UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 1, 2021
CERBERUS CYBER SENTINEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 000-56059 | 83-4210278 |
(State or other | (Commission File | (IRS Employer |
jurisdiction of incorporation | Number) | Identification No.) |
6900 E. Camelback Road, Suite 240, Scottsdale, Arizona 85251
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (480) 389-3444
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.00001 par value | CISO | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b -2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
EXPLANATORY NOTE
Pursuant to the Share Purchase Agreement (the “Agreement”) dated as of December 1, 2021 by and among Cerberus Cyber Sentinel Corporation, a Delaware corporation (the “Company”), and Southford Equities, Inc., a British Virgin Islands company (“Arkavia”), and all of the owners of Arkavia outstanding equity securities were exchanged for the issuance of 3,100,000 share of common stock, par value $0.00001, of the Company.
This Amendment No. 1 on Form 8-K/A includes the financial statements and pro forma financial information required by Item 9.01.
2 |
Item 9.01 Financial Statements and Exhibits.
(a) | Financial Statements of Businesses Acquired |
In accordance with Item 9.01(a), Arkavias’ audited financial statements for the fiscal years ended December 31, 2020 and 2019 are filed herewith as Exhibit 99.1.
In accordance with Item 9.01(a), Arkavias’ unaudited condensed financial statements for the nine months ended September 30, 2021 and 2020 are filed herewith as Exhibit 99.2.
(b) | Pro Forma Financial Information |
In accordance with Item 9.01(b), the Company’s pro forma unaudited combined balance sheets and statements of operations at and for the nine months ended September 30, 2021 and the pro forma unaudited combined statements of operations for the fiscal year ended December 31, 2020 are filed herewith as Exhibit 99.3.
(c) | Exhibits |
Exhibit Number |
Exhibit Description | |
23.1 | Consent of Independent Public Accounting Firm | |
99.1* | Financial Statements of Arkavia for the years ended December 31, 2020 and 2019 | |
99.2* | Unaudited Condensed Financial Statements of Arkavia for the nine months ended September 30, 2021 and 2020 | |
99.3* | Pro forma unaudited condensed combined financial statements for the nine months ended September 30, 2021 and the year ended December 31, 2020 |
* | Filed herewith |
3 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CERBERUS CYBER SENTINEL CORPORATION | ||
By: | /s/ Deb Smith | |
Deb Smith | ||
Chief Financial Officer (Principal Accounting Officer) | ||
February 14, 2022 |
4 |
Exhibit 99.1
SOUTHFORD EQUITIES, INC
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2020 AND 2019
TABLE OF CONTENTS
F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-2 |
F-3 |
F-4 |
BALANCE SHEETS
December 31, | December 31, | |||||||
2020 | 2019 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 3,560,130 | $ | 195,884 | ||||
Accounts receivable | $ | 2,639,501 | $ | 2,207,450 | ||||
Inventory | $ | 1,089,966 | $ | 1,096,011 | ||||
Other, Current Assets | $ | 733,433 | $ | 779,375 | ||||
Total Current Assets | 8,023,030 | 4,278,719 | ||||||
Fixed Assets, Net | $ | 646,171 | $ | 612,666 | ||||
Intangible Assets, Net | 2,955,552 | 1,954,061 | ||||||
Total Assets | $ | 11,624,753 | $ | 6,845,446 | ||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | 1,502,332 | 1,137,323 | ||||||
Accrued Expenses | 146,544 | 606,619 | ||||||
Current Portion of LT Debt | 2,612,924 | - | ||||||
Total Current Liabilities | 4,261,800 | 1,743,942 | ||||||
Note Payable | 3,296,248 | 2,032,890 | ||||||
Total Liabilities | 7,558,048 | 3,776,832 | ||||||
Commitments and Contingencies | ||||||||
Members’ equity | 4,066,706 | 3,068,614 | ||||||
Total Liabilities and Members’ Equity | $ | 11,624,753 | $ | 6,845,446 |
The accompanying footnotes are an integral part of these financial statements.
F-5 |
STATEMENTS OF OPERATIONS
Years Ended | ||||||||
December 31, 2020 | December 31, 2019 | |||||||
Revenue: | ||||||||
MSSP Sales | $ | 2,458,722 | $ | 2,323,803 | ||||
Sales Delivery Equipment | $ | 2,006,524 | $ | 3,685,651 | ||||
Sales Consulting | $ | 162,281 | $ | 69,125 | ||||
Sales Delivery Services | $ | 1,015,702 | $ | 956,291 | ||||
Sales Delivery Licenses | $ | 3,502,110 | $ | 4,415,637 | ||||
Other | $ | 20,303 | $ | 95,749 | ||||
Total revenue | 9,165,642 | 11,546,256 | ||||||
Cost of revenue | 4,128,077 | 5,857,296 | ||||||
Gross profit | 5,037,565 | 5,688,960 | ||||||
Operating expenses: | ||||||||
Salaries and benefits | 1,850,259 | 2,136,851 | ||||||
Selling, general and administrative | 2,136,320 | 2,761,848 | ||||||
Total operating expenses | 3,986,579 | 4,898,699 | ||||||
Loss from operations | 1,050,986 | 790,261 | ||||||
Other income: | ||||||||
Interest income | (2,455 | ) | (15,247 | ) | ||||
Other | (341,513 | ) | (293,180 | ) | ||||
Total other income | (343,968 | ) | (308,427 | ) | ||||
Net loss | $ | 707,018 | $ | 481,834 | ||||
$ | 707,018 | $ | 481,834 |
The accompanying notes are an integral part of these financial statements.
