Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Mar. 22, 2018 | Jun. 30, 2017 | |
Document and Entity Information: | |||
Entity Registrant Name | CYNERGISTEK, INC. | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2017 | ||
Trading Symbol | auxo | ||
Amendment Flag | false | ||
Entity Central Index Key | 1,011,432 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Common Stock, Shares Outstanding | 9,576,028 | ||
Entity Public Float | $ 35,000,000 | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Current Reporting Status | Yes | ||
Entity Voluntary Filers | No | ||
Entity Well-known Seasoned Issuer | No | ||
Document Fiscal Year Focus | 2,017 | ||
Document Fiscal Period Focus | FY |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 4,252,060 | $ 6,090,844 |
Accounts receivable, net | 13,264,323 | 9,614,486 |
Prepaid and other current assets | 557,426 | 438,140 |
Supplies | 1,156,005 | 1,087,318 |
Total current assets | 19,229,815 | 17,230,788 |
Property and equipment, net | 831,784 | 689,418 |
Deposits | 87,376 | 41,522 |
Deferred income taxes | 3,120,310 | 5,282,531 |
Intangible assets, net | 10,900,924 | 1,112,395 |
Goodwill | 18,525,206 | 2,109,143 |
Total assets | 52,695,415 | 26,465,797 |
Current liabilities: | ||
Accounts payable and accrued expenses | 9,631,634 | 7,736,207 |
Accrued compensation and benefits | 3,711,551 | 2,495,156 |
Deferred revenue | 1,425,821 | 562,679 |
Current portion of long-term liabilities | 5,494,837 | 606,686 |
Total current liabilities | 20,263,843 | 11,400,728 |
Long-term liabilities: | ||
Term loan, less current portion | 9,438,333 | 750,000 |
Promissory notes to related parties, less current portion | 6,000,000 | 0 |
Capital lease obligations, less current portion | 147,861 | 199,644 |
Total long-term liabilities | 15,586,194 | 949,644 |
Stockholders' equity: | ||
Common stock, par value at $0.001, 33,333,333 shares authorized, 9,576,029 shares issued and outstanding at December 31, 2017 and 8,185,936 shares issued and outstanding at December 31, 2016 | 9,576 | 8,186 |
Additional paid-in capital | 31,156,362 | 27,985,448 |
Accumulated deficit | (14,320,560) | (13,878,209) |
Total stockholders' equity | 16,845,378 | 14,115,425 |
Total liabilities and stockholders' equity | $ 52,695,415 | $ 26,465,797 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Dec. 31, 2017 | Dec. 31, 2016 |
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 | 9,576,029 | 8,185,936 |
Common Stock, shares outstanding | 9,576,029 | 8,185,936 |
CONSOLIDATED STATEMENTS OF INCO
CONSOLIDATED STATEMENTS OF INCOME - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Statement [Abstract] | ||
Revenues | $ 71,638,947 | $ 60,200,383 |
Cost of revenues | 50,739,359 | 47,888,296 |
Gross profit | 20,899,588 | 12,312,087 |
Operating expenses: | ||
Sales and marketing | 5,747,758 | 2,723,735 |
General and administrative expenses | 7,662,486 | 6,174,083 |
Depreciation | 383,419 | 211,654 |
Amortization of acquisition-related intangibles | 2,080,746 | 541,667 |
Impairment of goodwill and intangible assets (Note 4) | 180,726 | 2,633,701 |
Total operating expenses | 16,055,135 | 12,284,840 |
Income from operations | 4,844,453 | 27,247 |
Other income (expense): | ||
Interest expense | (1,526,653) | (91,885) |
Change in valuation of contingent earn-out | (1,394,000) | 0 |
Other expense | (675) | 0 |
Total other income (expense) | (2,921,328) | (91,885) |
Income (loss) before provision for income taxes | 1,923,125 | (64,638) |
Income tax (expense) benefit | (2,365,476) | 5,074,439 |
Net income | $ (442,351) | $ 5,009,801 |
Net income per share: | ||
Basic | $ (0.05) | $ 0.61 |
Diluted | $ (0.05) | $ 0.60 |
Number of weighted average shares: | ||
Basic | 9,425,281 | 8,173,203 |
Diluted | 9,425,281 | 8,283,862 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total |
Equity Balance, beginning of period, Value at Dec. 31, 2015 | $ 8,151 | $ 27,698,363 | $ (18,888,010) | $ 8,818,504 |
Equity Balance, beginning of period, Shares at Dec. 31, 2015 | 8,150,695 | |||
Stock compensation expense for options and warrants granted to employees and directors | $ 0 | 226,970 | 0 | 226,970 |
Stock options exercised, Value | $ 35 | 60,115 | 60,150 | |
Stock options exercised, Shares | 35,046 | |||
Effect of reverse stock split | 195 | |||
Net income | $ 0 | 0 | 5,009,801 | 5,009,801 |
Equity Balance, end of period, Value at Dec. 31, 2016 | $ 8,186 | 27,985,448 | (13,878,209) | 14,115,425 |
Equity Balance, end of period, Shares at Dec. 31, 2016 | 8,185,936 | |||
Stock compensation expense for options and warrants granted to employees and directors | 78,652 | 78,652 | ||
Stock compensation expense for restricted stock granted to key employee, Value | 255,201 | 255,201 | ||
Stock options exercised, Value | $ 224 | 66,228 | 66,452 | |
Stock options exercised, Shares | 223,216 | |||
Common stock issued in connection with the acquisition of CynergisTek, Inc., value | $ 1,166 | 2,770,833 | 2,771,999 | |
Common stock issued in connection with the acquisition of CynergisTek, Inc., shares | 1,166,666 | |||
Reverse stock split round-up shares issued | $ 210 | |||
Net income | (442,351) | (442,351) | ||
Equity Balance, end of period, Value at Dec. 31, 2017 | $ 9,576 | $ 31,156,362 | $ (14,320,560) | $ 16,845,378 |
Equity Balance, end of period, Shares at Dec. 31, 2017 | 9,576,028 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Cash flows provided by operating activities: | ||
Net (loss) income | $ (442,351) | $ 5,009,801 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation | 383,419 | 211,654 |
Amortization of intangible assets | 2,080,746 | 541,667 |
Impairment of intangible assets | 180,726 | 2,633,701 |
Bad debt | 109,207 | 0 |
Stock compensation for options and warrants granted to employees and directors | 78,652 | 226,970 |
Stock compensation for restricted stock units granted to employees and directors | 255,201 | 0 |
Change in valuation of contingent earn-out | 1,394,000 | 0 |
Change in net deferred tax assets | 2,162,221 | (5,282,531) |
Changes in operating assets and liabilities: | ||
Accounts receivable | (2,032,647) | (2,216,529) |
Prepaid and other current assets | 227,154 | 187,666 |
Supplies | (68,688) | 371,291 |
Deposits | (45,854) | 16,596 |
Accounts payable and accrued expenses | (2,513,776) | (570,653) |
Accrued compensation and benefits | 180,873 | (361,009) |
Deferred revenue | (515,170) | (350,998) |
Net cash provided by operating activities | 1,433,713 | 417,626 |
Cash flows (used for) investing activities: | ||
Purchases of property and equipment | (286,189) | (205,121) |
Amount paid to purchase CTEK Security, Inc., net of cash received | (13,448,522) | 0 |
Net cash (used for) investing activities | (13,734,711) | (205,121) |
Cash flows (used for) provided by financing activities: | ||
Proceeds from term loan | 14,000,000 | 0 |
Payments on term loan | (3,431,667) | (500,000) |
Payments on capital leases | (172,571) | (118,543) |
Proceeds from exercise of options and warrants | 66,452 | 60,150 |
Net cash provided by (used for) financing activities | 10,462,214 | (558,393) |
Net change in cash and cash equivalents | (1,838,784) | (345,888) |
Cash and cash equivalents, beginning of year | 6,090,844 | 6,436,732 |
Cash and cash equivalents, end of year | 4,252,060 | 6,090,844 |
Supplemental disclosure of cash flow information: | ||
Interest paid | 1,285,261 | 91,885 |
Income tax paid | 517,774 | 220,076 |
Non-cash investing and financing activities: | ||
Property and equipment acquired through capital leases | 128,939 | 200,627 |
Common stock issued in connection with the acquisition of CTEK Security, Inc. | 2,771,999 | 0 |
Promissory notes issued in connection with the acquisition of CTEK Security, Inc. | 9,000,000 | 0 |
Initial fair value of earn-out liability in connection with the acquisition of CTEK Security, Inc. | $ 2,356,000 | $ 0 |
(1) Basis of Presentation and S
(1) Basis of Presentation and Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2017 | |
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. 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”). Effective on January 13, 2017, the Company effected a reverse stock split of its Common Stock at a ratio of 1-for-3. No fractional shares of Common Stock were issued, and no cash or other consideration were paid as a result of the reverse stock split. Instead, the Company issued one whole share of post-reverse stock split Common Stock in lieu of each fractional share of Common Stock. As a result of the reverse stock split, the Company’s Common Stock was reduced to 8,185,936 shares from 24,557,224 shares as of December 31, 2016. All per share amounts and number of shares in the consolidated financial statements and related notes have been retroactively restated to reflect the reverse stock split. 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 The Company derives its revenue from four sources: (1) document solution services; (2) equipment and software resales; (3) software subscriptions and managed services, which is comprised of subscription fees from customers accessing the Company’s enterprise cloud computing services and customers purchasing additional ongoing managed services beyond the standard support that is included in the basic software subscription fees; and (4) cybersecurity professional services such as penetration testing, cybersecurity risk assessments and security program strategy development. The Company commences revenue recognition when all of the following conditions are satisfied: • • • • · Document Solution Services and Equipment Revenue Revenue is recognized pursuant to ASC Topic 605, “Revenue Recognition” (ASC 605). Monthly service and supply revenue is earned monthly during the term of the contract, as services and supplies are provided. Revenues from equipment sales transactions are earned when there is persuasive evidence of an arrangement, delivery and installation have occurred, the sales price has been determined and collectability has been reasonably assured. For equipment that is to be placed at a customer’s location at a future date, revenue is deferred until the placement of such equipment. We enter into arrangements that include multiple deliverables, which typically consist of the sale of Multi-Function Device (“MFD”) equipment and a support services contract. We account for each element within an arrangement with multiple deliverables as separate units of accounting. Revenue is allocated to each unit of accounting under the guidance of ASC Topic 605-25, Multiple-Deliverable Revenue Arrangements, which provides criteria for separating consideration in multiple-deliverable arrangements by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third-party evidence is available. We are required to determine the best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis. We generally do not separately sell MFD equipment or service on a standalone basis. Therefore, we do not have VSOE for the selling price of these units. As we purchase the equipment, we have third-party evidence of the cost of this element. We estimate the proceeds from the arrangement to allocate to the service unit based on historical cost experiences. Based on the relative costs of each unit to the overall cost of the arrangement, we utilize the same relative percentage to allocate the total arrangement proceeds. The Company’s contracts with customers may include provisions that relate to guaranteed savings amounts and shared savings. Such provisions are considered by management during the Company’s initial proprietary client assessment and are charged and accrued when deemed by management to be probable. The Company’s historical settlement of such amounts has been within management’s estimates. · Software Subscriptions and Managed Services Revenue Software subscriptions and managed services revenues are recognized ratably over the contract terms beginning on the commencement date of each contract, which is the date the Company’s service is made available to customers. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. The Company’s software subscription service arrangements are non-cancelable and do not contain refund-type provisions. · Cybersecurity Professional Services Revenues The majority of the Company’s cybersecurity services contracts are on a time and material basis. When these services are not combined with subscription revenues as a single unit of accounting, these revenues are recognized as the services are rendered for time and material contracts, and when the milestones are achieved and accepted by the customer for fixed price 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. Supplies Supplies consist of parts and supplies for the automated office equipment, including copiers, facsimile machines and printers. Supplies are valued at the lower of cost or net realizable value on a first-in, first-out basis. 