Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2019 | Mar. 30, 2020 | Jun. 30, 2019 | |
Document and Entity Information: | |||
Entity Registrant Name | CYNERGISTEK, INC. | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2019 | ||
Amendment Flag | false | ||
Entity Central Index Key | 0001011432 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Common Stock, Shares Outstanding | 10,379,164 | ||
Entity Public Float | $ 44,000,000 | ||
Entity a Well-known Seasoned Issuer | No | ||
Entity a Voluntary Filer | No | ||
Entity's Reporting Status Current | No | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Emerging Growth Company | false | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Document Fiscal Year Focus | 2019 | ||
Document Fiscal Period Focus | FY | ||
Entity File Number | 000-27507 | ||
Entity Interactive Data Current | Yes | ||
Entity Incorporation, State Country Code | DE | ||
Entity Address, Address Line One | 11940 Jollyville Road | ||
Entity Address, Address Line Two | Suite 300-N, Austin | ||
Entity Address, State or Province | TX | ||
Entity Address, Postal Zip Code | 78759 | ||
City Area Code | 512 | ||
Local Phone Number | 402-8550 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Current assets: | ||
Cash and cash equivalents | $ 5,328,726 | $ 6,571,381 |
Accounts receivable, net | 3,210,726 | 5,572,467 |
Prepaid and other current assets | 1,205,769 | 1,425,858 |
Refundable income taxes | 0 | 472,059 |
Current assets held for sale | 0 | 8,427,408 |
Total current assets | 9,745,221 | 22,469,173 |
Property and equipment, net | 946,219 | 1,403,525 |
Deposits | 72,486 | 87,778 |
Deferred income taxes | 1,836,258 | 2,146,020 |
Intangible assets, net | 8,585,882 | 9,089,989 |
Goodwill | 23,983,483 | 17,008,189 |
Noncurrent assets held for sale | 0 | 1,844,349 |
Total assets | 45,169,549 | 54,049,023 |
Current liabilities: | ||
Accounts payable and accrued expenses | 638,864 | 932,067 |
Accrued compensation and benefits | 1,066,770 | 1,592,765 |
Deferred revenue | 898,324 | 918,165 |
Income taxes payable | 31,976 | 0 |
Note payable | 0 | 343,750 |
Current portion of term loan | 0 | 2,464,286 |
Current portion of promissory note to related parties | 562,500 | 562,500 |
Current portion of operating lease liability | 533,371 | 576,082 |
Current liabilities held for sale | 0 | 7,299,561 |
Total current liabilities | 3,731,805 | 14,689,176 |
Long-term liabilities: | ||
Term loan, less current portion | 0 | 12,851,617 |
Promissory notes, less current portion | 703,125 | 5,015,625 |
Capital lease obligations | 0 | 1,570 |
Earnout liability | 2,400,000 | 438,269 |
Operating lease liability, less current portion | 158,995 | 620,640 |
Noncurrent liabilities held for sale | 0 | 58,967 |
Total long-term liabilities | 3,262,120 | 18,986,688 |
Commitments and contingencies | 0 | 0 |
Stockholders' equity: | ||
Common stock, par value at $0.001, 33,333,333 shares authorized, 10,359,164 shares issued and outstanding at December 31, 2019 and 9,630,050 shares issued and outstanding at December 31, 2018 | 10,359 | 9,630 |
Additional paid-in capital | 34,821,863 | 31,910,831 |
Accumulated earnings (deficit) | 3,343,402 | (11,547,302) |
Total stockholders' equity | 38,175,624 | 20,373,159 |
Total liabilities and stockholders' equity | $ 45,169,549 | $ 54,049,023 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Dec. 31, 2019 | Dec. 31, 2018 |
Statement of Financial Position [Abstract] | ||
Common Stock, par or stated value | $ 0.001 | $ 0.001 |
Common Stock, shares authorized | 33,333,333 | 33,333,333 |
Common Stock, shares issued | 10,359,164 | 9,630,050 |
Common Stock, shares outstanding | 10,359,164 | 9,630,050 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Income Statement [Abstract] | ||
Net revenues | $ 21,364,810 | $ 21,311,717 |
Cost of revenues | 13,018,673 | 11,122,433 |
Gross profit | 8,346,137 | 10,189,284 |
Operating expenses: | ||
Sales and marketing | 5,347,822 | 5,185,334 |
General and administrative expenses | 6,891,245 | 6,437,316 |
Change in valuation of contingent earn-out | (178,269) | 438,269 |
Depreciation | 182,198 | 147,553 |
Amortization of acquisition-related intangibles | 1,890,098 | 1,810,935 |
Impairment of intangible assets | 614,010 | 0 |
Total operating expenses | 14,747,104 | 14,019,407 |
Loss from operations | (6,400,967) | (3,830,123) |
Other income (expense): | ||
Other income | 26 | 53 |
Interest income | 77,248 | 0 |
Interest expense | (617,310) | (1,437,862) |
Loss on disposition of property and equipment | (2,188) | 0 |
Total other expense | (542,224) | (1,437,809) |
Loss before benefit for income taxes | (6,943,191) | (5,267,932) |
Income tax expense | 1,528,808 | 1,305,534 |
Net loss from continuing operations | (5,414,383) | (3,962,398) |
Income from discontinued operations, including gain on sale, net of tax | 20,305,087 | 5,855,990 |
Net income | $ 14,890,704 | $ 1,893,592 |
From continuing operations: | ||
Basic | $ (0.55) | $ (0.41) |
Diluted | (0.55) | (0.41) |
From discontinued operations: | ||
Basic | 2.06 | 0.61 |
Diluted | 2.03 | 0.59 |
Net income: | ||
Basic | 1.51 | 0.20 |
Diluted | $ 1.49 | $ 0.19 |
Number of weighted average shares outstanding: | ||
Basic | 9,858,562 | 9,608,312 |
Diluted | 10,000,507 | 9,873,011 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - USD ($) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Equity Balance, beginning of period, Value at Dec. 31, 2017 | $ 9,576 | $ 31,156,362 | $ (14,320,560) | $ 16,845,378 |
Equity Balance, beginning of period, Shares at Dec. 31, 2017 | 9,576,028 | |||
Cumulative effect of adoption of revenue recognition standard ASC | 879,666 | 879,666 | ||
Stock compensation expense for options and warrants granted to employees and directors | 754,523 | 754,523 | ||
Stock options exercised, Value | $ 54 | (54) | ||
Stock options exercised, Shares | 54,022 | |||
Net income | 1,893,592 | 1,893,592 | ||
Equity Balance, end of period, Value at Dec. 31, 2018 | $ 9,630 | 31,910,831 | (11,547,302) | 20,373,159 |
Equity Balance, end of period, Shares at Dec. 31, 2018 | 9,630,050 | |||
Stock compensation expense for options and warrants granted to employees and directors | 1,423,279 | 1,423,279 | ||
Restricted stock units exercised, Value | $ 132 | (132) | ||
Restricted stock units exercised, Shares | 131,726 | |||
Stock options exercised, Value | $ 105 | 123,377 | 123,482 | |
Stock options exercised, Shares | 105,584 | |||
Common stock issued in connection with the acquisition of Backbone Enterprises, Inc., Value | $ 492 | 1,364,508 | 1,365,000 | |
Common stock issued in connection with the acquisition of Backbone Enterprises, Inc., Shares | 491,804 | |||
Net income | 14,890,704 | 14,890,704 | ||
Equity Balance, end of period, Value at Dec. 31, 2019 | $ 10,359 | $ 34,841,863 | $ 3,343,402 | $ 38,175,624 |
Equity Balance, end of period, Shares at Dec. 31, 2019 | 10,359,164 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Cash flows provided by operating activities: | ||
Net income | $ 14,890,704 | $ 1,893,592 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation | 182,198 | 348,633 |
Amortization of intangible assets | 1,890,098 | 1,810,935 |
Impairment of intangible assets | 614,010 | 0 |
Bad debt expense | 0 | 109,673 |
Stock compensation for options and warrants granted to employees and directors | 142,943 | 36,777 |
Stock compensation for restricted stock units granted to employees and directors | 1,280,336 | 717,746 |
Loss on disposition of property and equipment | 2,188 | 4,244 |
Note payable issued in consideration of severance pay | 0 | 343,750 |
Change in valuation of contingent earn-out | (178,269) | 438,269 |
Change in net deferred tax assets | 309,762 | 974,290 |
Interest expense related to loan acquisition costs | 85,883 | 25,366 |
Gain on sale of discontinued operations before income taxes | (23,689,269) | 0 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 1,818,683 | 2,457,912 |
Prepaid and other current assets | 527,201 | (2,107,429) |
Supplies | 75,252 | (28,468) |
Deposits | 15,292 | (402) |
Accounts payable and accrued expenses | 1,841,565 | (221,355) |
Accrued compensation and benefits | (2,044,775) | (893,728) |
Deferred revenue | 101,816 | 380,811 |
Income taxes payable | 504,035 | 0 |
Net cash provided by operating activities | (1,630,347) | 6,290,616 |
Cash flows used for investing activities: | ||
Purchases of property and equipment | (194,073) | (156,487) |
Proceeds from sale of net assets of discontinued operations | 26,303,501 | 0 |
Amount paid to purchase Backbone Enterprises, Inc., net of cash received | (5,765,182) | 0 |
Net cash used for investing activities | 20,344,246 | (156,487) |
Cash flows provided by (used for) financing activities: | ||
Proceeds from term loan | 0 | 17,250,000 |
Payments on term loan | (15,401,786) | (13,666,546) |
Payments on notes payable to related parties | (4,656,250) | (7,171,875) |
Loan acquisition fees paid | 0 | (111,250) |
Payments on capital leases | (22,000) | (115,137) |
Proceeds from issuance of common stock through stock options and warrants | 123,482 | 0 |
Net cash provided by (used for) financing activities | (19,956,554) | (3,814,808) |
Net change in cash and cash equivalents | (1,242,655) | 2,319,321 |
Cash and cash equivalents, beginning of year | 6,571,381 | 4,252,060 |
Cash and cash equivalents, end of year | 5,328,726 | 6,571,381 |
Supplemental disclosure of cash flow information: | ||
Interest paid | 797,828 | 1,504,092 |
Income tax paid | 2,118,155 | 366,104 |
Non-cash investing and financing activities: | ||
Property and equipment acquired through capital leases | 0 | 10,920 |
Disposition of fully depreciated property and equipment | 0 | 651,902 |
Common stock issued in connection with the acquisition of Backbone Enterprises, Inc. | 1,365,000 | 0 |
Fair value of earnout liability in connection with the acquisition of Backbone Enterprises, Inc. | $ 2,400,000 | $ 0 |
(1) Basis of Presentation and S
(1) Basis of Presentation and Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(1) Basis of Presentation and Summary of Significant Accounting Policies | (1) Basis of Presentation and Summary of Significant Accounting Policies Business Activity We are engaged in the business of providing fully outsourced document solution services and IT security consulting data security services primarily to the healthcare industry, and also to financial institutions, gaming and other industries. Our business is operated throughout the United States. Liquidity and Capital Resources As of December 31, 2019, our cash balance was $5.3 million, current assets minus current liabilities was positive $6.0 million and our debt and lease obligations totaled $0.4 million, excluding our office space in Mission Viejo, California, that we sublease fully to two subtenants. 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: ● our ability to access the capital and debt markets; ● our ability to manage our operating expenses and maintain gross margins as the Company grows while attracting, recruiting and retaining cybersecurity professionals; ● demand for our cybersecurity services from healthcare providers; the near-term impact of the Coronavirus on our customers allocation of time and resources to cybersecurity and their ability to enter into new contractual arrangements during a period of crisis; and ● general economic conditions and changes in healthcare reimbursement and regulatory environment. 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. Following the sale of the MPS business in 2019, we are now a much smaller cybersecurity focused business with significantly lower debt balances and debt service obligations. However, we also have less scale over which to leverage our operating expenses and public company expenses and are currently operating in a cash flow negative position while we seek to grow the cybersecurity business. During 2019, we reported a loss from continuing operations of $5.4 million and cash used in operating activities from continuing operations was $1.6 million. Our operating plan for the next twelve months contemplates raising additional equity and/or debt capital, investing in enhancing our sales and operational resources while also streamlining our operations to reduce costs and improve financial performance while we expand our cybersecurity business. While we have approximately $6 million of working capital as of December 31, 2019, we do expect to raise additional capital to grow the business. Management believes potential sources of liquidity include at least the following: ▪ In March 2020, the Company received a funding commitment in the amount of $2.5 million from an existing investor. ▪ On March 27, 2020 President Trump signed the Coronavirus Aid, Relief, and Economic Security Act which provides economic relief to businesses. The Company is currently evaluating the opportunity to receive a loan under this program. ▪ On October 10, 2017, the Company filed a registration statement on Form S-3 to register an indeterminate number of securities. On November 22, 2017, we filed an Amendment No. 1 to such registration statement on Form S-3 to update the information in the registration statement. The registration statement covers such indeterminate principal amount or number of shares of Common Stock, debt securities, warrants and number of units of the registrant with an aggregate initial offering price not to exceed $15.0 million. The registration statement on Form S-3 was declared effective on November 22, 2017. If these capital resources are not available, or not available on reasonable terms, we also have the ability to significantly 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 growth and the long-term value of the business. Further, in late 2019, a novel strain of coronavirus 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. The Company’s operations team is closely monitoring the potential impact to the Company’s business, including its cash flows, customers and employees. If the situation impacts our customers cash flow or resources available for cybersecurity projects, our cash flows, financial position and operating results for fiscal year 2020 and beyond will be negatively impacted. Neither the length of time nor the magnitude of the negative impacts can be presently determined. As we execute our growth plans over the next 12 months, we intend to carefully monitor the impact of growth 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 or freeze our organic growth plans, sell assets on less than favorable terms, reduce expenses, and/or curtail future acquisition plans to manage our liquidity and capital resources. However, we cannot provide assurance that we will be able to raise additional capital. In addition, our business is subject to additional risks and uncertainties, including, but not limited to, those described in Item 1A. “Risk Factors”. The accompanying 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. Basis of Presentation The accompanying consolidated financial statements were prepared in conformity with GAAP, and include the accounts of CynergisTek, Inc. and our wholly owned subsidiaries. All intercompany balances and transactions were eliminated. As described in more detail in our Current Report on Form 8-K filed with the Securities and Exchange Commission on September 8, 2017, Auxilio, Inc., a Nevada corporation (“Auxilio”) changed its name and state of incorporation from the State of Nevada to the State of Delaware by merging (the “Reincorporation”) with and into its wholly-owned subsidiary, CynergisTek, Inc., a Delaware corporation, which was established for the purpose of the Reincorporation. As a result of the Reincorporation, Auxilio ceased to exist as a separate entity. As of the date of the merger, each outstanding share of Auxilio’s Common Stock was deemed, by operation of law, to represent the same number of shares of our Common Stock. In accordance with Rule 12g-3 under the Securities Exchange Act of 1934, as amended, the shares of our Common Stock were deemed to be registered under Section 12(b) of the Exchange Act as a successor to Auxilio. Effective as of September 8, 2017, the Company’s trading symbol changed to “CTEK.” As part of the Reincorporation, two wholly owned subsidiaries of the Company also changed their corporate names, as follows: (i) Auxilio Solutions, Inc., a California corporation, changed its name to CTEK Solutions, Inc.; and (ii) CynergisTek, Inc., a Texas corporation, changed its name to CTEK Security, Inc. (“CTEK Security”). Use of Estimates 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 and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition and Deferred Revenue We operate under a consolidated strategy and management structure, deriving revenue from