F-6 |
STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
Members’ | ||||||||
Equity | Total | |||||||
Balance at January 1, 2019 | $ | 2,586,779 | $ | 2,586,779 | ||||
Net income | 481,834 | 481,834 | ||||||
Balance as of December 31, 2019 | $ | 3,068,614 | $ | 3,068,614 | ||||
Balance at January 1, 2020 | $ | 3,068,614 | $ | 3,068,614 | ||||
Other | 291,074 | 291,074 | ||||||
Net income | 707,018 | 707,018 | ||||||
Balance as of December 31, 2020 | $ | 4,066,706 | $ | 4,066,706 |
The accompanying notes are an integral part of these financial statements.
F-7 |
STATEMENTS OF CASH FLOWS
Years Ended | ||||||||
December 31, 2020 | December 31, 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net Loss | $ | 707,018 | $ | 481,834 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for doubtful accounts | - | - | ||||||
Translation Adjustment | 389,000 | - | ||||||
Stock based compensation - common stock | - | - | ||||||
Depreciation | 131,000 | 133,393 | ||||||
Loss on impairment of intangible assets | - | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (432,052 | ) | 265,757 | |||||
Other current assets | 51,280 | - | ||||||
Accounts payable | 2,518,000 | (1,085,752 | ) | |||||
Net cash provided by operating activities | 3,364,246 | (204,768 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | - | - | ||||||
Cash acquired in acquisition | - | - | ||||||
Net cash used in investing activities | - | - | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from line of credit | - | |||||||
Distributions to members | - | - | ||||||
Payments on loan payable | - | - | ||||||
Payments on line of credit | - | - | ||||||
Net cash used in financing activities | - | - | ||||||
Net increase (decrease) in cash and cash equivalents | 3,364,246 | (204,768 | ) | |||||
Cash and cash equivalents - beginning of period | 195,884 | 400,651 | ||||||
Cash and cash equivalents - end of period | $ | 3,560,130 | $ | 195,883 | ||||
Supplemental cash flow information: | ||||||||
Cash paid for: | ||||||||
Interest | $ | - | $ | - |
The accompanying notes are an integral part of these financial statements.
F-8 |
NOTES TO FINANCIAL STATEMENTS
Note 1 – organization and business operations
Corporate History
Southford Equities, Inc (“Arkavia” or the “Company”) was formed in January 2010 as a British Virgin Islands based company. The Company’s principal offices are located in Santiago, Chile.
Business Overview
The Company is a a cybersecurity service company that specializes in solving their customers problems with the best technological alternatives and their recognized IT Engineering services. The Company’s goal is to provide a state-of-the-art service in the field of data networks and computer security systems by utilizing their experience to analyze and understand their customers different requirements to deliver real and functional solutions.
NOTE 2 – LIQUIDITY
The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At December 31, 2020, the Company had a members’ equity surplus and working capital surplus each of $3,761,230. For the year ended December 31, 2020, the Company had a gain from operations of $1,050,986 and positive cash flows from operating activities of $3,364,246. By 2022, we expect to grow with the opening of the LATAM market, taking into account that Arkavia will be the parent company for this purpose.
Based on its current cash resources and commitments, the Company believes it will be able to maintain its current planned development and corresponding level of expenditures for at least twelve months from the date of the issuance of these financial statements, although no assurance can be given that it will not need additional funds prior to such time.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity and objectivity.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent liabilities at the date of the financial statements. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined with precision, actual results could differ from these estimates, which may cause the Company’s future results to be affected.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the allowance for doubtful accounts.
F-9 |
Revenue
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers., The reported results for the years ended December 31, 2020 and 2019 reflect the application of ASC Topic 606.
The Company evaluates the criteria outlined in ASC Topic 606, Principal Agent Considerations, in determining whether it is appropriate to record gross amount of product and services sales and related costs or the net amount earned as revenue. Generally, when the Company is primarily obligated in a transaction, has latitude in establishing prices and selecting suppliers, or has several but not all of these indicators, revenue is recorded at the gross amount. If the Company is not primarily obligated and amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two, the Company generally records the net amounts as revenue earned. The Company has determined that it acts as the principal in its revenue transactions with customers.
The Company’s revenues are primarily derived from service offerings. With respect to services, the Company provides Cybersecurity Operation Center, Consulting, and Managed Security Service Provider.
Revenue Streams
Arkavia has four revenue streams: CSOC (Cybersecurity Operation Center), Consulting, Delivery and Managed Security Service Provider (MSSP). CSOC is the area responsible for monitoring malicious activity in the IT environment of companies, this in order to have a professional team to alert us of this malicious activity. The company’s revenue comes from penetration testing, which involves examining the customer’s entire computing environment for vulnerabilities at all levels of the infrastructure, including the network, operating systems and common application services. Another of Arkavia’s revenue streams corresponds to the logical tailoring, physical implementation and support and maintenance of perimeter security platforms as well as specific areas within the client.
