuits, regulatory penalties, loss of existing or potential customers, harm to our reputation and increases in our security costs, which may not be fully insured or indemnified by other means. Occurrence of any of these events could have a material adverse effect on our business, financial condition, operating results or prospects.
Because our services are aimed at protecting clients from, and limiting the impact of, critical business interruptions and losses related to cyber-attacks, if our client’s experience losses related to cyber-attacks that result in lost profits or other indirect or consequential damages to our clients, such events could expose us to lawsuits. Our service agreements with our clients typically contain provisions limiting our liability. However, we cannot provide assurances that a court would enforce any contractual limitations on our liability. The outcome of any such lawsuit would depend on the specific facts of the case and any legal and policy considerations that we may not be able to mitigate. In such cases, we could be liable for substantial damage awards that may exceed our liability insurance coverage by unknown but significant amounts, which could materially impair our financial condition.
If we fail to meet our service level obligations under our service level agreements, we may be subject to certain penalties and could lose clients.
We have service level agreements with many of our managed services clients under which we guarantee specified levels of service availability. These arrangements require us to estimate the level of service we will provide. If we fail to meet our service level obligations under these agreements, we may be subject to penalties, which could result in higher-than-expected costs, and we may lose clients, which could lead to decreased revenue and decreased gross and operating margins. If we fail to meet our service level obligations under these agreements, our reputation may suffer as a result.
The nature of our business involves significant risks and uncertainties that may not be covered by insurance or indemnification.
We provide services in circumstances where insurance or indemnification may not be available, or is not obtained. Our existing insurance coverages may not be sufficient or additional insurance may not be available to protect us against operational risks and other uncertainties that we face. Liabilities or claims arising from our services in excess of any indemnity or insurance coverage could harm our financial condition, cash flows and operating results. Any claim, even if fully covered or insured, could negatively affect our reputation in the marketplace and make it more difficult for us to compete effectively. The defense of such claims may be costly and time consuming and could divert the attention of management.
We indemnify our officers and directors against liability to us and our shareholders, and such indemnification could increase our operating costs.
Our certificate of incorporation and bylaws require us to indemnify our officers and directors against claims associated with carrying out the duties of their offices. Our bylaws also requires us to reimburse them for the costs of certain legal defenses. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our officers, directors or control persons, the SEC has advised that such indemnification is against public policy and is therefore unenforceable.
Our industry is highly competitive, and there is no assurance that we will compete successfully.
Our current and potential competitors vary by size, service offerings and geographic location. Competitors include technology companies, consulting companies, telecommunication companies, technology resellers, hardware and software companies, and others. Many of our competitors have entrenched relationships in particular industries, or have gained a reputation for expertise in a specific segment of the cybersecurity market, including services, software and hardware. The primary competitive factors in our market are: security, reliability and functionality, customer service and technical expertise, reputation and brand recognition, financial strength, breadth of products and services offered, price, and scalability. Many of our current and potential competitors have substantially greater financial, technical and marketing resources; more diversified product and service offerings; larger customer bases; longer operating histories; greater brand recognition; and more established relationships in the industry than we do. As a result, some of these competitors may be able to:
● adapt more rapidly to new or emerging technologies and changes in customer requirements;
● develop superior services and expand their product and service offerings more efficiently or rapidly, and thereby gain greater market acceptance;
● bundle products and services that we may not offer or in a manner that provides our competitors with a price advantage;
● take advantage of acquisitions and other opportunities more readily;
● maintain a lower cost basis;
● adopt more aggressive pricing policies and devote greater resources to the promotion, marketing and sales of their products and services; and
● devote greater resources to the research and development of their products and services.
Many of these companies have significantly greater financial, technical, marketing and other resources than we do and may be better positioned to acquire, offer and service complementary products and technologies. These companies and alliances resulting from possible combinations may create more compelling product and service offerings, be able to offer greater pricing flexibility than we can or engage in business practices that make it more difficult for us to compete effectively, including on the basis of sales and marketing programs (such as providing greater incentives to our channel partners to sell a competitor’s product), technology or product functionality. Competition could result in, among other things, a substantial loss of customers, reduction in revenues or increase in expenses, which could materially adversely affect our business, financial condition, results of operations or prospects.
Increasingly complex cybersecurity regulations and standards may have a significant impact on our business, and it may require us to substantially invest in our development capabilities to meet compliance requirements and may negatively impact our ability to offer certain services and become profitable.
Federal and state legislatures continue to advance policy proposals in recent years to address cyber threats directed at governments and private businesses. As threats continue to evolve and expand and as the pace of new technologies accelerates, legislatures are making cybersecurity measures a high priority. At the federal and state level, close to 300 bills or resolutions have been introduced and considered that deal significantly with cybersecurity. These proposals are at multiple stages of development and may result in new standards concerning different areas. Our business expansion strategy focuses on accretive acquisitions of other cybersecurity service providers in the top thirty U.S. markets to achieve greater service coverage. The complex regulatory environment in each state may require us to dedicate additional resource to ensure our service scope and service quality are in compliance with the standards enacted in each state in which we operate. We may incur additional legal and compliance costs, and our service scope may be constrained due to compliance requirements. Any such constraint may cause a delay in our service launch and negatively impact our operating results. We may also face litigation or other enforcement actions if we fail to respond appropriately to these regulatory measures in certain states.
We may become subject to disputes, including litigation, that could negatively impact our business and our profitability and financial condition.
We may become subject to disputes with third parties from time to time. Any such dispute could result in litigation between us and the other parties. Whether or not any dispute actually proceeds to litigation, we may be required to devote significant management time and attention and financial resources to its resolution (through litigation, settlement or otherwise), which would detract from our management’s ability to focus on our business. Any such resolution could involve the payment of damages or expenses by us, which may be significant. In addition, any such resolution could involve our agreement with terms that restrict the operation of our business .
If we incur additional debt, we could become subject to restrictive covenants and debt service obligations that could negatively impact our operations.
If we incur additional debt for operations or acquisitions, a portion of our cash flow will have to be dedicated to the payment of principal and interest on such indebtedness. Typical loan agreements also might contain restrictive covenants, which may impair our operating flexibility. Such loan agreements would also provide for default under certain circumstances, such as failure to meet certain financial covenants. A default under a loan agreement could result in the loan becoming immediately due and payable and, if unpaid, a judgment in favor of such lender which would be senior to the rights of our stockholders. A judgment creditor would have the right to foreclose on any of our assets resulting in a material adverse effect on our business, operating results or financial condition.
The preparation of our financial statements involves the use of estimates, judgments, and assumptions, and our financial statements may be materially affected if they prove to be inaccurate.
Financial statements prepared in accordance with accounting principles generally accepted in the United States require the use of estimates, judgments, and assumptions that affect the reported amounts. Different estimates, judgments, and assumptions reasonably could be used that would have a material effect on the financial statements, and changes in these estimates, judgments, and assumptions are likely to occur from period to period in the future. These estimates, judgments, and assumptions are inherently uncertain, and, if they prove to be wrong, then we face the risk that charges to income will be required.
These and other risks associated with our operations may materially adversely affect our ability to attain or maintain profitable operations.
Risks Related to our Common Stock
The market price of our common stock may be volatile and may fluctuate in a way that is disproportionate to our operating performance.
Our stock price may experience substantial volatility as a result of a number of factors, including, among others:
● sales or potential sales of substantial amounts of our common stock;
● announcements about us or about our competitors or new service introductions;
● conditions in the cybersecurity and IT services industries;
● governmental regulation and legislation;
● variations in our anticipated or actual operating results;
● changes in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations; and
● overall political and economic conditions.
