Cover
Cover - shares | 6 Months Ended | |
Jun. 30, 2022 | Aug. 15, 2022 | |
Cover [Abstract] | ||
Entity Registrant Name | CYNERGISTEK, INC. | |
Entity Central Index Key | 0001011432 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Small Business | true | |
Entity Shell Company | false | |
Entity Emerging Growth Company | false | |
Entity Current Reporting Status | Yes | |
Document Period End Date | Jun. 30, 2022 | |
Entity Filer Category | Non-accelerated Filer | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2022 | |
Entity Common Stock Shares Outstanding | 13,256,570 | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Entity File Number | 000-27507 | |
Entity Incorporation State Country Code | DE | |
Entity Tax Identification Number | 37-1867101 | |
Entity Address Address Line 1 | 11940 Jollyville Road | |
Entity Address Address Line 2 | Suite 300-N | |
Entity Address City Or Town | Austin | |
Entity Address State Or Province | TX | |
Entity Address Postal Zip Code | 78759 | |
City Area Code | 949 | |
Local Phone Number | 614-0700 | |
Security 12b Title | Common Stock, $.001 par value per share | |
Trading Symbol | CTEK | |
Security Exchange Name | NYSE | |
Entity Interactive Data Current | Yes |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Jun. 30, 2022 | Dec. 31, 2021 |
Current Assets: | ||
Cash And Cash Equivalents | $ 1,412,979 | $ 3,575,682 |
Accounts Receivable, Net Of Allowance For Doubtful Accounts | 2,409,539 | 2,007,136 |
Unbilled Services | 731,018 | 542,952 |
Prepaid And Other Current Assets | 1,322,880 | 1,840,178 |
Income Taxes Receivable | 50,920 | 1,484,851 |
Total Current Assets | 5,927,335 | 9,450,799 |
Property And Equipment, Net | 164,697 | 243,791 |
Deposits | 34,310 | 34,310 |
Deferred Income Taxes | 0 | 6,060,129 |
Intangible Assets, Net | 4,175,430 | 4,701,491 |
Goodwill | 8,394,483 | 8,394,483 |
Total Assets | 18,696,255 | 28,885,003 |
Current Liabilities: | ||
Accounts Payable And Accrued Expenses | 1,283,937 | 1,453,454 |
Accrued Compensation And Benefits | 426,287 | 1,189,472 |
Deferred Revenue | 1,618,072 | 1,663,719 |
Earnout Liability | 184,556 | 432,000 |
Promissory Note To Related Parties | 0 | 140,625 |
Operating Lease Liability | 0 | 45,233 |
Total Current Liabilities | 3,512,852 | 4,924,503 |
Stockholders' Equity: | ||
Common stock, par value at $0.001, 33,333,333 shares authorized, 13,256,570 shares issued and outstanding at June 30, 2022, and 13,248,024 shares issued and outstanding at December 31, 2021 | 13,256 | 13,248 |
Additional Paid-in Capital | 41,688,485 | 41,318,917 |
Accumulated Deficit | (26,518,338) | (17,371,665) |
Total Stockholders' Equity | 15,183,403 | 23,960,500 |
Total Liabilities And Stockholders' Equity | $ 18,696,255 | $ 28,885,003 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Jun. 30, 2022 | Dec. 31, 2021 |
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
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 | 13,256,570 | 13,248,024 |
Common Stock, Shares, Outstanding | 13,256,570 | 13,248,024 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | ||||
Net revenues | $ 3,943,394 | $ 3,875,143 | $ 8,603,962 | $ 8,048,664 |
Cost of revenues | 2,636,086 | 2,083,056 | 5,428,651 | 4,173,890 |
Gross profit | 1,307,308 | 1,792,087 | 3,175,311 | 3,874,774 |
Operating expenses: | ||||
Sales and marketing expenses | 1,186,407 | 1,242,240 | 2,363,739 | 2,454,620 |
General and administrative expenses | 1,745,609 | 1,470,593 | 3,269,688 | 3,147,251 |
Change in valuation of contingent earn-out | 0 | (1,300,000) | 0 | (1,300,000) |
Depreciation | 37,130 | 48,186 | 85,352 | 95,882 |
Amortization of acquisition-related intangibles | 263,031 | 340,528 | 526,061 | 681,056 |
Total operating expenses | 3,232,177 | 1,801,547 | 6,244,840 | 5,078,809 |
Loss from operations | (1,924,869) | (9,460) | (3,069,529) | (1,204,035) |
Other (expense) income: | ||||
Other (expense) income | (195) | 11 | (195) | 11 |
Interest expense | 0 | (17,339) | (1,819) | (37,340) |
Total other (expense) income | (195) | (17,328) | (2,014) | (37,329) |
Loss before provision for income taxes | (1,925,064) | (26,788) | (3,071,543) | (1,241,364) |
Income tax (expense) benefit | (6,351,130) | (20,100) | (6,075,130) | 279,999 |
Net loss | $ (8,276,194) | $ (46,888) | $ (9,146,673) | $ (961,365) |
Net loss per share: | ||||
earning Basic | $ (0.62) | $ 0 | $ (0.69) | $ (0.08) |
earning Diluted | $ (0.62) | $ 0 | $ (0.69) | $ (0.08) |
Number of weighted average shares outstanding: | ||||
Basic | 13,256,570 | 12,120,698 | 13,253,551 | 12,081,328 |
Diluted | 13,256,570 | 12,120,698 | 13,253,551 | 12,081,328 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED) - USD ($) | Total | Retained Earnings (Accumulated Deficit) | Additional Paid-in Capital | Common Stock |
Balance, shares at Dec. 31, 2020 | 12,024,967 | |||
Balance, amount at Dec. 31, 2020 | $ 23,451,458 | $ (15,125,086) | $ 38,564,520 | $ 12,024 |
Stock compensation expense for equity awards granted to employees and directors | 228,437 | 0 | 228,437 | $ 0 |
Restricted stock units exercised, shares | 95,731 | |||
Restricted stock units exercised, amount | 0 | 0 | (96) | $ 96 |
Net loss | (914,477) | (914,477) | 0 | $ 0 |
Balance, shares at Mar. 31, 2021 | 12,120,698 | |||
Balance, amount at Mar. 31, 2021 | 22,765,418 | (16,039,563) | 38,792,861 | $ 12,120 |
Balance, shares at Dec. 31, 2020 | 12,024,967 | |||
Balance, amount at Dec. 31, 2020 | 23,451,458 | (15,125,086) | 38,564,520 | $ 12,024 |
Net loss | (961,365) | |||
Balance, shares at Jun. 30, 2021 | 12,120,698 | |||
Balance, amount at Jun. 30, 2021 | 23,056,802 | (16,086,451) | 39,131,133 | $ 12,120 |
Balance, shares at Mar. 31, 2021 | 12,120,698 | |||
Balance, amount at Mar. 31, 2021 | 22,765,418 | (16,039,563) | 38,792,861 | $ 12,120 |
Stock compensation expense for equity awards granted to employees and directors | 338,272 | 0 | 338,272 | 0 |
Net loss | (46,888) | (46,888) | 0 | $ 0 |
Balance, shares at Jun. 30, 2021 | 12,120,698 | |||
Balance, amount at Jun. 30, 2021 | 23,056,802 | (16,086,451) | 39,131,133 | $ 12,120 |
Balance, shares at Dec. 31, 2021 | 13,248,024 | |||
Balance, amount at Dec. 31, 2021 | 23,960,500 | (17,371,665) | 41,318,917 | $ 13,248 |
Stock compensation expense for equity awards granted to employees and directors | 191,161 | 0 | 191,161 | $ 0 |
Restricted stock units exercised, shares | 8,546 | |||
Restricted stock units exercised, amount | 0 | 0 | (8) | $ 8 |
Net loss | (870,479) | (870,479) | 0 | $ 0 |
Balance, shares at Mar. 31, 2022 | 13,256,570 | |||
Balance, amount at Mar. 31, 2022 | 23,281,182 | (18,242,144) | 41,510,070 | $ 13,256 |
Balance, shares at Dec. 31, 2021 | 13,248,024 | |||
Balance, amount at Dec. 31, 2021 | 23,960,500 | (17,371,665) | 41,318,917 | $ 13,248 |
Net loss | (9,146,673) | |||
Balance, shares at Jun. 30, 2022 | 13,256,570 | |||
