Document and Entity Information
Document and Entity Information - $ / shares | Aug. 16, 2021 | Jun. 30, 2021 |
Details | ||
Registrant CIK | 0001011432 | |
Fiscal Year End | --12-31 | |
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Jun. 30, 2021 | |
Document Transition Report | false | |
Entity File Number | 000-27507 | |
Entity Registrant Name | CYNERGISTEK, INC. | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 37-1867101 | |
Entity Address, Address Line One | 11940 Jollyville Road | |
Entity Address, Address Line Two | Suite 300-N | |
Entity Address, City or Town | Austin | |
Entity Address, State or Province | TX | |
Entity Address, Postal Zip Code | 78759 | |
Entity Address, Address Description | Address of Principal Executive Offices | |
City Area Code | 949 | |
Local Phone Number | 614-0700 | |
Phone Fax Number Description | Registrant’s telephone number, including area code | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Listing, Par Value Per Share | $ 0.001 | |
Entity Common Stock, Shares Outstanding | 12,120,698 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2021 | |
Document Fiscal Period Focus | Q2 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Jun. 30, 2021 | Dec. 31, 2020 |
Current assets: | ||
Cash and cash equivalents | $ 4,025,827 | $ 5,613,654 |
Accounts receivable, net of allowance for doubtful accounts | 1,970,557 | 2,063,136 |
Unbilled services | 549,031 | 566,713 |
Prepaid and other current assets | 1,670,699 | 2,032,420 |
Income taxes receivable | 1,917,456 | 1,680,866 |
Total current assets | 10,133,570 | 11,956,789 |
Property and equipment, net | 301,324 | 541,525 |
Deposits | 47,376 | 64,586 |
Deferred income taxes | 5,025,545 | 4,959,125 |
Intangible assets, net | 5,382,561 | 6,063,617 |
Goodwill | 8,394,483 | 8,394,483 |
Total assets | 29,284,859 | 31,980,125 |
Current liabilities: | ||
Accounts payable and accrued expenses | 861,445 | 1,326,919 |
Accrued compensation and benefits | 502,713 | 814,830 |
Deferred revenue | 1,525,021 | 1,265,864 |
Current portion of promissory note to related party | 421,875 | 562,500 |
Current portion of operating lease liability | 91,503 | 252,398 |
Total current liabilities | 3,402,557 | 4,222,511 |
Long-term liabilities: | ||
Earnout liability | 0 | 1,300,000 |
Promissory note to related party, less current portion | 0 | 140,625 |
Paycheck Protection Program loan | 2,825,500 | 2,825,500 |
Operating lease liability, less current portion | 0 | 40,031 |
Total long-term liabilities | 2,825,500 | 4,306,156 |
Stockholders' equity: | ||
Common stock, par value at $0.001, 33,333,333 shares authorized, 12,120,698 shares issued and outstanding at June 30, 2021, and 12,024,967 shares issued and outstanding at December 31, 2020 | 12,120 | 12,024 |
Additional paid-in capital | 39,131,133 | 38,564,520 |
Accumulated deficit | (16,086,451) | (15,125,086) |
Total stockholders' equity | 23,056,802 | 23,451,458 |
Total liabilities and stockholders' equity | $ 29,284,859 | $ 31,980,125 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS - Parenthetical - $ / shares | Jun. 30, 2021 | Dec. 31, 2020 |
Details | ||
Common Stock, Par or Stated Value Per Share | $ 0.001 | $ 0.001 |
Common Stock, Shares Authorized | 33,333,333 | 33,333,333 |
Common Stock, Shares, Issued | 12,120,698 | 12,024,967 |
Common Stock, Shares, Outstanding | 12,120,698 | 12,024,967 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | |
Details | ||||
Net revenues | $ 3,875,143 | $ 4,557,571 | $ 8,048,664 | $ 9,673,398 |
Cost of revenues | 2,083,056 | 3,346,497 | 4,173,890 | 6,770,028 |
Gross profit | 1,792,087 | 1,211,074 | 3,874,774 | 2,903,370 |
Operating expenses: | ||||
Sales and marketing | 1,242,240 | 1,677,484 | 2,454,620 | 3,164,831 |
General and administrative | 1,470,593 | 1,796,488 | 3,147,251 | 3,901,332 |
Change in valuation of contingent earn-out | (1,300,000) | 0 | (1,300,000) | 0 |
Depreciation | 48,186 | 45,772 | 95,882 | 93,372 |
Amortization of acquisition-related intangibles | 340,528 | 416,191 | 681,056 | 832,382 |
Finance cost for equity commitment | 0 | 390,000 | 0 | 390,000 |
Total operating expenses | 1,801,547 | 4,325,935 | 5,078,809 | 8,381,917 |
Loss from operations | (9,460) | (3,114,861) | (1,204,035) | (5,478,547) |
Other income (expense): | ||||
Other income | 11 | 0 | 11 | 0 |
Interest income | 0 | 1,608 | 0 | 7,675 |
Interest expense | (17,339) | (27,320) | (37,340) | (51,607) |
Total other income (expense) | (17,328) | (25,712) | (37,329) | (43,932) |
Loss before provision for income taxes | (26,788) | (3,140,573) | (1,241,364) | (5,522,479) |
Income tax (expense) benefit | (20,100) | 685,912 | 279,999 | 1,217,195 |
Net loss | (46,888) | (2,454,661) | (961,365) | (4,305,284) |
Deemed dividends from warrant anti-dilution provisions | 0 | 0 | (5,834) | 0 |
Net loss attributable to common shareholders | $ (46,888) | $ (2,454,661) | $ (967,199) | $ (4,305,284) |
Net loss per share: | ||||
Basic | $ 0 | $ (0.23) | $ (0.08) | $ (0.41) |
Diluted | $ 0 | $ (0.23) | $ (0.08) | $ (0.41) |
Number of weighted average shares outstanding: | ||||
Basic | 12,120,698 | 10,495,700 | 12,081,328 | 10,432,443 |
Diluted | 12,120,698 | 10,495,700 | 12,081,328 | 10,432,443 |
Consolidated Statements of Shar
Consolidated Statements of Shareholders' Deficit - USD ($) | Common Stock | Additional Paid-in Capital | Retained Earnings | Total |
Stockholders' Equity Attributable to Parent, Beginning Balance at Dec. 31, 2019 | $ 10,359 | $ 34,821,863 | $ 3,343,402 | $ 38,175,624 |
Shares, Outstanding, Beginning Balance at Dec. 31, 2019 | 10,359,164 | |||
Adjustments to Additional Paid in Capital, Warrant Issued | $ 0 | 411,007 | 0 | 411,007 |
Restricted stock units exercised value | $ 20 | (20) | 0 | 0 |
Restricted stock units exercised shares | 20,000 | |||
Net loss | $ 0 | 0 | (1,850,623) | (1,850,623) |
Stockholders' Equity Attributable to Parent, Ending Balance at Mar. 31, 2020 | $ 10,379 | 35,232,850 | 1,492,779 | 36,736,008 |
Shares, Outstanding, Ending Balance at Mar. 31, 2020 | 10,379,164 | |||
Stockholders' Equity Attributable to Parent, Beginning Balance at Dec. 31, 2019 | $ 10,359 | 34,821,863 | 3,343,402 | 38,175,624 |
Shares, Outstanding, Beginning Balance at Dec. 31, 2019 | 10,359,164 | |||
Finance cost for equity commitment | 390,000 | |||
Net loss | (4,305,284) | |||
Stockholders' Equity Attributable to Parent, Ending Balance at Jun. 30, 2020 | $ 10,596 | 36,228,898 | (961,882) | 35,277,612 |
Shares, Outstanding, Ending Balance at Jun. 30, 2020 | 10,597,024 | |||
Stockholders' Equity Attributable to Parent, Beginning Balance at Mar. 31, 2020 | $ 10,379 | 35,232,850 | 1,492,779 | 36,736,008 |
Shares, Outstanding, Beginning Balance at Mar. 31, 2020 | 10,379,164 | |||
Adjustments to Additional Paid in Capital, Warrant Issued | $ 0 | 606,265 | 0 | 606,265 |
Finance cost for equity commitment | 0 | 390,000 | 0 | 390,000 |
Restricted stock units exercised value | $ 217 | (217) | 0 | 0 |
Restricted stock units exercised shares | 217,860 | |||
Net loss | $ 0 | 0 | (2,454,661) | (2,454,661) |
Stockholders' Equity Attributable to Parent, Ending Balance at Jun. 30, 2020 | $ 10,596 | 36,228,898 | (961,882) | 35,277,612 |
Shares, Outstanding, Ending Balance at Jun. 30, 2020 | 10,597,024 | |||
Stockholders' Equity Attributable to Parent, Beginning Balance at Dec. 31, 2020 | $ 12,024 | 38,564,520 | (15,125,086) | 23,451,458 |
Shares, Outstanding, Beginning Balance at Dec. 31, 2020 | 12,024,967 | |||
Adjustments to Additional Paid in Capital, Warrant Issued | $ 0 | 228,437 | 0 | 228,437 |
Restricted stock units exercised value | $ 96 | (96) | 0 | 0 |
Restricted stock units exercised shares | 95,731 | |||
Deemed dividend | $ 0 | 0 | 0 | 0 |