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. New Customer Implementation Costs We ordinarily incur additional costs to implement our managed print services for new customers. These costs are comprised primarily of additional labor and support. These costs are expensed as incurred and have a negative impact on our statements of operations and cash flows during the implementation phase. Goodwill and Intangible Assets The Company accounts for its business combinations in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 805-10 through ASC 805-50, “Business Combinations” which requires that the purchase method of accounting be applied to all business combinations and addresses the criteria for initial recognition of intangible assets and goodwill. In accordance with FASB ASC 350-10 through ASC 350-30, goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment annually, or more frequently if circumstances indicate the possibility of impairment. If the carrying value of goodwill or an indefinite lived intangible asset exceeds its fair value, an impairment loss shall be recognized. During the year ended December 31, 2016, management determined that the goodwill associated with the Delphiis and Redspin acquisitions were impaired (Note 4). Based on management’s tests and reviews, no further impairment of goodwill existed at December 31, 2017. To test for goodwill impairment, first we perform a qualitative assessment. If we determine, based on qualitative factors, that the fair value of goodwill is more likely than not greater than the carrying amount, a quantitative calculation would not be needed. Our methodology for a quantitative assessment of testing for goodwill impairment consists of one, and possibly two steps. In step one of the goodwill impairment test, management compares the carrying amount (including goodwill) of the reporting unit and the fair value. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, then an impairment charge must be measured. The impairment loss, if any, is calculated by comparing the implied fair value of goodwill to its carrying amount. In calculating the implied fair value of a reporting unit’s goodwill, the fair value of the reporting unit is allocated to the tangible and intangible assets and liabilities of that reporting unit based on their respective fair values. The excess, if any, of the reporting unit’s fair value over the amount assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized when the carrying amount of goodwill exceeds its implied fair value. 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, 2017 and 2016, management determined there was impairment of certain definite lived intangible assets associated with the Delphiis and Redspin acquisitions (Note 4). 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. Stock-Based Compensation We account for stock options granted to 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. We account for stock options granted to consultants using the accounting guidance included in ASC 505-50 “Equity-Based Payments to Non-Employees.” In accordance with ASC 505-50, we estimate the fair value of service-based stock options and performance-based options at each reporting period using the Black-Scholes pricing model. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date on which it is probable that performance will occur. For the years ended December 31, 2017 and 2016, stock-based compensation expense recognized in the consolidated statements of operations is as follows: Year Ended December 31, 2017 2016 Cost of revenues $80,771 $43,193 Sales and marketing 124,099 38,510 General and administrative expenses 128,983 145,267 Total stock-based compensation expense $333,853 $226,970 The weighted average estimated fair value of stock options granted during 2017 and 2016 was $0.96 and $0.86 per share, respectively. These amounts 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: 2017 2016 Risk-free interest rate 0.38% 0.37% to 0.40% Expected volatility of our Common Stock 46.29% 45.95% to 46.77% Dividend yield 0% 0% Expected life of options 3 years 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. We evaluate the assumptions used to value restricted stock units on a quarterly basis. When factors change, including the market price of the stock, share-based compensation expense may differ significantly from what was recorded in the past. 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 (Loss) Income 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 our Common Stock issued and outstanding during a certain period and is calculated by dividing net income by the weighted average number of shares of our 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, 2017, potentially dilutive securities consisted of options and warrants to purchase 802,179 shares of our Common Stock at prices ranging from $1.65 to $6.45 per share. Of these potentially dilutive securities, none of the shares of Common Stock underlying the options and warrants were included in the computation of diluted earnings per share, as their effect would be anti-dilutive. As of December 31, 2016, potentially dilutive securities consisted of options and warrants to purchase 1,713,154 shares of our Common Stock at prices ranging from $1.41 to $6.45 per share. Of these potentially dilutive securities, only 110,659 of the shares to purchase Common Stock from the options and warrants are included from the computation of diluted earnings per share because the effect of including the remaining instruments would be anti-dilutive. The following table sets forth the computation of basic and diluted net (loss) income per share: Year Ended December 31, 2017 2016 Numerator: Net (loss) income $(442,351) $5,009,801 Denominator: Denominator for basic calculation weighted averages 9,425,281 8,173,203 Dilutive Common Stock equivalents: Options and warrants - 110,659 Denominator for diluted calculation weighted average 9,425,281 8,283,862 Net (loss) income per share: Basic net (loss) income per share $ (0.05) $ 0.61 Diluted net (loss) income per share $ (0.05) $ 0.60 Segment Reporting Based on the Company’s recent integration with CTEK Security and an analysis of how our Chief Operating Decision Makers review, manage and are compensated, we have determined that the Company operates in three segments, services, equipment and software resale, and software as a service. Equipment and software resale, and software as a service are not material, and therefore not presented separately from services. For the years ended December 31, 2017 and 2016, all revenues were derived from domestic operations. New Accounting Pronouncements In May 2014, the FASB issued guidance which provides a single, comprehensive accounting model for revenue arising from contracts with customers. This guidance supersedes most of the existing revenue recognition guidance, including industry-specific guidance. Under this model, revenue is recognized at an amount that a company expects to be entitled to upon transferring control of goods or services to a customer, as opposed to when risks and rewards transfer to a customer. The new guidance also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flow arising from customer contracts, including significant judgments and changes in judgments. Considering the one-year delay in the required adoption date for the guidance as issued in July 2015, the new guidance is effective for us beginning in 2018 and may be applied retrospectively to all prior periods presented or through a cumulative adjustment to the opening retained earnings balance in the year of adoption. We will adopt this standard beginning January 1, 2018 and expect to use the modified retrospective method of adoption. Under the new guidance, based on the nature of our contracts, we expect to continue to recognize revenue in a similar manner as with the current guidance. Additionally, we expect the unit of accounting, that is, the identification of performance obligations, will be consistent with current revenue guidance. Accordingly, the adoption of this standard is not expected to significantly impact on our revenues. In February 2016, the FASB issued a new accounting standard on leasing. The new standard will require companies to record most leased assets and liabilities on the balance sheet, and also proposes a dual model for recognizing expense. This guidance will be effective in the first quarter of 2019 with early adoption permitted. We have evaluated the impact of adopting this guidance and we are preparing for the changes to be made to our consolidated financial statements. We expect the adoption of these accounting changes will materially increase our assets and liabilities but will not have a material impact on our net income or equity. 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. The new standard becomes effective on January 1, 2020 with early adoption permitted. We are currently evaluating the impact that the new standard will have on our financial position, results of operations and cash flows. In March 2016, the FASB issued new accounting standard which simplified certain aspects of the accounting for stock-based payment transactions, including income taxes, classification of awards and classification in the statement of cash flows. This guidance was effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods. The adoption of this standard did not have a material impact on its consolidated financial statements and disclosures. In August 2016, the FASB issued 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 is 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. We are currently evaluating the impact of adopting this standard on our consolidated financial statements. In January 2017, the FASB issued 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 will be effective for the Company for the year ending December 31, 2019 and interim reporting periods within that year. Early adoption is permitted for transactions that have not been reported in financial statements that have been issued or made available for issuance. We are currently evaluating the effect of the adoption of this guidance on our consolidated financial statements. In May 2017, the FASB issued 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 will be effective for the year ending December 31, 2019 and interim reporting periods within that year. Early adoption is permitted. We expect the adoption of this guidance will not have a material effect on our consolidated financial statements or footnotes. |
(2) Accounts Receivable
(2) Accounts Receivable | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
(2) Accounts Receivable | (2) Accounts Receivable A summary of accounts receivable follows: As of December 31, 2017 2016 Trade receivables $14,451,899 $8,046,561 Unapplied advances and unbilled revenue, net (1,081,025) 1,567,925 Allowance for doubtful accounts (106,551) - $13,264,323 $9,614,486 |
(3) Property and Equipment
(3) Property and Equipment | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
(3) Property and Equipment | (3) Property and Equipment A summary of property and equipment follows: As of December 31, 2017 2016 Furniture and fixtures $ 316,925 $ 156,831 Computers and office equipment 1,009,292 773,246 Fleet equipment 668,249 539,310 Leasehold improvements 140,052 140,052 2,134,518 1,609,439 Less accumulated depreciation and amortization (1,302,734 (920,021 $ 831,784 $ 689,418 Depreciation and amortization expense for property, equipment, and improvements amounted to $383,419 and $211,654 for the years ended December 31, 2017 and 2016, respectively. |
(4) Intangible Assets
(4) Intangible Assets | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