Performance Obligations
The transaction price of the Company’s contracts is allocated to each distinct performance obligation and is recognized as revenue when, or as, the performance obligation is satisfied at the customer. The Company has determined performance obligations for the following services:
● | CSOC: Management has determined that services provided for CSOC services contain a single performance obligation. The Company invoices the client and recognizes revenue upon delivery of the client’s evaluation and acceptance report. | |
● | Consulting: Management has determined that the services provided for penetration testing contain a single performance obligation. The Company invoices the customer and recognizes revenue upon delivery of the evaluation report. | |
● | Delivery: Management has determined that the purchase of products for a project should be invoiced upon delivery to the customer. The company invoices the client and recognizes revenue at the time of delivery of the product and or development of the implementation of the service provided and its final delivery report. | |
● | MSSP: Management has determined that the services provided for MSSP should be billed on a monthly basis, according to the agreed support and maintenance services. The company invoices the client and recognizes revenue at the time of delivery of the monthly service status report. |
F-10 |
Practical Expedients
As part of ASC Topic 606, the Company has adopted several practical expedients including the following: (i) the Company has determined that it need not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised service to the customer and when the customer pays for that service will be one year or less and (ii) the Company recognizes any incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.
Disaggregated Revenues
Revenue consists of the following by service offering for the fiscal year ended December 31, 2020 | ||||||||||||||||||||||||||
MSSP Sales | Sales Delivery Equipment | Sales Consulting | Sales Delivery Services | Sales Delivery Licenses | Other | Total | ||||||||||||||||||||
$ | 2,458,722 | $ | 2,006,524 | $ | 162,281 | $ | 1,015,702 | $ | 3,502,110 | $ | 20,303 | $ | 9,165,642 |
Revenue consists of the following by service offering for the fiscal year ended December 31, 2019
MSSP Sales | Sales Delivery Equipment | Sales Consulting | Sales Delivery Services | Sales Delivery Licenses | Other | Total | ||||||||||||||||||||
$ | 2,323,803 | $ | 3,685,651 | $ | 69,125 | $ | 956,291 | $ | 4,415,637 | $ | 95,749 | $ | 11,546,256 |
Contract Modifications
There were no contract modifications during the years ended December 31, 2020 and 2019. Contract modifications are not routine in the performance of the Company’s contracts.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Accounts Receivable
Accounts receivable are reported at their outstanding unpaid principal balances, net of allowances for doubtful accounts. The Company periodically assesses its accounts and other receivables for collectability on a specific identification basis. The Company provides for allowances for doubtful receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. Payments are generally due within 45 days of invoice. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. As of December 31, 2020 and 2019, the Company did not record an allowance for doubtful accounts.
Advertising and Marketing Costs
The company has not incurred any advertising and marketing expenses for the years 2021 and 2020.
Fair Value Measurements
As defined in ASC 820, Fair Value Measurement, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.
Level 1: | Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
F-11 |
Level 2: | Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. |
Level 3: | Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash flow methodologies and similar techniques. |
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, and accounts payable approximate their fair values using Level 3 inputs, based on the short-term maturity of these instruments.
Income Taxes
Arkavia has provisioned a total of 185,000 for income tax as it is considered a company subject to first category tax according to Chilean tax regulations.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard is effective for the Company’s interim and annual periods beginning January 1, 2022. Management does not believe that adoption of ASU 2016 - 02 will have a material impact on the Company’s financial statements and related disclosures.
All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
Note 4 – MEMBERS’ Equity
During the years ended December 31, 2020 and 2019, the Company distributed capital of $0 and $0, respectively.
F-12 |
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Office and Rental Property Leases
The Company does not lease office space.
Legal Claims
There are no material pending legal proceedings in which the Company or any of its subsidiaries is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of its voting securities, or security holder is a party adverse to us or has a material interest adverse to the Company.
NOTE 6 – RELATED PARTY TRANSACTIONS
There are no related party transactions.
NOTE 7 – CONCENTRATION OF CREDIT RISK
Cash Deposits
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits.
Revenues
One client accounted for 18% of revenue for the year ended December 31, 2020.
One client accounted for 16% of revenue for the year ended December 31, 2019.
Accounts Receivable
Five clients accounted for 72% of the accounts receivable as of December 31, 2020, as set forth below:
Client A | 30 | % | ||
Client B | 21 | % | ||
Client C | 7 | % | ||
Client D | 7 | % | ||
Client E | 7 | % |
Four clients accounted for 80% of the accounts receivable as of December 31, 2019, as set forth below:
Client A | 54 | % | ||
Client B | 15 | % | ||
Client C | 6 | % | ||
Client D | 5 | % |
Accounts Payable
Two vendors accounted for 54% of the accounts payable as of December 31, 2020.
Vendor A | 36 | % | ||
Vendor B | 19 | % |
Two vendors accounted for 46% of the accounts payable for the year ended December 31, 2019, as set forth below:
Vendor A | 25 | % | ||
Vendor B | 21 | % |
NOTE 8 – SUBSEQUENT EVENTS
On December 1, 2021, the Company and its equity holders entered into a share purchase agreement with Cerberus Cyber Sentinel Corporation (“Cerberus”), a Delaware corporation. A a result of the transaction, the Company became a wholly-owned subsidiary of Cerberus.