Net loss | 0 | 0 | (914,477) | (914,477) |
Stockholders' Equity Attributable to Parent, Ending Balance at Mar. 31, 2021 | $ 12,120 | 38,792,861 | (16,039,563) | 22,765,418 |
Shares, Outstanding, Ending Balance at Mar. 31, 2021 | 12,120,698 | |||
Stockholders' Equity Attributable to Parent, Beginning Balance at Dec. 31, 2020 | $ 12,024 | 38,564,520 | (15,125,086) | 23,451,458 |
Shares, Outstanding, Beginning Balance at Dec. 31, 2020 | 12,024,967 | |||
Finance cost for equity commitment | 0 | |||
Net loss | (961,365) | |||
Stockholders' Equity Attributable to Parent, Ending Balance at Jun. 30, 2021 | $ 12,120 | 39,131,133 | (16,086,451) | 23,056,802 |
Shares, Outstanding, Ending Balance at Jun. 30, 2021 | 12,120,698 | |||
Stockholders' Equity Attributable to Parent, Beginning Balance at Mar. 31, 2021 | $ 12,120 | 38,792,861 | (16,039,563) | 22,765,418 |
Shares, Outstanding, Beginning Balance at Mar. 31, 2021 | 12,120,698 | |||
Adjustments to Additional Paid in Capital, Warrant Issued | $ 0 | 338,272 | 0 | 338,272 |
Finance cost for equity commitment | 0 | |||
Net loss | 0 | 0 | (46,888) | (46,888) |
Stockholders' Equity Attributable to Parent, Ending Balance at Jun. 30, 2021 | $ 12,120 | $ 39,131,133 | $ (16,086,451) | $ 23,056,802 |
Shares, Outstanding, Ending Balance at Jun. 30, 2021 | 12,120,698 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 6 Months Ended | |
Jun. 30, 2021 | Jun. 30, 2020 | |
Cash flows from operating activities: | ||
Net loss | $ (961,365) | $ (4,305,284) |
Net cash used for operating activities | (1,267,881) | (2,372,747) |
Adjustments to reconcile net loss to net cash used for operating activities: | ||
Depreciation | 95,882 | 93,372 |
Amortization of intangible assets | 681,056 | 832,382 |
Change in net deferred tax assets | (66,420) | (82,250) |
Bad debt expense | 20,625 | 56,489 |
Stock compensation for equity awards granted to employees and directors | 566,709 | 1,017,272 |
Change in valuation of contingent earn-out | (1,300,000) | 0 |
Finance cost for equity commitment | 0 | 390,000 |
Other | (17,911) | (24,297) |
Changes in operating assets and liabilities: | ||
Accounts receivable | 71,954 | 1,191,640 |
Unbilled services | 17,682 | (159,638) |
Prepaid and other current assets | 361,721 | (620,360) |
Income taxes receivable | (236,590) | (1,082,010) |
Deposits | 17,210 | 7,900 |
Increase (Decrease) in Accounts Payable and Accrued Liabilities | (465,474) | 547,703 |
Accrued compensation and benefits | (312,117) | (566,247) |
Deferred revenue | 259,157 | 362,557 |
Income taxes payable | 0 | (31,976) |
Cash flows from investing activities: | ||
Purchases of property and equipment | (38,696) | (92,782) |
Net cash used for investing activities | (38,696) | (92,782) |
Cash flows from financing activities: | ||
Proceeds from Paycheck Protection Program loan | 0 | 2,825,500 |
Payments on promissory note to related party | (281,250) | (281,250) |
Payments on capital leases | 0 | (4) |
Net cash used for financing activities | (281,250) | 2,544,246 |
Cash and Cash Equivalents, Period Increase (Decrease) | (1,587,827) | 78,717 |
Cash and cash equivalents, beginning of period | 5,613,654 | 5,328,726 |
Cash and cash equivalents, end of period | 4,025,827 | 5,407,443 |
Supplemental disclosure of cash flow information: | ||
Interest paid | 23,209 | 50,928 |
Income taxes paid (refunded) | 23,012 | (20,957) |
Non-cash investing and financing activities: | ||
Capitalized right-to-use asset resulting from an extension of an operating lease commitment | 0 | 185,454 |
Capitalized operating lease liability resulting from an extension of an operating lease commitment | $ 0 | $ 185,454 |
1. BASIS OF PRESENTATION
1. BASIS OF PRESENTATION | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
1. BASIS OF PRESENTATION | 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of CynergisTek, Inc. and its subsidiaries (the “Company,” “we,” “us,” or “CynergisTek”) have been prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) for interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the Securities and Exchange Commission (“SEC”) on March 25, 2021, as amended by Amendment No. 1 on Form 10-K/A filed with the SEC on April 29, 2021. The unaudited condensed consolidated financial statements included herein reflect all adjustments (which include only normal, recurring adjustments) that are, in the opinion of management, necessary to state fairly our financial position and results of operations as of and for the periods presented. The results for such periods are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As a result, actual results could differ from those estimates. The accompanying unaudited condensed consolidated financial statements include the accounts of CynergisTek and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. Based on our integration strategies, and an analysis of how our Chief Operating Decision Makers review, manage and are compensated, we have determined that the Company operates as one segment. For the periods presented, all revenues were derived from domestic operations. We have performed an evaluation of subsequent events through the date of filing these unaudited condensed consolidated financial statements with the SEC. Liquidity and Capital Resources As of June 30, 2021, our cash balance was $4.0 million, current assets minus current liabilities was positive $6.7 million and our non-current debt and lease obligations totaled $2.8 million. This $2.8 million of debt is related to the U.S. Small Business Administration (“SBA”) Paycheck Protection Program loan (the “PPP Loan”), received pursuant to the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), that was forgiven in August 2021 as described in Note 9 to the unaudited condensed consolidated financial statements. The level of additional cash needed to fund operations and our ability to conduct business for the next twelve months will be influenced primarily by the following factors: · · · · We have historically funded our operating costs, acquisition activities, working capital requirements and capital expenditures with cash from operations, proceeds from the issuances of our common stock and other financing arrangements. We are currently operating in a cash flow negative position while we seek to maintain and grow our cybersecurity business and cover our public company expenses during this uncertain time. In connection with our most recent results for the six months ended June 30, 2021, we reported a loss from operations of $1.2 million after excluding non-cash items for depreciation, amortization of intangibles, stock-based compensation and the change in valuation of the contingent earnout. Cash used in operating activities was $1.3 million for the six months ended June 30, 2021. In late 2019, a novel strain of coronavirus (COVID-19) was first detected in Wuhan, China. Following the outbreak of this virus, governments throughout the world, including in the United States of America, have quarantined certain affected regions, restricted travel and imposed significant limitations on other economic activities. Our customer base is heavily concentrated in the healthcare provider space. The healthcare industry has experienced significant financial losses due to the pandemic and are still contending with strained budgets but are showing signs of re-engagement. Sales cycles are longer and pricing pressure is constant. The resurgence of the virus with the Delta Variant has caused some to return to operating with caution. Our operations team is closely monitoring the impact to the Company’s business, including its cash flows, customers and employees. We have heard and are working with a number of our active