(4) Intangible Assets | (4) 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, 2017 and 2016: December 31, 2017 December 31, 2016 Gross Carrying Amount Accumulated Amortization Accumulated Impairment Gross Carrying Amount Accumulated Amortization Accumulated Impairment Delphiis, Inc. Acquired technology $ 900,000 $ (242,002 ) $ (547,484 ) $ 900,000 $ (225,000 ) $ (547,484 ) Customer relationships 400,000 (233,257 ) (166,743 ) 400,000 (200,000 ) (116,859 ) Trademarks 50,000 (50,000 ) — 50,000 (50,000 ) — Non-compete agreements 20,000 (17,292 ) (2,708 ) 20,000 (16,667 ) (2,707 ) Total Delphiis, Inc. $ 1,370,000 $ (542,551 ) $ (716,935 ) $ 1,370,000 $ (491,667 ) $ (667,050 ) Redspin Acquired technology $ 1,050,000 $ (248,519 ) $ (331,908 ) $ 1,050,000 $ (183,750 ) $ (331,908 ) Customer relationships 600,000 (550,000 ) (50,000 ) 600,000 (350,000 ) — Trademarks 200,000 (93,978 ) (106,022 ) 200,000 (70,000 ) (52,071 ) Non-compete agreements 100,000 (46,951 ) (53,049 ) 100,000 (35,000 ) (26,159 ) Total Redspin $ 1,950,000 $ (939,448 ) $ (540,979 ) $ 1,950,000 $ (638,750 ) $ (410,138 ) CTEK Security, Inc. Acquired technology $ 8,150,000 $ (815,000 ) $ — $ — $ — $ — Customer relationships 2,150,000 (537,500 ) — — — — Trademarks 1,550,000 (310,000 ) — — — — Non-compete agreements 200,000 (66,663 ) — — — — Total CTEK Security, Inc. $ 12,050,000 $ (1,729,163 ) $ — $ — $ — $ — Total intangible assets $ 15,370,000 $ (3,211,162 ) $ (1,257,914 ) $ 3,320,000 $ (1,130,417 ) $ (1,077,188 ) The amortization of intangible assets expected in future years is as follows: December 31, Amortization 2018 $1,810,938 2019 1,810,938 2020 1,744,271 2021 1,206,771 2022 896,771 Thereafter 3,431,235 Total $10,900,924 Goodwill Goodwill consists of the following as of December 31, 2017 and 2016: December 31, 2017 December 31, 2016 Gross Carrying Amount Accumulated Impairment Net Carrying Amount Gross Carrying Amount Accumulated Impairment Net Carrying Amount CTEK Solutions, Inc $ 1,517,017 $ - $ 1,517,017 $ 1,517,017 $ - $ 1,517,017 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 - - - Total goodwill $ 20,081,719 $ (1,556,513) $18,525,206 $ 3.665,656 $ (1,556,513) $ 2,109,143 When the Company performed its annual impairment testing for Delphiis, Inc. and Redspin as of December 31, 2017 and 2016, we concluded there were indicators of potential intangible asset and goodwill impairment based on the performance of these business units and changes in the Company’s short and long-term strategy and outlook for these units. The Company first performed a quantitative impairment analysis of the intangible assets and then a quantitative impairment analysis of goodwill as of December 31, 2017 and 2016. With respect to the intangible asset analysis, management estimated future undiscounted free cash flows associated with the intangibles assets and determined that they were less than the related carrying values. As a result, the Company recognized aggregate impairment charges of $180,726 and $1,077,188 for the years ended December 31, 2017 and 2016 respectively. With respect to the goodwill analysis, in 2016 management estimated the fair value of the reporting units and determined that such amounts were less than the carrying values. Management then determined that the implied fair value of goodwill of the reporting units was less than the carrying value of goodwill and an aggregate $1,556,513 impairment charge was recorded. This same analysis was performed in 2017 and management determined no further impairment was evident. |
(5) Line of Credit and Term Loa
(5) Line of Credit and Term Loan | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
(5) Line of Credit and Term Loan | (5) Line of Credit and Term Loan On May 4, 2012, we entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Avidbank Corporate Finance, a Division of Avidbank (“Avidbank”). On April 26, 2013, we amended the Loan and Security Agreement with Avidbank. On April 25, 2014, we again amended the Loan and Security Agreement with Avidbank (the “Second Avidbank Amendment”). This line of credit was further extended through June 25, 2015 under the third amendment to the Loan and Security Agreement. On June 19, 2015, we again amended the Loan and Security Agreement with Avidbank (the “Fourth Avidbank Amendment”). Under the Fourth Avidbank Amendment, the term of the revolving line-of-credit of up to $2.0 million was extended through June 19, 2017, at an interest rate of prime plus 0.75% per annum. 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”) with California Bank and Trust and Avidbank (collectively the “Lenders”). Under the A&R Credit Agreement, the term of the revolving line-of-credit is available through January 13, 2019 at an interest rate of prime plus 1.0% per annum. As of December 31, 2017, the interest rate was 5.5%. There will be no minimum interest payable with respect to any calendar quarter. The amount available to us at any given time is 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). As of December 31, 2017, and December 31, 2016, no amounts were outstanding under the line of credit. The Fourth Avidbank Amendment provided for a term loan facility which allowed for advances up to $4,000,000 through June 19, 2016. Our initial draw was for $2,000,000 in 2015. As of December 31, 2016, outstanding borrowings under the term loan were $1,250,000 at an interest rate of 4.75%. On January 13, 2017, this loan was repaid in full. On that date, we entered into the A&R Credit Agreement which provided a term loan facility for $14,000,000. Term loan repayments are to be made in 48 monthly principal installments of $198,333, plus accrued interest at an interest rate of prime plus 1.5% per annum, followed by 12 monthly principal installments of $373,333, plus accrued interest at an interest rate of prime plus 1.5%. As of December 31, 2017, outstanding borrowings under the term loan were $11,818,333 at an interest rate of 6.0%. While there are outstanding credit extensions, we are to maintain an asset coverage ratio of cash plus accounts receivable divided by all obligations owing to the bank within one year of at least 1.50 to 1.00, measured monthly, and a fixed charge coverage ratio, whereby adjusted EBITDA for the most recent twelve months shall be no less than 1.15 to 1.00 of the sum of the following: (i) Non-Financed Capital Expenditures, (ii) taxes paid in cash during such period, (iii) Distributions paid in cash during such period, (iv) any Earnout Payment paid in cash during such period, and (v) Debt Service for such period, all as determined in accordance with GAAP. To our knowledge, we were in compliance with all covenants as of December 31, 2017 and December 31, 2016. In connection with the A&R Credit Agreement, the Company and its subsidiaries (collectively the “Borrowers”) entered into a security agreement (the “Security Agreement”), pursuant to which each of the Borrowers agreed to grant to Avidbank, in its capacity as contractual representative for itself and the other lender (the “Agent”), for the ratable benefit of itself, the Lenders and the other secured parties, a first priority security interest in certain collateral to secure prompt payment and performance of the secured obligations under the A&R Credit Agreement. Pursuant to the Security Agreement, the “Collateral” was defined as including any and all (all such terms as defined in the Security Agreement) of the Accounts, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Equipment, Instruments, Inventory, Investment Property, General Intangibles, Letter of Credit Rights, Negotiable Collateral, Supporting Obligations, Vehicles, Grantors’ Books, in each case whether now existing or hereafter acquired or created, any money or other assets of any Grantor that now or hereafter come into the possession, custody, or control of Agent and any Proceeds or products of any of the foregoing, or any portion thereof. In connection with the grant of the security interest in the Collateral, each of the Borrowers made standard representations and warranties relating to ownership of the collateral, location and control of the collateral, and certain rights to payment. Additionally, in connection with the A&R Credit Agreement and the acquisition of CTEK Security, Inc. transaction, (see Note 14), Michael Mathews, (“Mathews”), Michael McMillan (“McMillan”), the Company, and Avidbank entered into a subordination agreement (the “Subordination Agreement”), pursuant to which Mathews and McMillan agreed that unless and until all of the Company’s obligations under the A&R Credit Agreement have been repaid in full, Mathews and McMillan would not, except as provided in the Subordination Agreement, ask, demand, sue for, take or receive, or retain, from the Company or any other person or entity, by setoff or in any other manner, payment of all or any part of the Subordinate Debt (as defined below), or take any other action with respect to the Subordinate Debt; forgive, cancel or discharge any of the Subordinate Debt; ask, demand or receive any security for the Subordinate Debt; amend any documents relating to the Subordinate Debt or any other agreement, instrument or document evidencing or executed in connection with the Subordinate Debt in a manner that could reasonably be expected to be adverse to Lenders or Agent (or any other holders of the obligations arising under the A&R Credit Agreement); or bring or join with any creditor in bringing any insolvency proceeding against the Company. Additionally, Mathews and McMillan each directed the Company to make, and the Company agreed to make, such prior payment of the Company’s obligations under the A&R Credit Agreement to Agent and the Lenders. The Subordination Agreement defines “Subordinate Debt” to include all debt of the Company owing to Mathews and McMillan (or either of them) (a) under the promissory notes due to Mathews and McMillan (the “Seller Notes”) or (b) in respect of the Earn Out Payments (described in Note 14), in either case whether now existing or hereafter arising and including all principal, premium, interest, fees, attorneys’ fees, costs, charges, expenses, reimbursement obligations, any other indemnities or guarantees in each case with respect thereto, in each case whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured. So long as the Borrowers are not in default under the terms of the A&R Credit Agreement, the Company may make regular payments to Mathews and McMillan under the Seller Notes. The foregoing description of the Fourth Amendment to the Loan and Security Agreement between Avidbank and the Company is qualified in its entirety by reference to the terms of the Fourth Amendment to the Loan and Security Agreement, which is found as Exhibit 10.1 of our Form 10-Q filed on August 14, 2015. The foregoing descriptions of the A&R Credit Agreement, Security Agreement and Subordination Agreement are qualified in their entirety by reference to the respective agreements. These agreements are found in our Form 8-K filed on January 17, 2017 as Exhibits 99.7, 99.8, and 99.9, respectively. Interest charges associated with borrowings on the line of credit were $1,285 and $0, respectively for the years ended December 31, 2017 and 2016, respectively. In addition, on January 13, 2017, we paid a $25,000 revolving loan commitment fee. Interest charges associated with the Avidbank term loans, including loan origination costs, totaled $706,872 and $75,801, respectively for the years ended December 31, 2017 and 2016, respectively. In addition, on January 13, 2017, we paid a $70,000 term loan commitment fee. As additional consideration for the original Loan and Security Agreement, we issued Avidbank a 5-year warrant to purchase up to 24,033 shares of our Common Stock at an exercise price of $4.16 per share. On April 6, 2017 we entered into a warrant repurchase agreement with Avidbank whereby we paid Avidbank $4,743 to repurchase these warrants. See also Note 15 regarding the March 2018 restructuring of the term loan, line of credit and Sellers Notes. |
(6) Promissory Notes
(6) Promissory Notes | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
8. Promissory Notes | (6) Promissory Notes In connection with the acquisition of CTEK Security, Inc. (Note 14) we issued two promissory notes totaling $9,000,000 to Dr. Michael G. Mathews and Michael McMillan (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. Amounts due and owing under the Seller Notes are subordinate to the right of payment due under the A&R Credit Agreement pursuant to the Subordination Agreement (Note 5). The Company has 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. The foregoing descriptions of the Seller Notes and Subordination Agreement are qualified in their entirety by reference to the respective agreements. These agreements are found in our Form 8-K filed on January 17, 2017 as Exhibits 99.3, 99.4 and 99.9, respectively. Interest charges associated with the Seller Notes totaled $694,356 for the year ended December 31, 2017. See also Note 15 regarding the March 2018 restructuring of the term loan, line of credit, and Sellers Notes. |
(7) Warrants
(7) Warrants | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
