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Form PRE 14C NEWTOWN LANE MARKETING For: Sep 10

September 10, 2021 10:40 AM EDT

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SCHEDULE 14C and SCHEDULE 14F-1

(Rule 14c-101 and Rule 14f-1)

INFORMATION REQUIRED IN INFORMATION STATEMENT

 

SCHEDULE 14C INFORMATION

 

Information Statement Pursuant to Section 14(c) of the

Securities Exchange Act of 1934

 

Information Statement Pursuant to Section 14(f) of the

Securities Exchange Act of 1934

And Rule 14f-1 Thereunder

 

(Amendment No.   )

 

Check the appropriate box:

 

Preliminary information statement Confidential, for use of the Commission only (as permitted by Rule 14c-5(d)(2))

Definitive information statement

 

NEWTOWN LANE MARKETING, INCORPORATED

(Name of Registrant as Specified in Its Charter)

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.

 

(1)Title of each class of securities to which transaction applies:
  

 

(2)Aggregate number of securities to which transactions applies:
  

 

(3)Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
  

 

(4)Proposed maximum aggregate value of transaction:
  

 

(5)Total fee paid:
  

 

Fee paid previously with preliminary materials.

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)Amount previously paid:
  

 

(2)Form, Schedule or Registration Statement No.:
  

 

(3)Filing Party:
  

 

(4)Date Filed:
  

 

 

 

 

 

 

NEWTOWN LANE MARKETING, INCORPORATED
c/o Graubard Miller

405 Lexington Avenue, 11th Floor

New York, New York 10174

212-818-8800

 

INFORMATION STATEMENT PURSUANT TO SECTION 14C AND SECTION 14(F) OF
THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14C-1 AND RULE 14F-1 THEREUNDER

September [____], 2021

 

No vote or other action by our stockholders is required or requested in response to this information
statement. We are not asking you for a proxy and you are requested not to send us a proxy.

 

This information statement is being furnished to holders of record of the common stock of Newtown Lane Marketing, Incorporated, a Delaware corporation (the “Company”), as of the close of business on September [_____], 2021, in accordance with the requirements of Sections 14(c) and 14(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 14c-1 and 14f-1 promulgated under the Exchange Act. This also notifies the Company’s stockholders that on or about February 8, 2021 and September 6, 2021, the Company received written consents in lieu of meetings of stockholders from the holder of a majority of the Company’s common stock approving the following:

 

the change (the “Change of Control”) in the majority of the Company’s board of directors (the “Board”) that is expected to result from the consummation of the transactions contemplated by that certain Agreement and Plan of Reorganization, dated as of February 8, 2021 (the “Merger Agreement”), entered into among the Company, Newtown Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and Cyxtera Cybersecurity, Inc. d/b/a AppGate, a Delaware corporation (“Appgate”);

 

the second amended and restated certification of incorporation of the Company (the “Amended Charter”), which, among other things, amends the Company’s amended and restated certificate of incorporation, which became effective on February 27, 2006 and was subsequently amended on October 18, 2007 and August 15, 2008 (the “Existing Charter”), to (i) change the Company’s name to “Appgate, Inc.”, (ii) designate specific courts as the exclusive forum for certain litigation that may be initiated by the Company’s stockholders, (iii) include a staggered board, which means that our Board of Directors is classified into three classes of directors with staggered three-year terms, (iv) include a prohibition on stockholder action by written consent from and after the date on which SIS Holdings (as defined below), BCEC-Cyxtera Technologies Holdings (Guernsey) L.P. (“BC Partners”), Medina Capital Fund II – SIS Holdco, LP (the “Medina Stockholder”), LDEF Series B-1 LLC – Series 17, Star Investment Series LLC – Series 38 and each of their respective affiliates (collectively, the “Investors”) cease to beneficially own in the aggregate at least 50% of the outstanding shares of common stock (the “Trigger Event”), (v) require that, from and after the Trigger Event, directors may only be removed for cause and only upon the affirmative vote of the holders of at least 66 2/3% in voting power of all of the then-outstanding shares of our common stock entitled to vote thereon, voting together as a single class, (vi) require, from and after the Trigger Event, the affirmative vote of holders of at least 75% of the voting power of all of the then outstanding shares of common stock to amend provisions of the Amended Charter relating to the management of our business, the Board, stockholder action by written consent, competition and corporate opportunities, Section 203 of the Delaware General Corporation Law (the “DGCL”), forum selection and the liability of our directors, or to amend, alter, rescind or repeal our bylaws, and (vii) increase the Company’s authorized shares of common stock from 100,000,000 to 270,000,000; and

 

the Company’s 2021 Incentive Compensation Plan (the “2021 Plan”).

 

The Change of Control, Amended Charter and 2021 Plan are further described under the heading “Description of Stockholder Matters” below.

 

As of September 10, 2021, the Company had issued and outstanding 14,643,740 shares of common stock, which is the Company’s only class of securities that would be entitled to vote for directors at a stockholders’ meeting if one were to be held. Each share of common stock is entitled to one vote.

 

Please read this information statement carefully. It describes the Change of Control, Amended Charter and 2021 Plan in detail and contains certain biographical and other information concerning the Company’s current and proposed executive officers and directors.

 

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SUMMARY OF THE MATERIAL TERMS OF THE TRANSACTIONS

 

The Company has entered into the Merger Agreement with Merger Sub and Appgate. Upon the consummation of the transactions contemplated by the Merger Agreement, Merger Sub will be merged with and into Appgate (the “merger” or the “Merger”), with Appgate surviving the merger and becoming a wholly owned subsidiary of the Company. See the section titled “The Merger — Structure of the Merger” for more information on the structure of the merger.

 

Appgate is a cybersecurity company that helps corporate enterprises, financial institutions, and government entities protect against cybersecurity breaches and fraud through solutions based on Zero Trust principles. Appgate sells and delivers its solutions using a combination of term-based license subscriptions, perpetual licenses and software-as-a-service, together with related support services. Appgate was incorporated in Delaware in October 2016 and conducts business worldwide, including in the United States, Canada, Latin America, Europe, the Middle East and Asia. Appgate’s headquarters are in Coral Gables, Florida.

 

Upon consummation of the merger, each outstanding share of Appgate common stock will be converted into 234,299.84 shares of the Company’s common stock. As a result of the foregoing, the stockholders of Appgate will receive an aggregate of 117,149,920 shares of the Company’s common stock. See the section titled “The Merger — Structure of the Merger” for more information on the merger consideration and the ownership of the Company’s common stock following the merger.

 

Additionally, the Company will guarantee Appgate’s obligations of payment of principal, interest and other liabilities under the Note Issuance Agreement (as defined below) and assume Appgate’s Conversion Obligations (as defined in the Note Issuance Agreement) and Change of Control Conversion Obligations (as defined in the Note Issuance Agreement) thereunder.

 

SIS Holdings LP (“SIS Holdings”), the owner of all of the outstanding common stock of Appgate, and Ironbound Partners Fund, LLC (“Ironbound”), the current owner of the majority of the outstanding common stock of the Company, will agree, as a condition to the closing of the merger, to not to sell their shares of the Company’s common stock until the 12-month anniversary of the consummation of the merger, subject to certain exceptions.

 

Upon consummation of the merger, Jonathan J. Ledecky, the Company’s current sole director, is expected to remain on the Board, and Fahim Ahmed, Barry Field, Manuel D. Medina and Raymond Svider are expected to be appointed to the Board. See the section titled “Executive Officers, Directors and Key Employees” for more information on the Board following the merger.

 

Upon consummation of the merger, (i) Jonathan J. Ledecky is expected to resign from his position as president of the Company and (ii) Manuel D. Medina is expected to become the Executive Chairman of the Company, Barry Field is expected to become the Chief Executive Officer of the Company, Jawahar Sivasankaran is expected to become the President and Chief Operating Officer of the Company, Rene A. Rodriguez is expected to become the Chief Financial Officer of the Company and Jeremy M. Dale is expected to become the General Counsel and Secretary of the Company. See the section titled “Executive Officers, Directors and Key Employees” for more information on the management of the Company following the merger.

 

As a result of the foregoing, upon consummation of the merger, the Change of Control will occur, together with a change in the ownership of a majority of the Company’s outstanding common stock, as well as a comprehensive change in management, all as more fully described in this Information Statement.

 

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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth the number of shares of common stock beneficially owned as of September 10, 2021 by (i) those persons or groups known to beneficially own more than 5% of the Company’s common stock, (ii) each current director and executive officer of the Company and (iii) all executive officers and directors as a group. The information presented does not reflect the ownership interests of such individuals as a result of the merger or any of the transactions related to the merger.

 

The information is determined in accordance with Rule 13d-3 promulgated under the Exchange Act. Except as indicated below, the stockholders listed possess sole voting and investment power with respect to their shares.

 

Name of Beneficial Owner  Number of Shares(1)   Percent of Class 

Ironbound Partners Fund, LLC(2)

c/o Graubard Miller

405 Lexington Ave, 11th Floor,

New York, NY 10174

   9,509,440(3)   69.1%

Jonathan J. Ledecky(4)

c/o Graubard Miller

405 Lexington Ave, 11th Floor,

New York, NY 10174

   9,509,440(3)   69.1%
Moyo Partners, LLC(5)
c/o Arnold P. Kling
410 Park Avenue, Suite 1710
New York, NY 10022
   2,377,360    17.3%
Arnold P. Kling(6)
410 Park Avenue, Suite 1710
New York, NY 10022
   2,377,360    17.3%
Kirk M. Warshaw
2640 Lake Shore Drive, Unit 1708
Riviera Beach, FL 33404
   1,070,880    7.5%
All executive officers and directors as a group (one person)   9,509,440    69.1%

 

(1)Unless otherwise indicated, we have been advised that all individuals or entities listed have the sole power to vote and dispose of the number of shares set forth opposite their names. For purposes of computing the number and percentage of shares beneficially owned by a security holder, any shares which such person has the right to acquire within 60 days of September 10, 2021 are deemed to be outstanding, but those shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other security holder.

 

(2)Jonathan J. Ledecky, the Company’s president and sole director, controls Ironbound Partners Fund, LLC and therefore is the beneficial owner of the shares held by this entity.

 

(3)Does not include shares of Common Stock issuable upon the conversion of convertible promissory notes that have been issued from time to time by the Company to Ironbound Partners Fund, LLC, in the aggregate principal amount of $367,000.

 

(4)Includes all the shares held by Ironbound Partners Fund, LLC.

 

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(5)Arnold P. Kling controls Moyo Partners, LLC and therefore is the beneficial owner of the shares held by this entity.

 

(6)Includes all the shares held by Moyo Partners, LLC.

 

The Company currently does not have any equity compensation plans.

 

Security Ownership of Proposed Board Members and Executive Officers

 

The following table sets forth the number of shares of common stock owned by each person who is expected to serve as an officer and/or director of the Company following the Change of Control. For purposes of presentation, the information relating to the ownership interests of such individuals is provided after giving effect to the merger and the other transactions contemplated thereby (and as such, is based on 131,793,660 shares being issued and outstanding immediately following consummation of the merger).

 

Name of Beneficial Owner  Number of Shares(1)   Percent of Class(2) 
Manuel D. Medina(3)   24,446,660    18.5%
Jonathan J. Ledecky(4)   9,509,440    7.2%
Fahim Ahmed   -    %
Barry Field   -    %
Raymond Svider   -    %
Rene A. Rodriguez   -    %
Jeremy M. Dale   -    %
Jawahar Sivasankaran   -    %
All executive officers and directors as a group (8 persons)   33,956,100    25.8%

 

*Less than 1%.

 

(1)Unless otherwise indicated, we have been advised that all individuals or entities listed have the sole power to vote and dispose of the number of shares set forth opposite their names. For purposes of computing the number and percentage of shares beneficially owned by a security holder, any shares which such person has the right to acquire within 60 days of September 10, 2021 are deemed to be outstanding, but those shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other security holder.

 

(2)Does not give effect (i) to any grants or issuances under the proposed 2021 Plan or (ii) conversion of the Notes (as defined herein) by Magnetar (as defined herein). See “Merger Agreement—Note Purchase Agreement.”

 

(3)Represents the pro rata ownership interest of the Medina Stockholder in the common stock held by SIS Holdings. The Medina Stockholder has the right to nominate certain members of the board of directors of SIS Holdings GP, LLC (“SIS GP”) subject to majority control of the board by BCEC – Cyxtera Technologies Holdings (Guernsey) L.P., the general partner of which is BCEC Management X Limited, which is controlled by its board of directors, which is appointed by affiliates of BC Partners. The general partner of the Medina Stockholder is Medina Capital Fund II – SIS Holdco GP, LLC (“Medina GP”). Medina GP is controlled through certain affiliates of Medina Capital that are ultimately controlled by Manuel D. Medina. The business address of the Medina Stockholder, Medina GP and Manuel D. Medina is 2333 Ponce De Leon Blvd., Suite 900, Coral Gables, Florida 33134. Mr. Medina disclaims beneficial ownership of all shares of common stock owned by the Medina Stockholder, through its interest in SIS Holdings, except to the extent of his pecuniary interest therein.

 

(4)Represents shares held by Ironbound Partners Fund, LLC. Jonathan J. Ledecky, the Company’s president and sole director, controls Ironbound Partners Fund, LLC and therefore is the beneficial owner of the shares held by this entity.

 

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EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

 

The following sets forth information regarding (i) the Company’s current executive officers and directors and (ii) the Company’s expected executive officers and directors following the merger and the Change of Control. Except for the Merger Agreement, there is no agreement or understanding between the Company and any current or proposed director or executive officer pursuant to which he was selected as an officer or director.

 

Name   Age   Current Position   Position following Change of Control
Manuel D. Medina   68   None   Director and Executive Chairman
Jonathan J. Ledecky   63   President and Sole Director   Director
Fahim Ahmed   42   None   Director
Barry Field   51   None   Director and Chief Executive Officer
Raymond Svider   59   None   Director
Jawahar Sivasankaran   44   None   President and Chief Operating Officer
Rene A. Rodriguez   45   None   Chief Financial Officer
Jeremy M. Dale   36   None   General Counsel and Secretary

 

Jonathan J. Ledecky is expected to continue to serve as a Director following the Change of Control. Mr. Ledecky has served as the Company’s president and a director since October 2015. Mr. Ledecky has been a co-owner of the National Hockey League’s New York Islanders franchise since October 2014. He also serves as an Alternate Governor on the Board of Governors of the NHL and as President of NY Hockey Holdings LLC. Mr. Ledecky has served as chairman of Ironbound Partners Fund, LLC, a private investment management fund, since March 1999. He served as the President and Chief Operating Officer of Northern Star Acquisition Corp. from September 2020 until it consummated an initial business combination with Barkbox, Inc. in June 2021 (NYSE: BARK), at which time it was renamed The Original Bark Company and he has continued to serve as a director since such date. He is the President, Chief Operating Officer and director of Northern Star Investment Corp. II (NYSE: NSTB), a blank check company that has entered into a definitive agreement for a business combination with Apex Clearing Holdings LLC, the parent company of Apex Clearing Corporation, a custody and clearing engine that’s powering the future of digital wealth management. Mr. Ledecky is also the President, Chief Operating Officer and director of Northern Star Investment Corp. III (NYSE: NSTC) and Northern Star Investment Corp. IV (NSTD), each since November 2020, and Chairman of the Board of Pivotal Investment Corporation III (NYSE: PICC), since October 2020. Each of Northern Star Investment Corp. III, Northern Star Investment Corp. IV and Pivotal Investment Corporation III is a blank check company that is currently searching for an initial business combination. From July 2019 to December 2020, Mr. Ledecky was the Chief Executive Officer and Chairman of the Board of Directors of Pivotal Investment Corporation II (NYSE: PIC), a blank check company that consummated an initial business combination with XL Fleet, which is a leading provider of fleet electrification solutions for Class 2-6 commercial vehicles in North America. From August 2018 to December 2019, he served as Chairman and Chief Executive Officer of Pivotal Acquisition Corp. (NYSE: PVT), a blank check company that consummated an initial business combination with KLDiscovery Inc. in December 2019, and served as a member of the board of KLDiscovery from such date until June 2021. From July 2005 to December 2007, Mr. Ledecky served as President, Secretary and a Director of Endeavor Acquisition Corp., a blank check company that completed its initial business combination with American Apparel, Inc. From January 2007 to May 2009, he served as President, Secretary and a Director of Victory Acquisition Corp., a blank check company that was unable to consummate an initial business combination. He also served as President, Secretary and a Director of Triplecrown Acquisition Corp., a blank check company, from June 2007 until it completed its initial business combination with Cullen Agricultural Technologies, Inc. in October 2009. Mr. Ledecky founded U.S. Office Products in October 1994 and served as its Chief Executive Officer until November 1997 and as its Chairman until its sale in June 1998. U.S. Office Products was one of the fastest start-up entrants in the history of the Fortune 500 with sales in excess of $3 billion within its first three years of operation. From 1999 to 2001, Mr. Ledecky was vice chairman of Lincoln Holdings, owners of the Washington sports franchises in the NBA, NHL and WNBA. In addition to the foregoing, Mr. Ledecky served as Chairman of the Board and Chief Executive Officer of Consolidation Capital Corporation from its formation in February 1997 until March 2000 when it merged with Group Maintenance America Corporation. Mr. Ledecky also has served as a trustee of George Washington University, a director of the U.S. Chamber of Commerce and a commissioner on the National Commission on Entrepreneurship and previously served as a trustee of the U.S. Olympic Foundation and the U.S. Paralympic Foundation. In 2004, Mr. Ledecky was elected the Chief Marshal of the 2004 Harvard University Commencement, an honor bestowed by his alumni peers for a 25th reunion graduate deemed to have made exceptional contributions to Harvard and the greater society while achieving outstanding professional success. Mr. Ledecky received a B.A. (cum laude) from Harvard University in 1979 and an M.B.A. from the Harvard Business School in 1983. We believe Mr. Ledecky’s qualifications to serve on the Board include his extensive executive leadership and business and entrepreneurial experience, including experience in the technology sector.

 

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Manuel D. Medina is expected to be a Director and serve as Executive Chairman following the Change of Control. Mr. Medina currently serves as the Executive Chairman of Appgate. Previously, Mr. Medina was Chief Executive Officer of Cyxtera Technologies, Inc. from May 2017 to December 2019 and President from May 2017 to February 2018. Mr. Medina is also the Founder and Managing Partner of Medina Capital, a private equity investment firm that he founded in 2012. Mr. Medina has more than 30 years of experience as a highly successful businessman and entrepreneur in the IT infrastructure and cybersecurity industries. Mr. Medina was the Founder, Chairman of the Board and CEO of Terremark until April of 2011, when Terremark was acquired by Verizon Communications Inc. (NYSE: VZ). Under his leadership, Terremark distinguished itself as a leading global provider of managed IT infrastructure services for Fortune 500 enterprises and federal government agencies. At Terremark, Mr. Medina brought his vision to deliver a comprehensive set of best-of-breed IT infrastructure services from purpose-built, carrier-neutral data center facilities to fruition. Mr. Medina is also the founder and chairman of the board of eMerge Americas, the premier B2B technology event connecting the U.S., Latin America, and Europe. Mr. Medina currently serves on the board of Cyxtera Technologies, Inc. (NASDAQ: CYXT). He received his B.S. in Accounting from Florida Atlantic University. Mr. Medina’s qualifications to serve on the Board include his extensive business and entrepreneurial experience in the technology sector, as well as his strong executive leadership experience and in-depth knowledge of Appgate.

 

Fahim Ahmed is expected to be a Director following the Change of Control. Mr. Ahmed currently serves as Partner at BC Partners. BC Partners is a leading international investment firm that specializes in the investment of assets under management in private equity. Before joining BC Partners in 2006, from 2004 to 2006 and from 2000 to 2002, Mr. Ahmed served as a consultant of the Boston Consulting Group. Mr. Ahmed currently serves on the boards of Chewy Inc. (NYSE: CHWY), an online pet retailer company, Cyxtera Technologies, Inc. (NASDAQ: CYXT), Presidio Inc. and PetSmart. Mr. Ahmed previously served as a director of Suddenlink Communications, and was involved in investments in Office Depot, Inc., Intelsat S.A., Dometic Corporation, and Foxtons. Mr. Ahmed holds a Master of Philosophy degree in economics from Oxford University, where he was a Rhodes Scholar, and a B.A. from Harvard University. Mr. Ahmed’s qualifications to serve on the Board include his outside board experience as a director of public and private entities, his extensive finance expertise and his in-depth knowledge of the technology sector.   

 

Raymond Svider is expected to be a Director following the Change of Control. Mr. Svider currently serves as Partner and Chairman of BC Partners and as Chairman of the Executive Committee of BC Partners. He joined BC Partners in 1992 and is currently based in New York. Since Mr. Svider joined BC Partners in 1992, he has led investments in a number of sectors including TMT, healthcare, industrials, business services, consumer and retail. He is currently Executive Chairman of PetSmart, Inc., a pet supply company, since March 2015, Chairman of the Board of Chewy, Inc. (NYSE: CHWY) since April 2019, Chairman of the Advisory Board of The Aenova Group, a pharmaceutical manufacturing company, since April 2019 and also serves on the boards of Altice USA (NYSE: ATUS), a cable television provider, since June 2017, Intelsat, a communications satellite services provider, since June 2007, Navex Global, a software company, since September 2018, GFL Environmental (NYSE: GFL), a waste management company, since May 2018, GardaWorld, a private security firm, since October 2019, Presidio, Inc., a technology services company, since December 2019, and Cyxtera Technologies, Inc. (NASDAQ: CYXT), a data center company, since February 2020. Mr. Svider previously served as a director of Office Depot, an office supply company, from June 2009 to November 2013, as well on boards of various domestic and international private companies. He is also on the boards of the Mount Sinai Children’s Center Foundation in New York and the Polsky Center Private Equity Council at the University of Chicago. Mr. Svider received an MBA from the University of Chicago and an MS in Engineering from both Ecole Polytechnique and Ecole Nationale Superieure des Telecommunications in France. Mr. Svider’s qualifications to serve on the Board include his outside board experience as a director of public and private entities, and his in-depth knowledge of private equity, finance, corporate governance, and executive compensation and the technology sector.

 

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Barry Field is expected to be a Director and serve as Chief Executive Officer following the Change of Control. Mr. Field currently serves as Chief Executive Officer of Appgate, a position he has held since May 2020. Previously, Mr. Field was Chief Revenue Officer of Appgate from January 2020 to May 2020, and Chief Revenue Officer of Cyxtera Technologies, Inc., Appgate’s former parent company, from May 2017 to January 2020. Mr. Field has also been a Partner at Medina Capital, a private equity investment firm, since May 2013. Mr. Field has extensive experience as a sales executive leading successful IT infrastructure and software-enabled technology sales organizations. Mr. Field previously served as CEO of Cryptzone, where he led the strategic vision, product development, international growth and expansion into new markets. He received his B.S. in Marketing from Fairfield University. Mr. Field’s qualifications to serve on the Board include his familiarity with Appgate’s business and operations, as well as his leadership, management and technology experience, particularly in Appgate’s industry.

 

Jawahar Sivasankaran is expected to serve as President and Chief Operating Officer following the Change of Control. Mr. Sivasankaran currently serves as President and Chief Operating Officer of Appgate, a position he has held since August 2021. Previously, Mr. Sivasankaran was Group Vice President, Head of Global Security Specialization Sales at Splunk from July 2019 to August 2021. Before that, Mr. Sivasankaran held various positions at Cisco, including, but not limited to, Head of Sales & Business Development, Alliances, Strategic Partners & Managed Services, Global Security Sales Organization from July 2017 to July 2019, Global Security Sales, Senior Director, Head of Business Development and Go-to-Market Strategy from April 2015 to June 2017 and Global Field CTO, Senior Director from December 2012 to April 2015. Mr. Sivasankaran has more than 23 years of industry experience in sales, consulting, business development, and various past technical leadership roles. He received his B.S. in Engineering from the University of Madras, his Masters in Information Systems Management from the University of Phoenix and his MBA from the University of Pennsylvania’s Wharton School.

 

Rene A. Rodriguez is expected to serve as Chief Financial Officer following the Change of Control. Mr. Rodriguez currently serves as Chief Financial Officer of Appgate, a position he has held since March 2020. Previously, Mr. Rodriguez was Chief Financial Officer of Cyxtera Technologies, Inc., Appgate’s former parent company, from May 2017 to January 2020. Mr. Rodriguez has also been the Chief Financial Officer of Medina Capital, a private equity investment firm, since July 2011. Mr. Rodriguez has more than 20 years of experience as a finance executive with expertise in managing financial operations, capital markets, investor relations, financial analysis, and mergers and acquisitions. He received his B.B.A. in Accounting from the University of Notre Dame and his MBA in Finance from the University of Miami.

 

Jeremy M. Dale is expected to serve as General Counsel and Secretary following the Change of Control. Mr. Dale currently serves as General Counsel of Appgate, a position he has held since January 2020. Previously, Mr. Dale was Associate General Counsel of Cyxtera Technologies, Inc., Appgate’s former parent company, from May 2017 to January 2020, and Associate General Counsel of 3Cinteractive from July 2014 to April 2017. Prior to that, Mr. Dale was an associate at Greenberg Traurig, LLP from September 2010 to June 2014. He received his B.S. in Finance, B.A. in Economics, and M.S. in Finance from the University of Florida, and his Juris Doctorate from the University of Virginia.

 

Director Independence and Board Committees

 

The Board currently consists of Jonathan J. Ledecky as the sole director. Upon consummation of the transactions contemplated by the Merger Agreement and the Change of Control, Jonathan J. Ledecky is expected to remain a director and each of Fahim Ahmed, Manuel D. Medina, Barry Field and Raymond Svider, are expected to be appointed to the Board.

 

Utilizing the definition of “independent” set forth in the NASDAQ Stock Market’s listing standards, the Company believes that Fahim Ahmed and Raymond Svider will be considered independent upon the Change of Control.

 

As the Company currently has one member of the Board and given its limited operations, the Company does not have separate or independent audit, nominating or compensation committees. The Board has determined that the Company does not have an “audit committee financial expert,” as that term is defined in Item 407(d)(5) of Regulation S-K. In addition, we have not adopted any procedures by which the Company’s stockholders may recommend nominees to the Board. The Company is expected to remain without separate or independent audit, nominating or compensation committees upon consummation of the transactions contemplated by the Merger Agreement and the Change of Control.

 

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Family Relationships

 

There are no family relationships among the Company’s existing or incoming directors or officers.

 

Involvement in Certain Legal Proceedings

 

During the past ten years, no existing or incoming officer or director of the Company has:

 

(1) Petitioned for bankruptcy under the federal bankruptcy laws or had a petition under the federal bankruptcy laws or any state insolvency law filed by or against, or had a receiver, fiscal agent or similar officer appointed by a court, any business of which such person was a general partner or executive officer either at the time of the bankruptcy or proceeding or within two years prior to that time;

 

(2) Been convicted in a criminal proceeding or is a named subject of any pending criminal proceeding (excluding traffic violations and other minor offenses);

 

(3) Been subject to any order, judgment or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him/her from, or otherwise limiting his/her involvement in the following activities:

 

(a) Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor brokerage, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing to conduct or practice in connection with such activity;

 

(b) Engaging in any type of business practice; or

 

(c) Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

 

(4) Been subject to any order, judgment or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days his/her right to engage in any type of activity described in 3(a) above, or to be associated with persons engaged in any such activity;

 

(5) Been found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;

 

(6) Been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated a federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended, or vacated;

 

(7) Been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or fining, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 

(a) Any federal or state securities or commodities law or regulation;

 

(b) Any law or regulation respecting financing institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

 

(c) Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

8

 

 

(8) Been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Board Meetings

 

During the fiscal year ended March 31, 2021, the sole director of the Company acted by unanimous written consent on three occasions. The sole director also acted by unanimous written consent on one occasion since April 1, 2021.

 

The Company encourages its director(s) to attend its annual meeting of stockholders; however, the Company did not have an annual meeting of stockholders in the fiscal years ended March 31, 2020 or 2021.

 

Compliance with Section 16(a) of the Exchange Act

 

Each director and executive officer of the Company and each beneficial owner of 10% or more of the Company’s common stock is required to report his or her transactions in shares of the Company’s common stock to the SEC within a specified period following a transaction. Based on the Company’s review of filings with the SEC and written representations furnished to the Company during the fiscal year ended March 31, 2021, the directors, executive officers, and 10% beneficial owners filed all such reports within the specified time period.