customers since the outbreak began providing relief in the form of extended payment terms and other contractual restructurings. If the situation continues to impact our customers’ cash flow or resources available for cybersecurity and privacy projects, our cash flows, financial position and operating results for fiscal year 2021 and beyond will be negatively impacted. We did experience a negative financial impact from March 2020 through June 2021 that management anticipates will continue to impact revenue and earnings for the foreseeable future due to COVID-19, primarily because many of the initial economic effects of the early stages of the COVID-19 pandemic resulting from the various shelter-in-place and other social distancing orders occurred towards the end of our first quarter of 2020. The severity and duration of the COVID-19 pandemic is uncertain, and such uncertainty will likely continue in the near term. We will continue to actively monitor the situation taking into account the impact to our employees, customers and partners. At the end of 2019 and through the first quarter of 2021, we reduced staffing levels to reduce expenses that included permanent and temporary cost reductions, the precise extent of which will depend on the duration of the COVID-19 disruptions to our customers and our short-term financial performance. In addition, we received the PPP Loan pursuant to the CARES Act, which we anticipate will be fully forgiven and we received and anticipate having approximately $0.7 million per quarter in employee retention tax credits in the first, second and third quarters of 2021. With the proceeds from the PPP Loan and the employee retention tax credits, we have tried to minimize staff reductions in the areas of Sales and Delivery, our primary customer facing roles, to lessen the impact to our customers during this time of heightened security risks for the healthcare industry. If necessary, we could further reduce personnel and other variable and semi-variable costs to conserve cash and operate as a going concern. However, those actions if required, could negatively impact the long-term outlook of the business. On November 12, 2020, we entered into an Equity Distribution Agreement with Craig-Hallum Capital Group LLC (the “Agent”), under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $5.0 million in an “at-the-market” or ATM offering, to or through the Agent. During November and December of 2020, the Company received gross proceeds under the Equity Distribution agreement of $2,027,000 from the issuance of 1,315,000 shares of our common stock and paid an aggregate of $61,000 to the Agent in commissions and $123,000 in other offering-related expenses, yielding net proceeds of $1,843,000. We believe that our existing sources of liquidity, including cash and cash equivalents, the proceeds from the PPP Loan, employee retention tax credits and tax refunds from NOL carrybacks, the ability to raise equity under our shelf registration (including via the Equity Distribution Agreement) and future operating cash flows, and other assets will be sufficient to meet our projected capital needs for at least the next twelve months. As we execute our plans over the next twelve months, we intend to carefully monitor the impact on our operating expenses, working capital needs and cash balances relative to the availability of cost-effective debt and equity financing. In the event that capital is not available, we may then have to scale back operations, reduce expenses, and/or curtail future plans to manage our liquidity and capital resources. However, we cannot provide assurance that we will be able to raise additional capital. The COVID-19 pandemic will likely continue to create uncertainty and volatility in the financial markets which may impact our operations and our ability to access capital and/or the terms under which we can do so. The impact of the COVID-19 pandemic on the economy and our operations is fluid and constantly evolving; we will continue to assess a variety of measures to improve our financial performance and liquidity. The accompanying unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. |
2. RECENTLY ISSUED ACCOUNTING P
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | 2 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Recently Issued Accounting Pronouncements Adopted None. Recently Issued Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued an amendment to the guidance on the measurement of credit losses on financial instruments. The amendment updates the guidance for measuring and recording credit losses on financial assets measured and amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The guidance is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for annual periods after December 15, 2018. Management does not expect the impact from this guidance will have a material impact on our consolidated financial statements. |
3. ACCOUNTS RECEIVABLE
3. ACCOUNTS RECEIVABLE | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
3. ACCOUNTS RECEIVABLE | 3. ACCOUNTS RECEIVABLE A summary of accounts receivable is as follows: June 30, 2021 December 31, 2020 Trade receivables $ 1,970,557 $ 2,083,761 Allowance for doubtful accounts - (20,625) $ 1,970,557 $ 2,063,136 |
4. DEFERRED COMMISSIONS
4. DEFERRED COMMISSIONS | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
4. DEFERRED COMMISSIONS | 4. DEFERRED COMMISSIONS Our incremental costs of obtaining a contract, which consist of sales commissions, are deferred and amortized over the period of contract performance. Deferred commissions are included in prepaid and other current assets in our consolidated balance sheets. We had $674,000 and $730,000 of unamortized deferred commissions as of June 30, 2021, and December 31, 2020, respectively. We had $184,000 and $367,000 of commissions expense for the three and six months ended June 30, 2021, respectively. Commissions expense for the three and six months ended June 30, 2020, was $147,000 and $264,000, respectively. |
5. PROPERTY AND EQUIPMENT
5. PROPERTY AND EQUIPMENT | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
5. PROPERTY AND EQUIPMENT | 5. PROPERTY AND EQUIPMENT A summary of property and equipment follows: June 30, 2021 December 31, 2020 Furniture and fixtures $ 235,245 $ 235,245 Computers and office equipment 816,921 792,181 Right of use assets 316,844 1,843,818 1,369,010 2,871,244 Less accumulated depreciation and amortization (1,067,686) (2,329,719) $ 301,324 $ 541,525 |
6. LEASES
6. LEASES | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
6. LEASES | 6. LEASES We previously leased approximately 9,600 square feet of office space in Austin, Texas. In March 2020, we amended this lease reducing the office space to 5,000 square feet and extended the lease term to May 31, 2022. We lease approximately 3,700 square feet of office space in Minneapolis, Minnesota. In July 2021, we amended this lease extending the term to January 31, 2022. We leased approximately 18,000 square feet of office space in Mission Viejo, California. This lease terminated in April 2021. During the first quarter of 2019, we subleased this space to two subtenants. The terms of these subleases ended concurrently with the end of our lease obligation in April 2021. We used a discount rate of 5.5% in determining our operating lease liabilities which represented our incremental borrowing rate. Short-term leases with initial terms of twelve months or less are not capitalized. Right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. Certain lease agreements contain extension options; however, we have not included such options as part of right-of-use assets and lease liabilities because we originally did not expect to extend the leases. We measure and record a right-of-use asset and lease liability based on the discount rate implicit in the lease, if known. In cases where the discount rate implicit in the lease is not known, we measure the right-of-use assets and lease liabilities using a discount rate equal to our estimated incremental borrowing rate for loans with similar collateral and duration. Operating lease expense was comprised of the following: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Operating lease cost $ 82,740 $ 173,796 $ 266,536 $ 379,247 Sublet income (19,954) (116,299) (148,491) (232,247) $ 62,786 $ 57,497 $ 118,045 $ 147,000 Maturities of lease liabilities are as follows: Operating Leases 2021 (remaining fiscal year) $ 54,020 2022 41,690 Total lease payments 95,710 Less imputed interest (4,207) Total lease liabilities 91,503 Less current portion of lease liabilities (91,503) Long-term lease liabilities $ - |