(7) Warrants | (7) Warrants Below is a summary of warrant activity during the years ended December 31, 2016 and 2017: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at January 1, 2016 658,428 $ 3.38 Granted in 2016 - $ - Exercised in 2016 (35,047) $ 1.80 Cancelled in 2016 (302,122) $ 3.84 Outstanding at December 31, 2016 321,259 $ 3.11 5.53 $- Granted in 2017 - $ - Exercised in 2017 (53,516) $ 3.03 Cancelled in 2017 (189,964) $ 3.17 Outstanding at December 31, 2017 77,779 $ 3.03 5.05 $- Warrants exercisable at December 31, 2017 77,779 $ 3.03 5.05 $- The following tables summarize information about warrants outstanding and exercisable at December 31, 2017: Range of Exercise Prices Number of Shares Outstanding Weighted Average Remaining in Contractual Life in Years Outstanding Warrants Weighted Average Exercise Price Number of Warrants Exercisable Exercisable Warrants Weighted Average Exercise Price $3.03 77,779 5.05 $ 3.03 77,779 $ 3.03 Total 77,779 5.05 $ 3.03 77,779 $ 3.03 |
(8) Stock Option and Stock Ince
(8) Stock Option and Stock Incentive Plans | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
(8) Stock Option and Stock Incentive Plans | (8) Stock Option and Stock Incentive Plans In October 2001, we approved the 2001 Stock Option Plan under which all employees may be granted options to purchase shares of our Common Stock. The maximum number of shares of the Common Stock available for issuance under the 2001 Plan was 1,800,000 shares. Under the 2001 Stock Option Plan (the “2001 Plan”), the option exercise price was equal to the fair market value of the Common Stock on the date of grant. Options expired no later than 10 years from the grant date and generally vested within five years. The Board approved the 2003 Stock Option Plan (the “2003 Plan”) and it became effective immediately upon stockholder approval at the Annual Meeting on May 15, 2003. The maximum number of shares of Common Stock available for issuance under the 2003 Plan was 1,466,667 shares. On May 15, 2003, 299,833 shares were available to grant under the 2003 Plan, and 189,056 had been granted under our former 2000 Stock Option Plan (the “2000 Plan”) and the 2001 Plan. Although we no longer granted options under the 2000 Plan or the 2001 Plan, all outstanding stock options continue to be subject to the terms and conditions of the stock option agreement and the underlying plans, except to the extent the Board or the Compensation Committee elected to extend one or more features of the 2003 Plan to the outstanding stock options that were granted pursuant to the 2000 Plan or the 2001 Plan. Under the 2003 Plan, the option exercise price was equal to the fair market value of the Common Stock at the date of grant. Stock options expired no later than 10 years from the grant date and generally vested within five years. In May of 2004, the Board and stockholders approved the 2004 Stock Incentive Plan (the “2004 Plan”). The maximum number of shares of the Common Stock available for issuance under the 2004 Plan was 2,133,333 shares. As of the date of stockholder approval, May 12, 2004, options to purchase 238,250 shares had been granted pursuant to the 2000 Plan, 2001 Plan and 2003 Plan. Under the terms and conditions of the 2004 Plan, the option exercise price is equal to the fair market value of the Common Stock at the date of grant. Options expired no later than 10 years from the grant date and generally vested within five years. The Board approved the 2007 Stock Option Plan, as amended (the “2007 Plan”), and it became effective on May 16, 2007 upon receipt of stockholder approval. On May 16, 2007, options to purchase 963,382 shares of Common Stock had been granted pursuant to the 2000 Plan, 2001 Plan, 2003 Plan and 2004 Plan. Under the 2007 Plan, the administrator could grant options to purchase 1,490,000 shares of Common Stock. The options granted pursuant to the 2004 Plan continue to be governed by the terms and conditions of the 2004 Plan, except to the extent the administrator elected to extend one or more features of the 2007 Plan to the outstanding stock options granted pursuant to the 2004 Plan. Under the 2007 Plan, the option exercise price was equal to the fair market value of the Common Stock at the date of grant. Options expired no later than 10 years from the grant date and generally vested within three years. On March 17, 2011, the Board approved the 2011 Stock Incentive Plan (the “2011 Plan”), 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, 2017, there were 1,451,713 shares available for issuance under the 2011 Plan. Additional information with respect to these Plans’ 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, 2016 1,521,304 $ 3.00 Granted in 2016 215,845 $ 2.73 Exercised in 2016 - $ - Cancelled in 2016 (282,907) $ 3.78 Outstanding at December 31, 2016 1,454,242 $ 2.87 4.32 $184,991 Granted in 2017 25,000 $ 3.06 Exercised in 2017 (169,700) $ 2.25 Cancelled in 2017 (585,142) $ 2.79 Outstanding at December 31, 2017 724,400 $ 3.09 4.19 $747,380 Options exercisable at December 31, 2017 643,919 $ 3.10 4.19 $662,591 The following table summarizes information about stock options outstanding and exercisable at December 31, 2017: Range of Exercise Prices Number of Shares Outstanding Weighted Average Remaining in Contractual Life in Years Outstanding Options Weighted Average Exercise Price Number of Options Exercisable Exercisable Options Weighted Average Exercise Price $0.90 to $2.27 37,166 2.52 $ 1.99 37,167 $ 1.99 $2.28 to $2.72 207,009 3.17 $ 2.46 188,006 $ 2.45 $2.72 to $5.54 472,723 4.83 $ 3.40 411,244 $ 3.44 $5.55 to $8.99 7,502 0.67 $ 6.45 7,502 $ 6.45 $0.90 to $8.99 724,400 4.19 $ 3.09 643,919 $ 3.10 Unamortized compensation expense associated with unvested options approximates $49,299 as of December 31, 2017. The weighted average period over which these costs are expected to be recognized is approximately one year. |
(9) Restricted Stock
(9) Restricted Stock | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
(9) Restricted Stock | (9) 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, 2017, and 2016, respectively, are as follows: Number of Shares Weighted Average Grant-Date Fair per Share Weighted Average Vesting Period in Years Outstanding at January 1, 2016 - - Granted in 2016 - - Vested in 2016 - - Cancelled and forfeited in 2016 - - Non-vested at December 31, 2016 - $- Granted in 2017 506,500 $3.35 Vested in 2017 - - Cancelled and forfeited in 2017 - - Non-vested at December 31, 2017 506,500 $3.35 2.47 During the year ended December 31, 2017, we issued a total of 506,500 shares 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 $255,201 for the year ended December 31, 2017. |
(10) Income Taxes
(10) Income Taxes | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
(10) Income Taxes | (10) Income Taxes For the years ended December 31, 2017 and 2016, the components of income tax (expense) benefit are as follows: Year Ended December 31, 2017 2016 Current provision: Federal $(62,913) $(58,092) State (156,000) (150,000) (218,913) (208,092) Deferred: Federal (1,977,963) 4,685,565 State (168,600) 596,966 (2,146,563) 5,282,531 Income tax (expense) benefit $(2,365,476) $5,074,439 Income tax (expense) benefit amounted to $(2,365,476) and $5,074,439 for the years ended December 31, 2017 and 2016, respectively (an effective rate of 124% for 2017 and (7,851)% for 2016). 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, 2017 2016 Computed tax at federal statutory rate of 34% $(653,863) $21,977 State taxes, net of federal benefit (172,176) (104,225) Non-deductible items (33,305) (29,683) Other 5,073 (30,718) Federal rate and law change effect (1,511,207) - Change in valuation allowance - 5,217,088 $(2,365,476) $5,074,439 As of December 31, 2016, following four consecutive years of pretax earnings and with the expectation of future earnings, management removed 100% of the valuation allowance against the net deferred tax assets and recognized a corresponding income tax benefit. 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, 2017 2016 Deferred tax assets: Accrued salaries/vacation $454,000 $267,500 Accrued other 49,900 54,500 Amortization of intangible assets 702,300 1,056,400 State taxes (700) 34,000 Stock options 589,800 901,500 Credits 250,800 205,700 Net operating loss carryforwards 1,479,800 3,444,900 Total deferred tax assets 3,525,900 5,964,500 Deferred tax liabilities: Depreciation 203,100 302,000 Other 202,490 379,969 Total deferred tax liabilities 405,590 681,969 Net deferred tax assets $3,120,310 $5,282,531 At December 31, 2017, we have available unused net operating loss carryforwards of approximately $7,047,000 for federal purposes and none for state purposes that may be applied against future taxable income and that, if unused, expire beginning in 2025. Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code under section 382. The annual limitation may result in the expiration of net operating loss carryforwards before utilization. Our federal net operating loss carryforwards will begin to expire in 2025. In December 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Act reduces the corporate federal tax rate from a maximum of 35% to a flat 21% rate. The rate reduction took effect on January 1, 2018. At that time the Company had a net deferred tax asset, before tax effect, of approximately $11.6 million. The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company’s net deferred tax asset of approximately $4.6 million was determined at the date of the rate change based on the Company’s then-current enacted federal tax rate of 34%. As a result of the reduction in the corporate income tax rate from 34% to 21% under the Act, the Company revalued its net deferred tax asset resulting in a reduction in value of approximately $1.5 million, which is recorded as a discrete charge to income tax expense in the Company’s consolidated statement of operations for the year ended December 31, 2017. The Act contains various other rules that may apply to the Company. 100% bonus depreciation is allowable on certain qualifying assets placed in service after September 27, 2017, the Act denies a deduction for certain entertainment expenditures incurred after December 31, 2017, and net operating losses incurred after this date are subject to certain new limitations. The Company’s current year income tax provision takes these new rules into account to the extent they are applicable. 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. |
(11) Retirement Plan
(11) Retirement Plan | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
(11) Retirement Plan | (11) Retirement Plan We sponsor a 401(k) plan (the “Plan”) for the benefit of 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, 2017 and 2016, we made matching contributions totaling $416,127 and $117,762, respectively. |
(12) Commitments
(12) Commitments | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
(12) Commitments | (12) Commitments Leases We lease approximately 17,000 square feet of office space at 27271 Las Ramblas, Suite 200, Mission Viejo, California. This lease terminates in April of 2021. We also lease approximately 3,600 square feet of office space at 11410 Jollyville Road, Suite 2201, Austin, Texas. This lease terminates in September 2019. We also lease approximately 9,600 square feet of office space at 11940 Jollyville Road, Austin, Texas. This lease terminates in May 31, 2020. Rent expense for the years ended December 31, 2017 and 2016 totaled $744,866 and $441,058 respectively. Future minimum lease payments under non-cancelable operating leases during subsequent years are as follows: December 31, Payments 2018 $658,690 2019 654,019 2020 512,632 2021 132,926 Total $1,958,267 Employment Agreements Effective January 1, 2016, we entered into an employment agreement with Joseph Flynn (the “2016 Flynn Agreement”). The 2016 Flynn Agreement provided that Mr. Flynn would continue his employment as our President and CEO. The 2016 Flynn Agreement had a term of two years, provided for an annual base salary of $300,000. Mr. Flynn also received the customary employee benefits available to our employees and was also entitled to receive a bonus of up to $180,000 per year, the achievement of which was based on Company performance metrics. In January 2017, Mr. Flynn resigned as President, and continued to serve as CEO until October 2, 2017. The foregoing summary of the 2016 Flynn Agreement is qualified in its entirety by reference to the full context of the employment agreement, which is found as Exhibit 10.31 to our Annual Report on Form 10-K filed with the SEC on March 30, 2016. As described in more detail in our Current Report on Form 8-K filed with the SEC on October 6, 2017, Joseph Flynn submitted his letter of resignation as Chief Executive Officer of the Company on October 2, 2017. The Board accepted Mr. Flynn’s resignation as Chief Executive Officer effective as of October 2, 2017 and as a director effective as of October 31, 2017. Mr. Flynn’s resignation was not due to any dispute or disagreement