 

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EXECUTIVE AND DIRECTOR COMPENSATION

 

Current Executive Compensation

 

Jonathan J. Ledecky, who serves as the Company’s sole executive officer, did not receive any salary or other compensation from the Company in the fiscal years ended March 31, 2020 or March 31, 2021.

 

The Company is not party to any employment agreements or other compensation plans.

 

Directors’ Compensation

 

The Company did not pay any director compensation in the fiscal years ended March 31, 2020 or 2021.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

The Board currently consists solely of Jonathan J. Ledecky. He is not “independent” as such term is defined under the NASDAQ Stock Market’s listing standards.

 

On May 14, 2013, Ironbound, the Company’s majority stockholder, loaned $100,000 to the Company and the Company issued a promissory note in such amount (the “May 2013 Note”) to Ironbound. In July 2014, the May 2013 Note was amended and restated (the “Amended and Restated Note”) to extend the maturity date to August 31, 2015 and provide for the principal and accrued interest to be convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the Amended and Restated Note), or upon the consummation of a “Fundamental Transaction” (as defined in the Amended and Restated Note) at the “Conversion Price” (as defined in the Amended and Restated Note).

 

On July 25, 2014, Ironbound loaned an additional $72,000 to the Company pursuant to a promissory note (the “July 2014 Note”) on the same terms as the Amended and Restated Note, including having a maturity date of August 31, 2015.

 

Effective September 1, 2015, the maturity dates of the Amended and Restated Note and the July 2014 Note (the “Prior Notes”) were extended from August 31, 2015 to August 31, 2016.

 

On December 31, 2015, Ironbound loaned the Company an additional $10,000. This loan was subsequently evidenced by a note with the same terms as the Prior Notes (the “December 2015 Note”).

 

On April 1, 2016, Ironbound loaned the Company an additional $10,000. This loan was evidenced by a note with the same terms as the Prior Notes (the “April 2016 Note”). The proceeds of the April 2016 Note were used by the Company to fund working capital needs.

 

On July 15, 2016, Ironbound loaned the Company an additional $25,000. This loan was evidenced by a note (the “July 2016 Note”) with a maturity date of August 31, 2017 and interest rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the July 2016 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the July 2016 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the July 2016 Note) at the “Conversion Price” (as defined in the July 2016 Note). The proceeds of the July 2016 Note were used by the Company to fund working capital needs.

 

Effective September 1, 2016, the maturity dates of all of the other outstanding notes between Ironbound and the Company were extended from August 31, 2016 to August 31, 2017.

 

On February 14, 2017, Ironbound loaned the Company an additional $50,000. This loan was evidenced by a note (the “February 2017 Note”) with a maturity date of August 31, 2017 and interest rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the February 2017 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the February 2017 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the February 2017 Note) at the “Conversion Price” (as defined in the February 2017 Note). The proceeds of the February 2017 Note were used by the Company to fund working capital needs.

 

Effective September 1, 2017, the maturity dates of all of the outstanding Notes between Ironbound and the Company were extended from August 31, 2017 to August 31, 2018.

 

In August 2018, the maturity dates of all of the outstanding notes between Ironbound and the Company were extended from August 31, 2018 to August 31, 2019.

 

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On August 27, 2018, Ironbound loaned the Company an additional $15,000. This loan was evidenced by a note (the “August 2018 Note”) with a maturity date of August 31, 2019 and interest rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the August 2018 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the August 2018 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the August 2018 Note) at the “Conversion Price” (as defined in the August 2018 Note). The proceeds of the August 2018 Note were used by the Company to fund working capital needs.

 

On December 4, 2018, Ironbound loaned the Company an additional $25,000. This loan was evidenced by a note (the “December 2018 Note”) with a maturity date of August 31, 2019 and interest rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the December 2018 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the December 2018 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the December 2018 Note) at the “Conversion Price” (as defined in the December 2018 Note). The proceeds of the December 2018 Note were used by the Company to fund working capital needs.

 

Effective November 12, 2019, the maturity dates of all of the outstanding notes between Ironbound and the Company were extended from August 31, 2019 to August 31, 2020.

 

On November 27, 2019, Ironbound loaned the Company an additional $40,000. The loan was evidenced by a note (the “November 2019 Note”) with a maturity date of August 31, 2020 and interest rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the November 2019 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the November 2019 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the November 2019 Note) at the “Conversion Price” (as defined in the November 2019 Note). The proceeds of the November 2019 Note were used by the Company to fund working capital needs.

 

Effective August 31, 2020, the maturity dates of all of the outstanding notes between Ironbound and the Company were extended from August 31, 2020 to August 31, 2021.

 

On August 18, 2020, the Company issued a convertible promissory note (the “August 2020 Note”) in the principal amount of $20,000 to Ironbound. The August 2020 Note has a maturity date of August 31, 2021 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the August 2020 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the August 2020 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the August 2020 Note) at the “Conversion Price” (as defined in the August 2020 Note). The proceeds of the August 2020 Note were utilized by the Company to fund working capital needs.

 

On February 8, 2021, concurrently with the execution of the Merger Agreement, SIS Holdings, the holder of Appgate common stock representing 100% of the then-outstanding common stock, entered into an agreement (“Appgate Support Agreement”) pursuant to which it agreed to (i) appear at a stockholder meeting called by Appgate for the purpose of approving the merger and other transactions contemplated by the Merger Agreement, for the purpose of establishing a quorum, (ii) vote all shares of Appgate common stock beneficially owned by it (or execute a written consent) in favor of the merger and the adoption of the Merger Agreement, (iii) vote all shares of Appgate common stock beneficially owned by it (or execute a written consent) against any action that would reasonably be expected to materially impede, interfere with, delay, postpone, or adversely affect the merger or any of the other transactions contemplated by the Merger Agreement, (iv) not solicit, initiate, encourage, or facilitate certain alternate business combinations, and (v) not to transfer, assign, or sell such covered shares, except to certain permitted transferees, prior to the consummation of the merger.

 

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On February 8, 2021, concurrently with the execution of the Merger Agreement, Ironbound, the controlling stockholder of the Company, entered into an agreement (“Parent Support Agreement”), pursuant to which Ironbound agreed to (i) appear at a stockholder meeting called by the Company for the purpose of approving the merger and other transactions contemplated by the Merger Agreement, for the purpose of establishing a quorum, (ii) vote all shares of the Company’s common stock beneficially owned by it (or execute a written consent) in favor of the merger and the adoption of the Merger Agreement, including certain actions contemplated in the Merger Agreement as necessary to permit consummation of the merger such as increases in the Company’s authorized shares of common stock, increases to the size of the Board and changing Company’s name to “Appgate, Inc.”, (iii) vote all shares of the Company’s common stock beneficially owned by it (or execute a written consent) against any action that would reasonably be expected to materially impede, interfere with, delay, postpone, or adversely affect the merger or any of the other transactions contemplated by the Merger Agreement, (iv) not solicit, initiate, encourage, or facilitate certain alternate business combinations, and (v) not to transfer, assign, or sell such covered shares, except to certain permitted transferees, prior to the consummation of the merger.

 

The Merger Agreement provides that, prior to Closing, the Company will enter into an agreement (the “Newtown Registration Rights Agreement”) with SIS Holdings and Ironbound pursuant to which such parties will be granted certain rights to have registered, in certain circumstances, the resale under the Securities Act of 1933, as amended (“Securities Act”), of the Company’s common stock to be issued to them at the Closing, subject to certain conditions set forth therein.

 

Related Party Policy

 

The Company has not adopted a Related Party Transactions Policy (the “policy”) given its limited operations. However, it is expected that following the consummation of the merger, the policy will be adopted. It is expected that the policy will require the Company to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except under guidelines approved by the Board (or the audit committee). Related-party transactions are defined as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our shares of common stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.

 

The Company also requires each director and executive officer to complete a directors’ and officers’ questionnaire that elicits information about related party transactions.

 

These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.

 

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DESCRIPTION OF STOCKHOLDER MATTERS

 

On February 8, 2021, the Company obtained the written consent of a majority of its outstanding shares of common stock approving the Change of Control. On September 6, 2021, the Company obtained the written consent of a majority of its outstanding shares of common stock approving the 2021 Plan and the Amended Charter, which amends the Existing Charter to, among other things, (i) change the Company’s name to “Appgate, Inc.”, (ii) designate specific courts as the exclusive forum for certain litigation that may be initiated by the Company’s stockholders, (iii) include a staggered board, which means that our Board of Directors is classified into three classes of directors with staggered three-year terms, (iv) include a prohibition on stockholder action by written consent from and after the Trigger Event, (v) require that, from and after the Trigger Event, directors may only be removed for cause and only upon the affirmative vote of the holders of at least 66 2/3% in voting power of all of the then-outstanding shares of our common stock entitled to vote thereon, voting together as a single class, (vi) require, from and after the Trigger Event, the affirmative vote of holders of at least 75% of the voting power of all of the then outstanding shares of common stock to amend provisions of the Amended Charter relating to the management of our business, the Board, stockholder action by written consent, competition and corporate opportunities, Section 203 the DGCL, forum selection and the liability of our directors, or to amend, alter, rescind or repeal our bylaws, and (vii) increase the Company’s authorized shares of common stock from 100,000,000 to 270,000,000. The foregoing actions by written consent eliminated the need to call and hold a special stockholder meeting to approve such items. The Company’s sole director had previously approved each of the foregoing items.

 

Each of the Change of Control, Amended Charter and the 2021 Plan will be effective upon consummation of the merger with Appgate and, solely in the case of the Amended Charter, the filing of the Amended Charter with the Secretary of State of the State of Delaware, which is anticipated to take place during the third quarter of our fiscal year 2021 after the satisfaction by the Company and Appgate of certain closing conditions; provided, however, that in no event will such actions be effective earlier than at least 20 days after the mailing of this Information Statement to the Company’s stockholders.

 

The following is a description of the actions taken by majority written consent:

 

Change of Control

 

On February 8, 2021, the Company entered into the Merger Agreement with Merger Sub and Appgate. A copy of the Merger Agreement is attached to this information statement as Annex A. Upon the consummation of the transactions contemplated by the Merger Agreement, Merger Sub will be merged with and into Appgate, with Appgate surviving the merger and becoming a wholly owned subsidiary of the Company.

 

Upon consummation of the merger, the sole holder of common stock of Appgate will receive an aggregate of 117,149,920 shares of the Company’s common stock. Upon consummation of the merger, neither the Company nor Appgate will have any options or warrants outstanding. As a result of the foregoing, and assuming no conversion of the Notes or Additional Notes (each as defined below), and not giving effect to the 2021 Plan, the current holders of common stock of the Company will own an aggregate of approximately 11% of the common stock of the Company and the sole stockholder of Appgate will own an aggregate of approximately 89% of the common stock of the Company.

 

Upon consummation of the merger, (i) Jonathan J. Ledecky is expected to remain a member of the Board and (ii) each of Fahim Ahmed, Barry Field, Manuel D. Medina and Raymond Svider are expected to be appointed to the Board.

 

Additionally, upon consummation of the merger, (i) Jonathan J. Ledecky is expected to resign from his position as president of the Company and (ii) Manuel D. Medina is expected to become the Executive Chairman of the Company, Barry Field is expected to become the Chief Executive Officer of the Company, Jawahar Sivasankaran is expected to become the President and Chief Operating Officer of the Company, Rene A. Rodriguez is expected to become the Chief Financial Officer of the Company, and Jeremy M. Dale is expected to become the General Counsel and Secretary of the Company.

 

As a result of the foregoing, the Change of Control will occur with respect to the Company’s stock ownership and management upon consummation of the merger with Appgate.

 

The merger and the Merger Agreement are described in more detail below in the section titled “The Merger.”

 

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Amended Charter

 

General

 

On or about September 6, 2021, the Company received the written consent of a majority of its outstanding shares of common stock approving the adoption of the Amended Charter. A copy of the Amended Charter is attached to this information statement as Annex B.

 

The following summary describes the material provisions of our Amended Charter and is qualified in its entirety by the provisions of the Amended Charter and the DGCL. We urge you to read our Amended Charter, which is included as Annex B to this information statement.

 

Our purpose will be to engage in any lawful act or activity for which corporations may now or hereafter be organized under the DGCL.

 

Certain provisions of the Amended Charter summarized below may be deemed to have an anti-takeover effect and may delay or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares of common stock.

 

The Company will file the Amended Charter with the Secretary of State of the State of Delaware. Concurrently with the filing of the Amended Charter, the Company plans to notify the Financial Industry Regulatory Authority of the proposed name change and work with the Financial Industry Regulatory Authority to obtain a new trading symbol for its common stock.

 

Name Change

 

Because the Company’s business operations will be conducted through Appgate (which does business as “AppGate”) upon consummation of the merger, the Company is changing its name to “Appgate, Inc.”.

 

Exclusive Forum

 

The Amended Charter will designate that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum, to the fullest extent permitted by law, for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or other employees or stockholders to us or our stockholders, creditors or other constituents, or a claim of aiding and abetting any such breach of fiduciary duty, (3) any action asserting a claim against us or any of our directors or officers or other employees or stockholders arising pursuant to, or any action to interpret, apply, enforce any right, obligation or remedy under or determine the validity of, any provision of the DGCL or our amended certificate of incorporation or bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, (4) any action asserting a claim that is governed by the internal affairs doctrine, or (5) any other action asserting an “internal corporate claim” under the DGCL shall be the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery does not have subject matter jurisdiction, another state court sitting in the State of Delaware or, if and only if neither the Court of Chancery nor any state court sitting in the State of Delaware has subject matter jurisdiction, then the federal district court for the District of Delaware) (the “Delaware Forum Provision”).

 

Notwithstanding the foregoing, the Amended Charter will provide that the Delaware Forum Provision will not apply to any actions arising under the Securities Act or the Exchange Act. Any person or entity purchasing or otherwise acquiring any interest in our securities shall be deemed to have notice of and consented to this provision. Although we believe these provisions benefit us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, the provisions may have the effect of discouraging lawsuits against us or our directors and officers.

 

Additionally, the Amended Charter will provide that unless the Company consents in writing to the selection of an alternative forum, the federal district court for the District of Delaware shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Company are deemed to have notice of and consented to this provision. The Supreme Court of Delaware has held that this type of exclusive federal forum provision is enforceable. There may be uncertainty, however, as to whether courts of other jurisdictions would enforce such provision, if applicable.

 

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Increase in Authorized Number of Shares of Common Stock

 

The Amended Charter will authorize capital stock consisting of:

 

270,000,000 shares of common stock, par value $0.001 per share; and

 

1,000,000 shares of preferred stock, par value $0.001 per share.

 

The increase in the authorized number of shares of common stock is necessary for the Company to consummate the merger (and to issue the shares that may be required to be issued to holders of Notes) and have additional authorized shares of common stock for financing its business, for acquiring other businesses, for grants and issuances under the 2021 Plan, for forming strategic partnerships and alliances and for stock dividends and stock splits. Notwithstanding the foregoing, authorized but unissued shares of common stock may enable the Board to render it more difficult or to discourage an attempt to obtain control of the Company and thereby protect continuity of or entrench its management, which may adversely affect the market price of the Company’s common stock. If in the due exercise of its fiduciary obligations, for example, the Board were to determine that a takeover proposal were not in the best interests of the Company, such shares could be issued by the Board without stockholder approval in one or more private placements or other transactions that might prevent or render more difficult or make more costly the completion of any attempted takeover transaction by diluting voting or other rights of the proposed acquirer or insurgent stockholder group, by creating a substantial voting block in institutional or other hands that might support the position of the incumbent board of directors, by effecting an acquisition that might complicate or preclude the takeover, or otherwise.

 

General Description of Common Stock

 

Voting Rights. Each share of our common stock will entitle its owner to one vote on all matters submitted to a vote of our stockholders, including the election of directors. Under our Amended Charter, our stockholders will not have cumulative voting rights. Because of this, the holders of a majority of the shares of common stock entitled to vote in any election of directors will be able to elect all of the directors standing for election, if they should so choose.

 

Dividend Rights. The holders of our common stock will be entitled to ratably receive dividends, when, as and if declared by our Board, in its discretion, from funds legally available for the payment of dividends.

 

Liquidation Rights. If we liquidate, dissolve or wind up, the owners of our common stock will be entitled to share proportionately in our assets, if any, legally available for distribution to stockholders, but only after prior satisfaction of all outstanding debts and other liabilities and the payment of liquidation preferences, if any, on any outstanding preferred stock.

 

Other Rights and Preferences. Our common stock will not have preemptive rights, sinking fund provisions or subscription, redemption or conversion privileges, and it will not be subject to any further calls or assessments by us. All outstanding shares of our common stock will be fully paid and non-assessable. The rights, powers, preferences and privileges of holders of our common stock will be subject to those of the holders of any shares of our preferred stock we may authorize and issue in the future.

 

General Description of Preferred Stock

 

Our Amended Charter will authorize our Board, without further stockholder approval, to: (i) issue preferred stock in one or more series; (ii) establish the number of shares to be included in each such series; and (iii) fix the designations, powers, preferences and rights of the shares of each series and any qualifications, limitations or restrictions on those shares. The Board may establish a class or series of preferred stock with preferences, powers and rights (including voting rights) senior to the rights of the holders of our common stock. If we issue any of our preferred stock, it may have the effect of delaying, deferring or preventing a change in control.

 

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Dividends

 

Declaration and payment of any dividend will be subject to the discretion of our Board. The time and amount of dividends will be dependent upon, among other things, our business prospects, results of operations, financial condition, cash requirements and availability, debt repayment obligations, capital expenditure needs, contractual restrictions, covenants in the agreements governing our current and future indebtedness, industry trends, the provisions of Delaware law affecting the payment of dividends and distributions to stockholders and any other factors or considerations our Board may regard as relevant. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business, and therefore do not anticipate paying any cash dividends on our common stock in the foreseeable future.

 

Anti-Takeover Provisions

 

Our Amended Charter will contain provisions that may delay, defer or discourage another party from acquiring control of us, including our classified Board and our ability to issue new series of preferred stock without stockholder approval. We expect that these provisions, which are summarized below, will discourage coercive takeover practices or inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our Board, which we believe may result in an improvement of the terms of any such acquisition in favor of our stockholders. However, they also give our Board the power to discourage acquisitions that some stockholders may favor.

 

Authorized but Unissued Shares; Undesignated Preferred Stock. The authorized but unissued shares of our common stock will be available for future issuance without stockholder approval except as required by law or by any stock exchange on which our common stock may be listed. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise capital, acquisitions and employee benefit or compensation plans. In addition, our Board may authorize, without stockholder approval, the issuance of undesignated preferred stock with voting rights or other rights or preferences designated from time to time by our Board. The existence of authorized but unissued shares of common stock or preferred stock may enable our Board to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise.

 

Board Classification. Our Amended Charter will provide that our Board will be divided into three classes of directors, with the classes to be as nearly equal in number as possible, and with the directors serving three-year terms. As a result, approximately one-third of our Board will be elected each year. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of our Board. Our Amended Charter will provide that, subject to any rights of holders of preferred stock to elect additional directors under specified circumstances, the number of directors will be fixed from time to time exclusively pursuant to a resolution adopted by our Board.

 

No Cumulative Voting. Our Amended Charter will provide that stockholders are not permitted to cumulate votes in the election of directors.

 

Stockholder Action by Written Consent. Pursuant to Section 228 of the DGCL, any action required to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of our stock entitled to vote thereon were present and voted, unless our certificate of incorporation provides otherwise. Our Amended Charter will preclude stockholder action by written consent from and after the Trigger Event.

 

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Removal of Directors; Vacancies. Under the DGCL, unless otherwise provided in our Amended Charter, directors serving on a classified board may be removed by the stockholders only for cause. Our Amended Charter provides that from and after the Trigger Event, directors may only be removed with cause, and only by the affirmative vote of holders of at least 66 2/3% in voting power of all the then-outstanding shares of common stock of the Company entitled to vote thereon. In addition, our Amended Charter will provide that from and after the Trigger Event, any newly created directorship on our Board that results from an increase in the number of directors and any vacancy occurring in our Board may only be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director (and not by the stockholders).

 

Supermajority Provisions. Our Amended Charter will provide that our Board is expressly authorized to alter, amend, rescind or repeal, in whole or in part, our bylaws without a stockholder vote in any matter not inconsistent with Delaware law and our Amended Charter. From and after the Trigger Event, in addition to any vote of the holders of any class or series of capital stock of our Company required therein, our bylaws or applicable law, any amendment, alteration, rescission or repeal of our bylaws by our stockholders will require the affirmative vote of the holders of at least 75% in voting power of all the then-outstanding shares of stock of our Company entitled to vote thereon, voting together as a single class.

 

The DGCL provides generally that the affirmative vote of a majority of the outstanding shares entitled to vote thereon, voting together as a single class is required to amend a corporation’s certificate of incorporation unless the certificate of incorporation requires a greater percentage. Our Amended Charter will provide that the following provisions in our Amended Charter may be amended, altered, repealed or rescinded only by the affirmative vote of the holders of at least 75% in voting power of all the then-outstanding shares of stock of our Company entitled to vote thereon, voting together as a single class:

 

the provision requiring a 75% supermajority vote for stockholders to amend our bylaws;

 

the provisions providing for a classified board of directors (the election and term of our directors);

 

the provisions regarding removal of directors;

 

the provisions regarding stockholder action by written consent;

 

the provisions regarding calling special meetings of stockholders;

 

the provisions regarding filling vacancies on our Board and newly created directorships;

 

the provisions regarding competition and corporate opportunities;

 

the provisions regarding Section 203 of the DGCL;

 

the provisions eliminating monetary damages for breaches of fiduciary duty by a director and governing forum selection; and

 

the amendment provision requiring that the above provisions be amended only with a 75% supermajority vote.

 

Limitations on Liability and Indemnification of Officers and Directors

 

Section 102(b)(7) of the DGCL enables a corporation in its certificate of incorporation, or an amendment thereto, to eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for violations of the director’s fiduciary duty as a director, except (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for director liability with respect to unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) for any transaction from which a director derived an improper personal benefit. Our Amended Charter will provide for such limitation of liability.

 

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Our Amended Charter will provide that, to the fullest extent permitted by the DGCL, a member of the Board shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty owed to the Company its stockholders.

 

Corporate Opportunity Doctrine

 

Our Amended Charter will provide that, to the fullest extent permitted by law (including without limitation Section 122(17) of the DGCL), the doctrine of corporate opportunity, or any other analogous doctrine, shall not apply with respect to us or any of our officers or directors, or any of our or their respective affiliates, in circumstances where the application of any such doctrine would conflict with any fiduciary duties or contractual obligations we or they may have as of the date of the Amended Charter or in the future. Our Amended Charter will also provide that we renounce any expectancy that any of our directors or officers, or any of their respective affiliates, will offer any such corporate opportunity of which he or she may become aware to us; provided, however, that the doctrine of corporate opportunity shall apply with respect to any of our directors or officers only with respect to a corporate opportunity that was offered to such person solely and exclusively in his or her capacity as a director or officer of the Company, and (i) such opportunity is one that we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue and (ii) to the extent the director or officer is permitted to refer that opportunity to us without violating any other legal obligation.

 

Business Combination with Interested Stockholders

 

We will opt out of Section 203 of the DGCL; however, our Amended Charter will contain similar provisions providing that we may not engage in certain “business combinations” with any “interested stockholder” for a three-year period following the time that the stockholder became an interested stockholder, unless:

 

prior to such time, our Board approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

 

upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares; or

 

at or subsequent to that time, the business combination is approved by our Board and by the affirmative vote of holders of at least 66 2/3% of our outstanding voting stock that is not owned by the interested stockholder.

 

Generally, a “business combination” includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with that person’s affiliates and associates, owns, or within the previous three years owned, 15% or more of our outstanding voting stock. For purposes of this section only, “voting stock” has the meaning given to it in Section 203 of the DGCL.

 

Under certain circumstances, this provision will make it more difficult for a person who would be an “interested stockholder” to effect various business combinations with us for a three-year period. This provision may encourage companies interested in acquiring us to negotiate in advance with our Board because the stockholder approval requirement would be avoided if our Board approves either the business combination or the transaction which results in the stockholder becoming an interested stockholder. These provisions also may have the effect of preventing changes in our Board and may make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests. Our Amended Charter will provide that the Investors, and any of their respective direct or indirect transferees and any group as to which such persons are a party, do not constitute “interested stockholders” for purposes of this provision.

 

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2021 Plan

 

On or about September 6, 2021, our stockholder holding a majority of our issued and outstanding shares of common stock and our sole director approved the adoption of a new public company equity incentive plan, which we refer to as the 2021 Plan. The 2021 Plan is expected to become effective upon closing of the merger. A copy of the 2021 Plan is attached to this information statement as Annex C.

 

The 2021 Plan is designed to allow the Company to make equity-based incentive awards to officers, employees, directors and other key persons (including consultants). The Board anticipates that providing such persons with a direct stake in the Company, following the merger, will assure a closer alignment of the interests of such individuals with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.

 

The 2021 Plan will provide for a share issuance pool equal to 11,022,170 shares of common stock as of the effective date of the 2021 Plan, which we refer to as the Share Pool Limit. The Share Pool Limit is subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. The maximum aggregate number of shares of common stock that may be issued upon exercise of incentive stock options under the 2021 Plan shall not exceed the Share Pool Limit.

 

If any award under the 2021 Plan is forfeited, expires or otherwise terminates without issuance of the shares of common stock in respect of such award, or if any award is settled for cash, then the shares to which those awards were subject, shall, to the extent of such forfeiture, expiration, termination, non-issuance or cash settlement, again be available for delivery with respect to awards under the 2021 Plan. It should be noted that Shares used to pay the exercise price or tax withholding associated with awards will count against and, therefore, will not be returned to the pool.

 

The 2021 Plan contains a limitation whereby the value of all awards under the 2021 Plan granted to any non-employee director for services as a non-employee director in any fiscal year may not exceed $750,000.

 

The 2021 Plan is expected to be administered by the Compensation Committee of the Board, or, if at any such time there is no Compensation Committee, the 2021 Plan will be administered by the Board. For purposes of this description of the 2021 Plan, references to the Compensation Committee shall instead refer to the Board in the event that there is no Compensation Committee. The Compensation Committee will have full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2021 Plan. The Compensation Committee may delegate to the chief executive officer or any other officer the authority to grant stock options and other awards to employees who are not subject to the reporting and other provisions of Section 16 of the Exchange Act, subject to certain limitations and guidelines. Persons eligible to participate in the 2021 Plan will be those full or part-time employees, non-employee directors and other key service providers (including consultants) as selected from time to time by the Compensation Committee in its discretion.

 

Under the 2021 Plan, the Compensation Committee is authorized to grant stock options, stock appreciation rights, restricted stock, restricted stock units, other equity-based awards and cash incentive awards as described below. Awards may be subject to a combination of time and performance-based vesting conditions, as may be determined by the Compensation Committee.

 

The 2021 Plan permits the granting by the Compensation Committee of both options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and options that do not so qualify. Options granted under the 2021 Plan will be non-qualified options if they fail to qualify as incentive options or exceed the annual limit on incentive stock options. Incentive stock options may only be granted to employees of the Company and its subsidiaries. Non-qualified options may be granted to any persons eligible to receive incentive options and to non-employee directors and key persons. The option exercise price of each option will be determined by the Compensation Committee but may not be less than 100% of the fair market value of the common stock on the date of grant unless the option is granted (i) pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code or (ii) to individuals who are not subject to U.S. income tax. The term of each option will be fixed by the Compensation Committee and may not exceed ten years following the date of grant. The Compensation Committee will determine at what time or times each option may be exercised, including whether the vesting of such options may be accelerated under any given circumstances.

 

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Upon exercise of options, the option exercise price must be paid in full either in cash, by certified or bank check or other instrument acceptable to the Compensation Committee or by delivery (or attestation to the ownership) of shares of common stock that are beneficially owned by the optionee for at least six months or were purchased in the open market. Subject to applicable law, the exercise price may also be delivered by a broker pursuant to irrevocable instructions to the broker from the optionee. In addition, the Compensation Committee may permit non-qualified options to be exercised using a net exercise feature, which reduces the number of shares issued to the optionee by the number of shares with a fair market value equal to the aggregate exercise price.

 

The Compensation Committee may award stock appreciation rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of common stock, or cash, equal to the value of the appreciation in our stock price over the exercise price. The exercise price may not be less than 100% of the fair market value of common stock on the date of grant. The term of each stock appreciation right will be fixed by the Compensation Committee and may not exceed ten years following the date of grant. The Compensation Committee will determine at what time or times each stock appreciation right may be exercised.

