EXHIBIT 99.3
SPECTRUM TECHNOLOGY SOLUTIONS, LLC | ||||||||
BALANCE SHEETS | ||||||||
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| June 30, 2021 |
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| December 31, 2020 |
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ASSETS |
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Cash and cash equivalents |
| $ | 118,366 |
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| $ | 298,482 |
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Accounts receivable, net |
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| 100,765 |
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| 134,810 |
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Loans receivable |
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| 352,200 |
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| 0 |
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Inventory |
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| 13,789 |
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| 26,881 |
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Prepaid expenses and other current assets |
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| 135,535 |
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| 33,904 |
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Total current assets |
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| 720,655 |
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| 494,077 |
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Property and equipment, net |
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| 58,628 |
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| 58,628 |
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Acquired technology, net |
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| 23,940 |
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| 23,940 |
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Total long-term assets |
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| 82,568 |
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| 82,568 |
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TOTAL ASSETS |
| $ | 803,223 |
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| $ | 576,645 |
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LIABILITIES AND MEMBERS' EQUITY |
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Accounts payable and accrued expenses |
| $ | 83,203 |
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| $ | 89,903 |
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Unearned Income |
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| (396 | ) |
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| 14,809 |
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Notes payable |
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| 356,568 |
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| 358,165 |
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Total current liabilities |
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| 439,375 |
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| 462,877 |
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TOTAL LIABILITIES |
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| 439,375 |
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| 462,877 |
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MEMBERS' EQUITY |
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| 363,848 |
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| 113,768 |
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TOTAL LIABILITIES AND MEMBERS' EQUITY |
| $ | 803,223 |
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| $ | 576,645 |
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See Accompanying Notes to the Financial Statements | ||||||||
| 1 |
SPECTRUM TECHNOLOGY SOLUTIONS, LLC | ||||||||
STATEMENTS OF INCOME | ||||||||
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| Six Months Ended June 30, 2021 |
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| Six Months Ended June 30, 2020 |
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Revenue, net |
| $ | 1,036,237 |
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| $ | 1,006,242 |
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Cost of sales |
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| 647,446 |
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| 596,831 |
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Gross profit |
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| 388,791 |
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| 409,411 |
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Operating Expenses: |
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Selling, General and Administrative |
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| 322,275 |
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| 308,561 |
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Depreciation and amortization |
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| 0 |
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| 0 |
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Total operating expenses |
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| 322,275 |
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| 308,561 |
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Income from operations |
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| 66,516 |
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| 100,850 |
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Other income (expense) |
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Interest expense |
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| (336 | ) |
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| (3,955 | ) |
Gain on cancellation of liabilities |
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| 183,900 |
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| 0 |
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Total other income (expense) |
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| 183,564 |
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| (3,955 | ) |
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Net income |
| $ | 250,080 |
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| $ | 96,895 |
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See Accompanying Notes to the Financial Statements | ||||||||
| 2 |
SPECTRUM TECHNOLOGY SOLUTIONS, LLC | ||||
STATEMENT OF CHANGES IN MEMBERS' EQUITY | ||||
Balance, January 1, 2020 | $ | 116,659 | ||
Distributions to members | (50,608 | ) | ||
Net Income | 96,895 | |||
Balance, June 30, 2020 | $ | 162,946 | ||
Balance, January 1, 2021 | $ | 113,768 | ||
Distributions to members | - | |||
Net Income | 250,080 | |||
Balance, June 30, 2021 | $ | 363,848 | ||
See Accompanying Notes to the Financial Statements | ||||
| 3 |
SPECTRUM TECHNOLOGY SOLUTIONS, LLC | ||||||||
STATEMENTS OF CASH FLOWS | ||||||||
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| Six Months Ended June 30, 2021 |
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| Six Months Ended June 30, 2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net Income |
| $ | 250,080 |
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| $ | 96,895 |
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Adjustments to Reconcile Net Income to Net Cash |
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Used in Operating Activities |
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Depreciation and amortization |
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| 0 |
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| 0 |
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Gain on cancellation of liabilities |
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| (183,900 | ) |
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| 0 |
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Changes in Operating Asset and Liabilities |
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Accounts Receivable |
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| 34,045 |
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| 34,201 |
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Loans Receivable |
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| (352,200 | ) |
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| 3 |
