UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 25, 2020
CERBERUS CYBER SENTINEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 000-56059 | 83-4210278 | ||
(State or other jurisdiction | (Commission File | (IRS Employer | ||
of incorporation | Number) | Identification No.) |
7333 E. Doubletree Ranch Road, Suite D270, Scottsdale, Arizona 85258
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (480) 389-3444
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12) |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b)) |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
None | N/A | N/A |
Indicate by check mark whether the registrant is an emerging growth company as defined in in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b -2 of this chapter).
Emerging growth company [X]
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
EXPLANATORY NOTE
Pursuant to the Stock Purchase Agreement (the “Agreement”) dated on May 25, 2020 between Cerberus Cyber Sentinel Corporation, a Delware corporation (the “Company”), and Technologyville, Inc., an Illinois corporation (“Techville”), and its sole shareholder, Brian Yelm (“Yelm”), all of Techville’s outstanding common shares that were owned by Yelm were exchanged for the issuance of 3,392,271 share of common stock, par value $0.00001, of the Company.
This Amendment No. 1 on Form 8-K/A includes the financial statements and pro forma financial information required by Item 9.01.
2 |
Item 9.01 Financial Statements and Exhibits.
(a) | Financial Statements of Businesses Acquired |
In accordance with Item 9.01(a), Techville’s audited financial statements for the fiscal year ended December 31, 2019 are filed herewith as Exhibit 99.1.
In accordance with Item 9.01(a), Techville’s unaudited condensed financial statements for the three months ended March 31, 2020 and 2019 are filed herewith as Exhibit 99.2.
(b) | Pro Forma Financial Information |
In accordance with Item 9.01(b), the Company’s pro forma unaudited combined statements of operations for the three months ended March 31, 2020 and for the fiscal year ended December 31, 2019 are filed herewith as Exhibit 99.3.
(c) | Exhibits |
* | Filed herewith |
3 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CERBERUS CYBER SENTINEL CORPORATION | ||
By: | /s/ David G. Jemmett | |
David G. Jemmett | ||
Chief Executive Officer (Principal Executive and Principal Accounting Officer) |
||
August 7, 2020 |
4 |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated August 7, 2020, with respect to the financial statements of Technologyville, Inc. for the year ended December 31, 2019, included in this Form 8-K/A of Cerberus Cyber Sentinel Corporation. We consent to the incorporation by reference of said report in the General Form for Registration of Cerberus Cyber Sentinel Corporation on Form 10 (File No. 000-56059).
/s/ Semple, Marchal & Cooper, LLP
Phoenix, Arizona
August 7, 2020
Exhibit 99.1
TECHNOLOGYVILLE, INC.
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2019
TABLE OF CONTENTS
F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholder of
Technologyville, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Technologyville, Inc. (the “Company”) as of December 31, 2019, the related statements of operations, changes in stockholder’s equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019, and the results of its operations, changes in stockholder’s equity, and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Semple, Marchal & Cooper, LLP
Certified Public Accountants
We have served as the Company’s auditor since 2020.
Phoenix, Arizona
August 7, 2020
F-2 |
BALANCE SHEET
December 31, 2019 | ||||
ASSETS | ||||
Current Assets: | ||||
Cash and cash equivalents | $ | 33,796 | ||
Accounts receivable, net of allowance for doubtful accounts of $30,846 | 94,090 | |||
Other current assets | 1,128 | |||
Total Current Assets | 129,014 | |||
Property and equipment, net of accumulated depreciation of $6,905 | 62,146 | |||
Total Assets | $ | 191,160 | ||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||
Current Liabilities: | ||||
Accounts payable and accrued expenses | 68,930 | |||
Line of credit | 64,000 | |||
Loan payable | 8,921 | |||
Total Current Liabilities | 141,851 | |||
Long-term Liabilities: | ||||
Loan payable, net of current portion | 46,136 | |||
Total Liabilities | 187,987 | |||
Commitments and Contingencies | ||||
Stockholder’s Equity: | ||||
Common stock, $0.10 par value; 10,000 shares authorized; 1,000 shares issued and outstanding | 100 | |||
Retained earnings | 3,073 | |||
Total Stockholder’s Equity | 3,173 | |||
Total Liabilities and Stockholder’s Equity | $ | 191,160 |
The accompanying footnotes are an integral part of these financial statements.
F-3 |
STATEMENT OF OPERATIONS
Year Ended | ||||
December 31, 2019 | ||||
Revenue: | ||||
Tech Connect | $ | 1,447,653 | ||
Hardware | 507,746 | |||
Other | 204,077 | |||
Total revenue | 2,159,476 | |||
Cost of goods sold | 682,436 | |||
Total gross profit | 1,477,040 | |||
Operating expenses: | ||||
Salaries and benefits | 972,709 | |||
Selling, general and administrative | 410,732 | |||
Total operating expenses | 1,383,441 | |||
Income from operations | 93,599 | |||
Other expense: | ||||
Interest expense, net | (14,097 | ) | ||
Total other expense | (14,097 | ) | ||
Net income | $ | 79,502 |
The accompanying footnotes are an integral part of these financial statements.
F-4 |
STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2019
Common Stock | Retained | |||||||||||||||
Shares | Amount | Earnings | Total | |||||||||||||
Balance at January 1, 2019 | 1,000 | $ | 100 | $ | 30,657 | $ | 30,757 | |||||||||
Distributions to stockholder | - | - | (107,086 | ) | (107,086 | ) | ||||||||||
Net income | - | - | 79,502 | 79,502 | ||||||||||||
Balance as of December 31, 2019 | 1,000 | $ | 100 | $ | 3,073 | $ | 3,173 |
The accompanying footnotes are an integral part of these financial statements.