 

The Compensation Committee may award restricted shares of common stock and restricted stock units to participants subject to such conditions and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with the Company through a specified vesting period. The Compensation Committee may also grant shares of common stock that are free from any restrictions under the 2021 Plan. Unrestricted stock may be granted to a participant in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant. The Compensation Committee may grant dividend equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of shares of common stock.

 

The 2021 Plan provides that upon the effectiveness of a “change in control,” as defined in the 2021 Plan, an acquirer or successor entity may assume, continue or substitute outstanding awards under the 2021 Plan or cash-out awards. The Compensation Committee has the discretion to accelerate vesting of awards.

 

Participants in the 2021 Plan are responsible for the payment of any federal, state or local taxes that the Company is required by law to withhold upon the exercise of options or stock appreciation rights or vesting of other awards. Subject to approval by the Compensation Committee, participants may elect to have up to the maximum tax withholding obligations satisfied by authorizing the Company to withhold shares of common stock to be issued pursuant to the exercise or vesting of such award.

 

The Compensation Committee may make such adjustments to awards as it considers appropriate to preserve their value in the event of an extraordinary dividend, recapitalization, stock split, spin-off or any other event that constitutes an equity restructuring, including adjustments to the terms of (i) the number of shares with respect to which awards may be granted under the 2021 Plan and (ii) outstanding awards (including adjustments to exercise prices of options and other affected terms of awards).

 

The Compensation Committee may (i) cause the cancellation of any award, (ii) require reimbursement of any award by a participant or beneficiary, and (iii) effect any other right of recoupment of equity or other compensation provided under the 2021 Plan or otherwise in accordance with any company policies that currently exist or that may from time to time be adopted or modified in the future by the Board or the Compensation Committee and/or applicable law, each of which is referred to as a “clawback policy.” In addition, a participant may be required to repay to the Company certain previously paid compensation, whether provided under the 2021 Plan or an award agreement or otherwise, in accordance with any clawback policy. By accepting an award, a participant is also agreeing to be bound by any existing or future clawback policy adopted by the Board or the Compensation Committee, or any amendments that may from time to time be made to the clawback policy in the future by the Board or the Compensation Committee in its discretion (including without limitation any clawback policy adopted or amended to comply with applicable laws or stock exchange requirements) and is further agreeing that all of the participant’s award agreements may be unilaterally amended by the Compensation Committee, without the participant’s consent, to the extent that Compensation Committee in its discretion determines to be necessary or appropriate to comply with any clawback policy.

 

Except as otherwise provided by the Compensation Committee or set forth in an award agreement, awards will not be transferable except by will or by laws of descent and distribution. In no event may any award be transferred to a third party in exchange for value without the consent of the Company’s stockholders prior to vesting.

 

The Board may amend or discontinue the 2021 Plan, and the Compensation Committee may amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose, but no such action may adversely affect rights under an award without the holder’s consent. Certain amendments to the 2021 Plan require the approval of the Company’s stockholders.

 

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THE MERGER

 

The discussion in this information statement of the merger and the principal terms of the Merger Agreement by and among the Company, Merger Sub and Appgate is subject to, and is qualified in its entirety by reference to, the Merger Agreement. A copy of the Merger Agreement is attached to this information statement as Annex A.

 

The Parties

 

The parties to the Merger Agreement are the Company, Merger Sub and Appgate. The mailing address of each of the Company and Merger Sub is c/o Graubard Miller, 405 Lexington Avenue, 11th Floor, New York, New York 10174, and the telephone number of each is 212-818-8800. The mailing address of Appgate is 2333 Ponce De Leon Blvd., Suite 900, Coral Gables, Florida 33134, and the telephone number is 866-524-4782.

 

Structure of the Merger

 

The Merger Agreement provides for the merger of Merger Sub with and into Appgate, with Appgate surviving the merger and becoming a wholly owned subsidiary of the Company. Thereafter, the Company will operate under the name “Appgate, Inc.”

 

Upon consummation of the merger, the sole holder of common stock of Appgate will receive an aggregate of 117,149,920 shares of the Company’s common stock. Upon consummation of the merger, neither the Company nor Appgate will have any options or warrants outstanding. As a result of the foregoing, assuming no conversion of the Notes or Additional Notes and not giving effect to the 2021 Plan, the current holders of common stock of the Company will own an aggregate of approximately 11% of the common stock of the Company and the sole stockholder of Appgate will own an aggregate of approximately 89% of the common stock of the Company.

 

Indemnification

 

In connection with the execution of the Merger Agreement, the Company and Appgate entered into an indemnification letter agreement dated as of February 8, 2021, pursuant to which Appgate agreed to indemnify and hold harmless, subject to certain limitations specified therein, the Company and its directors and officers for all reasonable, documented legal fees and expenses incurred by any of them in connection with certain demands, claims, suits, causes of action or other proceedings arising from or related to the Merger Agreement and the transactions contemplated thereby and the operation of the Company or Appgate and its subsidiaries during the period from the date thereof until the closing.

 

Lock-up Agreements

 

SIS Holdings, the owner of all of the outstanding common stock of Appgate, and Ironbound, the owner of the majority of the outstanding common stock of the Company will agree, as a condition to the closing of the merger, to not to sell their shares until the 12-month anniversary of the consummation of the merger, subject to certain exceptions.

 

Background of the Merger

 

The terms of the Merger Agreement are the result of arms’ length negotiations between representatives of the Company and Appgate. The following is a brief discussion of the background of these negotiations, the Merger Agreement and related transactions.

 

As previously disclosed, the Company was incorporated in Delaware on September 26, 2005. We previously held the exclusive license to exploit the Dreesen’s Donut Brand in the United States with the exception of the states of Florida and Pennsylvania, and in Suffolk County, New York, which Dreesen retained for itself. In August 2007 there was a change in control, and we discontinued our efforts to promote the Dreesen’s Donut Brand at that time. The license from Dreesen expired on December 31, 2007.

 

Since the effective date of the change in control in August 2007, our main purpose has been to serve as a vehicle to acquire an operating business and we are currently considered a “shell” company in as much as we have no employees or material assets, are not generating revenues, do not own an operating business, and have no specific plan other than to engage in a merger or acquisition transaction with an operating company or business. Our principal business objective has been to achieve long-term growth potential through a combination with an operating business rather than immediate, short-term earnings. We did not restrict our potential candidate target companies to any specific business, industry or geographical location and, thus, were in a position to acquire any type of business with the analysis of new business opportunities undertaken by or under the supervision of our officers and directors.

 

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In furtherance of this strategy, in late December 2021, representatives of the Company and Appgate discussed the terms of a potential transaction between the two entities, including the extent to which any combination would incorporate a private investment, or PIPE, by a third party.

 

On or about January 1, 2021, counsel for the Company circulated a skeletal draft of the Merger Agreement to Appgate and its counsel which draft lacked economic terms. From January 1, 2021 to January 7, 2021, Appgate’s executives discussed various high level considerations, including certain structural considerations, options available to Appgate with respect to listing on various stock exchanges and the availability of audited financial statements required under applicable SEC rules.

 

On January 5, 2021, Appgate formally engaged DBO Partners to serve as its financial advisor with respect to the merger. On January 7, 2021, a draft investor presentation detailing the business of Appgate and the proposed transaction was circulated by Appgate to the Company.

 

On January 8, 2021, Appgate’s executives met virtually with the Company’s President to discuss high level considerations, including discussions concerning the valuation of the Company at which any PIPE investor would invest and timing of closing of the merger.

 

During the week of January 11 through January 15, 2021, the representatives of the Company and Appgate met with potential PIPE investors, including the ultimate leading potential PIPE investor, Magnetar Capital, that might be interested in Appgate’s business and engaged in customary business due diligence discussions to assist the investors in their investment decision.

 

On January 16, 2021, Magnetar Capital provided a proposed term sheet outlining the terms of a $100 million investment into Appgate which investment would be assumed by the Company upon the closing of the merger. The investment would be in the form of 5.50% Convertible Senior Secured Notes due 2026 with an option to purchase an additional $25 million of notes within one year after closing and incorporation of a 1% original issue discount, or OID. The term sheet contemplated conversion at a $900 million pre-money equity valuation, or $1 billion post-money equity valuation with various contingencies which could adjust such valuation downward as well as certain maintenance financial covenants.

 

Between January 16 and January 18, 2021, the parties engaged in numerous discussions concerning the structure and terms of the PIPE investment with the interest rate for the notes being reduced from 5.50% to 5.00% to the extent paid in cash but remaining at 5.50% if paid-in-kind, all security supporting the notes being removed, the total investment being reduced from $100 million to $75 million but with the option to draw down the additional $25 million within one year of closing remaining. All OID was removed with the maturity date reduced from 2026 to 2024. All contingencies resulting in the conversion rate adjusting downward were removed such that conversion would occur only at the pre-money equity valuation of $900 million. Customary make-whole premiums were incorporated in the event of a change of control of Appgate and the maintenance financial covenants were more liberalized reducing minimum cash requirements from $25 million to $10 million and providing for more flexibility for the Company to incur indebtedness. See “The Merger Agreement—Note Purchase Agreement.” Magnetar Capital was also granted a right to participate in 25% of any subsequent convertible or debt offering.

 

On January 18, 2021, the Company circulated a refreshed draft of the Merger Agreement to Appgate and its counsel.

 

On January 19, 2021, counsel for Appgate held a telephonic meeting with counsel for the Company to discuss high level due diligence considerations, including the history of the Company and its capitalization progression as well as certain structural considerations, regulatory matters, including compliance with antitrust laws, anticipated dilution resulting from the equity compensation plan, as well as the appropriate level of restrictions set forth in the “no shop” provision of the merger agreement.

 

Between January 19, 2021 to February 3, 2021 counsel for Appgate revised the proposed draft merger agreement previously provided by counsel to the Company providing for greater liberalization of post-signing, pre-closing covenants, corresponding revisions to termination provisions and arriving at consensus concerning the exchange ratio to be incorporated into the merger agreement, particularly given the impact of the Magnetar Capital notes and potential conversion thereof prior to maturity. During this same period Appgate continued to populate an electronic data room to allow the Company and Magnetar Capital to conduct customary confirmatory due diligence.

 

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Simultaneously between January 22, 2021 and February 3, 2021 counsel for Appgate revised and negotiated proposed definitive documentation provided by counsel to Magnetar Capital.

 

On January 24, 2021, the Company formally engaged Canaccord Genuity to serve as its financial advisor with respect to the merger. During the first week of February 2021, the Company and Appgate and their respective counsel continued to negotiate various terms of the transaction and the Merger Agreement.

 

On February 8, 2021, the sole director of the Company acted by written consent to approve the Merger Agreement. On February 8, 2021, the Company obtained the written consent of a majority of its outstanding shares of common stock approving the Change of Control.

 

The Merger Agreement was signed on February 8, 2021. On February 9, 2021, the Company issued a press release and subsequently filed a Current Report on Form 8-K on February 9, 2021, announcing the execution of the Merger Agreement and discussing the terms of the merger.

 

On September 6, 2021, the sole director of the Company acted by written consent to approve the Amended Charter and the adoption of the 2021 Plan to be effective upon consummation of the merger and, solely in the case of the Amended Charter, the filing of the Amended Charter with the Secretary of State of the State of Delaware. On September 6, 2021, the Company obtained the written consent of a majority of its outstanding common stock approving the Amended Charter and the adoption of the 2021 Plan to be effective upon consummation of the merger and, solely in the case of the Amended Charter, the filing of the Amended Charter with the Secretary of State of the State of Delaware. See “Description of Stockholder Matters—Amended Charter” and “Description of Stockholder Matters—2021 Plan” above.

 

Reasons for the Merger

 

The Board concluded that the Merger Agreement with Appgate was in the best interests of the Company and its stockholders. The following are material factors that were considered by the Board:

 

Appgate’s participation in the large and growing cybersecurity industry;

 

Appgate’s positioning within the cybersecurity industry, including its differentiated Zero Trust approach, third party recognized, market leading product suite and continued innovation;

 

Appgate’s potential for future growth with existing and new customers;

 

Experience and skills of Appgate’s management team; and

 

Our estimated valuation of Appgate relative to its competitors in its industry.

 

Based on Appgate’s existing client roster of more than 650 global corporations and government entities, and the quality of Appgate’s products and services, the Company believes that Appgate is well situated to achieve future growth. The Company believes that Appgate will materially benefit from a public company structure, gaining access to significant capital quickly to accelerate this growth, scale its business and implement its go-to-market strategies. In its decision to pursue a business combination with Appgate, the Company noted the experience and expertise of Appgate’s existing management team and that existing Appgate equity owners, led by BC Partners, Medina Capital, and management, will retain 100% of their equity in the combined company immediately following the merger.

 

Appraisal Rights

 

Under Delaware law, the Company’s stockholders do not have appraisal rights in connection with the merger or the Change of Control.

 

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Anticipated Accounting Treatment

 

The merger will be accounted for as a “reverse merger” and recapitalization since immediately following the completion of the transaction, the sole stockholder of Appgate immediately prior to the merger will have effective control of the Company through its approximate 89% ownership interest in the combined entity (assuming no conversion of the Notes or Additional Notes and not giving effect to the 2021 Plan). In addition, through the sole stockholder of Appgate’s approximate 89% stockholder interest (assuming no conversion of the Notes or Additional Notes and not giving effect to the 2021 Plan), the sole stockholder of Appgate will have effective control of the combined entity through control of a substantial proportion of the Board by appointing the majority of the Board seats immediately following closing of the merger. Additionally, all of Appgate’s senior executive positions are expected to continue on as management of the combined entity after consummation of the merger. For accounting purposes, Appgate will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of Appgate. Accordingly, Appgate’ assets, liabilities and results of operations will become the historical financial statements of the Company, and the Company’s assets, liabilities and results of operations will be consolidated with Appgate effective as of the merger date. No step-up in basis or intangible assets or goodwill will be recorded in this transaction.

 

Regulatory Matters

 

The merger and the transactions contemplated by the Merger Agreement are not subject to any additional federal or state regulatory requirement or approval except for filings with the State of Delaware necessary to effectuate the merger.

 

Required Vote

 

Under Delaware law, the Company’s stockholders were not required to vote to approve the Merger Agreement. However, on February 8, 2021, the Company obtained the written consent of a majority of its outstanding common stock approving the Merger Agreement and Change of Control and on September 6, 2021, the Company obtained the written consent of a majority of its outstanding common stock approving the Amended Charter and the adoption of the 2021 Plan to be effective upon consummation of the merger and, solely in the case of the Amended Charter, the filing of the Amended Charter with the Secretary of State of the State of Delaware. See “Description of Stockholder Matters—Amended Charter” and “Description of Stockholder Matters—2021 Plan” above. The foregoing eliminated the need for a special stockholder meeting to approve such items.

 

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THE MERGER AGREEMENT

 

The following is a summary of the material provisions of the Merger Agreement, a copy of which is attached as Annex A to this information statement. Such summary is qualified by reference to the complete text of the Merger Agreement and is incorporated herein by reference. For a discussion of the merger structure, the merger consideration, indemnification and lock-up provisions of the Merger Agreement, see the section titled “The Merger” above.

 

Representations and Warranties

 

The Merger Agreement contains representations and warranties of each of the Company, Merger Sub and Appgate relating to, among other things:

 

proper organization and similar corporate matters;

 

capital structure of each constituent company;

 

the authorization, performance and enforceability of the Merger Agreement;

 

taxes;

 

financial statements, off balance sheet arrangements and absence of undisclosed liabilities;

 

holding of leases and ownership of other properties, including intellectual property;

 

contracts;

 

title to, and condition of, properties and assets and environmental and other conditions thereof;

 

absence of certain changes;

 

employee matters;

 

compliance with laws;

 

litigation; and

 

regulatory matters.

 

Covenants

 

The Company and Appgate have each agreed to take such actions as are necessary, proper or advisable to consummate the merger. They have also agreed to continue to operate their respective businesses in the ordinary course prior to the closing and not to take certain specified actions without the prior written consent of the other party.

 

The Merger Agreement also contains additional covenants of the parties, including covenants providing for:

 

the parties to use commercially reasonable efforts to obtain all necessary approvals from governmental agencies and other third parties that are required for the consummation of the transactions contemplated by the Merger Agreement;

 

the protection of confidential information of the parties and, subject to the confidentiality requirements, the provision of reasonable access to information;

 

Appgate to obtain the approval of its sole stockholder of the transactions contemplated by the Merger Agreement;

 

Appgate to deliver its audited financial statements for the fiscal years ended December 31, 2020 and 2019 as promptly as possible;

 

the Company to prepare and file this information statement with the SEC advising non-consenting stockholders of the actions taken by the consenting stockholders, as well as the Change of Control; and

 

Appgate to provide periodic financial information to the Company through the closing.

 

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Conditions to Closing

 

General Conditions

 

Consummation of the merger is conditioned on Appgate’s sole stockholder approving the Merger Agreement and related transactions (which has already been obtained). In addition, the consummation of the transactions contemplated by the Merger Agreement is conditioned upon, among other things:

 

no order, stay, judgment or decree being issued by any governmental authority preventing, restraining or prohibiting in whole or in part, the consummation of such transactions;

 

the execution by and delivery to each party of each of the various transaction documents;

 

the delivery by each party to the other party of a certificate to the effect that the representations and warranties of each party are true and correct in all material respects as of the closing and all covenants contained in the Merger Agreement have been materially complied with by each party;

 

the receipt of all necessary consents and approvals by third parties and the completion of necessary proceedings in compliance with the rules and regulations of each jurisdiction having jurisdiction over the subject matters; and

 

the lock-up agreements shall have been executed and delivered by the parties thereto.

 

Company’s and Merger Sub’s Conditions to Closing

 

The obligations of the Company and Merger Sub to consummate the transactions contemplated by the Merger Agreement, in addition to the conditions described above, are conditioned upon each of the following, among other things:

 

there shall have been no material adverse change in the business or financial condition of Appgate since the date of the Merger Agreement; and

 

receipt of Appgate’s audited financial statements and, except with respect to certain adjustments with respect to Appgate’s business operation, them not being materially different from the unaudited financial statements previously received by the Company.

 

Appgate’s and its Sole Stockholder’s Conditions to Closing

 

The obligations of Appgate to consummate the transactions contemplated by the Merger Agreement, in addition to the conditions described above, are conditioned upon each of the following, among other things:

 

there being no material adverse change in the business or financial condition of the Company since the date of the Merger Agreement;

 

the Newtown Registration Rights Agreement shall have been executed and delivered by the parties thereto;

 

specified officers and directors of the Company shall have resigned from their positions;

 

the Company shall have duly executed and delivered a supplemental agreement to that certain Note Issuance Agreement (as defined below), in form and substance reasonably satisfactory to the Representative (as defined in the Note Issuance Agreement) and Appgate, providing for (i) the assumption or guarantee by the Company of all of Appgate’s obligations under the Note Issuance Agreement, (ii) the substitution of the Company’s common stock for Appgate’s capital stock thereunder in all respects, and (iii) the unconditional release of Appgate from certain of its obligations thereunder, in each case effective upon consummation of the merger;

 

the consummation of the Additional Notes Issuance (as defined in the Merger Agreement);

 

without the prior written consent of Appgate, no convertible securities of the Company constituting any portion of the Company’s debt shall have been converted into any right to receive any shares of the Company’s capital stock; and

 

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an officer of the Company shall certify to the reasonable satisfaction of Appgate that the Cancellation and Issuance (as defined in the Merger Agreement) or any alternative means by which the obligations intended to be satisfied by the Cancellation and Issuance have occurred.

 

Waivers

 

If permitted under applicable law, either the Company or Appgate may waive any inaccuracies in the representations and warranties made to such party contained in the Merger Agreement and waive compliance with any agreements or conditions for the benefit of itself or such party contained in the Merger Agreement.

 

Termination

 

The Merger Agreement may be terminated at any time, but not later than the closing, as follows:

 

by mutual written agreement of the Company and Appgate;

 

by either the Company or Appgate if the merger is not consummated by November 15, 2021 (the “Outside Date”), provided that such termination is not available to a party whose action or failure to act has been a principal cause of or resulted in the failure of the merger to be consummated before such date and such action or failure to act is a breach of the Merger Agreement, and provided further, that, if the audited financial statements of Appgate have not been delivered to the Company in accordance with the terms of the Merger Agreement by the Outside Date, but all other conditions to close have been satisfied by such date, Appgate shall continue to work diligently and in good faith to provide such audited financial statements and take additional actions to the extent reasonably determined to be necessary, and the Outside Date will be extended as necessary until such audited financial statements have been delivered, but in no event later than May 15, 2022;

 

by either the Company or Appgate if a governmental entity shall have issued an order, decree or ruling or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the merger, which order, decree, judgment, ruling or other action is final and nonappealable;

 

by Appgate, upon a material breach of any representation, warranty, covenant or agreement on the part of the Company or Merger Sub, or if any representation or warranty of the Company or Merger Sub shall have become untrue, in either case such that (i) the conditions set forth in Article VI of the Merger Agreement would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue and (ii) such breach by the Company or Merger Sub is incapable of being cured by the Outside Date or, if curable, is not cured by the Outside Date, provided that Appgate may not terminate the Merger Agreement if it is in material breach thereof; and

 

by the Company, upon a material breach of any representation, warranty, covenant or agreement on the part of Appgate or a stockholder set forth in the Merger Agreement, or if any representation or warranty of Appgate or a stockholder shall have become untrue, in either case such that (i) the conditions set forth in Article VI of the Merger Agreement would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue and (ii) such breach by Appgate or a stockholder is incapable of being cured by the Outside Date or, if curable, is not cured by the Outside Date, provided that the Company may not terminate the Merger Agreement if it is in material breach thereof.

 

Fees and Expenses

 

All fees and expenses of the Merger Agreement and the transactions contemplated thereby shall be paid by Appgate, provided, that, in the event the Merger Agreement is terminated and the closing of the merger does not occur, Appgate shall only be responsible for any such fees and expenses of the Company and Merger Sub in the event the Merger Agreement is terminated by the Company for Appgate’s breach as described in the section immediately above.

 

Confidentiality; Access to Information

 

The Company and Appgate will afford to the other party and its financial advisors, accountants, counsel and other representatives prior to the completion of the merger reasonable access during normal business hours, upon reasonable notice, to all of their respective properties, books, records and key personnel to obtain all information concerning the business, including the status of business development efforts, properties, results of operations and personnel, as each party may reasonably request. The Company and Appgate will maintain in confidence any non-public information received from the other party, and use such non-public information only for purposes of consummating the transactions contemplated by the Merger Agreement.

 

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Amendments

 

The Merger Agreement may be amended by the parties thereto at any time by execution of an instrument in writing signed on behalf of each of the parties.

 

Public Announcements

 

The parties have agreed that until the closing or termination of the Merger Agreement, the parties will:

 

use commercially reasonable efforts to consult with each other before issuing any press release or other public statement (including through social media platforms) with respect to the Merger Agreement and the transactions contemplated thereby, provided that, prior to the closing, the Company and Appgate shall prepare a press release announcing the consummation of the merger, which shall be in a form reasonably acceptable to Appgate; and

 

except as may be required by applicable law, not issue any press release or other public statement pertaining to the Merger Agreement or the transactions contemplated thereby without the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned or delayed by such other party.

 

Support Agreements

 

Concurrently with the execution of the Merger Agreement, SIS Holdings entered into the Appgate Support Agreement pursuant to which it agreed to (i) appear at a stockholder meeting called by Appgate for the purpose of approving the merger and other transactions contemplated by the Merger Agreement, for the purpose of establishing a quorum, (ii) vote all shares of Appgate common stock beneficially owned by it (or execute a written consent) in favor of the merger and the adoption of the Merger Agreement, (iii) vote all shares of Appgate common stock beneficially owned by it (or execute a written consent) against any action that would reasonably be expected to materially impede, interfere with, delay, postpone, or adversely affect the merger or any of the other transactions contemplated by the Merger Agreement, (iv) not solicit, initiate, encourage, or facilitate certain alternate business combinations, and (v) not transfer, assign, or sell such covered shares, except to certain permitted transferees, prior to the consummation of the merger.

 

Concurrently with the execution of the Merger Agreement, Ironbound, the controlling stockholder of the Company, entered into the Parent Support Agreement, pursuant to which Ironbound agreed to (i) appear at a stockholder meeting called by the Company for the purpose of approving the merger and other transactions contemplated by the Merger Agreement, for the purpose of establishing a quorum, (ii) vote all shares of the Company’s common stock beneficially owned by it (or execute a written consent) in favor of the merger and the adoption of the Merger Agreement, including certain actions contemplated in the Merger Agreement as necessary to permit consummation of the merger such as increases in the Company’s authorized shares of common stock, increases to the size of the Board and changing the Company’s name to “Appgate, Inc.”, (iii) vote all shares of the Company’s common stock beneficially owned by it (or execute a written consent) against any action that would reasonably be expected to materially impede, interfere with, delay, postpone, or adversely affect the merger or any of the other transactions contemplated by the Merger Agreement, (iv) not solicit, initiate, encourage, or facilitate certain alternate business combinations, and (v) not transfer, assign, or sell such covered shares, except to certain permitted transferees, prior to the consummation of the merger.

 

Note Purchase Agreement

 

Concurrently with the execution of the Merger Agreement, Appgate entered into a note purchase agreement (the “Note Purchase Agreement”) together with Appgate’s wholly-owned domestic subsidiaries (each, a “Guarantor”) and Magnetar Financial LLC (collectively with its affiliates, “Magnetar”), as representative of the several initial holders named therein (the “Initial Holders”). Pursuant to the Note Purchase Agreement, Appgate agreed to sell, and the Initial Holders agreed to purchase, upon the terms and subject to the conditions contained in the Note Purchase Agreement, (i) $50.0 million aggregate principal amount of Appgate’s 5.00% Convertible Senior Notes due 2024 (the “Notes”) on the date of the initial closing (the “Initial Closing”), (ii) $25.0 million aggregate principal amount of Notes (the “Additional Notes”) on the date of the consummation of the Merger and (iii) at the election of Magnetar, up to $25.0 million additional Notes in one or more subsequent transactions, on or prior to February 8, 2022.

 

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Under the terms of the Note Purchase Agreement, Magnetar shall have the right to fund up to 25% of certain issuances of indebtedness of Appgate or any of its subsidiaries that is either (i) convertible or exchangeable for capital stock of Appgate or any of its subsidiaries or (ii) issued with warrants or a similar equity component convertible or exchangeable for capital stock of Appgate or any of its subsidiaries. The Note Purchase Agreement also grants to Magnetar certain preemptive rights in respect to future issuances of equity of Appgate or any of its subsidiaries.

 

The Initial Closing and the issuance of $50.0 million aggregate principal amount of Notes in connection therewith took place on February 9, 2021. The Notes were issued under and are governed by the terms of the Note Issuance Agreement (as defined and described below).

 

Note Issuance Agreement

 

Concurrently with the execution of the Merger Agreement, on the date of the Initial Closing, Appgate entered into a note issuance agreement (the “Note Issuance Agreement”) together with the Guarantors and Magnetar, as representative of the Initial Holders. The terms of the Note Issuance Agreement and the Notes are summarized below; capitalized terms used in this section but not otherwise defined herein shall have the respective definitions ascribed to them in the Note Issuance Agreement:

 

Interest and Maturity. The Notes bear interest at 5.50% per annum, payable, at the election of Appgate, entirely in cash, entirely in kind or a combination of in cash and in kind, which interest accrues from February 9, 2021, and will be payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2021; provided, that in the event Appgate elects to make an interest payment in cash for any interest period, the interest rate in respect of such interest period shall be 5.00% per annum. The Notes will mature on February 9, 2024 unless earlier redeemed or repurchased.

 

Conversion upon Change of Control. If Appgate undergoes a Change of Control other than the Merger prior to maturity, each holder of Notes shall have the option to convert all or any portion of such Notes into Appgate common stock subject to and in accordance with the terms of the Note Issuance Agreement, including the applicable conversion rate thereunder.

 

Conversion. Other than upon a Change of Control, prior to maturity, each holder of Notes shall have the option to convert all or any portion of such Notes into Appgate common stock subject to and in accordance with the terms of the Note Issuance Agreement, including the applicable conversion rate thereunder.

 

Guarantees; Conversion Obligations. The Notes are guaranteed by each of Appgate’s wholly-owned domestic subsidiaries. Upon the consummation of certain events resulting in Appgate becoming a direct or indirect subsidiary of any person (including the Merger), such acquiring person, any direct or indirect parent company thereof and each subsidiary thereof (immediately prior to such event) shall unconditionally guarantee Appgate’s Obligations and assume all of Appgate’s Conversion Obligations and Change of Control Conversion Obligations and, upon such assumption, Appgate shall be released from its Conversion Obligations and Change of Control Conversion Obligations.

