UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the Quarterly Period Ended
or
For the Transition Period from _________ to _________
Commission
file number:
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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Indicate
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As of May 16, 2022, there were shares of the registrant’s common stock outstanding.
CERBERUS CYBER SENTINEL CORPORATION
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
TABLE OF CONTENTS
| 2 |
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that reflect management’s current views with respect to future events and financial performance. These statements are based upon beliefs of, and information currently available to, us as of the date hereof, as well as estimates and assumptions made by us. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” or the negative of these terms and similar expressions identify forward-looking statements. Such statements reflect our current view with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to our business, industry, and our operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ materially from those anticipated, believed, estimated, expected, intended, or planned.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.
Forward-looking statements made in this Quarterly Report on Form 10-Q include statements about:
| ● | our ability to achieve and sustain profitability of our existing lines of business and through our wholly owned subsidiaries; | |
| ● | our ability to raise sufficient capital to continue to acquire cybersecurity companies; | |
| ● | our ability to attract and retain cybersecurity talent; | |
| ● | our ability to identify potential acquisition targets within predetermined parameters; | |
| ● | our ability to successfully execute acquisitions, integrate the acquired businesses, and create synergies as a global cybersecurity consolidator; | |
| ● | our ability to attract and retain key technology or management personnel and to expand our management team; | |
| ● | the accuracy of estimates regarding expenses, future revenue, capital requirements, profitability, and needs for additional financing; | |
| ● | our ability to attract and retain clients; | |
| ● | our ability to generate revenue and gross profit; and | |
| ● | our ability to navigate through the increasingly complex cybersecurity regulatory environment. |
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 15, 2022, any of which may cause our or our industry’s actual results, levels of activity, or performance or achievements to be materially different from any future results, levels of activity, or performance or achievements expressed or implied in our forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. Except as required by law, we undertake no obligation to update any forward-looking statements after the date of this report to conform these statements to actual results.
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CERBERUS
CYBER SENTINEL CORPORATION and subsidiaries
CONDENSED
Consolidated Balance Sheets
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowances for doubtful accounts of $ | ||||||||
| Notes receivable, related party | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Contract asset | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net of accumulated depreciation of $ | ||||||||
| Right of use asset, net | ||||||||
| Intangible assets, net of accumulated amortization of $ | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Deferred revenue | ||||||||
| Settlement liability | ||||||||
| Lease liability, current portion | ||||||||
| Loans payable, current portion | ||||||||
| Line of credit | ||||||||
| Convertible note payable, net of debt discount, related party | ||||||||
| Note payable, related party | ||||||||
| Total Current Liabilities | ||||||||
| Long-term Liabilities: | ||||||||
| Loans payable, net of current portion | ||||||||
| Lease liability, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding on March 31, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated translation adjustment | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
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CERBERUS CYBER SENTINEL CORPORATION and subsidiaries
CONDENSED Consolidated STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended | ||||||||
March 31, 2022 | March 31, 2021 | |||||||
| Revenue: | ||||||||
| Security managed services | $ | $ | ||||||
| Professional services | ||||||||
| Total revenue | ||||||||
| Cost of revenue: | ||||||||
| Security managed services | ||||||||
| Professional services | ||||||||
| Cost of payroll | ||||||||
| Stock based compensation | ||||||||
| Total cost of revenue | ||||||||
| Total gross profit | ||||||||
| Operating expenses: | ||||||||
| Professional fees | ||||||||
| Advertising and marketing | ||||||||
| Selling, general and administrative | ||||||||
| Stock based compensation | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Other income (expense) | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ||||
| Foreign currency translation adjustment | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding - basic | ||||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
CERBERUS CYBER SENTINEL CORPORATION and subsidiaries
CONDENSED Consolidated STATEMENTS of CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common Stock | Paid-in | Comprehensive | Retained | |||||||||||||||||||||
| Shares | Amount | Capital | Income | Earnings | Total | |||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | - | $ | ( | ) | $ | |||||||||||||||||
| Stock based compensation - stock options | - | - | - | - | ||||||||||||||||||||
| Stock based compensation - common stock | - | - | - | |||||||||||||||||||||
| Exercise of options | - | - | ||||||||||||||||||||||
| Stock issued for cash in public offering | - | - | ||||||||||||||||||||||
| Stock issued for True Digital acquisition | - | - | ||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | ||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance at January 1, 2021 | $ | $ | - | $ | ( | ) | $ | |||||||||||||||||
| Stock based compensation - stock options | - | - | - | - | ||||||||||||||||||||
| Stock issued for cash | - | - | ||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
CERBERUS CYBER SENTINEL CORPORATION and subsidiaries
CONDENSED Consolidated STATEMENTS OF CASH FLOWS
(Unaudited)
March 31, 2022 | March 31, 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation - stock options | ||||||||
| Issuance of common stock for services | ||||||||
| Depreciation and amortization | ||||||||
| Right of use amortization | ||||||||
| Settlement liability | ( | ) | ||||||
| Gain on termination of operating lease | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Contract assets | ( | ) | ||||||
| Prepaids and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Lease liability | ( | ) | ( | ) | ||||
| Deferred revenue | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Cash paid in acquisitions, net | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from stock option exercise | ||||||||
| Proceeds from line of credit | ||||||||
| Payment on line of credit | ( | ) | ||||||
| Payment on loans payable | ( | ) | ( | ) | ||||
| Payment on notes payable, related party | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rates on cash and cash equivalents | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents - beginning of the period | ||||||||
| Cash and cash equivalents - end of the period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Right of use asset and lease liability recorded upon adoption of ASC 842 | $ | $ | ||||||
| Common stock issued in True Digital acquisition | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
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CERBERUS CYBER SENTINEL CORPORATION and subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Unless otherwise indicated or the context requires otherwise, the terms “we,” “us,” “our,” and “our company” refer to Cerberus Cyber Sentinel Corporation, a Delaware corporation (“Cerberus”), and its wholly owned subsidiaries, including GenResults, LLC, an Arizona limited liability company (“GenResults”), TalaTek, LLC, a Virginia limited liability company (“TalaTek”), Technologyville, Inc., an Illinois corporation (“Techville”), Clear Skies Security, LLC, a Georgia limited liability company (“Clear Skies”), Alpine Security, LLC, an Illinois limited liability company (“Alpine”), Catapult Acquisition Corporation, a New Jersey corporation (“VelocIT”), Southford Equities, Inc., a British Virgin Islands company (“Arkavia”), True Digital Security, Inc., a Delaware corporation (“True Digital”), RED74 LLC, a New Jersey limited liability company (“RED74”), Atlantic Technology Systems, Inc., a New Jersey corporation (“ATS”), Atlantic Technology Enterprises, Inc., a New Jersey corporation (“ATE” and together with ATS, “Atlantic”). Unless otherwise specified, all dollar amounts are expressed in United States dollars.
NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS
Nature of the Business
We are a cybersecurity and compliance company comprised of highly trained and seasoned security professionals who work with clients to enhance or create a better cyber posture in their organization. Cybersecurity, also known as computer security or information technology security, is the protection of computer systems and networks from information disclosure, theft of or damage to their hardware, software, or electronic data, as well as from the disruption or misdirection of the services they provide. The cybersecurity industry has a supply and demand issue wherein there is more demand for cybersecurity services than there are expert and seasoned compliance and cybersecurity professionals available in the market. We seek to identify, attract, and retain highly skilled cyber and compliance teams and bring them together to provide holistic cyber services. We accomplish this through acquisitions, direct hiring, and incentivizing employees with stock options to help retain them. On an ongoing basis, we seek to identify cyber talent that is culturally aligned and that offers operating leverage through both existing customer revenue and relationships. We have invested in enterprise solutions and executive talent to integrate our different organizations into an ecosystem that works together to provide complete and holistic cybersecurity through cross pollination of solutions. The ecosystem is intended to provide additional revenue opportunities and drive overall recurring revenue.
We provide a full range of cybersecurity consulting and related services, encompassing all three pillars of compliance, cybersecurity, and culture. Our services include secured managed services, compliance services, security operations center (“SOC”) services, virtual Chief Information Security Officer (“vCISO”) services, incident response, certified forensics, technical assessments, and cybersecurity training. We believe that culture is the foundation of every successful cybersecurity and compliance program. To deliver that outcome, we developed our unique offering of MCCP+ (“Managed Compliance & Cybersecurity Provider + Culture”), which is the only holistic solution that provides all three of these pillars under one roof from a dedicated team of subject matter experts. In contrast to the majority of cybersecurity firms that are focused on a specific technology or service, we seek to differentiate ourselves by remaining technology agnostic, focusing on accumulating highly sought-after topic experts. We continually seek to identify and acquire cybersecurity talent to expand our service scope and geographical coverage to provide the best possible service for our clients. We believe that bringing together a world-class team of technological experts with multi-faceted expertise in the critical aspects of cybersecurity is key to providing technology agnostic solutions to our clients in a business environment that has suffered from a chronic lack of highly skilled professionals, thereby setting us apart from competitors and in-house security teams. Our goal is to create a culture of security and to help quantify, define, and capture a return on investment from information technology and cybersecurity spending. Our brand rallies around the battle cry: “Cybersecurity is a Culture, not a Product.”
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Corporate and Acquisition History
We were formed on March 5, 2019 as a Delaware corporation. Our principal offices are located at 6900 East Camelback Road, Suite 240, Scottsdale, Arizona 85251.
On April 1, 2019, we acquired GenResults. GenResults was established on June 22, 2015. Prior to our acquisition of GenResults, GenResults was wholly owned by an entity affiliated with David G. Jemmett, our Chief Executive Officer and a director of our company. Due to the companies being under common control, we accounted for the acquisition as a reorganization.
On April 12, 2019, we consummated a transaction whereby VCAB Six Corporation, a Texas corporation, (“VCAB”) merged with and into us (the “VCAB Merger”). At the time of the VCAB Merger, VCAB was subject to a bankruptcy proceeding and had minimal assets, no equity owners, and no liabilities, except for approximately holders of Class 5 Allowed General Unsecured Claims and a holder of allowed administrative expenses (collectively the “Claim Holders”). Pursuant to the terms of the VCAB Merger, and in accordance with the bankruptcy plan, we issued an aggregate of shares of our common stock (the “Plan Shares”) to the Claim Holders as full settlement and satisfaction of their respective claims. As provided in the bankruptcy plan, the Plan Shares were issued pursuant to Section 1145 of the United States Bankruptcy Code. As a result of the VCAB Merger, the separate corporate existence of VCAB was terminated. We entered into the VCAB Merger to increase our stockholder base to, among other things, assist us in satisfying the listing standards of a national securities exchange.
On October 1, 2019, we entered into an agreement and plan of merger with TalaTek (the “TalaTek Merger”) pursuant to which TalaTek became our wholly owned subsidiary. Under the TalaTek Merger, all issued and outstanding units representing membership interests in TalaTek were converted into an aggregate of shares of our common stock.
On October 2, 2019, we filed a registration statement on Form 10-12G with the SEC to effect registration of our common stock, par value $ per share, under the Exchange Act. The registration statement became effective on December 1, 2019.
On May 25, 2020, we entered into a stock purchase agreement with Techville and its sole shareholder, pursuant to which we acquired all of the issued and outstanding common stock of Techville.
On August 1, 2020, we entered into a stock purchase agreement with Clear Skies and its equity holders, pursuant to which we acquired all of the issued and outstanding equity securities of Clear Skies.
On December 16, 2020, we entered into an agreement and plan of merger with Alpine and its sole member, pursuant to which Alpine became our wholly owned subsidiary.
On October 1, 2021, we entered into a stock purchase agreement with ATS, ATE, James Montagne as the sole shareholder of ATS, and James Montagne and Miriam Montagne, as the sole shareholders of ATE.
On October 8, 2021, we entered into a merger agreement with RED74 and Ticato Holdings, Inc., a New Jersey corporation (“Ticato”), and Tim Coleman, as sole shareholder of Ticato. Tim Coleman and Ticato were the sole shareholders of RED74.
| 9 |
On July 26, 2021, we entered into an agreement and plan of merger with VelocIT, pursuant to which VelocIT became a wholly owned subsidiary of our company.
On December 1, 2021, we entered into a stock purchase agreement with Arkavia and all of the owners of Arkavia, pursuant to which we acquired all of the issued and outstanding equity securities of Arkavia.
On January 5, 2022, we entered into a stock purchase agreement (the “True Digital Stock Purchase Agreement”) with certain stockholders of True Digital and an agreement and plan of merger (the “True Digital Merger Agreement”) with True Digital and certain of its other stockholders. On January 19, 2022, the transactions contemplated by the True Digital Stock Purchase Agreement and the True Digital Merger Agreement were consummated, with True Digital becoming a wholly owned subsidiary of our company.
On
January 18, 2022, we completed a $ underwritten public offering of shares of our common stock, pursuant to which an aggregate
of
Liquidity
The
accompanying unaudited condensed consolidated financial statements have been prepared on the basis that we will continue as a
going concern, which contemplates realization of assets and satisfying liabilities in the normal course of business. At March 31, 2022,
we had an accumulated deficit of $
To date, we have
funded operations primarily through the sale of equity in private placements and revenue generated by our services.
During the three months ended March 31, 2022, we received $
Although we expect that we will need to raise additional capital for future acquisitions, based on our current cash resources and commitments, we believe we will be able to maintain our current planned development and corresponding level of expenditure for at least 12 months from the date of the issuance of these unaudited condensed consolidated financial statements, although no assurance can be given that we will not need additional funds prior to such time.
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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, has been prepared in accordance with accounting principles generally accepted in the United States (“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 our 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 dates and the operating results and cash flows for such periods. Operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission (the “SEC”). These unaudited financial statements and related notes should be read in conjunction with our audited financial statements for the year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the SEC on April 15, 2022.