F-13 |
Exhibit 99.2
SOUTHFORD EQUITIES, INC
FINANCIAL STATEMENTS FOR NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
TABLE OF CONTENTS
F-1 |
CONDENSED Balance Sheets
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 2,336,363 | $ | 3,560,130 | ||||
Accounts receivable | 704,520 | 2,639,501 | ||||||
Inventory | 1,266,746 | 1,089,966 | ||||||
Other, Current Assets | 1,114,563 | 733,433 | ||||||
Total Current Assets | 5,422,192 | 8,023,030 | ||||||
Fixed Assets, Net | 183,697 | 646,171 | ||||||
Intangible Assets, Net | 2,477,519 | 2,955,552 | ||||||
Total Assets | $ | 8,083,408 | $ | 11,624,753 | ||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | 1,174,403 | 1,502,332 | ||||||
Accrued Expenses | 492,233 | 146,544 | ||||||
Current Portion of LT Debt | 1,235,383 | 2,612,924 | ||||||
Total Current Liabilities | 2,902,019 | 4,261,800 | ||||||
Note Payable | 3,146,415 | 3,296,248 | ||||||
Total Liabilities | 6,048,434 | 7,558,047 | ||||||
Commitments and Contingencies | ||||||||
Members’ equity | 2,034,974 | 4,066,706 | ||||||
Total Liabilities and Members’ Equity | $ | 8,083,408 | $ | 11,624,753 | ||||
$ | 0 | $ | 0 |
The accompanying footnotes are an integral part of these unaudited condensed financial statements.
F-2 |
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For The Nine Months Ended | ||||||||
September 30, 2021 | September 30, 2020 | |||||||
Revenue: | ||||||||
MSSP Sales | $ | 1,654,711 | $ | 1,606,071 | ||||
Sales Delivery Equipment | $ | 1,168,454 | $ | 1,311,572 | ||||
Sales Consulting | $ | 207,106 | $ | 90,371 | ||||
Sales Delivery Services | $ | 444,138 | $ | 460,884 | ||||
Sales Delivery Licenses | $ | 2,518,049 | $ | 2,548,328 | ||||
Other | $ | 9,147 | $ | 20,173 | ||||
Total revenue | 6,001,605 | 6,037,399 | ||||||
Cost of revenue | 2,275,713 | 2,816,022 | ||||||
Gross profit | 3,725,892 | 3,221,378 | ||||||
Operating expenses: | ||||||||
Salaries and benefits | 1,572,888 | 1,414,708 | ||||||
Selling, general and administrative | 1,955,387 | 1,478,385 | ||||||
Total operating expenses | 3,528,275 | 2,893,093 | ||||||
Income from operations | 197,617 | 328,285 | ||||||
Other income: | ||||||||
Interest income | (445 | ) | (2,199 | ) | ||||
Other | (295,852 | ) | 211,254 | |||||
Total other income | (296,297 | ) | 209,056 | |||||
Net loss | $ | (98,679 | ) | $ | 537,341 |
The accompanying footnotes are an integral part of these unaudited condensed financial statements.
F-3 |
CONDENSED STATEMENTS of CHANGES IN MEMBERS’ EQUITY
(Unaudited)
Members’ | ||||||||
Equity | Total | |||||||
Balance at January 1, 2020 | $ | 3,068,614 | $ | 3,068,614 | ||||
Distributions to members | - | - | ||||||
Net loss | 537,341 | 537,341 | ||||||
Balance as of September 30, 2020 | $ | 2,133,653 | $ | 3,605,954 | ||||
Balance at January 1, 2021 | $ | 2,133,653 | $ | 2,133,653 | ||||
Net loss | (98,679 | ) | (98,679 | ) | ||||
Balance as of September 30, 2021 | $ | 2,034,974 | $ | 2,034,974 |
The accompanying footnotes are an integral part of these unaudited condensed financial statements.
F-4 |
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended | ||||||||
September 30, 2021 | September 30, 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net Loss | $ | (98,679 | ) | $ | 537,341 | |||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Provision for doubtful accounts | - | - | ||||||
Stock based compensation - stock options | - | - | ||||||
Loss on write-off of accounts receivable | - | - | ||||||
Depreciation and amortization | 177,195 | 5,661 | ||||||
Issuance of common stock for services | - | - | ||||||
Inventory | 176,780 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 1,934,982 | 282,502 | ||||||
Prepaid expenses and other current assets | (381,130 | ) | - | |||||
Accounts payable | 941 | 531,224 | ||||||
Accrued Expenses | (3,033,856 | ) | 2,007,519 | |||||
Deferred revenue | - | - | ||||||
Net cash provided by (used in) operating activities | (1,223,767 | ) | 3,364,247 | |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | - | - | ||||||
Cash acquired in acquisition | - | - | ||||||
Net cash provided by (used in) investing activities | - | - | ||||||
Cash flows from financing activities: | ||||||||
Contributions from member | - | - | ||||||
Distributions to members | - | |||||||
Proceeds from PPP loans | - | |||||||
Proceeds from sale of common stock | - | - | ||||||
Proceeds from line of credit | - | - | ||||||
Payment on loans payable | - | - | ||||||
Payment on line of credit | - | - | ||||||
Net cash provided by (used in) financing activities | - | - | ||||||
Net increase in cash and cash equivalents | (1,223,767 | ) | 3,364,247 | |||||
Cash and cash equivalents - beginning of period | 3,560,130 | 195,883 | ||||||
Cash and cash equivalents - end of period | $ | 2,336,363 | $ | 3,560,130 | ||||
Supplemental cash flow information: | ||||||||
Cash paid for: | ||||||||
Interest | $ | - | $ | - |
The accompanying footnotes are an integral part of these unaudited condensed financial statements.