Many of these factors are beyond our control. In addition to recent events, the stock markets have historically experienced substantial price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors could reduce the market price of our common stock, regardless of our actual operating performance.
Future sales of shares of our common stock by existing stockholders could depress the market price of our common stock.
We have an aggregate of 117,729,971 issued and outstanding shares of common stock as of March 30, 2021. The Plan Shares issued in connection with the merger with VCAB are freely tradeable. The remainder of the outstanding shares may be sold, subject to certain volume limitations, pursuant to Rule 144 or other available exemptions. Also, in the future, we may issue additional securities in connection with investments and acquisitions. The amount of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding stock. Due to these factors, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
The Financial Industry Regulatory Authority, Inc. (“FINRA”) has adopted rules that require that, in recommending an investment to a client, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for certain customers. FINRA requirements will likely make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may have the effect of reducing the level of trading activity in the shares, resulting in fewer broker-dealers may be willing to make a market in our shares, potentially reducing a stockholder’s ability to resell shares of our common stock.
If we issue additional shares in the future, it will result in the dilution of our existing shareholders.
Our Certificate of Incorporation authorizes the issuance of up to 250,000,000 shares of our common stock. Our board of directors may choose to issue some or all of such shares to acquire one or more companies and to fund our overhead and general operating requirements. The issuance of any such shares may reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our company.
Our directors and executive officers beneficially own a substantial majority of our outstanding common stock and will have the ability to control our affairs.
Our directors and executive officers beneficially own over 70% of our outstanding common stock. By virtue of these holdings, they effectively control the election of the members of our board of directors, our management and our affairs and may prevent us from consummating corporate transactions such as mergers, consolidations or the sale of all or substantially all of our assets that may be favorable from our standpoint or that of our other stockholders.
We do not know whether an active, liquid and orderly trading market will develop for our common stock.
There has been no active trading market for our common stock. An active trading market for our shares may never develop or be sustained. No assurance can be provided that a purchaser of our common stock will be able to resell their shares of common stock at or above the price that they acquired those shares. We can provide no assurances that the fair market value of common stock will increase or that the market price of common stock will not fluctuate or decline significantly.
We are eligible to be treated as an “emerging growth company,” as defined in the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting and other requirements that are applicable to other public companies that are not emerging growth companies, including (i) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation and (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following our initial public offering, although circumstances could cause us to lose that status earlier.
In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. We have elected to take advantage of the extended transition period for complying with the revised accounting standards. As a result, our financial statements may not be comparable to companies that comply with effective dates generally applicable to public companies.
Investors may find our common stock less attractive because we may rely on these exemptions, reduced reporting requirements and extended transition periods. If investors find our common stock less attractive as a result of any of the foregoing, there may be a less active trading market for our common stock and our stock price may be more volatile or may decrease.
We do not intend to pay dividends on any investment in the shares of stock of our company.
We have never paid any cash dividends, and currently do not intend to pay any dividends for the foreseeable future. Our board of directors has not directed the payment of any dividends and does not anticipate paying dividends on the shares for the foreseeable future and intends to retain any future earnings to the extent necessary to develop and expand our business. Payment of cash dividends, if any, will depend, among other factors, on our earnings, capital requirements, and the general operating and financial condition, and will be subject to legal limitations on the payment of dividends out of paid-in capital. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock’s price. This may never happen, and investors may lose all of their investment in our company.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.

---

ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
We do not own any real property. A description of the leased premises we utilize for offices facilities is as follows:
Entity
Property Description
The principal office:
Cerberus Cyber Sentinel Corporation
Corporate Headquarters
●
●
Located at 6900 E. Camelback Road, Suite 240, Scottsdale, Arizona 85251
Cost is $6,558 per month through December 31, 2021 and $6,695 per month through December 31, 2022
In addition to the Company’s headquarters, the Company also has other short-term leases, none of which the Company believes to be material to its operations. We believe that our offices are suitable to carry on our business. We also believe that, if required, suitable alternative or additional space will be available to us on commercially reasonable terms, along with the consolidation of any office space that we feel may be necessary from time-to-time as we integrate our acquisitions now or in the future.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any material pending legal proceedings that we anticipate would result in a material adverse effect on our business or operations.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the Pink Current Information Tier of OTC Markets under the symbol “CISO” and has been quoted on the OTC since June 26, 2020.
As of March 30, 2021, there were approximately 700 holders of record of our common stock. Shares of our common stock are also held in either nominee name or street name brokerage accounts, and consequently, we are unable to determine the total number of beneficial owners of our stock.
Our common stock has had limited trading activity. Since June 26, 2020 and up to the date of this report, our common stock has traded at a range from $2.00 to $3.05.
Dividend Policy
To date, we have paid no dividends on our common stock and do not expect to pay cash dividends in the foreseeable future. We plan to retain all earnings to provide funds for the operations of our company. In the future, our board of directors will decide whether to declare and pay dividends based upon our earnings, financial condition, capital requirements, and other factors that our board of directors may consider relevant. We are not under any contractual restriction as to present or future ability to pay dividends.
Unregistered Sales of Equity Securities
During the three months ended December 31, 2020, we issued 170,200 shares of common stock with a fair value of $2.00 per share to accredited investors for cash proceeds of $341,009. For each such transaction, we relied upon Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), as transactions by an issuer not involving any public offering. For each such transaction, we did not use general solicitation or advertising to market the securities, the securities were offered to a limited number of persons, the investors had access to information regarding us (including information contained in our Annual Report on Form 10-K for the year ended December 31, 2019, Quarterly Reports on Form 10-Q for the periods ended March 31, 2020, June 30, 2020 and September 30, 2020 and Current Reports on Form 8-K filed with the Securities and Exchange Commission, and press releases made by us), and we were available to answer questions by prospective investors. We reasonably believe that each of the investors is an accredited investor. The proceeds were used to reduce our working capital deficiency and for other corporate purposes.

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Business
We are a security services company comprised of highly trained security professionals who work with clients throughout the United States to create a continuously aware security culture. We do not sell cybersecurity products. We position ourselves as a trusted cybersecurity advisor and are committed to delivering tailored security solutions to organizations of different sizes and across all geographies and industries to fit their budgetary needs and limit their cyber threat exposure.
We currently provide a multitude of cybersecurity services including managed security service, cybersecurity consulting, technology consulting, compliance auditing, vulnerability assessment, penetration testing, security remediation, Security Operations Center (“SOC”) set-up and consulting and cybersecurity training. We differentiate ourselves from competitors by staying technology agnostic. We believe that many cybersecurity service providers in the market today are committed to a specific technology solution which limits their service scope and ability to quickly respond to any emerging cybersecurity challenges. In addition, as we continue to serve our clients within our existing capacities, we plan to continue making strategic acquisitions of small-to-medium-sized engineer-led cybersecurity service businesses to continue to expand our service scope and geographical coverage. We believe that having a world-class technology team with multi-faceted expertise is key to providing technology agnostic solutions to our clients and maximizing their return on investment from cybersecurity and information technology (“IT”) spending.
Corporate History
We were formed on March 5, 2019 as a Delaware corporation. Our principal offices are located at 6900 E. Camelback Road, Suite 240, Scottsdale, AZ 85251.
Effective 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 the Company. As of December 31, 2019, GenResults is a wholly owned subsidiary of Cerberus Sentinel. Due to the companies being under common control, the Company accounted for the acquisition as a reorganization.
On April 12, 2019, we consummated a transaction whereby VCAB merged with and into us. 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. 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 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 merger in order to increase our shareholder base in order to, among other things, assist us in satisfying the listing standards of a national securities exchange.