Consolidation
The unaudited condensed consolidated financial statements include the accounts of our company and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to the financial statements for the three months ended March 31, 2021, to conform to the financial statements presentation for the three months ended March 31, 2022. These reclassifications had no effect on net loss or cash flows as previously reported.
Use of Estimates
Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.
We believe the critical accounting policies discussed below affects our more significant judgments and estimates used in the preparation of the accompanying unaudited condensed consolidated financial statements. Significant estimates include the allowance for doubtful accounts, the carrying value of intangible assets and goodwill, deferred tax asset and valuation allowance, the estimated fair value of assets acquired, liabilities assumed and stock issued in business combinations, and assumptions used in the Black-Scholes option pricing model, such as expected volatility, risk-free interest rate, share price, and expected dividend rate.
Revenue
Our revenue is derived from two major types of services to clients: security managed services and professional services. With respect to security managed services, we provide culture education and enablement, tools and technology provisioning, data and privacy monitoring, regulations and compliance monitoring, remote infrastructure administration, and cybersecurity services including, but not limited to, antivirus and patch management. With respect to professional services, we provide cybersecurity consulting, compliance auditing, vulnerability assessment and penetration testing, and disaster recovery and data backup solutions.
| 11 |
Disaggregated Revenue
Revenue consisted of the following by service offering for the three months ended March 31, 2022:
| Security Managed Services | Professional Services | Total | ||||||||||
| Primary Sector Markets | ||||||||||||
| Public | $ | $ | $ | |||||||||
| Private | ||||||||||||
| Not-for-profit | ||||||||||||
| $ | $ | $ | ||||||||||
| Major Service Lines | ||||||||||||
| Compliance | $ | $ | $ | |||||||||
| Secured managed services | - | |||||||||||
| SOC managed services | - | |||||||||||
| vCISO | - | |||||||||||
| Technical assessments | - | |||||||||||
Incident reporting and forensics | - | |||||||||||
| Training | - | |||||||||||
| Other cybersecurity services | - | |||||||||||
| $ | $ | $ | ||||||||||
| Major Geographic Location | ||||||||||||
| U.S. | $ | $ | $ | |||||||||
| Chile | ||||||||||||
| $ | $ | $ | ||||||||||
Revenue consisted of the following by service offering for the three months ended March 31, 2021:
| Security Managed Services | Professional Services | Total | ||||||||||
| Primary Sector Markets | ||||||||||||
| Public | $ | $ | $ | |||||||||
| Private | ||||||||||||
| Not-for-profit | - | |||||||||||
| $ | $ | $ | ||||||||||
| Major Service Lines | ||||||||||||
| Compliance | $ | $ | $ | |||||||||
| Secured managed services | - | |||||||||||
| SOC managed services | - | |||||||||||
| vCISO | - | |||||||||||
| Technical assessments | - | |||||||||||
Incident reporting and forensics | - | |||||||||||
| Training | - | |||||||||||
| Other cybersecurity services | - | |||||||||||
| $ | $ | $ | ||||||||||
| Major Geographic Location | ||||||||||||
| U.S. | $ | $ | $ | |||||||||
| Chile | - | - | - | |||||||||
| $ | $ | $ | ||||||||||
| 12 |
Cash and Cash Equivalents
We consider 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. We periodically assess
our accounts and other receivables for collectability on a specific identification basis. We provide 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. We write off accounts receivable against the allowance
for doubtful accounts when a balance is determined to be uncollectible. As of March 31, 2022 and December 31, 2021, our allowance
for doubtful accounts was $
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, generally between three and five years. Expenditures that enhance the useful lives of the assets are capitalized and depreciated.
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 are removed from the accounts, and the resulting gain or loss, if any, is reflected in results of operations.
Inventory
Inventory consists of software licenses and computer equipment for sale to customers.
Inventory is measured using the first-in, first-out (“FIFO”) method and stated at lower of cost or net realizable value as
of March 31, 2022 and December 31, 2021. The value of inventories is reduced for excess and obsolete inventories. We monitor
inventory to identify events that would require impairment due to obsolete inventory and adjusts the value of inventory when required.
We recorded
Impairment of Long-Lived Assets
We review long-lived assets, including finite-lived intangible 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. During the three ended March 31, 2022 and 2021, we did not record a loss on impairment.
Intangible Assets
We record our intangible assets at fair value in accordance with ASC 350, Intangibles – Goodwill and Other. Finite-lived intangible assets are amortized over their estimated useful life using the straight-line method, which is determined by identifying the period over which the cash flows from the asset are expected to be generated.
Goodwill
Goodwill represents the excess of the purchase price of the acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at year end, at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit level (see Note 6).
| 13 |
Advertising and Marketing Costs
We
expense advertising and marketing costs as they
are incurred. Advertising and marketing expenses were $
Fair Value Measurements
As defined in ASC 820, Fair Value Measurements and Disclosures, 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). 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. |
Net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. All vested outstanding options are considered potentially outstanding common stock. The dilutive effect, if any, of stock options is calculated using the treasury stock method. All outstanding convertible notes are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. Since the effect of common stock equivalents is anti-dilutive with respect to losses, the options and shares issuable upon conversion thereof have been excluded from our computation of net loss per common share for the three months ended March 31, 2022 and 2021.
| March 31, 2022 | March 31, 2021 | |||||||
| Stock options | ||||||||
| Convertible debt | ||||||||
| Total | ||||||||
Stock-Based Compensation
We apply the provisions of ASC 718, Compensation - Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the statements of operations.
For stock options issued to employees and members of our board of directors for their services, we estimate the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates, and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, we recognize stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised. Due to our limited history and lack of public trading volume for our common stock, we used the average of historical share prices of similar companies within our industry to calculate volatility for use in the Black-Scholes option pricing model.
Pursuant to Accounting Standards Update (“ASU”) 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, we account for stock options issued to non-employees for their services in accordance with ASC 718. We use valuation methods and assumptions to value stock options that are in line with the process for valuing employee stock options noted above.
| 14 |
Leases
Leases
in which we are the lessee are comprised of corporate offices and property and equipment. All of the leases are classified
as operating leases. We lease multiple office spaces with a remaining weighted average term of
In accordance with ASC 842, Leases, we recognized a right-of-use (“ROU”) asset and corresponding lease liability on our unaudited condensed consolidated balance sheet for long-term office leases and a vehicle operating lease agreement. See Note 12 – Leases for further discussion, including the impact on our unaudited condensed consolidated financial statements and related disclosures.
Deferred Revenue
Deferred
revenue primarily consists of billings or payments received from customers in advance of revenue recognized for the services provided
to our customers or annual licenses and is recognized as services are performed or ratably over the life of the lease. We generally
invoice customers in advance or in milestone-based installments. Deferred revenue of approximately $
Deferred revenue consisted of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Security managed services | $ | $ | ||||||
| Professional services | - | |||||||
| Total deferred revenue | $ | $ | ||||||
Foreign Currency
Arkavia, uses the local currency as their functional currency. Assets and liabilities for Arkavia have been translated into U.S. dollars at the exchange rates prevailing at the end of the period and results of operations at the average exchange rates for the period. Unrealized exchange gains and losses arising from the translation of the financial statements of our non-U.S. functional currency operations are accumulated in the cumulative foreign currency translation adjustments account in the unaudited condensed consolidated statements of operations and comprehensive loss.
Accumulated Other Comprehensive Gain
Foreign
currency translation adjustments of $
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities, including tax loss and credit carry forwards, are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
We utilize ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial statements or tax returns. We account for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely than not” that a deferred tax asset will not be realized. At March 31, 2022, and December 31, 2021, our net deferred tax asset has been fully reserved.
For uncertain tax positions that meet a “more likely than not” threshold, we recognize the benefit of uncertain tax positions in the unaudited condensed consolidated financial statements. Our practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the unaudited condensed consolidated statements of operations when a determination is made that such expense is likely.
Recently Issued Accounting Standards
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the Emerging Issues Task Force). The ASU requires issuers to account for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. Under the ASU, an issuer determines the accounting for the modification or exchange based on whether the transaction was done to issue equity, to issue or modify debt, or for other reasons. The ASU is applied prospectively and is effective for us for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. We adopted the standard on January 1, 2022 and management noted that there is no material impact to the unaudited condensed consolidated financial statements.
| 15 |
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in business combinations to be recognized in accordance with ASC Topic 606 as if the acquirer had originated the contracts. The ASU is applied prospectively and is effective for us for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that adopting this standard will have on the unaudited condensed consolidated financial statements.
All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to us.
NOTE 3 – ACQUISITIONS
On
January 5, 2022, we entered into True Digital Stock Purchase Agreement with certain stockholders of True Digital
and the True Digital Merger Agreement with True Digital and certain of its other stockholders. On January 19, 2022, the
transactions contemplated by the True Digital Stock Purchase Agreement and the True Digital Merger Agreement were
consummated, with True Digital becoming a wholly owned subsidiary of our company (the “True Digital Acquisition”).
True Digital’s outstanding common stock was exchanged for the right to receive an aggregate of $
Subsequent to the issuance of these financial statements, we expect to obtain a third-party valuation on the fair value of the assets acquired, including identifiable intangible assets, and the liabilities assumed for use in the purchase price allocation.
| 16 |
The following table summarizes the allocation of the purchase price to the fair values of the assets acquired and the liabilities assumed as of the transaction date:
| Consideration paid | $ | |||
| Tangible assets acquired: | ||||
| Cash | ||||
| Accounts receivable | ||||
| Contract assets | ||||
| Prepaid expenses and other current assets | ||||
| Property and equipment | ||||
| Other assets | ||||
| Total tangible assets | ||||
| Assumed liabilities: | ||||
| Accounts payable | ||||
| Accrued expenses | ||||
| Deferred revenue | ||||
| Line of credit | ||||
| Loans payable | ||||
| Loans payable - shareholder | ||||
| Other liabilities | ||||
| Total assumed liabilities | ||||
| Net liabilities assumed | ( | ) | ||
| Goodwill (a) | $ |
| (a) |
NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of:
March 31, 2022 | December 31, 2021 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Prepaid taxes | ||||||||
| Prepaid insurance | ||||||||
| Deferred interest | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
| 17 |
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
March 31, 2022 | December 31, 2021 | |||||||
| Computer equipment | $ | $ | ||||||
| Building | ||||||||
| Leasehold improvements | ||||||||
| Vehicle | ||||||||
| Furniture and fixtures | ||||||||
| Software | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Total
depreciation expense was $
NOTE 6 – INTANGIBLE ASSETS AND GOODWILL
The following table summarizes the changes in goodwill during the three months ended March 31, 2022:
| Balance December 31, 2021 | $ | |||
| Acquisition of goodwill | ||||
| Foreign currency translation adjustment | ||||
| Ending balance, March 31, 2022(1) | $ |
| (1) |
The following table summarizes the identifiable intangible assets as of March 31, 2022 and December 31, 2021:
| Useful life | March 31, 2022 | December 31, 2021 | ||||||||
| Tradenames – trademarks | $ | $ | ||||||||
| Tradenames - trademarks | ||||||||||
| Customer base | ||||||||||
| Non-compete agreements | ||||||||||
| Intellectual property/technology | ||||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||||
| Total | $ | $ | ||||||||
The
weighted average remaining useful life of identifiable amortizable intangible assets remaining is
Amortization
of identifiable intangible assets for the three months ended March 31, 2022 and 2021 was $
| 18 |
The below table summarizes the future amortization expense for the remainder of 2021 and the next four years thereafter:
| 2022 (excluding the three months ended March 31, 2022) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| $ |
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following amounts:
March 31, 2022 | December 31, 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued payroll | ||||||||
| Accrued expenses | ||||||||
| Accrued commissions | - | |||||||
| Accrued interest – related party | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
Note 8 - RELATED PARTY TRANSACTIONS
Convertible Note Payable, Consulting, and Stock Payable – Related Party
On November 1, 2021, we entered into a two-year consulting agreement with Smile on Fridays LLP (“Smile”) pursuant to which Smile will represent us as the Chief Marketing Officer. Upon execution of the agreement, we were to issue a total of shares of our common stock. The shares shall be deemed vested and earned to upon the execution of the agreement and 25% at the beginning of each subsequent six-month period. As of March 31, 2022, shares of our stock have been issued.
On January 1, 2021, we entered into a two-year consulting agreement with Smile, pursuant to which Smile will provide marketing and public relations services to us. Upon execution of the agreement, we were to issue a total of shares of our common stock. As of March 31, 2022, shares of our common stock have been issued.
On
October 27, 2021, we issued to Neil Stinchcombe, the sole owner of Smile, a convertible note in the principal amount of $bearing an interest rate of
| 19 |
Note Receivable – Related Party
Arkavia
provided cash infusions to a related party to fund an intended wholly owned subsidiary, Arkavia Peru, for start-up and operational
costs. As of March 31, 2022, the subsidiary has yet to be incorporated and as such, Arkavia has recorded the amount as a receivable.
The amount outstanding at March 31, 2022 is $
Note 9 – STOCKHOLDERS’ EQUITY
2019 Equity Incentive Plan
Our board of directors approved our 2019 Equity Incentive Plan (the “2019 Plan”) on June 6, 2019, and our stockholders holding a majority of the outstanding shares of our common stock approved and adopted the 2019 Plan. The maximum number of shares of our common stock that may be issued under the 2019 Plan is shares. The 2019 Plan has a term of from the date it was adopted. Shares issued under the 2019 Plan shall be made available from (i) authorized but unissued shares of common stock, (ii) common stock held in our treasury, or (iii) previously issued shares of common stock reacquired by us, including shares purchased on the open market.