F-5 |
STATEMENT OF CASH FLOWS
Year Ended | ||||
December 31, 2019 | ||||
Cash flows from operating activities: | ||||
Net Income | $ | 79,502 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||
Provision for doubtful accounts | 30,846 | |||
Depreciation | 6,905 | |||
Changes in operating assets and liabilities: | ||||
Accounts receivable | 24,550 | |||
Other current assets | 350 | |||
Accounts payable and accrued expenses | 14,449 | |||
Net cash provided by operating activities | 156,602 | |||
Cash flows from investing activities: | ||||
Purchases of property and equipment | (4,646 | ) | ||
Net cash used in investing activities | (4,646 | ) | ||
Cash flows from financing activities: | ||||
Proceeds from line of credit | 495,000 | |||
Distributions to stockholder | (111,586 | ) | ||
Payments on loan payable | (4,848 | ) | ||
Payments on line of credit | (503,834 | ) | ||
Net cash used in financing activities | (125,268 | ) | ||
Net increase in cash and cash equivalents | 26,688 | |||
Cash and cash equivalents - beginning of period | 7,108 | |||
Cash and cash equivalents - end of period | $ | 33,796 | ||
Supplemental cash flow information: | ||||
Cash paid for: | ||||
Interest | $ | 14,110 | ||
Noncash investing and financing activities: | ||||
Loan issued for purchase of vehicle | $ | 59,905 | ||
Capital contribution for purchase of vehicle | $ | 4,500 |
The accompanying footnotes are an integral part of these financial statements.
F-6 |
NOTES TO FINANCIAL STATEMENTS
Note 1 – organization and business operations
Corporate History
Technologyville, Inc. (“Technologyville” or the “Company”) was formed on September 9, 2005 as an Illinois corporation. The Company’s principal offices are located at 2413 W. Algonquin Rd., Suite 136, Algonquin, Illinois 60102.
Business Overview
The Company is a security consulting company that provides clients with managed services to help automate their information technology infrastructure. The Company offers tailored managed services with various supplemental services such as cloud backup, spam filtering, web filtering and enhanced security for clients with advanced regulatory compliance.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of Company’s management, who is responsible for their integrity and objectivity.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent liabilities at the date of the financial statements. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined with precision, actual results could differ from these estimates which may cause the Company’s future results to be affected.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the allowance for doubtful accounts.
Revenue
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which the Company adopted beginning on January 1, 2019, utilizing the modified retrospective method. The approach was applied to contracts that were in process as of January 1, 2019. The adoption of ASC Topic 606 did not have an impact on the Company’s reported revenue or contracts in process at January 1, 2019. The reported results for the year ended December 31, 2019 reflect the application of ASC Topic 606.
The Company evaluates the criteria outlined in ASC Topic 606, Principal Agent Considerations, in determining whether it is appropriate to record gross amount of product and services sales and related costs or the net amount earned as revenue. Generally, when the Company is primarily obligated in a transaction, is subject to inventory risk, has latitude in establishing prices and selecting suppliers, or has several but not all of these indicators, revenue is recorded at the gross amount. If the Company is not primarily obligated and amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two, the Company generally records the net amounts as revenue earned. The Company has determined that it acts as the principal in its revenue transactions with customers.
F-7 |
The Company’s revenues are derived from managed and consulting services offerings. With respect to managed services, the Company provides support for its clients’ network infrastructure, remote infrastructure administration, and cybersecurity services including, but not limited to, antivirus and patch management. With respect to consulting services, the Company provides disaster recovery and data backup consulting solutions.
Revenue Streams
The Company has four distinct revenue streams, Tech Connect Pro, Tech Connect Cloud Services and Drive (“Tech Connect Cloud”), Tech Connect Security, and Hardware. The Company derives revenues from Tech Connect Pro from annual information technology (“IT”) support contracts which provides the client with unlimited IT support for their network infrastructure. The Company derives revenues from Tech Connect Cloud Services and Drive from reviewing the client’s current infrastructure and disaster recovery plan and providing disaster recovery and data backup solutions. The Company derives revenues from Tech Connect Security from providing remote administration, patch management and security features including, but not limited to, antivirus patching. The Company derives revenues from Hardware from providing the client with equipment suggested during the Managed and Consulting Services noted above.
For the purposes of presentation on the Statement of Operations, the line item Tech Connect consists of the following revenue streams: (i) Tech Connect Pro, (ii) Tech Connect Cloud, and (iii) Tech Connect Security.
Performance Obligations
The Company’s contracts’ transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company has determined the performance obligations for the following services:
Tech Connect Pro: Management has determined that services provided under Tech Connect Pro services contain a single performance obligation. The Company bills the client on a monthly basis under the annual contract and revenue is recognized as earned. For those clients that pay for the services upfront, the Company recognizes the revenue ratably over the course of the contract.
Tech Connect Cloud: Management considers these services to be time and materials with multiple performance obligations. Revenue is allocated based on the approved hours worked and rate stated in the individual Statements of Work for the project.
Tech Connect Security: Management considers these services to be time and materials with multiple performance obligations. Revenue is allocated based on the approved hours worked and rate stated in the individual statements of work for the project.
Hardware: Management considers these services to contain a single performance obligation. The Company recognizes revenue on delivery of equipment to the client.
Practical Expedients
As part of 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.
F-8 |
Disaggregated Revenues
Revenue consists of the following by service offering for the fiscal year ended December 31, 2019:
Tech Connect Pro | Tech Connect Cloud | Tech Connect Security | Hardware | Other | Total | |||||||||||||||||
$ | 1,119,545 | $ | 247,553 | $ | 80,555 | $ | 507,746 | $ | 204,077 | $ | 2,159,476 |
Contract Modifications
There were no contract modifications during the year ended December 31, 2019. Contract modifications are not routine in the performance of the Company’s contracts.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Accounts Receivable
Accounts receivable are reported at their outstanding unpaid principal balances, net of allowances for doubtful accounts. The Company periodically assesses its accounts and other receivables for collectability on a specific identification basis. The Company provides for allowances for doubtful receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. Payments are generally due within 15 days of invoice. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. Accounts receivable are unsecured and non-interest bearing.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. Vehicle costs for the Company are capitalized, as incurred, and depreciated on a straight-line basis over five years.
Maintenance and repairs are charged to expense as incurred. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets.
Advertising and Marketing Costs
The Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $192 for the year ended December 31, 2019, and are recorded in selling, general and administrative expenses on the statement of operations.
F-9 |
Fair Value Measurements
As defined in ASC 820, Fair Value Measurement, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs 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 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.
Level 1: | Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
Level 2: | Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. |
Level 3: | Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash flow methodologies and similar techniques. |
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, accounts payable and accrued expenses, and other current liabilities approximate their fair values using level 3 inputs, based on the short-term maturity of these instruments. The carrying amount of the note payable approximates the estimated fair value for this financial instrument as management believes that such debt and interest payable on the note approximates the Company’s incremental borrowing rate.