Effective as of October 1, 2019, we entered into an Agreement and Plan of 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 register our common stock, par value $0.00001, under the Exchange Act. The Registration Statement became effective on December 1, 2019.
Significant Developments in 2020
Effective May 25, 2020, we entered into a Stock Purchase Agreement with Techville and its sole shareholder, pursuant to which Techville became a wholly owned subsidiary of the Company. 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 the Company’s common stock.
Effective August 1, 2020, we entered into a Stock Purchase Agreement with Clear Skies and its equity holders, pursuant to which Clear Skies became a wholly owned subsidiary of the Company. 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 the Company’s common stock.
On December 16, 2020, we entered into an Agreement and Plan of Merger pursuant to which Alpine became a wholly owned subsidiary of the Company. All units representing membership interests of Alpine issued and outstanding were converted into 900,000 shares of our common stock.
Results of Operations
Comparison of the Years Ended December 31, 2020 to the Years Ended December 31, 2019
Our financial results for the year ended December 31, 2020 are summarized as follows in comparison to the year ended December 31, 2019:
For the Year Ended December 31, 2020
Cerberus TalaTek Techville Other(1) Total
Revenue $ 1,764,940 $ 3,440,893 $ 1,336,887 $ 698,108 $ 7,240,828
Cost of Sales 1,158,802 2,423,831 417,563 365,370 4,365,566
Gross Profit 606,138 1,017,062 919,324 332,738 2,875,262
Operating Expenses 3,996,289 835,261 1,037,282 413,292 6,282,124
Operating Income (Loss) (3,390,151 ) 181,801 (117,958 ) (80,554 ) (3,406,862 )
Other Income (Expense) (2,722 ) (4,136 ) (385 ) (6,400 )
Gain (Loss) before income taxes $ (3,392,873 ) $ 182,644 $ (122,094 ) $ (80,939 ) $ (3,413,262 )
For the Year Ended December 31, 2019
Cerberus TalaTek Techville Other(1) Total
Revenue $ 982,466 $ 925,464 $ - $ - $ 1,907,930
Cost of Sales 465,078 471,094 - - 936,172
Gross Profit 517,388 454,370 - - 971,758
Operating Expenses 1,966,737 347,536 - - 2,314,273
Operating Gain (Loss) (1,449,349 ) 106,834 - - (1,342,515 )
Other Income (Expense) (11,942 ) - - (11,853 )
Gain (Loss) before income taxes $ (1,461,291 ) $ 106,923 $ - $ - $ (1,354,368 )
Variance
Cerberus TalaTek Techville Other(1) Total
Revenue $ 782,474 $ 2,515,429 $ 1,336,887 $ 698,108 $ 5,332,898
Cost of revenue 693,724 1,952,737 417,563 365,370 3,429,394
Gross profit 88,750 562,692 919,324 332,738 1,903,504
Operating expenses 2,029,552 487,725 1,037,282 413,292 3,967,851
Operating loss (1,940,802 ) 74,967 (117,958 ) (80,554 ) (2,064,347 )
Other expense 9,220 (4,136 ) (385 ) 5,453
Loss before income taxes $ (1,931,582 ) $ 75,721 $ (122,094 ) $ (80,939 ) $ (2,058,894 )
(1) Based on the insignificant nature of the operational activities of Clear Skies and Alpine during the year ended December 31, 2020, the Company has combined them into one category, titled Other, for the purposes of this presentation.
Revenues
For the Year Ended December 31, 2020
Cerberus TalaTek Techville Other(1) Total
Managed services $ 1,124,031 $ 679 $ 690,159 $ - $ 1,814,869
Consulting services 640,909 3,440,214 646,728 698,108 5,425,959
Total revenue $ 1,764,940 $ 3,440,893 $ 1,336,887 $ 698,108 $ 7,240,828
For the Year Ended December 31, 2019
Cerberus TalaTek Techville Other(1) Total
Managed services $ 424,023 $ 235 $ - $ - $ 424,258
Consulting services 558,443 925,229 - - 1,483,672
Total revenue $ 982,466 $ 925,464 $ - $ - $ 1,907,930
Variance
Cerberus TalaTek Techville Other(1) Total
Managed services $ 700,008 $ 444 $ 690,159 $ - $ 1,390,611
Consulting services 82,466 2,514,985 646,728 698,108 3,942,287
Total revenue $ 782,474 $ 2,515,429 $ 1,336,887 $ 698,108 $ 5,332,898
(1) Based on the insignificant nature of the operational activities of Clear Skies and Alpine during the year ended December 31, 2020, the Company has combined them into one category, titled Other, for the purposes of this presentation.
Revenues increased for Cerberus by $782,474, or 80%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as a result of the Company having an increase of approximately $417,000 in managed security services to a major customer.
Revenues increased for TalaTek by $2,515,429, or 271%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as a result of the acquisition, which was consummated on October 1, 2019. Approximately $2,515,000 of the increase was a result of TalaTek’s gap and risk assessment services that is attributable to one major customer.
Revenues increased for Techville by $1,336,887, or 100%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as a result of the acquisition, which was consummated on May 25, 2020. Approximately $690,000 is a result of Techville’s managed service offering, Tech Connect Pro, approximately $370,000 was a result of Techville’s consulting service offering, Tech Connect Cloud, and approximately $269,000 was a result of miscellaneous hardware sales associated with Techville’s consulting service offerings.
Revenues increased for Clear Skies and Alpine by $698,108, or 100%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as a result of the acquisitions, which were consummated on August 1, 2020 and December 16, 2020, respectively. Approximately $698,000 is a result of Clear Skies’ and Alpine’s gap and risk assessment service offerings.
Expenses
Cost of Revenues
For the Year Ended December 31, 2020
Cerberus TalaTek Techville Other(1) Total
Managed services $ 4,839 $ - $ 417,546 $ - $ 422,385
Consulting services 225,387 427,056 3,701 656,161
Cost of payroll 928,576 1,996,775 - 361,669 3,287,020
Total cost of revenue $ 1,158,802 $ 2,423,831 $ 417,563 $ 365,370 $ 4,365,566
For the Year Ended December 31, 2019
Cerberus TalaTek Techville Other(1) Total
Managed services $ 143,065 $ - $ - $ - $ 143,065
Consulting services 124,183 24,066 - - 148,249
Cost of payroll 197,830 447,028 - - 644,858
Total cost of revenue $ 465,078 $ 471,094 $ - $ - $ 936,172
Variance
Cerberus TalaTek Techville Other(1) Total
Managed services $ (138,226 ) $ - $ 417,546 $ - $ 279,320
Consulting services 101,204 402,990 3,701 507,912
Cost of payroll 730,746 1,549,747 - 361,669 2,642,162
Total cost of revenue $ 693,724 $ 1,952,737 $ 417,563 $ 365,370 $ 3,429,394
(1) Based on the insignificant nature of the operational activities of Clear Skies and Alpine during the year ended December 31, 2020, the Company has combined them into one category, titled Other, for the purposes of this presentation.
Cost of revenues increased for Cerberus by $693,724, or 149%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, and was primarily the result of an increase in payroll related costs of approximately $732,000 due to an increase in employee and contract labor after the reorganization with GenResults.
Cost of revenues increased for TalaTek by $1,952,737, or 415%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as a result of the acquisition, which was consummated on October 1, 2019. Approximately $1,550,000 was attributable to TalaTek’s payroll and related services.
Cost of revenues increased for Techville by $417,563, or 100%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as a result of the acquisition, which was consummated on May 25, 2020.