Balance, amount at Jun. 30, 2022 | 15,183,403 | (26,518,338) | 41,688,485 | $ 13,256 |
Balance, shares at Mar. 31, 2022 | 13,256,570 | |||
Balance, amount at Mar. 31, 2022 | 23,281,182 | (18,242,144) | 41,510,070 | $ 13,256 |
Stock compensation expense for equity awards granted to employees and directors | 178,415 | 0 | 178,415 | 0 |
Net loss | (8,276,194) | (8,276,194) | 0 | $ 0 |
Balance, shares at Jun. 30, 2022 | 13,256,570 | |||
Balance, amount at Jun. 30, 2022 | $ 15,183,403 | $ (26,518,338) | $ 41,688,485 | $ 13,256 |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 6 Months Ended | |
Jun. 30, 2022 | Jun. 30, 2021 | |
Cash flows from operating activities: | ||
Net loss | $ (9,146,673) | $ (961,365) |
Adjustments to reconcile net loss to net cash used for operating activities: | ||
Depreciation | 85,352 | 95,882 |
Amortization of intangible assets | 526,061 | 681,056 |
Change in net deferred tax assets | 6,060,129 | (66,420) |
Bad debt expense | 0 | 20,625 |
Stock compensation for equity awards granted to employees and directors | 369,576 | 566,709 |
Change in valuation of contingent earn-out | 0 | (1,300,000) |
Other | 0 | (17,911) |
Changes in operating assets and liabilities: | ||
Accounts receivable | (402,403) | 71,954 |
Unbilled services | (188,066) | 17,682 |
Prepaid and other current assets | 517,299 | 361,721 |
Income taxes receivable | 1,433,931 | (236,590) |
Deposits | 0 | 17,210 |
Accounts payable and accrued expenses | (169,517) | (465,474) |
Accrued compensation and benefits | (763,185) | (312,117) |
Deferred revenue | (45,647) | 259,157 |
Earnout liability | (247,444) | 0 |
Net cash used for operating activities | (1,970,587) | (1,267,881) |
Cash flows from investing activities: | ||
Purchases of property and equipment | (51,491) | (38,696) |
Net cash used for investing activities | (51,491) | (38,696) |
Cash flows from financing activities: | ||
Payments on promissory note to related party | (140,625) | (281,250) |
Net cash used for financing activities | (140,625) | (281,250) |
Net change in cash and cash equivalents | (2,162,703) | (1,587,827) |
Cash and cash equivalents, beginning of period | 3,575,682 | 5,613,654 |
Cash and cash equivalents, end of period | 1,412,979 | 4,025,827 |
Supplemental disclosure of cash flow information: | ||
Interest paid | 1,818 | 23,209 |
Income taxes (refunded) paid | $ (1,418,931) | $ 23,012 |
BASIS OF PRESENTATION
BASIS OF PRESENTATION | 6 Months Ended |
Jun. 30, 2022 | |
BASIS OF PRESENTATION | |
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 (the “Commission” or the “SEC”). 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, 2021, as filed with the SEC on March 28, 2022. 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. On May 23, 2022, we entered into the Merger Agreement (defined below) as described in Note 2 to the condensed consolidated financial statements below. Liquidity and Capital Resources As of June 30, 2022, our cash balance was $1.4 million, current assets minus current liabilities was positive $2.4 million and we have no long-term liabilities. In April of 2022 we received a $1.4 million tax refund and in August of 2022 we delivered a revolving promissory note to Clearwater (defined below) in the principal amount not to exceed $750,000 in connection with the Clearwater Revolving Loan (defined below), as described in Note 10 to the condensed consolidated financial statements below. 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: · The pace at which we choose to invest resources in growing our business, both organically and through acquisition or other transactions; · Our ability to manage our operating expenses and maintain gross margins while attracting, recruiting and retaining cybersecurity privacy professionals; · Demand for our services from healthcare providers; the near-term impact of the lingering economic effects of the COVID-19 pandemic on our customers’ allocation of time and resources to security and privacy, and their ability to pay for existing services as well as enter into new contractual arrangements during a period of crisis; and · The continued economic uncertainty, including related to the COVID-19 pandemic, the conflict in Ukraine and related sanctions against Russia and Belarus, and inflationary pressures (including specifically, but not limited to, human capital costs which are essential to CynergisTek’s business), as well as the impact that such uncertainty has had, and could continue to have, on CynergisTek’s customers and industry and business and operating results. · The success or failure to complete the Merger and the potential impact that the Merger Agreement may be terminated under certain circumstances that requires us to pay Clearwater a termination fee of $710,000; the outcome of any legal proceedings that may be instituted against us and others related to the Merger Agreement; risks that the proposed Merger disrupts our current operations or affects our ability to retain or recruit key employees; the amount of the costs, fees, expenses and charges related to the Merger Agreement or the Merger; risks related to the Merger diverting management’s or employees’ attention from ongoing business operations; risks that our stock price may decline significantly if the Merger is not completed. 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. As of the date of this Report on Form 10-Q, we are generating negative cash from operations and our overall revenue and business levels have been impacted by the COVID-19 pandemic over the past twenty-four months. Our customer base is heavily concentrated in the healthcare provider space. The healthcare industry has experienced financial and operational disruption due to the pandemic. Sales cycles are longer, cybersecurity projects have been delayed and budgets have been constrained as healthcare providers focus on patient care and navigating the pandemic. If the pandemic continues or there are resurgences in 2022 and beyond that impact our customers’ operations and resources available for cybersecurity and privacy projects, our cash flows, financial position and operating results for fiscal year 2022 and beyond could be negatively impacted. During 2020 and 2021, we took actions to reduce expenses, conserve cash, and raise additional capital. During 2021, we raised $1.4 million in additional capital through an “at-the-market” or ATM offering. In addition, we received a $2.8 million PPP Loan (as described in Note 9 to the condensed consolidated financial statements below) which was fully forgiven in August 2021. We also received approximately $0.7 million per quarter in employee retention tax credits in the first three quarters of 2021 and a $1.4 million tax refund in April 2022. With the proceeds from the tax refund, PPP Loan and the employee retention tax credits, we were able 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 