Income Taxes
The Company is an S- Corporation that is treated as a disregarded entity for federal and state tax purposes. Accordingly, the Company is not subject to federal or state income taxes. The income or loss of the Company is included in the return of its sole member. Therefore, no provision, liability, or benefit for income taxes has been included in these financial statements. Additionally, since the Company is a disregarded entity for U.S. tax purposes, the 2017 U.S. tax reform, which was enacted on December 22, 2017, has no impact on the Company or the financial statements. The Company is generally subject to tax audits for its federal and state tax returns for tax years since 2016.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard is effective for the Company’s interim and annual periods beginning January 1, 2022. Management does not believe that adoption of ASU 2016 - 02 will have a material impact on the Company’s financial statements and related disclosures.
F-10 |
All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31, 2019 | ||||
Vehicle | $ | 69,051 | ||
69,051 | ||||
Less: accumulated depreciation | (6,905 | ) | ||
Property and equipment, net | $ | 62,146 |
Total depreciation expense for the year ended December 31, 2019 was $6,905.
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following amounts:
December 31, 2019 | ||||
Accounts payable | $ | 2,354 | ||
Sales tax payable | 2,204 | |||
Accrued expenses – credit card liabilities | 64,372 | |||
$ | 68,930 |
NOTE 5 – LOAN PAYABLE AND LINE OF CREDIT
Line of Credit
On August 24, 2017, the Company entered into a secured revolving line of credit with Wintrust Bank (“Wintrust”) for $75,000. The line of credit bears interest at 1.99% for the first twelve (12) months, then Prime plus 2%, with a floor rate of 6% and a maturity date of August 24, 2018. The interest rate at December 31, 2019 was 6.75%. The line of credit is collateralized by all the Company’s assets. There are no financial covenants requiring the Company to maintain specific financial ratios.
On July 12, 2019, the Company entered into a second renewal agreement of the line of credit with Wintrust. Pursuant to the renewal, the maturity date was extended to August 24, 2020. During the year ended December 31, 2019, the Company drew a total of $495,000 and made payments of $503,834. At December 31, 2019, $64,000 was outstanding.
Loan Payable - Auto
On April 29, 2019, the Company entered into note payable with VCI Account Services, that subsequently was assigned to U.S. Bancorp, for a principal amount of $59,905. The note has a maturity date of May 12, 2025, and bears an interest rate of 5.77% per annum. During the year ended December 31, 2019, the Company made cash payments of $6,921 of which $4,848 and $2,073 was attributed to principal and interest, respectively. The loan is collateralized by the vehicle. There are no financial covenants requiring the Company to maintain specific financial ratios.
F-11 |
Future minimum principal payments for the above mentioned loan and line of credit over the next five years and thereafter are as follows:
Total | ||||
2020 | $ | 72,921 | ||
2021 | 9,449 | |||
2022 | 10,009 | |||
2023 | 10,602 | |||
2024 | 11,230 | |||
Thereafter | 4,846 | |||
$ | 119,057 |
Note 6 - Stockholder’S Equity
During the year ended December 31, 2019, the Company distributed capital of $107,086.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Vehicle Lease
On April 28, 2019, the Company entered into a vehicle operating lease with VW Credit Leasing, Inc. The lease has a term of 38 months with monthly payments of $795 and has a maturity date of June 27, 2022. Total lease expense was $7,158 for the year ended December 31, 2019.
The future minimum lease payments over the next four years are as follows:
Total | ||||
2020 | $ | 9,543 | ||
2021 | 9,543 | |||
2022 | 4,772 | |||
$ | 23,858 |
Legal Claims
There are no material pending legal proceedings in which the Company is a party or in which any owner or officer of the Company is a party adverse to us or has a material interest adverse to the Company.
NOTE 8 – CONCENTRATION OF CREDIT RISK
Cash Deposits
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of December 31, 2019, the Company had no amounts in excess of the FDIC insured limit.
Revenues
Two customers accounted for 36% of revenue for the year ended December 31, 2019, as set forth below:
Customer A | 19 | % | ||
Customer B | 17 | % |
F-12 |
Accounts Receivable
Three customers accounted for 56% of the accounts receivable as of December 31, 2019, as set forth below:
Customer A | 23 | % | ||
Customer B | 19 | % | ||
Customer C | 14 | % |
NOTE 9 – SUBSEQUENT EVENTS
On May 25, 2020, the Company entered into a stock purchase agreement with Cerberus Cyber Sentinel Corporation, a Delaware corporation. All assets and liabilities were purchased in this stock for stock transaction.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic which continues to spread throughout the United States and the World. The Company is monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread, in addition to the impact on its employees. Due to the rapid development and fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company’s operations and liquidity is uncertain as of the date of this report. While there could ultimately be a material impact on operations and liquidity of the Company, at the time of issuance, the impact could not be determined.
On June 22, 2020, under the U.S. Small Business Administration’s Payroll Protection Program, the Company entered into a note payable with a financial institution for $179,600 at an interest rate of 1% per annum and a maturity date of June 22, 2025. Pursuant to the note, principal and interest payments are deferred for ten months, which, at that time the Company may apply for loan forgiveness. If the Company does not apply for loan forgiveness the Company will be required to make monthly payments of $3,819 starting on May 1, 2021. All remaining principal and interest is due and payable at the maturity date. At any time during the term of the note, the note holder may call all remaining amounts owed in full.
F-13 |
Exhibit 99.2
TECHNOLOGYVILLE, INC.
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
TABLE OF CONTENTS
F-1 |
BALANCE SHEETS
March 31, 2020 | December 31, 2019 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 33,095 | $ | 33,796 | ||||
Accounts receivable, net of allowance for doubtful accounts of $30,846 | 73,161 | 94,090 | ||||||
Other current assets | - | 1,128 | ||||||
Total Current Assets | 106,256 | 129,014 | ||||||
Property and equipment, net of accumulated depreciation of $10,358 and $6,905, respectively | 58,693 | 62,146 | ||||||
Total Assets | $ | 164,949 | $ | 191,160 | ||||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | 82,288 | 68,930 | ||||||
Due to stockholder | 29,739 | - | ||||||
Line of credit | 43,705 | 64,000 | ||||||
Note payable | 9,050 | 8,921 | ||||||
Total Current Liabilities | 164,782 | 141,851 | ||||||
Long-term Liabilities: | ||||||||
Note payable, net of current portion | 43,824 | 46,136 | ||||||
Total Liabilities | 208,606 | 187,987 | ||||||
Commitments and Contingencies | ||||||||
Stockholder’s Equity (Deficit): | ||||||||
Common stock, $0.10 par value; 10,000 shares authorized; 1,000 shares issued and outstanding | 100 | 100 | ||||||
Retained earnings (accumulated deficit) | (43,757 | ) | 3,073 | |||||
Total Stockholder’s Equity (Deficit) | (43,657 | ) | 3,173 | |||||
Total Liabilities and Stockholder’s Equity (Deficit) | $ | 164,949 | $ | 191,160 |
The accompanying footnotes are an integral part of these unaudited condensed financial statements.