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Inventory |
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| 13,093 |
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| (3,041 | ) |
Prepaid Expenses and Other Current Assets |
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| (101,631 | ) |
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| 8,649 |
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Accounts Payable |
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| (6,701 | ) |
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| (4,270 | ) |
Unearned income |
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| (15,205 | ) |
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| (1,040 | ) |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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| (362,419 | ) |
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| 131,397 |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchases of Property and Equipment |
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| 0 |
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| 0 |
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
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| 0 |
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| 0 |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Net proceeds from debt |
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| 185,988 |
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| 408,800 |
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Payments on debt |
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| (3,685 | ) |
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| (3,685 | ) |
Distribution to Members |
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| 0 |
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| (50,608 | ) |
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NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES |
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| 182,303 |
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| 354,507 |
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NET INCREASE (DECREASE) IN CASH |
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| (180,116 | ) |
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| 485,904 |
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CASH - BEGINNING OF PERIOD |
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| 298,482 |
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| 10,649 |
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CASH - END OF PERIOD |
| $ | 118,366 |
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| $ | 496,553 |
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See Accompanying Notes to the Financial Statements | ||||||||
| 4 |
Spectrum Technology Solutions, LLC
Notes to Financial Statements
June 30, 2021
1. NATURE OF OPERATIONS
(a) | Business Description and Nature of Operations | |
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| Spectrum Technology Solutions, LLC, (the “Company”), an Arizona limited liability corporation, provides IT managed services and support and is located in Scottsdale, Arizona. |
2. SIGNIFICANT ACCOUNTING POLICIES
(a) | Basis of Presentation | |
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| The financial statements of the Company have been prepared in accordance with GAAP and are expressed in United States dollars. |
(b) | Cash | |
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| Cash includes cash deposits in financial institutions and cash held at the Company. |
(c) | Inventory | |
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| As of June 30, 2021 and December 31, 2020, inventory totaled $13,789 and $26,881, respectively, and was comprised solely of computer hardware parts valued at cost. The Company reviews its inventories for obsolete, redundant and slow-moving goods and any such inventories are written down to net realizable value. There were no reserves for obsolete inventories as of June 30, 2021 and December 31, 2020. |
(d) | Property and Equipment | |
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| Purchase of property and equipment are recorded at cost, net of accumulated depreciation and impairment losses, if any. Improvements and replacements of property and equipment are capitalized. Maintenance and ordinary repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. Depreciation is calculated on a straight-line basis over the estimated economic useful lives of each class of assets using the following terms: |
| Automobiles | Luxury auto yearly limitations |
| Furniture and Fixtures | 7 Years |
| Computer Hardware | 3 Years |
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| The assets’ residual values, useful lives, and methods of depreciation are reviewed at year-end and adjusted prospectively, if appropriate.
When assets are sold or retired, its cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the statement of operations. |
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(e) | Impairment of Long-Lived Assets | |
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| The Company accounts for its long-lived assets such as property and equipment in accordance with FASB ASC Topic No. 360, "Accounting for the Impairment or Disposal of Long-lived Assets" ("ASC 360").
Management reviews long-lived assets for impairment whenever changes in events or circumstances indicate the assets may be impaired. Pursuant to ASC 360, an impairment loss is to be recorded when the net book value of an asset exceeds the undiscounted cash flows expected to be generated from the use of the asset. If an asset is determined to be impaired, the asset is written down to its fair value, and the loss is recognized in the statement of income in the period when the determination is made. No impairment charges for long-lived assets have been recorded for the six months ended June 30, 2021 and year ended December 31, 2020. |
| 5 |
Spectrum Technology Solutions, LLC
Notes to Financial Statements
June 30, 2021
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) | Leased Assets | |
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| A lease of property and equipment is classified as a capital lease if it transfers substantially all the risks and rewards incidental to ownership to the Company. A lease of property and equipment is classified as an operating lease whenever the terms of the lease do not transfer substantially all of the risks and rewards of ownership to the lessee. Lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which the economic benefits are consumed. |
(g) | Income Taxes | |
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| The Company is a limited liability company treated as a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed through to the member. As such, no recognition of federal or state income taxes for the Company have been provided in the accompanying financial statements. Any uncertain tax position taken by the member is not an uncertain position of the Company. |
(h) | Revenue Recognition | |
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| Revenue is recognized by the Company in accordance with FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Through application of the standard, the Company recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
In order to recognize revenue under ASU 2014-09, the Company applies the following five (5) steps: |
• | Identify a customer along with a corresponding contract; | |
• | Identify the performance obligation(s) in the contract to transfer goods or provide distinct services to a customer; | |
• | Determine the transaction price the Company expects to be entitled to in exchange for transferring promised goods or services to a customer; | |
• | Allocate the transaction price to the performance obligation(s) in the contract; | |
• | Recognize revenue when or as the Company satisfies the performance obligation(s). |
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| Revenues consists of providing IT managed services and support. Revenue is generally recognized when the services have been performed and is recorded net of sales discounts. Payment is typically due upon service completion or within a specified time period permitted under the Company’s credit policy.