our ability to grow the business as well as the overall long-term outlook of the business. We recently delivered a revolving promissory note in the principal amount up to $750,000 to Clearwater which allows the Company to draw upon the available credit in increments of at least $50,000 as and when needed, as described in Note 10 to the condensed consolidated financial statements below. We believe that our existing sources of liquidity, including cash and cash equivalents, the ability to raise equity under our effective Registration Statement on Form S-3, the $750,000 Clearwater Revolving Loan as well as our ability to manage the business to decrease expenses, if necessary, will be sufficient to meet our projected capital needs for at least the next twelve months. If the Merger does not consummate in the short-term, as we execute our plans over the next twelve months, we intend to carefully monitor the impact of growth initiatives on our operating expenses, working capital needs and cash balances relative to the availability of cost-effective debt and equity financing. Based on the Company’s current liquidity, and its potential merger-related costs, including payments which would be accelerated under the revolving promissory note if the merger were not consummated, it is anticipated that the Company would be required to raise additional capital to meet its obligations and such capital may not be available, or may not be available on acceptable terms at that time. 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 lingering impact of the COVID-19 pandemic, the conflict in Ukraine and related sanctions against Russia and Belarus, and inflationary pressures (including specifically, but not limited to, human capital costs which are essential to CynergisTek’s business), as well as the impact that such uncertainty has had, and could continue to have, on CynergisTek’s customers and industry and business and operating results 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 accompanying 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. |
PENDING MERGER WITH CLEARWATER
PENDING MERGER WITH CLEARWATER COMPLIANCE LLC | 6 Months Ended |
Jun. 30, 2022 | |
PENDING MERGER WITH CLEARWATER COMPLIANCE LLC | |
2. PENDING MERGER WITH CLEARWATER COMPLIANCE LLC | 2 PENDING MERGER WITH CLEARWATER COMPLIANCE LLC On May 23, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Clearwater Compliance LLC, a Tennessee limited liability company ( “Clearwater”), and Clearwater Compliance Acquisition Company I, a Delaware corporation and a wholly owned subsidiary of the Clearwater (the “Merger Sub”). Clearwater is a portfolio company of funds affiliated with Altaris Capital Partners, LLC. The Merger Agreement provides, subject to its terms and conditions, for the acquisition of the Company by Clearwater through the merger of Merger Sub with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Clearwater (the “Merger”). As a result of the Merger, each share of common stock of the Company (“Common Stock”) that is issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (other than shares owned by any subsidiary of the Company, the Merger Sub, Clearwater or any other subsidiary of Clearwater immediately prior to the Effective Time (all of which will be canceled) and shares held by any holder who is entitled to, and who has perfected, appraisal rights under Delaware law) will be automatically converted into the right to receive cash in an amount of $1.25 per share, without interest, subject to any required withholding of taxes (the “Merger Consideration”). Additionally, each outstanding and unexercised Company stock option at the Effective Time shall vest in full and automatically be canceled and converted into the right to receive the excess, if any, of the Merger Consideration over the exercise price per share of such stock option; provided that, in the event that the exercise price of any such stock option is equal to or greater than the Merger Consideration, such stock option will be canceled, without any consideration being payable in respect thereof and have no further force or effect; and each Company restricted stock unit that is then outstanding and unvested shall vest in full and automatically be canceled and converted into the right to receive the Merger Consideration. Also, at or prior to the Effective Time, any outstanding but unexercised warrants to purchase Common Stock shall be canceled and, in certain circumstances, payment therefor will be paid to such warrant holders in accordance with the terms of their respective warrants. In connection with the negotiation and execution of the Merger Agreement, the Company has incurred legal, consulting and accounting fees of approximately $406,000 through the quarter ended June 30, 2022. A special meeting of stockholders of the Company will be held at 3:00 p.m. Central Time on August 31, 2022, to approve and adopt the Merger Agreement and approve the Merger, among other matters. |
RECENTLY ISSUED ACCOUNTING PRON
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | 6 Months Ended |
Jun. 30, 2022 | |
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | |
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | 3 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Recently Issued Accounting Pronouncements Not Yet Adopted In June 2016, the Financial Accounting Standards Board (“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. |
DEFERRED COMMISSIONS
DEFERRED COMMISSIONS | 6 Months Ended |
Jun. 30, 2022 | |
DEFERRED COMMISSIONS | |
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 $553,000 and $760,000 of unamortized deferred commissions as of June 30, 2022, and December 31, 2021, respectively. We had $241,000 and $406,000 of commissions expense for the three and six months ended June 30, 2022, respectively. Commissions expense for the three and six months ended June 30, 2021, was $184,000 and $367,000, respectively. |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 6 Months Ended |
Jun. 30, 2022 | |
PROPERTY AND EQUIPMENT | |
5. PROPERTY AND EQUIPMENT | 5. PROPERTY AND EQUIPMENT A summary of property and equipment follows: June 30, 2022 December 31, 2021 Furniture and fixtures $ 235,245 $ 235,245 Computers and office equipment 955,347 903,856 Right of use assets - 214,446 Property and equipment at cost 1,190,592 1,353,547 Less accumulated depreciation and amortization (1,025,895 ) (1,109,756 ) $ 164,697 $ 243,791 |
LEASES
LEASES | 6 Months Ended |
Jun. 30, 2022 | |
LEASES | |