Warrant and Option Valuation
We computed the fair value of options granted using the Black-Scholes option pricing model. The expected terms for options issued to non-employees is the contractual life and the expected term used for options issued to employees and directors is the estimated period of time that options granted are expected to be outstanding. We utilize the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee option grants. We utilize an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within our industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.
Options
We granted options for the purchase of shares of common stock during the three months ended March 31, 2022.
We granted options for the purchase of shares of common stock during the three months ended March 31, 2022.
| 20 |
| For the Three Months Ended | For the Three Months Ended | |||||||
March 31, 2022 | March 31, 2021 | |||||||
| Risk free interest rate | - | % - % | ||||||
| Contractual term (years) | ||||||||
| Expected volatility | % | % | ||||||
| Expected dividends | % | % | ||||||
| Weighted | ||||||||
| Average | ||||||||
| Shares | Exercise Price | |||||||
| Outstanding at January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Expired or cancelled | ( | ) | ||||||
| Outstanding at March 31, 2022 | $ | |||||||
| Weighted- | Weighted- | |||||||||||||||||
| Average | Average | |||||||||||||||||
| Outstanding | Remaining Life | Exercise | Number | |||||||||||||||
| Exercise Prices | Options | In Years | Price | Exercisable | ||||||||||||||
| $ | $ | |||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| 21 |
The compensation expense attributed to the issuance of the options is recognized ratably over the vesting period.
Options granted under the 2019 Plan are exercisable for a specified period, generally five to ten years from the grant date, and generally vest over three to four years from the grant date.
Total compensation expense related to the options was $ and $ for the three months ended March 31, 2022 and 2021, respectively. During the three months ended March 31, 2022, we attributed $and $of compensation expense related to the options to cost of payroll and selling, general, and administrative expenses, respectively. During the three months ended March 31, 2021, we attributed $and $of compensation expense related to the options to cost of payroll and selling, general, and administrative expenses, respectively. As of March 31, 2022, there was future compensation expense of $ with a weighted average recognition period of years related to the options.
The aggregate intrinsic value totaled $and $, for total outstanding and exercisable options, respectively, and was based on our estimated fair value of the common stock of $as of March 31, 2022, which is the aggregate fair value of the common stock that would have been received by the option holders had all option holders exercised their options as of that date, net of the aggregate exercise price.
Warrant Activity Summary
In applying the Black-Scholes option pricing model to warrants granted or issued, we used the following assumptions:
| For the Three Months Ended | ||||
| March 31, 2022 | ||||
| Risk free interest rate | % - | % | ||
| Contractual term (years) | – | |||
| Expected volatility | % | |||
| Expected dividends | % | |||
A summary of the warrant activity during the three months ended March 31, 2022 is presented below:
| Weighted | ||||||||
| Average | ||||||||
| Shares | Exercise Price | |||||||
| Outstanding at January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Expired or cancelled | ||||||||
| Outstanding at March 31, 2022 | $ | |||||||
| Weighted- | Weighted- | |||||||||||||||||
| Average | Average | |||||||||||||||||
| Outstanding | Remaining Life | Exercise | Number | |||||||||||||||
| Exercise Prices | Options | In Years | Price | Exercisable | ||||||||||||||
| $ | $ | |||||||||||||||||
| $ | ||||||||||||||||||
The aggregate intrinsic value totaled $, for total outstanding and exercisable warrants and was based on the estimated fair value of our common stock of $ as of March 31, 2022, which is the aggregate fair value of the common stock that would have been received by the warrant holders had all warrant holders exercised their warrants as of that date, net of the aggregate exercise price.
| 22 |
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Maxim Settlement Agreement
On October 27, 2020, we entered into an advisory agreement (the “Advisory
Agreement”) with Maxim Group LLC (“Maxim”), pursuant to which the parties agreed to certain compensation obligations
in the form of our common stock, cash and future rights. Certain disputes arose between the parties regarding the duties and obligations
pursuant to the Advisory Agreement, resulting in the parties agreeing to enter into a settlement and release agreement on January 13,
2022. As a result, the Company recorded a settlement liability at December 31, 2021 of $
Legal Claims
There are no material pending legal proceedings in which we or any of our subsidiaries is a party or in which any of our directors, officers or affiliates, any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us.
NOTE 11 – LOANS PAYABLE AND LINES OF CREDIT
Lines of Credit
TalaTek, Inc.
On
July 29, 2019, TalaTek entered into a secured line of credit with SunTrust Bank (“SunTrust”) for $
True Digital
On September 9, 2021, True Digital entered into a secured line of credit
with Blue Sky Bank (“Blue Sky”) for $
Loans Payable
Technologyville, Inc.
On
April 29, 2019, Techville entered into a note payable with VCI Account Services, that subsequently was assigned to U.S. Bancorp, in
the original principal amount of $
Catapult Acquisition Corp.
On
July 9, 2016, Catapult Acquisition Corp. entered into several seller notes payable with shareholders of VelocIT. The total borrowing
amount was $
| 23 |
Arkavia
At March 31, 2022 and December 31, 2021, notes payable consist of the following amounts:
March 31, 2022 |
December 31, 2021 | |||||||
| $ | $ | |||||||
| Total notes payable | ||||||||
| Less current portion | ( |
) | ( | ) | ||||
| Long term notes payable | $ | $ | ||||||
At
various times during the three months ended March 31, 2022, Arkavia paid an aggregate of $
True Digital
On
April 26, 2018, True Digital entered into a loan agreement with a shareholder for the principal amount of $
On
April 13, 2020, True Digital entered into a promissory note with a financial institution for the principal amount of $
On February 10, 2020, True Digital entered into a promissory note with a shareholder for the principal amount of $. The note has a maturity date of and bears an interest rate % per annum. During the period of January 19, 2022 through March 31, 2022, True Digital made aggregate cash payments of $. At March 31, 2022, the amount outstanding was $.
On February 2, 2021, True Digital entered into a promissory note with a shareholder for the principal amount of $. The note has a maturity date of and bears an interest rate of % per annum. During the period of January 19, 2022 through March 31, 2022, True Digital made aggregate cash payments of $. At March 31, 2022, the amount outstanding was $.
Convertible Note Payable
On
October 27, 2021, we issued to Neil Stinchcombe, the sole owner of Smile, a convertible note in the principal amount of $
Future minimum payments under the above line of credit and notes payable following the three months ended March 31, 2022, are as follows:
| 2022 (excluding the three months ended March 31, 2022) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total future minimum payments | ||||
| Less: current | ( | ) | ||
| $ |
| 24 |
NOTE 12 – LEASES
All of our leases are classified as operating leases. With the adoption of Topic 842, operating lease agreements are required to be recognized on the condensed consolidated balance sheet as ROU assets and corresponding lease liabilities.
On
January 19, 2022, we recognized additional ROU assets and lease liabilities of $
ROU assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that we will exercise that option.
When
measuring lease liabilities for leases that were classified as operating leases, we discounted lease payments using our
estimated incremental borrowing rate at January 1, 2022. The weighted average incremental borrowing rate applied was
Operating leases are included in the unaudited condensed consolidated balance sheets as follows:
| Classification | March 31, 2022 | December 31, 2021 | ||||||||
| Lease assets | ||||||||||
| Operating lease cost ROU assets | Assets | $ | $ | |||||||
| Total lease assets | $ | $ | ||||||||
| Lease liabilities | ||||||||||
| Operating lease liabilities, current | Current liabilities | $ | $ | |||||||
| Operating lease liabilities, non-current | Liabilities | |||||||||
| Total lease liabilities | $ | $ | ||||||||
The components of lease costs, which are included in income from operations in our unaudited condensed consolidated statements of operations, were as follows:
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Leases costs | ||||||||
| Operating lease costs | $ | $ | ||||||
| Total lease costs | $ | $ | ||||||
| 25 |
Future minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the three months ended March 31, 2022, are as follows:
| Fiscal Year | Operating Leases | |||
| (Unaudited) | ||||
| 2022 (excluding the three months ended March 31, 2022) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total future minimum lease payments | ||||
| Amount representing interest | ( | ) | ||
| Present value of net future minimum lease payments | $ | |||
NOTE 13 – GEOGRAPHIC INFORMATION
Revenue by geography is based on the customer’s billing address for the three months ended March 31, 2022 was as follows:
| Secured Managed Services | Professional Services |
Total | ||||||||||
| Major Geographic Location | ||||||||||||
U.S. | $ | $ | $ | |||||||||
| Chile | ||||||||||||
| $ | $ | $ | ||||||||||
Revenue by geography is based on the customer’s billing address for the three months ended March 31, 2021, was as follows:
| Secured Managed Services | Professional Services | Total | ||||||||||
| U.S. | $ | $ | $ | |||||||||
| Chile | - | - | - | |||||||||
| $ | $ | $ | ||||||||||
No international country represented more than 10% of total revenue in any period presented.
Property and equipment, net by geography was as follows:
| March 31, 2022 | December 31, 2021 | |||||||
| U.S. | $ | $ | ||||||
| Chile | ||||||||
| $ | $ | |||||||
No other international country represented more than 10% of property and equipment, net in any period presented.
| 26 |
NOTE 14 – CONCENTRATION OF CREDIT RISK
Cash Deposits
Financial
instruments that potentially subject us 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 $
Revenue
No
clients accounted for more than
One
client accounted for
Accounts Receivable
No
clients accounted for more than
One
client accounted for
NOTE 15 – SUBSEQUENT EVENTS
In accordance with ASC 855, Subsequent Events, which establishes general standards general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events and transactions that occurred after March 31, 2022 through the date the unaudited condensed consolidated financial statements are available for issuance. During this period the Company did not have any material reportable subsequent events.
| 27 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed financial statements and related notes.
Unless otherwise indicated or the context requires otherwise, the terms “we,” “us,” “our,” and “our company” refer to Cerberus Cyber Sentinel Corporation, a Delaware corporation (“Cerberus”), and its wholly owned subsidiaries, including GenResults, LLC, an Arizona limited liability company (“GenResults”), TalaTek, LLC, a Virginia limited liability company (“TalaTek”), Technologyville, Inc., an Illinois corporation (“Techville”), Clear Skies Security, LLC, a Georgia limited liability company (“Clear Skies”), Alpine Security, LLC, an Illinois limited liability company (“Alpine”), Catapult Acquisition Corporation, a New Jersey corporation (“VelocIT”), Southford Equities, Inc., a British Virgin Islands company (“Arkavia”), True Digital Security, Inc., a Delaware corporation (“True Digital”), RED74 LLC, a New Jersey limited liability company (“RED74”), Atlantic Technology Systems, Inc., a New Jersey corporation (“ATS”), and Atlantic Technology Enterprises, Inc., a New Jersey corporation (“ATE” and together with ATS, “Atlantic”). Unless otherwise specified, all dollar amounts are expressed in United States dollars.
Our Business
We are a cybersecurity and compliance company comprised of highly trained and seasoned security professionals who work with clients to enhance or create a better cyber posture in their organization. Cybersecurity, also known as computer security or information technology security, is the protection of computer systems and networks from information disclosure, theft of or damage to their hardware, software, or electronic data, as well as from the disruption or misdirection of the services they provide. The cybersecurity industry has a supply and demand issue wherein there is more demand for cybersecurity services than there are expert and seasoned compliance and cybersecurity professionals available in the market. We seek to identify, attract, and retain highly skilled cyber and compliance teams and bring them together to provide holistic cyber services. We accomplish this through acquisitions, direct hiring, and incentivizing employees with stock options to help retain them. On an ongoing basis, we seek to identify cyber talent that is culturally aligned and that offers operating leverage through both existing customer revenue and relationships. We have invested in enterprise solutions and executive talent to integrate our different organizations into an ecosystem that works together to provide complete and holistic cybersecurity through cross pollination of solutions. The ecosystem is intended to provide additional revenue opportunities and drive overall recurring revenue.
We provide a full range of cybersecurity consulting and related services, encompassing all three pillars of compliance, cybersecurity, and culture. Our services include secured managed services, compliance services, security operations center (“SOC”) services, virtual Chief Information Security Officer (“vCISO”) services, incident response, certified forensics, technical assessments, and cybersecurity training. We believe that culture is the foundation of every successful cybersecurity and compliance program. To deliver that outcome, we developed our unique offering of MCCP+ (“Managed Compliance & Cybersecurity Provider + Culture”), which is the only holistic solution that provides all three of these pillars under one roof from a dedicated team of subject matter experts. In contrast to the majority of cybersecurity firms that are focused on a specific technology or service, we seek to differentiate ourselves by remaining technology agnostic, focusing on accumulating highly sought-after topic experts. We continually seek to identify and acquire cybersecurity talent to expand our service scope and geographical coverage to provide the best possible service for our clients. We believe that bringing together a world-class team of technological experts with multi-faceted expertise in the critical aspects of cybersecurity is key to providing technology agnostic solutions to our clients in a business environment that has suffered from a chronic lack of highly skilled professionals, thereby setting us apart from competitors and in-house security teams. Our goal is to create a culture of security and to help quantify, define, and capture a return on investment from information technology and cybersecurity spending. Our brand rallies around the battle cry: “Cybersecurity is a Culture, not a Product.”
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First Quarter Fiscal 2022 Highlights
Our operating results for the three months ended March 31, 2022 included the following:
| ● | Total revenue increased by $6.8 million to $8.1 million for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. | |
| ● | Total gross profit decreased by $670,000 to $49,000 for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. | |
| ● | We acquired TrueDigital, which is now wholly owned subsidiaries of our company. |
Significant Developments During First Quarter Fiscal 2022
Nasdaq Listing and Public Offering
On January 19, 2022, we completed a public offering of our common stock. Pursuant to the public offering, we issued and sold 2,060,000 shares of common stock at a public offering price of $5.00 per share and granted to the underwriter warrants for the purchase of 144,200 shares of common stock at an exercise price of $5.00 per share. We received net proceeds of approximately $9,471,000 from the public offering, after deducting underwriting discounts and commissions of $721,000 and estimated offering costs of $108,000.