F-2 |
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended | ||||||||
March 31, 2020 | March 31, 2019 | |||||||
Revenue: | ||||||||
Tech Connect | $ | 347,177 | $ | 355,449 | ||||
Hardware | 133,443 | 172,779 | ||||||
Other | 68,454 | 47,002 | ||||||
Total revenue | 549,074 | 575,230 | ||||||
Cost of goods sold | 156,723 | 185,144 | ||||||
Total gross profit | 392,351 | 390,086 | ||||||
Operating expenses: | ||||||||
Salaries and benefits | 289,468 | 273,965 | ||||||
Selling, general and administrative | 68,686 | 86,919 | ||||||
Total operating expenses | 358,154 | 360,884 | ||||||
Income from operations | 34,197 | 29,202 | ||||||
Other expense: | ||||||||
Interest expense, net | 4,592 | 2,766 | ||||||
Total other expense | 4,592 | 2,766 | ||||||
Net income | $ | 29,605 | $ | 26,436 |
The accompanying footnotes are an integral part of these unaudited condensed financial statements.
F-3 |
STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(Unaudited)
Retained | ||||||||||||||||
Earnings/ | ||||||||||||||||
Common Stock | Accumulated | |||||||||||||||
Shares | Amount |
Deficit | Total | |||||||||||||
Balance at January 1, 2019 | 1,000 | $ | 100 | $ | 30,657 | $ | 30,757 | |||||||||
Distributions made to stockholder | - | - | (38,493 | ) | (38,493 | ) | ||||||||||
Net income | - | - | 26,436 | 26,436 | ||||||||||||
Balance as of March 31, 2019 | 1,000 | $ | 100 | $ | 18,600 | $ | 18,700 | |||||||||
Balance at January 1, 2020 | 1,000 | $ | 100 | $ | 3,073 | $ | 3,173 | |||||||||
Distributions made to stockholder | - | - | (76,435 | ) | (76,435 | ) | ||||||||||
Net income | - | - | 29,605 | 29,605 | ||||||||||||
Balance as of March 31, 2020 | 1,000 | $ | 100 | $ | (43,757 | ) | $ | (43,657 | ) |
The accompanying footnotes are an integral part of these unaudited condensed financial statements.
F-4 |
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended | ||||||||
March 31, 2020 | March 31, 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net Income | $ | 29,605 | $ | 26,436 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 3,453 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 20,929 | 72,074 | ||||||
Other current assets | 1,128 | 1,478 | ||||||
Accounts payable and accrued expenses | 13,358 | 7,265 | ||||||
Due to stockholder | (6,196 | ) | 18,995 | |||||
Net cash provided by operating activities | 62,277 | 126,248 | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from line of credit | 35,000 | 75,000 | ||||||
Distributions to stockholder | (40,500 | ) | (47,169 | ) | ||||
Payment on loan payable | (2,183 | ) | - | |||||
Payment on line of credit | (55,295 | ) | (147,834 | ) | ||||
Net cash used in financing activities | (62,978 | ) | (120,003 | ) | ||||
Net increase (decrease) in cash | (701 | ) | 6,245 | |||||
Cash and cash equivalents - beginning of period | 33,796 | 7,108 | ||||||
Cash and cash equivalents - end of period | $ | 33,095 | $ | 13,353 | ||||
Supplemental cash flow information: | ||||||||
Cash paid for: | ||||||||
Interest | $ | 3,811 | $ | 2,772 | ||||
Noncash investing and financing activities: | ||||||||
Due to stockholder amounts settled as a capital contribution (reduction) | $ | (35,935 | ) | $ | 8,675 |
The accompanying footnotes are an integral part of these unaudited condensed financial statements.
F-5 |
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 – organization and business operations
Corporate History
Technologyville, Inc. (“Technologyville” or the “Company”) was formed on September 9, 2005 as an Illinois corporation. The Company’s principal offices are located at 2413 W. Algonquin Rd., Suite 136, Algonquin, Illinois 60102.
Business Overview
The Company is a security consulting company that provides clients with managed services to help automate their information technology infrastructure. The Company offers tailored managed services with various supplemental services such as cloud backup, spam filtering, web filtering and enhanced security for clients with advanced regulatory compliance.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial information as of and for the three months ended March 31, 2020 and 2019 has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial position at such date and the operating results and cash flows for such periods. Operating results for the three months ended March 31, 2020 and 2019 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent liabilities at the date of the financial statements. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined with precision, actual results could differ from these estimates which may cause the Company’s future results to be affected.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the allowance for doubtful accounts.
Revenue
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which the Company adopted beginning on January 1, 2019, utilizing the modified retrospective method. The approach was applied to contracts that were in process as of January 1, 2019. The adoption of ASC Topic 606 did not have an impact on the Company’s reported revenue or contracts in process at January 1, 2019. The reported results for the three months ended March 31, 2020 and 2019 reflect the application of ASC Topic 606.
The Company evaluates the criteria outlined in ASC Topic 606, Principal Agent Considerations, in determining whether it is appropriate to record the gross amount of product and services sales and related costs or the net amount earned as revenue. Generally, when the Company is primarily obligated in a transaction, is subject to inventory risk, has latitude in establishing prices and selecting suppliers, or has several but not all of these indicators, revenue is recorded at the gross amount. If the Company is not primarily obligated and amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two, the Company generally records the net amounts as revenue earned. The Company has determined that it acts as the principal in its revenue transactions with customers.
F-6 |
The Company’s revenues are derived from managed and consulting services offerings. With respect to managed services, the Company provides support for its clients’ network infrastructure, remote infrastructure administration, and cybersecurity services including, but not limited to, antivirus and patch management. With respect to consulting services, the Company provides disaster recovery and data backup consulting solutions.