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 extended the lease term to May 31, 2023. We leased approximately 3,700 square feet of office space in Minneapolis, Minnesota. This lease term expired on January 31, 2022 and we no longer use this office space since the employees who worked from this location are now working remote. We leased approximately 18,000 square feet of office space in Mission Viejo, California. This lease expired 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. We determine if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. 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. For all asset classes, we elected to (i) not recognize a right-of-use asset and lease liability for leases that we leased with a term of 12 months or less and (ii) not separate non-lease components from lease components, and we have accounted for combined lease and non-lease components as a single lease component. Operating lease expense was comprised of the following: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Operating lease cost $ 38,790 $ 82,740 $ 78,937 $ 266,536 Sublet income - (19,954 ) - (148,491 ) Net operating lease cost $ 38,790 $ 62,786 $ 78,937 $ 118,045 |
INTANGIBLE ASSETS
INTANGIBLE ASSETS | 6 Months Ended |
Jun. 30, 2022 | |
INTANGIBLE ASSETS | |
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, 2022 December 31, 2021 Carrying Amount Accumulated Amortization and Impairment Net Book Value Carrying Amount Accumulated Amortization and Impairment Net Book Value Acquired technology $ 10,100,000 $ (6,254,371 ) $ 3,845,629 $ 10,100,000 $ (5,814,486 ) $ 4,285,514 Customer relationships 4,650,000 (4,553,529 ) 96,471 4,650,000 (4,517,353 ) 132,647 Trademarks 2,300,000 (2,066,670 ) 233,330 2,300,000 (2,016,670 ) 283,330 Total $ 17,050,000 $ (12,874,570 ) $ 4,175,430 $ 17,050,000 $ (12,348,509 ) $ 4,701,491 |
DEFERRED REVENUE
DEFERRED REVENUE | 6 Months Ended |
Jun. 30, 2022 | |
DEFERRED REVENUE | |
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 three months ended June 30, 2022 and 2021, $575,000 and $654,000, 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, 2022 and 2021, $276,000 and $243,000, respectively, of consulting and professional services revenues were recognized, that were included in deferred revenue at the beginning of the respective periods. During the six months ended June 30, 2022 and 2021, $833,000 and $798,000, respectively, of managed services revenues were recognized, that were included in deferred revenue at the beginning of the respective periods. During the six months ended June 30, 2022 and 2021, $681,000 and $260,000, respectively, of consulting and professional services revenues were recognized, that were included in deferred revenue at the beginning of the respective periods. |
PAYCHECK PROTECTION PROGRAM LOA
PAYCHECK PROTECTION PROGRAM LOAN | 6 Months Ended |
Jun. 30, 2022 | |
PAYCHECK PROTECTION PROGRAM LOAN | |
9. PAYCHECK PROTECTION PROGRAM LOAN | 9. PAYCHECK PROTECTION PROGRAM LOAN On April 20, 2020, we received $2.8 million 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 of approximately $7,000 and $14,000, respectively for the three and six months ended June 30, 2021. The Company received notice from the SBA in August 2021 that the full principal balance and related interest were forgiven. |
PROMISSORY NOTES
PROMISSORY NOTES | 6 Months Ended |
Jun. 30, 2022 | |
PROMISSORY 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 bore interest at a rate of 8% per annum, provided for quarterly payments of principal and interest and matured on March 31, 2022. As of June 30, 2022, and December 31, 2021, the outstanding principal balance due under the Seller Note was $0 and $0.1 million, respectively. Interest charges associated with the Seller Note totaled approximately $0 and $2,000, respectively for the three and six months ended June 30, 2022, and $10,000 and $23,000, respectively for the three and six months ended June 30, 2021. In August of 2022, we issued a revolving promissory note in a principal amount of up to $750,000 to Clearwater (the “Clearwater Note”). The Clearwater Note bears interest at a rate of 10.0% per annum and provides for quarterly payments of principal and interest. CynergisTek may make advances under the Clearwater Note in such amounts and at such times as we request from time to time in increments of at least $50,000, but not more than $750,000 in the aggregate (“the Clearwater Revolving Loan”). The Clearwater Note matures and any remaining outstanding principal balance and all accrued and unpaid interest shall become due and payable upon the earliest to occur of (i) the five-year anniversary of the date hereof, (ii) the termination of the Merger Agreement, or (iii) the incurrence by CynergisTek or any of its subsidiaries of any debt of any kind whatsoever from a third party, other than payables incurred in the ordinary course of business; provided, however, that (x) if the Merger Agreement is terminated pursuant to Sections 7.1(a), 7.1(b), 7.1(c), 7.1(d), or 7.1(g) of the Merger Agreement, then all outstanding principal and interest under the Clearwater Note shall be due and payable by the 60th day following such termination; and (y) if the Merger Agreement is terminated in connection with the entry into an Acquisition Transaction (as such term is defined in the Merger Agreement), then CynergisTek shall be required to repay all outstanding interest and principal then due under the Clearwater Note as a condition to, and prior to or concurrently with, the termination of the Merger Agreement by CynergisTek. |
REVENUES
REVENUES | 6 Months Ended |
Jun. 30, 2022 | |
REVENUES | |
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, 2022 2021 2022 2021 Managed services $ 2,152,315 $ 2,184,051 $ 4,503,343 $ 4,608,661 Consulting and professional services 1,791,079 1,691,092 4,100,619 3,440,003 Net revenues $ 3,943,394 $ 3,875,143 $ 8,603,962 $ 8,048,664 |
WARRANTS OPTIONS AND RESTRICTED
WARRANTS OPTIONS AND RESTRICTED STOCK UNITS | 6 Months Ended |
Jun. 30, 2022 | |
DEFERRED REVENUE | |
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 (“Securities Purchase Agreement “) with Horton Capital Management, LLC (“Horton”) which provided that Horton was committed to purchase up to an aggregate of $2.5 million of shares of the Company’s common stock over the term of the agreement, at the election of the Company. The Stock Purchase Agreement expired on March 31, 2021. 