the following sources: o Managed services o Consulting and professional services Revenue is recognized pursuant to ASC Topic 606, “Revenue from Contracts with Customers” (ASC 606). Accordingly, revenue is recognized at an amount that reflects the consideration to which we expect to be entitled in exchange for transferring goods or services to a customer. This principle is applied using the following 5-step process: 1. Identify the contract with the customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when (or as) each performance obligation is satisfied Managed Services Managed services revenue is earned monthly during the term of the contract, as services are provided at a fixed fee and is recognized ratably over the contract term beginning on the commencement date of the contract. Managed services contracts are typically long-term contracts lasting 3 to 5 years. Revenue related to managed services provided is recognized based on the customer utilization of such resources, which management estimates to occur ratably over the customer contract term. Our contracts with managed print services customers included provisions that relate to guaranteed savings amounts and shared savings. Such provisions are considered by management during our initial proprietary client assessment. Our historical settlement of such amounts has been within management’s estimates. Consulting and Professional Services Consulting and professional services contracts are typically short-term, project-based services rendered on either a fixed fee or a time and materials basis. These contracts are normally for a duration of less than one year. For fixed fee arrangements, revenue is recognized ratably over the expected term of the project. For time and materials arrangements, revenues are recognized as the services are rendered. Deferred and Unbilled Revenue We receive payments from customers based on billing schedules established in our contracts. Deferred revenue primarily consists of billings or payments received in advance of the amount of revenue recognized and such amounts are recognized as the revenue recognition criteria are met. Unbilled revenue reflects our conditional right to receive payment from customers for our completed performance under contracts. Cash and Cash Equivalents For purposes of the statement of cash flows and balance sheet classification, cash equivalents include all highly liquid debt instruments with original maturities of three months or less which are not securing any corporate obligations. Accounts Receivable We provide an allowance for doubtful accounts equal to the estimated uncollectible amounts. Our estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that our estimate of the allowance for doubtful accounts will change. Property and Equipment Property and equipment are carried at cost less accumulated depreciation. Depreciation of the property and equipment is provided using the straight-line method over the assets’ estimated economic lives, which range from two to seven years. Expenditures for maintenance and repairs are charged to expense as incurred. Goodwill and Indefinite-Lived Intangible Assets The Company evaluates its intangible assets for impairment when events or circumstance indicate the carrying amount of these assets may not be recoverable. Intangible assets with definite lives are amortized over their estimated useful lives to their estimated residual values. Significant judgements and assumptions are required in the impairment evaluations. Goodwill is not amortized and is tested for impairment at least annually, or whenever events or changes in circumstance indicate the carrying amount of the asset may be impaired. The annual impairment test is performed as of December 31 each year. Significant judgement is involved in determining if an indicator of impairment has occurred. The Company may consider indicators such as deterioration in general economic conditions, adverse changes in the markets in which the reporting unit operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill. The Company may first review for goodwill impairment by assessing the qualitative factors to determine whether any impairment may exist. For a reporting unit in which the Company concludes, based on the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount (or if the Company elects to skip the optional qualitative assessment), the Company is required to perform a quantitative impairment test, which includes measuring the fair value of the reporting unit and comparing it to the reporting unit’s carrying amount. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its fair value, the Company must record an impairment loss for the amount that the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. . Long-Lived Assets In accordance with ASC Topic 350, long-lived assets, such as definite-lived intangible assets, to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If there are indications of impairment, we use future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of asset less the cost to sell. During the year ended December 31, 2019, management determined there was an impairment due to the reduction in the useful life of Acquired Technology assets associated with the Delphiis acquisition and an impairment to the customer relationship asset associated with the Cynergistek, Inc. acquisition in 2017 (Note 6). Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting requirements and those imposed under federal and state tax laws. Deferred taxes are provided for timing differences in the recognition of revenue and expenses for income tax and financial reporting purposes and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and liabilities. Realization of the deferred tax asset is dependent on generating sufficient taxable income in future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. The use of net operating loss deferred tax assets may be limited due to changes in the Company’s ownership structure. Fair Value of Financial Instruments ASC Topic 820, “Fair Value Measurements,” defines fair value, provides a framework for measuring fair value and expands the disclosures required for fair value measurements. The fair value hierarchy consists of three broad levels, which are described below: Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. Level 2 - Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, line of credit and capital lease obligations approximate fair value due to the short-term nature of these financial instruments. The carrying amount of our debt approximates its fair value as we believe the credit markets have not materially changed since the original borrowing dates, and related interest rates are variable. Stock-Based Compensation We account for stock options granted to employees, non-employees, and directors using the accounting guidance in ASC 718 “Stock Compensation” (“ASC 718”). In accordance with ASC 718, we estimate the fair value of service-based options and performance-based options on the date of grant, using the Black-Scholes pricing model. We recognize compensation expense for stock option awards over the requisite or implied service period of the grant. With respect to performance-based awards, compensation expense is recognized when the performance target is deemed probable. For the years ended December 31, 2019 and 2018, stock-based compensation expense recognized in the consolidated statements of operations excluding amounts in discontinued operations (Note 19) is as follows: Year Ended December 31, 2019 2018 Cost of revenues $ 208,163 $ 99,316 Sales and marketing 257,151 150,937 General and administrative expenses 833,617 454,100 Total stock-based compensation expense $ 1,298,931 $ 704,353 The weighted average estimated fair value of stock options granted during 2019 was $1.70 per share. There were no stock option grants in 2018. Estimated fair values were determined using the Black-Scholes option-pricing model, which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, the expected dividend payments, and the risk-free interest rate over the expected life of the option. The assumptions used in the Black-Scholes model were as follows for stock options granted: 2019 2018 Risk-free interest rate 2.4% - Expected volatility of our Common Stock 48.59% - Dividend yield 0% - Expected life of options 3 years - The Black-Scholes model was developed for estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because option valuation models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. Compensation cost associated with grants of restricted stock units are also measured at fair value on the date of grant and such costs are recognized over the respective vesting periods. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense. Basic and Diluted Net Income (Loss) Per Share In accordance with ASC Topic 260, “Earnings Per Share,” basic net income per share is calculated using the weighted average number of shares of Common Stock issued and outstanding during a certain period and is calculated by dividing net income by the weighted average number of shares of Common Stock issued and outstanding during such period. Diluted net income 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. As of December 31, 2019, potentially dilutive securities consisted of options and warrants to purchase 800,994 shares of our Common Stock at prices ranging from $2.28 to $4.86 per share. Of these potentially dilutive securities, only 81,945 of the shares of Common Stock underlying the options and warrants were included in the computation of diluted earnings per share, because the effect of including the remaining instruments would be anti-dilutive. Also included in potentially dilutive securities are 60,000 shares of restricted stock units which vested in October 2019 but had not been issued by year end. As of December 31, 2018, potentially dilutive securities consisted of options and warrants to purchase 617,378 shares of our Common Stock at prices ranging from $1.65 to $4.05 per share. Of these potentially dilutive securities, only 194,669 of the shares of Common Stock underlying the options and warrants were included in the computation of diluted earnings per share, because the effect of including the remaining instruments would be anti-dilutive. Also included in potentially dilutive securities are 70,000 shares of restricted stock units which vested in October 2018 but had not been issued by year end. The following table sets forth the computation of basic and diluted net (loss) income per share: Year Ended December 31, 2019 2018 Numerator: Net loss from continuing operations $ (5,414,383) $ (3,962,398) Net income from discontinued operations $ 20,305,087 $ 5,855,990 Net income $ 14,890,704 $ 1,893,592 Denominator: Denominator for basic calculation weighted averages 9,858,562 9,608,312 Dilutive Common Stock equivalents: Options and warrants 81,945 194,699 Restricted stock units vested but not issued 60,000 70,000 Denominator for diluted calculation weighted average 10,000,507 9,873,011 Net income (loss) per share: From continuing operations Basic net loss per share $ (0.55) $ (0.41) Diluted net loss per share $ (0.55) $ (0.41) From discontinued operations Basic net income per share $ 2.06 $ 0.61 Diluted net income per share $ 2.03 $ 0.59 Net income Basic net income per share $ 1.51 $ 0.20 Diluted net income per share $ 1.49 $ 0.19 Segment Reporting Based on an analysis of how our Chief Operating Decision Makers review, manage and allocate resources, as well as how our management team is organized and compensated, we have determined that the Company operates in one segment. For the years ended December 31, 2019 and 2018, all revenues were derived from domestic operations. Recently Issued Accounting Pronouncements Adopted In February 2016, the FASB issued a new accounting standard on leasing. The new standard requires companies to record most leased assets and liabilities on the balance sheet, and also proposed a dual model for recognizing expense. The Company adopted the standard as of January 1, 2019, with retroactive reporting for prior periods (the comparative option). Adoption of the new standard resulted in the recording of operating lease right-of-use ("ROU") assets and operating lease liabilities of $1,618,121 and $1,743,165 respectively, as of January 1, 2018, with the difference due to deferred rents that were reclassified to the ROU asset value. The standard did not affect our consolidated net income or cash flows. See Note 16 for further details. In August 2016, the FASB issued a new accounting standard which is intended to reduce the existing diversity in practice in how certain cash receipts and cash payments are classified in the statement of cash flows. This guidance was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted, provided that all of the amendments are adopted in the same period. Adoption of these accounting changes did not have a material impact on our consolidated financial statements. In January 2017, the FASB issued a new accounting standard simplifying the test for goodwill impairment. Currently, the fair value of the reporting unit is compared with the carrying value of the reporting unit (identified as "Step 1"). If the fair value of the reporting unit is lower than its carrying amount, then the implied fair value of goodwill is calculated. If the implied fair value of goodwill is lower than the carrying value of goodwill an impairment is recognized (identified as "Step 2"). The new standard eliminates Step 2 from the impairment test; therefore, a goodwill impairment will be recognized as the difference of the fair value and the carrying value. We adopted this standard on January 1, 2019. This new standard had no impact on our consolidated financial position, results of operations and cash flows. In January 2017, the FASB issued a new accounting standard which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. This guidance was effective for the Company beginning in 2019. Adoption of these accounting changes did not have a material impact on our consolidated financial statements. In May 2017, the FASB issued a new accounting standard which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC Topic 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. This guidance is effective for the Company beginning in 2019. Adoption of these accounting changes did not have a material impact on our consolidated financial statements. In June 2018, the FASB issued a new accounting standard which provides guidance that expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The new guidance is effective for the Company beginning in 2019, with early adoption permitted. Adoption of these accounting changes did not have a material impact on our consolidated financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted In January 2020, the FASB issued an amendment clarifying the interaction between accounting standards related to equity securities, equity method investments and certain derivatives. The guidance is effective for fiscal years beginning after December 15, 2020. The Company does not expect the adoption of this guidance will have a material impact on our consolidated financial statements. In December 2019, the FASB issued an amendment to the guidance on income taxes which is intended to simplify the accounting for income taxes. The amendment eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of the deferred tax liabilities for outside basis differences. The amendment also clarifies existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill , and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating the impact the guidance will have on our consolidated financial statements. In August 2018, the FASB issued an amendment to the accounting guidance on cloud computing service arrangements. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. The guidance also requires an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial statements. In August 2018, the FASB issued an amendment to the accounting guidance on retirement benefits. The guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance is effective for fiscal years ending after December 15, 2020 and must be applied retrospectively to all periods presented. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial statements. In August 2018, the FASB issued a new accounting standard which modifies the disclosure requirements on fair value measurements. This guidance will be effective for fiscal years beginning after December 15, 2019. The amendments related to the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this guidance and delay adoption of the additional disclosures until their effective date. We do not anticipate adoption to have a material impact on our consolidated financial statements. 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 fiscal years beginning after December 15, 2020 including interim periods within those fiscal years. Early adoption is permitted for annual periods after December 15, 2018. |