Revenue Streams
The Company has four distinct revenue streams: Tech Connect Pro, Tech Connect Cloud Services and Drive (“Tech Connect Cloud”), Tech Connect Security, and Hardware. The Company derives revenues from Tech Connect Pro from annual information technology (“IT”) support contracts which provides the client with unlimited IT support for their network infrastructure. The Company derives revenues from Tech Connect Cloud Services and Drive from reviewing the client’s current infrastructure and disaster recovery plan and providing disaster recovery and data backup solutions. The Company derives revenues from Tech Connect Security from providing remote administration, patch management and security features including, but not limited to, antivirus patching. The Company derives revenues from Hardware from providing the client with equipment suggested during the Managed and Consulting Services noted above.
For the purposes of presentation on the Statement of Operations, the line item Tech Connect consists of the following revenue streams: (i) Tech Connect Pro, (ii) Tech Connect Cloud, and (iii) Tech Connect Security.
Performance Obligations
The Company’s contracts’ transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company has determined the performance obligations for the following services:
Tech Connect Pro: Management has determined that services provided under Tech Connect Pro services contain a single performance obligation. The Company bills the client on a monthly basis under the annual contract and revenue is recognized as earned. For those clients that pay for the services upfront, the Company recognizes the revenue ratably over the course of the contract.
Tech Connect Cloud: Management considers these services to be time and materials with multiple performance obligations. Revenue is allocated based on the approved hours worked and rate stated in the individual Statements of Work for the project.
Tech Connect Security: Management considers these services to be time and materials with multiple performance obligations. Revenue is allocated based on the approved hours worked and rate stated in the individual statements of work for the project.
Hardware: Management considers these services to contain a single performance obligation. The Company recognizes revenue on delivery of equipment to the client.
Practical Expedients
As part of 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.
F-7 |
Disaggregated Revenues
Revenue consists of the following by service offering for the three months ended March 31, 2020:
Tech Connect | Tech Connect Cloud | Tech Security | Hardware | Other | Total | |||||||||||||||||
$ | 256,505 | $ | 68,540 | $ | 22,132 | $ | 133,443 | $ | 68,454 | $ | 549,074 |
Revenue consists of the following by service offering for the three months ended March 31, 2019:
Tech Connect | Tech Connect Cloud | Tech Connect Security | Hardware | Other | Total | |||||||||||||||||
$ | 257,014 | $ | 82,013 | $ | 16,422 | $ | 172,779 | $ | 47,002 | $ | 575,230 |
Contract Modifications
There were no contract modifications during the three months ended March 31, 2020 and 2019. Contract modifications are not routine in the performance of the Company’s contracts.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Accounts Receivable
Accounts receivable are reported at their outstanding unpaid principal balances, net of allowances for doubtful accounts. The Company periodically assesses its accounts and other receivables for collectability on a specific identification basis. The Company provides for allowances for doubtful receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. Payments are generally due within 30 days of invoice. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. Accounts receivable are unsecured and non-interest bearing.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. Vehicle costs for the Company are capitalized, as incurred, and depreciated on a straight-line basis over five years.
Maintenance and repairs are charged to expense as incurred. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets.
F-8 |
Advertising and Marketing Costs
The Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $18 and $146 for the three months ended March 31, 2020 and 2019, respectively, and are recorded in selling, general and administrative expenses on the statement of operations.
Fair Value Measurements
As defined in ASC 820, Fair Value Measurement, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs 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 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.
Level 1: | Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
Level 2: | Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. |
Level 3: | Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash flow methodologies and similar techniques. |
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, accounts payable and accrued expenses, and other current liabilities approximate their fair values using level 3 inputs, based on the short-term maturity of these instruments. The carrying amount of the note payable approximates the estimated fair value for this financial instrument as management believes that such debt and interest payable on the note approximates the Company’s incremental borrowing rate.
Income Taxes
The Company is an S-Corporation that is treated as a disregarded entity for federal and state tax purposes. Accordingly, the Company is not subject to federal or state income taxes. The income or loss of the Company is included in the return of its sole member. Therefore, no provision, liability, or benefit for income taxes has been included in these financial statements. Additionally, since the Company is a disregarded entity for U.S. tax purposes, the 2017 U.S. tax reform, which was enacted on December 22, 2017, has no impact on the Company or the financial statements. The Company is generally subject to tax audits for its federal and state tax returns for tax years since 2016.
F-9 |
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard is effective for the Company’s interim and annual periods beginning January 1, 2022. Management does not believe that adoption of ASU 2016 - 02 will have a material impact on the Company’s financial statements and related disclosures.
All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31, 2020 | December 31, 2019 | |||||||
Vehicle | $ | 69,051 | $ | 69,051 | ||||
69,051 | 69,051 | |||||||
Less: accumulated depreciation | (10,358 | ) | (6,905 | ) | ||||
Property and equipment, net | $ | 58,693 | $ | 62,146 |
Total depreciation expense for the three months ended March 31, 2020 and 2019 was $3,453 and $0.
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following amounts:
March 31, 2020 | December 31, 2019 | |||||||
Accounts payable | $ | - | $ | 2,354 | ||||
Sales tax payable | 3,416 | 2,204 | ||||||
Accrued expenses - bonuses | 13,200 | - | ||||||
Accrued expenses – credit card liabilities | 65,672 | 64,372 | ||||||
$ | 82,288 | $ | 68,930 |
NOTE 5 – LOAN PAYABLE AND LINE OF CREDIT
Line of Credit
On August 24, 2017, the Company entered into a secured revolving line of credit with Wintrust Bank (“Wintrust”) for $75,000. The line of credit bears interest at 1.99% for the first twelve (12) months, then Prime plus 2%, with a floor rate of 6% and a maturity date of August 24, 2018. The interest rate at March 31, 2020 was 6%. The line of credit is collateralized by all the Company’s assets. There are no financial covenants requiring the Company to maintain specific financial ratios.
F-10 |
On July 12, 2019, the Company entered into a second renewal agreement of the line of credit with Wintrust. Pursuant to the renewal, the maturity date was extended to August 24, 2020. During the three months ended March 31, 2020 and 2019, the Company drew a total of $35,000 and $75,000 and made payments of $55,295 and $147,834, respectively. At March 31, 2020 and December 31, 2019, $43,705 and $64,000 was outstanding, respectively.