7. INTANGIBLE ASSETS
7. INTANGIBLE ASSETS | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
7. INTANGIBLE ASSETS | 7. INTANGIBLE ASSETS Intangible assets are amortized over expected useful lives ranging from 1.5 to 10 years and consist of the following: June 30, 2021 December 31, 2020 Carrying Amount Accumulated Amortization and Impairment Net Book Value Carrying Amount Accumulated Amortization and Impairment Net Book Value Acquired technology $ 10,100,000 $ (5,374,602) $ 4,725,398 $ 10,100,000 $ (4,934,720) $ 5,165,280 Customer relationships 4,650,000 (4,481,176) 168,824 4,650,000 (4,445,000) 205,000 Trademarks 2,300,000 (1,811,661) 488,339 2,300,000 (1,606,663) 693,337 $ 17,050,000 $ (11,667,439) $ 5,382,561 $ 17,050,000 $ (10,986,383) $ 6,063,617 |
8. DEFERRED REVENUE
8. DEFERRED REVENUE | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
8. DEFERRED REVENUE | 8. DEFERRED REVENUE We record deferred revenues when amounts are billed to customers, or cash is received from customers, in advance of our performance. During the six months ended June 30, 2021 and 2020, $798,000 and $1,085,000, respectively, of managed services revenues were recognized, that were included in deferred revenue at the beginning of the respective periods. During the three months ended June 30, 2021 and 2020, $260,000 and $154,000, respectively, of consulting and professional services revenues were recognized, that were included in deferred revenue at the beginning of the respective periods. |
9. PAYCHECK PROTECTION PROGRAM
9. PAYCHECK PROTECTION PROGRAM LOAN | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
9. PAYCHECK PROTECTION PROGRAM LOAN | 9. PAYCHECK PROTECTION PROGRAM LOAN On April 20, 2020, we received $2,825,500 in loan funding from the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), established pursuant to the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The unsecured loan (the “PPP Loan”) is evidenced by a promissory note issued by the Company (the “Note”) in favor of BMO Harris Bank N.A. The Company used the PPP Loan proceeds to cover payroll costs, rent and utilities in accordance with the relevant terms and conditions of the CARES Act. Under the terms of the Note and the PPP Loan, interest accrued on the outstanding principal at the rate of 1.0% per annum. The term of the Note was two years, unless sooner provided in connection with an event of default under the Note. To the extent the PPP Loan amount was not forgiven, the Company would have been obligated to make equal monthly payments of principal and interest, beginning seven months from the date of the Note, until the maturity date. The Company had not started making interest payments prior to its notice of forgiveness decision received from the SBA in August 2021. Details regarding the Note can be found in our Current Report on Form 8-K filed on April 20, 2020. The Company recognized interest charges associated with the PPP Loan of approximately $7,000 and $14,000 for the three and six months ended June 30, 2021. The Company recognized interest charges of approximately $6,000 for the three and six months ended June 30, 2020. The Company received notice in August 2021 from the SBA that the full principal balance and related interest has been forgiven. |
10. PROMISSORY NOTES
10. PROMISSORY NOTES | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
10. PROMISSORY NOTES | 10. PROMISSORY NOTES In connection with the acquisition of CTEK Security, Inc. (formerly CynergisTek, Inc.), we issued a promissory note totaling $4,500,000 to Michael McMillan (the “Seller Note”). In March 2018, the Company repaid $2,250,000 plus accrued interest on the Seller Note and agreed to amend and restate the Seller Note in the remaining principal amount of $2,250,000. The Seller Note bears interest at a rate of 8% per annum, provides for quarterly payments of principal and interest and matures on March 31, 2022. As of June 30, 2021, and December 31, 2020, the outstanding principal balance due under the Seller Note was $422,000 and $703,000, respectively. Interest charges associated with the Seller Note totaled approximately $10,000 and $23,000, respectively for the three and six months ended June 30, 2021, and $22,000 and $46,000, respectively for the three and six months ended June 30, 2020. |
11. REVENUES
11. REVENUES | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
11. REVENUES | 11. REVENUES Below is a summary of our revenues disaggregated by revenue source. Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Managed services $ 2,184,051 $ 2,938,753 $ 4,608,661 $ 5,939,765 Consulting and professional services 1,691,092 1,618,818 3,440,003 3,733,633 $ 3,875,143 $ 4,557,571 $ 8,048,664 $ 9,673,398 |
12. WARRANTS, OPTIONS AND RESTR
12. WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
12. WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS | 12. WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS Warrant Issued for Securities Purchase Agreement On April 3, 2020, we entered into a Securities Purchase Agreement with Horton Capital Management, LLC (“Horton”) which provided that Horton was committed to purchase up to an aggregate of $2,500,000 of shares of the Company’s common stock over the term of the agreement, at the election of the Company, which terminated on March 31, 2021. Additionally, if and when the Company sold shares to Horton under the commitment, the Company agreed to grant to Horton a warrant, with the same number of shares of common stock purchased by Horton in the particular funding, with an exercise price equal to 125% of the purchase price of the shares of common stock sold in such funding, with a 10-year term. No purchases were made under the Securities Purchase Agreement. Upon signing the agreement, the Company issued Horton a warrant (the “Horton Warrant”) to purchase up to 500,000 shares of common stock in consideration of Horton’s obligation to purchase the shares, at an exercise price of $2.50 per share, subject to certain anti-dilution adjustments as set forth in the warrant. The fair value of this warrant of $390,000 was determined using the Black-Scholes option-pricing model and was expensed during the second quarter of 2020. At the end of 2020, the Company issued common stock under an equity distribution agreement receiving net proceeds of $1,843,000 from the issuance of 1,315,000 shares of our common stock that resulted in a Q1 2021 anti-dilution adjustment increasing the number of shares under the Horton Warrant to 518,915 and reducing the exercise price to $2.41. The resulting difference in fair value of the Horton Warrant with the new exercise price was $6,000 and determined using the Black-Scholes option-pricing model and recorded as a deemed