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 $0.4 million was determined using the Black-Scholes option-pricing model and was expensed during the second quarter of 2020. During 2020 and 2021, the Company issued common stock under the Equity Distribution Agreement that resulted in required anti-dilution adjustments. These adjustments increased the number of shares under the Horton Warrant to 524,170 and reduced the exercise price to $2.38. The resulting difference in fair value of the Horton Warrant was $14,000, 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 dividends were recorded within additional paid-in capital. The Horton Warrant provides that in the event of a fundamental transaction, including the consolidation or merger of CynergisTek with or into another person (such as the Merger as described in Note 2 to the condensed consolidated financial statements above), CynergisTek may elect to purchase the Horton Warrant from the holder thereof by paying an amount of cash equal to the Black Scholes Value (as determined based on the Black and Scholes Option Pricing Model obtained from the “OV” function on a Bloomberg Terminal as of the day of consummation of the applicable fundamental transaction, as described in the Horton Warrant) of the remaining unexercised portion of the Horton Warrant, subject to a cap of $300,000. Because the actual Black Scholes Value of the remaining unexercised portion of the Horton Warrant is projected to exceed the cap, CynergisTek will be required, prior to the Merger, to purchase or cancel the Horton Warrant in exchange for payment of $300,000. The payment of such amount for the cancellation of the Horton Warrant has been included in the overall equity value of the proposed Merger transaction. 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, 2022: Warrants Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2021 601,949 $ 2.39 7.29 $ - Granted - - - - Exercised - - - - Canceled - - - - Outstanding at June 30, 2022 601,949 $ 2.46 6.82 $ - Exercisable at June 30, 2022 601,949 $ 2.46 6.82 $ - 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. As of June 30, 2022, there were 211,000 shares available for issuance under the 2020 Plan. Below is a summary of stock option activities during the six-month period ended June 30, 2022: Options Number of Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2021 960,838 $ 2.11 8.51 $ - Granted - - - - Exercised (1,995 ) 1.08 - - Canceled (76,340 ) 1.90 - - Outstanding at June 30, 2022 882,503 $ 1.87 8.22 $ - Exercisable at June 30, 2022 278,503 $ 2.05 6.77 $ - Each stock option (whether vested or unvested) that is outstanding as of immediately prior to the Merger as described in Note 2 to the condensed consolidated financial statements above shall vest in full effective immediately prior to the Merger and shall automatically be canceled and converted into the right to receive an amount in cash, without interest, equal to the product of (i) the total number of shares of CynergisTek common stock underlying such stock option, multiplied by (ii) the excess, if any, of the Merger Consideration over the applicable exercise price per share of such stock option. Because the applicable exercise price of all stock options is greater than the Merger Consideration, all stock options will be canceled at the time of the Merger without any consideration. Below is a summary of restricted stock unit activity during the six-month period ended June 30, 2022: Restricted Stock Units Shares Weighted Average Grant Date Fair Value per Share Weighted Average Vesting Period in Years Non-vested at December 31, 2021 492,500 $ 2.34 0.98 Granted 75,000 1.09 Vested (114,050 ) 2.78 Canceled and forfeited (4,000 ) 2.92 Non-vested at June 30, 2022 449,450 $ 1.98 1.09 There are 232,800 shares of restricted stock units which have vested but had not yet been issued as of June 30, 2022. Each restricted stock unit that is outstanding and unvested as of immediately prior to the Merger shall vest in full, effective immediately prior to the Merger, and shall automatically be canceled and converted into the right to receive from an amount in cash, without interest, equal to the product of (i) the aggregate number of shares of CynergisTek common stock underlying the restricted stock unit multiplied by (ii) the Merger Consideration. For the three and six months ended June 30, 2022 and 2021, 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, 2022 2021 2022 2021 Cost of revenues $ 46,401 $ 39,002 $ 86,370 $ (3,191 ) Sales and marketing expense 18,807 34,850 27,149 63,831 General and administrative expense 113,207 264,420 256,057 506,069 Total stock-based compensation expense $ 178,415 $ 338,272 $ 369,576 $ 566,709 |
Income Taxes
Income Taxes | 6 Months Ended |
Jun. 30, 2022 | |
Income Taxes | |
13. Income Taxes | 13. Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which is uncertain. A valuation allowance, in an amount equal to the net deferred tax asset of $6,853,130 as of June 30, 2022 has been established to reflect these uncertainties. |
BASIC AND DILUTED NET LOSS PER
BASIC AND DILUTED NET LOSS PER SHARE | 6 Months Ended |
Jun. 30, 2022 | |
Net loss per share: | |
14. BASIC AND DILUTED NET LOSS PER SHARE | 14. 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, 2022, potentially dilutive securities consisted of options and warrants to purchase 1,484,452 shares of common stock at prices ranging from $1.44 to $3.30 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 449,450 shares of non-vested restricted stock units and 232,800 shares of restricted stock units which vested but had not been issued as of June 30, 2022. 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 have vested but had not been issued as of June 30, 2021. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Numerators: Net loss attributable to common stockholders $ (8,276,194 ) $ (46,888 ) $ (9,146,673 ) $ (967,199 ) Denominator: Denominator for basic calculation weighted average shares 13,256,570 12,120,698 13,253,551 12,081,328 Dilutive common stock equivalents: Options and warrants - - - - Restricted stock units vested but not issued - - - - Denominator for diluted calculation weighted average shares 13,256,570 12,120,698 13,253,551 12,081,328 Net loss per share: Basic $ (0.62 ) $ (0.00 ) $ (0.69 ) $ (0.08 ) Diluted $ (0.62 ) $ (0.00 ) $ (0.69 ) $ (0.08 ) |
REMAINING PERFORMANCE OBLIGATIO
REMAINING PERFORMANCE OBLIGATIONS | 6 Months Ended |
Jun. 30, 2022 | |
BASIS OF PRESENTATION | |
15. REMAINING PERFORMANCE OBLIGATIONS | 15. REMAINING PERFORMANCE OBLIGATIONS We had remaining performance obligations of approximately $17.4 million as of June 30, 2022. 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 $15.3 million as of June 30, 2022. We expect to recognize revenue on approximately 94% of the remaining non-cancelable portion of these performance obligations over the next 24 months, with the balance thereafter. |
CONCENTRATIONS
CONCENTRATIONS | 6 Months Ended |
Jun. 30, 2022 | |
CONCENTRATIONS | |
16. CONCENTRATIONS | 16. 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 15% and 14% of our revenues for the six months ended June 30, 2022 and 2021, respectively. Our largest customer had accounts receivable totaling approximately $164,000 and $95,000 as of June 30, 2022, and December 31, 2021, respectively. |
EARNOUT LIABILITY BACKBONE ENTE
EARNOUT LIABILITY BACKBONE ENTERPRISES | 6 Months Ended |
Jun. 30, 2022 | |
EARNOUT LIABILITY BACKBONE ENTERPRISES | |