On January 14, 2022, we were approved to list our common stock on The Nasdaq Stock Market LLC under the symbol “CISO.”
Acquisition of True Digital
On January 5, 2022, we entered into a stock purchase agreement (the “True Digital Stock Purchase Agreement”) with certain stockholders of True Digital and an agreement and plan of merger (the “True Digital Merger Agreement”) with True Digital and certain of its other stockholders. On January 19, 2022, the transactions contemplated by the True Digital Stock Purchase Agreement and the True Digital Merger Agreement were consummated, with True Digital becoming a wholly owned subsidiary of our company. In connection with consummation of the transactions, we paid aggregate consideration of $6,153,000 in cash and 8,229,000 shares of our common stock, subject to a holdback of 822,900 shares of our common stock and $615,300 of cash.
True Digital is a managed cybersecurity and compliance provider dedicated to the advancement of security in an increasingly connected world. Through integrated services and deep visibility, True Digital helps organizations manage risk and compliance. From its own U.S.-based security operations center and network operations center, True Digital manages client networks and endpoints, including cybersecurity monitoring and cyber incident response. Additionally, True Digital enables both regulated and unregulated companies to redefine their security operations and establishes a holistic viewpoint of their IT, cybersecurity, and compliance operations through TrueSpeed, its proprietary IT-security compliance operational intelligence platform.
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Results of Operations
Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021
Our financial results for the three months ended March 31, 2022 are summarized as follows in comparison to the three months ended March 31, 2021:
| Three Months Ended March 31, | ||||||||||||
| 2022 | 2021 | Variance | ||||||||||
| Revenue: | ||||||||||||
| Security managed services | $ | 8,052,225 | $ | 1,871,817 | $ | 6,180,408 | ||||||
| Professional services | 1,227,185 | 687,961 | 589,224 | |||||||||
| Total revenue | 9,329,410 | 2,559,778 | 6,769,632 | |||||||||
| Cost of revenue: | ||||||||||||
| Security managed services | 2,602,924 | 193,667 | 2,409,257 | |||||||||
| Professional services | 110,337 | 117,794 | (7,457 | ) | ||||||||
| Cost of payroll | 4,445,850 | 1,427,702 | 3,018,148 | |||||||||
| Stock based compensation | 2,121,583 | 100,925 | 2,020,658 | |||||||||
| Total cost of revenue | 9,280,693 | 1,840,088 | 7,440,605 | |||||||||
| Total gross profit | 48,717 | 719,690 | (670,973 | ) | ||||||||
| Operating expenses: | ||||||||||||
| Professional fees | 623,061 | 157,354 | 465,707 | |||||||||
| Advertising and marketing | 155,341 | 45,227 | 110,114 | |||||||||
| Selling, general, and administrative | 4,616,374 | 1,487,641 | 3,128,733 | |||||||||
| Stock-based compensation | 2,565,510 | 737,837 | 1,827,673 | |||||||||
| Total operating expenses | 7,960,286 | 2,428,059 | 5,532,227 | |||||||||
| Loss from operations | (7,911,569 | ) | (1,708,369 | ) | (6,203,200 | ) | ||||||
| Other income (expense): | ||||||||||||
| Other income | 12,543 | 205 | 12,338 | |||||||||
| Interest expense, net | (43,585 | ) | (68,695 | ) | 25,110 | |||||||
| Total other income (expense) | (31,042 | ) | (68,490 | ) | 37,448 | |||||||
| Net loss | (7,942,611 | ) | (1,776,859 | ) | (6,165,752 | ) | ||||||
| Foreign currency translation adjustment | 902,441 | - | 902,441 | |||||||||
| Comprehensive net loss | $ | (7,040,170 | ) | $ | (1,776,859 | ) | $ | (5,263,311 | ) | |||
Revenue
Security managed services revenue increased by $6,180,408, or 330%, for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, due mainly to an increase in customers from the Arkavia and True Digital acquisitions, as well as expanded services to existing customers.
Professional services revenue increased by $589,224, or 86%, for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, due to an increased demand for technical assessments.
Expenses
Cost of Revenue
Security managed services cost of revenue increased by $2,409,257, or 1,244%, for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, and was primarily the result of higher direct software and hardware costs to support the increased customer demand.
Professional services cost of revenue decreased by $7,457, or 6%, for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, due to our ability to utilize internal expert professionals to deliver our services.
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Cost of payroll cost of revenue increased by $3,018,148, or 211%, for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, as a result of increased staff resulting from acquisitions and higher stock compensation expense.
Stock-based compensation expenses increased by $2,020,658, or 2,002%, for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, due to an increase in stock options awarded during the three months ended March 31, 2022.
Operating Expenses
Professional fees increased by $465,707, or 296%, for the three months ended March 31, 2022 as compared to three months ended March 31, 2021 as a result of higher accounting and audit fees due for our financial reporting and periodic SEC filings, legal fees, and fees for listing to Nasdaq.
Advertising and marketing expenses increased by $110,114, or 243%, for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, as a result of marketing campaign initiatives.
Selling, general, and administrative expenses increased by $3,128,733, or 210%, for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, primarily as a result of increased employee costs.
Stock based compensation expenses increased by $1,827,673, or 248%, for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, due to an increase in stock options awarded during the three months ended March 31, 2022.
Liquidity and Capital Resources
The accompanying unaudited condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and satisfying liabilities in the normal course of business. At March 31, 2022, we had an accumulated deficit of $51,955,033 and working capital surplus of $3,202,490. For the three months ended March 31, 2022, we had a loss from operations of $7,911,569 and negative cash flows from operations of $3,015,795. Although we are showing positive revenue, gross profit is trending negatively primarily due to increased stock compensation related to sales activity, we expect to incur further losses through the end of 2022.
To date we have funded operations primarily through the sale of equity in private placements and revenue generated by our services. During the three months ended March 31, 2022, we received $9,471,000 from our public offering of our common stock.
We believe that our existing cash and cash equivalents and cash generated by operating activities will be sufficient to meet our operating and capital requirements for at least the next 12 months as well as our longer-term expected future cash requirements and obligations.
Our future capital requirements, both near-term and long-term, will depend on many factors, in addition to our recurring operating expenses, include our growth rate, the continued expansion of sales and marketing activities, the introduction of new and enhanced products and service offerings, and the costs of any future acquisitions in complementary businesses and technologies. To the extent existing cash and cash equivalents are not sufficient to fund future activities, we may seek to raise additional funds through equity, equity-linked or debt financings. Any additional equity financing may be dilutive to our existing stockholders. We may enter into agreements or letters of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, which could also require us to seek additional equity financing, incur indebtedness or use cash resources. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, operating results and financial condition would be adversely affected.
Working Capital Surplus
Our working capital surplus as of March 31, 2022, in comparison to our working capital surplus as of December 31, 2021, is summarized as follows:
| As of | ||||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Current assets | $ | 14,089,899 | $ | 10,345,679 | ||||
| Current liabilities | 10,887,409 | 5,141,561 | ||||||
| Working capital surplus | $ | 3,202,490 | $ | 5,204,118 | ||||
The increase in current assets is primarily due to an increase in cash and cash equivalents, accounts receivable, and prepaid expenses and other current assets of $1,137,872, $1,104,907, and $1,204,560, respectively. The increase in current liabilities is primarily due to the increase in accounts payable and accrued expense, and deferred revenue of $3,512,486 and $1,899,719, respectively.
Cash Flows
Our cash flows for the three months ended March 31, 2022, in comparison to our cash flows for the three months ended March 31, 2021, can be summarized as follows:
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (3,015,795 | ) | $ | (1,130,173 | ) | ||
| Net cash used in investing activities | (5,021,626 | ) | - | |||||
| Net cash provided by financing activities | 9,011,005 | 3,259,579 | ||||||
| Effect of exchange rates on cash and cash equivalents | 164,288 | - | ||||||
| Increase in cash | $ | 1,137,872 | $ | 2,129,579 | ||||
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Operating Activities
Net cash used in operating activities was $3,015,795 for the three months ended March 31, 2022 and was primarily due to cash used to fund a net loss of $7,942,611, adjusted for non-cash expenses in the aggregate of $5,398,770 and additional cash outlaid by changes in the levels of operating assets and liabilities, primarily as a result of an increase in accounts receivable and other current assets. Net cash used in operating activities was $1,130,173 for the three months ended March 31, 2021 and was primarily due to cash used to fund a net loss of $1,776,859, adjusted for non-cash expenses in the aggregate of $911,534, partially offset by cash generated by changes in the levels of operating assets and liabilities, primarily as a result of an increase in accounts payable.
Investing Activities
Net cash used in investing activities of $5,021,626 for the three months ended March 31, 2022, was primarily due to cash paid in the True Digital acquisition. There was no cash used in investing activities for the three months ended March 31, 2021.
Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2022 was $9,250,657, which was primarily due to cash received from the sale of our common stock in our public offering of $9,471,000. Net cash provided by financing activities for the three months ended March 31, 2021 was $3,259,579 and was primarily due to cash received from the sale of our common stock of $3,250,000.
Effects of Inflation
We do not believe that inflation has had a material impact on our business, revenue or operating results during the periods presented.
Critical Accounting Policies and Estimates
Our critical accounting policies are more fully described in the notes to our condensed consolidated financial statements included herein for the quarter and three months ended March 31, 2022 and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on April 15, 2022.
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New and Recently Adopted Accounting Pronouncements
Any new and recently adopted accounting pronouncements are more fully described in Note 2 to our unaudited condensed consolidated financial statements herein for the quarter ended March 31, 2022.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Because we are a smaller reporting company, we are not required to provide the information called for by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022, our disclosure controls and procedures were not effective to provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosures as of March 31, 2022.
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Our management’s evaluation was based on the following material weaknesses in our internal control over financial reporting which existed as of December 31, 2021, and which continue to exist, as discussed in our Annual Report on Form 10-K:
| ● | Lack of risk assessment procedures on internal controls to detect financial reporting risks in a timely manner; and |
| ● | Lack of documentation on policies and procedures that are critical to the accomplishment of financial reporting objectives. |
A material weakness is a control deficiency or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. As a company with limited accounting resources, a significant amount of management’s time and attention has been and will be diverted from our business to ensure compliance with these regulatory requirements.
Management’s Plan to Remediate the Material Weaknesses
Our management plans to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned include:
| ● | Identify gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company; and |
| ● | Develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures. |
Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and in accordance with financial and budgetary considerations.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2022, other than those noted above, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are currently not a party to any material legal proceedings.
Item 1A. Risk Factors
We have disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on April 15, 2022, risk factors that materially affect our business, financial condition, or results of operations. There have been no material changes from the risk factors previously disclosed.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2022, there were no sales of equity securities during the period covered by this report that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by the Company.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| Incorporated by Reference | ||||||||
Exhibit Number |
Exhibit Description | Form | Exhibit | Filing Date | ||||
| 2.1 | Stock Purchase Agreement among the Registrant and certain shareholders of True Digital Security Inc. dated January 5, 2022 | 8-K | 10.1 | 01/06/2022 | ||||
| 2.2** | Agreement and Plan of Merger among the Registrant and certain shareholders of True Digital Security Inc. dated January 5, 2022 | 8-K | 10.2 | 01/06/2022 | ||||
| 4.1 | Form of Underwriter Warrant | S-1 | 4.3 | 12/14/2021 | ||||
| 10.1 | Form of Lockup Agreement | S-1/A | 10.14 | 01/07/2022 | ||||
| 31.1* | Rule 13a-14(a) / 15d-14(a) Certification of Principal Executive Officer | |||||||
| 31.2* | Rule 13a-14(a) / 15d-14(a) Certification of Principal Financial Officer | |||||||
| 32.1 | Section 1350 Certification of Principal Executive Officer | |||||||
| 32.2 | Section 1350 Certification of Principal Financial Officer | |||||||
| 101.INS* | Inline XBRL Instance Document | |||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
*Filed herewith.
**Certain exhibits, annexes, and/or schedules have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. We agree to furnish supplementally a copy of any omitted exhibit, annex, or schedule to the Securities and Exchange Commission upon request.
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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, thereunto duly authorized.
CERBERUS CYBER SENTINEL CORPORATION
| By: | /s/ David G. Jemmett | |
| David G. Jemmett | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 16, 2022 | ||
| By: | /s/ Debra L. Smith | |
| Debra L. Smith | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
| Date: May 16, 2022 |
| 36 |
Exhibit 31.1
CERBERUS CYBER SENTINEL CORPORATION
CERTIFICATE PURSUANT TO SECTION 302
I, David G. Jemmett, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Cerberus Cyber Sentinel Corporation; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have: | |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| By: | /s/ David G. Jemmett | |
| David G. Jemmett | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 16, 2022 |
Exhibit 31.2
CERBERUS CYBER SENTINEL CORPORATION
CERTIFICATE PURSUANT TO SECTION 302
I, Debra L. Smith, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Cerberus Cyber Sentinel Corporation; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have: | |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| By: | /s/ Debra L. Smith | |
| Debra L. Smith | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
| Date: May 16, 2022 |
Exhibit 32.1
CERBERUS CYBER SENTINEL CORPORATION
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q of Cerberus Cyber Sentinel Corporation (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| By: | /s/ David G. Jemmett | |
| David G. Jemmett | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 16, 2022 |
This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Cerberus Cyber Sentinel Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.