Loan Payable - Auto
On April 29, 2019, the Company entered into note payable with VCI Account Services, that subsequently was assigned to U.S. Bancorp, for a principal amount of $59,905. The note has a maturity date of May 12, 2025 and bears an interest rate of 5.77% per annum. During the three months ended March 31, 2020, the Company made cash payments of $2,966 of which $2,183 and $783 was attributed to principal and interest, respectively. The loan is collateralized by the vehicle. There are no financial covenants requiring the Company to maintain specific financial ratios.
Future minimum principal payments for the above mentioned loan and line of credit over the next five years and thereafter are as follows:
Total | ||||
2020 | $ | 50,442 | ||
2021 | 9,449 | |||
2022 | 10,009 | |||
2023 | 10,602 | |||
2024 | 11,230 | |||
Thereafter | 4,847 | |||
$ | 96,579 |
NOTE 6 – RELATED PARTY TRANSACTIONS
Due to Stockholder
From time to time, the Company’s sole stockholder will make purchases on behalf of the Company for operating expenses. At the direction of the sole stockholder, the Company can either repay the balance in cash or adjust the capital contribution of the sole stockholder. The outstanding balance was $29,739 and $0 at March 31, 2020 and December 31, 2019, respectively.
Note 7 – Stockholder’S Equity
During the three months ended March 31, 2020 and 2019, the Company distributed cash capital of $40,500 and $47,169, respectively.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Vehicle Lease
On April 28, 2019, the Company entered into a vehicle lease with VW Credit Leasing, Inc. The lease has a term of 38 months with monthly payments of $795 and has a maturity date of June 27, 2022. Total lease expense was $2,386 for the three months ended March 31, 2020.
The future minimum lease payments over the next three years are as follows:
Total | ||||
2020 | $ | 7,158 | ||
2021 | 9,543 | |||
2022 | 4,772 | |||
$ | 21,473 |
F-11 |
Legal Claims
There are no material pending legal proceedings in which the Company is a party or in which any owner or officer is a party adverse to us or has a material interest adverse to the Company.
NOTE 9 – CONCENTRATION OF CREDIT RISK
Cash Deposits
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of March 31, 2020 and December 31, 2019, the Company had no amounts in excess of the FDIC insured limit.
Revenues
Two customers accounted for 44% of revenue for the three months ended March 31, 2020, as set forth below:
Customer A | 25 | % | ||
Customer B | 19 | % |
Two customers accounted for 36% of revenue for the three months ended March 31, 2019, as set forth below:
Customer A | 23 | % | ||
Customer B | 13 | % |
Accounts Receivable
Three customers accounted for 61% of the accounts receivable as of March 31, 2020, as set forth below:
Customer A | 30 | % | ||
Customer B | 21 | % | ||
Customer C | 10 | % |
Three customers accounted for 56% of the accounts receivable as of December 31, 2019, as set forth below:
Customer A | 23 | % | ||
Customer B | 19 | % | ||
Customer C | 14 | % |
NOTE 10 – SUBSEQUENT EVENTS
On May 25, 2020, the Company entered into a stock purchase agreement with Cerberus Cyber Sentinel Corporation, a Delaware corporation. All assets and liabilities were purchased in this stock for stock transaction.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic which continues to spread throughout the United States and the World. The Company continues to monitor the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread, in addition to the impact on its employees. Due to the rapid development and fluidity of this situation, the magnitude and duration of the pandemic and its impact on the Company’s operations and liquidity is uncertain as of the date of this report. While there could ultimately be a material impact on operations and liquidity of the Company, at the time of issuance, the impact could not be determined.
On June 22, 2020, under the U.S. Small Business Administration’s Payroll Protection Program, the Company entered into a note payable with a financial institution for $179,600 at an interest rate of 1% per annum and a maturity date of June 22, 2025. Pursuant to the note, principal and interest payments are deferred for ten months, which, at that time the Company may apply for loan forgiveness. If the Company does not apply for loan forgiveness the Company will be required to make monthly payments of $3,819 starting on May 1, 2021. All remaining principal and interest is due and payable at the maturity date. At any time during the term of the note, the note holder may call all remaining amounts owed in full.
F-12 |
Exhibit 99.3
CERBERUS CYBER SENTINEL CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as of March 31, 2020 and the unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2020 and the year ended December 31, 2019 are based on the historical consolidated financial statements of Cerberus Cyber Sentinel Corporation, a Delaware corporation (“Cerberus”, ““CCSC” or the “Company”) and Technologyville, Inc., an Illinois corporation (“Techville”) after giving retroactive effect to the Company’s acquisition of Techville effective May 25, 2020 (the “Acquisition”), and applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated balance sheet as of March 31, 2020 is presented as if the Acquisition had occurred on March 31, 2020, and is derived from the unaudited condensed consolidated balance sheet of the Company at March 31, 2020 and the unaudited condensed balance sheet of Techville at March 31, 2020 and gives effect to certain pro forma adjustments. The unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2020 is presented as if the Acquisition had occurred on January 1, 2020 and gives effect to certain pro forma adjustments and are derived from the unaudited condensed consolidated statement of operations of the Company for the three months ended March 31, 2020 and the unaudited condensed consolidated statement of operations of Techville for the three months ended March 31, 2020; the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2019 are derived from the audited historical statement of operations of the Company for the year ended December 31, 2019 and the audited historical statement of operations of Techville for the year ended December 31, 2019 and are presented as if the Acquisition occurred on January 1, 2019 and give effect to certain pro forma adjustments.
The unaudited pro forma condensed consolidated financial information is based on the assumptions set forth in the notes to such information. These adjustments are provisional and subject to further adjustment as additional information becomes available, additional analyses are performed, and as warranted by changes in current conditions and future expectations. The unaudited pro forma adjustments made in preparation of the unaudited pro forma information are based upon available information and assumptions that the Company considers to be reasonable and have been made solely for purposes of developing such unaudited pro forma condensed consolidated financial information for illustrative purposes in compliance with the disclosure requirements of the Securities and Exchange Commission (“SEC”).
The unaudited pro forma adjustments have been made solely for information purposes. The actual results reported by the Company in periods following the Acquisition may differ significantly from that reflected in these unaudited pro forma condensed consolidated financial statements. As a result, the unaudited pro forma condensed consolidated information is not intended to represent and does not purport to be indicative of what the Company’s financial condition or results of operations would have been had the acquisition been completed on the applicable dates of this unaudited pro forma condensed consolidated financial information. In addition, the unaudited pro forma condensed consolidated financial information does not purport to project the future financial condition and results of operations of the Company.