with the Company. Effective January 1, 2016, we entered into an employment agreement with Paul Anthony (the “2016 Anthony Agreement”). The 2016 Anthony Agreement provides that Mr. Anthony will continue to serve as our Executive Vice President (“EVP”) and CFO. The 2016 Anthony Agreement has a term of two years, and provides for an annual base salary of $245,000. The 2016 Anthony Agreement will automatically renew for subsequent twelve (12) month terms unless either party provides advance written notice to the other that such party does not wish to renew the agreement for a subsequent twelve (12) months. Mr. Anthony also receives the customary employee benefits available to our employees. Mr. Anthony is also entitled to receive a bonus of up to $132,000 per year, the achievement of which is based on Company performance metrics. We may terminate Mr. Anthony’s employment under the 2016 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. The foregoing summary of the 2016 Anthony Agreement is qualified in its entirety by reference to the full context of the employment agreement, which is found as Exhibit 10.32 to our Annual Report on Form 10-K filed with the SEC on March 30, 2016. In March 2017, the Board of Directors authorized an increase in Mr. Anthony’s base salary to $250,000 and increased his potential annual bonus amount to $150,000. In February 2018 The Company extended the Anthony Employment agreement through December 31, 2020 and increased his base salary to $284,700 for 2018, and $309,700 for 2019, with the 2020 base salary to be determined by the Board of Directors at the end of the 2019 calendar year. He will also be eligible for a bonus of up to $185,625 and $242,798 in 2018 and 2019, respectively, and his 2020 bonus will be up to 67.5% of his base salary. The employment agreements of Dr. Michael G. Mathews and Michael McMillan are described in Note 14 as part of the acquisition of CTEK Security, Inc. |
(13) Concentrations
(13) Concentrations | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
(13) Concentrations | (13) 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, 2017, there were two customers that each generated at least 10% of our revenues and these customers represented a total of 46% of revenues. As of December 31, 2017, net accounts receivable due from these customers totaled approximately $5,600,000. For the year ended December 31, 2016, there were two customers that each generated at least 10% of our revenues and these customers represented a total of 49% of revenues. As of December 31, 2016, net accounts receivable due from these customers totaled approximately $4,600,000. |
(14) Stock Purchase Agreement -
(14) Stock Purchase Agreement - Redspin | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
(14) Asset Purchase Agreement - Redspin | (14) Stock Purchase Agreement – CTEK Security, Inc. As previously disclosed in our Current Report on Form 8-K, filed with the SEC on January 17, 2017, on January 13, 2017, the Company (known at that time as Auxilio, Inc., a Nevada corporation, and subsequently renamed Cynergistek, Inc., a Delaware corporation, as part of the Reincorporation (the “Company”)) entered into a Stock Purchase Agreement (the “SPA”) with CTEK Security, Inc., a Texas corporation (formerly CynergisTek, Inc.) (“CTEK Security”), Dr. Michael G. Mathews (“Mathews”) and Michael H. McMillan (“McMillan,” and together with Mathews, the “Stockholders”), pursuant to which we acquired 100% of the issued and outstanding shares of Common Stock (the “Shares”) of CTEK Security from the Stockholders (the “CTEK Security Transaction”). Pursuant to the SPA, the purchase price paid for the Shares consisted of four components: the Cash Consideration, the Securities Consideration, the Debt Consideration, and the Earn-out Consideration. The total purchase price was approximately $28.3 million. · · · · Pursuant to the SPA, CTEK Security and the Stockholders agreed to deliver to us stock certificates representing the Shares; the corporate record books of CTEK Security; and the employment agreements (described below). We agreed to deliver the Cash Consideration, the Securities Consideration, the Debt Consideration and the signed employment agreements. By agreement of the parties, the effective date of the CTEK Security Transaction for accounting purposes was January 1, 2017. In connection with the SPA, the Company and the Stockholders also entered into a registration rights agreement (the “Registration Rights Agreement”) and employment agreements, each of which is discussed below. Registration Rights Agreement Pursuant to the Registration Rights Agreement between the Company and the Stockholders, we agreed to grant piggy-back registration rights under certain circumstances, and demand registration rights under other circumstances. Briefly, for the piggy-back rights, if we propose to register the sale of any of our stock or other securities under the Securities Act of 1933, as amended (the “Securities Act”) in connection with the public offering of such securities solely for cash, or the resale of shares of our Common Stock by other selling stockholders, we agreed that prior to such filing, we would give written notice to the Stockholders of our intention to do so. Upon the written request of a Stockholder given within twenty (20) days after we provide such notice, we agreed to file a registration statement to register the resale of all such registrable securities which we have been requested by such Stockholder to register. With respect to the demand registration rights, we agreed that in the event that we fail to file timely public reports with the U.S. Securities and Exchange Commission if and as required by the Securities Exchange Act of 1934, as amended, then the Stockholders shall have the right, by delivering written notice to us (a “Demand Notice”), to require us to register the number of registrable securities requested to be so registered pursuant to the terms of the Registration Rights Agreement (a “Demand Registration”). Following the receipt of a Demand Notice for a Demand Registration, we agreed to file a registration statement not later than sixty (60) days after such Demand Notice, and we agreed to use our commercially reasonable efforts to cause such registration statement to be declared effective under the Securities Act as promptly as practicable after the filing thereof. Additionally, pursuant to the Registration Rights Agreement, the rights of the Stockholders to deliver a Demand Notice for a Demand Registration are not effective at any time when the registrable securities held by such Stockholder may be resold under Rule 144 of the Securities Act without regard to any volume limitation requirements under Rule 144 of the Securities Act. Employment Agreements In connection with the SPA, the Company and each of the Stockholders entered into an employment agreement, pursuant to which McMillan was appointed President and Chief Strategy Officer of the Company, and Mathews was appointed Executive Vice President of the Company. McMillan Employment Agreement. The Company and McMillan entered into an employment agreement (the “McMillan Employment Agreement”), pursuant to which we employ McMillan as President and Chief Strategy Officer of the Company. McMillan agreed that his duties for the Company and its subsidiaries would be substantially similar to those duties that McMillan had performed on behalf of CTEK Security, and would include, without limitation, responsibility for executive leadership and business development strategy. McMillan also agreed to perform additional duties as reasonably assigned by our Chief Executive Officer, and/or Board of Directors in order to advance the interests of the Company and its subsidiaries. The initial term of the McMillan Employment Agreement is 36 months from January 13, 2017, and will automatically renew for subsequent 12-month terms unless either party provides written notice to the other party of a desire to not renew the agreement. Pursuant to the McMillan Employment Agreement, McMillan’s base salary is $250,000, and he is entitled to incentive bonus compensation and equity compensation (consisting of stock options), as set forth in the McMillan Employment Agreement. The Company has the right to terminate McMillan’s employment without cause at any time on thirty (30) days’ advance written notice to McMillan. Additionally, McMillan has the right to resign for “Good Reason” (as defined in the McMillan Employment Agreement) on thirty (30) days’ written notice. In the event of (i) such termination without cause, or (ii) McMillan’s inability to perform the essential functions of his position due to a mental or physical disability or his death, or (iii) McMillan’s resignation for Good Reason, McMillan is entitled to receive the base salary then in effect and full target annual bonus, prorated to the date of termination, and a “Severance Payment” equivalent to (a) payment of compensation for an additional twelve months, payable as a lump sum, and (b) the acceleration of all unvested stock options and warrants then held by McMillan, subject to certain conditions set forth in the McMillan Employment Agreement. In addition, if McMillan is terminated by the Company without cause (as defined in the McMillan Employment Agreement), certain of the Earn-out Payments will accelerate and become immediately due and payable, as set forth in the SPA. If McMillan resigns for other than Good Reason, he will be entitled to receive the base salary for the thirty (30) day written notice period, but no other amounts. On October 2, 2017, the Board also appointed McMillan as Chief Executive Officer and his base salary was increased to $325,000. In February 2018, we extended the term of the McMillan Employment agreement through December 31, 2020 and increased his base salary to $334,700 for 2018, and $359,700 for 2019, with the 2020 base salary to be determined by the Board of Directors at the end of the 2019 calendar year. He will also be eligible for a bonus of up to $219,375 and $242,798 in 2018 and 2019, respectively, and his 2020 bonus will be up to 67.5% of his base salary. Mathews Employment Agreement. The Company entered into an employment agreement with Mathews (the “Mathews Employment Agreement”), pursuant to which we employ Mathews as Executive Vice President (Mathews was also appointed Chief Operation Officer on April 27, 2017). Mathews agreed that his duties for the Company and its subsidiaries would be substantially similar to those duties that Mathews had performed on behalf of CTEK Security, and would include, without limitation, day-to-day P&L responsibility for the cybersecurity service business line. Mathews also agreed to perform additional duties as reasonably assigned by our President, Chief Executive Officer, and/or Board of Directors in order to advance the interests of the Company and its subsidiaries. The initial term of the Mathews Employment Agreement is 36 months from January 13, 2017, and will automatically renew for subsequent 12-month terms unless either party provides written notice to the other party of a desire to not renew the agreement. Pursuant to the Mathews Employment Agreement, Mathews’ base salary is $250,000, and he is entitled to incentive bonus compensation and equity compensation (consisting of stock options), as set forth in the Mathews Employment Agreement. We have the right to terminate Mathews’ employment without cause at any time on thirty (30) days’ advance written notice to Mathews. Additionally, Mathews has the right to resign for “Good Reason” (as defined in the Mathews Employment Agreement) on thirty (30) days’ written notice. In the event of (i) such termination without cause, or (ii) Mathews’ inability to perform the essential functions of his position due to a mental or physical disability or his death, or (iii) Mathews’ resignation for Good Reason, Mathews is entitled to receive the base salary then in effect and full target annual bonus, prorated to the date of termination, and a “Severance Payment” equivalent to (a) payment of compensation for an additional twelve months, payable as a lump sum, and (b) the acceleration of all unvested stock options and warrants then held by Mathews, subject to certain conditions set forth in the Mathews Employment Agreement. In addition, if Mathews is terminated by the Company without cause (as defined in the Mathews Employment Agreement), certain of the Earn-out Payments will accelerate and become immediately due and payable, as set forth in the SPA. If Mathews resigns for other than Good Reason, he will be entitled to receive the base salary for the thirty (30) day written notice period, but no other amounts. See