dividend in our consolidated statements of stockholders’ equity. As the Company has an accumulated deficit, the deemed dividend was recorded within additional paid-in capital. The detailed terms and conditions of the Horton Securities Purchase Agreement and the Horton Warrant can be found in the documents, which were included as Exhibits 10.1 and 10.3, respectively, to our Current Report on Form 8-K, filed with the SEC on April 7, 2020. Below is a summary of warrant activities during the six-month period ended June 30, 2021: Warrants Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2020 577,779 $ 2.57 8.29 $ - 18,915 $ 2.41 9.00 $ - - - - - Outstanding at June 30, 2021 596,694 $ 2.49 7.82 $ - Exercisable at June 30, 2021 596,694 $ 2.49 7.82 $ - 2020 Equity Incentive Plan The 2020 Equity Incentive Plan provides for a total number of shares available for issuance of 3,745,621 shares of our common stock, and it provides for the granting of stock options, stock appreciation rights, restricted stock units and restricted stock to our employees, members of the Board of Directors and service providers. Below is a summary of stock option activities during the three-month period ended June 30, 2021: Options Number of Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2020 1,040,839 $ 3.27 9.66 $ 46,750 100,000 $ 2.75 - - (32,334) 1.94 Outstanding at June 30, 2021 1,108,505 $ 3.26 8.04 $ - Exercisable at June 30, 2021 335,172 $ 3.66 6.38 $ - During the six months ended June 30, 2021, we granted 100,000 options to an employee to purchase shares of our common stock at an exercise price of $2.75 per share. The exercise price equals the fair value of our stock on the grant date. The options have graded vesting annually over three years. The fair value of the options of approximately $135,000 was determined using the Black-Scholes option-pricing model. Below is a summary of restricted stock unit activity during the six-month period ended June 30, 2021: Restricted Stock Units Shares Weighted Average Grant Date Fair Value per Share Weighted Average Vesting Period in Years Non-vested at December 31, 2020 555,350 $ 3.38 1.24 285,000 2.37 (55,000) 2.38 (43,500) 3.34 Non-vested at June 30, 2021 741,850 $ 3.07 1.24 There are 125,000 shares of restricted stock units which have vested but had not yet been issued as of June 30, 2021. For the three and six months ended June 30, 2021 and 2020, stock-based compensation and other equity instrument related expenses recognized in the consolidated statements of operations were as follows: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Cost of revenues $ 39,002 $ 207,173 $ (3,191) $ 286,455 Sales and marketing 34,850 80,598 63,831 157,891 General and administrative 264,420 318,494 506,069 572,926 Finance cost for equity commitment - 390,000 - 390,000 Total stock-based compensation and other equity instrument related expenses $ 338,272 $ 996,265 $ 566,709 $ 1,407,272 |
13. BASIC AND DILUTED NET LOSS
13. BASIC AND DILUTED NET LOSS PER SHARE | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
13. BASIC AND DILUTED NET LOSS PER SHARE | 13. BASIC AND DILUTED NET LOSS PER SHARE Basic net loss per share is calculated using the weighted average number of shares of our common stock issued and outstanding during a certain period and is calculated by dividing net loss by the weighted average number of shares of our common stock issued and outstanding during such period. Diluted net loss per share is calculated using the weighted average number of common and potentially dilutive common shares outstanding during the period, using the as-if-converted method for secured convertible notes, and the treasury stock method for options and warrants. Diluted net loss per share does not include potentially dilutive securities because such inclusion in the computation would be anti-dilutive. For the three and six months ended June 30, 2021, potentially dilutive securities consisted of options and warrants to purchase 1,705,199 shares of common stock at prices ranging from $1.08 to $4.86 per share. Of these potentially dilutive securities, none of the shares to purchase common stock from the options and warrants are included in the computation of diluted earnings per share, because the effect of including the remaining instruments would be anti-dilutive. Also excluded from potentially dilutive securities are 741,850 shares of non-vested restricted stock units and 125,000 shares of restricted stock units which vested but had not been issued as of June 30, 2021. For the three and six months ended June 30, 2020, potentially dilutive securities consisted of options and warrants to purchase 1,445,658 shares of common stock at prices ranging from $1.44 to $4.05 per share. Of these potentially dilutive securities, none of the shares to purchase common stock from the options and warrants are included in the computation of diluted earnings per share, because the effect of including the remaining instruments would be anti-dilutive. Also excluded from potentially dilutive securities are 45,000 shares of restricted stock units which have vested but had not been issued by period end and 863,500 shares of non-vested restricted stock units. Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Numerators: $ (46,888) $ (2,454,661) $(967,199) $(4,305,284) Denominator: 12,120,698 10,495,700 12,081,328 10,432,443 Dilutive common stock equivalents: - - - - - - - - 12,120,698 10,495,700 12,081,328 10,432,443 Net loss per share: $ (0.00) $ (0.23) $ (0.08) $ (0.41) $ (0.00) $ (0.23) $ (0.08) $ (0.41) |
14. REMAINING PERFORMANCE OBLIG
14. REMAINING PERFORMANCE OBLIGATIONS | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
14. REMAINING PERFORMANCE OBLIGATIONS | 14. REMAINING PERFORMANCE OBLIGATIONS We had remaining performance obligations of approximately $17.9 million as of June 30, 2021. Our remaining performance obligations represent the amount of transaction price for which work has not been performed and revenue has not been recognized. When applying Accounting Standards Codification (“ASC”) Topic 606, with only the non-cancelable portion of these contracts included in our performance obligations we had approximately $16.0 million as of June 30, 2021. We expect to recognize revenue on approximately 83% of the remaining non-cancelable portion of these performance obligations over the next 24 months, with the balance thereafter. |
15. CONCENTRATIONS
15. CONCENTRATIONS | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
15. CONCENTRATIONS | 15. CONCENTRATIONS Cash Concentrations At times, cash balances held in financial institutions are in excess of federally insured limits. Management performs periodic evaluations of the relative credit standing of financial institutions and limits the amount of risk by selecting financial institutions with a strong credit standing. Major Customers Our largest customer accounted for approximately 14% and 11% of our revenues for the six months ended June 30, 2021 and 2020, respectively. Our largest customer had accounts receivable totaling approximately $130,000 and $74,000 as of June 30, 2021, and December 31, 2020, respectively. |
16. EARNOUT LIABILITY - BACKBON
16. EARNOUT LIABILITY - BACKBONE ENTERPRISES | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