F-5 |
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS
Corporate History
Southford Equities, Inc (“Arkavia” or the “Company”) was formed in January 2010 as a British Virgin Islands based company. The Company’s principal offices are located in Santiago, Chile.
Business Overview
The Company is a a cybersecurity service company that specializes in solving their customers problems with the best technological alternatives and their recognized IT Engineering services. The Company’s goal is to provide a state-of-the-art service in the field of data networks and computer security systems by utilizing their experience to analyze and understand their customers different requirements to deliver real and functional solutions.
Liquidity
The accompanying unaudited condensed financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At September 30, 2021, the Company had a members’ equity surplus and working capital surplus each of $2,520,173. For the nine months ended September 30, 2021, the Company had income from operations of $197,617 and negative cash flows from operating activities of $1,223,767. Although the Company is showing consistent revenues and gross profit trends, the Company expects to incur further losses through the end of 2021. To date the Company has been funding operations through revenues generated by the Company’s services.
Based on its current cash resources and commitments, the Company believes it will be able to maintain its current planned development and corresponding level of expenditure for at least twelve months from the date of the issuance of these unaudited condensed consolidated financial statements, although no assurance can be given that it will not need additional funds prior to such time.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial information as of and for the nine months ended September 31, 2021 and 2020 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information include 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 nine months ended September 30, 2021 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, or the SEC. These unaudited condensed financial statements and related notes should be read in conjunction with our audited financial statements for the years ended December 31, 2020 and 2019 included in the Company’s Annual Report filed as Exhibit 99.1 to this Current Report on Form 8-K/A.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the accompanying unaudited condensed financial statements. Significant estimates include the allowance for doubtful accounts and the potential offset of the loan payable forgiveness.
Revenue
Arkavia has four revenue streams: CSOC (Cybersecurity Operation Center), Consulting, Delivery and Managed Security Service Provider (MSSP). CSOC is the area responsible for monitoring malicious activity in the IT environment of companies, this in order to have a professional team to alert us of this malicious activity. The company’s revenue comes from penetration testing, which involves examining the customer’s entire computing environment for vulnerabilities at all levels of the infrastructure, including the network, operating systems and common application services. Another of Arkavia’s revenue streams corresponds to the logical tailoring, physical implementation and support and maintenance of perimeter security platforms as well as specific areas within the client.
Practical Expedients
As part of ASC Topic 606, Revenue from Contracts with Customers, the Company has adopted several practical expedients including the following: (i) the Company has determined that it need not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised service to the customer and when the customer pays for that service will be one year or less and (ii) the Company recognizes any incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.
Disaggregated Revenues
Revenue consists of the following by service offering for the nine months ended September 31, 2021
MSSP Sales | Sales Delivery Equipment | Sales Consulting | Sales Delivery Services | Sales Delivery Licenses | Other | Total | ||||||||||||||||||||
$ | 1,654,711 | $ | 1,168,454 | $ | 207,106 | $ | 444,138 | $ | 2,518,049 | $ | 9,147 | $ | 6,001,605 |
Revenue consists of the following by service offering for the nine months ended Septmenber 31, 2020
MSSP Sales | Sales Delivery Equipment | Sales Consulting | Sales Delivery Services | Sales Delivery Licenses | Other | Total | ||||||||||||||||||||
$ | 1,606,071 | $ | 1,311,572 | $ | 90,371 | $ | 460,884 | $ | 2,548,328 | $ | 20,173 | $ | 6,037,399 |
Contract Modifications
There were no contract modifications during the nine months ended September 30, 2021. Contract modifications are not routine in the performance of the Company’s contracts.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
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Accounts Receivable
Accounts receivable are reported at their outstanding unpaid principal balances, net of allowances for doubtful accounts. The Company periodically assesses its accounts and other receivables for collectability on a specific identification basis. The Company provides for allowances for doubtful receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. Payments are generally due within 45 days of invoice. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. As of September 30, 2021 and December 31, 2020, the Company did not record an allowance for doubtful accounts.
Advertising and Marketing Costs
The Company has not incurred any advertising and marketing expenses for the nine months ended September 30, 2021 and 2020.
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). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.
Level 1: | Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
Level 2: | Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. |
Level 3: | Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash flow methodologies and similar techniques. |
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, accounts payable and loan payable approximate their fair values using Level 3 inputs, based on the short-term maturity of these instruments.
Income Taxes
Arkavia has provisioned a total of $3,719 for the nine months ended September 31, 2021 income tax as it is considered a company subject to first category tax according to Chilean tax regulations.