17. EARNOUT LIABILITY - BACKBONE ENTERPRISES | 17. EARNOUT LIABILITY – BACKBONE ENTERPRISES On October 31, 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 paid for the Shares consisted of (i) a cash payment of $5.5 million, less certain transaction expenses (the “Cash Consideration”), (ii) the issuance of 491,804 shares of our common stock to the Stockholders, pro rata among the Stockholders in proportion to each Stockholder’s ownership of the Shares, and (iii) an earn-out, pursuant to which the Stockholders may be entitled to an additional $4.0 million based upon the post-closing financial performance of Backbone, to be calculated annually based upon revenue generated by the Backbone business during each year of the three-year earn-out period. The Cash Consideration was subject to adjustment based on closing working capital of Backbone, and $1.5 million of the Cash Consideration was placed into a third-party escrow account by us, against a portion of which we may make claims for indemnification. There was no earnout paid for the first year of the earnout period. We performed a valuation of the contingent earn-out and marked down the fair value balance from $2.4 million to $1.3 million based on the potential of achieving a portion of the year two and three targets. This resulted in a gain from the reduction of the contingent earnout liability of $1.1 million in 2020. 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 $1.3 million. The Company renegotiated the terms of the earnout and as a result performed an updated valuation of the contingent earn-out as of September 30, 2021, which resulted in a recovery from the previous estimate of $0.3 million. As of December 31, 2021 we updated our valuation of the contingent earn-out which resulted in an additional recovery of $0.5 million. The earnout for year two of the earnout period totaled $0.3 million. Total cumulative amount earned for the year three earnout period through June 30, 2022 totaled $359,000 with payments related to year three earnout period during the six months ended June 30, 2022 were $259,000. |
RECENTLY ISSUED ACCOUNTING PR_2
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Policies) | 6 Months Ended |
Jun. 30, 2022 | |
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | |
Recently Issued Accounting Pronouncements | In June 2016, the Financial Accounting Standards Board (“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. |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 6 Months Ended |
Jun. 30, 2022 | |
PROPERTY AND EQUIPMENT | |
Schedule Of Property And Equipment | June 30, 2022 December 31, 2021 Furniture and fixtures $ 235,245 $ 235,245 Computers and office equipment 955,347 903,856 Right of use assets - 214,446 Property and equipment at cost 1,190,592 1,353,547 Less accumulated depreciation and amortization (1,025,895 ) (1,109,756 ) $ 164,697 $ 243,791 |
LEASES (Tables)
LEASES (Tables) | 6 Months Ended |
Jun. 30, 2022 | |
LEASES | |
Schedule Of Operating Lease Expenses | Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Operating lease cost $ 38,790 $ 82,740 $ 78,937 $ 266,536 Sublet income - (19,954 ) - (148,491 ) Net operating lease cost $ 38,790 $ 62,786 $ 78,937 $ 118,045 |
INTANGIBLE ASSETS (Tables)
INTANGIBLE ASSETS (Tables) | 6 Months Ended |
Jun. 30, 2022 | |
INTANGIBLE ASSETS | |
Schedule Of Amortization Of Intangible Assets | June 30, 2022 December 31, 2021 Carrying Amount Accumulated Amortization and Impairment Net Book Value Carrying Amount Accumulated Amortization and Impairment Net Book Value Acquired technology $ 10,100,000 $ (6,254,371 ) $ 3,845,629 $ 10,100,000 $ (5,814,486 ) $ 4,285,514 Customer relationships 4,650,000 (4,553,529 ) 96,471 4,650,000 (4,517,353 ) 132,647 Trademarks 2,300,000 (2,066,670 ) 233,330 2,300,000 (2,016,670 ) 283,330 Total $ 17,050,000 $ (12,874,570 ) $ 4,175,430 $ 17,050,000 $ (12,348,509 ) $ 4,701,491 |
REVENUES (Tables)
REVENUES (Tables) | 6 Months Ended |
Jun. 30, 2022 | |
REVENUES (Tables) | |
Summary Of Revenue Disaggregated By Revenue Source | Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Managed services $ 2,152,315 $ 2,184,051 $ 4,503,343 $ 4,608,661 Consulting and professional services 1,791,079 1,691,092 4,100,619 3,440,003 Net revenues $ 3,943,394 $ 3,875,143 $ 8,603,962 $ 8,048,664 |
WARRANTS OPTIONS AND RESTRICT_2
WARRANTS OPTIONS AND RESTRICTED STOCK UNIT (Tables) | 6 Months Ended |
Jun. 30, 2022 | |
DEFERRED REVENUE | |
Summary Of Warrant Activities | Warrants Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2021 601,949 $ 2.39 7.29 $ - Granted - - - - Exercised - - - - Canceled - - - - Outstanding at June 30, 2022 601,949 $ 2.46 6.82 $ - Exercisable at June 30, 2022 601,949 $ 2.46 6.82 $ - |
Summary Of Stock Option | Options Number of Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2021 960,838 $ 2.11 8.51 $ - Granted - - - - Exercised (1,995 ) 1.08 - - Canceled (76,340 ) 1.90 - - Outstanding at June 30, 2022 882,503 $ 1.87 8.22 $ - Exercisable at June 30, 2022 278,503 $ 2.05 6.77 $ - |
Summary Of Restricted Stock | Restricted Stock Units Shares Weighted Average Grant Date Fair Value per Share Weighted Average Vesting Period in Years Non-vested at December 31, 2021 492,500 $ 2.34 0.98 Granted 75,000 1.09 Vested (114,050 ) 2.78 Canceled and forfeited (4,000 ) 2.92 Non-vested at June 30, 2022 449,450 $ 1.98 1.09 |
Schedule Of Stock Based Compensation And Other Equity Instrument Related Expenses | Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Cost of revenues $ 46,401 $ 39,002 $ 86,370 $ (3,191 ) Sales and marketing expense 18,807 34,850 27,149 63,831 General and administrative expense 113,207 264,420 256,057 506,069 Total stock-based compensation expense $ 178,415 $ 338,272 $ 369,576 $ 566,709 |
BASIC AND DILUTED NET LOSS PE_2
BASIC AND DILUTED NET LOSS PER SHARE (Tables) | 6 Months Ended |
Jun. 30, 2022 | |
Net loss per share: | |
Schedule Of Earnings Per Share, Basic And Diluted | Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Numerators: Net loss attributable to common stockholders $ (8,276,194 ) $ (46,888 ) $ (9,146,673 ) $ (967,199 ) Denominator: Denominator for basic calculation weighted average shares 13,256,570 12,120,698 13,253,551 12,081,328 Dilutive common stock equivalents: Options and warrants - - - - Restricted stock units vested but not issued - - - - Denominator for diluted calculation weighted average shares 13,256,570 12,120,698 13,253,551 12,081,328 Net loss per share: Basic $ (0.62 ) $ (0.00 ) $ (0.69 ) $ (0.08 ) Diluted $ (0.62 ) $ (0.00 ) $ (0.69 ) $ (0.08 ) |
BASIS OF PRESENTATION (Details
BASIS OF PRESENTATION (Details Narrative) | 6 Months Ended |
Jun. 30, 2022 USD ($) | |
BASIS OF PRESENTATION | |
Cash And Cash Equivalents At Carrying Value, Rounded | $ 1,400,000 |
Working Capital Deficit | (2,400,000) |
Tax Refund Amount Received | 1,400,000 |
Aggregate amount of loan | 750,000 |
Additional Capital Through ATM | 1,400,000 |
PPP Loan Received | 2,800,000 |
Employee Retention Tax Credits Received | 700,000 |