The unaudited pro forma condensed consolidated financial statements, including the notes thereto, should be read in conjunction with:
● | the accompanying notes to the unaudited pro forma condensed consolidated financial statements; |
● | the audited consolidated financial statements of the Company for the year ended December 31, 2019 and the related notes thereto, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2020; |
● | the unaudited condensed consolidated financial statements of the Company for the three months ended March 31, 2020 and 2019 and the related notes thereto, included in the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 13, 2020; |
● | the audited financial statements of Techville for the year ended December 31, 2019 and the related notes thereto, filed as part of Exhibit 99.1 to this Current Report on Form 8-K/A; and |
● | the unaudited condensed financial statements of Techville for the three months ended March 31, 2020 and 2019 and the related notes thereto, filed as part of Exhibit 99.2 to this Current Report on Form 8-K/A. |
The purchase price allocation takes into account the information management believes is reasonable. Nevertheless, the Company has one year from the Closing Date to make a final determination of purchase accounting allocations; and, accordingly, adjustments may be made to the foregoing allocations for the Acquisition.
CERBERUS CYBER SENTINEL CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2020
Historical | Pro Forma | Pro Forma | ||||||||||||||
CCSC | Technologyville | Adjustments | Combined | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 1,572,707 | $ | 33,095 | $ | - | $ | 1,605,802 | ||||||||
Accounts receivable, net | 584,727 | 73,161 | - | 657,888 | ||||||||||||
Prepaid expenses and other current assets | 116,477 | - | - | 116,477 | ||||||||||||
Total Current Assets | 2,273,911 | 106,256 | - | 2,380,167 | ||||||||||||
Property and equipment, net | 9,929 | 58,693 | - | 68,622 | ||||||||||||
Intangible assets, net | 1,069,204 | - | - | 1,069,204 | ||||||||||||
Goodwill | 922,579 | - | 1,400,565 | (1),(2) | 2,279,099 | |||||||||||
Total Assets | $ | 4,275,623 | $ | 164,949 | $ | 1,400,565 | $ | 5,797,092 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable and accrued expenses | $ | 611,020 | $ | 82,288 | $ | - | $ | 693,308 | ||||||||
Line of credit | - | 43,705 | - | 43,705 | ||||||||||||
Stock payable | 10,000 | - | - | 10,000 | ||||||||||||
Due to stockholder | - | 29,739 | 29,739 | |||||||||||||
Note payable - related party | 109,787 | - | - | 109,787 | ||||||||||||
Note payable | - | 9,050 | - | 9,050 | ||||||||||||
Total Current Liabilities | 730,807 | 164,782 | - | 895,589 | ||||||||||||
Long-term Liabilities: | ||||||||||||||||
Note payable, net of current portion | - | 43,824 | - | 43,824 | ||||||||||||
Total Liabilities | 730,807 | 208,606 | - | 939,413 | ||||||||||||
Commitments and Contingencies | ||||||||||||||||
Stockholders’ Equity: | ||||||||||||||||
Common stock, $.00001 par value; 250,000,000 shares authorized; 108,262,500 shares issued and outstanding | 1,083 | - | 34 | (1) | 1,117 | |||||||||||
Additional paid-in capital | 5,836,387 | - | 1,356,874 | (1) | 7,193,261 | |||||||||||
Retained earnings (Accumulated deficit ) | (2,292,654 | ) | (43,657 | ) | 43,657 | (2) | (2,336,699 | ) | ||||||||
Total Stockholders’ Equity | 3,544,816 | (43,657 | ) | 1,400,565 | 4,857,679 | |||||||||||
Total Liabilities and Stockholders’ Equity | $ | 4,275,623 | $ | 164,949 | $ | 1,400,565 | $ | 5,797,092 |
See the unaudited notes to the Pro Forma Condensed Consolidated Financial Statements
CERBERUS CYBER SENTINEL COPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2019
Historical | Pro Forma | Pro Forma | ||||||||||||||
CCSC | Technologyville | Adjustments | Combined | |||||||||||||
Revenues, net | $ | 1,907,930 | $ | 2,159,476 | $ | - | $ | 4,067,406 | ||||||||
Cost of revenues | 936,172 | 682,436 | - | 1,618,608 | ||||||||||||
Total gross profit | 971,758 | 1,477,040 | - | 2,448,798 | ||||||||||||
Operating expenses: | ||||||||||||||||
Professional fees | 622,336 | 32,934 | - | 655,270 | ||||||||||||
Selling, general and administrative | 768,286 | 1,350,507 | - | 2,118,793 | ||||||||||||
Stock based compensation | 823,651 | - | - | 823,651 | ||||||||||||
Loss on impairment of intangible assets | 100,000 | - | - | 100,000 | ||||||||||||
Total operating expenses | 2,314,273 | 1,383,441 | - | 3,697,714 | ||||||||||||
Income (loss) from operations | (1,342,515 | ) | 93,599 | - | (1,248,916 | ) | ||||||||||
Other expense: | ||||||||||||||||
Interest expense, net | (11,853 | ) | (14,097 | ) | - | (25,950 | ) | |||||||||
Total other expense | (11,853 | ) | (14,097 | ) | - | (25,950 | ) | |||||||||
Income (loss) before provision for income taxes | (1,354,368 | ) | 79,502 | - | (1,274,866 | ) | ||||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net income/(loss) | $ | (1,354,368 | ) | $ | 79,502 | $ | - | $ | (1,274,866 | ) | ||||||
Net loss per common share - basic | $ | (0.01 | ) | $ | (0.01 | ) | ||||||||||
Net loss per common share - diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||||||||||
Weighted average shares outstanding - basic | 93,080,426 | 96,472,697 | ||||||||||||||
Weighted average shares outstanding - diluted | 93,080,426 | 96,472,697 |
See the unaudited notes to the Pro Forma Condensed Consolidated Financial Statements
CERBERUS CYBER SENTINEL COPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
Historical | Pro Forma | Pro Forma | ||||||||||||||
CCSC | Technologyville | Adjustments | Combined | |||||||||||||
Revenues, net | $ | 1,068,221 | $ | 549,074 | $ | - | $ | 1,617,295 | ||||||||
Cost of revenues | 775,241 | 156,723 | - | 931,964 | ||||||||||||
Total gross profit | 292,980 | 392,351 | - | 685,331 | ||||||||||||
Operating expenses: | ||||||||||||||||
Professional fees | 196,354 | 6,712 | - | 203,066 | ||||||||||||
Selling, general and administrative | 608,060 | 351,442 | - | 959,502 | ||||||||||||
Stock based compensation | 325,429 | - | - | 325,429 | ||||||||||||
Total operating expenses | 1,129,843 | 358,154 | - | 1,487,997 | ||||||||||||
Income (loss) from operations | (836,863 | ) | 34,197 | - | (802,666 | ) | ||||||||||
Other expense: | ||||||||||||||||
Interest expense, net | (2,281 | ) | (4,592 | ) | - | (6,873 | ) | |||||||||
Total other expense | (2,281 | ) | (4,592 | ) | - | (6,873 | ) | |||||||||
Income (loss) before provision for income taxes | (839,144 | ) | 29,605 | - | (809,539 | ) | ||||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net income/(loss) | $ | (839,144 | ) | $ | 29,605 | $ | - | $ | (809,539 | ) | ||||||
Net loss per common share - basic | $ | (0.01 | ) | $ | (0.01 | ) | ||||||||||
Net loss per common share - diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||||||||||
Weighted average shares outstanding - basic | 108,082,222 | 111,474,493 | ||||||||||||||
Weighted average shares outstanding - diluted | 108,082,222 | 111,474,493 |
See the unaudited notes to the Pro Forma Condensed Consolidated Financial Statements
CERBERUS CYBER SENTINEL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Pro Forma Condensed CONSOLIDATED Financial Statements
NOTE 1 - ACQUISITION OF TECHVILLE
On May 25, 2020, the Company entered into and effected a Stock Purchase Agreement (the “SPA”) with Techville, and its sole shareholder, Brian Yelm (“Yelm”). Pursuant to the terms of the SPA, Techville became a wholly owned subsidiary of the Company. Pursuant to the SPA, at the effective time of the Acquisition, Techville’s outstanding common stock was exchanged for 3,392,271 shares of the Company’s common stock.