 

Repurchase Upon a Fundamental Change. Upon the occurrence of a Fundamental Change at any time after a Public Company Event, each holder of Notes shall have the option to require Appgate to repurchase for cash all or any portion of such Notes, at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, subject to and in accordance with the terms of the Note Issuance Agreement.

 

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Repurchase Upon a Change of Control. Upon the occurrence of a Change of Control other than the Merger at any time before a Public Company Event, each holder of Notes shall have the option to require Appgate to repurchase for cash all or any portion of such Notes, at a repurchase price equal to 102% of the principal amount thereof, plus accrued and unpaid interest thereon, subject to and in accordance with the terms of the Note Issuance Agreement.

 

Covenants. The Note Issuance Agreement contains restrictive covenants that, among other things, generally limit the ability of Appgate and certain of its subsidiaries (subject to certain exceptions) to: (i) incur additional debt and issue Disqualified Stock; (ii) create liens; (iii) pay dividends, acquire shares of capital stock, or make investments; (iv) issue guarantees; (v) sell assets and (vi) enter into transactions with affiliates. The foregoing restrictive covenants are subject to a number of important exceptions and qualifications, as set forth in the Note Issuance Agreement.

 

Events of Default. The Note Issuance Agreement provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others: (i) nonpayment of principal or interest; (ii) breach of covenants or other agreements in the Note Issuance Agreement; (iii) defaults in failure to pay certain other indebtedness; and (iv) certain events of bankruptcy or insolvency. Generally, if an event of default occurs and is continuing under the Note Issuance Agreement, Magnetar or the holders of at least 25% in aggregate principal amount of the Note then outstanding may declare the principal of, premium, if any, and accrued interest on all the Notes immediately due and payable.

 

No Registration. The Notes and the Appgate common stock to be issued upon conversion of the Notes have not been registered under the Securities Act, or any state securities laws and may not be offered or sold in the United States absent registration under the Securities Act or an applicable exemption from registration requirements. This description of the Note Issuance Agreement and the Notes does not constitute an offer to sell, or the solicitation of an offer to buy, any securities and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful.

 

Magnetar Registration Rights and Lock-Up Agreement

 

Concurrently with the execution of the Merger Agreement, Appgate and the holders of Notes entered into a registration rights agreement, pursuant to which, following a Public Company Event, Appgate will be obligated to file a registration statement to register the resale of certain securities of Appgate (including Appgate common stock issued upon conversion of the Notes) held by such holders of Notes.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

Defined terms used herein and not otherwise defined shall have the respective meanings assigned to such terms elsewhere in this information statement.

 

Introduction

 

The following unaudited pro forma condensed combined financial information gives effect to the proposed Merger between Merger Sub and Appgate and certain other transactions between the Company and/or Merger Sub, on the one hand, and Appgate, on the other hand, as provided for in the Merger Agreement and as described in the notes accompanying the following unaudited pro forma condensed combined financial information. For purposes of this section, we refer to the Merger and such other transactions collectively as the “Transactions”.

 

Summary of the Transactions upon consummation of the Merger:

 

The Company will issue 117,149,920 shares of its common stock to the sole stockholder of Appgate in exchange for all outstanding shares of Appgate common stock;

 

In connection with the Transactions, either (a) 666,667 shares of Company common stock will be transferred from one or more existing stockholders of the Company to an advisor of the Company or (b) the Company will issue 666,667 shares of Company common stock to an advisor of the Company and one or more existing stockholders of the Company will contribute 666,667 shares of Company common stock to the Company;

 

The Company will guarantee Appgate’s obligations of payment of principal, interest and other liabilities under the Note Issuance Agreement and assume Appgate’s Conversion Obligations and Change of Control Conversion Obligations thereunder; and

 

Immediately after giving effect to the Merger and assuming no conversion of the Notes or Additional Notes and no issuance of shares under the 2021 Plan, the current holders of the Company’s common stock will own an aggregate of approximately 11% of the Company’s common stock and the sole stockholder of Appgate will own an aggregate of approximately of 89% of the common stock of the Company. The equity and accumulated deficit of Appgate will be eliminated to reflect the legal capitalization of the combined entity upon the completion of the Merger.

 

As a result of the Transactions, the former owner of Appgate will become the controlling stockholder of the Company. Accordingly, the Merger of the Company’s wholly owned subsidiary, Merger Sub, with and into Appgate is a reverse merger that will be accounted for as a recapitalization of Appgate. Upon completion of the Merger, the Company will change its name to Appgate, Inc. The unaudited pro forma condensed combined financial information is presented with Appgate as the accounting acquirer and the Company as the accounting acquiree.

 

The unaudited pro forma condensed combined balance sheet as of June 30, 2021 aggregates the balance sheets of the Company and Appgate and gives pro forma effect to the Transactions as if they had occurred on June 30, 2021, which is the last day of the Company’s most recently completed fiscal quarter. The unaudited pro forma condensed combined statements of operations for the year ended March 31, 2021 and for the three months ended June 30, 2021, have been derived by aggregating the Company’s historical financial statements and the historical financial statements of Appgate, including certain pro forma adjustments to such aggregated financial statements to give effect to the Transactions as if they had occurred on April 1, 2020, which was the first day of the Company’s fiscal year ended March 31, 2021.

 

The unaudited pro forma condensed combined financial information herein has been prepared to illustrate the effects of the Transactions in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to Article 11 of Regulation S-X. Information regarding these pro forma adjustments is subject to risks and uncertainties that could cause actual results to differ materially from those presented in the unaudited pro forma condensed consolidated financial information herein.

 

In the Company’s opinion, all adjustments necessary to reflect the effects of the Transactions as described above have been included and are based upon currently available information and assumptions that the Company believes are reasonable as of the date of this information statement; however, such adjustments are subject to change. Any of the factors underlying these estimates and assumptions may change or prove to be materially different than expected. The unaudited pro forma condensed combined financial information also does not purport to represent what the Company’s actual results of operations and financial position would have been had the Transactions occurred on the dates indicated, nor are they intended to be representative of or project the Company’s future financial condition or results of operations or financial position.

 

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The unaudited pro forma condensed combined financial information and the accompanying notes are provided for informational and illustrative purposes only and should be read in conjunction with the Company’s historical audited financial statements and the accompanying notes for the year ended March 31, 2021, the Company’s unaudited financial statements and accompanying notes for the three months ended June 30, 2021, Appgate’s historical audited consolidated financial statements and the accompanying notes for the year ended December 31, 2020, Appgate’s unaudited consolidated financial statements and accompanying notes for the three and six months ended June 30, 2021, included in this information statement, as well as the financial and other information appearing elsewhere in this information statement, including information contained in the sections titled “Management’s Discussion and Analysis of Newtown’s Financial Condition and Results of Operations” and “Management’s Discussion and Analysis of Appgate’s Financial Condition and Results of Operations.”

 

Description of the Transactions

 

On February 8, 2021, the Company entered into the Merger Agreement with Merger Sub and Appgate. Pursuant to the Merger Agreement, Merger Sub has agreed to merge with and into Appgate with Appgate being the surviving entity of the Merger and becoming a wholly owned subsidiary of the Company. The Merger is expected to be consummated during the fourth quarter of the calendar year 2021, subject to the fulfillment of those conditions contained in the Merger Agreement, some of which are summarized below.

 

Upon consummation of the Merger (the “Closing”), each share of Appgate’s common stock outstanding on the closing date will be converted into 234,299.84 shares of the Company’s common stock, par value $0.001 per share (“Company Common Stock”). Additionally, the Company will guarantee Appgate’s obligations of payment of principal, interest and other liabilities under Appgate’s note issuance agreement (“Note Issuance Agreement”) and the 5% convertible senior notes (“Notes”) issued thereunder in an aggregate principal amount of $50.0 million, with an additional aggregate principal amount of $25.0 million expected to be issued at Closing (the “Additional Notes”) and a further aggregate principal amount of $25.0 million issuable, at the option of the holders of the Notes, within 12 months of signing of the Merger Agreement. Further, the Company will assume Appgate’s Conversion Obligations and Change of Control Conversion Obligations under the Note Issuance Agreement. The parties estimate that, immediately following consummation of the Merger and assuming none of the Notes or Additional Notes have been converted into shares of Company Common Stock and no issuance of shares under the 2021 Plan, the current sole stockholder of Appgate will own approximately 89% of the outstanding shares of Company Common Stock and the Company’s current stockholders will own approximately 11% of the outstanding shares of Company Common Stock.

 

Accounting for the Merger

 

The Merger will be accounted for as a “reverse merger” and recapitalization because, immediately following the completion of the Merger, the sole stockholder of Appgate immediately prior to the Merger will have effective control of the Company through its approximate 89% ownership interest in the combined entity (assuming no conversion of the Notes or Additional Notes and not giving effect to the 2021 Plan). In addition, through the sole stockholder of Appgate’s approximate 89% stockholder interest (assuming no conversion of the Notes or Additional Notes and no issuance of shares under the 2021 Plan), the sole stockholder of Appgate will have effective control of the combined entity through control of a substantial proportion of the Board by appointing the majority of the board seats immediately following closing of the Merger. Additionally, all of Appgate’s senior executive positions are expected to continue on as management of the combined entity after consummation of the Merger. For accounting purposes, Appgate will be deemed to be the accounting acquirer in the Merger and, consequently, the Merger will be treated as a recapitalization of Appgate. Accordingly, Appgate’s historical financial statements will become the historical financial statements of the Company, and the Company’s assets, liabilities and results of operations will be consolidated with Appgate effective as of the Closing. No step-up in basis or intangible assets or goodwill will be recorded in the Merger.

 

Basis of Presentation

 

This unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” The adjustments in this unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an illustrative understanding of the effect of the Merger and have been prepared for informational purposes only. Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined financial information are described above and in the accompanying notes. 

 

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2021

(in thousands)

 

   Historical   Transaction
Accounting
   As of
June 30,
2021
 
   As of June 30, 2021   Adjustments   Pro Forma 
   Newtown   Appgate   (Note 2)   Combined 
                 
ASSETS                
Current assets:                
Cash  $7   $33,109   $25,000(a)  $53,636 
              (4,377)(f)     
              (103)(b)     
Restricted cash   -    1,437    -    1,437 
Accounts receivable, net of allowance   -    9,256    (109)(c)   9,147 
Contract assets   -    2,782    -    2,782 
Deferred contract acquisition costs, current   -    3,059    -    3,059 
Prepaid and other current assets   -    4,962    (2,023)(f)   2,939 
Total current assets   7    54,605    18,388    73,000 
Property and equipment, net   -    1,921    -    1,921 
Operating lease right-of-use assets   -    1,557    -    1,557 
Contract assets, noncurrent   -    8,048    -    8,048 
Deferred contract acquisition costs, noncurrent   -    7,660    -    7,660 
Goodwill   -    71,604    -    71,604 
Intangible assets, net   -    41,063    -    41,063 
Deferred income taxes   -    554    -    554 
Other assets   -    120    -    120 
Total assets  $7   $187,132   $18,388   $205,527 
LIABILITIES AND STOCKHOLDERS’ EQUITY                    
Current liabilities:                    
Accounts payable  $103   $2,880   $(103)(b)  $2,880 
Accrued expenses   -    10,912    (1,000)(f)   9,912 
Operating lease liabilities, current   -    753    -    753 
Deferred revenue, current   -    5,534    -    5,534 
Other current liabilities   -    3    -    3 
Due to unrelated party   109    -    (109)(c)   - 
Total current liabilities   212    20,082    (1,212)   19,082 
Deferred revenue, noncurrent   -    1,400    -    1,400 
Operating lease liabilities, noncurrent   -    954    -    954 
Convertible senior notes   -    49,674    25,000(a)   74,674 
Convertible notes payable - Related Party   367    -    (367)(d)   - 
Deferred income tax liability   -    372    -    372 
Other liabilities   -    444    -    444 
Total liabilities   579    72,926    23,421    96,926 
Shareholders’ equity:                    
Common stock   15    -    117(e)   132 
Additional paid-in capital   2,084    509,849    367(d)   504,112 
              (117)(e)     
              (2,671)(g)     
              (5,400)(f)     
Accumulated other comprehensive loss   -    (911)   -    (911)
Accumulated deficit   (2,671)   (394,732)   2,671(g)   (394,732)
Total stockholders’ equity   (572)   114,206    (5,033)   108,601 
Total liabilities and stockholders’ equity  $7   $187,132   $18,388   $205,527 

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED MARCH 31, 2021

(in thousands, except share and per share information)

 

   Historical   Transaction   Year Ended
March 31,
2021
 
   Year Ended
March 31, 2021
   Accounting
Adjustments
   Pro Forma 
   Newtown   Appgate   (Note 2)  Combined 
                 
Revenue  $-   $34,174   $-   $34,174 
Cost of revenue, exclusive of amortization shown below   -    15,192    -    15,192 
Amortization expense   -    5,675         5,675 
Total cost of revenue   -    20,867    -    20,867 
Gross profit   -    13,307    -    13,307 
Operating expenses:                    
Sales and marketing   -    25,753    -    25,753 
Research and development   -    9,636    -    9,636 
General and administrative   138    13,839    -    13,977 
Depreciation and amortization   -    5,210    -    5,210 
Total operating expenses   138    54,438    -    54,576 
Loss from continuing operations   (138)   (41,131)   -    (41,269)
Interest expense, net   (18)   (3,926)   (1,250)(bb)   (5,194)
Other expenses, net   -    (220)   -    (220)
Loss from continuing operations before income taxes   (156)   (45,277)   (1,250)   (46,683)
Income tax expense of continuing operations   -    (2,047)   -(cc)   (2,047)
Net loss of continuing operations  $(156)  $(47,234)  $(1,250)  $(48,730)
Loss per share:                    
Net loss per share - basic and diluted  $(0.01)  $(94,648.00)       $(0.37)
Weighted average shares outstanding used in computing net loss per share - basic and diluted   13,874,040    500    (aa)   131,023,960 

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2021

(in thousands, except share and per share information)

 

   Historical   Transaction   Three Months Ended June 30,  
   Three Months Ended
June 30, 2021
   Accounting
Adjustments
   2021
Pro Forma
 
   Newtown   Appgate   (Note 2)   Combined 
                 
Revenue  $-   $9,886   $-   $9,886 
Cost of revenue, exclusive of amortization shown below   -    4,169    -    4,169 
Amortization expense   -    1,131    -    1,131 
Total cost of revenue   -    5,300    -    5,300 
Gross profit   -    4,586    -    4,586 
Operating expenses:                    
Sales and marketing   -    9,166    -    9,166 
Research and development   -    2,723    -    2,723 
General and administrative   13    4,599    -    4,612 
Depreciation and amortization   -    1,352    -    1,352 
Total operating expenses   13    17,840    -    17,853 
Loss from continuing operations   (13)   (13,254)   -    (13,267)
Interest expense, net   (5)   (643)   (313)(bb)   (961)
Other expenses, net   -    (93)   -    (93)
Loss from continuing operations before income taxes   (18)   (13,990)   (313)   (14,321)
Income tax expense of continuing operations   -    (592)   -(cc)   (592)
Net loss of continuing operations  $(18)  $(14,582)  $(313)  $(14,913)
Loss per share:                    
Net loss per share - basic and diluted  $(0.00)  $(29,164.00)       $(0.11)
Weighted average shares outstanding used in computing net loss per share - basic and diluted   14,643,740    500    (aa)   131,793,660 

 

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NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION

 

1.Basis of Presentation

 

The Merger will be accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, the Company will be treated as the “acquired” company for financial reporting purposes. For accounting purposes, the financial statements of the combined entity will represent a continuation of the financial statements of Appgate with the Transactions treated as the equivalent of Appgate issuing stock for the net assets of the Company, accompanied by a recapitalization. The net assets of the Company will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Transactions will be presented as those of Appgate in future public reports of the combined entity.

 

The pro forma adjustments have been prepared as if the Transactions had been consummated on June 30, 2021, in the case of the unaudited pro forma condensed combined balance sheet, and as if the Transactions had been consummated on April 1, 2020, the beginning of the earliest period presented in the unaudited pro forma condensed combined statements of operations.

 

The unaudited pro forma condensed combined financial information has been prepared assuming the following methods of accounting in accordance with U.S. GAAP.

 

As the fiscal year end of the Company is March 31st, the unaudited pro forma condensed combined financial information has been prepared using March 31st as the fiscal year end of the combined entity. The unaudited pro forma condensed combined statement of operations for the year ended March 31, 2021 combines the historical audited statement of operations of the Company for the year ended March 31, 2021 with the historical unaudited consolidated statement of operations of Appgate for the 12 months ended March 31, 2021. The historical unaudited consolidated statement of operations of Appgate for the 12 months ended March 31, 2021 was derived by subtracting the historical unaudited consolidated statement of operations of Appgate for the three months ended March 31, 2020 from the historical audited consolidated statement of operations of Appgate for the year ended December 31, 2020 and adding the historical unaudited consolidated statement of operations of Appgate for the three months ended March 31, 2021 – see reconciliation included in Note 3.

 

The pro forma adjustments represent management’s estimates based on information available as of the date of this information statement and are subject to change as additional information becomes available and additional analyses are performed. Management considers this basis of presentation to be reasonable under the circumstances.

 

One-time direct and incremental transaction costs anticipated to be incurred prior to, or concurrent with, the Closing of the Transactions are reflected in the unaudited pro forma condensed combined balance sheet as a direct reduction from the recapitalization transaction, which are reflected in the combined entity’s additional paid-in capital and are assumed to be cash settled.

 

The unaudited pro forma condensed combined financial information does not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the Merger. The unaudited pro forma condensed combined financial information has been prepared for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that would have been realized had Appgate and the Company been a combined company during the periods presented.

 

2.Adjustments to the Unaudited Pro Forma Condensed Combined Financial Information

 

The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Transactions and has been prepared for informational purposes only. The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial information to reflect the accounting for the Transactions in accordance with U.S. GAAP.

 

The unaudited pro forma combined provision for income taxes does not necessarily reflect the amounts that would have resulted had Appgate and the Company filed consolidated income tax returns during the periods presented.

 

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The unaudited pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statements of operations are based upon the number of Appgate’s shares outstanding, assuming the Transactions occurred on April 1, 2020.

 

Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

 

The unaudited pro forma condensed combined balance sheet as of June 30, 2021 reflects the following adjustments:

 

(a)The proceeds to Appgate from the expected issuance of $25.0 million of aggregate principal amount of Additional Notes upon Closing, net of debt issuance costs. Debt issuance costs do not appear in the pro forma adjustment due to rounding convention.

 

(b)The payment of the Company’s accounts payable to be settled at Closing.

 

(c)The elimination of the Company’s “Due to unrelated party” payable to Appgate against Appgate’s “Accounts receivable” from Newtown at Closing.

 

(d)The settlement of the Company’s convertible notes payable to a related party prior to Closing in accordance with the Merger Agreement.

 

(e)The issuance of 117,149,920 shares of Company Common Stock to the sole stockholder of Appgate, consisting of 500 shares of Appgate’s common stock outstanding as of June 30, 2021 (representing an exchange ratio of 234,299.84 shares of Company Common Stock for each outstanding share of Appgate common stock).

 

(f)The settlement of approximately $11.0 million of estimated advisory, legal, accounting, and other recapitalization expenses related to the Transactions, including (i) $5.6 million settled with Company Common Stock either through (a) the transfer of 666,667 shares of Company Common Stock from one of more existing stockholders of the Company to an advisor of the Company in the Transactions or (b) the issuance of 666,667 shares of Company Common Stock to an advisor of the Company in the Transactions, and one or more existing stockholders of the Company contributing 666,667 shares of Company Common Stock to the Company, and (ii) $2.5 million contingent upon consummation of the Transactions and not previously accrued. For purposes of (i), the Company estimated the fair value of the consideration to the advisor by reference to the closing price of $8.40 of the Company’s Common Stock on September 8, 2021.

 

(g)The reclassification of the Company’s historical accumulated deficit to additional paid-in-capital as part of the recapitalization.

 

Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations

 

The unaudited pro forma condensed combined statements of operations for the year ended March 31, 2021 and for the three months ended June 30, 2021 reflect the following adjustments:

 

(aa) The Company’s issuance of 117,149,920 shares of Company Common Stock to the sole stockholder of Appgate in exchange for all 500 outstanding shares of Appgate common stock in connection with the Transactions.

 

(bb)The net increase to interest expense resulting from the expected issuance of the $25.0 million in aggregate principal amount of Additional Notes upon Closing.

 

(cc)The effect on income tax expense of the pro forma adjustment at the estimated effective tax rate. The estimated effective tax rate is assumed to be 0% given the valuation allowance recorded against Appgate’s net deferred tax assets.

 

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3.Reconciliation of Appgate’s Historical Unaudited Condensed Statement of Operations for the Year Ended March 31, 2021.

 

A reconciliation of Appgate’s historical unaudited condensed statement of operations for the year ended March 31, 2021 is as follows (in thousands):

 

       Less:   Plus:     
   Year Ended
December 31,
2020
   Three Months
Ended
March 31,
2020
   Three Months
Ended
March 31,
2021
   Year Ended
March 31,
2021
 
Revenue  $33,729   $9,625   $10,070   $34,174 
Cost of revenue, exclusive of amortization shown below   15,560    3,946    3,578    15,192 
Amortization expense   6,168    1,624    1,131    5,675 
Total cost of revenue   21,728    5,570    4,709    20,867 
Gross profit   12,001    4,055    5,361    13,307 
Operating expenses:                    
Sales and marketing   25,175    6,536    7,114    25,753 
Research and development   9,782    2,343    2,197    9,636 
General and administrative   15,824    5,327    3,342    13,839 
Depreciation and amortization   5,211    1,342    1,341    5,210 
Total operating expenses   55,992    15,548    13,994    54,438 
Loss from continuing operations   (43,991)   (11,493)   (8,633)   (41,131)
Interest expense, net   (4,088)   (995)   (833)   (3,926)
Other expenses, net   (1,640)   (1,546)   (126)   (220)
Loss from continuing operations before income taxes   (49,719)   (14,034)   (9,592)   (45,277)
Income tax expense of continuing operations   (1,842)   (208)   (413)   (2,047)
Net loss of continuing operations  $(51,561)  $(14,242)  $(10,005)  $(47,324)

 

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OTHER INFORMATION ABOUT THE COMPANY

 

Business of the Company

 

The Company is a shell company as defined in Rule 12b-2 of the Exchange Act and holds limited amounts of cash. The Company was incorporated in Delaware on September 26, 2005. The Company is a corporation with limited operations and has had very limited revenues from business operations since its incorporation.

 

Until December 31, 2007, the Company held the exclusive license to exploit the Dreesen’s Donut Brand in the United States with the exception of the states of Florida and Pennsylvania, and in Suffolk County, New York, which Dreesen retained for itself. In August 2007 there was a change in control, as detailed below, and the Company discontinued its efforts to promote the Dreesen’s Donut Brand at that time. The license from Dreesen expired on December 31, 2007.

 

On August 29, 2008, the Company implemented a 1 for 50 reverse stock split (the “Reverse Split”) of its common stock. Pursuant to the Reverse Split, each 50 shares of the Company’s common stock issued and outstanding was converted into one share of common stock.

 

Effective August 15, 2013, the Company declared and paid a stock dividend on its outstanding common stock to stockholders of record as of August 15, 2013 (the “Record Date”). As a result, all stockholders on the Record Date received nine new shares of common stock for each share of common stock owned by them as of the that date (the “2013 Stock Dividend”).

 

All share and per share data contained in this information statement has been retroactively restated to reflect the Reverse Split and the 2013 Stock Dividend and all fractional shares, if any, as a result thereof have been rounded upward to the next whole share.

 

On August 8, 2007 (the “Effective Date”), the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Moyo Partners, LLC, a New York limited liability company (“Moyo”) and R&R Biotech Partners, LLC, a Delaware limited liability company (“R&R” collectively with Moyo, the “Purchasers”), pursuant to which the Company sold to them, in the aggregate, approximately, four million four hundred seventy nine thousand two hundred fifty (4,479,250) shares of the Company’s common stock and five hundred (500shares of the Company’s Series A Preferred Stock (“Series A Preferred Stock”), each share convertible at the option of the holder into, approximately, fourteen thousand eight hundred twenty (14,820) shares of the Company’s common stock, for aggregate gross proceeds to the Company of $600,000. The shares of Series A Preferred Stock were convertible only to the extent there were a sufficient number of shares of common stock available for issuance upon any such conversion.

 

At closing of the Purchase Agreement, (i) the Purchasers acquired control of the Company, with (a) R&R acquiring nine million five hundred nine thousand four hundred forty (9,509,440) shares of the Company’s common stock (assuming the conversion by R&R of the four hundred (400) shares of Series A Preferred Stock it acquired pursuant to the Purchase Agreement into five million nine hundred twenty eight thousand (5,928,000) shares of common stock), constituting 72% of the then issued and outstanding shares of common stock, and (b) Moyo acquiring two million three hundred seventy seven thousand three hundred sixty (2,377,360) shares of common stock (assuming the conversion by Moyo of its one hundred (100) shares of Series A Preferred Stock it acquired pursuant to the Purchase Agreement into one million four hundred eighty one thousand five hundred ten (1,481,510) shares of common stock), constituting 18% of the then issued and outstanding shares of common stock; and (ii) in full satisfaction of the Company’s obligations under outstanding convertible promissory notes in the principal amount of $960,000, the note holders converted an aggregate of $479,811 of principal and accrued interest into 274,200 shares of common stock and accepted a cash payment from us in the aggregate amount of $625,030 for the remaining principal balance.

 

At the closing of the Purchase Agreement: (i) Arnold P. Kling was appointed to the Board and served together with Vincent J. McGill, a then current director who continued to serve until August 20, 2007, the effective date of his resignation from the Board; (ii) all of the Company’s then officers and directors, with the exception of Mr. McGill, resigned from their respective positions with us; (iii) our Board appointed Mr. Kling as president and Kirk M. Warshaw as chief financial officer and secretary; and (iv) the Company relocated headquarters to Chatham, New Jersey.

 

Following Mr. McGill’s resignation from the Board on August 20, 2007, Mr. Kling became the Company’s sole director and president.

 

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On October 19, 2007, the Company effected an amendment to its certificate of incorporation to increase to 100,000,000 the number of authorized shares of common stock available for issuance (the “Charter Amendment”). As a result of the Charter Amendment, as of October 19, 2007, the Company had adequate shares of common stock available for issuance upon the conversion of all the issued and outstanding shares of Series A Preferred Stock.

 

On December 19, 2007, the holders of all the issued and outstanding shares of Series A Preferred Stock elected to convert all of their shares into shares of common stock. As a result, the 500 shares of Series A Preferred Stock outstanding were exchanged for 7,407,540 shares of common stock, and all 500 shares of the Series A Preferred Stock were returned to the status of authorized and unissued shares of undesignated preferred stock.

 

In December 2008, we sold 550,000 shares of restricted common stock to our Chief Financial Officer, for $2,000. The issuance of these shares was exempt from registration pursuant to Sections 4(2) and 4(6) or the Securities Act. The stock certificate representing these shares was imprinted with a legend restricting transfer unless pursuant to an effective registration statement or an exemption from registration under the Act.

 

On May 6, 2013, Ironbound acquired 9,509,440 shares of our outstanding common stock (the “Acquired Shares”) for an aggregate purchase price of $15,000, or $0.00157737 per share, from the Chapter 7 Trustee of the Estates of Rodman & Renshaw, LLC (“Rodman”), Direct Markets, Inc., and Direct Markets Holdings, Corp. in Chapter 7 bankruptcy proceedings pending in the United States Bankruptcy Court for the Southern District of New York (Cases No. 13-10087, 13-10088 and 13-10089). The Acquired Shares constituted all the shares of the Company’s common stock previously owned by R&R, an affiliate of Rodman, and represented 69.1% of the Company’s total issued and outstanding shares of Common Stock as of May 6, 2013. 

 

On February 8, 2021, the Company entered into Merger Agreement with Merger Sub and Appgate. Pursuant to the Merger Agreement, Merger Sub will merge with Appgate with Appgate being the surviving entity of the merger and becoming a wholly owned subsidiary of the Company.

 

Facilities

 

The Company’s does not maintain independent corporate offices and receipt of all mailings is c/o Graubard Miller, the Company’s general counsel, 405 Lexington Avenue, 11th Floor, New York, New York 10174.

 

Legal Proceedings

 

There are no legal proceedings pending against the Company.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with the Company’s financial statements and related notes thereto included elsewhere in this information statement.