also Note 15 describing that effective March 12, 2018, Michael Hernandez (f/k/a Michael G. Mathews) resigned as a Director of the Company and as the Company’s Chief Operating Officer. In addition, the Company and Michael Hernandez entered into a Separation Agreement and Mutual Release. Amended and Restated Credit Agreement and Related Agreements Also on January 13, 2017, the Company and its subsidiaries (the “Borrowers”) entered into an Amended and Restated Credit Agreement (the “A&R Credit Agreement”) with ZB, N.A., dba California Bank and Trust (“CBT”), and Avidbank, a California banking corporation (“Avidbank,” and together with CBT, the “Lenders”), as well as Avidbank in its capacity as contractual representative for itself and the other lender (“Agent”). By way of background, the Company on the one hand and Avidbank on the other hand previously entered into a Loan and Security Agreement, dated as of April 19, 2012 (as amended to date, the “Original Credit Agreement”), pursuant to which Avidbank extended to the Company a term loan and a revolving line of credit. Subsequently, the Company advised Agent that the Company desired to acquire 100% of the ownership interests of CTEK Security pursuant to the SPA. The CTEK Security Transaction is prohibited by Section 7.3 of the Original Credit Agreement. Borrowers requested that Lenders (1) consent to the CTEK Security Transaction, and (2) provide additional financing in order to finance, in part, the Company’s obligations under the SPA. Agent and Lenders agreed with such request in accordance with and subject to the terms and conditions of the A&R Credit Agreement and other related documents defined in the A&R Credit Agreement (the “Loan Documents”). In connection with the entry into the A&R Credit Agreement, the parties to the A&R Credit Agreement agreed that CTEK Security would automatically become a Borrower under the A&R Credit Agreement and under the Loan Documents on the closing date immediately upon consummation of the CTEK Security Transaction (and not prior thereto), without further action required by any party. Accordingly, the parties to the A&R Credit Agreement agreed that the A&R Credit Agreement and the Loan Documents would amend and restate the Original Credit Agreement in its entirety, and continue the obligations incurred thereunder and evidenced thereby. Additionally, any amounts outstanding under the Original Credit Agreement were repaid in full immediately prior to the execution of the A&R Credit Agreement. Loan Facilities Term Loans: Pursuant to the A&R Credit Agreement, the Lenders agreed to provide term loans in the aggregate amount of $14,000,000 to the Company, which was paid to the Stockholders as part of the Cash Consideration in the CTEK Security Transaction (described above). The term loans bear interest at a rate of Prime plus 1.5%, and the loans mature on January 12, 2022. Revolving Line of Credit: Additionally, pursuant to the A&R Credit Agreement, the Lenders agreed to provide revolving loans to the Borrowers in an aggregate amount of up to $5,000,000. At the closing of the CTEK Security Transaction, no draws were made on the revolving loans. Security Agreement In connection with the A&R Credit Agreement, the Borrowers and the Agent entered into a security agreement (the “Security Agreement”), pursuant to which each of the Borrowers agreed to grant to Agent, for the ratable benefit of itself, the Lenders and the other secured parties, a first priority security interest in certain collateral to secure prompt payment and performance of the secured obligations under the A&R Credit Agreement. Pursuant to the Security Agreement, the “Collateral” was defined as including any and all (all such terms as defined in the Security Agreement) of the Accounts, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Equipment, Instruments, Inventory, Investment Property, General Intangibles, Letter of Credit Rights, Negotiable Collateral, Supporting Obligations, Vehicles, Grantors’ Books, in each case whether now existing or hereafter acquired or created, any money or other assets of any Grantor that now or hereafter come into the possession, custody, or control of Agent and any Proceeds or products of any of the foregoing, or any portion thereof. In connection with the grant of the security interest in the Collateral, each of the Borrowers made standard representations and warranties relating to ownership of the collateral, location and control of the collateral, and certain rights to payment. Seller Subordination Agreement Additionally, in connection with the A&R Credit Agreement and the CTEK Security Transaction, Mathews, McMillan, the Company, and Avidbank entered into a subordination agreement (the “Subordination Agreement”), pursuant to which Mathews and McMillan agreed that unless and until all of the Company’s obligations under the A&R Credit Agreement have been repaid in full, Mathews and McMillan would not, except as provided in the Subordination Agreement, ask, demand, sue for, take or receive, or retain, from the Company or any other person or entity, by setoff or in any other manner, payment of all or any part of the Subordinate Debt (as defined below), or take any other action with respect to the Subordinate Debt; forgive, cancel or discharge any of the Subordinate Debt; ask, demand or receive any security for the Subordinate Debt; amend any documents relating to the Subordinate Debt or any other agreement, instrument or document evidencing or executed in connection with the Subordinate Debt in a manner that could reasonably be expected to be adverse to Lenders or Agent (or any other holders of the obligations arising under the A&R Credit Agreement); or bring or join with any creditor in bringing any insolvency proceeding against the Company. Additionally, Mathews and McMillan each directed the Company to make, and the Company agreed to make, such prior payment of the Company’s obligations under the A&R Credit Agreement to Agent and the Lenders. The Subordination Agreement defines “Subordinate Debt” to include all debt of the Company owing to Mathews and McMillan (or either of them) (a) under the Seller Notes or (b) in respect of the Earn Out Payments (described above), in either case whether now existing or hereafter arising and including all principal, premium, interest, fees, attorneys’ fees, costs, charges, expenses, reimbursement obligations, any other indemnities or guarantees in each case with respect thereto, in each case whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured. So long as the Borrowers are not in default under the terms of the A&R Credit Agreement, the Company may make regular payments to the Stockholders under the Seller Notes. See also Note 15 regarding the March 2018 restructuring of the term loan, line of credit, and Sellers Notes. The allocation of the purchase price of the assets acquired and liabilities assumed in the CTEK Security Transaction based on their fair values was as follows: Acquired technology $ 8,150,000 Customer relationships 2,150,000 Trademarks 1,550,000 Non-compete agreements 200,000 Goodwill 16,416,063 Cash 754,125 Accounts receivable 1,726,398 Other assets 346,439 Fixed assets, net 110,657 Accounts payable and accrued expenses (659,203) Accrued compensation (1,035,522) Deferred revenue (1,378,312) Total $ 28,330,645 Purchased identifiable intangible assets are amortized on a straight-line basis over the respective useful lives. Estimated useful lives of the identifiable intangible assets acquired ranges from three to ten years. We also recognized goodwill of $16,416,063. Goodwill is recognized as we expect to be able to realize synergies between the two companies, primarily our ability to provide market and reach for the Redspin products and services to our managed print services customers. The Company incurred approximately $330,000 in legal, accounting and other professional fees related to this acquisition, of which approximately $174,000 were expensed during the year ended December 31, 2017. 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, 2017 and 2016, 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, 2017 2016 Pro forma revenue $ 71,638,947 $ 75,710,140 Pro forma net (loss) income $ (442,351) $ 4,238,104 Pro forma basic net (loss) income per share $ (0.05) $ 0.45 Pro forma diluted net (loss) income per share $ (0.05) $ 0.45 |
(15) Subsequent events
(15) Subsequent events | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
(15) Subsequent events | (15) Subsequent Events As previously disclosed in our Current Report on Form 8-K, filed with the Commission on March 13, 2018, CynergisTek, Inc., a Delaware corporation (the “Company”), as borrower, along with the subsidiaries of the Company, CTEK Security, Inc., a Texas corporation (“CTEK Security”), CTEK Solutions, Inc., a California corporation (“CTEK Solutions”), and Delphiis, Inc., a California corporation (“Delphiis”), as guarantors (collectively, “Guarantors”), 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”). By way of background, the Company is party to that certain Amended and Restated Credit Agreement, dated January 13, 2017, with ZB, N.A., dba California Bank and Trust, and Avidbank, a California banking corporation (collectively, “Avidbank”) (as amended to date, the “Original Credit Agreement”), pursuant to which Avidbank extended to the Company a term loan and a revolving line of credit as previously disclosed on the Company’s Form 8-K dated January 13, 2017. The purposes of the BMO Loan are (1) to refinance and replace the facilities under the Original Credit Agreement, thus terminating that agreement as of March 12, 2018, (2) to refinance $2,250,000 of a promissory note held by Michael H. McMillan (the “McMillan Seller Note”) issued as part of the Original SPA (defined below; see also Note 14), (3) to finance payments to Dr. Michael Hernandez (f/k/a Dr. Michael G. Mathews) (“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, also issued as part of the Original SPA, (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 may elect that the term loan be outstanding as Base Rate Loans or Eurodollar Loans. The term loan is 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 shall be 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 may elect that each borrowing of revolving loans be either Base Rate Loans or Eurodollar Loans. At the closing of the BMO Loan, no draws were made on the revolving line of credit. Each revolving loan, both for principal and interest then outstanding, shall mature and be due and payable on March 12, 2020, or such earlier date on which the Revolving Credit Commitment (as defined in the Credit Agreement) is terminated in whole pursuant to the Credit Agreement. Interest Rates Base rate loans (“Base Rate Loans”) bear interest at an annual rate equal to the base rate (defined as the highest of (a) the rate of interest quoted in The Wall Street Journal, Money Rates Section as the prime rate in effect on such day, with any change in the Base Rate resulting from a change in such prime rate to be effective as of the date of the relevant change in such prime rate, (b) the sum of (i) the rate determined by the Bank to be the average of the rates per annum quoted to the Bank by two or more Federal funds brokers selected by the Bank for sale to the Bank at face value of Federal funds in the secondary market in an amount equal or comparable to the principal amount for which such rate is being determined, plus (ii) 1/2 of 1%, and (c) the overnight LIBOR rate plus 1.0%) plus an applicable margin of between 1.50% and 2.50%, depending upon the Company’s leverage ratio. Eurodollar loans (“Eurodollar Loans”) bear interest at a rate per annum equal to the sum of the Adjusted LIBOR rate (defined as the quotient obtained by dividing (a) the LIBOR index rate by (b) the maximum reserve percentage, expressed as a decimal, at which reserves are imposed by the Board of Governors of the Federal Reserve System (or any successor) on “eurocurrency liabilities,” as defined in such Board’s Regulation D (or any successor thereto), subject to any amendments of such reserve requirement by such Board or its successor, taking into account any transitional adjustments thereto) plus an applicable margin of between 2.50% and 3.50%, depending upon the Company’s leverage ratio. Acceleration Pursuant to the Credit Agreement, the Bank may, by written notice to the Company, declare the principal of and the accrued interest on all outstanding loans to be forthwith due and payable upon the occurrence of certain Events of Default. The Credit Agreement defines Events of Default to include, inter alia, (i) a default in payment when due of all or any part