Based on the Company’s assessment, the adoption of this new standard had no impact on the amounts recognized in its financial statements. |
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(i) | Fair Value of Financial Instruments | |
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| The carrying amounts of cash and accounts payable approximate fair value due to the short maturity of these instruments. |
| 6 |
Spectrum Technology Solutions, LLC
Notes to Financial Statements
June 30, 2021
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(j) | Advertising | |
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| Advertising costs are charged to operations when incurred. Advertising expenses, included in operating expenses, was approximately $2,000 and $14,000 for the six months ended June 30, 2021 and year ended December 31, 2020, respectively. |
(k) | Significant Accounting Judgements, Estimates, and Assumptions | |
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| The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, using management’s best estimates and judgments where appropriate. These estimates and judgements affect the reported amounts of assets and liabilities at the date of the financial statements. The estimates and judgements will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgements. |
| (l) | Concentrations of Credit Risk |
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| The Company’s financial instruments that at times are exposed to concentrations of credit risk consist primarily of cash. The Company maintains cash in bank accounts, which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. Management does not believe the Company is exposed to significant credit risk related to cash because the Company maintains cash with high quality institutions. |
(m) | New Accounting Pronouncements |
(i) | In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASC 842”), which will replace ASC 840, “Leases”. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than twelve months unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. For private companies, the standard will be effective for annual periods beginning on or after December, 15 2021, with earlier application permitted. The standard requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company does not believe that the impact of the new standard on our financial statements will be material. |
(n) | Coronavirus Pandemic | |
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| In March 2020, the World Health Organization categorized coronavirus disease 2019 (“COVID-19”) as a pandemic. COVID-19 continues to spread throughout the U.S. and other countries across the world, and the duration and severity of its effects are currently unknown. The Company continues to implement and evaluate actions to strengthen its financial position and support the continuity of its business and operations.
As of the date hereof, the Company’s operations have not been significantly impacted as managed IT services has been deemed essential in many states since March 2020. Going forward, the extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on various developments, including the duration and magnitude of the outbreak, and the impact on customers, employees and vendors, all of which are uncertain and cannot be predicted. |
| 7 |
Spectrum Technology Solutions, LLC
Notes to Financial Statements
June 30, 2021
In April 2020 the Company received loan proceeds of approximately $174,000 relating to the Paycheck Protection Program (PPP) as part of the CARES Act created by Congress to financially support companies during the COVID-19 pandemic. The PPP Loan carried interest at 1%. The principal and accrued interest were forgiven on May 6, 2021 after completing and submitting a PPP Loan Forgiveness Application with the financial institution associated with the SBA loan.
In April 2020 the Company received $10,000 relating to the Economic Injury Disaster Loan (EIDL) Advance Grant. These monies were part of the CARES Act addressing the COVID-19 pandemic and do not have to be repaid and were formally forgiven in May 2021.
In May 2020 the Company received $150,000 relating to the Economic Injury Disaster Loan (EIDL). These monies were part of the CARES Act addressing the COVID-19 pandemic.
In February 2021 the Company received loan proceeds of approximately $174,000 relating to the Paycheck Protection Program (PPP) as part of the CARES Act created by Congress to financially support companies during the COVID-19 pandemic. The PPP Loan carried interest at 1%. The Company is ready to submit the PPP Loan Forgiveness Application with the financial institution associated with the SBA loan.