 

Three Month Period Ended June 30, 2021 Compared To The Three Month Period Ended June 30, 2020

 

We are a corporation with limited operations and did not have any operating revenues during the three month periods ended June 30, 2021 and 2020, respectively.

 

Total expenses for the three months ended June 30, 2021 and 2020 were $18,144 and $14,859, respectively. The majority of these expenses primarily constituted general and administrative expenses related to legal and accounting and compliance with the Exchange Act.

 

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Fiscal Year Ended March 31, 2021 Compared to the Fiscal Year Ended March 31, 2020

 

We are a corporation with limited operations and did not have any operating revenues during the fiscal years ended March 31, 2021 and 2020, respectively.

 

Total expenses for the fiscal years ended March 31, 2021 and 2020 were $155,680 and $62,411, respectively. The majority of these expenses primarily constituted general and administrative expenses related to legal and accounting and compliance with the Exchange Act. The increase in expenses from 2020 to 2021 is primarily related to professional fees paid in connection with our entering into the definitive agreement with Appgate.

 

Liquidity and Capital Resources

  

For the fiscal year ended March 31, 2021, and the three months ended June 30, 2021, we did not have any revenues from operations. Our principal source of operating capital recently has been provided in the form of loans and capital contributions from our stockholders. Absent a merger or other combination with an operating company, we do not expect to have any revenues from operations. No assurance can be given that such a merger or other combination will occur or that we can engage in any public or private sales of our equity or debt securities to raise working capital. We are dependent upon future loans or capital contributions from our present stockholders and/or management and there can be no assurances that our present stockholders or management will make any loans or capital contributions to us.

 

At June 30, 2021, we had outstanding promissory notes in the aggregate principal amount of $367,000 payable to Ironbound, our majority stockholder. We had cash of $7,228 and negative working capital of $571,867. Such funds will not be sufficient to satisfy our cash requirements during the next twelve months and we will require additional funds. We cannot provide assurance that adequate additional funds will be available or, if available, will be offered on acceptable terms.

 

Our present material commitments are professional and administrative fees and expenses associated with the preparation of our financial statements and filings with the SEC and other regulatory requirements, as well as expenses in connection with our proposed transaction with Appgate.

 

Commitments

 

As of June 30, 2021, we do not have any commitments which are required to be disclosed in tabular form.

 

The Company’s present material commitments are professional and administrative fees and expenses associated with the preparation of our financial statements and filings with the SEC and other regulatory requirements. The Company’s proposed merger with Appgate will cause the Company to have additional material professional fee commitments.

 

Critical Accounting Policies and Estimates

 

Our financial statements are prepared in conformity with GAAP. Note 2 to the financial statements describes the significant accounting policies and methods used in the preparation of our financial statements.

 

We have identified the policies below as some of the more critical to our business and the understanding of our financial position and results of operations. These policies may involve a high degree of judgment and complexity in their application and represent the critical accounting policies used in the preparation of our financial statements. Although we believe our judgments and estimates are appropriate and correct, actual future results may differ from estimates. If different assumptions or conditions were to prevail, the results could be materially different from these reported results. The impact and any associated risks related to these policies on our business operations are discussed throughout this information statement where such policies affect our reported and expected financial results.

 

Use of Estimates

 

In preparing financial statements in accordance with GAAP, management makes certain estimates and assumptions, where applicable, that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. While actual results could differ from those estimates, management does not expect such variances, if any, to have a material effect on the financial statements.

 

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Income Taxes

 

The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carry forwards and 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 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 the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized.

 

Financial Instruments

 

The estimated fair values of all reported assets and liabilities which represent financial instruments, none of which are held for trading purposes, approximate their carrying value because of the short term maturity of these instruments or the stated interest rates are indicative of market interest rates.

 

Equity Based Compensation

 

The accounting guidance for “Share Based Payments” requires the recognition of the fair value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards. In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating our forfeiture rate, we analyzed its historical forfeiture rate, the remaining lives of unvested options, and the number of vested options as a percentage of total options outstanding. If our actual forfeiture rate is materially different from its estimate, or if we reevaluate the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2021, the Company has no off-balance sheet arrangements such as guarantees, retained or contingent interest in assets transferred, obligation under a derivative instrument and obligation arising out of or a variable interest in an unconsolidated entity.

 

Quantitative and Qualitative Disclosures About Market risk

  

As a smaller reporting company, the Company is not required to provide the information required by this Item.

 

Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management, with the participation of its president, carried out an evaluation of the effectiveness of its “disclosure controls and procedures” (as defined in the Exchange Act) Rules 13a-15(e) and 15-d-15(e)) as of the end of March 31, 2021 and December 31, 2020 (the “Evaluation Date”). Based upon that evaluation, the Company’s president concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by it in the reports that it files or submit sunder the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to the Company’s management, including its president, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal controls over financial reporting during the periods described above that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. 

 

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The Company has previously reported in Item 9A. Controls and Procedures of its Form 10-K as of and for the year ended March 31, 2021 that its internal control over financial reporting was effective. Following the consummation of the Merger, Appgate, the surviving entity, will become the registrant. As a privately held company, Appgate was not required to evaluate its internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act, or Section 404.

 

In connection with the preparation of Appgate’s consolidated financial statements as of and for the year ended December 31, 2020, Appgate’s management identified material weaknesses in internal controls over financial reporting over the design of Appgate’s information technology general controls related to user access and change management as well as certain financial reporting transaction level controls including account reconciliations, related party transactions and journal entries.

 

After consummation of the Merger, Appgate’s management will be responsible for the internal control over financial reporting for the surviving entity and is taking steps to address the material weaknesses, which include engaging external advisors to document the design and implementation of the Company’s internal controls, including the evaluation of the operating effectiveness of these internal controls.

 

Although Appgate’s management expects to continue to review and bolster the effectiveness of its disclosure controls and procedures and internal control over financial reporting, there can be no guarantee that its internal control over financial reporting will be effective in accomplishing all control objectives all of the time and Appgate may identify additional control deficiencies, significant deficiencies and/or material weaknesses when assessing its internal controls for financial reporting and disclosures controls and procedures.

 

44

 

 

BUSINESS OF APPGATE

 

History

 

Appgate is a cybersecurity company that operated as a subsidiary of Cyxtera Technologies, Inc. (“Cyxtera”) until December 31, 2019, at which time Cyxtera spun out Appgate to become a standalone company.

 

Business

 

Appgate is a cybersecurity company that helps corporate enterprises, financial institutions, and government entities protect against cybersecurity breaches and fraud through solutions based on Zero Trust principles. “Zero Trust” is a new and fundamentally different approach to cybersecurity that recognizes that the entire extended IT network, including its infrastructure components, is vulnerable to attack, that no user, device, or application should be implicitly trusted and access should be provided on the principle of least privilege to users, devices and entities. While traditional security approaches focus on building a static protective barrier around an organization’s resources (“perimeter-centric” approaches) and implicitly trusting users and devices within the perimeter, Zero Trust focuses on reducing access to a minimum while maintaining user productivity, continuously monitoring users based on their devices, locations and context, and making access decisions based on these factors (an “identity-centric” approach). Given the widespread failure of traditional organization security architectures to adequately protect against modern security threats, Zero Trust has become the de facto approach to secure an organization’s IT infrastructure, delivering demonstrably superior security, resiliency, and efficiency.

 

Appgate is a pioneer and a leader in the Zero Trust approach to cybersecurity. Appgate’s Zero Trust approach limits the ability of both users and potential attackers to roam freely within a network (“move laterally”), therefore reducing the risk of attackers causing widespread damage based solely on gaining access through a single-entry point, such as by using a particular user’s compromised credentials.

 

Appgate currently provides the following software and services:

 

Software products:

 

Software Defined Perimeter (“SDP”) enables secure, precise connections for users and devices. SDP offers comprehensive network security by segmenting resources and making them invisible to a user or device until trust is established. SDP uses adaptive and dynamic authentication policies based on user identity and security-related device data (“device posture”) to continuously monitor users and limit lateral movement.

 

Risk Based Authentication (“RBA”) is designed to ensure strong and secure validation of communications between financial institutions and their customers to prevent transaction and financial fraud. RBA combines advanced authentication techniques and behavioral analytics before authorizing transactions.

 

Digital Threat Protection (“DTP”) offers proactive protection against external threats for employees and consumers. DTP continuously analyzes and monitors a wide range of digital channels, including email, web, and social media, to prevent and detect phishing campaigns.

 

Services:

 

Threat Advisory Services provides a dedicated, highly pedigreed team of consultants who conduct breach and attack simulation in the form of customized vulnerability assessments and penetration testing (in contrast to widely offered off-the shelf penetration tests), helping customers validate the effectiveness of their security infrastructure.

 

We believe customers choose Appgate for the following three reasons:

 

Protecting existing investments in IT and security infrastructures – Appgate provides solutions that build on and optimize an organization’s existing technology and IT infrastructure, which enhances security while minimizing the requirement for new investment.

 

Accelerating digital transformation – Appgate enables secure, precise connections for users anywhere while minimizing the number of points from which an attacker can access a network (known as the “attack surface”).

 

Future-proofing IT against known and unknown threats – Appgate solutions are part of a modern IT approach that simplifies day-to-day operations and adapts to secure an organization’s future.

 

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Market Overview

 

Traditional security tools have been rendered ineffective in the modern world

 

Historically, security has focused on network perimeters to keep adversaries out, leaving users to generally move freely within a network once inside the perimeter. While this perimeter-centric approach once made sense, it is no longer an effective means of network security.

 

As corporate infrastructure and working environments have expanded to meet the demands of today’s online connectivity and a shift to remote working, the traditional network perimeter has largely evaporated as the number and type of network devices have increased together with a user base that is more geographically disbursed. The wide adoption of hybrid IT environments (combining on-premises, public, and private cloud resources), software-as-a-service (“SaaS”), mobile devices, internet of things (“IoT”), and large-scale remote working have transformed yesterday’s insular networking environments for which perimeters could reasonably be defined. While these changes have essentially become necessary for organizations to work efficiently and effectively, they introduce new security challenges by increasing the number of vulnerable entry points into a network (often called “increasing the attack surface”). Therefore, rather than simply monitoring a perimeter, which has now become dispersed and hard to define, there is a need to continuously and dynamically monitor users and devices regardless of both location and type of resource access.

 

Additionally, the perimeter-centric model relies on the notion of implicit trust, in which users, once inside the network, are granted broad access to network resources, regardless of a particular user’s need to access those resources. This model assumes that an authorized user will maintain the security of a network’s resources and further assumes that no user will become compromised and used as an attacking agent. As a result, if an attacker gains network access using access credentials or a device for an otherwise authorized user, the attacker has broad access to much of the network, allowing the attacker to easily perform reconnaissance, exploit vulnerable systems, and remain undetected while they carry out their mission, potentially causing widespread damage.

 

Some of these traditional perimeter-centric technologies have existed for well over two decades with little innovative change over that period of time. Many vendors of perimeter-centric technologies have simply refreshed their product portfolios with better hardware, leaving the core security mechanism unchanged. For instance, VPN technology has existed largely unchanged since the 1990s, and VPN’s continue to be exploited regularly by adversaries. The implications of this are profound, resulting in damaging and disruptive enterprise breaches that have become an all-too-frequent occurrence.

 

Cybersecurity attacks are increasing in severity and frequency

 

Cyber threats are rising, as adversaries are highly motivated and increasingly sophisticated in their approaches. Breaches are expected to cost $6 trillion in aggregate damage to those impacted by breaches in 2021 and experts predict that in 2021, a ransomware attack will occur every 11 seconds, up nearly four times since 2016. One of the leading drivers behind the increasing costs of breaches is an attacker’s ability to remain undetected for long periods while moving laterally within a network. According to IBM, the average breach in 2020 took 207 days to detect and another 73 days to contain, giving an attacker time to cause significant financial and reputational damage to an organization.

 

Financial fraud is also on the rise, as cyber criminals are increasingly using digital channels for attacks using malware or stolen credentials, targeting consumers, financial institutions and a wide variety of businesses. According to Javelin Strategy & Research’s 2021 Identity Fraud Study, this sector of fraud reached $13 billion in 2020.

 

Zero Trust is a fundamentally different security philosophy that is built for modern organizations and threats

 

Given the shift of networks to decentralized and distributed environments, many organizations must now move urgently to abandon ineffective traditional security products and instead implement modern solutions grounded in Zero Trust. A Zero Trust approach shifts the focus from a network perimeter, which has become disbursed and difficult to define, and focuses instead on all points of access, including within the network, therefore minimizing an attack’s potential damage (the “blast radius”) should a breach occur. Zero Trust also enables the business to safely and efficiently adopt new technologies, to support innovation and digital transformation initiatives.

 

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APPGATE’S MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of Appgate’s financial condition and results of operations is intended to assist in the understanding and assessment of significant changes and trends related to the results of operations and financial position of Appgate. This discussion and analysis should be read in conjunction with Appgate’s unaudited condensed consolidated financial statements and the accompanying notes and Appgate’s audited consolidated financial statements and the accompanying notes, in each case appearing elsewhere in this information statement. Unless the context requires otherwise, references in the following discussion and analysis to “Appgate,” refer to Cyxtera Cybersecurity, Inc. (doing business as AppGate) and its consolidated subsidiaries. Appgate operates on a calendar year basis. Thus, references to 2020, for example, refer to Appgate’s year ended December 31, 2020. Capitalized terms used in this section and not defined herein have the respective meanings given to such terms elsewhere in this information statement.

 

Cautionary Statements

 

This information statement contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Statements that do not relate strictly to historical or current facts are forward-looking and can be identified by the use of words such as “anticipate,” “estimate,” “could,” “would,” “should,” “will,” “may,” “forecast,” “approximate,” “expect,” “project,” “seek,” “predict,” “potential,” “intend,” “plan,” “believe,” and other words of similar meaning. Without limiting the generality of the foregoing, forward-looking statements contained in this information statement include statements regarding Appgate and its industry relating to matters such as anticipated future financial and operational performance, business prospects, the percentage of Appgate’s future revenue derived from subscription term-based licenses, expected future increases in revenue, gross profit and gross margin and planned investments in sales and marketing and related increases in operating and general and administrative expenses as a result of Appgate’s expected growth, potential future investments in Appgate by Magnetar Financial, LLC under the Notes (as defined below), the impact of foreign currency exchanges and inflation on Appgate’s business, strategy and plans and similar matters.

 

The forward-looking statements included in this information statement involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Appgate has based these forward-looking statements on current expectations and assumptions about future events, taking into account all information currently known by Appgate. While Appgate considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, many of which are difficult to predict and beyond our control. These risks and uncertainties include, but are not limited to, access to and cost of capital and liquidity, the impact of the COVID-19 pandemic, additional expenses associated with becoming a public company, intensified competition in Appgate’s industry and/or operating problems in its operating business projects and their impact on revenues and profit margins or additional factors. Forward-looking statements speak only as of the date on which such statements are made, and Appgate does not intend to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

 

Overview of Appgate’s Business

 

Appgate is a cybersecurity company that protects against breaches and fraud through innovative, identity-centric, Zero Trust solutions. Appgate exists to provide modern enterprises with a solution to increasingly common cyber-attacks, against which traditional cybersecurity tools are proving ineffective. Appgate sells and delivers its solutions using a combination of term-based license subscriptions, perpetual licenses and software-as-a-service (“SaaS”), together with related support services. Appgate’s headquarters is in Coral Gables, Florida.

 

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Factors Affecting Appgate’s Business

 

Formation and Cyxtera Spin-Off

 

Prior to December 31, 2019, Appgate was wholly owned by Cyxtera Technologies, Inc. (“Cyxtera”).

 

Appgate’s consolidated financial statements for the periods prior to December 31, 2019 were prepared in accordance with Securities and Exchange Commission (“SEC”) guidance for carve-out financial statements.

 

In connection with the formation of Cyxtera in 2017, Cyxtera and all of Cyxtera’s subsidiaries and controlled affiliates as of such date, including Appgate (collectively, the “Company Group”), entered into an Intercompany Master Services Agreement (the “Intercompany Master Services Agreement”). Under the Intercompany Master Services Agreement, Cyxtera Management, Inc., a wholly owned subsidiary of Cyxtera (the “Management Company”), agreed to provide certain services to other members of the Company Group from time to time, including financial, accounting, administrative, facilities and other services. For the year ended December 31, 2019 and prior, Cyxtera allocated a portion of the Management Company’s general and administrative, depreciation and amortization, interest and certain other expenses to Appgate using the direct allocation method based on direct usage when identifiable or the most relevant allocation method to the services being provided. These allocation methods included the following methods applied consistently: (i) sales bookings; (ii) revenue; (iii) number of customers; (iv) number of employees; (v) number of vendor payments; and (vi) number of customer invoices. In 2019, operating expenses allocated to Appgate in such manner were as follows (in thousands):

 

   2019 
General and administrative  $19,698 
Depreciation and amortization   1,411 
Interest expense, net   182 
Other expenses, net   22 
Total  $21,313 

 

In the opinion of management, the assumptions and method of allocating these costs were reasonable. However, such expenses are not indicative of, nor is it practical or meaningful for the Company to estimate for all historical periods presented, the actual level of expenses that would have been incurred had Appgate been operating as a separate, stand-alone public company.

 

Upon consummation of the Cyxtera Spin-Off (as such term is defined in Appgate’s consolidated financial statements included elsewhere in this information statement), Appgate and the Management Company entered into a transition services agreement (the “Transition Services Agreement”), pursuant to which the Management Company provided certain transition services to Appgate, and Appgate provided certain transition services to the Management Company. The term under the Transition Services Agreement commenced on January 1, 2020 and ended on June 30, 2021. Substantially all of the obligations under the Transition Services Agreement ceased on December 31, 2020.

 

During 2020, the Management Company charged Appgate $4.2 million for services rendered under the Transition Services Agreement. Such costs are included in general and administrative expenses in Appgate’s consolidated statement of operations for 2020. For the three and six months ended June 30, 2020, the Management Company charged Appgate $1.3 million and $2.7 million, respectively, for services rendered under the Transition Services Agreement. Charges under the Transition Services Agreement for the three and six months ended June 30, 2021 were insignificant. Such costs are included in general and administrative expenses in Appgate’s unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2020.

 

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During 2020, Appgate charged the Management Company $0.3 million of fees for services provided to the Management Company and its affiliates by Appgate under the Transition Services Agreement. Income for these services is included in other expense, net in Appgate’s consolidated statement of operations for 2020. For the three and six months ended June 30, 2021, Appgate charged the Management Company $48 thousand and $0.1 million, respectively, of fees for services provided to the Management Company and its affiliates by Appgate under the Transition Services Agreement. For the three and six months ended June 30, 2020, Appgate charged the Management Company $0.1 million and $0.3 million, respectively, of fees for services provided to the Management Company and its affiliates by Appgate under the Transition Services Agreement. Income for these services is included in other expense, net in the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2021 and 2020.

 

On February 8, 2021, Appgate made a payment of $1.0 million to Cyxtera (and/or its subsidiaries) as settlement in full of trade balances with Cyxtera and its subsidiaries and other amounts due to / from under the Intercompany Master Services Agreement and the Transition Services Agreement, which trade balances and other amounts totaled $2.6 million.

 

Promissory Notes

 

On March 31, 2019, Appgate issued promissory notes to each of Cyxtera and the Management Company (together, the “Promissory Notes”) evidencing funds borrowed at such time by Appgate from each of Cyxtera and the Management Company, as well as potential future borrowings. The Promissory Notes had a combined initial aggregate principal amount of $95.2 million and provided for additional borrowings during the term of the Promissory Notes for additional amounts not to exceed approximately $52.5 million in the aggregate (approximately $147.7 million including the initial aggregate principal amount). Interest accrued on the unpaid principal balance of the Promissory Notes at a rate per annum equal to 3%; provided, that with respect to any day during the period from the date of the Promissory Notes through December 31, 2019, interest was calculated assuming that the unpaid principal balance of the Promissory Notes on such day was the unpaid principal amount of the notes on the last calendar day of the quarter in which such day occurs. Interest was payable upon the maturity date of the Promissory Notes. Each of the Promissory Notes had an initial maturity date of March 30, 2020 and was extended through March 30, 2021 by amendments entered into effective as of March 30, 2020.

 

The outstanding principal and interest under the Promissory Notes was $153.8 million and $130.3 million as of December 31, 2020 and 2019, respectively.

 

On February 8, 2021, Appgate repaid Cyxtera $20.6 million, representing the entirety of the then outstanding principal and interest under the Promissory Note held by Cyxtera, and Appgate made a partial repayment of $99.0 million to the Management Company on the then outstanding principal and interest of $133.6 million under the Promissory Note held by the Management Company. On that same date, the Management Company issued Appgate a payoff letter, extinguishing the balance remaining unpaid following such repayment. Because Cyxtera was Appgate’s direct parent at the time of issuance of the Promissory Notes and an affiliate under common control with Appgate at the time of repayment, Appgate accounted for the note extinguishment of $34.6 million as a capital contribution in 2021.

 

Sale of Brainspace

 

On September 30, 2020, Appgate adopted a plan for the sale of Brainspace Corporation (“Brainspace”), a formerly wholly owned subsidiary of Appgate, which met the criteria for discontinued operations under ASC Topic 205-20, Presentation of Financial Statements – Discontinued Operations – see Note 3 to Appgate’s unaudited condensed consolidated financial statements and Appgate’s consolidated financial statements for discontinued operations disclosures. Appgate executed a securities purchase agreement with respect to the sale of 100% of the outstanding equity interests of Brainspace for cash consideration of $125.0 million on December 17, 2020, and the sale transaction closed on January 20, 2021. Brainspace offers a comprehensive and advanced data analytics platform for investigations, eDiscovery, intelligence mining, and compliance. Unless otherwise stated, all discussion of Appgate’s results of operations included in this discussion and analysis focus on continuing operations.

 

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Merger with Newtown

 

On February 8, 2021, Appgate entered into the Merger Agreement with Newtown Lane Marketing, Incorporated, a public company incorporated in Delaware (“Newtown”), and Merger Sub. Pursuant to the Merger Agreement, Merger Sub has agreed to merge with and into Appgate, with Appgate surviving the Merger as a wholly owned subsidiary of Newtown. Upon consummation of the Merger, Newtown will change its name to “Appgate, Inc.” The Merger is expected to be consummated during the fourth quarter of calendar year 2021.

 

Risks and Uncertainties due to COVID-19

 

The COVID-19 pandemic continues to evolve and disrupt normal activities in many segments of the U.S. and global economies even as COVID-19 vaccines have been and continue to be administered in 2021. Much uncertainty still surrounds the pandemic, including its duration and ultimate overall impact on Appgate’s operations. Management continues to carefully evaluate potential outcomes and has plans to mitigate related risks. While the COVID-19 pandemic did not have a material impact on Appgate’s business, financial condition or results of operations for the year ended December 31, 2020, management took measures during such periods to minimize the risks from the pandemic. Those measures were aimed at safeguarding Appgate, and the health, safety and wellbeing of its employees and customers.

 

Public Company Costs

 

Following the consummation of the Merger, Appgate will become a public company, which will require hiring of additional staff and implementation of processes and procedures to address public company regulatory requirements and customary practices. Appgate expects to incur substantial additional annual expenses for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external costs for investor relations, accounting, audit, legal, corporate secretary and other functions.

 

Key Components of Results of Operations

 

Revenues

 

Appgate recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, Appgate recognizes revenue when its customers obtain control of goods or services in an amount that reflects the consideration that it expects to receive in exchange for those goods or services.

 

Appgate primarily sells its software through on-premise term-based license agreements, perpetual license agreements and SaaS subscriptions, which allow its customers to use its SaaS services without taking possession of the software. Appgate’s products offer substantially the same functionality whether its customers receive them through a perpetual, or term-based license or a SaaS arrangement. Appgate’s agreements with customers for software licenses may include maintenance contracts and may also include professional services contracts. Maintenance revenues consist of fees for providing unspecified software updates and technical support for its products for a specified term, which is typically one to three years. Appgate offers a portfolio of professional services and extended support contract options to assist its customers with integration, optimization, training and ongoing advanced technical support. Appgate also generates revenue from threat advisory services, including penetration testing, application assessments, vulnerability analysis, reverse engineering, architecture review and source code review.

 

Subscription. Appgate’s term-based license arrangements include both upfront revenue recognition when the distinct license is made available to the customer as well as revenue recognized ratably over the contract period for support and maintenance based on the stand-ready nature of these elements. Revenue on Appgate’s SaaS arrangements is recognized ratably over the contract period as Appgate satisfies the performance obligation, beginning on the date the service is made available to its customers.

 

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Subscription revenue represented 72% and 63% of Appgate’s revenue for the years ended December 31, 2020 and 2019, respectively, 87% for each of the three months ended June 30, 2021 and 2020, and 77% and 69% for the six months ended June 30, 2021 and 2020, respectively. Appgate expects that a majority of its revenue will be from subscriptions for the foreseeable future. Changes in period-over-period subscription revenue growth are primarily impacted by the following factors:

 

the type of new and renewed subscriptions (i.e., term-based or SaaS); and

 

the duration of new and renewed term-based subscriptions.

 

While the number of new and increased subscriptions during a period impacts Appgate’s subscription revenue growth, the type and duration of those subscriptions has a significantly greater impact on the amount and timing of revenue recognized in a period. Subscription revenue from the software license components of term-based licenses is recognized at the beginning of the subscription term, while subscription revenue from SaaS and support and maintenance is recognized ratably over the subscription term. As a result, Appgate’s revenue may fluctuate due to the timing of the software license components of term-based licensing transactions. In addition, keeping other factors constant, when the percentage of subscription term-based licenses to total subscriptions sold or renewed in a period increases relative to the prior period, revenue growth will increase. Conversely, when the percentage of subscription SaaS and support and maintenance to total subscriptions sold or renewed in a period increases, revenue growth will generally decrease, as compared to a prior period. Additionally, a multi-year subscription term-based license will generally result in greater revenue recognition up front relative to a one-year subscription term-based license. Therefore, keeping other factors constant, revenue growth will also trend higher in a period where the percentage of multi-year subscription term-based licenses to total subscription term-based licenses increases.

 

Perpetual licenses. Appgate’s perpetual license arrangements include both upfront revenue recognition when the distinct license is made available to the customer as well as revenue recognized ratably over the contract period for support and maintenance based on the stand-ready nature of these elements. Revenue related to support and maintenance is included as part of subscription revenue.

 

For the years ended December 31, 2020 and 2019, 8% and 10%, respectively, of Appgate’s revenue was from perpetual licenses, 1% for each of the three months ended June 30, 2021 and 2020, and 7% and 8%, respectively, for the six months ended June 30, 2021 and 2020.

 

Services and other. Appgate’s services-related performance obligations predominantly relate to the provision of consulting and threat advisory services, and to a lesser extent, training and software installation. Software installation services are distinct from subscriptions and do not result in significant customization of the software. Appgate’s services are generally priced on a time and materials basis, which is generally invoiced monthly and for which revenue is recognized as the services are performed. Revenue from Appgate’s training services and sponsorship fees is recognized on the date the services are complete. Over time, Appgate expects services revenue to remain relatively stable as a percentage of total revenue.

 

For the years ended December 31, 2020 and 2019, 19% and 28%, respectively, of Appgate’s revenue was from services and other, 13% for each of the three months ended June 30, 2021 and 2020, and 16% and 23%, respectively, for the six months ended June 30, 2021 and 2020.

 

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Concentrations. The following table summarizes revenue by main geography in which Appgate operates, including in the United States and Canada (“US&C”), Latin America (“LATAM”), Europe, the Middle East and Africa (“EMEA”), and Asia Pacific (“APAC”), based on the billing address of customers who have contracted with Appgate (in thousands):

 

   Years Ended December 31,   Three Months Ended June 30,    Six Months Ended June 30, 
   2020   2019   2021   2020   2021   2020 
US&C  $17,385   $15,875   $5,660   $3,709   $10,487   $8,971 
LATAM   11,768    11,198    3,033    2,375    7,387    5,892 
EMEA   2,857    2,242    810    679    1,354    1,179 
APAC   1,719    1,077    383    356    728    702 
Total  $33,729   $30,392   $9,886   $7,119   $19,956   $16,744 

 

No single Appgate customer accounted for 10% or more of the total revenue in the periods presented.

 

Cost of Revenue

 

Cost of revenue consists primarily of employee compensation costs for employees associated with supporting Appgate’s licensing arrangements and service arrangements, certain third-party expenses and the amortization of developed technology assets. Employee compensation and related costs include cash compensation and benefits to employees, equity-based compensation, costs of third-party contractors and associated overhead costs. Third-party expenses consist of cloud infrastructure costs and other expenses directly associated with Appgate’s customer support. Appgate expects cost of revenue to increase in absolute dollars relative to the growth of its business.