(2) Revenues
(2) Revenues | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(2) Revenues | (2) Revenues On January 1, 2018, we adopted Topic 606 using a modified retrospective method applied to those customer contracts which were not completed as of January 1, 2018. There was no change in revenues reported using this method as compared to the previous guidance. Below is a summary of our revenues disaggregated by revenue source. Year Ended December 31, 2019 2018 Managed services $ 11,887,108 $ 10,815,730 Consulting & professional services 9,477,702 10,495,987 Net revenues $ 21,364,810 $ 21,311,717 |
(3) Accounts Receivable
(3) Accounts Receivable | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(3) Accounts Receivable | (3) Accounts Receivable A summary of accounts receivable follows: As of December 31, 2019 2018 Trade receivables $ 3,210,726 $5,572,467 Allowance for doubtful accounts - - $ 3,210,726 $5,572,467 |
(4) Deferred Commissions
(4) Deferred Commissions | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(4) Deferred Commissions | (4) Deferred Commissions Our incremental costs of obtaining a contract, which consist of sales commissions on multi-year contracts, are deferred and amortized over the period of contract performance. Effective January 1, 2018, when we adopted the modified retrospective method of the new revenue recognition pronouncement, we increased deferred commissions by $879,666 with a corresponding increase in beginning retained earnings. Deferred commissions are included in prepaid and other current assets in our consolidated balance sheets. As of December 31, 2019, we had $764,607 related to unamortized deferred commissions and recorded $876,409 of commissions expense for the year ended December 31, 2019. As of December 31, 2018, we had $991,175 related to unamortized deferred commissions and recorded $833,063 of commissions expense for the year ended December 31, 2018. |
(5) Property and Equipment
(5) Property and Equipment | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(5) Property and Equipment | (5) Property and Equipment A summary of property and equipment follows: As of December 31, 2019 2018 Furniture and fixtures $ 195,586 $ 195,586 Computers and office equipment 757,251 563,856 Right of use assets 1,658,364 1,618,121 Property and equipment at cost 2,611,201 2,377,563 Less accumulated depreciation and amortization (1,664,982) (974,038) $ 946,219 $ 1,403,525 Depreciation expense for property and equipment amounted to $145,563 and $147,553 for the years ended December 31, 2019 and 2018, respectively. |
(6) Intangible Assets and Goodw
(6) Intangible Assets and Goodwill | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(6) Intangible Assets | (6) Intangible Assets and Goodwill Intangible assets are amortized over expected useful lives ranging from 1.5 to 10 years and consist of the following as of December 31, 2019 and 2018: As of December 31, 2019 2018 Acquired technology $ 10,100,000 $ 10,100,000 Customer relationships 4,650,000 3,150,000 Trademarks 2,300,000 1,800,000 Non-compete agreements 320,000 320,000 Gross carrying amount 17,370,000 15,370,000 Less: accumulated impairment (1,871,923) (1,257,914) Total intangible assets 15,498,077 14,112,086 Less accumulated amortization (6,912,195) (5,022,097) Total net intangible assets $ 8,585,882 $ 9,089,989 The amortization of intangible assets expected in future years is as follows: December 31, Amortization 2020 $ 1,664,769 2021 1,664,769 2022 1,354,769 2023 1,292,269 2024 963,102 Thereafter 1,646,204 Total $ 8,585,882 Goodwill Goodwill consists of the following as of December 31, 2019 and 2018: December 31, 2019 December 31, 2018 Gross Carrying Amount Accumulated Impairment Net Carrying Amount Gross Carrying Amount Accumulated Impairment Net Carrying Amount Delphiis, Inc. $ 956,639 $ (837,126) $ 119,513 $ 956,639 $ (837,126) $ 119,513 Redspin 1,192,000 (719,387) 472,613 1,192,000 (719,387) 472,613 CTEK Security, Inc 16,416,063 - 16,416,063 16,416,063 - 16,416,063 Backbone 6,975,294 - 6,975,294 - - - Total goodwill $ 25,539,996 $ (1,556,513) $23,983,483 $18,564,702 $ (1,556,513) $17,008,189 |
(7) Deferred Revenue
(7) Deferred Revenue | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(7) Deferred Revenue | (7) Deferred Revenue We record deferred revenues when amounts are billed to customers, or cash is received from customers, in advance of our performance. $811,090 and $578,725 of managed services revenues were recognized during the years ended December 31, 2019 and 2018, respectively, that was included in deferred revenue at the beginning of the respective periods. $73,068 and $617,522 of consulting and professional services revenues were recognized during the years ended December 31, 2019 and 2018, respectively, that was included in deferred revenue at the beginning of the respective periods. |
(8) Remaining Performance Oblig
(8) Remaining Performance Obligations | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(8) Remaining Performance Obligations | (8) Remaining Performance Obligations Remaining performance obligations represent the amount of revenue from fixed-fee contracts, including those which have potential early cancellation provisions, for which work has not been performed. As of December 31, 2019, approximately $23,200,000 of revenue from fixed-fee contracts is expected to be recognized from these remaining performance obligations. We expect to recognize revenue on approximately 85% of these remaining performance obligations over the next 24 months, with the balance thereafter. We elected to utilize the practical expedient exemption to exclude from this disclosure the amount of revenue from contracts which are not fixed-fee and where we do not have the right to invoice until the services have been performed. |
(9) Line of Credit and Term Loa
(9) Line of Credit and Term Loan | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(9) Line of Credit and Term Loan | (9) Line of Credit and Term Loan On January 13, 2017, as part of the acquisition of CTEK Security, Inc. (formerly CynergisTek, Inc.), we entered into an Amended and Restated Credit Agreement (the “A&R Credit Agreement”). The A&R Credit Agreement amended a loan and security agreement originally entered into on May 4, 2012, as amended by several amendments. Under the A&R Credit Agreement, the term of the revolving line-of-credit was available through January 13, 2019, at an interest rate of prime plus 1.0% per annum. The amount available to us at any given time was the lesser of (a) $5.0 million, or (b) the amount available under our borrowing base (80% of our eligible accounts receivable, minus (1) accrued client lease payables, and minus (2) accrued equipment pool liability). The A&R Credit Agreement provided a term loan facility for $14,000,000. There were no borrowings on the line of credit in 2018 or 2019. Interest charges associated with this term loan totaled $133,914 for the year ended December 31, 2018. Debt Restructuring On March 12, 2018, we entered into a Credit Agreement (together with the other related documents defined therein, the “Credit Agreement”) with BMO Harris Bank N.A., a national banking association (“Bank”), as lender (the “BMO Loan”). The purposes of the BMO Loan were (1) to refinance and replace the facilities under the A&R Credit Agreement, thus terminating that agreement as of March 12, 2018, (2) to refinance $2,250,000 of a promissory note held by Michael McMillan (the “McMillan Seller Note”), (3) to finance payments to Michael Hernandez, including the full repayment of a promissory note held by Hernandez (the “Hernandez Seller Note”) in the original principal amount of $4,500,000, issued as part of the acquisition of CTEK Security, Inc., (4) to finance working capital, (5) for general corporate purposes and (6) to fund certain fees and expenses associated with the closing of the BMO Loan. Loan Facilities Term Loan: Pursuant to the Credit Agreement, the Bank agreed to provide a term loan in the amount of $17,250,000 to the Company, which was paid in accordance with the purpose of the BMO Loan as described above. Pursuant to the Credit Agreement, the Company could elect that the term loan be outstanding as Base Rate Loans or Eurodollar Loans. The term loan was payable in principal payment installments on the last day of each fiscal quarter, commencing on June 30, 2018. All principal and interest not sooner paid on the term loan was due and payable on September 12, 2022, the final maturity thereof. Revolving Line of Credit: Additionally, pursuant to the Credit Agreement, the Bank agreed to provide a revolving loan or loans to the Company in an aggregate amount of up to $5,000,000 with a $500,000 sublimit for the issuance of letters of credit. Pursuant to the Credit Agreement, the Company could elect that each borrowing of revolving loans be either Base Rate Loans or Eurodollar Loans. Each revolving loan, both for principal and interest then outstanding, matured and was due and payable on March 12, 2020, or such earlier date on which the Revolving Credit Commitment (as defined in the Credit Agreement) was terminated in whole pursuant to the Credit Agreement. There were no borrowings on the line of credit in 2019 or 2018. Beginning June 30, 2018, we were required to maintain certain financial covenants in connection with this credit agreement, including a total leverage ratio, a senior leverage ratio, and a fixed charge coverage ratio. These covenants contain ratios which changed over relevant periods of the credit agreement and could be found in Section 7.13 of the Credit Agreement. On March 12, 2018, we paid a $86,250 commitment fee associated with the term loan and a $25,000 revolving loan commitment fee associated with the line of credit. On March 20, 2019, we used a portion of the proceeds from the sale of the assets of the MPS Business (Note 19) to fully repay the balance of the term loan in the amount of $15,401,786, plus interest of $52,760. At that time, the Revolving Line of Credit was terminated. Interest charges associated with the BMO term loan totaled $207,903 and $759,454, respectively, for the years ended December 31, 2019 and 2018. |
(10) Promissory Notes
(10) Promissory Notes | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(10) Promissory Notes | (10) Promissory Notes In connection with the acquisition of CTEK Security, Inc. (formerly CynergisTek, Inc.), we issued two promissory notes totaling $9,000,000 to Michael Hernandez and Michael McMillan (respectively, the “Hernandez Seller Note” and the “McMillan Seller Note”; and together the “Seller Notes”), with each of the Seller Notes having an initial principal amount of $4,500,000. These Seller Notes bear interest at 8% per annum, require quarterly interest-only payments during the first 12 months, quarterly payments of principal and interest during the last 24 months, using a 36-month amortization period commencing from that point, with a balloon payment due on the maturity date. The Company had the right to prepay all or any portion of the outstanding principal balance of the Seller Notes, provided that such prepayment is accompanied by accrued interest on the amount of principal prepaid, calculated to the date of such prepayment. On March 12, 2018, the Company fully repaid the $4,500,000 plus accrued interest on the Hernandez Seller Note. As part of the debt restructuring with BMO Harris Bank N.A., on March 12, 2018, the Company repaid $2,250,000 plus accrued interest on the McMillan Seller Note. The Company and Mr. McMillan agreed to amend and restate the McMillan Seller Note pursuant an amended and restated promissory note (the “A&R McMillan Seller Note”). The A&R McMillan Seller Note is in the principal amount of $2,250,000, 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 December 31, 2019, and 2018, the outstanding principal balance due under the A&R McMillan Seller Note was $1,265,625 and $1,828,125, respectively. Amounts due and owing under the A&R McMillan Seller Note were subordinate to the right of payment due under the BMO Loan pursuant to a Subordination Agreement among the Company, the Bank and Mr. McMillan. Interest charges associated with the Seller Notes totaled $125,507 and $694,356, respectively for the years ended December 31, 2019 and 2018. Pursuant to a separation agreement among the Company, CTEK Security, Inc. and Michael Hernandez (the “Separation Agreement”), in lieu of any earn-out payments due pursuant to the purchase agreement related to the acquisition of CTEK Security, Inc. (the “Original SPA”) that could be earned by Hernandez under the Original SPA, the Company agreed to pay Hernandez the amount of $3,750,000 in the form of a promissory note (the “Earn-out Note”). The Earn-out Note provided for (i) a maturity date of March 12, 2023, at which all principal and accrued and unpaid interest was due, (ii) a simple interest rate of 5% per annum commencing on January 1, 2018, and compounding annually, and (iii) the right of the Company to prepay all or any portion of the Earn-out Note without premium or penalty. On March 26, 2019, we used a portion of the proceeds from the sale of the assets of MPS Business (Note 19) to fully repay the Earn-out Note with interest of $234,293. Interest charges associated with the Earn-out Note totaled $0 and $188,435, respectively, for the years ended December 31, 2019 and 2018. Pursuant to the Separation Agreement, the Company also issued a Severance Payment Note to Hernandez in the original principal amount of $343,750 (the “Severance Payment Note”). The Severance Payment Note bears interest at a rate of 5% per annum, compounded annually, allowed for prepayment by the Company and matured on January 10, 2019, at which time all principal and accrued and unpaid interest was due. All principal and interest due under the Severance Payment Note was repaid on March 27, 2019. Interest charges associated with the Severance Payment Note totaled $494 and $17,140, respectively, for the years ended December 31, 2019 and 2018. |
(11) Warrants
(11) Warrants | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(11) Warrants | (11) Warrants Below is a summary of warrant activity during the years ended December 31, 2019 and 2018: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at January 1, 2018 77,779 $ 3.03 Granted in 2018 - $ - Exercised in 2018 - $ - Cancelled in 2018 - $ - Outstanding at December 31, 2018 77,779 $ 3.03 4.05 $ - Granted in 2019 - $ - Exercised in 2019 - $ - Cancelled in 2019 - $ - Outstanding at December 31, 2019 77,779 $ 3.03 3.05 $ 21,000 Warrants exercisable at December 31, 2019 77,779 $ 3.03 3.05 $ 21,000 |
(12) Stock Options and Stock In
(12) Stock Options and Stock Incentive Plans | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(12) Stock Options and Stock Incentive Plans | (12) Stock Options and Stock Incentive Plans On March 17, 2011, the Board approved the 2011 Stock Incentive Plan (the “2011 Plan”) that included the predecessor stock incentive plans, and it became effective on May 12, 2011. The 2011 Plan authorized the issuance of no more than 1,990,000 shares of our Common Stock and it provides for the granting of stock options, stock appreciation rights and restricted stock to our employees, members of the Board and service providers. On June 8, 2017, the 2011 Plan was amended in order to increase the number of shares available under the 2011 Plan by 1,000,000 to 2,990,000. On September 1, 2017, the 2011 Plan was further amended in order to permit the award of restricted stock units. As of December 31, 2019, there were 562,919 shares available for issuance under the 2011 Plan. In July 2019, in connection with his initial offer of employment as President and CEO (Note 16), the Board granted to Caleb Barlow an option to purchase up to 500,000 shares of the Company’s Common Stock. The option exercise price was equal to the fair market value of the Common Stock at the date of grant of $4.86 per share. Options expire no later than 10 years from the grant date and vest over three years. The options are nonqualified, and the grant was made outside of the 2011 Plan. Additional information with respect to the stock option activity is as follows: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at January 1, 2018 724,073 $ 3.09 Granted in 2018 - $ - Exercised in 2018 (54,022) $ 2.77 Cancelled in 2018 (130,452) $ 3.70 Outstanding at December 31, 2018 539,599 $ 2.97 3.54 $ 954,182 Granted in 2019 500,000 $ 4.86 Exercised in 2019 (105,584) $ 2.73 Cancelled in 2019 (210,800) $ 3.12 Outstanding at December 31, 2019 723,215 $ 4.27 7.47 $ 83,206 Options exercisable at December 31, 2019 223,215 $ 2.95 2.82 $ 83,206 The following table summarizes information about stock options outstanding and exercisable at December 31, 2019: Range of Number of Shares Outstanding Weighted Average Remaining in Contractual Life Outstanding Options Weighted Average Exercise Price Number of Options Exercisable Exercisable Options Weighted Average Exercise Price $2.28 to $2.72 57,670 3.00 $ 2.47 57,670 $ 2.47 $2.73 to $4.86 665,545 7.86 $ 4.43 165,545 $ 3.12 $2.28 to $4.86 723,215 7.47 $ 4.27 223,215 $ 2.95 Unamortized compensation expense associated with unvested options is $792,542 as of December 31, 2019. The weighted average period over which these costs are expected to be recognized is approximately three years. |
