Business Context and Reporting Period
This Form 8-K is filed by Cerberus Cyber Sentinel Corporation (trading as CISO) on March 14, 2023, reporting events occurring on March 20, 2023. The filing details a new debt financing arrangement and provides preliminary unaudited financial estimates for the quarter and fiscal year ended December 31, 2022.
Key Financial Metrics
Debt and Liquidity
- New Financing: Issued a $5,000,000 unsecured convertible note to Hensley & Company (dba Hensley Beverage Company) with a 10% annual interest rate, maturing March 20, 2025.
- Conversion Terms: Convertible into common stock at $1.20 per share, subject to beneficial ownership limits.
- Existing Debt Default: The company failed to repay a $5,000,000 promissory note to Bell Bank by its extended maturity date of March 14, 2023. Total owed as of the report date is $5,035,417.
- Default Consequences: The interest rate on the Bell Bank note increased from 4% to 7% due to the default.
- Use of Proceeds: Net proceeds from the new note and existing cash are intended to fully repay the Bell Bank note.
Revenue and Profit (Preliminary Estimates)
- Q4 2022 Revenue: $14.7 million.
- FY 2022 Revenue: $46.5 million.
- Q4 2022 Operating Loss: $9.4 million.
- FY 2022 Operating Loss: $33.2 million.
Note: Cash flow, margins, and specific liquidity ratios are not explicitly provided in this filing text.
Material Changes vs. Prior Period
- Revenue Growth: Q4 2022 revenue increased by $8.8 million (150%) compared to Q4 2021 ($5.9 million). Full-year 2022 revenue increased by $31.4 million (207%) compared to 2021 ($15.1 million).
- Loss Reduction: Q4 2022 operating loss decreased by $23.5 million (71%) compared to Q4 2021 ($32.9 million). Full-year 2022 operating loss decreased by $6.6 million (17%) compared to 2021 ($39.8 million).
- Debt Status: Transitioned from a current default on the Bell Bank note to securing new financing to resolve the obligation.
Guidance, Risks, and Unusual Items
- Forward-Looking Statements: The company disclaims any obligation to update expectations or forward-looking statements. Preliminary estimates are not indicative of future results.
- Related Party Transaction: Andrew McCain, a director of the company, serves as President and COO of the Purchaser (Hensley & Company).
- Default Risk: The new note includes a default interest rate of 24% per annum if an "Event of Default" occurs.
- Financial Data Status: The financial results provided are preliminary, unaudited estimates prepared by management and have not been reviewed by the independent auditor.
Investor Verification Checklist
- Verify the final audited financial statements for the fiscal year ended December 31, 2022, to confirm the preliminary revenue and loss figures.
- Confirm the successful repayment of the Bell Bank note using the proceeds from the new Hensley & Company note.
- Review the full text of the Purchase Agreement (Exhibit 10.1) and Convertible Note (Exhibit 10.2) for specific covenants and default triggers.
- Monitor the company's cash position to ensure it can meet the monthly interest payments on the new 10% note.
- Assess the impact of the related-party transaction with Hensley & Company on future capital raising activities.