Cost of revenues increased for Clear Skies and Alpine by $365,370, or 100%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as a result of the acquisitions, which were consummated on August 1, 2020 and December 16, 2020, respectively.
Operating Expenses
For the Year Ended December 31, 2020
Cerberus TalaTek Techville Other(1) Total
Professional fees $ 861,844 $ 3,500 $ 43,657 $ 17,525 $ 926,526
Advertising and marketing 41,889 104,599 3,617 150,236
Selling, general and administrative 1,170,702 727,162 993,494 402,728 3,294,086
Stock based compensation 1,896,276 - - - 1,896,276
Loss on impairment - - - - -
Loss on write-off of account receivable 15,000 - - - 15,000
Total operating expenses $ 3,985,711 $ 835,261 $ 1,037,282 $ 423,870 $ 6,282,124
For the Year Ended December 31, 2019
Cerberus TalaTek Techville Other(1) Total
Professional fees $ 616,393 $ 5,943 $ - $ - $ 622,336
Advertising and marketing 25,292 27,201 - - 52,493
Selling, general and administrative 501,401 214,392 - - 715,793
Stock based compensation 823,651 - - - 823,651
Loss on impairment - 100,000 - - 100,000
Loss on write-off of account receivable - - - - -
Total operating expenses $ 1,966,737 $ 347,536 $ - $ - $ 2,314,273
Variance
Cerberus TalaTek Techville Other(1) Total
Professional fees $ 245,451 $ (2,443 ) $ 43,657 $ 17,525 $ 304,190
Advertising and marketing 16,597 77,398 3,617 97,743
Selling, general and administrative 669,301 512,770 993,494 402,728 2,578,293
Stock based compensation 1,072,625 - - - 1,072,625
Loss on impairment - (100,000 ) - - (100,000 )
Loss on write-off of account receivable 15,000 - - - 15,000
Total operating expenses $ 2,018,974 $ 487,725 $ 1,037,282 $ 423,870 $ 3,967,851
(1) Based on the insignificant nature of the operational activities of Clear Skies and Alpine during the year ended December 31, 2020, the Company has combined them into one category, titled Other, for the purposes of this presentation.
Operating expenses increased for Cerberus by $2,018,974, or 103%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily as a result of (i) an increase in stock-based compensation of $1,072,625 due to an increase in stock option grants as a result of the TalaTek, Techville, Clear Skies and Alpine acquisitions, (ii) an increase of $245,451 in professional fees relating to accounting and legal expenses as a result of the TalaTek, Techville, Clear Skies and Alpine acquisitions, and (iii) an increase in selling, general and administrative expenses of $669,301 primarily due to an increase of $525,500 in payroll and related benefits as a result of the increase in employees after the reorganization with GenResults and approximately $150,000 in software and computer supplies expense.
Operating expenses increased for TalaTek by $487,725, or 140%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as a result of the acquisition, which was consummated on October 1, 2019. Approximately $297,000 was attributable to TalaTek’s administrative payroll and benefits.
Operating expenses increased for Techville by $1,037,282, or 100%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as a result of the acquisition, which was consummated on May 25, 2020. Approximately $833,000 was attributable to Techville’s administrative payroll and benefits.
Operating expenses increased for Clear Skies and Alpine by $423,870, or 100%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as a result of the acquisitions, which were consummated on August 1, 2020 and December 16, 2020, respectively. Approximately $257,000 was attributable to Clear Skies’ and Alpine’s administrative payroll and benefits.
Working Capital Surplus
Our working capital surplus as of December 31, 2020, in comparison to our working capital surplus as of December 31, 2019, is summarized as follows:
As of
December 31, December 31,
Current assets $ 6,346,008 $ 2,478,887
Current liabilities 3,863,594 578,687
Working capital surplus $ 2,482,414 $ 1,900,200
The increase in current assets is primarily due to increases in cash and cash equivalents, accounts receivable and prepaid expenses and other current assets of $3,320,385, $474,869 and $71,867, respectively. The increase in current liabilities is primarily due to increases in accounts payable and accrued expenses and convertible notes payable of $340,903 and $2,926,609, respectively.
Cash Flows
Our cash flows for the year ended December 31, 2020, in comparison to our cash flows for the year ended December 31, 2019, can be summarized as follows:
Year Ended December 31,
Net cash used in operating activities $ (1,702,080 ) $ (203,358 )
Net cash provided by investing activities 285,297 169,790
Net cash provided by financing activities 4,737,167 1,830,207
Increase in cash $ 3,320,384 $ 1,796,639
Operating Activities
Net cash used in operating activities was $1,702,080 for the year ended December 31, 2020 and was primarily due to the net loss of $3,413,262 which was partially offset by non-cash expenses of approximately $1,896,000 related to stock-based compensation. Net cash used in operating activities was $203,358 for the year ended December 31, 2019, primarily due to net loss of $1,354,368, which was partially offset by non-cash expenses of approximately $824,000 related to stock-based compensation and an decrease in accounts payable and accrued expenses of $146,027.
Investing Activities
Net cash provided by investing activities of $285,297 for the year ended December 31, 2020 was due to cash acquired in the Techville, Clear Skies and Alpine Acquisitions. Net cash provided by investing activities of $169,790 for the year ended December 31, 2019 was due to cash acquired in the TalaTek acquisition.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2020 was $4,737,167, which was primarily due to cash received from the sale of the Company’s common stock of $1,131,009, cash received as loans from the U.S. Small Business Administration’s Paycheck Protection Program of $709,600, and cash received from the issuance of a convertible note payable of $3,000,000. Net cash provided by financing activities for the year ended December 31, 2019 was $1,830,207 and was due to cash received from the sale of the Company’s common stock of $2,045,000. This was partially offset by cash distributions to member of $124,580.
Effects of Inflation
We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.
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 revenues and expenses during the reporting period. Our significant estimates and assumptions include the allowance of 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, and expected dividend rate. Actual results could differ from those estimates.
Fair Value Measurement
The fair value measurement guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in the valuation of an asset or liability. It establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the fair value measurement guidance are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Business Combination
The Company allocates the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred. The allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. The Company includes the results of operations of the business that it has acquired in its consolidated results prospectively from the date of acquisition.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized in profit or loss.
Goodwill
Goodwill represents the excess of the purchase price of the acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at year end, at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is tested for impairment at the reporting level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit.
Impairment of Long-lived Assets
We will periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances warrant such a review and at least annually. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose.
Revenue Recognition
The Company’s agreements with its clients are primarily service contracts that range in duration from a few months to one year. The Company recognizes revenue when control of these services is transferred to the client for an amount, referred to as the transaction price, which reflects the consideration to which the Company is expected to be entitled in exchange for those goods or services.
A contract with a client exists only when:
● the parties to the contract have approved it and are committed to perform their respective obligations;
● the Company can identify each party’s rights regarding the distinct services to be transferred (“performance obligations”);
● the Company can determine the transaction price for the services to be transferred; and
● the contract has commercial substance and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the client.
For the majority of its contracts, the Company receives non-refundable upfront payments. The Company does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between the time of transfer of the promised goods or services to the client and the time the client pays for these goods or services to be generally one year or less. The Company’s credit terms to clients generally average thirty days, although in some cases there are payments required in 15 days.
The Company does not disclose the value of unsatisfied performance obligations for contracts with original expected duration of one year or less.
