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Summary of Significant Accounting Policies (Policies)
 6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

 

The accompanying unaudited financial information as of and for the three and six months ended June 30, 2020 and 2019 has been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial position at such dates and the operating results and cash flows for such periods. Operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission, or the SEC. These unaudited financial statements and related notes should be read in conjunction with our audited financial statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2020.
Consolidation

Consolidation

 

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, GenResults, TalaTek and Techville. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications

Reclassifications

 

Certain reclassifications have been made to the financial statements for the three and six months ended June 30, 2019 to conform to the financial statements presentation for the three and six months ended June 30 ,2020. These reclassifications had no effect on net loss or cash flows as previously reported.
Use of Estimates

Use of Estimates

 

Preparing 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 at 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.

 

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the accompanying unaudited condensed consolidated financial statements. Significant estimates include the allowance for doubtful accounts, the carrying value of intangible assets and goodwill, deferred tax asset and valuation allowance, assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected divided rate.
Revenue

Revenue

 

The Company’s revenues are derived from two major types of services to clients: Managed Services and Consulting Services. With respect to Managed Services, the Company provides culture education and enablement, tools and technology provisioning, data and privacy and regulations and compliance, remote infrastructure administration, and cybersecurity services including, but not limited to, antivirus and patch management. With respect to Consulting Services, the Company provides cybersecurity consulting, compliance auditing, vulnerability assessment and penetration testing, and disaster recovery and data backup solutions.

 

Practical Expedients

 

As part of Accounting Standards Codification (“ASC”) 606, the Company has adopted several practical expedients including the following: (i) the Company has determined that it need not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised service to the customer and when the customer pays for that service will be one year or less and (ii) the Company recognizes any incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.

 

Disaggregated Revenues

 

Revenue consists of the following by service offering for the six months ended June 30, 2020:

 

   

Managed

Services

    

Consulting

Services

     Total  
Primary Sector Markets                        
Public   $ 3,250     $ 1,593,598     $ 1,596,848  
Private     740,849       268,259       1,009,108  
Not-for-Profit     10,158       2,594       12,752  
    $ 754,257     $ 1,864,451     $ 2,618,708  
                         
Major Service Lines                        
CISO as a Service   $ 20,550     $ -     $ 20,550  
Gap and Risk Assessment     -       1,803,928       1,803,928  
Managed Security Services     636,676       -       636,676  
Tech Connect Pro     89,080       -       89,080  
Tech Connect Cloud     -       22,263       22,263  
Tech Connect Security     7,691       -       7,691  
Hardware     -       13,253       13,253  
Other     260       25,007       25,267  
    $ 754,257     $ 1,864,451     $ 2,618,708  

 

Revenue consists of the following by service offering for the six months ended June 30, 2019:

 

   

Managed

Services

    

Consulting

Services

     Total  
Primary Sector Markets                        
Public   $ -     $ -     $ -  
Private     222,450       127,681       350,131  
Not-for-Profit     -       2,000       2,000  
    $ 222,450     $ 129,681     $ 352,131  
                         
Major Service Lines                        
CISO as a Service   $ 184,000     $ -     $ 184,000  
Gap and Risk Assessment     -       129,681       129,681  
Managed Security Services     38,450       -       38,450  
Tech Connect Pro     -       -       -  
Tech Connect Cloud     -       -       -  
Tech Connect Security     -       -       -  
Hardware     -       -       -  
Other     -       -       -  
    $ 222,450     $ 129,681     $ 352,131  

 

Contract Modifications

 

There were no contract modifications during the six months ended June 30, 2020. Contract modifications are not routine in the performance of the Company’s contracts.
Cash and Cash Equivalents

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Accounts Receivable

Accounts Receivable

 

Accounts receivable are reported at their outstanding unpaid principal balances, net of allowances for doubtful accounts. The Company periodically assesses its accounts and other receivables for collectability on a specific identification basis. The Company provides for allowances for doubtful receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. Payments are generally due within 30 days of invoice. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. As of June 30, 2020 and December 31, 2019, the Company’s allowance for doubtful accounts was $70,847 and $40,000, respectively.
Property and Equipment

Property and Equipment

 

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, generally between three and five years. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. Computer equipment costs for the Company are capitalized, as incurred, and depreciated on a straight-line basis over three years. TalaTek capitalizes all equipment costs over $5,000, as incurred, and depreciates these costs on a straight-line basis over three years.