Recently Issued Accounting Standards
All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
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Note 3 - MEMBERS’ Equity
During the nine months ended September 30, 2021, the Company made no distributions to its members.
NOTE 4 – COMMITMENTS AND CONTINGENCIES
There are no material pending legal proceedings in which the Company or any of its subsidiaries is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of its voting securities, or security holder is a party adverse to us or has a material interest adverse to the Company.
NOTE 5 – CONCENTRATION OF CREDIT RISK
Cash Deposits
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits.
Revenues
One client accounted for 16% of revenue for the nine months ended September 30, 2021, as set forth below:
One client accounted for 18% of revenue for the nine months ended September 30, 2020.
Accounts Receivable
Three clients accounted for 8% of the accounts receivable as of Setpember 30, 2021, as set forth below:
Client A | 6 | % | ||
Client B | 1 | % | ||
Client C | 1 | % |
Three clients accounted for 9% of the accounts receivable as of September 30, 2020, as set forth below:
Client A | 7 | % | ||
Client B | 1 | % | ||
Client C | 1 | % |
Accounts Payable
Two vendors accounted for 51% of the accounts payable as of Septermber 30, 2021, as set forth below:
Vendor A | 30 | % | ||
Vendor B | 21 | % |
Three vendors accounted for 60% of the accounts payable as of September 30, 2020, as set forth below:
Vendor A | 34 | % | ||
Vendor B | 15 | % | ||
Vendor C | 11 | % |
NOTE 6 – SUBSEQUENT EVENTS
On December 1, 2021, the Company and its equity holders entered into a share purchase agreement with Cerberus Cyber Sentinel Corporation (“Cerberus”), a Delaware corporation. A a result of the transaction, the Company became a wholly-owned subsidiary of Cerberus.
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Exhibit 99.3
CERBERUS CYBER SENTINEL CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as of September 30, 2021 and the unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2021 and the year ended December 31, 2020 are based on the historical consolidated financial statements of Cerberus Cyber Sentinel Corporation, a Delaware corporation (“Cerberus”, ““CCSC” or the “Company”), Southford Equities, Inc., a British Virgin Islands based company (“Arkavia”), David Esteban Alfaro Medina, Robertos Andres Arriagada Poblete, and Camilo Orlando Garrido Briones, being all of the owners of Arkavia (the “Shareholders”) after giving retroactive effect to the Company’s acquisition of Arkavia effective December 1, 2021 (the “Acquisition”), and applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated balance sheet as of September 30, 2021 is presented as if the Acquisition had occurred on September 30, 2021, and is derived from the unaudited condensed consolidated balance sheet of the Company at September 30, 2021 and the unaudited condensed balance sheet of Arkavia at September 30, 2021 and gives effect to certain pro forma adjustments. The unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2021 is presented as if the Acquisition had occurred on January 1, 2020 and gives effect to certain pro forma adjustments and are derived from the unaudited condensed consolidated statement of operations of the Company for the nine months ended September 30, 2021 and the unaudited condensed consolidated statement of operations of Arkavia for the nine months ended Sepember 30, 2021; the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2020 are derived from the audited historical statement of operations of the Company for the year ended December 31, 2020 and the unaudited historical statement of operations of Arkavia for the year ended December 31, 2020 and are presented as if the Acquisition occurred on January 1, 2021 and gives effect to certain pro forma adjustments.
The unaudited pro forma condensed consolidated financial information is based on the assumptions set forth in the notes to such information. These adjustments are provisional and subject to further adjustment as additional information becomes available, additional analyses are performed, and as warranted by changes in current conditions and future expectations. The unaudited pro forma adjustments made in preparation of the unaudited pro forma information are based upon available information and assumptions that the Company considers to be reasonable and have been made solely for purposes of developing such unaudited pro forma condensed consolidated financial information for illustrative purposes in compliance with the disclosure requirements of the Securities and Exchange Commission (“SEC”).
The unaudited pro forma adjustments have been made solely for information purposes. The actual results reported by the Company in periods following the Acquisition may differ significantly from that reflected in these unaudited pro forma condensed consolidated financial statements. As a result, the unaudited pro forma condensed consolidated information is not intended to represent and does not purport to be indicative of what the Company’s financial condition or results of operations would have been had the acquisition been completed on the applicable dates of this unaudited pro forma condensed consolidated financial information. In addition, the unaudited pro forma condensed consolidated financial information does not purport to project the future financial condition and results of operations of the Company.
The unaudited pro forma condensed consolidated financial statements, including the notes thereto, should be read in conjunction with:
● | the accompanying notes to the unaudited pro forma condensed consolidated financial statements; | |
● | the audited consolidated financial statements of the Company for the year ended December 31, 2020 and the related notes thereto, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2021; | |
● | the unaudited condensed consolidated financial statements of the Company for the nine months ended September 30, 2021 and 2020 and the related notes thereto, included in the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 12, 2021; and | |
● | Arkavia’s financial statements are based upon unaudited information without benefit of audit or review. |
The purchase price allocation takes into account the information management believes is reasonable. Nevertheless, the Company has one year from the Closing Date to make a final determination of purchase accounting allocations; and, accordingly, adjustments may be made to the foregoing allocations for the Acquisition.