Termination fee | 710,000 |
Principal amount | 750,000 |
Available credit | $ 50,000 |
PENDING MERGER WITH CLEARWATE_2
PENDING MERGER WITH CLEARWATER COMPLIANCE LLC (Details Narrative) - USD ($) | 6 Months Ended | |
Jun. 30, 2022 | Mar. 31, 2022 | |
PENDING MERGER WITH CLEARWATER COMPLIANCE LLC | ||
Cash amount | $ 1.25 | |
Consulting and accounting fees | $ 406,000 |
DEFERRED COMMISSIONS (Details N
DEFERRED COMMISSIONS (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | Dec. 31, 2021 | |
DEFERRED COMMISSIONS (Details Narrative) | |||||
Commissions Expense | $ 241,000 | $ 184,000 | $ 406,000 | $ 367,000 | |
Unamortized Deferred Commissions | $ 553,000 | $ 553,000 | $ 760,000 |
PROPERTY AND EQUIPMENT (Details
PROPERTY AND EQUIPMENT (Details) - USD ($) | Jun. 30, 2022 | Dec. 31, 2021 |
Property, Plant And Equipment, Gross | $ 1,190,592 | $ 1,353,547 |
Less Accumulated Depreciation And Amortization | (1,025,895) | (1,109,756) |
Property And Equipment, Net | 164,697 | 243,791 |
Furniture and Fixtures [Member] | ||
Property, Plant And Equipment, Gross | 235,245 | 235,245 |
Computers and Office Equipment [Member] | ||
Property, Plant And Equipment, Gross | 955,347 | 903,856 |
Right of Use Assets [Member] | ||
Property, Plant And Equipment, Gross | $ 0 | $ 214,446 |
LEASES (Details)
LEASES (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | |
LEASES | ||||
Operating Lease Cost | $ 38,790 | $ 82,740 | $ 78,937 | $ 266,536 |
Sublet Income | 0 | (19,954) | 0 | (148,491) |
Net Operating Lease Cost | $ 38,790 | $ 62,786 | $ 78,937 | $ 118,045 |
LEASES (Details Narrative)
LEASES (Details Narrative) | 6 Months Ended | |
Jun. 30, 2021 | Jun. 30, 2022 | |
LEASES | ||
Description Of Area Of Leases | 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 extended the lease term to May 31, 2023. We leased approximately 3,700 square feet of office space in Minneapolis, Minnesota. This lease term expired on January 31, 2022 and we no longer use this office space since the employees who worked from this location are now working remote. We leased approximately 18,000 square feet of office space in Mission Viejo, California. This lease expired in April 2021 | |
Discount Rate | 5.50% |
INTANGIBLE ASSETS (Details)
INTANGIBLE ASSETS (Details) - USD ($) | Jun. 30, 2022 | Dec. 31, 2021 |
Gross Carrying Amount | $ 17,050,000 | $ 17,050,000 |
Accumulated Amortization And Impairment | (12,874,570) | (12,348,509) |
Net Book Value | 4,175,430 | 4,701,491 |
Trademarks [Member] | ||
Gross Carrying Amount | 2,300,000 | 2,300,000 |
Accumulated Amortization And Impairment | (2,066,670) | (2,016,670) |
Net Book Value | 233,330 | 283,330 |
Customer Relationships [Member] | ||
Gross Carrying Amount | 4,650,000 | 4,650,000 |
Accumulated Amortization And Impairment | (4,553,529) | (4,517,353) |
Net Book Value | 96,471 | 132,647 |
Acquired technology | ||
Gross Carrying Amount | 10,100,000 | 10,100,000 |
Accumulated Amortization And Impairment | (6,254,371) | (5,814,486) |
Net Book Value | $ 3,845,629 | $ 4,285,514 |
INTANGIBLE ASSETS (Details Narr
INTANGIBLE ASSETS (Details Narrative) | 6 Months Ended |
Jun. 30, 2022 | |
Maximum [Member] | |
Intangible Assets Expected Useful Lives | 10 years |
Minimum [Member] | |
Intangible Assets Expected Useful Lives | 1 year 6 months |
DEFERRED REVENUE (Details Narra
DEFERRED REVENUE (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | |
Managed services revenues | ||||
Deferred Revenue | $ 575,000 | $ 654,000 | $ 833,000 | $ 798,000 |
Consulting and professional services revenues | ||||
Deferred Revenue | $ 276,000 | $ 243,000 | $ 681,000 | $ 260,000 |
PAYCHECK PROTECTION PROGRAM L_2
PAYCHECK PROTECTION PROGRAM LOAN (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | 6 Months Ended | ||
Apr. 30, 2020 | Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | |
Interest Charges | $ 0 | $ 10,000 | $ 2,000 | $ 23,000 | |
SBAPPP | |||||
Interest Charges | $ 7,000 | $ 14,000 | |||
Debt Instrument, Interest Rate, Stated Percentage | 1% | 1% | |||
Proceeds From Loans | $ 2,800,000 |
PROMISSORY NOTES (Details Narra
PROMISSORY NOTES (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | Dec. 31, 2021 | |
Interest Charges | $ 0 | $ 10,000 | $ 2,000 | $ 23,000 | |
Available credit | 50,000 | 50,000 | |||
Principal amount | 750,000 | 750,000 | |||
Aggregate amount of loan | 750,000 | 750,000 | |||
Seller Notes | Michael Mcmillan | |||||
Interest Charges | 2,250,000 | ||||
Debt Instrument, Face Amount | $ 4,500,000,000,000 | $ 4,500,000,000,000 | |||
Debt Instrument, Interest Rate, Stated Percentage | 8% | 8% | |||
Repayments Of Debt | $ 2,250,000 | ||||
Outstanding Principal Balance Due | $ 0 | $ 0 | $ 100,000 | ||
Debt Instrument, Maturity Date | Mar. 31, 2022 | ||||
August 2022 [Member] | |||||
Debt Instrument, Interest Rate, Stated Percentage | 10% | 10% | |||
Available credit | $ 50,000 | $ 50,000 | |||
Principal amount | 750,000 | 750,000 | |||
Aggregate amount of loan | $ 750,000 | $ 750,000 |
REVENUES (Details)
REVENUES (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | |
Net Revenues | $ 3,943,394 | $ 3,875,143 | $ 8,603,962 | $ 8,048,664 |
Managed Services | ||||
Net Revenues | 2,152,315 | 2,184,051 | 4,503,343 | 4,608,661 |
Consulting and Professional Services | ||||
Net Revenues | $ 1,791,079 | $ 1,691,092 | $ 4,100,619 | $ 3,440,003 |
WARRANTS, OPTIONS AND RESTRICTE
WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS (Details) - $ / shares | 6 Months Ended | 12 Months Ended |
Jun. 30, 2022 | Dec. 31, 2021 | |
WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS (Details) | ||
Warrants, Outstanding, Beginning Balance | 601,949 | |
Warrants, Outstanding, Ending Balance | 601,949 | 601,949 |
Warrants Outstanding Exercisable | 601,949 | |
Weighted Average Exercise Price, Beginning Balance | $ 2.39 | |
Granted, Weighted Average Exercise Price | 0 | |
Exercised, Weighted Average Exercise Price | 0 | |
Cancelled, Weighted Average Exercise Price | 0 | |
Weighted Average Exercise Price, Ending Balance | 2.46 | $ 2.39 |
Weighted Average Exercise Price, Exercisable Balance | $ 2.46 | |
Outstanding, Weighted Average Remaining Contractual Life | 6 years 9 months 25 days | 7 years 3 months 14 days |
Exercisable, Weighted Average Remaining Contractual Life | 6 years 9 months 25 days |
WARRANTS, OPTIONS AND RESTRIC_2
WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS (Details 1) - $ / shares | 6 Months Ended | 12 Months Ended |
Jun. 30, 2022 | Dec. 31, 2021 | |
Warrants, Outstanding, Beginning Balance | 601,949 | |
Warrants, Outstanding, Ending Balance | 601,949 | 601,949 |
Warrants Outstanding Exercisable | 601,949 | |
Weighted Average Exercise Price, Beginning Balance | $ 2.39 | |
Granted, Weighted Average Exercise Price | 0 | |
Exercised, Weighted Average Exercise Price | 0 | |
Cancelled, Weighted Average Exercise Price | 0 | |