(13) Restricted Stock
(13) Restricted Stock | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(13) Restricted Stock | (13) Restricted Stock Awards The fair value of restricted stock awards is estimated by the market price of the Company’s Common Stock at the date of grant. Restricted stock activity during the years ended December 31, 2019 and 2018, are as follows: Number of Shares Weighted Average Grant-Date Fair Value per Share Weighted Average Vesting Period in Years Non-vested at January 1, 2018 506,500 $ 3.35 Granted in 2018 439,000 $ 3.98 Vested in 2018 (70,000) 3.26 Cancelled and forfeited in 2018 (65,500) 3.68 Non-vested at December 31, 2018 810,000 $ 3.67 Granted in 2019 447,700 $ 3.11 Vested in 2019 (131,726) 4.22 Cancelled and forfeited in 2019 (57,774) 3.95 Non-vested at December 31, 2019 1,068,200 $ 3.42 1.71 During the years ended December 31, 2019 and 2018, we issued a total of 447,700 and 439,000 shares respectively, of restricted stock units to key employees and members of the Board of Directors. The shares cliff vest after three years of continuous employment or one continuous of year of service on the board. The cost recognized for these restricted stock units totaled $1,280,336 and $717,746 for the years ended December 31, 2019 and 2018, respectively. |
(14) Income Taxes
(14) Income Taxes | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(14) Income Taxes | (14) Income Taxes For the years ended December 31, 2019 and 2018, the components of income tax benefit are as follows: Year Ended December 31, 2019 2018 Current provision: Federal $ (1,814,143) $ (198,879) State (296,088) (59,245) (2,110,231) (258,124) Deferred: Federal 735,508 (563,523) State (154,385) (483,887) (581,423) (1,047,410) Income tax benefit $ (1,528,808) $ (1,305,534) Income tax benefit amounted to $1,528,808 and $1,305,534 for the years ended December 31, 2019 and 2018, respectively (an effective rate of 22% for 2019 and 37% for 2018). A reconciliation of the provision for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows: Year Ended December 31, 2019 2018 Computed tax at federal statutory rate of 21% $ (1,458,070) $ (1,106,266) State taxes, net of federal benefit (355,978) (311,024) Non-deductible items 15,316 8,033 Other 269,924 103,723 $ (1,528,808) $ (1,305,534) 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. Significant components of our deferred tax assets and liabilities are as follows: Year Ended December 31, 2019 2018 Deferred tax assets: Accrued salaries/vacation $ 103,300 $ 206,600 Accrued other 19,200 8,500 Amortization of intangible assets 728,500 828,200 State taxes 51,900 (7,300) Stock options 1,137,600 739,500 Credits - 63,200 Net operating loss carryforwards 44,700 530,800 Total deferred tax assets 2,085,200 2,369,500 Deferred tax liabilities: Depreciation 123,200 17,400 Other 125,742 206,080 Total deferred tax liabilities 248,942 223,480 Net deferred tax assets $ 1,836,258 $ 2,146,020 At December 31, 2019, we estimate zero remaining net operating loss carryforwards that may be applied against future taxable income for federal purposes and state purposes. We evaluate our tax positions each reporting period to determine the uncertainty of such positions based upon one of the following conditions: (1) the tax position is not ‘‘more likely than not’’ to be sustained, (2) the tax position is ‘‘more likely than not’’ to be sustained, but for a lesser amount, or (3) the tax position is ‘‘more likely than not’’ to be sustained, but not in the financial period in which the tax position was originally taken. We have evaluated our tax positions for all jurisdictions and all years for which the statute of limitations remains open. We have determined that no liability for unrecognized tax benefits and interest was necessary. |
(15) Retirement Plan
(15) Retirement Plan | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(15) Retirement Plan | (15) Retirement Plan Our professional employer organization sponsors a 401(k) plan for the benefit of our employees who are at least 21 years of age. Our management determines, at its discretion, the annual and matching contribution. For the years ended December 31, 2019 and 2018, we made matching contributions totaling $418,204 and $381,752, respectively. |
(16) Commitments
(16) Commitments | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(16) Commitments | (16) Commitments Leases We lease approximately 17,000 square feet of office space in Mission Viejo, California. This lease terminates in April of 2021. During the first quarter of 2019, we subleased this space to two subtenants. The terms of these subleases end concurrently with the end of our lease obligation in April 2021. We also leased approximately 3,600 square feet of office space in Austin, Texas. This lease terminated in September 2019. During the first quarter of 2018, we subleased this space to a subtenant. The terms of this sublease ended concurrently with the end of our lease obligation in September 2019. We also lease approximately 9,600 square feet of office space at in Austin, Texas. We amended this lease reducing the office space to 4,600 square feet and extending the lease to May 31, 2022. We also lease approximately 3,700 square feet of office space in Minneapolis, Minnesota. This lease terminates on July 31, 2021. We used a discount rate of 5.5% as of January 1, 2018 in determining our operating lease liability. This rate represented our incremental borrowing rate at that time. 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 of the leases contain extension options; however, we have not included such options as part of right-of-use assets and lease liabilities because we do 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. We elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019, and therefore did not reassess (i) whether any expired or existing contracts are, or contain, leases, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for any existing leases. We did not elect to use hindsight for transition when considering judgments and estimates such as assessments of lease options to extend, or terminate, a lease, or to purchase the underlying asset. We have no land easements. For all asset classes, we elected to (i) not recognize a right-of-use asset and lease liability for leases 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 is comprised of the following: Year Ended December 31, 2019 2018 Operating lease cost $ 337,791 $ 358,244 Sublet income (62,867) (92,807) Net operating lease cost $ 274,924 $ 265,437 Maturities of lease liabilities are as follows: Operating Leases 2020 $ 559,462 2021 160,871 Total lease payments 720,333 Less imputed interest (27,967) Total lease liabilities 692,366 Less current portion of lease liabilities (533,371) Long-term lease liabilities $ 158,995 Employment Agreements Effective August 1, 2019, we entered into an employment agreement with Caleb Barlow (the “Barlow Agreement”) pursuant to which he will serve as President and Chief Executive Officer and will have the duties and responsibilities as are commensurate with such positions. The initial term of the Barlow Agreement is 36 months and will automatically renew for subsequent 12-month terms unless either party provides written notice to the other party of a desire not to renew employment. Mr. Barlow’s base salary is $350,000. He is entitled to incentive bonus compensation that offers the potential to receive a discretionary bonus up to 100% of his base salary. For 2019 there was no bonus paid. In addition, he receives a retention bonus totaling $500,000, with $200,000 being paid on August 1, 2019, $150,000 paid on January 1, 2020 and $150,000 payable on January 2021. Mr. Barlow also received equity compensation consisting of an option to purchase up to 500,000 shares of the Company’s Common Stock, subject to vesting, and 50,000 shares of restricted stock units. The options are nonqualified, and the grant was made outside of the Company's 2011 Stock Incentive Plan. The foregoing is a summary of the Barlow Agreement, and is qualified in its entirety by reference to the full context of the agreement, which is included as Exhibit 10.1 to our Form 8-K filed with the SEC on July 16, 2019. Effective January 1, 2016, we entered into an employment agreement with Paul T. Anthony (the “Anthony Agreement”). The Anthony Agreement provides that Mr. Anthony will continue to serve as our Executive Vice President, CFO and Corporate Secretary. We may terminate Mr. Anthony’s employment under the Anthony Agreement without cause at any time on thirty (30) days advance written notice, at which time Mr. Anthony would receive severance pay for twelve months and be fully vested in all options and warrants granted to date. In February 2018, the Company amended the Anthony Agreement to extend the term thereof through December 31, 2020 and increased his base salary to $284,700 for 2018, and $309,700 for 2019 and 2020. Mr. Anthony was paid a bonus of $147,061 for 2018, earned a bonus of $41,841 for 2019, and his 2020 bonus will be up to 67.5% of his base salary. The foregoing summary of the Anthony Agreement is qualified in its entirety by reference to the full context of the agreement, which is found as Exhibit 10.32 to our Annual Report on Form 10-K filed with the SEC on March 30, 2016, and the amendment to the Anthony Agreement, which is found as Exhibit 10.45 to our Annual Report on Form 10-K filed with the SEC on March 28, 2018. In January 2017, we entered into an employment agreement with Michael H. McMillan (the “McMillan Employment Agreement”), pursuant to which we employed Mr. McMillan as President and Chief Strategy Officer of the Company. The initial term of the McMillan Employment Agreement was 36 months and would automatically renew for subsequent 12-month terms unless either party provided written notice to the other party of a desire to not renew the agreement. In February 2018, the Company amended the McMillan Employment Agreement to extend the term thereof through December 31, 2020 and increased his base salary to $334,700 for 2018, $359,700 for 2019, and the 2020 base salary to be determined by the Board of Directors at the end of the 2019 calendar year. Mr. McMillan was paid a bonus of $161,241 and $0 in 2018 and 2019, respectively. The foregoing summary of the McMillan Employment Agreement is qualified in its entirety by reference to the full context of the agreement, which is found as Exhibit 99.6 to our Current Report on Form 8-K filed with the SEC on January 17, 2017, and the amendment to the McMillan Employment Agreement, which is found as Exhibit 10.44 to our Annual Report on Form 10-K filed with the SEC on March 28, 2018. On July 15, 2019, Mr. McMillan notified the Board of Directors of his decision to retire from the Company effective December 31, 2019. In connection with his planned retirement, Mr. McMillan also submitted his resignation as President and Chief Executive Officer of the Company, effective July 31, 2019. Mr. McMillan will continue to serve as a director of the Company and remained employed by the Company through his retirement date in order to assist with the transition. Mr. Mr. McMillan was given the honorary title of President and CEO Emeritus by the Board. |
(17) Concentrations
(17) Concentrations | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(17) Concentrations | (17) Concentrations Cash Concentrations At times, cash and cash equivalent 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 For the year ended December 31, 2019, there was one customer that generated at least 10% of our revenues. This customer represented a total of 14% of revenues. As of December 31, 2019, net accounts receivable due from this customer totaled approximately $140,000. For the year ended December 31, 2018, there was one customer that generated at least 10% of our revenues. This customer represented a total of 24% of revenues. As of December 31, 2018, net accounts receivable due from this customer totaled approximately $1,300,000. |
(18) Stock Purchase Agreement -
(18) Stock Purchase Agreement - Backbone Enterprises, Inc. | 12 Months Ended |
Dec. 31, 2019 | |
Notes to Financial Statements | |
(18) Stock Purchase Agreement - Backbone Enterprises, Inc. | (18) Stock Purchase Agreement – Backbone Enterprises, Inc. On October 31, 2019, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Backbone Enterprises Inc., a Minnesota corporation (“Backbone”), and their 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 (the “Backbone Transaction”). Pursuant to the Purchase Agreement, the aggregate purchase price paid for the Shares consisted of (i) a cash payment of $5,500,000, less certain transaction expenses (the “Cash Consideration”), (ii) the issuance of 491,804 shares of our Common Stock to the Stockholders (the “Securities Consideration”), pro rata among the Stockholders in proportion to each Stockholder’s ownership of the Shares, and 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. As of December 31, 2019, the estimated fair value of the earnout is $2,400,000. The Cash Consideration is subject to adjustment based on closing working capital of Backbone, and $1,500,000 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. The Company has performed a valuation analysis of the fair value of Backbone Enterprises, Inc.’s assets and liabilities. The following table summarizes the allocation of the purchase price as of the acquisition date (in thousands): Cash $ 27,000 Accounts receivable 831,000 Prepaid expenses and other assets 31,000 Identified intangible assets (Note 6) 2,000,000 Goodwill (Note 6) 6,976,000 Accrued compensation and benefits (20,000) Total allocated purchase price $ 9,834,000 Pro Forma Information (Unaudited) The following supplemental unaudited pro forma information presents the combined operating results of the Company and the acquired business during the years ended December 31, 2019 and 2018, as if the acquisition had occurred at the beginning of each of the periods presented. The pro forma information is based on the historical financial statements of the Company and that of the acquired business. Amounts are not necessarily indicative of the results that may have been attained had the combinations been in effect at the beginning of the periods presented or that may be achieved in the future. Year Ended December 31, 2019 2018 Pro forma revenue $ 24,454,000 $ 24,188,000 Pro forma net income $ 14,986,000 $ 1,585,000 Pro forma basic net income per share $ 1.52 $ 0.16 Pro forma diluted net income per share $ 1.50 $ 0.15 |
(19) Discontinued Operations
(19) Discontinued Operations | 12 Months Ended |
Dec. 31, 2019 | |
Discontinued Operations and Disposal Groups [Abstract] | |