 

Gross Profit and Gross Margin

 

Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have been and will continue to be affected by various factors, including the timing of Appgate’s acquisition of new customers and renewals of and follow-on sales to existing customers, the average sales price of its services, mix of services offered in its solutions, including new product introductions, the extent to which it expands its customer support and operations and the extent to which Appgate can increase the efficiency of its technology and infrastructure through technological improvements. Appgate expects gross profit to increase in absolute dollars and gross margin to increase slightly over the long term, although its gross profit and gross margin could fluctuate from period to period depending on the interplay of all the above factors.

 

Operating Expenses

 

Appgate’s operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, equity-based compensation expense and, with respect to sales and marketing expenses, sales commissions that are recognized as expenses. Operating expenses also include overhead costs for facilities, IT, depreciation expense and amortization expense.

 

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Sales and Marketing

 

Sales and marketing expenses consist primarily of employee compensation and related expenses, including salaries, bonuses and benefits for Appgate’s sales and marketing employees, sales commissions that are recognized as expenses over the period of benefit, equity-based compensation expense, marketing and channel programs, travel and entertainment expenses, expenses for conferences and events and allocated overhead costs. Appgate capitalizes its sales commissions and associated payroll taxes and recognizes them as expenses over the estimated period of benefit. The amount recognized in its sales and marketing expenses reflects the amortization of cost previously deferred as attributable to each period presented in Appgate’s unaudited condensed consolidated financial statements and Appgate’s consolidated financial statements, as described in Note 1 – Business and Summary of Significant Accounting Policies to Appgate’s unaudited condensed consolidated financial statements and consolidated financial statements included elsewhere in this information statement. Advertising expenses are charged to sales and marketing expense in the consolidated statements of operations as incurred.

 

Appgate intends to continue to make significant investments in its sales and marketing organization to drive additional revenue, further penetrate the market and expand its global customer base. As a result, Appgate expects its sales and marketing expenses to continue to increase in absolute dollars and to be its largest operating expense category for the foreseeable future. In particular, Appgate will continue to invest in growing and training its sales force, broadening its brand awareness and expanding and deepening its channel partner relationships. However, Appgate expects sales and marketing expenses to decrease as a percentage of its revenue over the long term, although its sales and marketing expenses may fluctuate as a percentage of revenue from period to period due to the timing and extent of these expenses.

 

Research and Development

 

Research and development costs to develop software to be sold, leased or marketed are expensed as incurred up to the point of technological feasibility for the related software product. Appgate has not capitalized development costs for software to be sold, leased or marketed to date, as the software development process is essentially completed concurrent with the establishment of technological feasibility. As such, these costs are expensed as incurred and recognized in research and development costs in the consolidated statements of operations.

 

Software developed for internal use, with no substantive plans to market such software at the time of development, are capitalized and included in property and equipment, net in the consolidated balance sheets. Costs incurred during the preliminary planning and evaluation and post implementation stages of the project are expensed as incurred. Costs incurred during the application development stage of the project are capitalized.

 

Appgate’s research and development expenses support its efforts to add new features to its existing offerings and to ensure the reliability, availability and scalability of its solutions. Appgate’s research and development teams employ software engineers in the design and the related development, testing, certification and support of its solutions. Accordingly, the majority of Appgate’s research and development expenses result from employee-related costs, including salaries, bonuses and benefits and costs associated with technology tools used by its engineers.

 

Appgate intends to continue to make significant investments in research and development to extend the features of its existing offerings and technology capabilities.

 

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General and Administrative

 

General and administrative expenses consist primarily of employee-related costs, including salaries and bonuses, equity-based compensation expense and employee benefit costs for Appgate’s finance, legal, human resources and administrative personnel, as well as professional fees for external legal services (including certain litigation-related expenses), accounting and other related consulting services. If any, litigation-related expenses include professional fees and related costs incurred by Appgate in defending or settling significant claims that its management deem not to be in the ordinary course of Appgate’s business and, if applicable, accruals related to estimated losses in connection with these claims. Appgate expects its general and administrative expenses to increase in absolute dollars for the foreseeable future, as it continues to incur compliance costs and other related costs necessary to operate as a public company. However, Appgate expects its general and administrative expenses to decrease as a percentage of revenue over the long term, although its general and administrative expenses may fluctuate as a percentage of revenue from period to period due to the timing and extent of these expenses.

 

Depreciation and Amortization

 

Acquired intangible assets consist of identifiable intangible assets, including trademarks and tradenames and customer relationships resulting from business combinations. Acquired finite-lived intangible assets are initially recorded at fair value and are amortized on a straight-line basis over their estimated useful lives. Amortization expense for trademarks and tradenames and customer relationships is recorded primarily within depreciation and amortization in the consolidated statements of operations.

 

Interest Expense

 

Interest expense consists primarily of interest incurred on Appgate’s obligations under the Notes and through February 8, 2021, obligations under the Promissory Notes. See “Liquidity and Capital Resources.”

 

Income Tax

 

Through December 31, 2019, the operations of Appgate were included in the consolidated U.S. federal, state, local and foreign income tax returns filed by Cyxtera, where applicable. Income tax expense and other income tax related information contained in the consolidated financial statements is presented on a separate return basis as if Appgate filed its own tax returns for 2019.

 

Appgate’s income taxes, as presented in the consolidated financial statements, may not be indicative of the income taxes it will generate in the future. In jurisdictions where Appgate was included in the tax returns filed by Cyxtera, any income taxes payable/receivable resulting from the related income tax provisions have been reflected in the balance sheets of each separate entity’s provision.

 

Benefit (provision) for income taxes consists primarily of income taxes related to U.S. federal and state income taxes and income taxes in foreign jurisdictions in which Appgate conducts business.

 

Results of Operations

 

The following tables set forth Appgate’s consolidated results of operations for the periods presented. The period-to-period comparisons of Appgate’s historical results are not necessarily indicative of the results that may be expected in the future. The results of operations data for the years ended December 31, 2020 and 2019 have been derived from Appgate’s audited consolidated financial statements included elsewhere in this information statement. The results of operations data for the three and six months ended June 30, 2021 and 2020 have been derived from Appgate’s unaudited condensed consolidated financial statements which have been prepared following substantially the same basis and estimates and assumptions as those used by management in the preparation of Appgate’s consolidated financial statements and related notes included elsewhere in this information statement.

 

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Three and six months ended June 30, 2021 and 2020. The following table sets forth Appgate’s historical operating results for the periods indicated, and the changes between periods (in thousands):

 

   Three Months Ended June 30,       Six Months Ended June 30,     
   2021   2020   Variance %   2021   2020   Variance % 
Revenue  $9,886   $7,119    39%  $19,956   $16,744    19%
Cost of revenue, exclusive of amortization shown below   4,169    3,598    16%   7,747    7,544    3%
Amortization expense   1,131    1,624    -30%   2,262    3,248    -30%
Total cost of revenue   5,300    5,222    1%   10,009    10,792    -7%
Gross profit   4,586    1,897    142%   9,947    5,952    67%
Operating expenses:                              
Sales and marketing   9,166    6,793    35%   16,280    13,329    22%
Research and development   2,723    2,137    27%   4,920    4,480    10%
General and administrative   4,599    4,901    -6%   7,941    10,228    -22%
Depreciation and amortization   1,352    1,282    5%   2,693    2,624    3%
Total operating expenses   17,840    15,113    18%   31,834    30,661    4%
Loss from continuing operations   (13,254)   (13,216)   0%   (21,887)   (24,709)   -11%
Interest expense, net   (643)   (976)   -34%   (1,476)   (1,971)   -25%
Other (expenses) income, net   (93)   9    -1133%   (219)   (1,537)   -86%
Loss from continuing operations before income taxes   (13,990)   (14,183)   -1%   (23,582)   (28,217)   -16%
Income tax expense of continuing operations   (592)   (628)   -6%   (1,005)   (836)   20%
Net loss of continuing operations   (14,582)   (14,811)   2%   (24,587)   (29,053)   15%
Net income of discontinued operations, net of tax   -    586    -100%   60,012    3,878    1447%
Net (loss) income  $(14,582)  $(14,225)   3%  $35,425   $(25,175)   -241%

 

Revenues

 

Revenues from continuing operations were as follows for the three and six months ended June 30, 2021 and 2020:

 

   Three Months Ended June 30,       Six Months Ended June 30,     
   2021   2020   Variance %   2021   2020   Variance % 
Subscription revenue  $8,579   $6,174    39%  $15,404   $11,587    33%
Perpetual licenses   58    43    35%   1,371    1,320    4%
Services and other   1,249    902    38%   3,181    3,837    -17%
Total  $9,886   $7,119    39%  $19,956   $16,744    19%

 

Revenues increased by $2.8 million, or 39%, for the three months ended June 30, 2021 compared to the same period in the prior year. The increase in revenue was primarily attributable to higher subscription revenue of $2.4 million, of which $1.3 million was due to an increase in multi-year subscription term-based licenses revenue and $0.7 million from an increase in one-year subscription term-based licenses. Services and other revenue also increased by $0.3 million during the same period as a result of an increase in service hours billed to customers during the three months ended June 30, 2021 compared to the same period in the prior year.

 

Revenues increased by $3.2 million, or 19%, for the six months ended June 30, 2021 compared to the same period in the prior year. The increase in revenue was primarily attributable to higher subscription revenue of $3.8 million, of which $2.0 million was due to an increase in multi-year subscription term-based licenses revenue, $1.5 million resulting from an increase in one-year subscription term-based licenses, and $0.4 million resulting from higher support and maintenance. These increases in revenue were partially offset by a decrease in services and other revenue of $0.7 million during the same period as a result of an overall decrease in service hours billed to customers during the six months ended June 30, 2021 compared to the same period in the prior year.

 

Cost of Revenue

 

Total cost of revenue from continuing operations increased by $0.1 million, or 1%, for the three months ended June 30, 2021 compared to the same period in the prior year. The increase in total cost of revenue was primarily the result of higher subscription service and equipment resale costs in line with the increase in other services and revenue during the same period, partially offset by lower amortization expense of $0.5 million due to some of Appgate’s developed technology assets becoming fully amortized during the period.

 

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Total cost of revenue from continuing operations decreased by $0.8 million, or 7%, for the six months ended June 30, 2021 compared to the same period in the prior year. The decrease in total cost of revenue was primarily the result of lower amortization expense of $1.0 million due to some of Appgate’s developed technology becoming fully amortized during the period.

 

Gross Profit

 

Gross profit totaled $4.6 million for the three months ended June 30, 2021, an increase of $2.7 million, when compared to the same period in the prior year. Gross profit totaled $9.9 million for the six months ended June 30, 2021, an increase of $4.0 million, when compared to the same period in the prior year. These increases were the result of the factors described above.

 

Operating Expenses

 

Total operating expenses from continuing operations increased by $2.7 million, or 18%, for the three months ended June 30, 2021 when compared to the same period in the prior year. Total operating expenses from continuing operations increased by $1.2 million, or 4%, for the six months ended June 30, 2021 when compared to the same period in the prior year. The main factors contributing to the increase in operating expenses are described below.

 

Sales and marketing expenses increased by $2.4 million, or 35%, for the three months ended June 30, 2021 when compared to the same period in the prior year. Sales and marketing expenses increased by $3.0 million, or 22%, for the six months ended June 30, 2021 when compared to the same period in the prior year. These increases were primarily the result of an increase in personnel costs from higher headcount in 2021 and to a lesser extent, costs incurred in connection with the Merger transaction and related initiatives.

 

Research and development increased $0.6 million, or 27%, for the three months ended June 30, 2021 when compared to the same period in the prior year. Research and development increased $0.4 million, or 10%, for the six months ended June 30, 2021 when compared to the same period in the prior year. These increases were the result of an increase in personnel costs from higher headcount in 2021.

 

General and administrative expenses decreased by $0.3 million, or 6%, for the three months ended June 30, 2021 when compared to the same period in the prior year. The decrease in general and administrative expenses for the three months ended June 30, 2021 when compared to the same period in the prior year was primarily due to a decrease of $0.8 million in facilities costs, as Appgate’s workforce has been working from home, and lower severance of $0.6 million, partially offset by higher professional services fees of $1.1 million incurred in connection with the Merger transaction and related initiatives. General and administrative expenses decreased by $2.3 million, or 22%, for the six months ended June 30, 2021 when compared to the same period in the prior year. The decrease in general and administrative expenses for the six months ended June 30, 2021 when compared to the same period in the prior year was primarily due to a decrease of $1.8 million in facilities costs, and lower severance of $0.8 million, partially offset by higher professional services fees of $1.5 million, in each case for the reasons described above.

 

Depreciation and Amortization

 

Depreciation and amortization expense increased by $0.1 million for the three and six months ended June 30, 2021 when compared to the same periods in the prior year. These increases in depreciation and amortization were primarily due to depreciation and amortization on purchases of property and equipment during 2020 and 2021.

 

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Interest Expense, Net

 

Interest expense, net decreased by $0.3 million for the three months ended June 30, 2021 when compared to the same period in the prior year. Interest expense, net decreased by $0.5 million for the six months ended June 30, 2021 when compared to the same period in the prior year. These decreases in interest expense, net were primarily attributable to the change in the mix of Appgate’s debt during 2021. During 2020, interest expense consisted of interest incurred under the Promissory Notes. The average outstanding balance of the Promissory Notes during 2020 was $137.4 million. As described above, the Promissory Notes were repaid in part with the balance extinguished, in each case on February 8, 2021. On February 9, 2021, Appgate issued $50.0 million in aggregate principal amount of the Notes, which are described below.

 

Other (Expenses) Income, Net

 

Other expenses, net was $0.1 million for the three months ended June 30, 2021. Other expenses, net was $0.2 million for the six months ended June 30, 2021 when compared to $1.5 million for the same period in the prior year. The change during the six months ended June 30, 2021 was primarily due to a disposal of fixed assets following separation from Cyxtera.

 

Income Tax Expense

 

Appgate’s effective tax rate for the three months ended June 30, 2021 and 2020 was 4.2% and 4.4%, respectively. The effective tax rate for the three months ended June 30, 2021 and 2020 differs from the U.S. Federal income tax rate of 21% primarily due to foreign taxes and changes in the valuation allowance provided against deferred tax assets.

 

Appgate’s effective tax rate for the six months ended June 30, 2021 and 2020 was 4.3% and 3%, respectively. The effective tax rate for the six months ended June 30, 2021 and 2020 differs from the U.S. Federal income tax rate of 21% primarily due to foreign taxes and changes in the valuation allowance provided against deferred tax assets.

 

Years ended December 31, 2020 and 2019. The following table sets forth Appgate’s historical operating results for the periods indicated, and the changes between periods (in thousands):

 

   2020   2019   Variance % 
Revenue  $33,729   $30,392    11%
Cost of revenue, exclusive of amortization shown below   15,560    15,822    -2%
Amortization expense   6,168    6,697    -8%
Total cost of revenue   21,728    22,519    -4%
Gross profit   12,001    7,873    52%
Operating expenses:               
Sales and marketing   25,175    16,097    56%
Research and development   9,782    11,682    -16%
General and administrative   15,824    28,651    -45%
Depreciation and amortization   5,211    6,649    -22%
Goodwill impairment   -    170,000    -100%
Total operating expenses   55,992    233,079    -76%
Loss from continuing operations   (43,991)   (225,206)   -80%
Interest expense, net   (4,088)   (2,785)   47%
Other expenses, net   (1,640)   (976)   68%
Loss from continuing operations before income taxes   (49,719)   (228,967)   -78%
Income tax expense of continuing operations   (1,842)   (1,242)   48%
Net loss of continuing operations   (51,561)   (230,209)   -78%
Net income (loss) of discontinued operations, net of tax   1,136    (265)   -529%
Net loss  $(50,425)  $(230,474)   -78%

 

57

 

 

Revenues

 

Revenues from continuing operations were as follows for 2020 and 2019:

 

   2020   2019   Variance % 
Subscription revenue  $24,432   $19,039    28%
Perpetual licenses   2,770    2,946    -6%
Services and other   6,527    8,407    -22%
Total  $33,729   $30,392    11%

 

Revenues increased by $3.3 million, or 11%, during 2020 compared to 2019. The increase in revenue was primarily attributable to higher subscription revenue of $5.4 million, of which $2.8 million was due to an increase in multi-year subscription term-based licenses revenue and $1.8 million resulting from more one-year subscription term-based licenses. These increases were partially offset by a decrease of $1.9 million in services and other revenue primarily as a result of fewer hours billed to customer projects due to the impact of COVID-19 and the cancellation of Appgate’s annual cybersecurity conference.

 

Cost of Revenue

 

Total cost of revenue from continuing operations decreased by $0.8 million, or 4%, during 2020 compared to 2019. The decrease in total cost of revenue was primarily the result of lower amortization expense of $0.5 million and lower employee-related expenses of $0.9 million as a result of lower headcount in 2020, and lower conference costs of $0.7 million due to the cancellation of Appgate’s annual cybersecurity conference due to COVID-19, partially offset by higher IT costs of $1.3 million incurred as Appgate established its own IT infrastructure following the separation from Cyxtera.

 

Gross Profit

 

Gross profit totaled $12.0 million for 2020, an increase of $4.1 million, or 52%, when compared to 2019. This increase was the result of the factors described above.

 

Operating Expenses

 

Total operating expenses from continuing operations decreased by $177.1 million, or 76%, during 2020 compared to 2019, primarily as a result of $170.0 million of goodwill impairment recognized in 2019. The impairment charge was attributed to weaker performance in sales while operating under Cyxtera, as compared to the assumptions contained in the models originally used to value the assets recognized by Cyxtera upon its acquisition of Appgate. Other factors that contributed to the $177.1 million variance in operating expenses are detailed below.

 

Sales and marketing expenses increased by $9.1 million, or 56%, for 2020 when compared to 2019. This increase was mainly the result of an expansion in the sales force and marketing departments, including increased headcount, to support Appgate’s increase in revenue and growth in operations after its separation from Cyxtera.

 

Research and development decreased $1.9 million, or 16%, for 2020 when compared to 2019, principally due to a reduction in personnel costs resulting from the timing of new hires following the Cyxtera Spin-Off. As described above, Appgate expects to make significant investments in research and development in the future to extend the features of its existing offerings and technology capabilities.

 

General and administrative expenses decreased by $12.8 million, or 45%, for 2020 when compared to 2019. The decrease in general and administrative expenses was primarily due to the $19.7 million allocation by Cyxtera of a portion of the costs of the Management Company, partially offset by the $4.2 million charged to Appgate during 2020 under the Transition Services Agreement, and $0.9 million higher professional services in 2020.

 

58

 

 

Depreciation and Amortization

 

Depreciation and amortization expense decreased by $1.4 million for 2020 when compared to 2019. The decrease in depreciation and amortization was primarily due to a disposal of fixed assets following separation from Cyxtera.

 

Interest Expense, Net

 

Interest expense, net increased by $1.3 million for 2020 when compared to 2019. The increase in interest expense, net was directly attributable to the increase in amounts owed under the Promissory Notes and the length of time during which the balances were outstanding. The Promissory Notes were issued on March 31, 2019; thus, for 2019, interest was incurred for only 9 months of the year, while for 2020, interest was incurred for the entire year and for a greater average outstanding balance. During 2020, Appgate borrowed an additional $19.4 million from Cyxtera and/or the Management Company under the Promissory Notes.

 

Other Expenses, Net

 

Other expenses, net increased by $0.7 million for 2020 when compared to 2019, primarily from a loss on disposal of fixed assets of $1.7 million following separation from Cyxtera, partially offset by $0.3 million income received by Appgate under the Transition Services Agreement.

 

Income Tax Expense

 

Appgate’s effective tax rate for 2020 and 2019 was 3.7% and 0.5%, respectively. The effective tax rate for 2020 differs from the U.S. Federal income tax rate of 21% primarily due to changes in the valuation allowance, state taxes, and foreign taxes. The effective tax rate for 2019 differs from the U.S. Federal income tax rate of 21% primarily due to the permanent addback of the goodwill impairment and changes in the valuation allowance.

 

Liquidity and Capital Resources

 

As of June 30, 2021 and December 31, 2020, Appgate had cash and cash equivalents of $33.1 million and $3.5 million, respectively. Historically, Appgate’s principal source of liquidity was borrowing availability under the Promissory Notes and cash generated from Appgate’s operations. As discussed above, on February 8, 2021, Appgate repaid Cyxtera the full amount of the Promissory Note held by Cyxtera and made a partial repayment on the then accumulated principal and interest under the Promissory Note held by the Management Company. On that same date, the Management Company issued a payoff letter to Appgate extinguishing the balance remaining unpaid of $34.6 million following such repayment. The payoff letter resulted in the full settlement and extinguishment of the Promissory Note held by the Management Company. We have generated significant operating losses and negative cash flows from operations as reflected in our accumulated deficit and condensed consolidated statements of cash flows. We expect to continue to incur operating losses and negative cash flows from operations for the foreseeable future. Currently, Appgate’s principal sources of liquidity are the proceeds from the issuance of the Notes as described below and cash generated from Appgate’s operations, which have enabled Appgate to make continued investments to support the growth of its business. In addition, upon closing of the Merger, Appgate expects to issue an additional $25.0 million in aggregate principal amount of the Notes as described below. Appgate expects that proceeds from the Notes and cash generated from Appgate’s operations will provide sufficient cash to fund working capital and capital expenditures for at least the next 12 months.

 

Debt

 

As of June 30, 2021, Appgate had $50.0 million in aggregate principal amount of its Notes outstanding. As of December 31, 2020, Appgate had $153.8 million due under the Promissory Notes. As discussed above, the Promissory Notes were fully settled and extinguished on February 8, 2021.

 

59

 

 

Convertible Notes

 

On February 9, 2021, Appgate issued $50.0 million in aggregate principal amount of convertible senior notes due 2024 (the “Notes”) to various funds managed by Magnetar Financial LLC (“Magnetar”). The Notes are subject to the terms and conditions of the note issuance agreement between Appgate and Magnetar, the representative of the holders (the “Note Issuance Agreement”), and the note purchase agreement between Appgate and the lender parties thereto.

 

On issuance, Appgate received net proceeds of $49.8 million from the sale of the Notes, after deducting fees and expenses of $0.2 million. Appgate recorded the expenses as debt issuance costs that will be amortized over the term of the Notes.

 

The Notes are senior, unsecured obligations of Appgate, and the payment of the principal and interest is unconditionally guaranteed, jointly and severally by Appgate’s U.S. subsidiaries. The Notes will mature on February 9, 2024, unless earlier converted, redeemed, or repurchased. Upon closing of the Merger, Appgate expects to issue an additional $25.0 million in aggregate principal amount of Notes. Appgate may also issue up to an additional $25.0 million in aggregate principal amount of Notes at the election of the holders of the Notes, in one or more closings, on or prior to February 8, 2022.

 

Interest on the Notes is payable either entirely in cash or entirely in kind (“PIK Interest”), or a combination of cash and PIK Interest at Appgate’s discretion. The Notes bear interest at the annual rate of 5.0% with respect to interest payments made in cash and 5.5% with respect to PIK Interest, with interest payable semi-annually on February 1 and August 1 of each year, commencing on August 1, 2021. Additional notes (“PIK Notes”) to be issued for PIK Interest will have the same terms and conditions as the Notes. The Note Issuance Agreement includes certain affirmative and financial covenants Appgate is required to satisfy. Appgate was in compliance with all covenants as of June 30, 2021 and expects to remain in compliance with such covenants for at least the next 12 months.

 

If the holders have not converted the Notes and the Notes have not been redeemed by the maturity date, Appgate must repay the outstanding principal amount and accrued interest.

 

Promissory Notes

 

On March 31, 2019, Appgate issued the Promissory Notes to each of Cyxtera and the Management Company. The outstanding principal and interest under the Promissory Notes was $153.8 million and $130.3 million as of December 31, 2020 and 2019, respectively. As discussed above and in Appgate’s unaudited condensed consolidated financial statements, on February 8, 2021, Appgate repaid Cyxtera the full amount on the then outstanding principal and interest of $20.6 million under the Promissory Note held by Cyxtera and made a partial repayment of $99.0 million to the Management Company on the then outstanding principal and interest of $133.6 million under the Promissory Note held by the Management Company. On that same date, the Management Company issued a payoff letter to Appgate extinguishing the balance remaining unpaid following such repayment. Because Cyxtera was Appgate’s direct parent at the time of issuance of the Promissory Notes and an affiliate under common control with Appgate at the time of repayment, Appgate recognized the note extinguishment of $34.6 million as a capital contribution in 2021.

 

Other Contractual Obligations and Commitments

 

In addition to its debt obligations under the Notes, and lease obligations under several operating and finance lease arrangements, Appgate has other contractual commitments. Refer to Note 8 – Leases and Note 9 – Convertible Notes, to Appgate’s unaudited condensed consolidated financial statements included elsewhere in this information statement for additional information on maturities. Refer to Note 10 – Commitments and Contingencies to Appgate’s unaudited condensed consolidated financial statements included elsewhere in this information statement for additional information regarding cash amounts committed under other contractual obligations.

 

60

 

 

Cash Flow

 

Cash Flows for the Six Months ended June 30, 2021 and 2020. The following table sets forth Appgate’s historical cash flows for the periods indicated, and the changes between periods (in thousands):

 

   Six Months Ended June 30, 
   2021   2020 
Net cash, cash equivalents and restricted cash used in operating activities  $(29,886)  $(6,396)
Net cash, cash equivalents and restricted cash provided by (used in) investing activities  $124,555   $(362)
Net cash, cash equivalents and restricted cash (used in) provided by financing activities of continuing operations  $(69,832)  $5,669 

 

Operating Activities

 

Appgate’s largest source of operating cash is cash collections from customers for sales of licenses and services. Appgate’s primary uses of cash from operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs.

 

During the six months ended June 30, 2021, Appgate used $29.9 million of cash in its operating activities, whereas Appgate used $6.4 million of cash in its operating activities during the same period in the prior year. The change in cash flows from operating activities during the six months ended June 30, 2021 when compared to the same period in the prior year was primarily from cash and working capital generated by discontinued operations.

 

Investing Activities

 

During the six months ended June 30, 2021, Appgate’s investing activities provided $124.6 million of cash, whereas Appgate used $0.4 million in investing activities during the same period in the prior year. The change in cash flows from investing activities during the six months ended June 30, 2021 when compared to the same period in the prior year was primarily due to the receipt of $125.0 million in net proceeds received from the sale of Brainspace in January 2021.

 

Financing Activities

 

During the six months ended June 30, 2021, Appgate used $69.8 million in financing activities, whereas Appgate’s financing activities provided $5.7 million of cash during the same period in the prior year. Cash used in financing activities during the six months ended June 30, 2021 was primarily due to the repayment of $119.6 million to Cyxtera in February 2021 as settlement and extinguishment of the Promissory Notes. During the same period, Appgate received gross proceeds of $50.0 million from the issuance of the Notes. Cash provided by financing activities during the six months ended June 30, 2020 was from cash advances received under the Promissory Notes.

 

61

 

 

Cash Flows for the Years Ended December 31, 2020 and 2019. The following table sets forth Appgate’s historical cash flows for the periods indicated, and the changes between periods (in thousands):

 

   Years Ended December 31, 
   2020   2019 
Net cash, cash equivalents and restricted cash used in operating activities  $(17,183)  $(42,670)
Net cash, cash equivalents and restricted cash used in investing activities  $(1,074)  $- 
Net cash, cash equivalents and restricted cash provided by financing activities  $19,408   $43,085 

 

Operating Activities

 

During 2020, Appgate used $17.2 million of cash in its operating activities as compared to $42.7 million during 2019. The change in net cash used in operating activities during 2020 compared to 2019 was primarily due to a net increase in cash provided by operating activities from discontinued operations by $10.3 million and changes in working capital of continuing operations.

 

Investing Activities

 

During 2020, Appgate used $1.1 million of cash in investing activities in the acquisition of property and equipment following the separation from Cyxtera. Appgate did not used cash in investing activities during 2019.

 

Financing Activities

 

During 2020, Appgate’s financing activities provided $19.4 million of cash as compared to $43.1 million during 2019. The change in net cash provided by financing activities during 2020 compared to 2019 was primarily due to less cash borrowed under the Promissory Notes.

 

Critical Accounting Estimates

 

The discussion and analysis of Appgate’s financial condition and results of operations are based upon Appgate’s unaudited condensed consolidated financial statements and Appgate’s consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities at the date of Appgate’s financial statements. Appgate evaluates its estimates and assumptions on an ongoing basis. The estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, impacting Appgate’s reported results of operations and financial condition.