3. PROPERTY AND EQUIPMENT
The Company’s property and equipment consists of the following as of June 30, 2021 and December 31, 2020:
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| June 30, 2021 |
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| December 31, 2020 |
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Computer hardware |
| $ | 81,586 |
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| $ | 81,586 |
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Furniture and fixtures |
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| 37,527 |
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| $ | 37,527 |
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Automobiles |
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| 31,700 |
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| $ | 31,700 |
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Total Property and equipment |
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| 150,813 |
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| 150,813 |
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Less: Accumulated depreciation |
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| (92,185 | ) |
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| (92,185 | ) |
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Property and equipment, net |
| $ | 58,628 |
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| $ | 58,628 |
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Depreciation expense associated with the property and equipment was $0 and $33,549 for the six months ended June 30, 2021 and year ended December 31, 2020, respectively.
4. LEASE OBLIGATIONS AND RELATED PARTY TRANSACTIONS
The Company leases their 4,800 sq. ft. office in Scottsdale, Arizona from a related party, Klug Enterprises, LLC, of which the CEO, Wayne Klug, is a member. The ten-year lease commenced on January 1, 2019 and contains an annual escalation clause along with an option to renew the lease for ten (10) additional successive term(s) of twelve months (each, a “Renewal Term”). Rent expense is calculated on a straight-line basis over the term of the lease. The Company’s rent expense was $38,830 and $75,221 for the six months ended June 30, 2021 and year ended December 31, 2020, respectively.
| 8 |
Spectrum Technology Solutions, LLC
Notes to Financial Statements
June 30, 2021
Future minimum rental commitments on leases are:
Year Ending December 31, |
| Amount |
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2021 |
| $ | 35,962 |
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2022 |
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| 74,285 |
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2023 |
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| 76,646 |
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2024 |
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| 79,008 |
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2025 |
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| 81,370 |
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2026 |
|
| 83,731 |
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2027 |
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| 86,093 |
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2028 |
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| 88,454 |
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Total |
| $ | 605,549 |
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The Company lent the CEO, Wayne Klug, $350,000 in June 2021 and it was repaid in July 2021.
5. COMMITMENTS AND CONTINGENCIES
The Company is subject to lawsuits, investigations and other claims related to employment, commercial and other matters that arise out of operations in the normal course of business. Periodically, the Company reviews the status of each significant matter and assesses the potential financial exposure. If the potential loss from any claim or legal
proceeding is considered probable, and the amount can be reliably estimated, such amount is recognized in other liabilities. As of June 30, 2021, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the Company’s combined results of operations.
Contingent liabilities are measured at management’s best estimate of the expenditure required to settle the obligation at the end of the reporting period and are discounted to present value where the effect is material. The Company performs evaluations to identify onerous contracts and, where applicable, records contingent liabilities for such contracts.
6. SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to December 31, 2020 to the date these financial statements were available to be issued, and has determined that it does not have any material subsequent events to disclose in these condensed financial statements, except as follows:
In February 2021 the Company received loan proceeds of approximately $174,000 relating to the Paycheck Protection Program (PPP) as part of the CARES Act created by Congress to financially support companies during the COVID-19 pandemic. The PPP Loan carried interest at 1%. The principal and accrued interest were forgiven on August 3, 2021 after completing and submitting a PPP Loan Forgiveness Application with the financial institution associated with the SBA loan.
The Company lent the CEO, Wayne Klug, $350,000 in June 2021 and it was repaid in July 2021.
| 9 |
Spectrum Technology Solutions, LLC
Notes to Financial Statements
June 30, 2021
In May 2020 the Company received $150,000 relating to the Economic Injury Disaster Loan (EIDL). These monies were part of the CARES Act addressing the COVID-19 pandemic. The loan was repaid in August 2021.
On September 1, 2021, the Company was acquired by iCoreConnect, Inc., a Nevada corporation, (“Buyer”), in exchange for (i) 4,046,617 shares of restricted Common Stock of Buyer, (ii) $1,500,000 in cash and (iii) the assumption of certain liabilities and obligations of Seller.
| 10 |