(19) Discontinued Operations | (19) Discontinued Operations On March 20, 2019, we, along with our wholly-owned subsidiary, CTEK Solutions, Inc., entered into an Asset Purchase Agreement (together with the other related documents defined therein, the “Purchase Agreement”) with Vereco, LLC, a Delaware limited liability company (“Buyer”). Pursuant to the Purchase Agreement, we sold our assets used in the provision of our managed print services business division (the “MPS Business”), which had been primarily conducted by CTEK Solutions, Inc. Buyer also assumed certain liabilities relating to the MPS Business. The purchase price pursuant to the Purchase Agreement was $30,000,000, $5,000,000 of which was placed in escrow by Buyer, the release of which is contingent upon certain events and conditions specified in the Purchase Agreement. On June 20, 2019, a contingent event had not occurred and per the terms of the Purchase Agreement, $1,500,000 of the $5,000,000 was removed. The purchase price was subject to adjustment based on closing working capital results of the MPS Business. The working capital adjustment reduced the cash received by $2,196,499. The following is a summary of the transaction selling the MPS Business: Net proceeds from the sale of the business 26,303,501 Book value of net assets disposed (2,614,232) Gain before provision for income taxes 23,689,269 Income tax expense (4,197,198) Net gain from sale of discontinued operations $ 19,492,071 The following are the carrying amounts of assets and liabilities included as part of held for sale on the balance sheet as of December 31, 2018: As of December 31, 2018 Accounts receivable, net $ 5,124,270 Prepaid and other current assets 2,118,664 Supplies 1,184,474 Currents assets held for sale $ 8,427,408 Property and equipment, net $ 327,332 Goodwill 1,517,017 Noncurrent assets held for sale $ 1,844,349 Accounts payable and accrued expenses $ 5,098,179 Accrued compensation and benefits 1,225,057 Deferred revenue 888,467 Capital lease obligations current portion 87,857 Current liabilities held for sale $ 7,299,561 Capital lease obligations noncurrent portion $ 58,567 Noncurrent liabilities held for sale $ 58,967 The following is a composition of the line items constituting net income from discontinued operations: Year Ended 2019 2018 Net revenues $ 12,096,885 $ 49,794,792 Cost of revenues (10,060,414) (39,111,403) Sales and marketing (201,295) (535,087) General and administrative expenses (676,630) (1,637,237) Depreciation (36,635) (201,080) Other income (expense) (1,956) (16,245) Income before provision for income taxes 1,119,956 8,293,690 Income tax expense (306,940) (2,437,700) Net income from discontinued operations $ 813,016 $ 5,855,990 The following is a composition of the capital expenditures, and any significant noncash operating and investing items, including depreciation, of the discontinued operations. Year Ended 2019 2018 Stock compensation $ 124,348 $ 50,170 Depreciation $ 36,635 $ 201,080 Loss on disposition of property and equipment $ - $ 4,246 Capital expenditures $ - $ 23,082 |
(20) Subsequent events
(20) Subsequent events | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
(20) Subsequent events | (20) Subsequent Events On March 26, 2020 the Company received a commitment (“Equity Commitment”) to sell up to $2,500,000 in Common Stock for operating cash needs to a current stockholder. The term of the Equity Commitment started March 27, 2020 and expires on the earlier to occur of the date the investor purchases all $2,500,000 of shares or March 31, 2021. The Company is not obligated to sell any shares pursuant to the Equity Commitment. The purchase price of the shares will be at a discount to the market price on the date of the purchase and will include an initial warrant along with additional warrants if and when the Company sells the shares to the investor under the Equity Commitment. The Company is still finalizing the specific terms and definitive documents related to share purchases. |
(1) Basis of Presentation and_2
(1) Basis of Presentation and Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2019 | |
Policy Text Block [Abstract] | |
Business Activity | Business Activity We are engaged in the business of providing fully outsourced document solution services and IT security consulting data security services primarily to the healthcare industry, and also to financial institutions, gaming and other industries. Our business is operated throughout the United States. |
Liquidity and Capital Resources | Liquidity and Capital Resources As of December 31, 2019, our cash balance was $5.3 million, current assets minus current liabilities was positive $6.0 million and our debt and lease obligations totaled $0.4 million, excluding our office space in Mission Viejo, California, that we sublease fully to two subtenants. 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: ● our ability to access the capital and debt markets; ● our ability to manage our operating expenses and maintain gross margins as the Company grows while attracting, recruiting and retaining cybersecurity professionals; ● demand for our cybersecurity services from healthcare providers; the near-term impact of the Coronavirus on our customers allocation of time and resources to cybersecurity and their ability to enter into new contractual arrangements during a period of crisis; and ● general economic conditions and changes in healthcare reimbursement and regulatory environment. 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. Following the sale of the MPS business in 2019, we are now a much smaller cybersecurity focused business with significantly lower debt balances and debt service obligations. However, we also have less scale over which to leverage our operating expenses and public company expenses and are currently operating in a cash flow negative position while we seek to grow the cybersecurity business. During 2019, we reported a loss from continuing operations of $5.4 million and cash used in operating activities from continuing operations was $1.6 million. Our operating plan for the next twelve months contemplates raising additional equity and/or debt capital, investing in enhancing our sales and operational resources while also streamlining our operations to reduce costs and improve financial performance while we expand our cybersecurity business. While we have approximately $6 million of working capital as of December 31, 2019, we do expect to raise additional capital to grow the business. Management believes potential sources of liquidity include at least the following: ▪ In March 2020, the Company received a funding commitment in the amount of $2.5 million from an existing investor. ▪ On March 27, 2020 President Trump signed the Coronavirus Aid, Relief, and Economic Security Act which provides economic relief to businesses. The Company is currently evaluating the opportunity to receive a loan under this program. ▪ On October 10, 2017, the Company filed a registration statement on Form S-3 to register an indeterminate number of securities. On November 22, 2017, we filed an Amendment No. 1 to such registration statement on Form S-3 to update the information in the registration statement. The registration statement covers such indeterminate principal amount or number of shares of Common Stock, debt securities, warrants and number of units of the registrant with an aggregate initial offering price not to exceed $15.0 million. The registration statement on Form S-3 was declared effective on November 22, 2017. If these capital resources are not available, or not available on reasonable terms, we also have the ability to significantly 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 growth and the long-term value of the business. Further, in late 2019, a novel strain of coronavirus 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. The Company’s operations team is closely monitoring the potential impact to the Company’s business, including its cash flows, customers and employees. If the situation impacts our customers cash flow or resources available for cybersecurity projects, our cash flows, financial position and operating results for fiscal year 2020 and beyond will be negatively impacted. Neither the length of time nor the magnitude of the negative impacts can be presently determined. As we execute our growth plans over the next 12 months, we intend to carefully monitor the impact of growth 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 or freeze our organic growth plans, sell assets on less than favorable terms, reduce expenses, and/or curtail future acquisition plans to manage our liquidity and capital resources. However, we cannot provide assurance that we will be able to raise additional capital. In addition, our business is subject to additional risks and uncertainties, including, but not limited to, those described in Item 1A. “Risk Factors”. The accompanying 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. |
Basis of Presentation | Basis of Presentation The accompanying consolidated financial statements were prepared in conformity with GAAP, and include the accounts of CynergisTek, Inc. and our wholly owned subsidiaries. All intercompany balances and transactions were eliminated. As described in more detail in our Current Report on Form 8-K filed with the Securities and Exchange Commission on September 8, 2017, Auxilio, Inc., a Nevada corporation (“Auxilio”) changed its name and state of incorporation from the State of Nevada to the State of Delaware by merging (the “Reincorporation”) with and into its wholly-owned subsidiary, CynergisTek, Inc., a Delaware corporation, which was established for the purpose of the Reincorporation. As a result of the Reincorporation, Auxilio ceased to exist as a separate entity. As of the date of the merger, each outstanding share of Auxilio’s Common Stock was deemed, by operation of law, to represent the same number of shares of our Common Stock. In accordance with Rule 12g-3 under the Securities Exchange Act of 1934, as amended, the shares of our Common Stock were deemed to be registered under Section 12(b) of the Exchange Act as a successor to Auxilio. Effective as of September 8, 2017, the Company’s trading symbol changed to “CTEK.” As part of the Reincorporation, two wholly owned subsidiaries of the Company also changed their corporate names, as follows: (i) Auxilio Solutions, Inc., a California corporation, changed its name to CTEK Solutions, Inc.; and (ii) CynergisTek, Inc., a Texas corporation, changed its name to CTEK Security, Inc. (“CTEK Security”). |
Use of Estimates | Use of Estimates 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 and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Revenue Recognition and Deferred Revenue | Revenue Recognition and Deferred Revenue We operate under a consolidated strategy and management structure, deriving revenue from the following sources: o Managed services o Consulting and professional services Revenue is recognized pursuant to ASC Topic 606, “Revenue from Contracts with Customers” (ASC 606). Accordingly, revenue is recognized at an amount that reflects the consideration to which we expect to be entitled in exchange for transferring goods or services to a customer. This principle is applied using the following 5-step process: 1. Identify the contract with the customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when (or as) each performance obligation is satisfied Managed Services Managed services revenue is earned monthly during the term of the contract, as services are provided at a fixed fee and is recognized ratably over the contract term beginning on the commencement date of the contract. Managed services contracts are typically long-term contracts lasting 3 to 5 years. Revenue related to managed services provided is recognized based on the customer utilization of such resources, which management estimates to occur ratably over the customer contract term. Our contracts with managed print services customers included provisions that relate to guaranteed savings amounts and shared savings. Such provisions are considered by management during our initial proprietary client assessment. Our historical settlement of such amounts has been within management’s estimates. Consulting and Professional Services Consulting and professional services contracts are typically short-term, project-based services rendered on either a fixed fee or a time and materials basis. These contracts are normally for a duration of less than one year. For fixed fee arrangements, revenue is recognized ratably over the expected term of the project. For time and materials arrangements, revenues are recognized as the services are rendered. Deferred and Unbilled Revenue We receive payments from customers based on billing schedules established in our contracts. Deferred revenue primarily consists of billings or payments received in advance of the amount of revenue recognized and such amounts are recognized as the revenue recognition criteria are met. Unbilled revenue reflects our conditional right to receive payment from customers for our completed performance under contracts. |
Cash and Cash Equivalents | Cash and Cash Equivalents For purposes of the statement of cash flows and balance sheet classification, cash equivalents include all highly liquid debt instruments with original maturities of three months or less which are not securing any corporate obligations. |
Accounts Receivable | Accounts Receivable We provide an allowance for doubtful accounts equal to the estimated uncollectible amounts. Our estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that our estimate of the allowance for doubtful accounts will change. |
Property and Equipment | Property and Equipment Property and equipment are carried at cost less accumulated depreciation. Depreciation of the property and equipment is provided using the straight-line method over the assets’ estimated economic lives, which range from two to seven years. Expenditures for maintenance and repairs are charged to expense as incurred. |
Goodwill and Indefinite-Lived Intangible Assets | Goodwill and Indefinite-Lived Intangible Assets The Company evaluates its intangible assets for impairment when events or circumstance indicate the carrying amount of these assets may not be recoverable. Intangible assets with definite lives are amortized over their estimated useful lives to their estimated residual values. Significant judgements and assumptions are required in the impairment evaluations. Goodwill is not amortized and is tested for impairment at least annually, or whenever events or changes in circumstance indicate the carrying amount of the asset may be impaired. The annual impairment test is performed as of December 31 each year. Significant judgement is involved in determining if an indicator of impairment has occurred. The Company may consider indicators such as deterioration in general economic conditions, adverse changes in the markets in which the reporting unit operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill. The Company may first review for goodwill impairment by assessing the qualitative factors to determine whether any impairment may exist. For a reporting unit in which the Company concludes, based on the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount (or if the Company elects to skip the optional qualitative assessment), the Company is required to perform a quantitative impairment test, which includes measuring the fair value of the reporting unit and comparing it to the reporting unit’s carrying amount. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its fair value, the Company must record an impairment loss for the amount that the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. . |
Long-lived Assets | Long-Lived Assets In accordance with ASC Topic 350, long-lived assets, such as definite-lived intangible assets, to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If there are indications of impairment, we use future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of asset less the cost to sell. During the year ended December 31, 2019, management determined there was an impairment due to the reduction in the useful life of Acquired Technology assets associated with the Delphiis acquisition and an impairment to the customer relationship asset associated with the Cynergistek, Inc. acquisition in 2017 (Note 6). |
Income Taxes | Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting requirements and those imposed under federal and state tax laws. Deferred taxes are provided for timing differences in the recognition of revenue and expenses for income tax and financial reporting purposes and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and liabilities. Realization of the deferred tax asset is dependent on generating sufficient taxable income in future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. The use of net operating loss deferred tax assets may be limited due to changes in the Company’s ownership structure. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments ASC Topic 820, “Fair Value Measurements,” defines fair value, provides a framework for measuring fair value and expands the disclosures required for fair value measurements. The fair value hierarchy consists of three broad levels, which are described below: Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. Level 2 - Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, line of credit and capital lease obligations approximate fair value due to the short-term nature of these financial instruments. The carrying amount of our debt approximates its fair value as we believe the credit markets have not materially changed since the original borrowing dates, and related interest rates are variable. |