of any obligation payable by the Company under the BMO Loan, (ii) a default in the observance or performance of certain of the covenants set forth in the BMO Loan, (iii) any representation or warranty made in connection with the BMO Loan proves untrue in any respect (or in any material respect if such representation, warranty, certification or statement is not by its terms already qualified as to materiality), (iv) default on any subordinated debt, (v) any judgment or judgments, writ or writs or warrant or warrants of attachment shall be entered or filed against the Company or any of its subsidiaries, or against any of its Property, in an aggregate amount in excess of $250,000 (except to the extent fully covered by insurance as to which the insurer has been notified of such judgment and has not denied coverage) which remains undischarged, unvacated, unbonded or unstayed for a period of 30 days, (vi) any change of control of the Company shall occur, and (vii) any other specified event of default. Security Agreement In connection with the Credit Agreement, the Company, the Guarantors, and the Bank entered into a Pledge and Security Agreement (the “Security Agreement”), pursuant to which each of the Company and the Guarantors agreed to grant to the Bank a lien on and security interest in certain collateral to secure prompt payment and performance of the secured obligations under the Credit Agreement. Pursuant to the Security Agreement, the “Collateral” was defined as including, inter alia, any and all (all such terms as defined in the Security Agreement) of the Accounts, Chattel Paper, Instruments (including Promissory Notes), Documents, General Intangibles, Letter-of-Credit Rights, Supporting Obligations, Deposit Accounts, Pledged Collateral and other Investment Property (including all certificated and uncertificated Securities, Securities Accounts, Security Entitlements, Commodity Accounts, and Commodity Contracts), Goods, Fixtures, Inventory and Equipment, Commercial Tort Claims, and Rights to merchandise and other Goods, any Monies, personal property, and interests in personal property, in each case whether now existing or hereafter acquired or created, any money or other assets of any grantor that now or hereafter come into the possession, custody, or control of Bank and any Proceeds or products of any of the foregoing, or any portion thereof. In connection with the grant of the security interest in the Collateral, each of the Company and the Guarantors made standard representations and warranties relating to ownership of the collateral, location and control of the collateral, and certain rights to payment. Resignation of Hernandez as Director Effective March 12, 2018, Hernandez resigned as a Director of the Company and as the Company’s Chief Operating Officer. Separation Agreement and Mutual Release with Hernandez On March 12, 2018, the Company, CTEK Security and Hernandez entered into a Separation Agreement and Mutual Release (the “Separation Agreement”). Pursuant to the Separation Agreement, Hernandez’ employment with the Company as the Company’s Chief Operating Officer was terminated and the Company and Hernandez mutually agreed to release the other from any and all claims, disputes, demands, actions, liabilities, damages, suits (whether at law or in equity), promises, accounts, costs, expenses, setoffs, contributions, attorneys’ fees and/or causes of action of whatever kind or character, whether past, present, future, known or unknown, liquidated or unliquidated, accrued or unaccrued, from the beginning of time, or which may hereinafter accrue as a result of the discovery of new and/or additional facts, which such party has had, may now have, or might claim to have, arising out of the agreements between the parties or any transaction contemplated thereby, based upon the acts or omissions of the other party prior to the date of the Separation Agreement. Further, pursuant to the Separation Agreement, in lieu of any earn-out payments (as described in the Original SPA (as defined below)) 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 provides for (i) a maturity date of March 12, 2023, at which all principal and accrued and unpaid interest is 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. The Company has concluded that the subsequent event related to this Company’s revision of the earn-out contingent liability is a Type 1 subsequent event whereby the conditions that existed as of the balance sheet date were further clarified. As a result, the Company recorded an additional accrual of $1,394,000 at December 31, 2017 related to the earn-out contingent liability. Also pursuant to the Separation Agreement, the Company paid off the outstanding amount due under the Hernandez Seller Note and paid Hernandez a severance payment consisting of a $250,000 payment upon execution of the Separation Agreement and the delivery of a promissory note 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, compounds annually, allows for prepayment by the Company and matures on January 10, 2019, at which time all principal and accrued and unpaid interest is due. Amounts due and owing under the Earn-out Note and Severance Payment Note are subordinate to the right of payment due under the BMO Loan pursuant to a Subordination Agreement among the Company, the Bank and Hernandez. Amendment to CTEK Security, Inc. (formerly CynergisTek, Inc.) Stock Purchase Agreement; Amended and Restated Promissory Note On March 12, 2018, the Company, CTEK Security and Michael H. McMillan (“Mr. McMillan”) entered into an Amendment to Stock Purchase Agreement (“Amendment”). Pursuant to the Amendment, certain provisions of the Stock Purchase Agreement dated as of January 13, 2017 which memorialized the acquisition of CTEK Security, Inc. (formerly CynergisTek, Inc.) (the “Original SPA”) related to the Earn-Out (as defined in the Original SPA and described in the Company’s Form 8-K dated January 13, 2017) were amended. The earn-out provisions were amended to remove all obligations to make earn-out payments to Hernandez. As to Mr. McMillan, the Amendment modified the maximum earn-out payment which could be earned by Mr. McMillan to $1,200,000, with a maximum of $400,000 per year based on revised performance metrics (rather than the benchmarks described in the Original SPA) during the 2018, 2019 and 2020 calendar years, as determined by the Company’s board of directors and/or a committee thereof. 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 to 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. Amounts due and owing under the A&R McMillan Seller Note are subordinate to the right of payment due under the BMO Loan pursuant to a Subordination Agreement among the Company, the Bank and Mr. McMillan. Mr. McMillan is a director and the President and Chief Executive of the Company. |
(1) Basis of Presentation and22
(1) Basis of Presentation and Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2017 | |
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. |
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”). Effective on January 13, 2017, the Company effected a reverse stock split of its Common Stock at a ratio of 1-for-3. No fractional shares of Common Stock were issued, and no cash or other consideration were paid as a result of the reverse stock split. Instead, the Company issued one whole share of post-reverse stock split Common Stock in lieu of each fractional share of Common Stock. As a result of the reverse stock split, the Company’s Common Stock was reduced to 8,185,936 shares from 24,557,224 shares as of December 31, 2016. All per share amounts and number of shares in the consolidated financial statements and related notes have been retroactively restated to reflect the reverse stock split. |
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 The Company derives its revenue from four sources: (1) document solution services; (2) equipment and software resales; (3) software subscriptions and managed services, which is comprised of subscription fees from customers accessing the Company’s enterprise cloud computing services and customers purchasing additional ongoing managed services beyond the standard support that is included in the basic software subscription fees; and (4) cybersecurity professional services such as penetration testing, cybersecurity risk assessments and security program strategy development. The Company commences revenue recognition when all of the following conditions are satisfied: • • • • · Document Solution Services and Equipment Revenue Revenue is recognized pursuant to ASC Topic 605, “Revenue Recognition” (ASC 605). Monthly service and supply revenue is earned monthly during the term of the contract, as services and supplies are provided. Revenues from equipment sales transactions are earned when there is persuasive evidence of an arrangement, delivery and installation have occurred, the sales price has been determined and collectability has been reasonably assured. For equipment that is to be placed at a customer’s location at a future date, revenue is deferred until the placement of such equipment. We enter into arrangements that include multiple deliverables, which typically consist of the sale of Multi-Function Device (“MFD”) equipment and a support services contract. We account for each element within an arrangement with multiple deliverables as separate units of accounting. Revenue is allocated to each unit of accounting under the guidance of ASC Topic 605-25, Multiple-Deliverable Revenue Arrangements, which provides criteria for separating consideration in multiple-deliverable arrangements by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third-party evidence is available. We are required to determine the best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis. We generally do not separately sell MFD equipment or service on a standalone basis. Therefore, we do not have VSOE for the selling price of these units. As we purchase the equipment, we have third-party evidence of the cost of this element. We estimate the proceeds from the arrangement to allocate to the service unit based on historical cost experiences. Based on the relative costs of each unit to the overall cost of the arrangement, we utilize the same relative percentage to allocate the total arrangement proceeds. The Company’s contracts with customers may include provisions that relate to guaranteed savings amounts and shared savings. Such provisions are considered by management during the Company’s initial proprietary client assessment and are charged and accrued when deemed by management to be probable. The Company’s historical settlement of such amounts has been within management’s estimates. · Software Subscriptions and Managed Services Revenue Software subscriptions and managed services revenues are recognized ratably over the contract terms beginning on the commencement date of each contract, which is the date the Company’s service is made available to customers. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. The Company’s software subscription service arrangements are non-cancelable and do not contain refund-type provisions. · Cybersecurity Professional Services Revenues The majority of the Company’s cybersecurity services contracts are on a time and material basis. When these services are not combined with subscription revenues as a single unit of accounting, these revenues are recognized as the services are rendered for time and material contracts, and when the milestones are achieved and accepted by the customer for fixed price 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. |
Supplies | Supplies Supplies consist of parts and supplies for the automated office equipment, including copiers, facsimile machines and printers. Supplies are valued at the lower of cost or net realizable value on a first-in, first-out basis. |
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. |
New Customer Implementation Costs | New Customer Implementation Costs We ordinarily incur additional costs to implement our managed print services for new customers. These costs are comprised primarily of additional labor and support. These costs are expensed as incurred and have a negative impact on our statements of operations and cash flows during the implementation phase. |