16. EARNOUT LIABILITY - BACKBONE ENTERPRISES | 16. EARNOUT LIABILITY – BACKBONE ENTERPRISES In 2019, we entered into a Stock Purchase Agreement (the “Backbone Purchase Agreement”) with Backbone Enterprises Inc., a Minnesota corporation (“Backbone”), and its stockholders, (the “Stockholders”), pursuant to which we acquired 100% of the issued and outstanding shares of common stock (the “Shares”) of Backbone from the Stockholders. Pursuant to the Backbone Purchase Agreement, the aggregate purchase price for the Shares included an earn-out, pursuant to which the Stockholders may be entitled to an additional $4,000,000 based upon the post-closing financial performance of Backbone, to be calculated based upon revenue generated by the Backbone business during the three-year earn-out period. There was no earn-out earned for the first year of the agreement. We performed an updated valuation of the contingent earn-out as of June 30, 2021, which resulted in a full write-off of the previous estimate of $1,300,000. |
17. EMPLOYMENT AGREEMENTS
17. EMPLOYMENT AGREEMENTS | 6 Months Ended |
Jun. 30, 2021 | |
Notes | |
17. EMPLOYMENT AGREEMENTS | 17. EMPLOYMENT AGREEMENTS Caleb Barlow On July 26, 2021, Caleb Barlow, notified the Board of Directors (the “Board”) of his resignation as the President and Chief Executive Officer of the Company, effective immediately. Mr. Barlow also informed the Board of his resignation as a member of the Board, to be effective August 26, 2021. The Board accepted Mr. Barlow’s resignation and, on July 26, 2021, appointed Michael “Mac” McMillan as President and Chief Executive Officer of the Company, effective immediately. Mr. Barlow’s resignation includes a severance payment of approximately $578,000 and the issuance of 200,000 shares of common stock as a result of the accelerated vesting and settlement of 200,000 restricted stock units. Michael H. McMillan In connection with Mr. McMillan’s appointment as President and Chief Executive Officer, the Company and Mr. McMillan entered into an employment agreement (the “Employment Agreement”) to be effective as of July 26, 2021 (the “Effective Date”). Pursuant to the Employment Agreement, Mr. McMillan will have the duties and responsibilities as are commensurate with the positions of President and Chief Executive Officer, as reasonably and lawfully directed by the Board. The initial term of the Employment Agreement is 12 months from the Effective Date. Pursuant to the Employment Agreement, Mr. McMillan’s base salary will be $300,000. Except in the event that Mr. McMillan’s employment is terminated for Cause (as defined below), the base salary is guaranteed and shall, in any event, be paid through the end of the 12-month term of the Employment Agreement. The Company has the right to terminate Mr. McMillan’s employment for “Cause,” which is defined in the Employment Agreement to mean: (a) acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of Mr. McMillan with respect to his obligations or otherwise relating to the business of Company; (b) Mr. McMillan’s material breach of the Employment Agreement; and (c) Mr. McMillan’s conviction or entry of a plea of nolo contendere for fraud, misappropriation or embezzlement, or any felony or crime of moral turpitude. The preceding description of the Employment Agreement is a summary of its material terms, does not purport to be complete. The Employment Agreement was filed as Exhibit 10.1 to our Current Report on Form 8-K filed on July 26, 2021. |
2. RECENTLY ISSUED ACCOUNTING_2
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Policies) | 6 Months Ended |
Jun. 30, 2021 | |
Policies | |
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | Recently Issued Accounting Pronouncements Adopted None. Recently Issued Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued an amendment to the guidance on the measurement of credit losses on financial instruments. The amendment updates the guidance for measuring and recording credit losses on financial assets measured and amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The guidance is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for annual periods after December 15, 2018. Management does not expect the impact from this guidance will have a material impact on our consolidated financial statements. |
3. ACCOUNTS RECEIVABLE_ A summa
3. ACCOUNTS RECEIVABLE: A summary of accounts receivable is as follows (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Tables/Schedules | |
A summary of accounts receivable is as follows | A summary of accounts receivable is as follows: June 30, 2021 December 31, 2020 Trade receivables $ 1,970,557 $ 2,083,761 Allowance for doubtful accounts - (20,625) $ 1,970,557 $ 2,063,136 |
5. PROPERTY AND EQUIPMENT_ Sche
5. PROPERTY AND EQUIPMENT: Schedule of Property and Equipment (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Tables/Schedules | |
Schedule of Property and Equipment | A summary of property and equipment follows: June 30, 2021 December 31, 2020 Furniture and fixtures $ 235,245 $ 235,245 Computers and office equipment 816,921 792,181 Right of use assets 316,844 1,843,818 1,369,010 2,871,244 Less accumulated depreciation and amortization (1,067,686) (2,329,719) $ 301,324 $ 541,525 |
6. LEASES_ Operating lease expe
6. LEASES: Operating lease expense was comprised of the following (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Tables/Schedules | |
Operating lease expense was comprised of the following | Operating lease expense was comprised of the following: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Operating lease cost $ 82,740 $ 173,796 $ 266,536 $ 379,247 Sublet income (19,954) (116,299) (148,491) (232,247) $ 62,786 $ 57,497 $ 118,045 $ 147,000 |
6. LEASES_ Maturities of lease
6. LEASES: Maturities of lease liabilities are as follows (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Tables/Schedules | |
Maturities of lease liabilities are as follows | Maturities of lease liabilities are as follows: Operating Leases 2021 (remaining fiscal year) $ 54,020 2022 41,690 Total lease payments 95,710 Less imputed interest (4,207) Total lease liabilities 91,503 Less current portion of lease liabilities (91,503) Long-term lease liabilities $ - |
7. INTANGIBLE ASSETS_ Schedule
7. INTANGIBLE ASSETS: Schedule of Finite-Lived Intangible Assets (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Tables/Schedules | |
Schedule of Finite-Lived Intangible Assets | June 30, 2021 December 31, 2020 Carrying Amount Accumulated Amortization and Impairment Net Book Value Carrying Amount Accumulated Amortization and Impairment Net Book Value Acquired technology $ 10,100,000 $ (5,374,602) $ 4,725,398 $ 10,100,000 $ (4,934,720) $ 5,165,280 Customer relationships 4,650,000 (4,481,176) 168,824 4,650,000 (4,445,000) 205,000 Trademarks 2,300,000 (1,811,661) 488,339 2,300,000 (1,606,663) 693,337 $ 17,050,000 $ (11,667,439) $ 5,382,561 $ 17,050,000 $ (10,986,383) $ 6,063,617 |
11. REVENUES_ Below is a summar
11. REVENUES: Below is a summary of our revenues disaggregated by revenue source (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Tables/Schedules | |
Below is a summary of our revenues disaggregated by revenue source | Below is a summary of our revenues disaggregated by revenue source. Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Managed services $ 2,184,051 $ 2,938,753 $ 4,608,661 $ 5,939,765 Consulting and professional services 1,691,092 1,618,818 3,440,003 3,733,633 $ 3,875,143 $ 4,557,571 $ 8,048,664 $ 9,673,398 |
12. WARRANTS, OPTIONS AND RES_2
12. WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS: Schedule of Warrant Activity (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Tables/Schedules | |
Schedule of Warrant Activity | Below is a summary of warrant activities during the six-month period ended June 30, 2021: Warrants Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2020 577,779 $ 2.57 8.29 $ - 18,915 $ 2.41 9.00 $ - - - - - Outstanding at June 30, 2021 596,694 $ 2.49 7.82 $ - Exercisable at June 30, 2021 596,694 $ 2.49 7.82 $ - |
12. WARRANTS, OPTIONS AND RES_3
12. WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS: Schedule of Share-based Compensation, Stock Options, Activity (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Tables/Schedules | |
Schedule of Share-based Compensation, Stock Options, Activity | Below is a summary of stock option activities during the three-month period ended June 30, 2021: Options Number of Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2020 1,040,839 $ 3.27 9.66 $ 46,750 100,000 $ 2.75 - - (32,334) 1.94 Outstanding at June 30, 2021 1,108,505 $ 3.26 8.04 $ - Exercisable at June 30, 2021 335,172 $ 3.66 6.38 $ - |
12. WARRANTS, OPTIONS AND RES_4
12. WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS: Schedule of Restricted Stock Units, Activity (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Tables/Schedules | |
Schedule of Restricted Stock Units, Activity | Below is a summary of restricted stock unit activity during the six-month period ended June 30, 2021: Restricted Stock Units Shares Weighted Average Grant Date Fair Value per Share Weighted Average Vesting Period in Years Non-vested at December 31, 2020 555,350 $ 3.38 1.24 285,000 2.37 (55,000) 2.38 (43,500) 3.34 Non-vested at June 30, 2021 741,850 $ 3.07 1.24 |
12. WARRANTS, OPTIONS AND RES_5
12. WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS: Schedule of stock-based compensation expense (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Tables/Schedules | |
Schedule of stock-based compensation expense | Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Cost of revenues $ 39,002 $ 207,173 $ (3,191) $ 286,455 Sales and marketing 34,850 80,598 63,831 157,891 General and administrative 264,420 318,494 506,069 572,926 Finance cost for equity commitment - 390,000 - 390,000 Total stock-based compensation and other equity instrument related expenses $ 338,272 $ 996,265 $ 566,709 $ 1,407,272 |
13. BASIC AND DILUTED NET LOS_2
13. BASIC AND DILUTED NET LOSS PER SHARE: Schedule of Earnings Per Share, Basic and Diluted (Tables) | 6 Months Ended |
Jun. 30, 2021 | |
Tables/Schedules | |
Schedule of Earnings Per Share, Basic and Diluted | Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Numerators: $ (46,888) $ (2,454,661) $(967,199) $(4,305,284) Denominator: 12,120,698 10,495,700 12,081,328 10,432,443 Dilutive common stock equivalents: - - - - - - - - 12,120,698 10,495,700 12,081,328 10,432,443 Net loss per share: $ (0.00) $ (0.23) $ (0.08) $ (0.41) $ (0.00) $ (0.23) $ (0.08) $ (0.41) |
1. BASIS OF PRESENTATION (Detai
1. BASIS OF PRESENTATION (Details) - USD ($) | Apr. 20, 2020 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | Dec. 31, 2020 |
Details | |||||
Cash and Cash Equivalents at Carrying Value, rounded | $ 4,000,000 | ||||
Working Capital Deficit | 6,700,000 | ||||
Debt and Lease Obligation | 2,800,000 | ||||
Proceeds from Paycheck Protection Program loan | $ 2,825,500 | $ 0 | $ 2,825,500 | $ 2,027,000 | |
Stock Issued During Period, Shares, New Issues | 1,315,000 | 1,315,000 | |||
Agent Commissions | $ 61,000 | ||||
Offering-related Expenses | 123,000 | ||||
Proceeds from Issuance of Common Stock | $ 1,843,000 | $ 1,843,000 |
3. ACCOUNTS RECEIVABLE_ A sum_2
3. ACCOUNTS RECEIVABLE: A summary of accounts receivable is as follows (Details) - USD ($) | Jun. 30, 2021 | Dec. 31, 2020 |
Details | ||
Trade receivables | $ 1,970,557 | $ 2,083,761 |
Allowance for doubtful accounts | 0 | (20,625) |
Accounts receivable, net of allowance for doubtful accounts | $ 1,970,557 | $ 2,063,136 |
4. DEFERRED COMMISSIONS (Detail
4. DEFERRED COMMISSIONS (Details) - USD ($) | 3 Months Ended | ||
Jun. 30, 2021 | Jun. 30, 2020 | Dec. 31, 2020 | |
Sales Commissions and Fees | $ 184,000 | $ 367,000 | |
Cost of Sales | |||
Deferred Costs and Other Assets | $ 674,000 | $ 730,000 |
5. PROPERTY AND EQUIPMENT_ Sc_2
5. PROPERTY AND EQUIPMENT: Schedule of Property and Equipment (Details) - USD ($) | Jun. 30, 2021 | Dec. 31, 2020 |
Property, Plant and Equipment, Gross | $ 1,369,010 | $ 2,871,244 |
Right of use assets | 316,844 | 1,843,818 |
Less accumulated depreciation and amortization | (1,067,686) | (2,329,719) |
Property and equipment, net | 301,324 | 541,525 |
Furniture and Fixtures | ||
Property, Plant and Equipment, Gross | 235,245 | 235,245 |
Office Equipment | ||
Property, Plant and Equipment, Gross | $ 816,921 | $ 792,181 |
6. LEASES (Details)
6. LEASES (Details) | 6 Months Ended |
Jun. 30, 2021 | |
Details | |
Lessee, Operating Lease, Description | We previously leased approximately 9,600 square feet of office space in Austin, Texas. In March 2020, we amended this lease reducing the office space to 5,000 square feet and extended the lease term to May 31, 2022. We lease approximately 3,700 square feet of office space in Minneapolis, Minnesota. In July 2021 |
Operating Lease, Weighted Average Discount Rate, Percent | 5.50% |
6. LEASES_ Operating lease ex_2
6. LEASES: Operating lease expense was comprised of the following (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | |
Details | ||||
Operating lease cost | $ 82,740 | $ 173,796 | $ 266,536 | $ 379,247 |
Sublet income | (19,954) | (116,299) | (148,491) | (232,247) |
Net operating lease cost | $ 62,786 | $ 57,497 | $ 118,045 | $ 147,000 |
6. LEASES_ Maturities of leas_2
6. LEASES: Maturities of lease liabilities are as follows (Details) - USD ($) | Jun. 30, 2021 | Dec. 31, 2020 |
Details | ||
Operating Leases, Future Minimum Payments Due, Next Twelve Months | $ 54,020 | |
Operating Leases, Future Minimum Payments, Due in Two Years | 41,690 | |
Operating Leases, Future Minimum Payments Due | 95,710 | |
Lessee, Operating Lease, Liability, Undiscounted Excess Amount | (4,207) | |
Operating Lease, Liability | 91,503 | |
Current portion of operating lease liability | (91,503) | $ (252,398) |
Long-term lease liabilities | $ 0 |
7. INTANGIBLE ASSETS (Details)
7. INTANGIBLE ASSETS (Details) | 6 Months Ended |
Jun. 30, 2021 | |
Minimum | |
Finite-Lived Intangible Asset, Useful Life | 1 year 6 months |
Maximum | |
Finite-Lived Intangible Asset, Useful Life | 10 years |
7. INTANGIBLE ASSETS_ Schedul_2
7. INTANGIBLE ASSETS: Schedule of Finite-Lived Intangible Assets (Details) - USD ($) | Jun. 30, 2021 | Dec. 31, 2020 |
Technology-Based Intangible Assets | ||
Carrying Amount | $ 10,100,000 | $ 10,100,000 |
Accumulated Amortization and Impairment | (5,374,602) | (4,934,720) |
Net Book Value | 4,725,398 | 5,165,280 |
Customer Relationships | ||
Carrying Amount | 4,650,000 | 4,650,000 |
Accumulated Amortization and Impairment | (4,481,176) | (4,445,000) |
Net Book Value | 168,824 | 205,000 |
Trademarks | ||
Carrying Amount | 2,300,000 | 2,300,000 |
Accumulated Amortization and Impairment | (1,811,661) | (1,606,663) |
Net Book Value | 488,339 | 693,337 |
Carrying Amount | 17,050,000 | 17,050,000 |
Accumulated Amortization and Impairment | (11,667,439) | (10,986,383) |
Net Book Value | $ 5,382,561 | $ 6,063,617 |
8. DEFERRED REVENUE (Details)
8. DEFERRED REVENUE (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | |
Managed Services Revenues | ||||
Recognition of Deferred Revenue | $ 798,000 | $ 1,085,000 | ||
Consulting And Professional Services Revenues | ||||
Recognition of Deferred Revenue | $ 260,000 | $ 154,000 |
9. PAYCHECK PROTECTION PROGRA_2
9. PAYCHECK PROTECTION PROGRAM LOAN (Details) - USD ($) | Apr. 20, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | Dec. 31, 2020 |
Proceeds from Paycheck Protection Program loan | $ 2,825,500 | $ 0 | $ 2,825,500 | $ 2,027,000 | ||
Debt Instrument, Interest Rate During Period | 1.00% | |||||
Debt Instrument, Term | 2 years | |||||
PPP Loan | ||||||
Interest and Debt Expense | $ 7,000 | $ 6,000 | $ 14,000 | $ 6,000 |
10. PROMISSORY NOTES (Details)