Stock-based Compensation | Stock-Based Compensation We account for stock options granted to employees, non-employees, and directors using the accounting guidance in ASC 718 “Stock Compensation” (“ASC 718”). In accordance with ASC 718, we estimate the fair value of service-based options and performance-based options on the date of grant, using the Black-Scholes pricing model. We recognize compensation expense for stock option awards over the requisite or implied service period of the grant. With respect to performance-based awards, compensation expense is recognized when the performance target is deemed probable. For the years ended December 31, 2019 and 2018, stock-based compensation expense recognized in the consolidated statements of operations excluding amounts in discontinued operations (Note 19) is as follows: Year Ended December 31, 2019 2018 Cost of revenues $ 208,163 $ 99,316 Sales and marketing 257,151 150,937 General and administrative expenses 833,617 454,100 Total stock-based compensation expense $ 1,298,931 $ 704,353 The weighted average estimated fair value of stock options granted during 2019 was $1.70 per share. There were no stock option grants in 2018. Estimated fair values were determined using the Black-Scholes option-pricing model, which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, the expected dividend payments, and the risk-free interest rate over the expected life of the option. The assumptions used in the Black-Scholes model were as follows for stock options granted: 2019 2018 Risk-free interest rate 2.4% - Expected volatility of our Common Stock 48.59% - Dividend yield 0% - Expected life of options 3 years - The Black-Scholes model was developed for estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because option valuation models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. Compensation cost associated with grants of restricted stock units are also measured at fair value on the date of grant and such costs are recognized over the respective vesting periods. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense. |
Basic and Diluted Net Income (Loss) Per Share | Basic and Diluted Net Income (Loss) Per Share In accordance with ASC Topic 260, “Earnings Per Share,” basic net income per share is calculated using the weighted average number of shares of Common Stock issued and outstanding during a certain period and is calculated by dividing net income by the weighted average number of shares of Common Stock issued and outstanding during such period. Diluted net income 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. As of December 31, 2019, potentially dilutive securities consisted of options and warrants to purchase 800,994 shares of our Common Stock at prices ranging from $2.28 to $4.86 per share. Of these potentially dilutive securities, only 81,945 of the shares of Common Stock underlying the options and warrants were included in the computation of diluted earnings per share, because the effect of including the remaining instruments would be anti-dilutive. Also included in potentially dilutive securities are 60,000 shares of restricted stock units which vested in October 2019 but had not been issued by year end. As of December 31, 2018, potentially dilutive securities consisted of options and warrants to purchase 617,378 shares of our Common Stock at prices ranging from $1.65 to $4.05 per share. Of these potentially dilutive securities, only 194,669 of the shares of Common Stock underlying the options and warrants were included in the computation of diluted earnings per share, because the effect of including the remaining instruments would be anti-dilutive. Also included in potentially dilutive securities are 70,000 shares of restricted stock units which vested in October 2018 but had not been issued by year end. The following table sets forth the computation of basic and diluted net (loss) income per share: Year Ended December 31, 2019 2018 Numerator: Net loss from continuing operations $ (5,414,383) $ (3,962,398) Net income from discontinued operations $ 20,305,087 $ 5,855,990 Net income $ 14,890,704 $ 1,893,592 Denominator: Denominator for basic calculation weighted averages 9,858,562 9,608,312 Dilutive Common Stock equivalents: Options and warrants 81,945 194,699 Restricted stock units vested but not issued 60,000 70,000 Denominator for diluted calculation weighted average 10,000,507 9,873,011 Net income (loss) per share: From continuing operations Basic net loss per share $ (0.55) $ (0.41) Diluted net loss per share $ (0.55) $ (0.41) From discontinued operations Basic net income per share $ 2.06 $ 0.61 Diluted net income per share $ 2.03 $ 0.59 Net income Basic net income per share $ 1.51 $ 0.20 Diluted net income per share $ 1.49 $ 0.19 |
Segment Reporting | Segment Reporting Based on an analysis of how our Chief Operating Decision Makers review, manage and allocate resources, as well as how our management team is organized and compensated, we have determined that the Company operates in one segment. For the years ended December 31, 2019 and 2018, all revenues were derived from domestic operations. |
Recently Issued Accounting Pronouncements Adopted | Recently Issued Accounting Pronouncements Adopted In February 2016, the FASB issued a new accounting standard on leasing. The new standard requires companies to record most leased assets and liabilities on the balance sheet, and also proposed a dual model for recognizing expense. The Company adopted the standard as of January 1, 2019, with retroactive reporting for prior periods (the comparative option). Adoption of the new standard resulted in the recording of operating lease right-of-use ("ROU") assets and operating lease liabilities of $1,618,121 and $1,743,165 respectively, as of January 1, 2018, with the difference due to deferred rents that were reclassified to the ROU asset value. The standard did not affect our consolidated net income or cash flows. See Note 16 for further details. In August 2016, the FASB issued a new accounting standard which is intended to reduce the existing diversity in practice in how certain cash receipts and cash payments are classified in the statement of cash flows. This guidance was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted, provided that all of the amendments are adopted in the same period. Adoption of these accounting changes did not have a material impact on our consolidated financial statements. In January 2017, the FASB issued a new accounting standard simplifying the test for goodwill impairment. Currently, the fair value of the reporting unit is compared with the carrying value of the reporting unit (identified as "Step 1"). If the fair value of the reporting unit is lower than its carrying amount, then the implied fair value of goodwill is calculated. If the implied fair value of goodwill is lower than the carrying value of goodwill an impairment is recognized (identified as "Step 2"). The new standard eliminates Step 2 from the impairment test; therefore, a goodwill impairment will be recognized as the difference of the fair value and the carrying value. We adopted this standard on January 1, 2019. This new standard had no impact on our consolidated financial position, results of operations and cash flows. In January 2017, the FASB issued a new accounting standard which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. This guidance was effective for the Company beginning in 2019. Adoption of these accounting changes did not have a material impact on our consolidated financial statements. In May 2017, the FASB issued a new accounting standard which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC Topic 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. This guidance is effective for the Company beginning in 2019. Adoption of these accounting changes did not have a material impact on our consolidated financial statements. In June 2018, the FASB issued a new accounting standard which provides guidance that expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The new guidance is effective for the Company beginning in 2019, with early adoption permitted. Adoption of these accounting changes did not have a material impact on our consolidated financial statements. |
Recently Issued Accounting Pronouncements Not Yet Adopted | Recently Issued Accounting Pronouncements Not Yet Adopted In January 2020, the FASB issued an amendment clarifying the interaction between accounting standards related to equity securities, equity method investments and certain derivatives. The guidance is effective for fiscal years beginning after December 15, 2020. The Company does not expect the adoption of this guidance will have a material impact on our consolidated financial statements. In December 2019, the FASB issued an amendment to the guidance on income taxes which is intended to simplify the accounting for income taxes. The amendment eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of the deferred tax liabilities for outside basis differences. The amendment also clarifies existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill , and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating the impact the guidance will have on our consolidated financial statements. In August 2018, the FASB issued an amendment to the accounting guidance on cloud computing service arrangements. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. The guidance also requires an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial statements. In August 2018, the FASB issued an amendment to the accounting guidance on retirement benefits. The guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance is effective for fiscal years ending after December 15, 2020 and must be applied retrospectively to all periods presented. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial statements. In August 2018, the FASB issued a new accounting standard which modifies the disclosure requirements on fair value measurements. This guidance will be effective for fiscal years beginning after December 15, 2019. The amendments related to the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this guidance and delay adoption of the additional disclosures until their effective date. We do not anticipate adoption to have a material impact on our consolidated financial statements. 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 fiscal years beginning after December 15, 2020 including interim periods within those fiscal years. Early adoption is permitted for annual periods after December 15, 2018. |
(1) Basis of Presentation and_3
(1) Basis of Presentation and Summary of Significant Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Table Text Block Supplement [Abstract] | |
Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs | For the years ended December 31, 2019 and 2018, stock-based compensation expense recognized in the consolidated statements of operations excluding amounts in discontinued operations (Note 19) is as follows: Year Ended December 31, 2019 2018 Cost of revenues $ 208,163 $ 99,316 Sales and marketing 257,151 150,937 General and administrative expenses 833,617 454,100 Total stock-based compensation expense $ 1,298,931 $ 704,353 |
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions | The assumptions used in the Black-Scholes model were as follows for stock options granted: 2019 2018 Risk-free interest rate 2.4% - Expected volatility of our Common Stock 48.59% - Dividend yield 0% - Expected life of options 3 years - |
Schedule of Earnings Per Share, Basic and Diluted | The following table sets forth the computation of basic and diluted net (loss) income per share: Year Ended December 31, 2019 2018 Numerator: Net loss from continuing operations $ (5,414,383) $ (3,962,398) Net income from discontinued operations $ 20,305,087 $ 5,855,990 Net income $ 14,890,704 $ 1,893,592 Denominator: Denominator for basic calculation weighted averages 9,858,562 9,608,312 Dilutive Common Stock equivalents: Options and warrants 81,945 194,699 Restricted stock units vested but not issued 60,000 70,000 Denominator for diluted calculation weighted average 10,000,507 9,873,011 Net income (loss) per share: From continuing operations Basic net loss per share $ (0.55) $ (0.41) Diluted net loss per share $ (0.55) $ (0.41) From discontinued operations Basic net income per share $ 2.06 $ 0.61 Diluted net income per share $ 2.03 $ 0.59 Net income Basic net income per share $ 1.51 $ 0.20 Diluted net income per share $ 1.49 $ 0.19 |
(2) Revenues (Tables)
(2) Revenues (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Table Text Block Supplement [Abstract] | |
Schedule of Revenue | Below is a summary of our revenues disaggregated by revenue source. Year Ended December 31, 2019 2018 Managed services $ 11,887,108 $ 10,815,730 Consulting & professional services 9,477,702 10,495,987 Net revenues $ 21,364,810 $ 21,311,717 |
(3) Accounts Receivable_ Schedu
(3) Accounts Receivable: Schedule of Accounts Receivable (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Table Text Block Supplement [Abstract] | |
Schedule of Accounts Receivable | A summary of accounts receivable follows: As of December 31, 2019 2018 Trade receivables $ 3,210,726 $5,572,467 Allowance for doubtful accounts - - $ 3,210,726 $5,572,467 |
(5) Property and Equipment_ Pro
(5) Property and Equipment: Property, Plant and Equipment (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Table Text Block Supplement [Abstract] | |
Property, Plant and Equipment | A summary of property and equipment follows: As of December 31, 2019 2018 Furniture and fixtures $ 195,586 $ 195,586 Computers and office equipment 757,251 563,856 Right of use assets 1,658,364 1,618,121 Property and equipment at cost 2,611,201 2,377,563 Less accumulated depreciation and amortization (1,664,982) (974,038) $ 946,219 $ 1,403,525 |
(6) Intangible Assets_ Schedule
(6) Intangible Assets: Schedule of Intangible Assets (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Table Text Block Supplement [Abstract] | |
Schedule of Intangible Assets | Intangible assets are amortized over expected useful lives ranging from 1.5 to 10 years and consist of the following as of December 31, 2019 and 2018: As of December 31, 2019 2018 Acquired technology $ 10,100,000 $ 10,100,000 Customer relationships 4,650,000 3,150,000 Trademarks 2,300,000 1,800,000 Non-compete agreements 320,000 320,000 Gross carrying amount 17,370,000 15,370,000 Less: accumulated impairment (1,871,923) (1,257,914) Total intangible assets 15,498,077 14,112,086 Less accumulated amortization (6,912,195) (5,022,097) Total net intangible assets $ 8,585,882 $ 9,089,989 |
Schedule of Intangible Assets, Future Amortization Expense | The amortization of intangible assets expected in future years is as follows: December 31, Amortization 2020 $ 1,664,769 2021 1,664,769 2022 1,354,769 2023 1,292,269 2024 963,102 Thereafter 1,646,204 Total $ 8,585,882 |
Goodwill | Goodwill consists of the following as of December 31, 2019 and 2018: December 31, 2019 December 31, 2018 Gross Carrying Amount Accumulated Impairment Net Carrying Amount Gross Carrying Amount Accumulated Impairment Net Carrying Amount Delphiis, Inc. $ 956,639 $ (837,126) $ 119,513 $ 956,639 $ (837,126) $ 119,513 Redspin 1,192,000 (719,387) 472,613 1,192,000 (719,387) 472,613 CTEK Security, Inc 16,416,063 - 16,416,063 16,416,063 - 16,416,063 Backbone 6,975,294 - 6,975,294 - - - Total goodwill $ 25,539,996 $ (1,556,513) $23,983,483 $18,564,702 $ (1,556,513) $17,008,189 |
(11) Warrants_ Warrant Activity
(11) Warrants: Warrant Activity (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Table Text Block Supplement [Abstract] | |
Warrant Activity | Below is a summary of warrant activity during the years ended December 31, 2019 and 2018: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at January 1, 2018 77,779 $ 3.03 Granted in 2018 - $ - Exercised in 2018 - $ - Cancelled in 2018 - $ - Outstanding at December 31, 2018 77,779 $ 3.03 4.05 $ - Granted in 2019 - $ - Exercised in 2019 - $ - Cancelled in 2019 - $ - Outstanding at December 31, 2019 77,779 $ 3.03 3.05 $ 21,000 Warrants exercisable at December 31, 2019 77,779 $ 3.03 3.05 $ 21,000 |
(12) Stock Option and Stock Inc
(12) Stock Option and Stock Incentive Plans (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Table Text Block Supplement [Abstract] | |
Schedule of Share-based Compensation, Stock Options, Activity | Additional information with respect to the stock option activity is as follows: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at January 1, 2018 724,073 $ 3.09 Granted in 2018 - $ - Exercised in 2018 (54,022) $ 2.77 Cancelled in 2018 (130,452) $ 3.70 Outstanding at December 31, 2018 539,599 $ 2.97 3.54 $ 954,182 Granted in 2019 500,000 $ 4.86 Exercised in 2019 (105,584) $ 2.73 Cancelled in 2019 (210,800) $ 3.12 Outstanding at December 31, 2019 723,215 $ 4.27 7.47 $ 83,206 Options exercisable at December 31, 2019 223,215 $ 2.95 2.82 $ 83,206 |
Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range | The following table summarizes information about stock options outstanding and exercisable at December 31, 2019: Range of Number of Shares Outstanding Weighted Average Remaining in Contractual Life Outstanding Options Weighted Average Exercise Price Number of Options Exercisable Exercisable Options Weighted Average Exercise Price $2.28 to $2.72 57,670 3.00 $ 2.47 57,670 $ 2.47 $2.73 to $4.86 665,545 7.86 $ 4.43 165,545 $ 3.12 $2.28 to $4.86 723,215 7.47 $ 4.27 223,215 $ 2.95 |
(13) Restricted Stock (Table)
(13) Restricted Stock (Table) | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
Schedule of Restricted Stock Units, Activity | Restricted stock activity during the years ended December 31, 2019 and 2018, are as follows: Number of Shares Weighted Average Grant-Date Fair Value per Share Weighted Average Vesting Period in Years Non-vested at January 1, 2018 506,500 $ 3.35 Granted in 2018 439,000 $ 3.98 Vested in 2018 (70,000) 3.26 Cancelled and forfeited in 2018 (65,500) 3.68 Non-vested at December 31, 2018 810,000 $ 3.67 Granted in 2019 447,700 $ 3.11 Vested in 2019 (131,726) 4.22 Cancelled and forfeited in 2019 (57,774) 3.95 Non-vested at December 31, 2019 1,068,200 $ 3.42 1.71 |
(14) Income Taxes (Tables)
(14) Income Taxes (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Disclosure Text Block [Abstract] | |
Schedule of Components of Income Tax Benefit (Expense) | For the years ended December 31, 2019 and 2018, the components of income tax benefit are as follows: Year Ended December 31, 2019 2018 Current provision: Federal $ (1,814,143) $ (198,879) State (296,088) (59,245) (2,110,231) (258,124) Deferred: Federal 735,508 (563,523) State (154,385) (483,887) (581,423) (1,047,410) Income tax benefit $ (1,528,808) $ (1,305,534) |
Schedule of Effective Income Tax Rate Reconciliation | A reconciliation of the provision for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows: Year Ended December 31, 2019 2018 Computed tax at federal statutory rate of 21% $ (1,458,070) $ (1,106,266) State taxes, net of federal benefit (355,978) (311,024) Non-deductible items 15,316 8,033 Other 269,924 103,723 $ (1,528,808) $ (1,305,534) |
Schedule of Deferred Tax Assets and Liabilities | Significant components of our deferred tax assets and liabilities are as follows: Year Ended December 31, 2019 2018 Deferred tax assets: Accrued salaries/vacation $ 103,300 $ 206,600 Accrued other 19,200 8,500 Amortization of intangible assets 728,500 828,200 State taxes 51,900 (7,300) Stock options 1,137,600 739,500 Credits - 63,200 Net operating loss carryforwards 44,700 530,800 Total deferred tax assets 2,085,200 2,369,500 Deferred tax liabilities: Depreciation 123,200 17,400 Other 125,742 206,080 Total deferred tax liabilities 248,942 223,480 Net deferred tax assets $ 1,836,258 $ 2,146,020 |
(16) Commitments (Tables)
(16) Commitments (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Table Text Block Supplement [Abstract] | |
Operating lease expense | Operating lease expense is comprised of the following: Year Ended December 31, 2019 2018 Operating lease cost $ 337,791 $ 358,244 Sublet income (62,867) (92,807) Net operating lease cost $ 274,924 $ 265,437 |
Schedule of Maturities of lease liabilities | Maturities of lease liabilities are as follows: Operating Leases 2020 $ 559,462 2021 160,871 Total lease payments 720,333 Less imputed interest (27,967) Total lease liabilities 692,366 Less current portion of lease liabilities (533,371) Long-term lease liabilities $ 158,995 |
(18) Stock Purchase Agreement_2
(18) Stock Purchase Agreement - Backbone Enterprises, Inc. (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Notes to Financial Statements | |
Schedule of Business Acquisitions, by Acquisition | The following table summarizes the allocation of the purchase price as of the acquisition date (in thousands): Cash $ 27,000 Accounts receivable 831,000 Prepaid expenses and other assets 31,000 Identified intangible assets (Note 6) 2,000,000 Goodwill (Note 6) 6,976,000 Accrued compensation and benefits (20,000) Total allocated purchase price $ 9,834,000 |
Business Acquisition, Pro Forma Information | Amounts are not necessarily indicative of the results that may have been attained had the combinations been in effect at the beginning of the periods presented or that may be achieved in the future. Year Ended December 31, 2019 2018 Pro forma revenue $ 24,454,000 $ 24,188,000 Pro forma net income $ 14,986,000 $ 1,585,000 Pro forma basic net income per share $ 1.52 $ 0.16 Pro forma diluted net income per share $ 1.50 $ 0.15 |
(19) Discontinued Operations (T
(19) Discontinued Operations (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Summary of transaction selling the MPS Business | The following is a summary of the transaction selling the MPS Business: Net proceeds from the sale of the business 26,303,501 Book value of net assets disposed (2,614,232) Gain before provision for income taxes 23,689,269 Income tax expense (4,197,198) Net gain from sale of discontinued operations $ 19,492,071 |
Summary of discontinued operations | The following are the carrying amounts of assets and liabilities included as part of held for sale on the balance sheet as of December 31, 2018: As of December 31, 2018 Accounts receivable, net $ 5,124,270 Prepaid and other current assets 2,118,664 Supplies 1,184,474 Currents assets held for sale $ 8,427,408 Property and equipment, net $ 327,332 Goodwill 1,517,017 Noncurrent assets held for sale $ 1,844,349 Accounts payable and accrued expenses $ 5,098,179 Accrued compensation and benefits 1,225,057 Deferred revenue 888,467 Capital lease obligations current portion 87,857 Current liabilities held for sale $ 7,299,561 Capital lease obligations noncurrent portion $ 58,567 Noncurrent liabilities held for sale $ 58,967 The following is a composition of the line items constituting net income from discontinued operations: Year Ended 2019 2018 Net revenues $ 12,096,885 $ 49,794,792 Cost of revenues (10,060,414) (39,111,403) Sales and marketing (201,295) (535,087) General and administrative expenses (676,630) (1,637,237) Depreciation (36,635) (201,080) Other income (expense) (1,956) (16,245) Income before provision for income taxes 1,119,956 8,293,690 Income tax expense (306,940) (2,437,700) Net income from discontinued operations $ 813,016 $ 5,855,990 The following is a composition of the capital expenditures, and any significant noncash operating and investing items, including depreciation, of the discontinued operations. Year Ended 2019 2018 Stock compensation $ 124,348 $ 50,170 Depreciation $ 36,635 $ 201,080 Loss on disposition of property and equipment $ - $ 4,246 Capital expenditures $ - $ 23,082 |
(1) Basis of Presentation and_4
(1) Basis of Presentation and Summary of Significant Accounting Policies: Property and Equipment (Details) | 12 Months Ended |
Dec. 31, 2019 | |
Minimum | |
Property, Plant and Equipment, Useful Life | 2 years |
Maximum | |
Property, Plant and Equipment, Useful Life | 7 years |
(1) Basis of Presentation and_5
(1) Basis of Presentation and Summary of Significant Accounting Policies: Stock-based Compensation: Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Allocated Share-based Compensation Expense | $ 1,298,931 | $ 704,353 |
Cost of revenues {1} | ||
Allocated Share-based Compensation Expense | 208,163 | 99,316 |
Sales and marketing {1} | ||
Allocated Share-based Compensation Expense | 257,151 | 150,937 |
General and administrative expense | ||
Allocated Share-based Compensation Expense | $ 833,617 | $ 454,100 |
(1) Basis of Presentation and_6
(1) Basis of Presentation and Summary of Significant Accounting Policies: Stock-based Compensation (Details) | 12 Months Ended |
Dec. 31, 2019$ / shares | |
Text Block [Abstract] | |
Options, Granted, Weighted Average Estimated Fair Value | $ 1.70 |
(1) Basis of Presentation and_7
(1) Basis of Presentation and Summary of Significant Accounting Policies: Stock-based Compensation: Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions (Details) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Text Block [Abstract] | ||
Risk-free interest rate | 2.40% | |
Expected volatility of our Common Stock | 48.59% | |
Dividend yield | 0.00% | |
Expected life of options | 3 years |
(1) Basis of Presentation and_8
(1) Basis of Presentation and Summary of Significant Accounting Policies: Basic and Diluted Net Income Per Share (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Options and warrants | 81,945 | 194,669 |
Restricted stock units vested but not issued | 60,000 | 70,000 |
Options And Warrants | ||
Potentially Dilutive Securities | 800,994 | 617,378 |
Options And Warrants | Minimum | ||
Potentially dilutive securities, exercise price | $ 2.28 | $ 1.65 |
Options And Warrants | Maximum | ||
Potentially dilutive securities, exercise price | $ 4.86 | $ 4.05 |
(1) Basis of Presentation and_9
(1) Basis of Presentation and Summary of Significant Accounting Policies: Basic and Diluted Net Income Per Share: Schedule of Earnings Per Share, Basic and Diluted (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Numerator: | ||
Net loss from continuing operations | $ (5,414,383) | $ (3,962,398) |
Net income (loss) from discontinued operations, including gain on sale, net of tax | 20,305,087 | 5,855,990 |
Net income (loss) | $ 14,890,704 | $ 1,893,592 |
Denominator for basic calculation weighted averages | 9,858,562 | 9,608,312 |
Dilutive Common Stock equivalents: | ||
Options and warrants | 81,945 | 194,669 |
Restricted stock units vested but not issued | 60,000 | 70,000 |
Denominator for diluted calculation weighted average | 10,000,507 | 9,873,011 |
From continuing operations: | ||
Basic | $ (0.55) | $ (0.41) |
Diluted | (0.55) | (0.41) |
From discontinued operations: | ||
Basic | 2.06 | 0.61 |
Diluted | 2.03 | 0.59 |
Net income (loss) per share: | ||
Basic | 1.51 | 0.20 |
Diluted | $ 1.49 | $ 0.19 |
(2) Revenues_ Schedule of Reven
(2) Revenues: Schedule of Revenue (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Net revenues | $ 21,364,810 | $ 21,311,717 |
Managed services revenues | ||
Net revenues | 11,887,108 | 10,815,730 |
Consulting and professional services revenues | ||
Net revenues | $ 9,477,702 | $ 10,495,987 |
(3) Accounts Receivable_ Sche_2
(3) Accounts Receivable: Schedule of Accounts Receivable (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Text Block [Abstract] | ||
Trade receivables | $ 3,210,726 | $ 5,572,467 |
Allowance for doubtful accounts | 0 | 0 |
Accounts Receivable, Net, Current, Total | $ 3,210,726 | $ 5,572,467 |
(4) Deferred Commissions (Detai
(4) Deferred Commissions (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Sales Commissions and Fees | $ 876,409 | $ 833,063 |
Cost of Sales | ||
Deferred Costs and Other Assets | $ 764,607 | $ 991,175 |
(5) Property and Equipment (Det
(5) Property and Equipment (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Text Block [Abstract] | ||
Depreciation and amortization expense | $ 145,563 | $ 147,553 |
(5) Property and Equipment_ P_2
(5) Property and Equipment: Property, Plant and Equipment (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Right of use assets | $ 1,658,364 | $ 1,618,121 |
Property, Plant and Equipment, Gross | 2,611,201 | 2,377,563 |
Less accumulated depreciation and amortization | (1,664,982) | (974,038) |
Property and equipment, net | 946,219 | 1,403,525 |
Furniture and Fixtures | ||
Property, Plant and Equipment, Gross | 195,586 | 195,586 |
Computers and office equipment | ||
Property, Plant and Equipment, Gross | $ 757,251 | $ 563,856 |
(6) Intangible Assets and Goo_2
(6) Intangible Assets and Goodwill (Details) | 12 Months Ended |
Dec. 31, 2019 | |
Minimum | |
Intangible Asset, Useful Life | 1 year 6 months |
Maximum | |
Intangible Asset, Useful Life | 10 years |
(6) Intangible Assets and Goo_3
(6) Intangible Assets and Goodwill : Schedule of Intangible Assets (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Gross Carrying Amount | $ 17,370,000 | $ 15,370,000 |
Less: accumulated impairment | (1,871,923) | (1,257,914) |
Total intangible assets | 15,498,077 | 14,112,086 |
Less: accumulated impairment | (6,912,195) | (5,022,097) |
Total net intangible assets | 8,585,882 | 9,089,989 |
Acquired technology | ||
Gross Carrying Amount | 10,100,000 | 10,100,000 |
Customer Relationships | ||
Gross Carrying Amount | 4,650,000 | 3,150,000 |
Trademarks | ||
Gross Carrying Amount | 2,300,000 | 1,800,000 |
Noncompete Agreements | ||
Gross Carrying Amount | $ 320,000 | $ 320,000 |
(6) Intangible Assets and Goo_4
(6) Intangible Assets and Goodwill : Amortization of intangible assets (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Disclosure Text Block [Abstract] | ||
2020 | $ 1,664,769 | |
2021 | 1,664,769 | |
2022 | 1,354,769 | |
2023 | 1,292,269 | |
2024 | 963,102 | |
Thereafter | 1,646,204 | |
Total | $ 8,585,882 | $ 9,089,989 |
(6) Intangible Assets and Goo_5
(6) Intangible Assets and Goodwill : Goodwill (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Carrying Amount | $ 25,539,996 | $ 18,564,702 |
Accumulated Impairment | (1,556,513) | (1,556,513) |
Net Carrying Amount | 23,983,483 | 17,008,189 |
Delphiis, Inc. | ||
Carrying Amount | 956,639 | 956,639 |
Accumulated Impairment | (837,126) | (837,126) |
Net Carrying Amount | 119,513 | 119,513 |
Redspin, Inc. | ||
Carrying Amount | 1,192,000 | 1,192,000 |
Accumulated Impairment | (719,387) | (719,387) |
Net Carrying Amount | 472,613 | 472,613 |
CTEK Security, Inc | ||
Carrying Amount | 16,416,063 | 16,416,063 |
Accumulated Impairment | 0 | 0 |
Net Carrying Amount | 16,416,063 | 16,416,063 |
Backbone | ||
Carrying Amount | 6,975,294 | 0 |
Accumulated Impairment | 0 | 0 |
Net Carrying Amount | $ 6,975,294 | $ 0 |
(7) Deferred Revenue (Details)
(7) Deferred Revenue (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Deferred Revenue | $ 23,200,000 | |
Managed services revenues | ||
Deferred Revenue | 811,090 | $ 578,725 |
Consulting and professional services revenues | ||
Deferred Revenue | $ 73,068 | $ 617,522 |
(8) Remaining Performance Obl_2
(8) Remaining Performance Obligations (Details) | 12 Months Ended |
Dec. 31, 2019USD ($) | |
Text Block [Abstract] | |
Deferred Revenue | $ 23,200,000 |
Revenue Recognition, Deferred Revenue | We expect to recognize revenue on approximately 85% of these remaining performance obligations over the next 24 months. |
(9) Line of Credit and Term L_2
(9) Line of Credit and Term Loan (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Jan. 17, 2017 | |
Term Loan | |||
Line of Credit Facility, Maximum Borrowing Capacity | $ 5,000,000 | ||
Debt Instrument, Face Amount | $ 17,250,000 | ||
Debt Instrument, Maturity Date | Sep. 12, 2022 | ||
Interest and Debt Expense | $ 207,903 | $ 759,454 | |
A&R Credit Agreement Term Loan | |||
Line of Credit Facility, Maximum Borrowing Capacity | 14,000,000 | ||
Separation Agreement | |||
Notes Payable | 343,750 | ||
Debt Instrument, Face Amount | $ 3,750,000 | ||
Debt Instrument, Interest Rate, Stated Percentage | 5.00% | ||
CTEK Solutions, Inc | |||
Interest Charges | 52,760 | ||
Repayments of Debt | 15,401,786 | ||
Avidbank | Line of Credit | |||
Long-term Line of Credit | 0 | ||
Debt Instrument, Fee Amount | 25,000 | ||
Avidbank | Term Loan | |||
Long-term Line of Credit | 0 | ||
Interest Charges | 133,914 | ||
Debt Instrument, Fee Amount | 86,250 | ||
Loan and Security Agreement | Avidbank | |||
Line of Credit Facility, Borrowing Capacity, Description | The amount available to us at any given time was the lesser of (a) $5.0 million, or (b) the amount available under our borrowing base (80% of our eligible accounts receivable, minus (1) accrued client lease payables, and minus (2) accrued equipment pool liability). | ||
Loan and Security Agreement | Avidbank | Term Loan | |||
Debt Instrument, Description of Variable Rate Basis | prime plus 1.0% per annum | ||
Seller Notes | |||
Interest Charges | $ 125,507 | $ 694,356 | |
Debt Instrument, Face Amount | 9,000,000 | ||
Debt Instrument, Interest Rate, Stated Percentage | 8.00% | ||
Seller Notes | Hernandez | |||
Repayments of Debt | 4,500,000 | ||
Seller Notes | Michael Mcmillan | |||
Debt Instrument, Face Amount | $ 4,500,000 | ||
Debt Instrument, Maturity Date | Mar. 31, 2022 | ||
Debt Instrument, Interest Rate, Stated Percentage | 8.00% | ||
Repayments of Debt | $ 2,250,000 | ||
Earn-out Note | |||
Debt Instrument, Face Amount | $ 3,750,000 |
(10) Promissory Notes (Details)
(10) Promissory Notes (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Jan. 17, 2017 | |
Interest Expense | $ 617,310 | $ 1,437,862 | |