 

Critical accounting policies and estimates are those that Appgate considers the most important to the portrayal of its financial condition and results of operations because they require Appgate’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Based on this definition, Appgate has identified the following critical accounting policies and estimates: revenue from contracts with customers, accounting for income taxes, and accounting for goodwill and intangible assets. These critical accounting policies are addressed below. In addition, Appgate has other key accounting policies and estimates that are described in Note 1 – Business and Summary of Significant Accounting Policies to Appgate’s unaudited condensed consolidated financial statements and consolidated financial statements included elsewhere in this information statement.

 

62

 

 

Revenue Recognition

 

Appgate recognizes revenue under ASC 606. Under ASC 606, Appgate recognizes revenue when its customers obtain control of goods or services in an amount that reflects the consideration that it expects to receive in exchange for those goods or services.

 

Appgate primarily sells its software through on-premise term-based license agreements, perpetual license agreements and SaaS subscriptions, which allow its customers to use its SaaS services without taking possession of the software. Appgate’s products offer substantially the same functionality whether its customers receive them through a perpetual, or term-based license or a SaaS arrangement. Appgate’s agreements with customers for software licenses may include maintenance contracts and may also include professional services contracts. Maintenance revenues consist of fees for providing unspecified software updates and technical support for its products for a specified term, which is typically one to three years. Appgate offers a portfolio of professional services and extended support contract options to assist its customers with integration, optimization, training and ongoing advanced technical support. Appgate also generates revenue from threat advisory services, including penetration testing, application assessments, vulnerability analysis, reverse engineering, architecture review and source code review.

 

If a contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. For contracts that contain multiple distinct performance obligations, Appgate allocates the transaction price to each performance obligation based on a relative standalone selling price (“SSP”). Appgate determines the transaction price with reference to the SSP of the various performance obligations inherent within a contract. The SSP is determined based on the prices at which Appgate separately sells these products, assuming the majority of these fall within a pricing range. In instances where SSP is not directly observable, such as when Appgate does not sell the software license separately, Appgate derives the SSP utilizing market conditions and other factors, including customer type, market conditions and pricing objectives, historical sales data, and negotiated discounts from price lists, if any, that can require significant judgement.

 

Income Taxes

 

Through December 31, 2019, the operations of Appgate were included in the consolidated U.S. federal, state, local and foreign income tax returns, filed by Cyxtera, where applicable. Income tax expense and other income tax related information contained in the consolidated financial statements is presented on a separate return basis as if Appgate filed its own tax returns for 2019.

 

Appgate accounts for income taxes using the asset and liability method. Deferred income taxes are recognized by applying the enacted statutory tax rates applicable to future years to differences between the carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance to amounts that are more likely than not to be realized. In addition, certain Federal and state NOL carryforward assets are reduced by a valuation allowance and/or may be limited by Internal Revenue Code Section 382.

 

Goodwill and Other Long-Lived Assets, including Acquired Intangible Assets

 

Goodwill represents the excess of the fair value of purchase consideration in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill amounts are not amortized, but rather tested for impairment at least annually or more often if circumstances indicate that the carrying value may not be recoverable. Upon the Cyxtera Spin-Off, Appgate’s opening carve-out consolidated financial statements included the goodwill balances carried over from Cyxtera in connection with Cyxtera’s acquisition of the entities that formed Appgate, less impairments.

 

63

 

 

Acquired intangible assets consist of identifiable intangible assets, including developed technology, trademarks and tradenames, and customer relationships, resulting from business combinations. Acquired finite-lived intangible assets are initially recorded at fair value and are amortized on a straight-line basis over their estimated useful lives. Amortization expense of trademarks and tradenames, and customer relationships is recorded primarily within depreciation and amortization in Appgate’s consolidated statements of operations. Amortization expense of developed technology is recorded within cost of revenue in Appgate’s consolidated statements of operations.

 

Long-lived assets, such as property and equipment and acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Appgate measures the recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that these assets are expected to generate. If the total of the future undiscounted cash flows are less than the carrying amount of an asset, Appgate records an impairment charge for the amount by which the carrying amount of the asset exceeds the fair value. Appgate did not record any impairment of long-lived assets in 2019, 2020 or during the six months ended June 30, 2021.

 

Recent Accounting Pronouncements

 

Recently issued accounting pronouncements are described in Note 1 of Appgate’s consolidated financial statements included elsewhere in this information statement.

 

Quantitative and Qualitative Disclosures About Market Risk

 

Market risk represents the risk of loss that may impact Appgate’s financial position due to adverse changes in financial market prices and rates. Since Appgate has operations in the United States and internationally, its market risk exposure is primarily a result of exposure due to potential changes in inflation or interest rates. Appgate does not hold financial instruments for trading purposes.

 

Foreign Currency Exchange Risk

 

Appgate’s revenues and expenses are primarily denominated in U.S. dollars. During 2020 and 2019, Appgate recorded a loss of $0.1 million and $0.3 million on foreign exchange transactions, respectively. For the three months ended June 30, 2021 and 2020, Appgate recorded a loss of $45 thousand and $36 thousand on foreign exchange transactions, respectively. For the six months ended June 30, 2021, Appgate recorded a loss of $0.1 million on foreign exchange transactions (amount was not significant for the same period in 2020). To date, Appgate has not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments but may do so in the future if its exposure to foreign currency should become more significant. For business conducted outside of the United States, Appgate may have both revenue and costs incurred in the local currency of the subsidiary, creating a partial natural hedge. Changes to exchange rates therefore have not had a significant impact on the business to date. However, Appgate will continue to reassess its foreign exchange exposure as it continues to grow its business globally. During the years ended December 31, 2020 and 2019, and the three and six months ended June 30, 2021 and 2020, a hypothetical 10% change in foreign currency exchange rates applicable to Appgate’s business would not have had a material impact on its condensed consolidated financial statements.

 

Interest Rate Risk

 

Appgate does not hold financial instruments subject to variable interest rates.

 

Inflation Risk

 

Appgate does not believe that inflation has had a material effect on its business, financial condition, or results of operations. If its costs become subject to significant inflationary pressures, Appgate may not be able to fully offset such higher costs through price increases. Appgate’s inability or failure to do so could harm its business, financial condition, and operating results.

 

64

 

 

OTHER INFORMATION

 

The Company is subject to the information requirements of the Exchange Act and files annual, quarterly and current event reports, proxy statements and other information with the SEC. You can read the Company’s SEC filings, including the information statement, over the Internet at the SEC’s website at www.sec.gov. You may also read and copy any document the Company files with the SEC at its public reference facility at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.

 

NEWTOWN LANE MARKETING, INCORPORATED

 

Dated: [____], 2021

 

65

 

 

NEWTOWN LANE MARKETING, INCORPORATED

 

INDEX TO FINANCIAL STATEMENTS

 

Financial Statements:    
     
Condensed Balance Sheets as of June 30, 2021 (Unaudited) and March 31, 2021   F-2
     
Condensed Statements of Operations for the Three Months Ended June 30, 2021 and 2020 (Unaudited)   F-3
     
Condensed Statement of Changes in Stockholders’ Deficit for the Three Months Ended June 30, 2021 and 2020 (Unaudited)   F-4
     
Condensed Statements of Cash Flows for the Three Months Ended June 30, 2021 and 2020 (Unaudited)   F-5
     
Notes to Condensed Financial Statements (Unaudited)   F-6
     
Report of Independent Registered Public Accounting Firm   F-11
     
Balance Sheets as of March 31, 2021 and 2020   F-12
     
Statements of Operations for the Years Ended March 31, 2021 and 2020   F-13
     
Statement of Changes in Stockholders’ Deficit for the Years ended March 31, 2021 and 2020   F-14
     
Statements of Cash Flows for the Years Ended March 31, 2021 and 2020   F-15
     
Notes to Financial Statements   F-16

 

F-1 

 

 

NEWTOWN LANE MARKETING, INCORPORATED

CONDENSED BALANCE SHEETS

  

   June 30,   March 31, 
   2021   2021 
   (unaudited)     
ASSETS        
         
Current Assets        
Cash  $7,228   $7,285 
TOTAL ASSETS  $7,228   $7,285 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
CURRENT LIABILITIES          
Accounts payable and accrued expenses  $103,159   $195,258 
Convertible notes payable - Related Party   367,000    367,000 
Due to unrelated party   108,936    - 
TOTAL LIABILITIES   579,095    562,258 
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS’ DEFICIT          
           
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding   -    - 
Common stock, $0.001 par value; 100,000,000 shares authorized, 14,643,740 shares issued and outstanding, respectively   14,644    14,644 
Additional paid-in capital   2,084,482    2,083,232 
Accumulated deficit   (2,670,993)   (2,652,849)
           
TOTAL STOCKHOLDERS’ DEFICIT   (571,867)   (554,973)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $7,228   $7,285 

  

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

F-2 

 

 

NEWTOWN LANE MARKETING, INCORPORATED

CONDENSED STATEMENTS OF OPERATIONS

Three Months Ended June 30, 2021 and 2020

(unaudited)

 

   Three Months Ended 
   June 30, 
   2021   2020 
Expenses        
Selling, general and administrative  $13,569   $10,533 
Interest expense, net   4,575    4,326 
Total expense  $18,144   $14,859 
           
Loss before income taxes  $(18,144)  $(14,859)
           
Provision for income taxes   -    - 
           
Net loss  $(18,144)  $(14,859)
           
Net loss per share - basic and diluted  $(0.00)  $(0.00)
           
Weighted average shares outstanding - basic and diluted          
    14,643,740    13,757,550 

 

The accompanying notes are an integral part of these unaudited condensed financial statements

 

F-3 

 

 

NEWTOWN LANE MARKETING, INCORPORATED

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

Three Months Ended June 30, 2021 and 2020

   

           Additional       Total 
   Preferred Stock   Common Stock   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance at March 31, 2021   -   $  -    14,643,740   $14,644    2,083,232   $(2,652,849)  $(554,973)
Contributed services                       1,250         1,250 
Net Loss                            (18,144)   (18,144)
Balance at June 30, 2021 (unaudited)    -   $   -    14,643,740   $14,644   $2,084,482   $(2,670,993)  $(571,867)

   

                   Additional       Total 
   Preferred Stock   Common Stock   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance at March 31, 2020   -   $-    13,757,550   $13,758   $2,070,756   $(2,497,169)  $(412,655)
Contributed services                       1,250         1,250 
Net loss                            (14,859)   (14,859)
Balance at June 30, 2020 (unaudited)    -   $  -    13,757,550   $13,758   $2,072,006   $(2,512,028)  $(426,264)

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

F-4 

 

 

NEWTOWN LANE MARKETING, INCORPORATED

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

  

   Three Months Ended
June 30,
 
   2021   2020 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss  $(18,144)  $(14,859)
Adjustments to reconcile net loss to cash used in operating activities:          
Contributed services   1,250    1,250 
Changes in operating assets and liabilities:          
Increase (decrease) in accounts payable and accrued expenses   (92,099)   1,537 
NET CASH USED IN OPERATING ACTIVITIES  $(108,993)  $(12,072)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Due to unrelated party  $108,936   $- 
NET CASH PROVIDED BY FINANCING ACTIVITIES  $108,936   $- 
           
NET CHANGE IN CASH   (57)   (12,072)
           
CASH AT BEGINNING OF PERIOD   7,285    13,831 
CASH AT END OF PERIOD  $7,228   $1,759 
           
Supplemental disclosures for cash flow information:          
Cash paid for interest  $-   $- 
Cash paid for income taxes  $-   $- 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

F-5 

 

 

NEWTOWN LANE MARKETING, INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2021
(unaudited)

 

NOTE 1 – DESCRIPTION OF COMPANY

 

Newtown Lane Marketing, Incorporated (“we”, “our”, “us” or “Newtown”) was incorporated in Delaware on September 26, 2005. We previously held the exclusive license to exploit the Dreesen’s Donut Brand in the United States with the exception of the states of Florida and Pennsylvania, and in Suffolk County, New York, which Dreesen retained for itself. In August 2007 there was a change in control, as detailed below, and we discontinued our efforts to promote the Dreesen’s Donut Brand at that time. The license from Dreesen expired on December 31, 2007.

 

The interim financial information as of June 30, 2021 and for the three month periods ended June 30, 2021 and 2020 have been prepared without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to provide for fair presentation. These financial statements should be read in conjunction with the financial statements and the notes thereto, included in our Annual Report on Form 10-K, for the fiscal year ended March 31, 2021, previously filed with the SEC.

 

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of our financial position as of June 30, 2021 and results of operations and cash flows for the three months ended June 30, 2021 and 2020 as applicable, have been made. The results of operations for the three months ended June 30, 2021 are not necessarily indicative of the operating results that may be expected for the full fiscal year or any future periods.

 

RECENT EVENTS

 

On February 8, 2021, the Company entered into an Agreement and Plan of Reorganization (“Merger Agreement”) with Newtown Merger Sub Corp., a Delaware corporation and the Company’s wholly owned subsidiary (“Merger Sub”), and Cyxtera Cybersecurity, Inc. (doing business as AppGate), a Delaware corporation (“Appgate”). Pursuant to the Agreement, Merger Sub will merge with Appgate (the “Merger”) with Appgate being the surviving entity of the Merger and becoming a wholly-owned subsidiary of the Company.

 

Upon consummation of the Merger (the “Closing”), each share of Appgate’s common stock outstanding on the closing date will be converted into 234,299.84 shares of the Company’s common stock. Additionally, the Company will guarantee Appgate’s obligations of payment of principal, interest and other liabilities under its note issuance agreement (“Notes Issuance Agreement”) and the 5% convertible senior notes (“Convertible Senior Notes”) issued thereunder in an aggregate principal amount of $50 million, with an additional aggregate principal amount of $25 million subject to issuance at Closing (the “Additional Notes”) and a further aggregate principal amount of $25 million issuable, in the option of the holders, within 12 months of signing of the Merger Agreement. Further, the Company will assume Appgate’s Conversion Obligations (as defined in the Note Issuance Agreement) and Change of Control Conversion Obligations (as defined in the Note Issuance Agreement) thereunder.

 

It is estimated that, at the Closing and assuming none of the Convertible Senior Notes or Additional Notes have been converted into shares of the Company’s common stock and not taking into account an equity incentive plan, the current sole stockholder of Appgate will own approximately 89% of the outstanding shares of the Company’s common stock and the current stockholders of the Company will own approximately 11% of the outstanding common stock of the Company.

 

The Merger is expected to be consummated in the third quarter of our 2021 fiscal year, subject to the fulfillment of certain closing conditions.

 

F-6 

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Going Concern - The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates Newtown continuing as a going concern. Our purpose has been to serve as a vehicle to acquire an operating business and we are currently considered a “shell” company inasmuch as we are not generating revenues, we do not own an operating business, and have no specific plan other than to engage in the merger transaction with Appgate. There are no assurances that we will be able to consummate such transaction. The implementation of our business objectives is wholly contingent upon a business combination. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

Since inception, Newtown has incurred an accumulated deficit of $2,670,993 through June 30, 2021. For the three months ended June 30, 2021 and 2020, Newtown had net losses of $18,144 and $14,859, respectively. Newtown has incurred negative cash flow from operating activities since its inception. Newtown has spent, and subject to obtaining additional financing, expects to continue to spend, substantial amounts in connection with executing its business strategy. These conditions raise substantial doubt about Newtown’s ability to continue as a going concern.

 

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The estimates include valuation of deferred taxes and valuation of contributed services.

 

Fair Value of Financial Instruments - Pursuant to the FASB guidance, “Disclosures About Fair Value of Financial Instruments,” we are required to estimate the fair value of all financial instruments included on our balance sheet. We consider the carrying value of accounts payable, accrued expenses, due to unrelated parties and convertible notes in the financial statements to approximate their face value.

 

Statements of Cash Flows - For purposes of the statements of cash flows we consider all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.

 

Loss Per Share - Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by FASB ASC No. 260, “Earnings Per Share”. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. For June 30, 2021 and 2020, 0 and 886,190 options outstanding were not included in the computation of loss per share because their inclusion is anti-dilutive.

 

Recent accounting pronouncements - All recent accounting pronouncements issued but not yet effective have been reviewed and determined to be not applicable or is not expected to have a material impact on the Company’s condensed financial statements.

 

NOTE 3 – CONVERTIBLE NOTES PAYABLE – RELATED PARTY

 

On May 14, 2013, Ironbound loaned $100,000 to us and we issued a convertible promissory note in the principal amount of $100,000 to Ironbound (the “May 2013 Note”). The May 2013 Note was initially issued with a two-year term and bore interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the May 2013 Note was convertible into shares of Common Stock upon the consummation of a “Fundamental Transaction” (as defined in the May 2013 Note) at the “Conversion Price” (as defined in the May 2013 Note). The May 2013 Note was amended in July 2014 in accordance with the Amended and Restated Note, as described below.

 

On July 25, 2014, we raised gross proceeds of $72,000 in a debt financing transaction with Ironbound and, in connection therewith, issued to Ironbound a convertible promissory note (the “2014 Note”) in the principal amount of $72,000. The 2014 Note has a maturity date of August 31, 2015 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the 2014 Note is convertible, at the election of Ironbound, into shares of our Common Stock following the consummation of a “Qualified Financing” (as defined in the 2014 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the 2014 Note) at the “Conversion Price” (as defined in the 2014 Note).

 

F-7 

 

 

Further, on July 25, 2014, we issued an amended and restated convertible promissory note (the “Amended and Restated Note” and together with the 2014 Note, the “Prior Notes”) to Ironbound in the principal amount of $100,000, in substitution for the May 2013 Note. The Amended and Restated Note extended the maturity of the May 2013 Note to August 31, 2015 and provided for the principal and accrued interest on the May 2013 Note to be convertible, at the election of Ironbound, into shares of our Common Stock following the consummation of a “Qualified Financing” (as defined in the May 2013 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the May 2013 Note) at the “Conversion Price” (as defined in the May 2013 Note). The May 2013 Note otherwise remained unchanged.

 

Effective September 1, 2015, the maturity dates of the Prior Notes was extended from August 31, 2015 to August 31, 2016.

 

On October 30, 2015, Mr. Kling resigned from his position as our sole director and from his position as our President. Also on October 30, 2015, Mr. Warshaw resigned from his positions as our Chief Financial Officer and Secretary. Messrs. Kling’s and Warshaw’s resignation were not due to any disagreement with the Company or its management on any matter relating to the Company’s operations, policies or practices. Prior to Mr. Kling’s resignation, our Board of Directors appointed Jonathan J. Ledecky, the managing member of Ironbound, our largest stockholder, to fill the vacancy created by Mr. Kling’s resignation and will assume the role of President of the Company.

 

On December 31, 2015, Ironbound advanced to us an additional $10,000. This amount was subsequently evidenced by a promissory note (the “December 2015 Note”) with the same terms as the Prior Notes. The proceeds of the December 2015 Note were utilized by the Company to fund working capital needs.

 

On April 1, 2016, we issued a convertible promissory note (the “2016 Note”) in the principal amount of $10,000 to Ironbound. The 2016 Note has the same terms as the Prior Notes. The proceeds of the 2016 Note were utilized by the Company to fund working capital needs.

 

On July 15, 2016, we issued a convertible promissory note (the “July 2016 Note”) in the principal amount of $25,000 to Ironbound Partners Fund, LLC. The July 2016 Note has a maturity date of August 31, 2017 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the July 2016 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the July 2016 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the July 2016 Note) at the “Conversion Price” (as defined in the July 2016 Note). The proceeds of the July 2016 Note were utilized by the Company to fund working capital needs.

 

Effective September 1, 2016, the maturity dates of all of the other outstanding notes between Ironbound and us were extended from August 31, 2016 to August 31, 2017.

 

On February 14, 2017, we issued a convertible promissory note (the “February 2017 Note” and together with the December 2015 Note, the 2016 Note and the July 2016 Note, the “Outstanding Notes”) in the principal amount of $50,000 to Ironbound. The February 2017 Note has a maturity date of August 31, 2017 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the February 2017 Note is convertible, at the election of Ironbound, into shares of our common stock following the consummation of a “Qualified Financing” (as defined in the February 2017 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the February 2017 Note) at the “Conversion Price” (as defined in the February 2017 Note). The proceeds of the February 2017 Note were utilized by the Company to fund working capital needs.

 

Effective September 1, 2017, the maturity dates of the Outstanding Notes was extended from August 31, 2017 to August 31, 2018.

 

In August 2018, the maturity dates of the Outstanding Notes were extended from August 31, 2018 to August 31, 2019.

 

On August 27, 2018, we issued a convertible promissory note (the “August 2018 Note”) in the principal amount of $15,000 to Ironbound. The August 2018 Note has a maturity date of August 31, 2019 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the August 2018 Note is convertible, at the election of Ironbound, into shares of our common stock following the consummation of a “Qualified Financing” (as defined in the August 2018 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the August 2018 Note) at the “Conversion Price” (as defined in the August 2018 Note). The proceeds of the August 2018 Note were utilized by the Company to fund working capital needs.

 

F-8 

 

 

On December 4, 2018, we issued a convertible promissory note (the “December 2018 Note”) in the principal amount of $25,000 to Ironbound. The December 2018 Note has a maturity date of August 31, 2019 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the December 2018 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the December 2018 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the December 2018 Note) at the “Conversion Price” (as defined in the December 2018 Note). The proceeds of the December 2018 Note were utilized by the Company to fund working capital needs.

 

Effective November 12, 2019 the maturity dates of the Outstanding Notes and the August 2018 Note and December 2018 Note was extended from August 31, 2019 to August 31, 2020.

 

On November 27, 2019, we issued a convertible promissory note (the “November 2019 Note”) in the principal amount of $40,000 to Ironbound. The November 2019 Note has a maturity date of August 31, 2020 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the November 2019 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the November 2019 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the November 2019 Note) at the “Conversion Price” (as defined in the November 2019 Note). The proceeds of the November 2019 Note were utilized by the Company to fund working capital needs.

 

Effective August 31, 2020, the maturity dates of the Outstanding Notes, the August 2018 Note, the December 2018 Note and the November 2019 Note were extended from August 31, 2020 to August 31, 2021.

 

On August 18, 2020, we issued a convertible promissory note (the “August 2020 Note”) in the principal amount of $20,000 to Ironbound. The August 2020 Note has a maturity date of August 31, 2021 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the August 2020 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the August 2020 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the August 2020 Note) at the “Conversion Price” (as defined in the August 2020 Note). The proceeds of the August 2020 Note were utilized by the Company to fund working capital needs.

 

F-9 

 

 

NOTE 4 – STOCKHOLDER’S DEFICIT

 

As of June 30, 2021, our authorized capital stock consisted of 100,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock of which 14,643,740 shares of Common Stock, and no shares of Preferred Stock, were issued and outstanding. All shares of Common Stock currently outstanding are validly issued, fully paid and non-assessable.

 

During the three months ended June 30, 2021 and 2020, we recorded contributions to capital of $1,250 for the fair value relating to the use, occupancy and administrative services rendered by the officer.

 

NOTE 5 – DUE TO UNRELATED PARTY

 

In connection with Merger Agreement with Appgate (see Note 1), the Merger Agreement provides that from the date of the Merger Agreement (February 8, 2021) through the date of closing, all expenses incurred by Newtown in connection with consummating the merger with Appgate that are payable by Newtown prior to the closing shall be paid by Appgate. As of June 30, 2021, Appgate has paid $108,936 on behalf of Newtown and the amount is recorded as Due to Unrelated Party until the closing date. If the merger were not to close under certain circumstances, those expenses that are payable by Newtown or paid by Appgate on behalf of Newtown would be obligations of Newtown. The Merger is expected to be consummated in the third quarter of our 2021 fiscal year, subject to the fulfillment of certain closing conditions.

 

NOTE 6 – RELATED PARTY TRANSACTIONS

 

At June 30, 2021, we had promissory notes in the aggregate principal amount of $367,000 payable to Ironbound, our majority stockholder (see Note 3).

 

During the three months ended June 30, 2021 and 2020, we recorded contributions to capital of $1,250 for the fair value relating to the use, occupancy and administrative services rendered by the officer (see Note 4).

 

NOTE 7 – SUBSEQUENT EVENT

 

In connection with Merger Agreement with Appgate described in Note 5, subsequent to June 30, 2021, Appgate paid an additional $15,802 on behalf of Newtown and the amount is recorded as Due to Unrelated Party until the closing date.

 

F-10 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Newtown Lane Marketing, Incorporated

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Newtown Lane Marketing, Incorporated (the “Company”) as of March 31, 2021 and 2020, the related statements of operations, stockholders’ deficit, and cash flows for the two years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2021 and 2020, and the results of its operations and its cash flows for the two years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph - Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has an accumulated deficit and a working capital deficit as of March 31, 2021. The Company has incurred recurring losses and will have to obtain additional capital to sustain operations. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Liggett & Webb P.A.  
We have served as the Company’s auditor since 2012.  
   

Boynton Beach, Florida

 
   
June 28, 2021  

 

F-11 

 

 

NEWTOWN LANE MARKETING, INCORPORATED

BALANCE SHEETS

 

    2021     2020  
ASSETS            
Current Assets            
Cash   $ 7,285     $ 13,831  
TOTAL CURRENT ASSETS   $ 7,285     $ 13,831  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
CURRENT LIABILITIES                
Accounts payable and accrued expenses   $ 195,258     $ 79,486  
Convertible notes payable - Related Party     367,000       347,000  
TOTAL CURRENT LIABILITIES     562,258       426,486  
                 
COMMITMENTS AND CONTINGENCIES (Note 6)     -       -  
                 
STOCKHOLDERS’ DEFICIT                
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding     -       -  
Common stock, $0.001 par value; 100,000,000 shares authorized, 14,643,740 and 13,757,550 shares issued and outstanding, respectively     14,644       13,758  
Additional paid-in capital     2,083,232       2,070,756  
Accumulated deficit     (2,652,849 )     (2,497,169 )
TOTAL STOCKHOLDERS’ DEFICIT     (554,973 )     (412,655 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 7,285     $ 13,831  

 

The accompanying notes are an integral part of these financial statements.

 

F-12 

 

 

NEWTOWN LANE MARKETING, INCORPORATED

STATEMENTS OF OPERATIONS

 

   Year Ended March 31, 
   2021   2020 
Expenses        
Selling, general and administrative  $137,714   $46,340 
Interest expense, net   17,966    16,071 
Total expense   155,680    62,411 
           
Net loss  $(155,680)  $(62,411)
           
Net loss per share - basic and diluted  $(0.01)  $(0.01)
           
Weighted average shares outstanding - basic and diluted   13,874,040    13,757,550 

 

The accompanying notes are an integral part of these financial statements

 

F-13 

 

 

NEWTOWN LANE MARKETING, INCORPORATED

STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the years ended March 31, 2021 and 2020

 

    Preferred Stock     Common Stock     Additional
Paid-in
    Accumulated     Total
Stockholders’
 
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
Balances at March 31, 2019         --     $     --       13,757,550     $ 13,758     $ 2,065,756     $ (2,434,758 )   $ (355,244 )
Contributed Services     --       --       --       --       5,000       --       5,000  
Net loss     --       --       --       --       --       (62,411 )     (62,411 )
Balances at March 31, 2020     --     $ --       13,757,550     $ 13,758     $ 2,070,756     $ (2,497,169 )   $ (412,655 )
Stock issued for the exercise of stock options     --       --       886,190       886       7,476       --       8,362  
Contributed services     --       --       --       --       5,000       --       5,000  
Net loss     --       --       --       --       --       (155,680 )     (155,680 )
Balances at March 31, 2021     --     $ --       14,643,740     $ 14,644     $ 2,083,232     $ (2,652,849 )   $ (554,973 )

 

The accompanying notes are an integral part of these financial statements.

 

F-14 

 

 

NEWTOWN LANE MARKETING, INCORPORATED

STATEMENTS OF CASH FLOWS

 

   Year Ended March 31, 
   2021   2020 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss  $(155,680)  $(62,411)
Adjustments to reconcile net loss to net cash used in operations          
Contributed services   5,000    5,000 
Changes in operating assets and liabilities:          
Increase in accounts payable and accruals   115,772    20,464 
NET CASH USED IN OPERATING ACTIVITIES   (34,908)   (36,947)
           
NET CASH FROM FINANCING ACTIVITIES          
Issuance of convertible notes payable - Related Party   20,000    40,000 
Proceeds from the exercise of stock options   8,362    - 
NET CASH PROVIDED BY FINANCING ACTIVITIES   28,362    40,000 
           
NET CHANGE IN CASH   (6,546)   3,053 
CASH AT BEGINNING OF YEAR   13,831    10,778 
CASH AT END OF YEAR  $7,285   $13,831 
Supplemental disclosure of cash flow information:          
Cash paid for interest  $-   $- 
Cash paid for taxes  $-   $- 

 

The accompanying notes are an integral part of these financial statements.