Exhibit 32.2
CERBERUS CYBER SENTINEL CORPORATION
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q of Cerberus Cyber Sentinel Corporation (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to her knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| By: | /s/ Debra L. Smith | |
| Debra L. Smith | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
| Date: May 16, 2022 |
This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Cerberus Cyber Sentinel Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
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| Statement of Financial Position [Abstract] | ||
| Allowances for doubtful accounts | $ 91,707 | $ 77,811 |
| Property and equipment, accumulated depreciation | 256,540 | 102,466 |
| Intangible assets, accumulated depreciation | $ 628,245 | $ 323,331 |
| Common stock, par value | $ 0.00001 | $ 0.00001 |
| Common stock, shares authorized | 250,000,000 | 250,000,000 |
| Common stock, shares issued | 135,458,071 | 125,852,971 |
| Common stock, shares outstanding | 135,458,071 | 125,852,971 |
NATURE OF THE ORGANIZATION AND BUSINESS |
3 Months Ended |
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Mar. 31, 2022 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| NATURE OF THE ORGANIZATION AND BUSINESS | NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS
Nature of the Business
We are a cybersecurity and compliance company comprised of highly trained and seasoned security professionals who work with clients to enhance or create a better cyber posture in their organization. Cybersecurity, also known as computer security or information technology security, is the protection of computer systems and networks from information disclosure, theft of or damage to their hardware, software, or electronic data, as well as from the disruption or misdirection of the services they provide. The cybersecurity industry has a supply and demand issue wherein there is more demand for cybersecurity services than there are expert and seasoned compliance and cybersecurity professionals available in the market. We seek to identify, attract, and retain highly skilled cyber and compliance teams and bring them together to provide holistic cyber services. We accomplish this through acquisitions, direct hiring, and incentivizing employees with stock options to help retain them. On an ongoing basis, we seek to identify cyber talent that is culturally aligned and that offers operating leverage through both existing customer revenue and relationships. We have invested in enterprise solutions and executive talent to integrate our different organizations into an ecosystem that works together to provide complete and holistic cybersecurity through cross pollination of solutions. The ecosystem is intended to provide additional revenue opportunities and drive overall recurring revenue.
We provide a full range of cybersecurity consulting and related services, encompassing all three pillars of compliance, cybersecurity, and culture. Our services include secured managed services, compliance services, security operations center (“SOC”) services, virtual Chief Information Security Officer (“vCISO”) services, incident response, certified forensics, technical assessments, and cybersecurity training. We believe that culture is the foundation of every successful cybersecurity and compliance program. To deliver that outcome, we developed our unique offering of MCCP+ (“Managed Compliance & Cybersecurity Provider + Culture”), which is the only holistic solution that provides all three of these pillars under one roof from a dedicated team of subject matter experts. In contrast to the majority of cybersecurity firms that are focused on a specific technology or service, we seek to differentiate ourselves by remaining technology agnostic, focusing on accumulating highly sought-after topic experts. We continually seek to identify and acquire cybersecurity talent to expand our service scope and geographical coverage to provide the best possible service for our clients. We believe that bringing together a world-class team of technological experts with multi-faceted expertise in the critical aspects of cybersecurity is key to providing technology agnostic solutions to our clients in a business environment that has suffered from a chronic lack of highly skilled professionals, thereby setting us apart from competitors and in-house security teams. Our goal is to create a culture of security and to help quantify, define, and capture a return on investment from information technology and cybersecurity spending. Our brand rallies around the battle cry: “Cybersecurity is a Culture, not a Product.”
Corporate and Acquisition History
We were formed on March 5, 2019 as a Delaware corporation. Our principal offices are located at 6900 East Camelback Road, Suite 240, Scottsdale, Arizona 85251.
On April 1, 2019, we acquired GenResults. GenResults was established on June 22, 2015. Prior to our acquisition of GenResults, GenResults was wholly owned by an entity affiliated with David G. Jemmett, our Chief Executive Officer and a director of our company. Due to the companies being under common control, we accounted for the acquisition as a reorganization.
On April 12, 2019, we consummated a transaction whereby VCAB Six Corporation, a Texas corporation, (“VCAB”) merged with and into us (the “VCAB Merger”). At the time of the VCAB Merger, VCAB was subject to a bankruptcy proceeding and had minimal assets, no equity owners, and no liabilities, except for approximately holders of Class 5 Allowed General Unsecured Claims and a holder of allowed administrative expenses (collectively the “Claim Holders”). Pursuant to the terms of the VCAB Merger, and in accordance with the bankruptcy plan, we issued an aggregate of shares of our common stock (the “Plan Shares”) to the Claim Holders as full settlement and satisfaction of their respective claims. As provided in the bankruptcy plan, the Plan Shares were issued pursuant to Section 1145 of the United States Bankruptcy Code. As a result of the VCAB Merger, the separate corporate existence of VCAB was terminated. We entered into the VCAB Merger to increase our stockholder base to, among other things, assist us in satisfying the listing standards of a national securities exchange.
On October 1, 2019, we entered into an agreement and plan of merger with TalaTek (the “TalaTek Merger”) pursuant to which TalaTek became our wholly owned subsidiary. Under the TalaTek Merger, all issued and outstanding units representing membership interests in TalaTek were converted into an aggregate of shares of our common stock.
On October 2, 2019, we filed a registration statement on Form 10-12G with the SEC to effect registration of our common stock, par value $ per share, under the Exchange Act. The registration statement became effective on December 1, 2019.
On May 25, 2020, we entered into a stock purchase agreement with Techville and its sole shareholder, pursuant to which we acquired all of the issued and outstanding common stock of Techville.
On August 1, 2020, we entered into a stock purchase agreement with Clear Skies and its equity holders, pursuant to which we acquired all of the issued and outstanding equity securities of Clear Skies.
On December 16, 2020, we entered into an agreement and plan of merger with Alpine and its sole member, pursuant to which Alpine became our wholly owned subsidiary.
On October 1, 2021, we entered into a stock purchase agreement with ATS, ATE, James Montagne as the sole shareholder of ATS, and James Montagne and Miriam Montagne, as the sole shareholders of ATE.
On October 8, 2021, we entered into a merger agreement with RED74 and Ticato Holdings, Inc., a New Jersey corporation (“Ticato”), and Tim Coleman, as sole shareholder of Ticato. Tim Coleman and Ticato were the sole shareholders of RED74.
On July 26, 2021, we entered into an agreement and plan of merger with VelocIT, pursuant to which VelocIT became a wholly owned subsidiary of our company.
On December 1, 2021, we entered into a stock purchase agreement with Arkavia and all of the owners of Arkavia, pursuant to which we acquired all of the issued and outstanding equity securities of Arkavia.
On January 5, 2022, we entered into a stock purchase agreement (the “True Digital Stock Purchase Agreement”) with certain stockholders of True Digital and an agreement and plan of merger (the “True Digital Merger Agreement”) with True Digital and certain of its other stockholders. On January 19, 2022, the transactions contemplated by the True Digital Stock Purchase Agreement and the True Digital Merger Agreement were consummated, with True Digital becoming a wholly owned subsidiary of our company.
On January 18, 2022, we completed a $ underwritten public offering of shares of our common stock, pursuant to which an aggregate of 2,060,000 shares of our common stock were issued (see Note 9). In addition, we granted the underwriter warrants to purchase an aggregate of shares of our common stock (see Note 10). We intend to use the net proceeds from the offering to fund acquisitions, sales, marketing, and general corporate purposes. In connection with the public offering, our common stock was listed on The Nasdaq Stock Market LLC.
Liquidity
The accompanying unaudited condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and satisfying liabilities in the normal course of business. At March 31, 2022, we had an accumulated deficit of $51,955,033 and working capital surplus of $3,202,490. For the three months ended March 31, 2022, we had a loss from operations of $7,911,569 and negative cash flows from operations of approximately $3,015,795. Although we are showing positive revenue, gross profit is trending negatively primarily due to increased stock compensation related to sales activity, we expect to incur further losses through the end of 2022.
To date, we have funded operations primarily through the sale of equity in private placements and revenue generated by our services. During the three months ended March 31, 2022, we received $9,471,000 in net proceeds from our public offering.
Although we expect that we will need to raise additional capital for future acquisitions, based on our current cash resources and commitments, we believe we will be able to maintain our current planned development and corresponding level of expenditure for at least 12 months from the date of the issuance of these unaudited condensed consolidated financial statements, although no assurance can be given that we will not need additional funds prior to such time.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, has been prepared in accordance with accounting principles generally accepted in the United States (“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 our 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 dates and the operating results and cash flows for such periods. Operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission (the “SEC”). These unaudited financial statements and related notes should be read in conjunction with our audited financial statements for the year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the SEC on April 15, 2022.
Consolidation
The unaudited condensed consolidated financial statements include the accounts of our company and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to the financial statements for the three months ended March 31, 2021, to conform to the financial statements presentation for the three months ended March 31, 2022. These reclassifications had no effect on net loss or cash flows as previously reported.
Use of Estimates
Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.
We believe the critical accounting policies discussed below affects our more significant judgments and estimates used in the preparation of the accompanying unaudited condensed consolidated financial statements. Significant estimates include the allowance for doubtful accounts, the carrying value of intangible assets and goodwill, deferred tax asset and valuation allowance, the estimated fair value of assets acquired, liabilities assumed and stock issued in business combinations, and assumptions used in the Black-Scholes option pricing model, such as expected volatility, risk-free interest rate, share price, and expected dividend rate.
Revenue
Our revenue is derived from two major types of services to clients: security managed services and professional services. With respect to security managed services, we provide culture education and enablement, tools and technology provisioning, data and privacy monitoring, regulations and compliance monitoring, remote infrastructure administration, and cybersecurity services including, but not limited to, antivirus and patch management. With respect to professional services, we provide cybersecurity consulting, compliance auditing, vulnerability assessment and penetration testing, and disaster recovery and data backup solutions.
Disaggregated Revenue
Revenue consisted of the following by service offering for the three months ended March 31, 2022:
Revenue consisted of the following by service offering for the three months ended March 31, 2021:
Cash and Cash Equivalents
We consider 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. We periodically assess our accounts and other receivables for collectability on a specific identification basis. We provide 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. We write off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. As of March 31, 2022 and December 31, 2021, our allowance for doubtful accounts was $91,707 and $77,811, respectively.
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, generally between three and five years. Expenditures that enhance the useful lives of the assets are capitalized and depreciated.
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 are removed from the accounts, and the resulting gain or loss, if any, is reflected in results of operations.
Inventory
Inventory consists of software licenses and computer equipment for sale to customers. Inventory is measured using the first-in, first-out (“FIFO”) method and stated at lower of cost or net realizable value as of March 31, 2022 and December 31, 2021. The value of inventories is reduced for excess and obsolete inventories. We monitor inventory to identify events that would require impairment due to obsolete inventory and adjusts the value of inventory when required. We recorded no inventory impairment losses for the three months ended March 31, 2022 and 2021.
Impairment of Long-Lived Assets
We review long-lived assets, including finite-lived intangible 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. During the three ended March 31, 2022 and 2021, we did not record a loss on impairment.
Intangible Assets
We record our intangible assets at fair value in accordance with ASC 350, Intangibles – Goodwill and Other. Finite-lived intangible assets are amortized over their estimated useful life using the straight-line method, which is determined by identifying the period over which the cash flows from the asset are expected to be generated.
Goodwill
Goodwill represents the excess of the purchase price of the acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at year end, at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit level (see Note 6).
Advertising and Marketing Costs
We expense advertising and marketing costs as they are incurred. Advertising and marketing expenses were $155,341 and $45,227 for the three months ended March 31, 2022 and 2021, respectively, and are recorded in operating expenses on the unaudited condensed consolidated statements of operations.
Fair Value Measurements
As defined in ASC 820, Fair Value Measurements and Disclosures, 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). 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.
Net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. All vested outstanding options are considered potentially outstanding common stock. The dilutive effect, if any, of stock options is calculated using the treasury stock method. All outstanding convertible notes are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. Since the effect of common stock equivalents is anti-dilutive with respect to losses, the options and shares issuable upon conversion thereof have been excluded from our computation of net loss per common share for the three months ended March 31, 2022 and 2021.
Stock-Based Compensation
We apply the provisions of ASC 718, Compensation - Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the statements of operations.
For stock options issued to employees and members of our board of directors for their services, we estimate the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates, and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, we recognize stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised. Due to our limited history and lack of public trading volume for our common stock, we used the average of historical share prices of similar companies within our industry to calculate volatility for use in the Black-Scholes option pricing model.
Pursuant to Accounting Standards Update (“ASU”) 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, we account for stock options issued to non-employees for their services in accordance with ASC 718. We use valuation methods and assumptions to value stock options that are in line with the process for valuing employee stock options noted above.
Leases
Leases in which we are the lessee are comprised of corporate offices and property and equipment. All of the leases are classified as operating leases. We lease multiple office spaces with a remaining weighted average term of 2.21 years. We lease a vehicle with a remaining term of 0.25 years.
In accordance with ASC 842, Leases, we recognized a right-of-use (“ROU”) asset and corresponding lease liability on our unaudited condensed consolidated balance sheet for long-term office leases and a vehicle operating lease agreement. See Note 12 – Leases for further discussion, including the impact on our unaudited condensed consolidated financial statements and related disclosures.
Deferred Revenue
Deferred revenue primarily consists of billings or payments received from customers in advance of revenue recognized for the services provided to our customers or annual licenses and is recognized as services are performed or ratably over the life of the lease. We generally invoice customers in advance or in milestone-based installments. Deferred revenue of approximately $54,000 was recognized for the three months ended March 31, 2022 that was included in the deferred revenue balance as of December 31, 2021. As of March 31, 2022, deferred revenue related to such customer payments was $1,952,543, all of which is expected to be recognized during the succeeding twelve-month period and is therefore presented as current.
