Business Context and Reporting Period
CISO Global, Inc. was identified in the request; the filing itself names the registrant Cerberus Cyber Sentinel Corporation. This unaudited Form 10-Q covers the three months ended March 31, 2020, with comparison to March 31, 2019.
The company provides technology-agnostic cybersecurity consulting and managed services, including gap and risk assessments, compliance auditing, penetration testing, security operations center services, managed security services, and cybersecurity training. TalaTek became a wholly owned subsidiary effective October 1, 2019, materially affecting comparability with the prior period.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $1.068 million | $197,814 |
| Gross profit | $292,980 | $154,151 |
| Gross margin | 27.4% | 77.9% |
| Operating income (loss) | $(836,863) | $102,157 |
| Net income (loss) | $(839,144) | $99,142 |
| Net loss per share | $(0.01) | Not clearly provided on the reported GAAP presentation |
| Net cash from operating activities | $(443,938) | $329,858 |
Revenue consisted primarily of gap and risk assessment services of $930,308 and managed security services of $137,812. No CISO-as-a-service revenue was reported in Q1 2020. Two customers represented 92% of revenue, including one customer at 65%.
Operating expenses were $1.130 million, including $325,429 of stock-based compensation, $196,354 of professional fees, $580,198 of selling, general and administrative expenses, and $27,862 of advertising and marketing.
At March 31, 2020, cash and cash equivalents were $1.573 million, accounts receivable were $584,727, current assets were $2.274 million, and current liabilities were $730,807. Working capital surplus was approximately $1.543 million. Total assets were $4.276 million and total liabilities were $730,807.
Debt included a $109,787 related-party note payable bearing interest at 6% and maturing June 30, 2020. The company also had an undrawn $500,000 secured revolving line of credit. A subsequent April 17, 2020 event added a $530,000 Paycheck Protection Program note at 1% interest, with payments deferred for six months.
Material Changes Versus the Prior Comparable Period
- Revenue increased $870,407, or approximately 440%, primarily because TalaTek contributed $720,505 following its October 2019 acquisition and because the legacy business added gap assessment and managed security services.
- On a pro forma basis, including TalaTek in both periods, Q1 2020 revenue was $1.068 million versus $1.012 million in Q1 2019, while pro forma net loss was $839,144 versus pro forma net income of $111,072.
- Gross margin declined to 27.4% from 77.9%, reflecting the acquired business mix, increased payroll and delivery costs, and other cost of revenue increases.
- Operating expenses increased by $1.078 million, driven by the TalaTek acquisition, higher payroll and benefits, professional fees, and $325,429 of stock-based compensation.
- Cash used in operations increased from $329,858 of cash provided in Q1 2019 to $443,938 of cash used in Q1 2020. Cash declined $303,938 during the quarter after $140,000 of common-stock proceeds.
- The company issued 350,000 common shares for $140,000 and granted 2.570 million stock options. Options outstanding at quarter-end totaled 19.615 million, creating potential dilution that was excluded from diluted loss per share because it was anti-dilutive.
Guidance, Outlook, Risks, and Unusual Items
Management stated that the company expects to incur further losses despite positive revenue and gross-profit trends. Management believed existing cash resources and commitments could support planned operations for at least twelve months from issuance of the financial statements, but acknowledged that additional financing could be required sooner.
- Growth strategy depends on acquiring small- and medium-sized cybersecurity service firms, raising capital, integrating acquisitions, and realizing synergies.
- COVID-19 was identified as a significant risk to operations, customer demand, employee productivity, and broader economic conditions.
- Customer concentration is substantial: two customers generated 92% of Q1 2020 revenue and represented 83% of accounts receivable at quarter-end.
- Approximately $1.073 million of cash exceeded FDIC insurance limits at March 31, 2020.
- The company reported an accumulated deficit of approximately $2.293 million and negative operating cash flow, creating ongoing liquidity and going-concern considerations.
- Disclosure controls and procedures were deemed ineffective because of material weaknesses in internal control over financial reporting previously disclosed in the 2019 Form 10-K.
- No material pending legal proceedings were reported, and management reported no material off-balance-sheet arrangements.
- The company reported no goodwill impairment in Q1 2020; goodwill was $922,579 and identifiable intangible assets, net, were $1.069 million.
Investor Verification Checklist
- Verify the registrant’s corporate name and whether this filing corresponds to the requested CISO Global, Inc. entity.
- Reconcile reported growth using both GAAP results and the pro forma TalaTek comparison, given the acquisition’s significant impact on period comparability.
- Assess customer concentration, renewal prospects, collectability of accounts receivable, and the effect of COVID-19 on project timing.
- Review liquidity after the April 2020 $530,000 PPP loan, the related-party note maturity, ongoing operating losses, and potential need for additional equity financing.
- Evaluate the dilution and future expense implications of 19.615 million outstanding options and $2.901 million of remaining stock-based compensation cost.
- Review the previously disclosed material weaknesses in internal controls and management’s remediation progress.