CISO Global, Inc. (formerly Cerberus Cyber Sentinel Corporation) — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021, compared with fiscal year ended December 31, 2020. The filing identifies the registrant as Cerberus Cyber Sentinel Corporation; the company subsequently operates under the CISO Global name. The company provides cybersecurity and compliance services, including managed security, compliance, SOC, vCISO, incident response, forensics, assessments, and training.
Financial performance and position
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $15.1 million | $7.2 million | +$7.9 million, or 109% |
| Security managed services revenue | $11.8 million | $5.4 million | +120% |
| Professional services revenue | $3.3 million | $1.9 million | +78% |
| Gross profit | $1.8 million | $2.9 million | -$1.1 million |
| Gross margin | 11.9% | 39.7% | Lower by approximately 27.8 percentage points |
| Loss from operations | $(39.8) million | $(3.4) million | Loss increased by $36.4 million |
| Net loss | $(39.1) million | $(3.4) million | Loss increased by $35.7 million |
| Basic and diluted loss per share | $(0.33) | $(0.03) | Lower |
| Cash flow from operations | $(7.4) million | $(1.7) million | Higher cash use |
- Operating expenses rose to $41.6 million from $6.3 million, including $22.1 million of goodwill impairment, $8.1 million of stock-based compensation, and $9.8 million of selling, general and administrative expense.
- Net loss margin was approximately negative 258% in 2021 versus negative 47% in 2020, primarily reflecting goodwill impairment, increased stock compensation, and higher operating costs.
- Cash and cash equivalents were $2.7 million at December 31, 2021, down from $5.2 million. Current assets were $9.3 million and current liabilities were $5.1 million, producing working capital of $4.1 million.
- Total assets were $35.8 million and total liabilities were $10.5 million at year-end. Debt and notes payable included approximately $7.0 million of future minimum payments, including $1.7 million classified as current; the company separately reported a $1.5 million related-party convertible note payable.
- Investing activities provided $2.1 million, primarily from cash acquired in acquisitions. Financing activities provided $2.9 million, primarily from $3.25 million of common-stock issuance and additional borrowings, partially offset by debt repayments.
- The company had an accumulated deficit of $44.0 million and stated that it expected to incur additional losses through the end of 2022. Management nevertheless concluded that existing cash and expected operating cash flows would meet requirements for at least the next 12 months.
Material changes versus the prior period
- Revenue more than doubled, largely from acquisitions and increased customers and usage. The 2021 acquisitions of VelocIT, Atlantic, RED74, and Arkavia contributed approximately $4.2 million of revenue during the year.
- Margins deteriorated substantially. Management cited VelocIT’s low-margin hardware revenue, Technologyville expansion costs, increased training costs, and higher payroll expenses.
- Goodwill increased through acquisitions but was reduced by a $22.1 million impairment charge following a quantitative valuation assessment. Ending goodwill was $16.8 million.
- Stock-based compensation increased from $1.9 million to $8.1 million. At year-end, 31.4 million options were outstanding, with approximately $30.5 million of remaining unrecognized compensation expense.
- The $3.0 million related-party convertible note payable to Hensley & Company was converted into 1.5 million common shares on December 31, 2021.
- The company issued 1.625 million shares for $3.25 million of cash and issued additional shares for acquisitions, services, and debt conversion, increasing outstanding shares from 116.1 million at year-end 2020 to 125.9 million at year-end 2021.
- The company was approved for Nasdaq listing in January 2022 and completed a public offering of 2.0 million shares at $5.00 per share, generating approximately $9.5 million of net proceeds.
Guidance, outlook, risks, contingencies, and unusual items
- Management’s strategy is to expand through acquisitions, cross-sell services, centralize operations, and increase recurring managed-services revenue. No specific revenue or earnings guidance was provided.
- The company completed the acquisition of True Digital in January 2022 for $6.2 million in cash and 8.229 million shares. This transaction, the Nasdaq listing, the public offering, and the related-party and management changes occurred after year-end.
- Liquidity remains a significant risk. The company reported substantial operating losses, negative operating cash flow, limited cash, and a need to raise additional capital to support operations and acquisitions. Additional equity financing could dilute existing holders.
- Key business risks include acquisition integration, goodwill impairment, cybersecurity incidents, customer concentration, competition, shortage of qualified cybersecurity personnel, regulatory changes, service-level obligations, litigation, and access to financing.
- One customer represented 20.4% of 2021 revenue. Two customers represented 59.0% of 2020 revenue. Two vendors represented 48% of accounts payable at December 31, 2021.
- Management disclosed material weaknesses in internal control over financial reporting related to risk-assessment procedures and documentation of critical financial-reporting policies. Disclosure controls were therefore considered ineffective. The company is not required to provide an auditor attestation under its emerging growth company status.
- A $470,000 settlement liability was recorded related to Maxim; the subsequent settlement required $470,000 in cash and 400,000 common shares. The filing states that no material legal proceedings were pending at year-end.
- COVID-19 had not produced an appreciable company-specific impact as of the filing, but management continued to identify pandemic-related operational and liquidity risks.
- The company does not expect to pay cash dividends in the foreseeable future.
Most important facts for investors to verify
- Reconcile the company’s current legal name and ticker history with the filing’s use of Cerberus Cyber Sentinel Corporation and the subsequent CISO Global identity.
- Assess whether revenue growth can translate into sustainable gross-margin improvement, positive operating cash flow, and profitability after the 2021 margin decline.
- Review acquisition accounting, goodwill valuation assumptions, the $22.1 million impairment, and the risk of additional impairment charges.
- Verify current debt maturities, related-party obligations, settlement payments, lease commitments, and the use of proceeds from the January 2022 offering.
- Track dilution from acquisitions, employee and director options, the True Digital transaction, public-offering warrants, and other equity issuances.
- Monitor remediation of the disclosed material weaknesses in internal control over financial reporting.
- Evaluate customer concentration, key-person dependence, cybersecurity exposure, acquisition integration, and the company’s ability to raise capital on acceptable terms.