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CERBERUS CYBER SENTINEL CORPORATION
Unaudited Pro Forma Condensed CONSOLIDATED Balance Sheet
See the unaudited notes to the Pro Forma Condensed Consolidated Financial Statements
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CERBERUS CYBER SENTINEL CORPORATION
Unaudited Pro Forma CONSOLIDATED Statement of Operations
Historical | Pro Forma | Pro Forma | ||||||||||||||
CCSC | Arkavia | Adjustments | Combined | |||||||||||||
Revenues, net | $ | 7,240,828 | $ | 9,165,642 | $ | - | $ | 16,406,470 | ||||||||
Cost of revenues | 4,365,566 | 4,128,077 | - | 8,493,643 | ||||||||||||
Total gross profit | 2,875,262 | 5,037,565 | - | 7,912,827 | ||||||||||||
Operating expenses: | ||||||||||||||||
Professional fees | 926,526 | 770 | - | 927,296 | ||||||||||||
Selling, general and administrative | 3,444,322 | 3,985,809 | - | 7,430,131 | ||||||||||||
Stock based compensation | 1,896,276 | - | - | 1,896,276 | ||||||||||||
Loss on write-off of accounts receivable | 15,000 | - | - | 15,000 | ||||||||||||
Total operating expenses | 6,282,124 | 3,986,579 | - | 10,268,703 | ||||||||||||
Income (loss) from operations | (3,406,862 | ) | 1,050,986 | - | (2,355,876 | ) | ||||||||||
Other expense: | ||||||||||||||||
Other income | 10,751 | - | - | 10,751 | ||||||||||||
Interest expense, net | (17,151 | ) | (343,968 | ) | - | (361,119 | ) | |||||||||
Total other expense | (6,400 | ) | (343,968 | ) | - | (350,368 | ) | |||||||||
Income (loss) before provision for income taxes | (3,413,262 | ) | 707,018 | - | (2,706,244 | ) | ||||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net income/(loss) | $ | (3,413,262 | ) | $ | 707,018 | $ | - | $ | (2,706,244 | ) | ||||||
Net loss per common share - basic | $ | (0.03 | ) | $ | (0.02 | ) | ||||||||||
Net loss per common share - diluted | $ | (0.03 | ) | $ | (0.02 | ) | ||||||||||
Weighted average shares outstanding - basic | 111,511,895 | 114,611,895 | ||||||||||||||
Weighted average shares outstanding - diluted | 111,511,895 | 114,611,895 |
See the unaudited notes to the Pro Forma Condensed Consolidated Financial Statements
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CERBERUS CYBER SENTINEL CORPORATION
Unaudited Pro Forma CONSOLIDATED Statement of Operations
Historical | Pro Forma | Pro Forma | ||||||||||||||
CCSC | Arkavia | Adjustments | Combined | |||||||||||||
Revenues, net | $ | 9,254,583 | $ | 6,001,605 | $ | - | $ | 15,256,188 | ||||||||
Cost of revenues | 6,729,860 | 2,275,713 | - | 9,005,573 | ||||||||||||
Total gross profit | 2,524,723 | 3,725,892 | - | 6,250,615 | ||||||||||||
Operating expenses: | ||||||||||||||||
Professional fees | 695,023 | 1,251 | - | 696,274 | ||||||||||||
Selling, general and administrative | 5,712,816 | 3,527,024 | - | 9,239,840 | ||||||||||||
Stock based compensation | 2,981,523 | - | - | 2,981,523 | ||||||||||||
Loss on write-off of accounts receivable | 55,528 | - | - | 55,528 | ||||||||||||
Total operating expenses | 9,444,890 | 3,528,275 | - | 12,973,165 | ||||||||||||
Income (loss) from operations | (6,920,167 | ) | 197,617 | - | (6,722,550 | ) | ||||||||||
Other expense: | ||||||||||||||||
Other income | 2,553 | - | - | 2,553 | ||||||||||||
Interest expense, net | (209,806 | ) | (296,297 | ) | - | (506,103 | ) | |||||||||
PPP loan forgiveness | 980,800 | - | - | 980,800 | ||||||||||||
Total other expense | 773,547 | (296,297 | ) | - | 477,250 | |||||||||||
Income (loss) before provision for income taxes | (6,146,620 | ) | (98,680 | ) | - | (6,245,300 | ) | |||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net income/(loss) | $ | (6,146,620 | ) | $ | (98,680 | ) | $ | - | $ | (6,245,300 | ) | |||||
Net loss per common share - basic | $ | (0.05 | ) | $ | (0.05 | ) | ||||||||||
Net loss per common share - diluted | $ | (0.05 | ) | $ | (0.05 | ) | ||||||||||
Weighted average shares outstanding - basic | 117,801,672 | 120,901,672 | ||||||||||||||
Weighted average shares outstanding - diluted | 117,801,672 | 120,901,672 |
See the unaudited notes to the Pro Forma Condensed Consolidated Financial Statements
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CERBERUS CYBER SENTINEL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Pro Forma Condensed CONSOLIDATED Financial Statements
NOTE 1 - ACQUISITION OF ARKAVIA
On December 1, 2021, the Company entered into and effected a Stock Purchase Agreement (the “SPA”) with Arkavia, and its Shareholders. Pursuant to the terms of the SPA, Arkavia became a wholly owned subsidiary of the Company. Pursuant to the SPA, at the effective time of the Acquisition, Arkavia’s outstanding common stock was exchanged for 3,100,000 shares of the Company’s common stock.