Deferred revenue consisted of the following:
Foreign Currency
Arkavia, uses the local currency as their functional currency. Assets and liabilities for Arkavia have been translated into U.S. dollars at the exchange rates prevailing at the end of the period and results of operations at the average exchange rates for the period. Unrealized exchange gains and losses arising from the translation of the financial statements of our non-U.S. functional currency operations are accumulated in the cumulative foreign currency translation adjustments account in the unaudited condensed consolidated statements of operations and comprehensive loss.
Accumulated Other Comprehensive Gain
Foreign currency translation adjustments of $902,441 represent the difference between net loss and comprehensive gain for the three months ended March 31, 2022.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities, including tax loss and credit carry forwards, are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
We utilize ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial statements or tax returns. We account for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely than not” that a deferred tax asset will not be realized. At March 31, 2022, and December 31, 2021, our net deferred tax asset has been fully reserved.
For uncertain tax positions that meet a “more likely than not” threshold, we recognize the benefit of uncertain tax positions in the unaudited condensed consolidated financial statements. Our practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the unaudited condensed consolidated statements of operations when a determination is made that such expense is likely.
Recently Issued Accounting Standards
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the Emerging Issues Task Force). The ASU requires issuers to account for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. Under the ASU, an issuer determines the accounting for the modification or exchange based on whether the transaction was done to issue equity, to issue or modify debt, or for other reasons. The ASU is applied prospectively and is effective for us for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. We adopted the standard on January 1, 2022 and management noted that there is no material impact to the unaudited condensed consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in business combinations to be recognized in accordance with ASC Topic 606 as if the acquirer had originated the contracts. The ASU is applied prospectively and is effective for us for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that adopting this standard will have on the unaudited condensed consolidated financial statements.
All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to us.
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| Business Combination and Asset Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACQUISITIONS | NOTE 3 – ACQUISITIONS
On January 5, 2022, we entered into True Digital Stock Purchase Agreement with certain stockholders of True Digital and the True Digital Merger Agreement with True Digital and certain of its other stockholders. On January 19, 2022, the transactions contemplated by the True Digital Stock Purchase Agreement and the True Digital Merger Agreement were consummated, with True Digital becoming a wholly owned subsidiary of our company (the “True Digital Acquisition”). True Digital’s outstanding common stock was exchanged for the right to receive an aggregate of $6,153,000 in cash and shares of our common stock, subject to a 10% holdback. In the event that no claim is made by a Cerberus Indemnitee (as defined in the Merger Agreement) within one year from closing, then we shall pay the entire amount of the 10% holdback to the shareholders of True Digital.
Subsequent to the issuance of these financial statements, we expect to obtain a third-party valuation on the fair value of the assets acquired, including identifiable intangible assets, and the liabilities assumed for use in the purchase price allocation.
The following table summarizes the allocation of the purchase price to the fair values of the assets acquired and the liabilities assumed as of the transaction date:
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PREPAID EXPENSES AND OTHER CURRENT ASSETS |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PREPAID EXPENSES AND OTHER CURRENT ASSETS | NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of:
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PROPERTY AND EQUIPMENT |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT | NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Total depreciation expense was $154,074 and $4,424 for the three months ended March 31, 2022 and 2021, respectively.
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INTANGIBLE ASSETS AND GOODWILL |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INTANGIBLE ASSETS AND GOODWILL | NOTE 6 – INTANGIBLE ASSETS AND GOODWILL
The following table summarizes the changes in goodwill during the three months ended March 31, 2022:
The following table summarizes the identifiable intangible assets as of March 31, 2022 and December 31, 2021:
The weighted average remaining useful life of identifiable amortizable intangible assets remaining is 3.88 years.
Amortization of identifiable intangible assets for the three months ended March 31, 2022 and 2021 was $304,914 and $34,994, respectively.
The below table summarizes the future amortization expense for the remainder of 2021 and the next four years thereafter:
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ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCOUNTS PAYABLE AND ACCRUED EXPENSES | NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following amounts:
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RELATED PARTY TRANSACTIONS |
3 Months Ended |
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Mar. 31, 2022 | |
| Related Party Transactions [Abstract] | |
| RELATED PARTY TRANSACTIONS | Note 8 - RELATED PARTY TRANSACTIONS
Convertible Note Payable, Consulting, and Stock Payable – Related Party
On November 1, 2021, we entered into a two-year consulting agreement with Smile on Fridays LLP (“Smile”) pursuant to which Smile will represent us as the Chief Marketing Officer. Upon execution of the agreement, we were to issue a total of shares of our common stock. The shares shall be deemed vested and earned to upon the execution of the agreement and 25% at the beginning of each subsequent six-month period. As of March 31, 2022, shares of our stock have been issued.
On January 1, 2021, we entered into a two-year consulting agreement with Smile, pursuant to which Smile will provide marketing and public relations services to us. Upon execution of the agreement, we were to issue a total of shares of our common stock. As of March 31, 2022, shares of our common stock have been issued.
On October 27, 2021, we issued to Neil Stinchcombe, the sole owner of Smile, a convertible note in the principal amount of $bearing an interest rate of 5% per annum payable at maturity with an original maturity date of January 27, 2022, with a conversion price of $5.00 per share. Pursuant to the note, the maturity date, at our election, was extended to April 22, 2022. On March 10, 2022, we entered into an amendment to the note pursuant to which the maturity date was extended to October 27, 2022. The outstanding principal of this note was $1,500,000 on March 31, 2022 and December 31, 2021. During the three months ended March 31, 2022, we recorded $18,493 in accrued interest.
Note Receivable – Related Party
Arkavia provided cash infusions to a related party to fund an intended wholly owned subsidiary, Arkavia Peru, for start-up and operational costs. As of March 31, 2022, the subsidiary has yet to be incorporated and as such, Arkavia has recorded the amount as a receivable. The amount outstanding at March 31, 2022 is $1,161,718 and is considered short-term and non-interest bearing.
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STOCKHOLDERS’ EQUITY |
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| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCKHOLDERS’ EQUITY | Note 9 – STOCKHOLDERS’ EQUITY
2019 Equity Incentive Plan
Our board of directors approved our 2019 Equity Incentive Plan (the “2019 Plan”) on June 6, 2019, and our stockholders holding a majority of the outstanding shares of our common stock approved and adopted the 2019 Plan. The maximum number of shares of our common stock that may be issued under the 2019 Plan is shares. The 2019 Plan has a term of from the date it was adopted. Shares issued under the 2019 Plan shall be made available from (i) authorized but unissued shares of common stock, (ii) common stock held in our treasury, or (iii) previously issued shares of common stock reacquired by us, including shares purchased on the open market.
Warrant and Option Valuation
We computed the fair value of options granted using the Black-Scholes option pricing model. The expected terms for options issued to non-employees is the contractual life and the expected term used for options issued to employees and directors is the estimated period of time that options granted are expected to be outstanding. We utilize the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee option grants. We utilize an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within our industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.
Options
We granted options for the purchase of shares of common stock during the three months ended March 31, 2022.
We granted options for the purchase of shares of common stock during the three months ended March 31, 2022.
The compensation expense attributed to the issuance of the options is recognized ratably over the vesting period.
Options granted under the 2019 Plan are exercisable for a specified period, generally five to ten years from the grant date, and generally vest over three to four years from the grant date.
Total compensation expense related to the options was $ and $ for the three months ended March 31, 2022 and 2021, respectively. During the three months ended March 31, 2022, we attributed $and $of compensation expense related to the options to cost of payroll and selling, general, and administrative expenses, respectively. During the three months ended March 31, 2021, we attributed $and $of compensation expense related to the options to cost of payroll and selling, general, and administrative expenses, respectively. As of March 31, 2022, there was future compensation expense of $ with a weighted average recognition period of years related to the options.
The aggregate intrinsic value totaled $and $, for total outstanding and exercisable options, respectively, and was based on our estimated fair value of the common stock of $as of March 31, 2022, which is the aggregate fair value of the common stock that would have been received by the option holders had all option holders exercised their options as of that date, net of the aggregate exercise price.
Warrant Activity Summary
In applying the Black-Scholes option pricing model to warrants granted or issued, we used the following assumptions:
A summary of the warrant activity during the three months ended March 31, 2022 is presented below:
The aggregate intrinsic value totaled $, for total outstanding and exercisable warrants and was based on the estimated fair value of our common stock of $ as of March 31, 2022, which is the aggregate fair value of the common stock that would have been received by the warrant holders had all warrant holders exercised their warrants as of that date, net of the aggregate exercise price.
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COMMITMENTS AND CONTINGENCIES |
3 Months Ended |
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Mar. 31, 2022 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | NOTE 10 – COMMITMENTS AND CONTINGENCIES
Maxim Settlement Agreement
On October 27, 2020, we entered into an advisory agreement (the “Advisory Agreement”) with Maxim Group LLC (“Maxim”), pursuant to which the parties agreed to certain compensation obligations in the form of our common stock, cash and future rights. Certain disputes arose between the parties regarding the duties and obligations pursuant to the Advisory Agreement, resulting in the parties agreeing to enter into a settlement and release agreement on January 13, 2022. As a result, the Company recorded a settlement liability at December 31, 2021 of $470,000 and issued shares of the Company’s common stock to Maxim, with a fair value of $ per share, pursuant to the settlement. During the three months ended March 31, 2022, the Company paid $470,000 in cash.
Legal Claims
There are no material pending legal proceedings in which we or any of our subsidiaries is a party or in which any of our directors, officers or affiliates, any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us.
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LOANS PAYABLE AND LINES OF CREDIT |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LOANS PAYABLE AND LINES OF CREDIT | NOTE 11 – LOANS PAYABLE AND LINES OF CREDIT
Lines of Credit
TalaTek, Inc.
On July 29, 2019, TalaTek entered into a secured line of credit with SunTrust Bank (“SunTrust”) for $500,000. The line of credit bears interest at LIBOR plus 2.25%. The line of credit is an open-end revolving line of credit and may be terminated at any time by SunTrust without notice to TalaTek. At March 31, 2022 and December 31, 2021, no amounts were drawn on the line of credit.
True Digital
On September 9, 2021, True Digital entered into a secured line of credit with Blue Sky Bank (“Blue Sky”) for $500,000. The line of credit bears interest at 3.25% per annum. The line of credit has an ending term of August 9, 2022. At March 31, 2022, the outstanding balance was $369,829.
Loans Payable
Technologyville, Inc.
On April 29, 2019, Techville entered into a note payable with VCI Account Services, that subsequently was assigned to U.S. Bancorp, in the original 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, 2022, we made cash payments of $5,532. The loan is collateralized by a vehicle. At March 31, 2022 and December 31, 2021, $27,122 and $32,474 was outstanding, respectively.
Catapult Acquisition Corp.
On July 9, 2016, Catapult Acquisition Corp. entered into several seller notes payable with shareholders of VelocIT. The total borrowing amount was $600,000 and each loan bears interest at 5% per annum with a maturity date of July 31, 2023. Pursuant to the terms of the loans, principal and interest payments were deferred for two years on three of the loans, making up $150,000 of the $600,000 total amount borrowed. During the three months ended March 31, 2022, we made cash payments totaling $80,956, of which $75,652 and $5,304 was attributable to principal and interest, respectively. The amount outstanding as of March 31, 2022 and December 31, 2021 was $370,587 and $446,239, respectively.
Arkavia
At March 31, 2022 and December 31, 2021, notes payable consist of the following amounts:
At various times during the three months ended March 31, 2022, Arkavia paid an aggregate of $337,680 in cash towards outstanding principal.
True Digital
On April 26, 2018, True Digital entered into a loan agreement with a shareholder for the principal amount of $250,000. The note had a maturity date of April 25, 2022 and bore an interest rate of 6% per annum. During the period of January 19, 2022 through March 31, 2022, True Digital made aggregate cash payments of $97,731. The loan was repaid prior the March 31, 2022.
On April 13, 2020, True Digital entered into a promissory note with a financial institution for the principal amount of $1,271,000. The note has a maturity date of April 13, 2022, bore an interest rate of 1% per annum and called for seventeen monthly payments of principal and interest of $71,171 beginning on November 13, 2020. At March 31, 2022, the amount outstanding was $74,427. Subsequent to March 31, 2022, the note was paid in full.
On February 10, 2020, True Digital entered into a promissory note with a shareholder for the principal amount of $. The note has a maturity date of and bears an interest rate % per annum. During the period of January 19, 2022 through March 31, 2022, True Digital made aggregate cash payments of $. At March 31, 2022, the amount outstanding was $.
On February 2, 2021, True Digital entered into a promissory note with a shareholder for the principal amount of $. The note has a maturity date of and bears an interest rate of % per annum. During the period of January 19, 2022 through March 31, 2022, True Digital made aggregate cash payments of $. At March 31, 2022, the amount outstanding was $.
Convertible Note Payable
On October 27, 2021, we issued to Neil Stinchcombe, the sole owner of Smile, a convertible note in the principal amount of $1,500,000 bearing an interest rate of 5% per annum payable at maturity with a maturity date of January 27, 2022, with a conversion price of $5.00 per share. On March 10, 2022, we entered into an amendment to the note pursuant to which the maturity date was extended to October 27, 2022. The outstanding principal of this note was $1,500,000 at March 31, 2022. At March 31, 2022 and December 31, 2021, we recorded accrued interest of $30,993 and $12,500 with respect to this note. We recorded interest expense of $18,493 during the three months ended March 31, 2022.
Future minimum payments under the above line of credit and notes payable following the three months ended March 31, 2022, are as follows:
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LEASES |
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| LEASES | NOTE 12 – LEASES
All of our leases are classified as operating leases. With the adoption of Topic 842, operating lease agreements are required to be recognized on the condensed consolidated balance sheet as ROU assets and corresponding lease liabilities.
On January 19, 2022, we recognized additional ROU assets and lease liabilities of $226,942. We elected to not recognize ROU assets and lease liabilities arising from office leases with initial terms of twelve months or less (deemed immaterial) on the unaudited condensed consolidated balance sheets.