Disaggregation of Revenue
Revenue consists of the following by service offering for the year ended December 31, 2020:
Managed
Services
Consulting
Services
Total
Primary Sector Markets
Public $ - $ 3,473,113 $ 3,473,113
Private 1,733,144 1,912,269 3,645,413
Not-for-Profit 81,725 40,577 122,302
$ 1,814,869 $ 5,425,959 $ 7,240,828
Major Service Lines
CISO as a Service $ 20,550 $ - $ 20,550
Gap and Risk Assessment - 4,779,231 4,779,231
Managed Security Services 1,099,749 - 1,099,749
Tech Connect Pro 640,218 - 640,218
Tech Connect Cloud - 158,645 158,645
Tech Connect Security 53,674 - 53,674
Hardware - 269,272 269,272
Other 218,811 219,489
$ 1,814,869 $ 5,425,959 $ 7,540,828
Revenue consists of the following by service offering for the year ended December 31, 2019:
Managed
Services
Consulting
Services
Total
Primary Sector Markets
Public $ - $ 606,541 $ 606,541
Private 405,153 611,400 1,016,553
Not-for-Profit 19,105 265,731 284,836
$ 424,258 $ 1,483,672 $ 1,907,930
Major Service Lines
CISO as a Service $ 216,000 $ - $ 216,000
Gap and Risk Assessment - 1,483,672 1,483,672
Managed Security Services 208,023 - 208,023
Tech Connect Pro - - -
Tech Connect Cloud - - -
Tech Connect Security - - -
Hardware - - -
Other -
$ 424,258 $ 1,483,672 $ 1,907,930
Practical Expedients
As part of Accounting Standards Codification (“ASC”) 606, the Company has adopted several practical expedients including the following: (i) the Company has determined that it need not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised service to the customer and when the customer pays for that service will be one year or less and (ii) the Company recognizes any incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.
Reimbursed Expenses
The Company includes reimbursed expenses in revenues and costs of revenue as the Company is primarily responsible for fulfilling the promise to provide the specified service, including the integration of the related services into a combined output to the client, which are inseparable from the integrated service. These costs include such items as consumables, transportation and travel expenses, over which the Company has discretion in establishing prices.
Costs of Revenue
Costs of revenue include (i) compensation and benefits for billable employees and consultants directly involved with delivering services offerings and engagements; (ii) consumables used for the services; and (iii) other expenses directly related to service contracts such as professional services, meals and travel expenses.
Volatility in Stock-Based Compensation
The volatility is based on historical volatilities of companies in comparable stages as well as the historical volatility of companies in the industry and, by statistical analysis of the daily share-pricing model. The volatility of stock-based compensation at any point in time is based on historical volatility of similar companies in the industry for the last two to five years.
New and Recently Adopted Accounting Pronouncements
Any new and recently adopted accounting pronouncements are more fully described in Note 2 to our consolidated financial statements herein for the year ended December 31, 2020.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by Item 8 is included following the “Index to Financial Statements” on page contained in this Annual Report on Form 10-K.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
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 Securities Exchange Act of 1934, as amended (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 our principal executive officer who is also our principal 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 principal executive officer who is also our principal 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 principal executive officer and principal 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
Management of our Company and its consolidated subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of its principal executive and principal financial officers and effected by the Company’s Board, 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.
Material Weakness in Internal Control over Financial Reporting
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 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 the Company’s internal control over financial reporting as of December 31, 2020 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 the Company’s 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
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 the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company 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, 2020 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. As of the date of this 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
ITEM 9B. OTHER INFORMATION
On December 14, 2020, the Company appointed Bryce Hancock, 44, as Chief Operating Officer. Mr. Hancock brings more than 20 years of C-Level and managerial experience to the Company. Most recently, from 2012 to 2018, he served as the Chief Financial Officer, Treasurer and Secretary at BeyondTrust, a global cyber security software company, where Mr. Hancock was responsible for many aspects of the BeyondTrust business, including finance, accounting and operations, leading up to its sale to Bomgar Corporation in 2018. Previously, from 2009 to 2012, he served as Chief Financial Officer at eEye Digital Security. He also serves on the board of directors of the Fiesta Bowl. Mr. Hancock received degrees in finance and accounting, magna cum laude, from the University of Arizona in 1998.
PART III

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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 March 25, 2021.
Name
Age
Position
David G. Jemmett (3)
Chief Executive Officer and Director
William Santos
President
Bryce Hancock
Chief Operating Officer
Stephen Scott
Director
Sandra Morgan (1) (2) (3)
Director
Ret. General Robert C. Oaks (3)
Director
R. Scott Holbrook (1) (2) (3)
Director
Andrew McCain (1) (2)
Director
(1) Member of the audit committee
(2) Member of the compensation committee
(3) Member of the nominating committee
Our Executive Officers
David G. Jemmett - Chief Executive Officer & Director
Mr. Jemmett has been our Chief Executive Officer and a director of the Company since its formation, and also serves as or Principal Financial Officer and Principal Accounting Officer. He also founded GenResults, LLC in 2015, which is now a wholly owned subsidiary of the Company. From January 2014 through December 2014, Mr. Jemmett served as CEO of NantCloud, LLC, a provider of secure cloud-hosted applications for healthcare customers, and CTO of NantWorks, LLC, a parent company for the “Nant” family of companies. From 2005 to 2013, Mr. Jemmett was founder and CEO 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.
Mr. Jemmett is qualified for service as a director of the Company due to his extensive business background, his experience in the cybersecurity industry, and his significant equity ownership in the Company.
William Santos - President
Mr. Santos has been our President since July 15, 2019. He also served as our Chief Operating Officer from July 15, 2019 through December 10, 2020. He has spent over 30 years in technology sales, service delivery, and executive leadership. Prior to his appointment as the Company’s President, from February 2017 to November 2018, Mr. Santos was President of Stelligent Systems, an AWS DevOps organization. After the sale of Stelligent to Mphasis, he served as CEO of Mphasis-Stelligent, a company specializing in DevOps Automation on the Amazon Web Services (AWS) cloud, from November 2018 to July 2019. Prior to February 2017, and after a 10-year career with IBM, Mr. Santos successfully launched and sold Atlantec Group, his first professional services firm. He started the professional services business unit at Software House International (“SHI”). After SHI, Mr. Santos joined Hosting.com in 2010 to build the professional services organization before shifting roles and leading the acquisition of several professional service organizations including Ntirety, a database services firm, and Stelligent Systems from 2013 to 2018. Mr. Santos has two degrees in computer science and engineering from the Massachusetts Institute of Technology.
Bryce Hancock - Chief Operating Officer
Mr. Hancock was appointed as Chief Operating Officer on December 14, 2020. Mr. Hancock brings more than 20 years of C-Level and managerial experience to the Company. Most recently, from 2012 to 2018, he served as the Chief Financial Officer, Treasurer and Secretary at BeyondTrust, a global cyber security software company, where Mr. Hancock was responsible for many aspects of the BeyondTrust business, including finance, accounting and operations, leading up to its sale to Bomgar Corporation in 2018. Previously, from 2009 to 2012, he served as Chief Financial Officer at eEye Digital Security. He also serves on the board of directors of the Fiesta Bowl. Mr. Hancock received degrees in finance and accounting, magna cum laude, from the University of Arizona in 1998.
Our Directors
Stephen Scott - Director
Mr. Scott was appointed as a director on April 11, 2019 and is a founder of the Company. 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 through 2017. From 2009 until 2016, Mr. Scott was at Van Eck Global, from 2009 to 2014, 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 received a degree in business administration from the University of Florida.
Mr. Scott is qualified for service as a director of the Company due to his background in both the financial services and technology industries.
Sandra Morgan - Director
Ms. Morgan was appointed as a director on February 1, 2021. Ms. Morgan has served as Chairwoman of the Nevada Gaming Control Board from January 2019 to November 2020 and as Commissioner of the Nevada Gaming Commission from May 2018 to January 2019. She also served as Director of External Affairs at AT&T from January 2016 to January 2018. Ms. Morgan also currently serves on the Board of Directors at Fidelity National Financial and holds a Juris Doctor, Law from UNLV.