Immediately following the Acquisition, the Company had 120,889,789 shares of common stock issued and outstanding. The pre-acquisition stockholders of the Company retained an aggregate of 117,789,789 shares, representing approximately 97% ownership of the post-acquisition company. Therefore, upon consummation of the Acquisition, there was no change in control.
The Company accounted for this transaction in accordance with the acquisition method of accounting for business combinations. Assets and liabilities of the acquired business will be included in the Company’s audited consolidated balance sheet as of December 31, 2021, based on the estimated fair value on the date of Acquisition as determined in a purchase price allocation using available information and making assumptions management believes are reasonable.
Per ASC Topic 805, “Business Combinations” (“ASC 805”), the measurement period is the period after the Acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination. The measurement period shall not exceed one year from the acquisition date. The Company has identified the acquisition date as December 1, 2021. Subsequent to the issuance of these pro forma financial statements, the Company expects to obtain a third-party valuation on the fair value of the assets acquired and the liabilities assumed for use in the purchase price allocation.
The following table shows the preliminary allocation of the purchase price for the Company to the acquired identifiable assets, liabilities assumed and goodwill as of December 1, 2021, to be presented in the Company’s unaudited pro forma condensed consolidated financial statements for the nine months ended September 30, 2021:
Consideration paid | $ | 31,031,000 | ||
Tangible assets acquired: (c.) | ||||
Cash and cash equivalents | 2,336,364 | |||
Accounts receivable, net | 704,520 | |||
Inventory | 1,266,746 | |||
Prepaid expenses and other current assets | 330,407 | |||
Other receivables | 784,229 | |||
Property and equipment | 183,697 | |||
Total tangible assets | $ | 5,605,963 | ||
Intangible assets acquired: (c.) | ||||
Intangible assets | $ | 2,477,519 | ||
Total intangible assets | $ | 2,477,519 | ||
Assumed liabilities: (c.) | ||||
Accounts payable and accrued expenses | 1,500,267 | |||
Deferred revenue | 166,369 | |||
Note payable | 4,381,798 | |||
Total assumed liabilities | $ | 6,048,434 | ||
Net assets acquired | $ | 2,035,048 | ||
Goodwill (a.) (b.) | $ | 28,995,952 |
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a. Goodwill is the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. In accordance with applicable accounting standards, goodwill is not amortized but instead is tested for impairment at least annually or more frequently if certain indicators are present. Goodwill and intangibles are not deductible for tax purposes.
b. Goodwill represents expected synergies from the merger of operations and intangible assets that do not qualify for separate recognition. Cerberus and Arkavia are both cybersecurity service providers. The acquisition of Arkavia provided Cerberus potential sales synergies resulting from Cerberus’ access to Arkavia’s current client-base to offer additional services. Goodwill also represents Arkavia’s customer list which the Company was unable to assign a fair value. These items will be assigned a fair value upon the completion of the third-party valuation, and will be amortizable, which will affect the pro forma loss from operations and loss per share.
The above purchase price allocation is not reflected in the unaudited pro forma condensed consolidated balance sheet at September 30, 2021 (See Note 4).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited pro forma condensed consolidated financial statements have been compiled in a manner consistent with the accounting policies adopted by the Company. The accounting policies of Arkavia were not deemed to be materially different to those adopted by the Company. See the Company’s audited financial statements as of December 31, 2020 and 2019.
NOTE 3 - ACQUISITION-RELATED COSTS
In conjunction with the Acquisition, the Company incurred acquisition-related charges, related primarily to investment banking, legal, accounting and other professional services which are expensed as incurred.
NOTE 4 - PRO FORMA ADJUSTMENTS
The unaudited pro forma condensed consolidated financial statements are based upon the historical financial statements of the Company and Arkavia and certain adjustments which the Company believes are reasonable to give effect to the Acquisition. These adjustments are based upon currently available information and certain assumptions, and therefore the actual impacts will likely differ from the pro forma adjustments. The unaudited pro forma condensed consolidated balance sheet at September 30, 2021 reflects the assets, liabilities and equity positions of the Company and Arkavia as of September 30, 2021. This differs from the fair value of the assets and liabilities acquired by the Company on December 1, 2021 as discussed above in Note 1. However, the Company believes that the preliminary determination of the fair value of goodwill and other related assumptions utilized in preparing the unaudited pro forma condensed consolidated financial statements provide a reasonable basis for presenting the pro forma effects of the Acquisition.
The adjustments made in preparing the unaudited pro forma condensed consolidated financial statements are as follows:
(1) Reflects the fair value of the 3,100,000 shares of common stock issued to the shareholders of Arkavia in the Acquisition, at $10.01 per share.
(2) Reflects the estimated amount of goodwill purchased as part of the Acquisition and the elimination of Arkavia’s retained earnings and accumulated foreign currency translation.
(3) No adjustment was made for pro forma taxes on Arkavia, which has historically been a pass-through entity, given the losses generated by CCSC and Arkavia.
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