Separation Agreement | |||
Debt Instrument, Face Amount | $ 3,750,000 | ||
Debt Instrument, Interest Rate, Stated Percentage | 5.00% | ||
Interest Expense | $ 494 | 17,140 | |
Notes Payable | 343,750 | ||
Seller Notes | |||
Debt Instrument, Face Amount | 9,000,000 | ||
Debt Instrument, Interest Rate, Stated Percentage | 8.00% | ||
Interest Charges | 125,507 | 694,356 | |
Seller Notes | Michael Mcmillan | |||
Debt Instrument, Face Amount | $ 4,500,000 | ||
Debt Instrument, Interest Rate, Stated Percentage | 8.00% | ||
Repayments of Debt | $ 2,250,000 | ||
Outstanding principal balance due | $ 1,265,625 | 1,828,125 | |
Debt Instrument, Maturity Date | Mar. 31, 2022 | ||
Seller Notes | Hernandez | |||
Repayments of Debt | $ 4,500,000 | ||
Earn-out Note | |||
Debt Instrument, Face Amount | $ 3,750,000 | ||
Debt Instrument, Payment Terms | (i) a maturity date of March 12, 2023, at which all principal and accrued and unpaid interest was due, (ii) a simple interest rate of 5% per annum commencing on January 1, 2018, and compounding annually, and (iii) the right of the Company to prepay all or any portion of the Earn-out Note without premium or penalty. | ||
Interest Expense | $ 0 | $ 188,435 |
(11) Warrants_ Warrant Activi_2
(11) Warrants: Warrant Activity (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Text Block [Abstract] | ||
Warrants, Outstanding, Beginning Balance | 77,779 | 77,779 |
Outstanding, Weighted Average Exercise Price, Beginning Balance | $ 3.03 | $ 3.03 |
Granted | 0 | 0 |
Granted, Weighted Average Exercise Price | $ 0 | $ 0 |
Exercised | 0 | 0 |
Exercised, Weighted Average Exercise Price | $ 0 | $ 0 |
Cancelled | 0 | 0 |
Cancelled, Weighted Average Exercise Price | $ 0 | $ 0 |
Warrants, Outstanding, Ending Balance | 77,779 | 77,779 |
Outstanding, Weighted Average Exercise Price, Ending Balance | $ 3.03 | $ 3.03 |
Outstanding, Weighted Average Remaining Contractual Life | 3 years 18 days | 4 years 18 days |
Outstanding, Intrinsic Value | $ 21,000 | $ 0 |
Exercisable | 77,779 | |
Exercisable, Weighted Average Exercise Price | $ 3.03 | |
Exercisable, Weighted Average Remaining Contractual Life | 3 years 18 days | |
Exercisable, Intrinsic Value | $ 21,000 |
(12) Stock Option and Stock I_2
(12) Stock Option and Stock Incentive Plans (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | May 12, 2011 | |
Unamortized compensation expense associated with unvested options | $ 792,542 | |
2011 Stock Option Plan | ||
Number of Shares Authorized | 1,990,000 | |
Number of Shares Available for Grant | 562,919 | |
Employee Stock Option | ||
Weighted average period over which costs are expected to be recognized | 3 years |
(12) Stock Option and Stock I_3
(12) Stock Option and Stock Incentive Plans: Schedule of Share-based Compensation, Stock Options, Activity (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Text Block [Abstract] | ||
Outstanding, Beginning Balance | 539,926 | 724,400 |
Outstanding, Weighted Average Exercise Price, Beginning Balance | $ 2.97 | $ 3.09 |
Granted | 500,000 | 0 |
Granted, Weighted Average Exercise Price | $ 4.86 | $ 0 |
Exercised | (105,584) | (54,022) |
Exercised, Weighted Average Exercise Price | $ 2.73 | $ 2.77 |
Cancelled | (210,800) | (130,452) |
Cancelled, Weighted Average Exercise Price | $ 3.12 | $ 3.70 |
Outstanding, Ending Balance | 723,215 | 539,926 |
Outstanding, Weighted Average Exercise Price, Ending Balance | $ 4.27 | $ 2.97 |
Outstanding, Weighted Average Remaining Term in Years | 7 years 5 months 20 days | 3 years 6 months 14 days |
Outstanding, Aggregate Intrinsic Value | $ 954,182 | $ 954,182 |
Exercisable | 223,215 | |
Exercisable, Weighted Average Exercise Price | $ 2.95 | |
Exercisable, Weighted Average Remaining Term in Years | 2 years 9 months 25 days | |
Exercisable, Aggregate Intrinsic Value | $ 83,206 |
(12) Stock Option and Stock I_4
(12) Stock Option and Stock Incentive Plans: Schedule of Share-based Compensation (Details) - $ / shares | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Number of Shares Outstanding | 723,215 | 539,926 | 724,400 |
$2.28 to $2.72 | |||
Number of Shares Outstanding | 57,670 | ||
Weighted Average Remaining in Contractual Life in Years | 3 years | ||
Outstanding Options Weighted Average Exercise Price | $ 2.47 | ||
Number of Options Exercisable | 57,670 | ||
Exercisable Options Weighted Average Exercise Price | $ 2.47 | ||
$2.73 to $4.86 | |||
Number of Shares Outstanding | 665,545 | ||
Weighted Average Remaining in Contractual Life in Years | 7 years 10 months 10 days | ||
Outstanding Options Weighted Average Exercise Price | $ 4.43 | ||
Number of Options Exercisable | 165,545 | ||
Exercisable Options Weighted Average Exercise Price | $ 3.12 | ||
$2.28 to $4.86 | |||
Number of Shares Outstanding | 723,215 | ||
Weighted Average Remaining in Contractual Life in Years | 7 years 5 months 20 days | ||
Outstanding Options Weighted Average Exercise Price | $ 4.27 | ||
Number of Options Exercisable | 223,215 | ||
Exercisable Options Weighted Average Exercise Price | $ 2.95 |
(13) Restricted Stock (Details)
(13) Restricted Stock (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Recognized restricted stock units cost | $ 1,280,336 | $ 717,746 |
Board of Director [Member] | ||
Restricted stock units issued | 447,700 | 439,000 |
(13) Restricted Stock Awards _
(13) Restricted Stock Awards : Schedule of Restricted Stock Units, Activity (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Granted | 0 | 0 |
Cancelled | 0 | 0 |
Outstanding, Weighted Average Remaining Term in Years | 3 years 18 days | 4 years 18 days |
Restricted Stock Units (RSUs) | ||
Outstanding, Beginning Balance | 810,000 | 506,500 |
Outstanding, Weighted Average Price, Beginning Balance | $ 3.67 | $ 3.35 |
Granted | 447,700 | 439,000 |
Granted, Weighted Average Price | $ 3.11 | $ 3.98 |
Vested | (131,726) | (70,000) |
Vested, Weighted Average Price | $ 4.22 | $ 3.26 |
Cancelled | (57,774) | (65,500) |
Cancelled, Weighted Average Price | 3.95 | 3.68 |
Outstanding, Ending Balance | 1,068,200 | 810,000 |
Outstanding, Weighted Average Price, Ending Balance | $ 3.42 | $ 3.67 |
Outstanding, Weighted Average Remaining Term in Years | 1 year 8 months 16 days |
(14) Income Taxes (Details)
(14) Income Taxes (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Text Block [Abstract] | ||
Income tax benefit (expense) | $ (1,528,808) | $ (1,305,534) |
Effective Income Tax Rate Reconciliation, Percent | 26.00% | 37.00% |
Operating Loss Carryforwards | $ 0 |
(14) Income Taxes_ Schedule of
(14) Income Taxes: Schedule of Components of Income Tax Benefit (Expense) (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Current provision: | ||
Federal | $ (1,814,143) | $ (198,879) |
State | (296,088) | (59,245) |
Current Income Tax Expense (Benefit) | (2,110,231) | (258,124) |
Deferred benefit: | ||
Federal | 735,508 | (563,523) |
State | (154,385) | (483,887) |
Deferred Income Tax Expense (Benefit) | (581,423) | (1,047,410) |
Income tax benefit | $ (1,528,808) | $ (1,305,534) |
(14) Income Taxes_ Schedule o_2
(14) Income Taxes: Schedule of Effective Income Tax Rate Reconciliation (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Text Block [Abstract] | ||
Computed tax at federal statutory rate of 34% | $ (1,219,729) | $ (1,106,266) |
State taxes, net of federal benefit | (355,978) | (311,024) |
Non-deductible items | 15,316 | 8,033 |
Other | 31,583 | 103,723 |
Income tax benefit (expense) | $ (1,528,808) | $ (1,305,534) |
(14) Income Taxes_ Schedule o_3
(14) Income Taxes: Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Deferred tax assets: | ||
Accrued salaries/vacation | $ 103,300 | $ 206,600 |
Accrued other | 19,200 | 8,500 |
Amortization of intangibles | 728,500 | 828,200 |
State taxes | 51,900 | (7,300) |
Stock options | 1,137,600 | 739,500 |
Credits | 0 | 63,200 |
Net operating loss carryforwards | 44,700 | 530,800 |
Total deferred tax assets | 2,085,200 | 2,369,500 |
Deferred tax liabilities: | ||
Depreciation | 123,200 | 17,400 |
Other | 125,742 | 206,080 |
Total deferred tax liabilities | 248,942 | 223,480 |
Net deferred tax assets | $ 1,836,258 | $ 2,146,020 |
(15) Retirement Plan (Details)
(15) Retirement Plan (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
401(k) Plan | ||
Defined Benefit Plan, Contributions by Employer | $ 418,204 | $ 381,752 |
(16) Commitments (Details)
(16) Commitments (Details) - USD ($) | Jan. 01, 2020 | Aug. 01, 2019 | Aug. 01, 2019 | Jan. 31, 2021 | Dec. 31, 2019 | Dec. 31, 2018 |
Leases description | We lease approximately 17,000 square feet of office space in Mission Viejo, California. This lease terminates in April of 2021. During the first quarter of 2019, we subleased this space to two subtenants. The terms of these subleases end concurrently with the end of our lease obligation in April 2021. We also leased approximately 3,600 square feet of office space in Austin, Texas. This lease terminated in September 2019. During the first quarter of 2018, we subleased this space to a subtenant. The terms of this sublease ended concurrently with the end of our lease obligation in September 2019. We also lease approximately 9,600 square feet of office space at in Austin, Texas. We amended this lease reducing the office space to 4,600 square feet and extending the lease to May 31, 2022. We also lease approximately 3,700 square feet of office space in Minneapolis, Minnesota. This lease terminates on July 31, 2021. | |||||
Discount rate | 5.50% | |||||
Base Salary, Annual Amount | $ 325,000 | |||||
Caleb Barlow | ||||||
Base Salary, Annual Amount | $ 350,000 | |||||
Bonus | $ 200,000 | $ 500,000 | ||||
Restricted stock units purchased | 50,000 | |||||
Caleb Barlow | Subsequent Event [Member] | ||||||
Bonus | $ 150,000 | $ 150,000 | ||||
Chief Financial Officer | Year 2018 | ||||||
Base Salary, Annual Amount | $ 284,700 | |||||
Bonus | 147,061 | |||||
Chief Financial Officer | Year 2019 | ||||||
Base Salary, Annual Amount | 309,700 | |||||
Bonus | 41,841 | |||||
Chief Financial Officer | Year 2020 | ||||||
Base Salary, Annual Amount | $ 309,700 | |||||
Bonus rate | 67.50% | |||||
Chief Executive Officer | Year 2018 | ||||||
Base Salary, Annual Amount | $ 334,700 | |||||
Bonus | 161,241 | |||||
Chief Executive Officer | Year 2019 | ||||||
Base Salary, Annual Amount | 359,700 | |||||
Bonus | 0 | |||||
Chief Executive Officer | Year 2020 | ||||||
Base Salary, Annual Amount | $ 359,700 | |||||
Bonus rate | 67.50% |
(16) Commitments_ Operating lea
(16) Commitments: Operating lease expense (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Leases [Abstract] | ||
Operating lease cost | $ 337,791 | $ 358,244 |
Sublet income | (62,867) | (92,807) |
Net operating lease cost | $ 274,924 | $ 265,437 |
(16) Commitments_ Maturities of
(16) Commitments: Maturities of lease liabilities (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Operating Leases | ||
2020 | $ 559,462 | |
2021 | 160,871 | |
Total lease payments | 720,333 | |
Less imputed interest | (27,967) | |
Total lease liabilities | 692,366 | |
Less current portion of lease liabilities | (533,371) | $ (576,082) |
Long-term lease liabilities | $ 158,995 |
(17) Concentrations (Details)
(17) Concentrations (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Concentration Risk, Percentage | 14.00% | 24.00% |
Accounts receivable, net | $ 3,210,726 | $ 5,572,467 |
Customer Concentration Risk | ||
Accounts receivable, net | $ 140,000 | $ 1,300,000 |
(18) Stock Purchase Agreement_3
(18) Stock Purchase Agreement - Backbone Enterprises, Inc. (Details) - Stock Purchase Agreement - Backbone Enterprises - USD ($) | 1 Months Ended | 12 Months Ended |
Oct. 31, 2019 | Dec. 31, 2019 | |
Acquisition of of common stock | 100.00% | |
Payment of cash | $ 5,500,000 | |
Issuance of common stock | 491,804 | |
Post-closing financial performance | $ 4,000,000 | |
Cash Consideration | $ 1,500,000 | |
Estimated fair value of earnout | $ 2,400,000 |
(18) Stock Purchase Agreement_4
(18) Stock Purchase Agreement - Backbone Enterprises, Inc. : Schedule of Business Acquisitions, by Acquisition (Details) - Stock Purchase Agreement - Backbone Enterprises $ in Thousands | Oct. 31, 2019USD ($) |
Cash | $ 27,000 |
Accounts receivable | 831,000 |
Prepaid expenses and other assets | 31,000 |
Identified intangible assets (Note 6) | 2,000,000 |
Goodwill (Note 6) | 6,976,000 |
Accrued compensation and benefits | (20,000) |
Total allocated purchase price | $ 9,834,000 |
(18) Stock Purchase Agreement_5
(18) Stock Purchase Agreement - Backbone Enterprises, Inc. : Pro Forma Information (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Notes to Financial Statements | ||
Pro forma revenue | $ 24,454,000 | $ 24,188,000 |
Pro forma net income | $ 14,986,000 | $ 1,585,000 |
Pro forma basic net income per share | $ 1.52 | $ 0.16 |
Pro forma diluted net income per share | $ 1.50 | $ 0.15 |
(19) Discontinued Operations (D
(19) Discontinued Operations (Details) - Asset Purchase Agreement - CTEK Solutions, Inc - USD ($) | 1 Months Ended | |
Jun. 20, 2019 | Mar. 20, 2019 | |
Purchase price | $ 30,000,000 | |
Amount escrow by Buyer | 5,000,000 | |
Reduction in cash | $ 2,196,499 | |
Escrow removed | $ 1,500,000 |
(19) Discontinued Operations _
(19) Discontinued Operations : Summary of transaction selling MPS Business (Details) - USD ($) | 1 Months Ended | 12 Months Ended | |
Mar. 20, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | |
Income tax expense | $ (1,528,808) | $ (1,305,534) | |
Discontinued Operations [Member] | |||
Net proceeds from the sale of the business | $ 26,303,501 | ||
Book value of net assets disposed | (2,614,232) | ||
Gain before provision for income taxes | 23,689,269 | 1,119,956 | 8,293,690 |
Income tax expense | (4,197,198) | $ (306,940) | $ (2,437,700) |
Net gain from sale of discontinued operations | $ 19,492,071 |
(19) Discontinued Operations_ B
(19) Discontinued Operations: Balance Sheet (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Currents assets held for sale | $ 0 | $ 8,427,408 |
Property and equipment, net | 946,219 | 1,403,525 |
Noncurrent assets held for sale | 0 | 1,844,349 |
Accounts payable and accrued expenses | 638,864 | 932,067 |
Accrued compensation and benefits | 1,066,770 | 1,592,765 |
Current liabilities held for sale | 0 | 7,299,561 |
Capital lease obligations noncurrent portion | 0 | 1,570 |
Noncurrent liabilities held for sale | $ 0 | 58,967 |
Discontinued Operations [Member] | ||
Accounts receivable, net | 5,124,270 | |
Prepaid and other current assets | 2,118,664 | |
Supplies | 1,184,474 | |
Currents assets held for sale | 8,427,408 | |
Property and equipment, net | 327,332 | |
Goodwill | 1,517,017 | |
Noncurrent assets held for sale | 1,844,349 | |
Accounts payable and accrued expenses | 5,098,179 | |
Accrued compensation and benefits | 1,225,057 | |
Deferred revenue | 888,467 | |
Capital lease obligations current portion | 87,857 | |
Current liabilities held for sale | 7,299,561 | |
Capital lease obligations noncurrent portion | 58,567 | |
Noncurrent liabilities held for sale | $ 58,967 |
(19) Discontinued Operations_ O
(19) Discontinued Operations: Operation (Details) - USD ($) | 1 Months Ended | 12 Months Ended | |
Mar. 20, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | |
Net revenues | $ 21,364,810 | $ 21,311,717 | |
Cost of revenues | (13,018,673) | (11,122,433) | |
Sales and marketing | (5,347,822) | (5,185,334) | |
Depreciation | (182,198) | (147,553) | |
Income tax expense | (1,528,808) | (1,305,534) | |
Net income from discontinued operations | 20,305,087 | 5,855,990 | |
Discontinued Operations [Member] | |||
Net revenues | 12,096,885 | 49,794,792 | |
Cost of revenues | (10,060,414) | (39,111,403) | |
Sales and marketing | (201,295) | (535,087) | |
General and administrative expenses | (676,630) | (1,637,237) | |
Depreciation | (36,635) | (201,080) | |
Other income (expense) | (1,956) | (16,245) | |
Income before provision for income taxes | $ 23,689,269 | 1,119,956 | 8,293,690 |
Income tax expense | $ (4,197,198) | (306,940) | (2,437,700) |
Net income from discontinued operations | $ 813,016 | $ 5,855,990 |
(19) Discontinued Operations_ C
(19) Discontinued Operations: Cash Flow (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Stock compensation | $ 1,280,336 | $ 717,746 |
Depreciation | 182,198 | 147,553 |
Loss on disposition of property and equipment | (2,188) | (4,244) |
Discontinued Operations [Member] | ||
Stock compensation | 124,348 | 50,170 |
Depreciation | 36,635 | 201,080 |
Loss on disposition of property and equipment | 0 | 4,246 |
Capital expenditures | $ 0 | $ 23,082 |
(20) Subsequent events (Details
(20) Subsequent events (Details) | 1 Months Ended |
Mar. 26, 2020USD ($) | |
Subsequent Event [Member] | Equity Commitment | |
Common stock issued for operating cash | $ 2,500,000 |