ROU assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that we will exercise that option.
When measuring lease liabilities for leases that were classified as operating leases, we discounted lease payments using our estimated incremental borrowing rate at January 1, 2022. The weighted average incremental borrowing rate applied was 6%. As of March 31, 2022, our leases had a remaining weighted average term of 2.21 years.
Operating leases are included in the unaudited condensed consolidated balance sheets as follows:
The components of lease costs, which are included in income from operations in our unaudited condensed consolidated statements of operations, were as follows:
Future minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the three months ended March 31, 2022, are as follows:
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GEOGRAPHIC INFORMATION |
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| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GEOGRAPHIC INFORMATION | NOTE 13 – GEOGRAPHIC INFORMATION
Revenue by geography is based on the customer’s billing address for the three months ended March 31, 2022 was as follows:
Revenue by geography is based on the customer’s billing address for the three months ended March 31, 2021, was as follows:
No international country represented more than 10% of total revenue in any period presented.
Property and equipment, net by geography was as follows:
No other international country represented more than 10% of property and equipment, net in any period presented.
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CONCENTRATION OF CREDIT RISK |
3 Months Ended |
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Mar. 31, 2022 | |
| Risks and Uncertainties [Abstract] | |
| CONCENTRATION OF CREDIT RISK | NOTE 14 – CONCENTRATION OF CREDIT RISK
Cash Deposits
Financial instruments that potentially subject us 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, 2022, and December 31, 2021, we had approximately $1,894,000 and $1,119,000, respectively, in excess of the FDIC insured limit.
Revenue
No clients accounted for more than 10% of revenue for the three months ended March 31, 2022.
One client accounted for 32% of revenue for the three months ended March 31, 2021.
Accounts Receivable
No clients accounted for more than 10% of accounts receivable as of March 31, 2022.
One client accounted for 20% of accounts receivable as of March 31, 2021.
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SUBSEQUENT EVENTS |
3 Months Ended |
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Mar. 31, 2022 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 15 – SUBSEQUENT EVENTS
In accordance with ASC 855, Subsequent Events, which establishes general standards general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events and transactions that occurred after March 31, 2022 through the date the unaudited condensed consolidated financial statements are available for issuance. During this period the Company did not have any material reportable subsequent events. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | Basis of Presentation
The accompanying unaudited condensed consolidated financial statements as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, has been prepared in accordance with accounting principles generally accepted in the United States (“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 our 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 dates and the operating results and cash flows for such periods. Operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission (the “SEC”). These unaudited financial statements and related notes should be read in conjunction with our audited financial statements for the year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the SEC on April 15, 2022.
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| Consolidation | Consolidation
The unaudited condensed consolidated financial statements include the accounts of our company and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
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| Reclassifications | Reclassifications
Certain reclassifications have been made to the financial statements for the three months ended March 31, 2021, to conform to the financial statements presentation for the three months ended March 31, 2022. These reclassifications had no effect on net loss or cash flows as previously reported.
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| Use of Estimates | Use of Estimates
Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.
We believe the critical accounting policies discussed below affects our more significant judgments and estimates used in the preparation of the accompanying unaudited condensed consolidated financial statements. Significant estimates include the allowance for doubtful accounts, the carrying value of intangible assets and goodwill, deferred tax asset and valuation allowance, the estimated fair value of assets acquired, liabilities assumed and stock issued in business combinations, and assumptions used in the Black-Scholes option pricing model, such as expected volatility, risk-free interest rate, share price, and expected dividend rate.
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| Revenue | Revenue
Our revenue is derived from two major types of services to clients: security managed services and professional services. With respect to security managed services, we provide culture education and enablement, tools and technology provisioning, data and privacy monitoring, regulations and compliance monitoring, remote infrastructure administration, and cybersecurity services including, but not limited to, antivirus and patch management. With respect to professional services, we provide cybersecurity consulting, compliance auditing, vulnerability assessment and penetration testing, and disaster recovery and data backup solutions.
Disaggregated Revenue
Revenue consisted of the following by service offering for the three months ended March 31, 2022:
Revenue consisted of the following by service offering for the three months ended March 31, 2021:
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| Cash and Cash Equivalents | Cash and Cash Equivalents
We consider all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
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| Accounts Receivable | Accounts Receivable
Accounts receivable are reported at their outstanding unpaid principal balances, net of allowances for doubtful accounts. We periodically assess our accounts and other receivables for collectability on a specific identification basis. We provide 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. We write off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. As of March 31, 2022 and December 31, 2021, our allowance for doubtful accounts was $91,707 and $77,811, respectively.
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| Property and Equipment | 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, generally between three and five years. Expenditures that enhance the useful lives of the assets are capitalized and depreciated.
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 are removed from the accounts, and the resulting gain or loss, if any, is reflected in results of operations.
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| Inventory | Inventory
Inventory consists of software licenses and computer equipment for sale to customers. Inventory is measured using the first-in, first-out (“FIFO”) method and stated at lower of cost or net realizable value as of March 31, 2022 and December 31, 2021. The value of inventories is reduced for excess and obsolete inventories. We monitor inventory to identify events that would require impairment due to obsolete inventory and adjusts the value of inventory when required. We recorded no inventory impairment losses for the three months ended March 31, 2022 and 2021.
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| Impairment of Long-Lived Assets | Impairment of Long-Lived Assets
We review long-lived assets, including finite-lived intangible 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. During the three ended March 31, 2022 and 2021, we did not record a loss on impairment.
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| Intangible Assets | Intangible Assets
We record our intangible assets at fair value in accordance with ASC 350, Intangibles – Goodwill and Other. Finite-lived intangible assets are amortized over their estimated useful life using the straight-line method, which is determined by identifying the period over which the cash flows from the asset are expected to be generated.
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| Goodwill | Goodwill
Goodwill represents the excess of the purchase price of the acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at year end, at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit level (see Note 6).
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| Advertising and Marketing Costs | Advertising and Marketing Costs
We expense advertising and marketing costs as they are incurred. Advertising and marketing expenses were $155,341 and $45,227 for the three months ended March 31, 2022 and 2021, respectively, and are recorded in operating expenses on the unaudited condensed consolidated statements of operations.
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| Fair Value Measurements | Fair Value Measurements
As defined in ASC 820, Fair Value Measurements and Disclosures, 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). 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.
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| Net Loss per Common Share |
Net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. All vested outstanding options are considered potentially outstanding common stock. The dilutive effect, if any, of stock options is calculated using the treasury stock method. All outstanding convertible notes are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. Since the effect of common stock equivalents is anti-dilutive with respect to losses, the options and shares issuable upon conversion thereof have been excluded from our computation of net loss per common share for the three months ended March 31, 2022 and 2021.
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| Stock-Based | Stock-Based Compensation
We apply the provisions of ASC 718, Compensation - Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the statements of operations.
For stock options issued to employees and members of our board of directors for their services, we estimate the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates, and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, we recognize stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised. Due to our limited history and lack of public trading volume for our common stock, we used the average of historical share prices of similar companies within our industry to calculate volatility for use in the Black-Scholes option pricing model.
Pursuant to Accounting Standards Update (“ASU”) 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, we account for stock options issued to non-employees for their services in accordance with ASC 718. We use valuation methods and assumptions to value stock options that are in line with the process for valuing employee stock options noted above.
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| Leases | Leases
Leases in which we are the lessee are comprised of corporate offices and property and equipment. All of the leases are classified as operating leases. We lease multiple office spaces with a remaining weighted average term of 2.21 years. We lease a vehicle with a remaining term of 0.25 years.
In accordance with ASC 842, Leases, we recognized a right-of-use (“ROU”) asset and corresponding lease liability on our unaudited condensed consolidated balance sheet for long-term office leases and a vehicle operating lease agreement. See Note 12 – Leases for further discussion, including the impact on our unaudited condensed consolidated financial statements and related disclosures.
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| Deferred Revenue | Deferred Revenue
Deferred revenue primarily consists of billings or payments received from customers in advance of revenue recognized for the services provided to our customers or annual licenses and is recognized as services are performed or ratably over the life of the lease. We generally invoice customers in advance or in milestone-based installments. Deferred revenue of approximately $54,000 was recognized for the three months ended March 31, 2022 that was included in the deferred revenue balance as of December 31, 2021. As of March 31, 2022, deferred revenue related to such customer payments was $1,952,543, all of which is expected to be recognized during the succeeding twelve-month period and is therefore presented as current.
Deferred revenue consisted of the following:
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| Foreign Currency | Foreign Currency
Arkavia, uses the local currency as their functional currency. Assets and liabilities for Arkavia have been translated into U.S. dollars at the exchange rates prevailing at the end of the period and results of operations at the average exchange rates for the period. Unrealized exchange gains and losses arising from the translation of the financial statements of our non-U.S. functional currency operations are accumulated in the cumulative foreign currency translation adjustments account in the unaudited condensed consolidated statements of operations and comprehensive loss.
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| Accumulated Other Comprehensive Gain | Accumulated Other Comprehensive Gain
Foreign currency translation adjustments of $902,441 represent the difference between net loss and comprehensive gain for the three months ended March 31, 2022.
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| Income Taxes | Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities, including tax loss and credit carry forwards, are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
We utilize ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial statements or tax returns. We account for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely than not” that a deferred tax asset will not be realized. At March 31, 2022, and December 31, 2021, our net deferred tax asset has been fully reserved.
For uncertain tax positions that meet a “more likely than not” threshold, we recognize the benefit of uncertain tax positions in the unaudited condensed consolidated financial statements. Our practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the unaudited condensed consolidated statements of operations when a determination is made that such expense is likely.
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| Recently Issued Accounting Standards | Recently Issued Accounting Standards
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the Emerging Issues Task Force). The ASU requires issuers to account for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. Under the ASU, an issuer determines the accounting for the modification or exchange based on whether the transaction was done to issue equity, to issue or modify debt, or for other reasons. The ASU is applied prospectively and is effective for us for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. We adopted the standard on January 1, 2022 and management noted that there is no material impact to the unaudited condensed consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in business combinations to be recognized in accordance with ASC Topic 606 as if the acquirer had originated the contracts. The ASU is applied prospectively and is effective for us for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that adopting this standard will have on the unaudited condensed consolidated financial statements.