Ms. Morgan is qualified for service as a director of the Company due to her experience with regulatory and compliance issues.
Ret. General Robert C. Oaks - Director
Ret. General Oaks was appointed as a director on May 1, 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, Oaks was employed at U.S. Airways as Senior Vice President. 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.
Ret. General Oaks is qualified for service as a director of the Company due to his experience with national security issues, including cybersecurity, through his extensive military service.
R. Scott Holbrook - Director
Mr. Holbrook was appointed as a director on May 1, 2019. Since 2013, Mr. Holbrook has been a Principal at Mountain Summit Advisors, a specialty firm focused on mergers and acquisition of primarily healthcare technology and services, and a strategic advisor to Health Catalyst, a company focused on data analytics and warehousing primarily in healthcare. Prior to that time, he served as the Executive Vice President of Medicity, a population health management company providing 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.
Mr. Holbrook is qualified for service as a director of the Company as a result of his significant experience in the healthcare technology sector.
Andrew McCain - Director
Mr. McCain was appointed as a director on May 1, 2019. He is the President and Chief Operating Officer for Hensley Beverage Company, where he has served since 2014. Mr. McCain received his Bachelor of Arts in Mathematics in 1984 and an MBA in 1986 from Vanderbilt University. 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 is qualified for service as a director of the Company due to his significant business experience and leadership.
Board of Directors
Our Board currently consists of six (6) members. All directors hold office until the next annual meeting of stockholders.
Management has been delegated the responsibility for meeting defined corporate objectives, implementing approved strategic and operating plans, carrying on our business in the ordinary course, managing cash flow, evaluating new business opportunities, recruiting staff and complying with applicable regulatory requirements. The Board exercises its supervision over management by reviewing and approving long-term strategic, business and capital plans, material contracts and business transactions, and all debt and equity financing transactions and stock issuances.
Director Independence
Our Board is comprised of a majority of independent directors. In determining director independence, the Company uses the definition of independence in Rule 5605(a)(2) of the listing standards of The Nasdaq Stock Market.
The Board has concluded that each of Ms. Morgan, Ret. General Oaks, Mr. Holbrook and Mr. McCain is “independent” based on the listing standards of the Nasdaq Stock Market, 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.
Board Committees
Our Board has established an Audit Committee, a Compensation Committee and a Nominating Committee, with each comprised of independent directors in accordance with the rules of The Nasdaq Stock Market and applicable federal securities laws and regulations. The members of the Audit Committee are Ms. Morgan and Messrs. McCain and Holbrook. The members of the Compensation Committee are Ms. Morgan and Messrs. Holbrook and McCain. The members of the Nominating Committee are Ms. Morgan and Messrs. Holbrook and Oaks.
Each committee operates under a written charter that has been approved by our Board.
Audit Committee
The Audit Committee (a) assists the Board in fulfilling its oversight of: (i) the quality and integrity of our financial statements; (ii) our compliance with legal and regulatory requirements relating to our financial statements and related disclosures; (iii) the qualifications and independence of our independent auditors; and (iv) the performance of our independent auditors; and (b) prepares any reports that the rules of the SEC require be included in our proxy statement for our annual meeting.
The Audit Committee was formed on December 10, 2020 and did not hold any meetings in the year-ended 2020. The Board has determined that each member of the Audit Committee is an independent director in accordance with the rules of The Nasdaq Stock Market and applicable federal securities laws and regulations. In addition, the Board has determined that Mr. McCain is an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K and has designated him to fill that role.
At no time since the commencement of our most recently completed fiscal year was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the Board of Directors.
The Audit Committee is responsible for the oversight of our financial reporting process on behalf of the Board and such other matters as specified in the Audit Committee’s charter or as directed by the Board. Our Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of any registered public accounting firm engaged by us for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us (or to nominate the independent registered public accounting firm for stockholder approval), and each such registered public accounting firm must report directly to the Audit Committee. Our Audit Committee must approve in advance all audit, review and attest services and all non-audit services (including, in each case, the engagement and terms thereof) to be performed by our independent auditors, in accordance with applicable laws, rules and regulations.
Compensation Committee
The Compensation Committee (i) assists the Board of Directors in discharging its responsibilities with respect to compensation of our executive officers and directors, (ii) evaluates the performance of our executive officers, and (iii) administers our stock and incentive compensation plans and recommends changes in such plans to the Board as needed.
The Compensation Committee was formed on December 10, 2020 and did not hold any meetings in the year-ended 2020. The Board has determined that each member of the Compensation Committee is an independent director in accordance with the rules of The Nasdaq Stock Market and applicable federal securities laws and regulations.
Nominating and Committee
The Nominating Committee assists the Board in (i) identifying qualified individuals to become directors, (ii) determining the composition of the Board and its committees, (iii) developing succession plans for executive officers, (iv) monitoring a process to assess Board effectiveness, and (v) developing and implementing our corporate governance procedures and policies.
The Nominating Committee was formed on December 10, 2020 and did not hold any meetings in the year-ended 2020. The Board has determined that each member of the Nominating Committee is an independent director in accordance with the rules of The Nasdaq Stock Market and applicable federal securities laws and regulations.
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires officers and directors of the Company and persons who beneficially own more than ten percent (10%) of the common stock outstanding 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 regulation to furnish us with copies of all such forms they file.
Our records reflect that all reports which were required to be filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, were not filed on a timely basis.

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The following table shows the total compensation paid or accrued during the years ended December 31, 2020 and 2019, to our Chief Executive Officer, who is also our Chief Financial Officer, and our President and Chief Operating Officer (the “named executive officers”).
Summary Compensation Table
Name and
Principal
Position
Year Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($) (1)
Non-Equity
Incentive
Plan
Compensa-
tion
($)
Non-qualified
Deferred
Compensation
Earnings
($)
All Other
Compensa-
tion
($)
Total ($)
David G. 208,958 - - - - - - 208,958
Jemmett
CEO (2)
56,249 - - - - - - 56,249
William 247,708 - - 180,744 - - - 428,452
Santos
President (3)
61,667 - - 615,645 - - - 677,312
Bryce 9,375 - - 3,333,345 - - - 3,342,720
Hancock
COO (4)
- - - - - - - -
(1) In accordance with SEC rules, 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 for the Company 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 the Company’s Consolidated Financial Statements included in this Annual Report on Form 10-K for the year ended December 31, 2020.
(2) Effective September 30, 2019, the Company entered into an employment agreement with Mr. Jemmett, who has served as our Chief Executive Officer since inception, to serve as the Company’s Chief Executive Officer. Pursuant to the agreement, Mr. Jemmett earned an initial base annual salary of $225,000, which was increased to $250,000 upon the commencement of quotations for our common stock on the OTC Markets on June 26, 2020.
(3) On May 15, 2019, the Company entered into an employment agreement with Mr. Santos to serve as the Company’s Chief Operating Officer. Pursuant to the agreement, as amended, Mr. Santos earns an initial base annual salary of $225,000, with an annual guaranteed bonus of $15,000, which will be increased to an annual base salary of $245,000 upon the Company achieving gross annual revenues of $20,000,000 in any calendar year and an increase to an annual base salary of $300,000 upon the Company achieving gross annual revenues of $40,000,000 in any calendar year. Mr. Santos is entitled to receive a discretionary annual bonus of up to 100% of his annual base salary, at the discretion of the Board, based on performance and company objectives.