10. PROMISSORY NOTES (Details) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | Dec. 31, 2020 | |
Repayments of Debt | $ 10,000 | $ 22,000 | $ 23,000 | $ 46,000 | |
Seller Notes | |||||
Debt Instrument, Face Amount | $ 4,500,000 | 4,500,000 | |||
Repayments of Debt | $ 2,250,000 | ||||
Debt Instrument, Interest Rate, Stated Percentage | 8.00% | 8.00% | |||
Debt Instrument, Maturity Date | Mar. 31, 2022 | ||||
Outstanding Principal Balance Due | $ 422,000 | $ 422,000 | $ 703,000 |
11. REVENUES_ Below is a summ_2
11. REVENUES: Below is a summary of our revenues disaggregated by revenue source (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | |
Managed Services Revenues | ||||
Net revenues | $ 2,184,051 | $ 2,938,753 | $ 4,608,661 | $ 5,939,765 |
Consulting And Professional Services Revenues | ||||
Net revenues | 1,691,092 | 1,618,818 | 3,440,003 | 3,733,633 |
Net revenues | $ 3,875,143 | $ 4,557,571 | $ 8,048,664 | $ 9,673,398 |
12. WARRANTS, OPTIONS AND RES_6
12. WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS (Details) - USD ($) | Apr. 03, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | Dec. 31, 2020 |
Proceeds from Issuance of Common Stock | $ 1,843,000 | $ 1,843,000 | ||
Stock Issued During Period, Shares, New Issues | 1,315,000 | 1,315,000 | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures | 100,000 | |||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Period Increase (Decrease), Weighted Average Exercise Price | $ 2.75 | |||
Securities Purchase Agreement | ||||
Stock Issued During Period, Value, New Issues | $ 2,500,000 | |||
Initial Warrant | 500,000 | |||
Warrant, Exercise Price, Increase | $ 2.50 | |||
Fair Value Adjustment of Warrants | $ 390,000 |
12. WARRANTS, OPTIONS AND RES_7
12. WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS: Schedule of Warrant Activity (Details) - Warrant | 6 Months Ended | 12 Months Ended |
Jun. 30, 2021USD ($)$ / sharesshares | Dec. 31, 2020USD ($)$ / sharesshares | |
Outstanding | 596,694 | 577,779 |
Outstanding, Weighted Average Price, Beginning Balance | $ / shares | $ 2.49 | $ 2.57 |
Outstanding | 7 years 9 months 25 days | 8 years 3 months 14 days |
Outstanding, Aggregate Intrinsic Value | $ | $ 0 | $ 0 |
Granted | 18,915 | |
Granted, Weighted Average Price | $ / shares | $ 2.41 | |
Granted, Weighted Average Remaining Term in Years | 9 | |
Cancelled and forfeited | 0 | |
Cancelled, Weighted Average Price | 0 | |
Exercisable | 596,694 | |
Exercisable, Weighted Average Exercise Price | $ / shares | $ 2.49 | |
Exercisable, Weighted Average Remaining Term in Years | 7 years 9 months 25 days | |
Exercisable, Aggregate Intrinsic Value | $ | $ 0 |
12. WARRANTS, OPTIONS AND RES_8
12. WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS: Schedule of Share-based Compensation, Stock Options, Activity (Details) - 2020 Equity Incentive Plan - USD ($) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2021 | Dec. 31, 2020 | |
Outstanding | 1,108,505 | 1,040,839 |
Outstanding, Weighted Average Price, Beginning Balance | $ 3.26 | $ 3.27 |
Outstanding | 8 years 14 days | 9 years 7 months 28 days |
Outstanding, Aggregate Intrinsic Value | $ 0 | $ 46,750 |
Granted | 100,000 | |
Granted, Weighted Average Price | $ 2.75 | |
Cancelled and forfeited | (32,334) | |
Cancelled, Weighted Average Price | 1.94 | |
Exercisable | 335,172 | |
Exercisable, Weighted Average Exercise Price | $ 3.66 | |
Exercisable, Weighted Average Remaining Term in Years | 6 years 4 months 17 days | |
Exercisable, Aggregate Intrinsic Value | $ 0 |
12. WARRANTS, OPTIONS AND RES_9
12. WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS: Schedule of Restricted Stock Units, Activity (Details) - Restricted Stock Units (RSUs) - $ / shares | 6 Months Ended | 12 Months Ended |
Jun. 30, 2021 | Dec. 31, 2020 | |
Outstanding | 741,850 | 555,350 |
Outstanding, Weighted Average Price, Beginning Balance | $ 3.07 | $ 3.38 |
Outstanding | 1 year 2 months 26 days | 1 year 2 months 26 days |
Granted | 285,000 | |
Granted, Weighted Average Price | $ 2.37 | |
Vested | (55,000) | |
Vested, Weighted Average Price | $ 2.38 | |
Cancelled and forfeited | (43,500) | |
Cancelled, Weighted Average Price | 3.34 |
12. WARRANTS, OPTIONS AND RE_10
12. WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS: Schedule of stock-based compensation expense (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | |
Cost of Sales | ||||
Stock-based compensation and other equity instrument related expenses | $ 39,002 | $ 207,173 | $ (3,191) | $ 286,455 |
Selling and Marketing Expense | ||||
Stock-based compensation and other equity instrument related expenses | 34,850 | 80,598 | 63,831 | 157,891 |
General and Administrative Expense | ||||
Stock-based compensation and other equity instrument related expenses | 264,420 | 318,494 | 506,069 | 572,926 |
Finance cost for equity commitment | ||||
Stock-based compensation and other equity instrument related expenses | 0 | 390,000 | 0 | 390,000 |
Stock-based compensation and other equity instrument related expenses | $ 338,272 | $ 996,265 | $ 566,709 | $ 1,407,272 |
13. BASIC AND DILUTED NET LOS_3
13. BASIC AND DILUTED NET LOSS PER SHARE (Details) - $ / shares | 6 Months Ended | |
Jun. 30, 2021 | Jun. 30, 2020 | |
Options And Warrants | ||
Potentially Dilutive Securities | 1,705,199 | 1,445,658 |
Options And Warrants | Minimum | ||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Exercise Price | $ 1.08 | $ 1.44 |
Options And Warrants | Maximum | ||
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Exercise Price | $ 4.86 | $ 4.05 |
Restricted Stock Units (RSUs) | ||
Outstanding | 741,850 | 45,000 |
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number | 125,000 | 863,500 |
13. BASIC AND DILUTED NET LOS_4
13. BASIC AND DILUTED NET LOSS PER SHARE: Schedule of Earnings Per Share, Basic and Diluted (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2021 | Jun. 30, 2020 | Jun. 30, 2021 | Jun. 30, 2020 | |
Details | ||||
Net loss attributable to common shareholders | $ (46,888) | $ (2,454,661) | $ (967,199) | $ (4,305,284) |
Denominator: | ||||
Basic | 12,120,698 | 10,495,700 | 12,081,328 | 10,432,443 |
Dilutive common stock equivalents: | ||||
Options and warrants | 0 | 0 | 0 | 0 |
Restricted stock units vested but no issued | 0 | 0 | 0 | 0 |
Diluted | 12,120,698 | 10,495,700 | 12,081,328 | 10,432,443 |
Net loss per share: | ||||
Basic | $ 0 | $ (0.23) | $ (0.08) | $ (0.41) |
Diluted | $ 0 | $ (0.23) | $ (0.08) | $ (0.41) |
14. REMAINING PERFORMANCE OBL_2
14. REMAINING PERFORMANCE OBLIGATIONS (Details) $ in Millions | 6 Months Ended |
Jun. 30, 2021USD ($) | |
Details | |
Deferred Revenue | $ 17.9 |
Revenue Recognition Deferred Revenue Description | We expect to recognize revenue on approximately 83% of the remaining non-cancelable portion of these performance obligations over the next 24 months, with the balance thereafter. |
15. CONCENTRATIONS (Details)
15. CONCENTRATIONS (Details) - USD ($) | 6 Months Ended | ||
Jun. 30, 2021 | Jun. 30, 2020 | Dec. 31, 2020 | |
Concentration Risk, Percentage | 14.00% | 11.00% | |
Accounts receivable, net of allowance for doubtful accounts | $ 1,970,557 | $ 2,063,136 | |
Customer Concentration Risk | |||
Accounts receivable, net of allowance for doubtful accounts | $ 130,000 | $ 74,000 |
16. EARNOUT LIABILITY - BACKB_2
16. EARNOUT LIABILITY - BACKBONE ENTERPRISES (Details) | 6 Months Ended |
Jun. 30, 2021USD ($) | |
Details | |
Postclosing Financial Performance | $ 4,000,000 |
Estimated Fair Value Of Earnout | $ 1,300,000 |
17. EMPLOYMENT AGREEMENTS (Deta
17. EMPLOYMENT AGREEMENTS (Details) | 6 Months Ended |
Jun. 30, 2021USD ($) | |
President | |
Salary and Wage, Officer, Excluding Cost of Good and Service Sold | $ 300,000 |