All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to us. |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF DISAGGREGATION OF REVENUES | Revenue consisted of the following by service offering for the three months ended March 31, 2022:
Revenue consisted of the following by service offering for the three months ended March 31, 2021:
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| SUMMARY OF SECURITIES EXCLUDED FROM DILUTED PER SHARE CALCULATION |
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| SCHEDULE OF DEFERRED REVENUE | Deferred revenue consisted of the following:
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ACQUISITIONS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination and Asset Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT FAIR VALUE ASSETS ACQUIRED AND LIABILITIES |
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS | Prepaid expenses and other current assets consisted of:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PROPERTY AND EQUIPMENT | Property and equipment consisted of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS AND GOODWILL (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF CHANGES IN GOODWILL | The following table summarizes the changes in goodwill during the three months ended March 31, 2022:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF IDENTIFIABLE INTANGIBLE ASSETS | The following table summarizes the identifiable intangible assets as of March 31, 2022 and December 31, 2021:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FUTURE AMORTIZATION EXPENSE | The below table summarizes the future amortization expense for the remainder of 2021 and the next four years thereafter:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES | Accounts payable and accrued expenses consisted of the following amounts:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDERS’ EQUITY (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF STOCK OPTIONS ASSUMPTIONS |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF STOCK OPTIONS ACTIVITY |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF STOCK WARRANTS ASSUMPTIONS | In applying the Black-Scholes option pricing model to warrants granted or issued, we used the following assumptions:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF STOCK WARRANT ACTIVITY | A summary of the warrant activity during the three months ended March 31, 2022 is presented below:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrant [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF STOCK OUTSTANDING AND EXERCISABLE |
|
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| Equity Option [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF STOCK OUTSTANDING AND EXERCISABLE |
|
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LOANS PAYABLE AND LINES OF CREDIT (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF NOTES PAYABLE | At March 31, 2022 and December 31, 2021, notes payable consist of the following amounts:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FUTURE MINIMUM PAYMENTS FOR LONG TERM DEBT | Future minimum payments under the above line of credit and notes payable following the three months ended March 31, 2022, are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LEASES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF LEASE COST AND OTHER SUPPLEMENT LEASE INFORMATION | Operating leases are included in the unaudited condensed consolidated balance sheets as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF LEASE COST | The components of lease costs, which are included in income from operations in our unaudited condensed consolidated statements of operations, were as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FUTURE MINIMUM UNDER NON-CANCELLABLE LEASES FOR OPERATING LEASES | Future minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the three months ended March 31, 2022, are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GEOGRAPHIC INFORMATION (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF REVENUE BY GEOGRAPHY IS BASED ON CUSTOMERS BILLING ADDRESS | Revenue by geography is based on the customer’s billing address for the three months ended March 31, 2022 was as follows:
Revenue by geography is based on the customer’s billing address for the three months ended March 31, 2021, was as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PROPERTY AND EQUIPMENT, NET BY GEOGRAPHIC AREAS | Property and equipment, net by geography was as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SECURITIES EXCLUDED FROM DILUTED PER SHARE CALCULATION (Details) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Antidilutive securities excluded from the diluted per share calculation | 35,120,131 | 26,904,533 |
| Share-Based Payment Arrangement, Option [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Antidilutive securities excluded from the diluted per share calculation | 34,820,131 | 25,404,533 |
| Convertible Debt [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Antidilutive securities excluded from the diluted per share calculation | 300,000 | 1,500,000 |
SCHEDULE OF DEFERRED REVENUE (Details) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| Security managed services | $ 1,724,543 | $ 52,824 |
| Professional services | 228,000 | |
| Total deferred revenue | $ 1,952,543 | $ 52,824 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
Dec. 31, 2021 |
|
| SEC Schedule, 12-28, Real Estate Companies, Investment in Real Estate and Accumulated Depreciation [Line Items] | |||
| Allowances for doubtful accounts | $ 91,707 | $ 77,811 | |
| Impairment charges on inventory | 0 | $ 0 | |
| Advertising and marketing expenses | $ 155,341 | $ 45,227 | |
| Weighted average remaining term | 2 years 2 months 15 days | ||
| Deferred revenue | $ 54,000 | ||
| Deferred revenue related to customer payments | 1,952,543 | ||
| Foreign currency translation adjustments | $ 902,441 | ||
| Office Building [Member] | |||
| SEC Schedule, 12-28, Real Estate Companies, Investment in Real Estate and Accumulated Depreciation [Line Items] | |||
| Weighted average remaining term | 2 years 2 months 15 days | ||
| Vehicle [Member] | |||
| SEC Schedule, 12-28, Real Estate Companies, Investment in Real Estate and Accumulated Depreciation [Line Items] | |||
| Weighted average remaining term | 3 months | ||
SUMMARY OF SIGNIFICANT FAIR VALUE ASSETS ACQUIRED AND LIABILITIES (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Business Acquisition [Line Items] | ||
| Consideration paid | $ 40,879,380 | |
| Goodwill (a) | 59,274,429 | $ 16,792,535 |
| Veloc I T [Member] | ||
| Business Acquisition [Line Items] | ||
| Cash | 485,232 | |
| Accounts receivable | 1,404,386 | |
| Contract assets | 131,342 | |
| Prepaid expenses and other current assets | 196,825 | |
| Property and equipment | 906,006 | |
| Other assets | 17,505 | |
| Total tangible assets | 3,141,296 | |
| Accounts payable | 419,100 | |
| Accrued expenses | 812,091 | |
| Deferred revenue | 1,796,330 | |
| Line of credit | 283,244 | |
| Loans payable | 156,783 | |
| Loans payable - shareholder | 543,581 | |
| Other liabilities | 17,012 | |
| Total assumed liabilities | 4,028,141 | |
| Net liabilities assumed | (886,845) | |
| Goodwill (a) | $ 41,766,225 |
ACQUISITIONS (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Jan. 19, 2022 |
Mar. 31, 2022 |
|
| Business Acquisition [Line Items] | ||
| Stock issued for True Digital acquisition | $ 34,726,380 | |
| True Digital Acquisition [Member] | ||
| Business Acquisition [Line Items] | ||
| Stock issued for True Digital acquisition | $ 6,153,000 | |
| Stock issued for True Digital acquisition, shares | 8,229,000 | |
| Holdback common stock percentage | 10.00% | |
| True Digital Acquisition [Member] | Merger Agreement [Member] | ||
| Business Acquisition [Line Items] | ||
| Holdback common stock percentage | 10.00% |
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS (Details) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Prepaid expenses | $ 1,182,061 | $ 453,498 |
| Prepaid taxes | 688,100 | 231,014 |
| Prepaid insurance | 51,130 | 46,751 |
| Deferred interest | 244,234 | 229,702 |
| Total prepaid expenses and other current assets | $ 2,165,525 | $ 960,965 |
SCHEDULE OF PROPERTY AND EQUIPMENT (Details) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | $ 3,699,477 | $ 2,496,890 |
| Less: accumulated depreciation | (256,540) | (102,466) |
| Property and equipment, net | 3,442,937 | 2,394,424 |
| Computer Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | 687,086 | 495,235 |
| Building [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | 1,047,020 | 1,047,020 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | 177,853 | 109,626 |
| Vehicles [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | 63,052 | 63,052 |
| Furniture and Fixtures [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | 45,835 | 33,358 |
| Software Development [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | $ 1,678,631 | $ 748,599 |
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 154,074 | $ 4,424 |
SCHEDULE OF CHANGES IN GOODWILL (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
USD ($)
| |
| Goodwill and Intangible Assets Disclosure [Abstract] | |
| Balance beginning | $ 16,792,535 |
| Goodwill, Acquired During Period | 41,766,225 |
| Foreign currency translation adjustment | 715,669 |
| Ending balance | $ 59,274,429 |
SCHEDULE OF FUTURE AMORTIZATION EXPENSE (Details) |
Mar. 31, 2022
USD ($)
|
|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | |
| 2022 (excluding the three months ended March 31, 2022) | $ 879,235 |
| 2023 | 1,166,080 |
| 2024 | 940,215 |
| 2025 | 909,440 |
| 2026 | 865,360 |
| Thereafter | 425,362 |
| Future Amortization Expense | $ 5,185,692 |
INTANGIBLE ASSETS AND GOODWILL (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Weighted average remaining useful life | 3 years 10 months 17 days | |
| Amortization of identifiable intangible assets | $ 304,914 | $ 34,994 |
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accounts payable | $ 2,975,474 | $ 1,700,260 |
| Accrued payroll | 453,147 | 482,588 |
| Accrued expenses | 2,032,540 | 513,718 |
| Accrued commissions | 729,397 | |
| Accrued interest – related party | 30,993 | 12,500 |
| Total accounts payable and accrued expenses | $ 6,221,551 | $ 2,709,066 |
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) |
Nov. 01, 2021 |
Oct. 27, 2021 |
Jan. 02, 2021 |
Mar. 31, 2022 |
|---|---|---|---|---|
| Neil Stinchcombe [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Stock Issued During Period, Shares, Conversion of Convertible Securities | 1,500,000 | |||
| Debt Instrument, Interest Rate, Stated Percentage | 5.00% | |||
| Debt Instrument, Maturity Date | Jan. 27, 2022 | |||
| Debt Instrument, Convertible, Conversion Price | $ 5.00 | |||
| Debt Instrument, Face Amount | $ 1,500,000 | |||
| Interest Payable | 18,493 | |||
| Related Party [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Notes receivable related parties | $ 1,161,718 | |||
| Two Year Consulting Agreement [Member] | Fridays LLP [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Number of shares issued for common stock | 432,000 | 312,000 | ||
| Shares deemed vested and earned | 25.00% | |||
| Shares issued | 156,000 | |||
| Two Year Consulting Agreement [Member] | Fridays LLP [Member] | Restricted Stock [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Shares issued | 108,000 |
SCHEDULE OF STOCK OPTIONS ASSUMPTIONS (Details) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Contractual term (years) | 10 years | 5 years |
| Expected volatility | 65.00% | 74.00% |
| Expected dividends | 0.00% | 0.00% |
| Minimum [Member] | ||
| Risk free interest rate | 0.63% | 0.42% |
| Maximum [Member] | ||
| Risk free interest rate | 2.46% | 0.48% |
SCHEDULE OF STOCK OPTIONS ACTIVITY (Details) - $ / shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Equity [Abstract] | ||
| Shares, Outstanding beginning | 31,372,148 | |
| Weighted Average Exercise Price Outstanding, beginning | $ 1.84 | |
| Shares, Granted | 6,025,815 | 900,000 |
| Weighted Average Exercise Price, Granted | $ 3.95 | |
| Shares, Exercised | (100,000) | |
| Weighted Average Exercise Price, Exercised | $ 0.38 | |
| Shares, Expired or cancelled | (2,477,832) | |
| Weighted Average Exercise Price, Expired or cancelled | $ 1.84 | |
| Shares, Outstanding ending | 34,820,131 | |
| Weighted Average Exercise Price Outstanding, ending | $ 2.21 | |
SCHEDULE OF STOCK WARRANTS ASSUMPTIONS (Details) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Contractual term (years) | 10 years | 5 years |
| Expected volatility | 65.00% | 74.00% |
| Expected dividends | 0.00% | 0.00% |
| Warrant [Member] | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Expected volatility | 84.00% | |
| Expected dividends | 0.00% | |
| Minimum [Member] | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Risk free interest rate | 0.63% | 0.42% |
| Minimum [Member] | Warrant [Member] | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Risk free interest rate | 1.47% | |
| Contractual term (years) | 4 years | |
| Maximum [Member] | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Risk free interest rate | 2.46% | 0.48% |
| Maximum [Member] | Warrant [Member] | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Risk free interest rate | 1.62% | |
| Contractual term (years) | 5 years | |
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Share issued price per share | $ 5.32 | |
| Maxim Settlement Agreement [Member] | ||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Litigation settlement expense | $ 470,000 | |
| Number of shares issued, shares | 400,000 | |
| Share issued price per share | $ 5.00 | |
| Repayment of debt | $ 470,000 |
SCHEDULE OF FUTURE MINIMUM PAYMENTS FOR LONG TERM DEBT (Details) |
Mar. 31, 2022
USD ($)
|
|---|---|
| Debt Disclosure [Abstract] | |
| 2022 (excluding the three months ended March 31, 2022) | $ 3,465,848 |
| 2023 | 1,069,214 |
| 2024 | 1,207,280 |
| 2025 | 752,419 |
| 2026 | 278,215 |
| Thereafter | 1,008,011 |
| Total future minimum payments | 7,780,987 |
| Less: current | (2,501,563) |
| Long term debt, noncurrent | $ 5,279,424 |
SCHEDULE OF LEASE COST AND OTHER SUPPLEMENT LEASE INFORMATION (Details) - USD ($) |
Mar. 31, 2022 |
Jan. 19, 2022 |
Dec. 31, 2021 |
|---|---|---|---|
| Leases | |||
| Operating lease cost ROU assets | $ 406,770 | $ 226,942 | $ 277,578 |
| Total lease assets | 406,770 | 277,578 | |
| Operating lease liabilities, current | 211,752 | $ 226,942 | 196,472 |
| Operating lease liabilities, non-current | 202,918 | 88,040 | |
| Total lease liabilities | $ 414,670 | $ 284,512 |
SCHEDULE OF LEASE COST (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Leases | ||
| Operating lease costs | $ 158,041 | $ 14,194 |
| Total lease costs | $ 158,041 | $ 14,194 |
SCHEDULE OF FUTURE MINIMUM UNDER NON-CANCELLABLE LEASES FOR OPERATING LEASES (Details) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Leases | ||
| 2022 (excluding the three months ended March 31, 2022) | $ 189,657 | |
| 2023 | 144,866 | |
| 2024 | 57,605 | |
| 2025 | 54,389 | |
| Total future minimum lease payments | 446,517 | |
| Amount representing interest | (31,846) | |
| Total lease liabilities | $ 414,670 | $ 284,512 |
LEASES (Details Narrative) - USD ($) |
Mar. 31, 2022 |
Jan. 19, 2022 |
Dec. 31, 2021 |
|---|---|---|---|
| Leases | |||
| Operating lease liabilities | $ 211,752 | $ 226,942 | $ 196,472 |
| Operating lease right-of-use assets | $ 406,770 | $ 226,942 | $ 277,578 |
| Weighted average discount rate | 6.00% | ||
| Weighted average remaining lease term | 2 years 2 months 15 days |
SCHEDULE OF REVENUE BY GEOGRAPHY IS BASED ON CUSTOMERS BILLING ADDRESS (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Revenue from External Customer [Line Items] | ||
| Revenue | $ 9,329,410 | $ 2,559,778 |
| UNITED STATES | ||
| Revenue from External Customer [Line Items] | ||
| Revenue | 8,406,230 | 2,559,778 |
| CHILE | ||
| Revenue from External Customer [Line Items] | ||
| Revenue | 923,180 | |
| Service [Member] | ||
| Revenue from External Customer [Line Items] | ||
| Revenue | 8,052,225 | 1,871,817 |
| Service [Member] | UNITED STATES | ||
| Revenue from External Customer [Line Items] | ||
| Revenue | 7,183,987 | 1,871,817 |
| Service [Member] | CHILE | ||
| Revenue from External Customer [Line Items] | ||
| Revenue | 868,238 | |
| Professional Services [Member] | ||
| Revenue from External Customer [Line Items] | ||
| Revenue | 1,277,185 | 687,961 |
| Professional Services [Member] | UNITED STATES | ||
| Revenue from External Customer [Line Items] | ||
| Revenue | 1,222,243 | 687,961 |
| Professional Services [Member] | CHILE | ||
| Revenue from External Customer [Line Items] | ||
| Revenue | $ 54,942 | |
SCHEDULE OF PROPERTY AND EQUIPMENT, NET BY GEOGRAPHIC AREAS (Details) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Property and equipment net | $ 3,442,937 | $ 2,394,424 |
| UNITED STATES | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Property and equipment net | 1,064,519 | 95,069 |
| CHILE | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Property and equipment net | $ 2,378,418 | $ 2,299,355 |
CONCENTRATION OF CREDIT RISK (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
Dec. 31, 2021 |
|
| Concentration Risk [Line Items] | |||
| FDIC insured amount | $ 1,894,000 | $ 1,119,000 | |
| Revenue Benchmark [Member] | Customer Concentration Risk [Member] | One Clients [Member] | |||
| Concentration Risk [Line Items] | |||
| Concentration risk, percentage | 32.00% | ||
| Accounts Receivable [Member] | Customer Concentration Risk [Member] | One Clients [Member] | |||
| Concentration Risk [Line Items] | |||
| Concentration risk, percentage | 20.00% | ||
| Maximum [Member] | |||
| Concentration Risk [Line Items] | |||
| FDIC insured amount | $ 250,000 | ||
| Maximum [Member] | Revenue Benchmark [Member] | Customer Concentration Risk [Member] | No Client [Member] | |||
| Concentration Risk [Line Items] | |||
| Concentration risk, percentage | 10.00% | ||
| Maximum [Member] | Accounts Receivable [Member] | Customer Concentration Risk [Member] | No Clients [Member] | |||
| Concentration Risk [Line Items] | |||
| Concentration risk, percentage | 10.00% | ||