(4) On December 14, 2020, the Company entered into an employment agreement with Mr. Hancock to serve as the Company’s Chief Operating Officer. Pursuant to the agreement, Mr. Hancock earns an initial base annual salary of $225,000, which will be increased at the discretion of the Company’s Board.
Narrative Disclosure to Summary Compensation Table
David G. Jemmett
On September 30, 2019, the Company entered into an employment agreement with Mr. Jemmett, who has served as our Chief Executive Officer since inception, to serve as the Company’s 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 the Company’s common stock becoming quoted on the OTC Markets. Mr. Jemmett’s base salary may be increased in accordance with the Company’s 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 the Board, based on performance and Company objectives. Subject to approval by the Board, Mr. Jemmett is entitled to stock options under the Company’s 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, 2020, the Board had not approved or granted any stock options to Mr. Jemmett. Mr. Jemmett is also eligible to participate in the Company’s standard benefit plans.
William Santos
On May 15, 2019, the Company entered into an employment agreement with Mr. Santos to serve as the Company’s Chief Operating Officer (the “Santos Employment Agreement”). The Santos Employment Agreement is evergreen and can be terminated by either party. Pursuant to the Santos Employment Agreement, as amended, Mr. Santos earns an initial base annual salary of $225,000, with an annual guaranteed bonus of $15,000, which will be increased to an annual base salary of $245,000 upon the Company achieving gross annual revenues of $20,000,000 in any calendar year and an increase to an annual base salary of $300,000 upon the Company achieving gross annual revenues of $40,000,000 in any calendar year. Mr. Santos is entitled to receive a discretionary annual bonus of up to 100% of his annual base salary, at the discretion of the Board, based on performance and company objectives. Subject to approval by the Board, Mr. Santos is entitled to stock options under the Company’s 2019 Equity Incentive Plan. Mr. Santos is also eligible to participate in the Company’s standard benefit plans.
Bryce Hancock
On December 14, 2020, the Company entered into an employment agreement with Mr. Hancock to serve as the Company’s Chief Operating Officer (the “Hancock Employment Agreement”). The Hancock Employment Agreement is evergreen and can be terminated by either party. Pursuant to the Hancock Employment Agreement, Mr. Hancock earns an initial base annual salary of $225,000, which may be increased at the discretion of the Board. In addition to Mr. Hancock’s current options, he is also entitled to receive an additional 1,000,000 options immediately before the Company’s listing onto Nasdaq at an exercise price of $2.00 per share and an additional 1,000,000 options to be granted in the future based on certain performance guidelines at the discretion of the Board. Mr. Hancock is also eligible to participate in the Company’s standard benefit plans.
Outstanding Equity Awards at December 31, 2020
The following table summarizes the outstanding equity awards held by each named executive officer as of December 31, 2020.
Name Grant Date Number of
Shares
Underlying
Unexercised
Options (#)
Exercisable
Number of
Shares
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price ($)
Option
Expiration Date
David G. Jemmett - - - - -
William Santos (1) July 15, 2019 1,832,750 1,167,250 0.38 July 15, 2024
January 29, 2020 - 1,000,000
0.50 January 20, 2025
Bryce Hancock (2) December 15, 2020 - 3,000,000 2.00 December 15, 2025
(1) On January 29, 2020, Mr. Santos, under the 2019 Plan, was granted options to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.50 per share that vest at a rate of 33% at the one year anniversary from the grant date, with the remainder vesting in twenty-four equal installments on the last day of each month thereafter. On July 15, 2019, Mr. Santos, under the 2019 Plan, was granted options to purchase 3,000,000 shares of the Company’s common stock at an exercise price of $0.38 per share that vest at a rate of 33% at the one year anniversary from the grant date and then monthly over the subsequent twelve-month period.
(2) On December 15, 2020, Mr. Hancock, under the 2019 Plan, was granted options to purchase 3,000,000 shares of the Company’s common stock at an exercise price of $2.00 per share, that vest at a rate of 30% at the one year anniversary from the grant date, with the remainder vesting in twenty-four equal installments on the last day of each month thereafter.
Option Exercises in 2019
There were no option exercises by our named executive officers during our fiscal year ended December 31, 2020 and 2019.
Director Compensation
The following table sets forth for each director certain information concerning their compensation for the year ended December 31, 2020:
Name (2) Fees
Earned
or
Paid in
Cash
($)
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 (3) - - 34,778 - - - 34,778
Scott Holbrook (3) - - 34,778 - - - 34,778
Andy McCain (3) - - 34,778 - - - 34,778
Sandra Morgan - - - - - - -
Notes:
(1) In accordance with SEC rules, 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 for the Company 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 (Stock Based Compensation) to our financial statements, which are included in the Annual Report on Form 10-K.
(2) All directors receive reimbursement for reasonable out of pocket expenses in attending Board meetings and for participating in our business.
(3) Aggregate number of option awards outstanding as of December 31, 2020 was 1,200,000, or 400,000 each, of which (i) 200,000 options each are exercisable at an exercise price of $0.40 per share and (ii) 200,000 shares each are exercisable at an exercise price of $0.50 per share.
Compensation Committee Interlocks and Insider Participation
None of our executive officers has served as a member of the Board, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our Board or Compensation Committee during the fiscal year ended December 31, 2020.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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 March 30, 2021 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 March 30, 2021 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 117,729,971 shares of common stock outstanding on March 30, 2021.
Security Ownership of Certain Beneficial Holders
Name and Address of
Beneficial Owner
Amount and Nature of
Beneficial Ownership
Percent
Jemmett Enterprises, LLC
c/o Cerberus Cyber Sentinel Corporation
6900 E. Camelback Road, Suite 240
Scottsdale, AZ 85251 66,435,000 (1) 56.43 %
Baan Alsinawi
c/o Cerberus Cyber Sentinel Corporation
6900 E. Camelback Road, Suite 240
Scottsdale, AZ 85251 6,477,778 (4) 5.49 %
Security Ownership of Directors and Executive Officers
Name and Address of
Beneficial Owner
Amount and Nature of
Beneficial Ownership
Percent
David G. Jemmett
c/o Cerberus Cyber Sentinel Corporation
6900 E. Camelback Road, Suite 240
Scottsdale, AZ 85251 66,435,000 (1) 56.43 %
William Santos
c/o Cerberus Cyber Sentinel Corporation
6900 E. Camelback Road, Suite 240
Scottsdale, AZ 85251 3,443,167 (2) 2.84 %
Bryce Hancock
c/o Cerberus Cyber Sentinel Corporation
6900 E. Camelback Road, Suite 240
Scottsdale, AZ 85251 - (3) -
Stephen Scott
c/o Cerberus Cyber Sentinel Corporation
6900 E. Camelback Road, Suite 240
Scottsdale, AZ 85251 18,150,000 (5) 15.42 %
Andrew McCain
c/o Cerberus Cyber Sentinel Corporation
6900 E. Camelback Road, Suite 240
Scottsdale, AZ 85251 583,333 (6) <1%
Robert C. Oaks
c/o Cerberus Cyber Sentinel Corporation
6900 E. Camelback Road, Suite 240
Scottsdale, AZ 85251 208,333 (7) <1%
Scott Holbrook
c/o Cerberus Cyber Sentinel Corporation
6900 E. Camelback Road, Suite 240
Scottsdale, AZ 85251 208,333 (7) <1%
Sandra Morgan
c/o Cerberus Cyber Sentinel Corporation
6900 E. Camelback Road, Suite 240
Scottsdale, AZ 85251 25,000 (8) <1%
Directors & Executive Officers as a Group (8 persons) 95,530,944 81.05 %
Notes:
(1) David G. Jemmett, managing member, of Jemmett Enterprises, LLC, has voting and dispositive power over the shares held by Jemmett Enterprises, LLC.