Weighted Average Exercise Price, Ending Balance | 2.46 | $ 2.39 |
Weighted Average Exercise Price, Exercisable Balance | $ 2.46 | |
Outstanding, Weighted Average Remaining Contractual Life | 6 years 9 months 25 days | 7 years 3 months 14 days |
Exercisable, Weighted Average Remaining Contractual Life | 6 years 9 months 25 days | |
2020 Equity Incentive Plan | ||
Warrants, Outstanding, Beginning Balance | 960,838 | |
Exercised | 1,995 | |
Cancelled | (76,340) | |
Warrants, Outstanding, Ending Balance | 882,503 | 960,838 |
Warrants Outstanding Exercisable | 278,503 | |
Weighted Average Exercise Price, Beginning Balance | $ 2.11 | |
Granted, Weighted Average Exercise Price | 0 | |
Exercised, Weighted Average Exercise Price | 1.08 | |
Cancelled, Weighted Average Exercise Price | 1.90 | |
Weighted Average Exercise Price, Ending Balance | 1.87 | $ 2.11 |
Weighted Average Exercise Price, Exercisable Balance | $ 2.05 | |
Outstanding, Weighted Average Remaining Contractual Life | 8 years 2 months 19 days | 8 years 6 months 3 days |
Exercisable, Weighted Average Remaining Contractual Life | 6 years 9 months 7 days |
WARRANTS, OPTIONS AND RESTRIC_3
WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS (Details 2) - Restricted Stock Units (RSUs) [Member] - $ / shares | 6 Months Ended | 12 Months Ended |
Jun. 30, 2022 | Dec. 31, 2021 | |
Non-vested, Shares Beginning Balance | 492,500 | |
Granted | 75,000 | |
Vested | 114,050 | |
Cancelled And Forfeited | 4,000 | |
Non-vested, Shares Ending Balance | 449,450 | 492,500 |
Weighted Average Grant Date Fair Value Per Share, Beginning Balance | $ 2.34 | |
Weighted Average Grant Date Fair Value Per Share, Granted | 1.09 | |
Weighted Average Grant Date Fair Value Per Share, Vested | 2.78 | |
Weighted Average Grant Date Fair Value Per Share, Cancelled And Forfeited | 2.92 | |
Weighted Average Grant Date Fair Value Per Share, Ending Balance | $ 1.98 | $ 2.34 |
Weighted Average Vesting Period Inyears | 1 year 1 month 2 days | 11 months 23 days |
WARRANTS, OPTIONS AND RESTRIC_4
WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS (Details 3) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | |
WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS (Details) | ||||
Cost Of Revenues | $ 46,401 | $ 39,002 | $ 86,370 | $ (3,191) |
Sales And Marketing | 18,807 | 34,850 | 27,149 | 63,831 |
General And Administrative Expense | 113,207 | 264,420 | 256,057 | 506,069 |
Total Stock-based Compensation Expense | $ 178,415 | $ 338,272 | $ 369,576 | $ 566,709 |
WARRANTS, OPTIONS AND RESTRIC_5
WARRANTS, OPTIONS AND RESTRICTED STOCK UNITS (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | ||
Apr. 03, 2020 | Mar. 31, 2022 | Dec. 31, 2021 | Jun. 30, 2022 | |
Stock vested but not issued | 232,800 | |||
Horton Warrant | ||||
Exercise Price | $ 2.50 | $ 2.38 | ||
Remaining unexercised portion | $ 300,000 | |||
Warrants Issued | 500,000 | 524,170 | ||
Fair Value Of Warrants | $ 400,000 | $ 14,000 | ||
Exchange for payment | $ 300,000 | |||
Securities Purchase Agreement | ||||
Fair Value Of Warrants | $ 2,500,000 | |||
2020 Equity Incentive Plan | ||||
Issuance Of Common Stock, Shares | 211,000 | |||
2020 Equity Incentive Plan | Board of Directors [Member] | ||||
Issuance Of Common Stock, Shares | 3,745,621 |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) $ in Millions | Jun. 30, 2022 USD ($) |
Income Taxes | |
Net deferred tax asset | $ 685,313 |
BASIC AND DILUTED NET LOSS PE_3
BASIC AND DILUTED NET LOSS PER SHARE (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | |
BASIC AND DILUTED NET LOSS PER SHARE (Details) | ||||
Net Loss Attributable To Common Shareholders | $ (8,276,194) | $ (46,888) | $ (9,146,673) | $ (967,199) |
Denominator: | ||||
Denominator For Basic Calculation Weighted Average Shares | 13,256,570 | 12,120,698 | 13,253,551 | 12,081,328 |
Dilutive Common Stock Equivalents: | ||||
Denominator For Diluted Calculation Weighted Average Shares | 13,256,570 | 12,120,698 | 13,253,551 | 12,081,328 |
Net Loss Per Share: | ||||
Basic | $ (0.62) | $ 0 | $ (0.69) | $ (0.08) |
Diluted | $ (0.62) | $ 0 | $ (0.69) | $ (0.08) |
BASIC AND DILUTED NET LOSS PE_4
BASIC AND DILUTED NET LOSS PER SHARE (Details Narrative) - $ / shares | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | |
Potentially Dilutive Securities | 449,450 | 741,850 | 449,450 | 741,850 |
Options And Warrants | ||||
Potentially Dilutive Securities | 1,484,452 | 1,705,199 | 1,484,452 | 1,705,199 |
Options And Warrants | Minimum | ||||
Share-based Compensation Arrangement By Share-based Payment Award, Fair Value Assumptions, Exercise Price | $ 1.44 | $ 1.08 | $ 1.44 | $ 1.08 |
Options And Warrants | Maximum | ||||
Share-based Compensation Arrangement By Share-based Payment Award, Fair Value Assumptions, Exercise Price | $ 3.30 | $ 4.86 | $ 3.30 | $ 4.86 |
Restricted Stock Units (RSUs) [Member] | ||||
Potentially Dilutive Securities | 232,800 | 125,000 | 232,800 | 125,000 |
REMAINING PERFORMANCE OBLIGAT_2
REMAINING PERFORMANCE OBLIGATIONS (Details Narrative) $ in Millions | 6 Months Ended |
Jun. 30, 2022 USD ($) | |
Performance Obligations Percent | 94% |
Remaining Performance Obligations | $ 17.4 |
Performance Obligations Explanation | over the next 24 months |
ASU Topic 606 | |
Remaining Performance Obligations | $ 15.3 |
CONCENTRATIONS (Details Narrati
CONCENTRATIONS (Details Narrative) - USD ($) | 6 Months Ended | ||
Jun. 30, 2022 | Jun. 30, 2021 | Dec. 31, 2021 | |
CONCENTRATIONS (Details Narrative) | |||
Concentration Risk, Percentage | 15% | 14% | |
Accounts Receivable, Net Of Allowance For Doubtful Accounts | $ 164,000 | $ 95,000 |
EARNOUT LIABILITY - BACKBONE EN
EARNOUT LIABILITY - BACKBONE ENTERPRISE (Details Narrative) - USD ($) | 6 Months Ended | ||
Jun. 30, 2022 | Dec. 31, 2021 | Sep. 30, 2021 | |
EARNOUT LIABILITY - BACKBONE ENTERPRISE (Details Narrative) | |||
Total Cumulative Amount Earned | $ 359,000 | ||
Payment For Earout Liability Period | $ 259,000 | ||
Description Of Agreement Aggregate Purchase Price | the Shares consisted of (i) a cash payment of $5.5 million, less certain transaction expenses (the “Cash Consideration”), (ii) the issuance of 491,804 shares of our common stock to the Stockholders, pro rata among the Stockholders in proportion to each Stockholder’s ownership of the Shares, and (iii) an earn-out, pursuant to which the Stockholders may be entitled to an additional $4.0 million based upon the post-closing financial performance of Backbone, to be calculated annually based upon revenue generated by the Backbone business during each year | ||
Cash Consideration | $ 1,500,000 | ||
Contingent Earnout Liability | 1,100,000 | ||
Contingent Earn-out Estimate Full Write-off | 1,300,000 | ||
Valuation Of Contingent Earn-out Estimate Previous | $ 500,000 | $ 300,000 | |
Estimated Fair Value Of Earnout | 1,300,000 | ||
Fair Value Balance Ear-out | $ 2,400,000 |