 

Maintenance and repairs are charged to expense as incurred. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.
Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

 

The Company reviews long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. During the three and six months ended June 30, 2020, the Company did not record a loss on impairment.
Intangible Assets

Intangible Assets

 

The Company records its intangible assets at cost in accordance with ASC 350, Intangibles – Goodwill and Other. Finite lived intangible assets are amortized over their estimated useful life using the straight-line method, which is determined by identifying the period over which the cash flows from the asset are expected to be generated.
Goodwill

Goodwill

 

Goodwill represents the excess of the purchase price of the acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at year end, at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit (See Notes 3 and 6).
Advertising and Marketing Costs

Advertising and Marketing Costs

 

The Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $45,708 and $73,570 for the three and six months ended June 30, 2020, respectively, and $8,151 and $11,340 for the three and six months ended June 30, 2019, respectively, and are recorded in operating expenses on the unaudited condensed consolidated statements of operations.
Fair Value Measurements

Fair Value Measurements

 

As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.

 

Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
   
Level 2: Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
   
Level 3: Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The significant unobservable inputs used in the fair value measurement for nonrecurring fair value measurements of long-lived assets include pricing models, discounted cash flow methodologies and similar techniques.
Net Loss Per Common Share

Net Loss per Common Share

 

Net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. All vested outstanding options are considered potentially outstanding common stock. The dilutive effect, if any, of stock options are calculated using the treasury stock method. Since the effect of common stock equivalents is anti-dilutive with respect to losses, the options have been excluded from the Company’s computation of net loss per common share for the three and six months ended June 30, 2020 and 2019.

 

The following tables summarize the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive due to the Company’s net loss position even though the exercise price could be less than the average market price of the common shares:

 

    June 30, 2020     June 30, 2019  
             
Stock Options     20,820,000       1,100,000  
Total     20,820,000       1,100,000  
Stock-Based Compensation

Stock-based Compensation

 

The Company applies the provisions of ASC 718, Compensation - Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the statements of operations.

 

For stock options issued to employees and members of the board of directors for their services, the Company estimates the grant date fair value of each option using the Black-Scholes-Merton option pricing model. The use of the Black-Scholes-Merton option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised. Due to the Company’s limited history and lack of public market for its common stock, the Company used the average of historical share prices of similar companies within its industry to calculate volatility for use in the Black-Scholes-Merton option pricing model.

 

Pursuant to Accounting Standards Update (“ASU”) 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, the Company accounts for stock options issued to non-employees for their services in accordance with ASC 718. The Company uses valuation methods and assumptions to value the stock options that are in line with the process for valuing employee stock options noted above.
Leases

Leases

 

Leases in which the Company is the lessee are comprised of corporate offices and property and equipment. All of the leases are classified as operating leases. The Company leases office space monthly with no long term agreements. The Company leases a vehicle with a remaining term of three years.

 

In accordance with ASC 842, Leases, the Company recognized a right of use (“ROU”) asset and corresponding lease liability on its unaudited condensed consolidated Balance Sheet for its vehicle operating lease agreement. See Note 13 – Leases for further discussion, including the impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.
Income Taxes

Income Taxes

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the unaudited condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

The Company utilizes ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial statements or tax returns. The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized. At June 30, 2020 and December 31, 2019, the Company’s net deferred tax asset has been fully reserved.

 

For uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax positions in the unaudited condensed consolidated financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the unaudited condensed consolidated statements of operations.
Recent Accounting Pronouncements

Recently Issued Accounting Standards

 

All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.