Immediately following the Acquisition, the Company had 111,221,384 shares of common stock issued and outstanding. The pre-acquisition stockholders of the Company retained an aggregate of 107,829,113 shares, representing approximately 97% ownership of the post-acquisition company. Therefore, upon consummation of the Acquisition, there was no change in control.
The Company accounted for this transaction in accordance with the acquisition method of accounting for business combinations. Assets and liabilities of the acquired business will be included in the Company’s unaudited condensed consolidated balance sheet as of June 30, 2020, based on the retrospective estimated fair value on the date of Acquisition as determined in a purchase price allocation using available information and making assumptions management believed are reasonable.
Per ASC Topic 805, “Business Combinations” (“ASC 805”), the measurement period is the period after the Acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination. The measurement period shall not exceed one year from the acquisition date. The Company has identified the acquisition date as May 25, 2020. Subsequent to the issuance of these financial statements, the Company expects to obtain a third-party valuation on the fair value of the assets acquired and the liabilities assumed for use in the purchase price allocation.
The following table shows the preliminary allocation of the purchase price for the Company to the acquired identifiable assets, liabilities assumed and goodwill as of May 25, 2020, to be presented in the Company’s unaudited condensed consolidated financial statements for the six months ended June 30, 2020:
Consideration paid | $ | 1,356,908 | ||
Tangible assets acquired: | ||||
Cash | 65,037 | |||
Accounts receivable, net | 80,289 | |||
Vehicle | 58,693 | |||
Total tangible assets | $ | 204,019 | ||
Assumed liabilities: | ||||
Line of credit | 33,705 | |||
Accrued expenses | 117,742 | |||
Loan Payable | 50,896 | |||
Other liabilities | 1,128 | |||
Total assumed liabilities | $ | 203,471 | ||
Net assets acquired | $ | 548 | ||
Goodwill (a.) (b.) | $ | 1,356,360 |
a. Goodwill is the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. In accordance with applicable accounting standards, goodwill is not amortized but instead is tested for impairment at least annually or more frequently if certain indicators are present. Goodwill and intangibles are not deductible for tax purposes
b. Goodwill represents expected synergies from the merger of operations and intangible assets that do not qualify for separate recognition. Cerberus and Techville are both cybersecurity service providers. The acquisition of Techville provided Cerberus potential sales synergies resulting from Cerberus’ access to Techville’s current client-base to offer additional services. Goodwill also represents Techville’s customer list as well as Mr. Yelm’s two-year non-compete clause which the Company was unable to assign a fair value. These items will be assigned a fair value upon the completion of the third-party valuation.
The above purchase price allocation is not reflected in the unaudited pro forma condensed consolidated balance sheet at March 31, 2020 (See Note 4).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited pro forma condensed consolidated financial statements have been compiled in a manner consistent with the accounting policies adopted by the Company. The accounting policies of Techville were not deemed to be materially different to those adopted by the Company. See the Company’s audited financial statements as of December 31, 2019 and 2018.
NOTE 3 - ACQUISITION-RELATED COSTS
In conjunction with the Acquisition, the Company incurred acquisition-related charges, related primarily to investment banking, legal, accounting and other professional services which are expensed as incurred.
NOTE 4 - PRO FORMA ADJUSTMENTS
The unaudited pro forma condensed consolidated financial statements are based upon the historical financial statements of the Company and Techville and certain adjustments which the Company believes are reasonable to give effect to the Acquisition. These adjustments are based upon currently available information and certain assumptions, and therefore the actual impacts will likely differ from the pro forma adjustments. The unaudited pro forma condensed consolidated balance sheet at March 31, 2020 reflects the assets, liabilities and equity positions of the Company and Techville as of March 31, 2020. This differs from the fair value of the assets and liabilities acquired by the Company on May 25, 2020 as discussed above in Note 1. However, the Company believes that the preliminary determination of the fair value of goodwill and other related assumptions utilized in preparing the unaudited pro forma condensed consolidated financial statements provide a reasonable basis for presenting the pro forma effects of the Acquisition.
The adjustments made in preparing the unaudited pro forma condensed consolidated financial statements are as follows:
(1) Reflects the fair value of the 3,392,271 shares of common stock issued to the sole shareholder of Techville in the Acquisition, at $0.40 per share.
(2) Reflects the estimated amount of goodwill purchased as part of the Acquisition and the elimination of Techville’s retained earnings.
(3) No adjustment was made for pro forma taxes on Techville, which has historically been a pass-through entity, given the losses generated by CCSC.
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