 

F-15 

 

 

NEWTOWN LANE MARKETING, INCORPORATED

NOTES TO FINANCIAL STATEMENTS

Years Ended March 31, 2021 and 2020

 

NOTE 1 – DESCRIPTION OF COMPANY

 

Newtown Lane Marketing, Incorporated (“we”, “our”, “us” or “Newtown”) was incorporated in Delaware on September 26, 2005. We previously held the exclusive license to exploit the Dreesen’s Donut Brand in the United States with the exception of the states of Florida and Pennsylvania, and in Suffolk County, New York, which Dreesen retained for itself. In August 2007 there was a change in control, as detailed below, and we discontinued our efforts to promote the Dreesen’s Donut Brand at that time. The license from Dreesen expired on December 31, 2007.

 

EQUITY TRANSACTIONS

 

On August 8, 2007 (the “Effective Date”), we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Moyo Partners, LLC, a New York limited liability company (“Moyo”) and R&R Biotech Partners, LLC, a Delaware limited liability company (“R&R” collectively with Moyo, the “Purchasers”), pursuant to which we sold to them, in the aggregate, approximately, four million four hundred seventy nine thousand two hundred fifty (4,479,250) shares of our common stock, par value $.001 per share (“Common Stock”) and five hundred (500shares of our Series A Preferred Stock, par value $.001 per share (“Series A Preferred Stock”), each share convertible at the option of the holder into, approximately, fourteen thousand eight hundred twenty (14,820) shares of Common Stock, for aggregate gross proceeds to us of $600,000. The shares of Series A Preferred Stock were convertible only to the extent there were a sufficient number of shares of Common Stock available for issuance upon any such conversion.

 

On the Effective Date: (i) the Purchasers acquired control of Newtown, with (a) R&R acquiring nine million five hundred nine thousand four hundred forty (9,509,440) shares of Common Stock (assuming the conversion by R&R of the four hundred (400) shares of Series A Preferred Stock it acquired pursuant to the Purchase Agreement into five million nine hundred twenty eight thousand (5,928,000) shares of Common Stock) constituting 72% of the then issued and outstanding shares of Common Stock, and (b) Moyo acquiring two million three hundred seventy seven thousand three hundred sixty (2,377,360) shares of Common Stock (assuming the conversion by Moyo of its one hundred (100) shares of Series A Preferred Stock it acquired pursuant to the Purchase Agreement into one million four hundred eighty one thousand five hundred ten (1,481,510) shares of Common Stock) constituting 18% of the then issued and outstanding shares of Common Stock; and (ii) in full satisfaction of our obligations under outstanding convertible promissory notes in the principal amount of $960,000 (the “December Notes”), the Note holders of the December Notes converted an aggregate of $479,811 of principal and accrued interest into 274,200 shares of Common Stock and accepted a cash payment from us in the aggregate amount of $625,030 for the remaining principal balance.

 

On the Effective Date: (i) Arnold P. Kling was appointed to our Board of Directors (“Board”) and served together with Vincent J. McGill, a then current director who continued to serve until August 20, 2007, the effective date of his resignation from our Board; (ii) all of our then officers and directors, with the exception of Mr. McGill, resigned from their respective positions with us; (iii) our Board appointed Mr. Kling as president and Kirk M. Warshaw as chief financial officer and secretary; and (iv) we relocated our headquarters to Chatham, New Jersey.

 

Following Mr. McGill’s resignation from our Board on August 20, 2007, Mr. Kling became our sole director and president.

 

On October 19, 2007, we effected an amendment to our Certificate of Incorporation to increase to 100,000,000 the number of authorized shares of Common Stock available for issuance (the “Charter Amendment”). As a result of the Charter Amendment, as of October 19, 2007, we had adequate shares of Common Stock available for issuance upon the conversion of all the issued and outstanding shares of Series A Preferred Stock.

 

On December 19, 2007, the holders of all the issued and outstanding shares of Series A Preferred Stock elected to convert all of their shares into shares of Common Stock. As a result, the 500 shares of Series A Preferred Stock outstanding were exchanged for 7,407,540 shares of Common Stock, and all 500 shares of the Series A Preferred Stock were returned to the status of authorized and unissued shares of undesignated preferred stock, par value $.001 per shares. None of the Series A Preferred Stock were outstanding as of the Series A Preferred Elimination Date.

 

F-16 

 

 

In December 2008, we sold 550,000 shares of restricted Common Stock to our Chief Financial Officer, for $2,000. The issuance of these shares was exempt from registration pursuant to Sections 4(2) and 4(6) or the Securities Act of 1933, as amended (the “Act”). The stock certificate representing these shares was imprinted with a legend restricting transfer unless pursuant to an effective registration statement or an exemption from registration under the Act.

 

On May 6, 2013, Ironbound Partners Fund, LLC (“Ironbound”) acquired 9,509,440 shares of our outstanding Common Stock (the “Acquired Shares”) for an aggregate purchase price of $15,000, or $0.00157737 per share, from the Chapter 7 Trustee of the Estates of Rodman & Renshaw, LLC (“Rodman”), Direct Markets, Inc., and Direct Markets Holdings, Corp. in Chapter 7 bankruptcy proceedings pending in the United States Bankruptcy Court for the Southern District of New York (Cases No. 13-10087, 13-10088 and 13-10089). The Acquired Shares constituted all the shares of Common Stock previously owned by R&R, an affiliate of Rodman, and represented 69.1% of our total issued and outstanding shares of Common Stock as of May 6, 2013.

 

On May 14, 2013, Ironbound loaned $100,000 to us and we issued a convertible promissory note in the principal amount of $100,000 to Ironbound (the “May 2013 Note”). The May 2013 Note was initially issued with a two-year term and bore interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the May 2013 Note was convertible into shares of Common Stock upon the consummation of a “Fundamental Transaction” (as defined in the May 2013 Note) at the “Conversion Price” (as defined in the May 2013 Note). The May 2013 Note was amended in July 2014 in accordance with the Amended and Restated Note, as described below.

 

On July 25, 2014, we raised gross proceeds of $72,000 in a debt financing transaction with Ironbound and, in connection therewith, issued to Ironbound a convertible promissory note (the “2014 Note”) in the principal amount of $72,000. The 2014 Note had a maturity date of August 31, 2015 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the 2014 Note is convertible, at the election of Ironbound, into shares of our Common Stock following the consummation of a “Qualified Financing” (as defined in the 2014 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the 2014 Note) at the “Conversion Price” (as defined in the 2014 Note).

 

Further, on July 25, 2014, we issued an amended and restated convertible promissory note (the “Amended and Restated Note” and together with the 2014 Note, the “Prior Notes”) to Ironbound in the principal amount of $100,000, in substitution for the May 2013 Note. The Amended and Restated Note extended the maturity of the May 2013 Note to August 31, 2015 and provided for the principal and accrued interest on the May 2013 Note to be convertible, at the election of Ironbound, into shares of our Common Stock following the consummation of a “Qualified Financing” (as defined in the May 2013 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the May 2013 Note) at the “Conversion Price” (as defined in the May 2013 Note). The May 2013 Note otherwise remained unchanged.

 

Effective September 1, 2015, the maturity dates of the Prior Notes were extended from August 31, 2015 to August 31, 2016.

 

On October 30, 2015, Mr. Kling resigned from his position as our sole director and from his position as our President. Also on October 30, 2015, Mr. Warshaw resigned from his positions as our Chief Financial Officer and Secretary. Messrs. Kling’s and Warshaw’s resignation were not due to any disagreement with the Company or its management on any matter relating to the Company’s operations, policies or practices. Prior to Mr. Kling’s resignation, our Board of Directors appointed Jonathan J. Ledecky, the managing member of Ironbound, our largest stockholder, to fill the vacancy created by Mr. Kling’s resignation and assume the role of President of the Company

 

On December 31, 2015, Ironbound advanced to us an additional $10,000. This amount was subsequently evidenced by a promissory note (the “December 2015 Note”) with the same terms as the Prior Notes. The proceeds of the December 2015 Note were used by the Company to fund working capital needs.

 

On April 1, 2016, we issued a convertible promissory note (the “2016 Note” and together with the December 2015 Note and the Prior Notes, the “Outstanding Notes”) in the principal amount of $10,000 to Ironbound. The 2016 Note has the same terms as the Prior Notes. The proceeds of the 2016 Note were used by the Company to fund working capital needs.

 

On July 15, 2016, we issued a convertible promissory note (the “July 2016 Note”) in the principal amount of $25,000 to Ironbound Partners Fund, LLC. The July 2016 Note had a maturity date of August 31, 2017 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the July 2016 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the July 2016 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the July 2016 Note) at the “Conversion Price” (as defined in the July 2016 Note). The proceeds of the July 2016 Note were used by the Company to fund working capital needs.

 

F-17 

 

 

Effective September 1, 2016, the maturity dates of all of the outstanding notes between Ironbound and us were extended from August 31, 2016 to August 31, 2017.

 

On February 14, 2017, Ironbound loaned the Company an additional $50,000. This loan was evidenced by a note (the “February 2017 Note”) with a maturity date of August 31, 2017 and interest rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the February 2017 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the February 2017 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the February 2017 Note) at the “Conversion Price” (as defined in the February 2017 Note). The proceeds of the February 2017 Note were used by the Company to fund working capital needs.

 

Effective September 1, 2017, the maturity dates of all of the outstanding notes between Ironbound and us were extended from August 1, 2017 to August 31, 2018.

 

In August 2018, the maturity dates of all of the outstanding notes between Ironbound and us were extended from August 31, 2018 to August 31, 2019.

 

On August 27, 2018, Ironbound loaned the Company an additional $15,000. This loan was evidenced by a note (the “August 2018 Note”) with a maturity date of August 31, 2019 and interest rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the August 2018 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the August 2018 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the August 2018 Note) at the “Conversion Price” (as defined in the August 2018 Note). The proceeds of the August 2018 Note were used by the Company to fund working capital needs.

 

On December 4, 2018, Ironbound loaned the Company an additional $25,000. This loan was evidenced by a note (the “December 2018 Note”) with a maturity date of August 31, 2019 and interest rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the December 2018 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the December 2018 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the December 2018 Note) at the “Conversion Price” (as defined in the December 2018 Note). The proceeds of the December 2018 Note were used by the Company to fund working capital needs.

 

Effective November 12, 2019, the maturity dates of all of the outstanding notes between Ironbound and the Company were extended from August 31, 2019 to August 31, 2020.

 

On November 27, 2019, Ironbound loaned the Company an additional $40,000. The loan was evidenced by a note (the “November 2019 Note”) with a maturity date of August 31, 2020 and interest rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the November 2019 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the November 2019 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the November 2019 Note) at the “Conversion Price” (as defined in the November 2019 Note). The proceeds of the November 2019 Note were used by the Company to fund working capital needs.

 

Effective August 31, 2020, the maturity dates of all of the outstanding notes between Ironbound and us were extended from August 31, 2020 to August 31, 2021.

 

On August 18, 2020, we issued a convertible promissory note (the “August 2020 Note”) in the principal amount of $20,000 to Ironbound. The August 2020 Note has a maturity date of August 31, 2021 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the August 2020 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the August 2020 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the August 2020 Note) at the “Conversion Price” (as defined in the August 2020 Note). The proceeds of the August 2020 Note were used by the Company to fund working capital needs.

 

F-18 

 

 

THE COMPANY TODAY

 

Since the Effective Date, our main purpose has been to serve as a vehicle to acquire an operating business and we are currently considered a “shell” company in as much as we are not generating revenues, do not own an operating business, and have no specific plan other than to engage in a merger or acquisition transaction.

 

On February 8, 2021, we entered into an Agreement and Plan of Reorganization (“Merger Agreement”) with Newtown Merger Sub Corp., a Delaware corporation and our wholly-owned subsidiary (“Merger Sub”), and Cyxtera Cybersecurity, Inc. (doing business as AppGate), a Delaware corporation (“Appgate”). Pursuant to the Merger Agreement, Merger Sub will merge with Appgate (the “Merger”) with Appgate being the surviving entity of the Merger and becoming a wholly-owned subsidiary of ours.

 

Upon consummation of the Merger (the “Closing”), each share of Appgate’s common stock outstanding on the closing date will be converted into 234,299.84 shares of our common stock. Additionally, we will guarantee Appgate’s obligations of payment of principal, interest and other liabilities under its note issuance agreement (“Notes Issuance Agreement”) and the 5% convertible senior notes (“Convertible Senior Notes”) issued thereunder in an aggregate principal amount of $50 million, with an additional aggregate principal amount of $25 million subject to issuance at Closing (the “Additional Notes”) and a further aggregate principal amount of $25 million issuable, in the option of the holders, within 12 months of signing of the Merger Agreement. Further, we will assume Appgate’s Conversion Obligations (as defined in the Note Issuance Agreement) and Change of Control Conversion Obligations (as defined in the Note Issuance Agreement) thereunder.

 

It is estimated that, at the closing and assuming none of the Convertible Senior Notes or Additional Notes have been converted into shares of our common stock, and not taking into account an equity incentive plan, the current sole stockholder of Appgate will own approximately 89% of the outstanding shares of our common stock and the current stockholders of the Company will own approximately 11% of our outstanding common stock.

 

The Merger is expected to be consummated in the third quarter of our 2021 fiscal year, subject to the fulfillment of certain closing conditions.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Newtown’s accounting policies are in accordance with accounting principles generally accepted in the United States of America. Outlined below are those policies considered particularly significant.

 

  (a) Going Concern:

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates Newtown continuing as a going concern. Our purpose has been to serve as a vehicle to acquire an operating business and we are currently considered a “shell” company inasmuch as we are not generating revenues, we do own an operating business, and have no specific plan other than to engage in a merger or acquisition transaction with Appgate. The implementation of our business objectives is wholly contingent upon a business combination and/or the successful sale of our securities. We intend to utilize the proceeds of any offering, any sales of equity securities or debt securities, bank and other borrowings or a combination of those sources to effect a business combination with a target business which we believe may have significant growth potential. There is no assurance that these plans will be realized in whole or in part. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

Newtown has an accumulated deficit of $2,652,849 and a working capital deficit of $554,973 March 31, 2021. For the years ended March 31, 2021 and 2020, Newtown had net losses of $155,680 and $62,411, respectively. Newtown has incurred negative cash flow from operating activities since its inception. Newtown has spent, and subject to obtaining additional funding, expects to continue to spend substantial amounts in connection with executing its business strategy. These conditions raise substantial doubt about Newtown’s ability to continue as a going concern.

 

  (b) Use of Estimates:

 

In preparing financial statements with accounting principles generally accepted in the United States of America, management makes certain estimates and assumptions, where applicable, that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. While actual results could differ from those estimates, management does not expect such variances, if any, to have a material effect on the financial statements. The estimates include valuation of deferred taxes, valuation of equity-based transactions and valuation of contributed services.

 

  (c) Statement of Cash Flows:

 

For purposes of the statements of cash flows Newtown considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.

 

F-19 

 

 

  (d) Loss per Common Share:

 

The Financial Accounting Standards Board (FASB) has issued accounting guidance “Earnings Per Share” that provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per share include no dilution and is computed by dividing the loss to common stockholders by the weighted average number of common shares outstanding for the period. All potentially dilutive securities have been excluded from the computations since they would be antidilutive. However, these dilutive securities could potentially dilute earnings per share in the future. As of March 31, 2021 and 2020, we had a total of 0 and 886,190 of potentially dilutive securities comprised solely of stock options and shares issuable on the conversion of the convertible note payable for $367,000 and $347,000, respectively.

 

  (e) Income Taxes:

 

The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carryforwards 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 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 the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it I more likely than not that such assets will be realized.

 

  (f) Financial instruments:

 

The estimated fair values of all reported assets and liabilities which represent financial instruments, none of which are held for trading purposes, approximate their carrying values because of the short term maturity of these instruments or the stated interest rates are indicative of market interest rates.

 

  (g) Equity Based Compensation:

 

We adopted the FASB accounting guidance for share based payment transactions. This standard requires us to measure the cost of employee services received in exchange for equity share options granted based on the grant date fair value of the options and applies to all outstanding and vested stock-based awards.

 

In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s bet estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating our forfeiture rate, we analyzed our historical forfeiture rate, the remaining lives of unvested options, and the amount of vested option as a percentage of total options outstanding. If our actual forfeiture rate is materially different from its estimate, or if we reevaluate the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period.

 

The accounting guidance requires the use of a valuation model to calculate the fair value of each stock-based award. We use the Black-Scholes model to estimate the fair value of stock options granted based on the following assumptions:

 

Options to purchase an aggregate of 886,190 shares were exercised in the year ended March 31, 2021. No options were exercised in the year ended March 31, 2020.

 

F-20 

 

 

  (h) New Accounting Pronouncements:

 

All new accounting pronouncements issued but not yet effective have been reviewed and determined to be not applicable. As a result, the adoption of such new accounting pronouncements is not expected to have a material impact on the Company’s financial statements.

 

NOTE 3 – STOCKHOLDERS’ DEFICIT

 

During the years ended March 31, 2021 and March 31, 2020, the Company recorded a $5,000 contribution to capital for the fair value relating to the use, occupancy and administrative services rendered by the officers.

 

STOCK OPTIONS

 

During the year ended March 31, 2014, we issued 886,990 non-qualified stock options to an officer and consultant. These options have a ten year term with exercise prices ranging from $0.002 to $0.02 per share. Some of these options immediately and other options issued vested 50% upon issuance and the remainder vet on their six month anniversary.

 

During the year ended March 31, 2021, we issued 886,990 shares of common stock for the exercise of 886,900 non-qualified stock options at exercise prices ranging from $0.002 to $0.02 per share in exchange for $8,363 in cash.

 

A summary of the common stock option activity for officers and consultants as of March 31, 2021 and 2020 and for the years then ended is as follows:

 

       Weighted
Average
Exercise
   Weighted
Average
Remaining
Contractual
Term
 
   Shares   Price   (Years) 
Outstanding at March 31, 2019   886,190   $0.009    4.2 
Granted   -    -    - 
Exercised   -    -    - 
Forfeited   -    -    - 
Expired   -    -    - 
Outstanding at March 31, 2020   886,190   $0.009    3.2 
Granted   -    -    - 
Exercised   (886,190)   0.009    - 
Forfeited   -    -    - 
Expired   -    -    - 
Outstanding at March 31, 2021   -   $-    - 

 

Based on the last trade or purchase of Newtown’s shares at a per share price of $0.15 as of March 31, 2020. The intrinsic value of stock options outstanding was $133,049.

 

F-21 

 

 

NOTE 4 – NOTES PAYABLE – RELATED PARTY

 

On May 14, 2013, Ironbound Partners Fund LLC (“Ironbound”) loaned $100,000 to us and we issued a convertible promissory note in the principal amount of $100,000 to Ironbound (the “May 2013 Note”). The May 2013 Note was initially issued with a two-year term and bore interest at a rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the May 2013 Note was convertible into shares of Common Stock upon the consummation of a “Fundamental Transaction” (as defined in the May 2013 Note) at the “Conversion Price” (as defined in the May 2013 Note). The May 2013 Note was amended in July 2014 in accordance with the amended and Restated Note, as described below.

 

On July 25, 2014, we raised gross proceeds of $72,000 in a debt financing transaction with Ironbound and, in connection therewith, issued to Ironbound a convertible promissory note (the “2014 Note”) in the principal amount of $72,000. The 2014 Note has a maturity date of August 31, 2015 and bears interest at a rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the 2014 Note is convertible, at the election of Ironbound, into shares of our common stock following the consummation of a “Qualified Financing” (as defined in the 2014 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the 2014 Note) at the “Conversion Price” (as defined in the 2014 Note).

 

Further, on July 25, 2014, we issued an amended and restated convertible promissory note (the “Amended and Restated Note” and together with the 2014 Note, the “Prior Notes”) to Ironbound in the principal amount of $100,000, in substitution for the May 2013 Note. The Amended and Restated Note extended the maturity of the May 2013 Note to August 31, 2015 and provided for the principal and accrued interest on the May 2013 Note to be convertible, at the election of Ironbound, into shares of our Common Stock following the consummation of a “Qualified Financing” (as defined in the May 2013 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the May 2013 Note) at the “Conversion Price” (as defined in the May 2013 Note). The May 2013 Note otherwise remained unchanged by the Amended and Restated Note.

 

Effective September 1, 2015, the maturity dates of the Prior Notes was extended from August 31, 2015 to August 31, 2016.

 

On October 30, 2015, Mr. Kling resigned from his position as our sole director and from his position as our President. Also on October 30, 2015, Mr. Warshaw resigned from his positions as our Chief Financial Officer and Secretary. Messrs. Kling’s and Warshaw’s resignation were not due to any disagreement with the Company or its management on any matter relating to the Company’s operations, policies or practices. Prior to Mr. Kling’s resignation, our Board of Directors appointed Jonathan J. Ledecky, the managing member of Ironbound, our largest stockholder, to fill the vacancy created by Mr. Kling’s resignation and will assume the role of President of the Company.

 

On December 31, 2015, Ironbound loaned the Company an additional $10,000. This loan was subsequently evidenced by a note with the same terms as the Prior Notes (the “December 2015 Note”). The proceeds of the December 2015 Note were utilized by the Company to fund working capital needs.

 

On April 1, 2016, Ironbound loaned the Company an additional $10,000. This loan was evidenced by a note with the same terms as the Prior Notes (the “April 2016 Note”). The proceeds of the April 2016 Note were used by the Company to fund working capital needs.

 

On July 15, 2016, Ironbound loaned the Company an additional $25,000. This loan was evidenced by a note (the “July 2016 Note”) with a maturity date of August 31, 2017 and interest rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the July 2016 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the July 2016 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the July 2016 Note) at the “Conversion Price” (as defined in the July 2016 Note). The proceeds of the July 2016 Note were used by the Company to fund working capital needs.

 

F-22 

 

 

Effective September 1, 2016, the maturity dates of the Outstanding Notes was extended from August 31, 2016 to August 31, 2017.

 

On February 14, 2017, we issued a convertible promissory note (the “February 2017 Note”) in the principal amount of $50,000 to Ironbound. The February 2017 Note has a maturity date of August 31, 2017 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the February 2017 Note is convertible, at the election of Ironbound, into shares of our common stock following the consummation of a “Qualified Financing” (as defined in the February 2017 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the February 2017 Note) at the “Conversion Price” (as defined in the February 2017 Note). The proceeds of the February 2017 Note were utilized by the Company to fund working capital needs.

 

Effective September 1, 2017, the maturity dates of the Outstanding Notes was extended from August 1, 2017 to August 31, 2018.

 

In August 2018, the maturity dates of the Outstanding Notes was extended from August 1, 2018 to August 31, 2019.

 

On August 27, 2018, we issued a convertible promissory note (the “August 2018 Note”) in the principal amount of $15,000 to Ironbound. The August 2018 Note has a maturity date of August 31, 2019 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the August 2018 Note is convertible, at the election of Ironbound, into shares of our common stock following the consummation of a “Qualified Financing” (as defined in the August 2018 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the August 2018 Note) at the “Conversion Price” (as defined in the August 2018 Note). The proceeds of the August 2018 Note were utilized by the Company to fund working capital needs.

 

On December 4, 2018, we issued a convertible promissory note (the “December 2018 Note”) in the principal amount of $25,000 to Ironbound. The December 2018 Note has a maturity date of August 31, 2019 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the December 2018 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the December 2018 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the December 2018 Note) at the “Conversion Price” (as defined in the December 2018 Note). The proceeds of the December 2018 Note were utilized by the Company to fund working capital needs.

 

Effective November 12, 2019, the maturity dates of the outstanding promissory notes held by Ironbound was extended from August 31, 2019 to August 31, 2020.

 

On November 27, 2019, we issued a convertible promissory note (the “November 2019 Note”) in the principal amount of $40,000 to Ironbound. The November 2019 Note has a maturity date of August 31, 2020 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the November 2019 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the November 2019 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the November 2019 Note) at the “Conversion Price” (as defined in the November 2019 Note). The proceeds of the November 2019 Note were utilized by the Company to fund working capital needs.

 

Effective August 31, 2020, the maturity dates of the Outstanding Notes and the August 2018 Note and December 2018 Note was extended from August 31, 2020 to August 31, 2021.

 

On August 18, 2020, we issued a convertible promissory note (the “August 2020 Note”) in the principal amount of $20,000 to Ironbound. The August 2020 Note has a maturity date of August 31, 2021 and bears interest at the rate of 5.0% per annum, payable at maturity. The principal and accrued interest on the August 2020 Note is convertible, at the election of Ironbound, into shares of the Company’s common stock following the consummation of a “Qualified Financing” (as defined in the August 2020 Note), or upon the consummation of a “Fundamental Transaction” (as defined in the August 2020 Note) at the “Conversion Price” (as defined in the August 2020 Note). The proceeds of the August 2020 Note were utilized by the Company to fund working capital needs.

 

F-23 

 

 

NOTE 5 – INCOME TAXES

 

The Company’s income tax expense differed from the statutory rates (federal 21%) as follows:

 

   March 31,
2021
   March 31,
2020
 
         
Expected tax expense (benefit) - Federal  $(32,693)  $(13,106)
Expected tax expense (benefit) - State   -    - 
Non-deductible expenses   1,050    1,050 
Change in valuation allowance   31,643    12,056 
Actual tax expense (benefit)  $-   $- 

 

The net deferred taxes in the accompanying balance sheets includes the following amounts of deferred tax assets and liabilities:

 

   March 31,
2021
   March 31,
2020
 
         
Gross deferred tax assets:        
Net operating loss carryforwards  $(478,792)  $(447,149)
Total deferred tax assets   (478,792)   (447,149)
Less: valuation allowance   478,792    447,149 
Net deferred tax asset recorded  $-   $- 

 

As of March 31, 2021 and 2020, the Company has net operating losses carry forward (NOLs) of approximately $2,280,000 and $2,129,000 available to offset future taxable income. The valuation allowance was established to reduce the deferred tax asset to the amount that will more likely than not be realized. This is necessary due to the Company’s continued operating loss and the uncertainty of the Company’s ability to utilize approximately $2,015,000 of the net operating loss carryforwards before they will expire through the year 2037 and approximately $265,000 of net operating loss carryforwards that can be carried-forward indefinitely subject to limitation. In addition, the utilization of the net operating loss carryforward has been limited as to its use pursuant to the Internal Revenue Code Section 382 due to the past changes in ownership of the Company. The benefits of these NOLs may be reduced in the future if the Company is successful in establishing a new business. The Company’s federal and state income tax returns for the years 2017 through 2021 remain open for audit by applicable regulatory authority.

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES

 

During the years ended March 31, 2021 and March 31, 2020, the Company recorded a $5,000 contribution to capital for the fair value relating to the use, occupancy and administrative services rendered by our officers.

 

NOTE 7 – SUBSEQUENT EVENTS

 

In connection with Merger Agreement with Appgate (see Note 1), the Merger Agreement provides that from the date of the Merger Agreement (February 8, 2021) through the date of closing, all expenses incurred by Newtown in connection with consummating the merger with Appgate that are payable by Newtown prior to the closing shall be paid by Appgate. Subsequent to March 31, 2021, Appgate has paid $101,436 on behalf of Newtown and the amount is recorded as advances from Appgate until the closing date. If the merger were not to close under certain circumstances, those expenses that are payable by Newtown or paid by Appgate on behalf of Newtown would be obligations of Newtown. The Merger is expected to be consummated in the second quarter of our 2021 fiscal year, subject to the fulfillment of certain closing conditions.

 

F-24 

 

 

CYXTERA CYBERSECURITY, INC. D/B/A APPGATE

 

Table of Contents

 

Consolidated Financial Statements (Unaudited):   Page
     
Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020   F-26
     
Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2021 and 2020   F-27
     
Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three Months and Six Months Ended June 30, 2021 and 2020   F-28
     
Condensed Consolidated Statement of Changes in Stockholder’s Equity for the Three and Six Months Ended June 30, 2021 and 2020   F-29
   
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020   F-30
     
Notes to Condensed Consolidated Financial Statements   F-31
     
Consolidated Financial Statements:    
     
Report of Independent Registered Public Accounting Firm   F-48
     
Consolidated Balance Sheets as of December 31, 2020 and 2019   F-50