(2) Consists of shares issuable upon the exercise of outstanding options.
(3) Mr. Hancock was granted options to purchase 3,000,000 shares of the Company’s common stock at an exercise price of $2.00 per share, that vest at a rate of 30% at the one year anniversary from the grant date, with the remainder vesting in twenty-four equal installments on the last day of each month thereafter.
(4) Consists of shares held directly and issuable upon the exercise of outstanding options.
(5) Consists of 12,900,000 shares held directly, 5,000,000 shares beneficially held by TVMT LLC and 250,000 shares beneficially held by JLS 401k Trust.
(6) Consists of (i) 375,000 shares held indirectly as executor of the Andrew and Lucy McCain Family Trust and for which Mr. McCain has voting and dispositive power, and (ii) 283,334 shares issuable upon the exercise of outstanding options.
(7) Consists of shares issuable upon the exercise of outstanding options.
(8) Consists of shares issuable upon the exercise of outstanding options.
Securities Authorized for Issuance Under Existing Equity Compensation Plan
The following table summarizes certain information regarding our equity compensation plans as of December 31, 2020:
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) 21,828,700 $ 0.9993 3,171,300
Equity compensation plans not approved by security holders - - -
Total 21,828,700 $ 0.9993 3,171,300
(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 2020 Consolidated Financial Statements included in this Annual Report on Form 10-K for the year ended December 31, 2020.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS INDEPENDENCE
Transactions with Related Persons
Except as set out below, during the year ended December 31, 2020, 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 Executive Officer
On December 31, 2018, the Company entered into an unsecured note payable with Jemmett Enterprises, LLC, an entity under common control of the Company’s Chief Executive Officer and majority stockholder, for a principal amount of $200,000. The note had an original maturity date of June 30, 2020, and bears 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, 2020 and 2019, the Company made cash payments of $50,000 and $90,213, respectively. The outstanding principal balance of this loan is $59,787 and $109,787, as of December 31, 2020 and 2019, respectively.
Note Payable with Entity Beneficially Controlled by Director
On December 23, 2020 , the Company issued a 6% unsecured convertible note to Hensley & Company (the “Lender”), in consideration of the Lender lending the Company $3,000,000 (the “Principal Amount”). The Principal Amount, together with accrued and unpaid interest, is due on December 31, 2021 (the “Maturity Date”), with no prepayment option. Interest is calculated at 6% per annum (based on a 360-day year) and is payable monthly. The Maturity Date may be extended at the Company’s election to December 31, 2022. At any time prior to or on the Maturity Date, the Lender may convert all or any portion of the outstanding Principal Amount and all accrued but unpaid interest thereon into the Company’s common stock at a conversion price of $2.00 per share. Andrew McCain, a Director of the Company, is President and Chief Operating Officer of the Lender.
Sale of Common Stock
On September 22, 2020, the Company issued 250,000 shares of common stock to Hensley & Company with a fair value of $2.00 per share, for cash proceeds of $500,000.
Named Executive Officers and Current Directors
For information regarding compensation for our named executive officers and current directors, see “Executive Compensation.”
Director Independence
See “Directors, Executive Officers and Corporate Governance - Director Independence” and “Directors, Executive Officers and Corporate Governance - Board Committees” in Item 10 above.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Board of the Company has appointed Semple, Marchal & Cooper, LLP (“SMC”) as our independent registered public accounting firm (the “Independent Auditor”) for the year ending December 31, 2020. The following table sets forth the fees billed to the Company for professional services rendered by SMC for the years ended December 31, 2020 and 2019:
Services
Audit fees (1) $ 97,958 $ 53,207
Audit-related fees (2) 90,821 142,429
Tax fees (3) 12,708 2,200
All other fees (4) - 4,845
Total fees $ 201,487 $ 202,681
(1) Audit fees consist of billing for professional services normally provided in connection with statutory and regulatory filings including (i) fees associated with the audits of the Company’s financial statements for the years ended December 31, 2020 and 2019 and, (ii) fees associated with quarterly reviews for the quarters ended March 31, 2020 and 2019, June 30, 2020 and 2019 and September 30, 2020 and 2019.
(2) Audit related fees consist of billings for professional services for reviews of the various Form 10 filings, and the acquisition audits of Talatek, Techville and Clear Skies for the years ended December 31, 2020 and 2019.
(3) The tax fees consist primarily of tax related advisory and preparation services.
(4) All other fees include general advisory professional services primarily related to potential acquisitions.
Pre-Approval Policies and Procedures
Our directors pre-approve all services, including both audit and non-audit services, provided by our independent accountants. For audit services, each year the independent auditor provides our directors with an engagement letter outlining the scope of the audit services proposed to be performed during the year, which must be formally accepted by the directors 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 the Board for approval.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit
Incorporated by Reference
Number
Exhibit Description
Form
Exhibit
Filing Date
3.1
Certificate of Incorporation of Cerberus Cyber Sentinel Corporation filed March 5, 2019
10-12G
3.1
10/2/2019
3.2
Certificate of Amendment of Certificate of Incorporation of Cerberus Cyber Sentinel Corporation filed April 17, 2019
10-12G
3.2
10/2/2019
3.3
Certificate of Amendment of Certificate of Incorporation of the Registrant effective September 26, 2019
10-12G
3.3
10/2/2019
3.4
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
3/30/20
4.2
Description of Securities Registered under Section 12 of the Exchange Act
10-K
4.2
3/30/20
10.1
Agreement for the Purchase and Sale of Limited Liability Company Interests of GenResults, LLC effective April 12, 2019
10-12G
10.1
10/2/2019
10.2
Agreement and Plan of Merger by and among the Registrant, TalaTek, LLC, TalaTek Merger Sub and Baan Alsinawi effective September 23,
10-K
10.2
3/30/20
10.3
Unsecured Note Agreement between the Registrant and Jemmett Enterprises, LLC effective December 31, 2018
10-K
10.3
3/30/20
10.4
Stock Repurchase Agreement between the Registrant and Alan Kierman effective September 1, 2019
10-K
10.4
3/30/20
10.5
Equity Incentive Plan#
10-K
10.5
3/30/20
10.6
Employment Agreement between the Registrant and David G. Jemmett effective September 30, 2019#
10-12G
10.2
10/2/2019
10.7
Employment Agreement between the Registrant and William Santos effective August 13, 2019#
10-12G
10.3
10/2/2019
10.8
Engagement for Financial Services dated November 8, 2019 between the Registrant and Eventus Consulting, P.C.
10-K
10.8
3/30/20
10.9
Stock Purchase Agreement by and among the Registrant, Technologyville, Inc. and Brian Yelm effective May 25, 2020
8-K
10.1
5/29/20
10.10
Share Purchase Agreement among the Registrant, Clear Skies Security, LLC and all of its Members, effective July 31, 2020
8-K
10.1
8/6/20
10.11
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
12/21/20
10.12
6% Unsecured Convertible Note by the Company payable to Hensley & Company, dated December 23, 2020
8-K
10.1
12/29/20
10.13#*
Employment Agreement dated December 14, 2020 by and among Bryce Hancock and the Registrant
21.1*
Subsidiaries of the Registrant
31.1*
Rule 13a-14(a) / 15d-14(a) Certification of Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer
32.1**
Section 1350 Certification of Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer
*Filed herewith.
**In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 is being furnished and not filed.
# Management contracts and compensatory plans and arrangements required to be filed as exhibits pursuant to Item 15(b) of this report