Goodwill and Intangible Assets | Goodwill and Intangible Assets The Company accounts for its business combinations in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 805-10 through ASC 805-50, “Business Combinations” which requires that the purchase method of accounting be applied to all business combinations and addresses the criteria for initial recognition of intangible assets and goodwill. In accordance with FASB ASC 350-10 through ASC 350-30, goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment annually, or more frequently if circumstances indicate the possibility of impairment. If the carrying value of goodwill or an indefinite lived intangible asset exceeds its fair value, an impairment loss shall be recognized. During the year ended December 31, 2016, management determined that the goodwill associated with the Delphiis and Redspin acquisitions were impaired (Note 4). Based on management’s tests and reviews, no further impairment of goodwill existed at December 31, 2017. To test for goodwill impairment, first we perform a qualitative assessment. If we determine, based on qualitative factors, that the fair value of goodwill is more likely than not greater than the carrying amount, a quantitative calculation would not be needed. Our methodology for a quantitative assessment of testing for goodwill impairment consists of one, and possibly two steps. In step one of the goodwill impairment test, management compares the carrying amount (including goodwill) of the reporting unit and the fair value. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, then an impairment charge must be measured. The impairment loss, if any, is calculated by comparing the implied fair value of goodwill to its carrying amount. In calculating the implied fair value of a reporting unit’s goodwill, the fair value of the reporting unit is allocated to the tangible and intangible assets and liabilities of that reporting unit based on their respective fair values. The excess, if any, of the reporting unit’s fair value over the amount assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized when the carrying amount of goodwill exceeds its implied fair value. |
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, 2017 and 2016, management determined there was impairment of certain definite lived intangible assets associated with the Delphiis and Redspin acquisitions (Note 4). |
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. |
Stock-based Compensation | Stock-Based Compensation We account for stock options granted to 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. We account for stock options granted to consultants using the accounting guidance included in ASC 505-50 “Equity-Based Payments to Non-Employees.” In accordance with ASC 505-50, we estimate the fair value of service-based stock options and performance-based options at each reporting period using the Black-Scholes pricing model. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date on which it is probable that performance will occur. For the years ended December 31, 2017 and 2016, stock-based compensation expense recognized in the consolidated statements of operations is as follows: Year Ended December 31, 2017 2016 Cost of revenues $80,771 $43,193 Sales and marketing 124,099 38,510 General and administrative expenses 128,983 145,267 Total stock-based compensation expense $333,853 $226,970 The weighted average estimated fair value of stock options granted during 2017 and 2016 was $0.96 and $0.86 per share, respectively. These amounts 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: 2017 2016 Risk-free interest rate 0.38% 0.37% to 0.40% Expected volatility of our Common Stock 46.29% 45.95% to 46.77% Dividend yield 0% 0% Expected life of options 3 years 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. We evaluate the assumptions used to value restricted stock units on a quarterly basis. When factors change, including the market price of the stock, share-based compensation expense may differ significantly from what was recorded in the past. 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 Per Share | Basic and Diluted Net (Loss) Income 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 our Common Stock issued and outstanding during a certain period and is calculated by dividing net income by the weighted average number of shares of our 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, 2017, potentially dilutive securities consisted of options and warrants to purchase 802,179 shares of our Common Stock at prices ranging from $1.65 to $6.45 per share. Of these potentially dilutive securities, none of the shares of Common Stock underlying the options and warrants were included in the computation of diluted earnings per share, as their effect would be anti-dilutive. As of December 31, 2016, potentially dilutive securities consisted of options and warrants to purchase 1,713,154 shares of our Common Stock at prices ranging from $1.41 to $6.45 per share. Of these potentially dilutive securities, only 110,659 of the shares to purchase Common Stock from the options and warrants are included from the computation of diluted earnings per share because the effect of including the remaining instruments would be anti-dilutive. The following table sets forth the computation of basic and diluted net (loss) income per share: Year Ended December 31, 2017 2016 Numerator: Net (loss) income $(442,351) $5,009,801 Denominator: Denominator for basic calculation weighted averages 9,425,281 8,173,203 Dilutive Common Stock equivalents: Options and warrants - 110,659 Denominator for diluted calculation weighted average 9,425,281 8,283,862 Net (loss) income per share: Basic net (loss) income per share $ (0.05) $ 0.61 Diluted net (loss) income per share $ (0.05) $ 0.60 |
Segment Reporting | Segment Reporting Based on the Company’s recent integration with CTEK Security and an analysis of how our Chief Operating Decision Makers review, manage and are compensated, we have determined that the Company operates in three segments, services, equipment and software resale, and software as a service. Equipment and software resale, and software as a service are not material, and therefore not presented separately from services. For the years ended December 31, 2017 and 2016, all revenues were derived from domestic operations. |
New Accounting Pronouncements | New Accounting Pronouncements In May 2014, the FASB issued guidance which provides a single, comprehensive accounting model for revenue arising from contracts with customers. This guidance supersedes most of the existing revenue recognition guidance, including industry-specific guidance. Under this model, revenue is recognized at an amount that a company expects to be entitled to upon transferring control of goods or services to a customer, as opposed to when risks and rewards transfer to a customer. The new guidance also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flow arising from customer contracts, including significant judgments and changes in judgments. Considering the one-year delay in the required adoption date for the guidance as issued in July 2015, the new guidance is effective for us beginning in 2018 and may be applied retrospectively to all prior periods presented or through a cumulative adjustment to the opening retained earnings balance in the year of adoption. We will adopt this standard beginning January 1, 2018 and expect to use the modified retrospective method of adoption. Under the new guidance, based on the nature of our contracts, we expect to continue to recognize revenue in a similar manner as with the current guidance. Additionally, we expect the unit of accounting, that is, the identification of performance obligations, will be consistent with current revenue guidance. Accordingly, the adoption of this standard is not expected to significantly impact on our revenues. In February 2016, the FASB issued a new accounting standard on leasing. The new standard will require companies to record most leased assets and liabilities on the balance sheet, and also proposes a dual model for recognizing expense. This guidance will be effective in the first quarter of 2019 with early adoption permitted. We have evaluated the impact of adopting this guidance and we are preparing for the changes to be made to our consolidated financial statements. We expect the adoption of these accounting changes will materially increase our assets and liabilities but will not have a material impact on our net income or equity. 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. The new standard becomes effective on January 1, 2020 with early adoption permitted. We are currently evaluating the impact that the new standard will have on our financial position, results of operations and cash flows. In March 2016, the FASB issued new accounting standard which simplified certain aspects of the accounting for stock-based payment transactions, including income taxes, classification of awards and classification in the statement of cash flows. This guidance was effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods. The adoption of this standard did not have a material impact on its consolidated financial statements and disclosures. In August 2016, the FASB issued 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 is 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. We are currently evaluating the impact of adopting this standard on our consolidated financial statements. In January 2017, the FASB issued 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 will be effective for the Company for the year ending December 31, 2019 and interim reporting periods within that year. Early adoption is permitted for transactions that have not been reported in financial statements that have been issued or made available for issuance. We are currently evaluating the effect of the adoption of this guidance on our consolidated financial statements. In May 2017, the FASB issued 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 will be effective for the year ending December 31, 2019 and interim reporting periods within that year. Early adoption is permitted. We expect the adoption of this guidance will not have a material effect on our consolidated financial statements or footnotes. |
(1) Basis of Presentation and23
(1) Basis of Presentation and Summary of Significant Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Table Text Block Supplement [Abstract] | |
Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs | For the years ended December 31, 2017 and 2016, stock-based compensation expense recognized in the consolidated statements of operations is as follows: Year Ended December 31, 2017 2016 Cost of revenues $80,771 $43,193 Sales and marketing 124,099 38,510 General and administrative expenses 128,983 145,267 Total stock-based compensation expense $333,853 $226,970 |
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: 2017 2016 Risk-free interest rate 0.38% 0.37% to 0.40% Expected volatility of our Common Stock 46.29% 45.95% to 46.77% Dividend yield 0% 0% Expected life of options 3 years 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, 2017 2016 Numerator: Net (loss) income $(442,351) $5,009,801 Denominator: Denominator for basic calculation weighted averages 9,425,281 8,173,203 Dilutive Common Stock equivalents: Options and warrants - 110,659 Denominator for diluted calculation weighted average 9,425,281 8,283,862 Net (loss) income per share: Basic net (loss) income per share $ (0.05) $ 0.61 Diluted net (loss) income per share $ (0.05) $ 0.60 |
(2) Accounts Receivable_ Schedu
(2) Accounts Receivable: Schedule of Accounts Receivable (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Table Text Block Supplement [Abstract] | |
Schedule of Accounts Receivable | A summary of accounts receivable follows: As of December 31, 2017 2016 Trade receivables $14,451,899 $8,046,561 Unapplied advances and unbilled revenue, net (1,081,025) 1,567,925 Allowance for doubtful accounts (106,551) - $13,264,323 $9,614,486 |
(3) Property and Equipment_ Pro
(3) Property and Equipment: Property, Plant and Equipment (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Table Text Block Supplement [Abstract] | |
Property, Plant and Equipment | A summary of property and equipment follows: As of December 31, 2017 2016 Furniture and fixtures $ 316,925 $ 156,831 Computers and office equipment 1,009,292 773,246 Fleet equipment 668,249 539,310 Leasehold improvements 140,052 140,052 2,134,518 1,609,439 Less accumulated depreciation and amortization (1,302,734 (920,021 $ 831,784 $ 689, |
(4) Intangible Assets_ Schedule
(4) Intangible Assets: Schedule of Intangible Assets (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
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, 2017 and 2016: December 31, 2017 December 31, 2016 Gross Carrying Amount Accumulated Amortization Accumulated Impairment Gross Carrying Amount Accumulated Amortization Accumulated Impairment Delphiis, Inc. Acquired technology $ 900,000 $ (242,002 ) $ (547,484 ) $ 900,000 $ (225,000 ) $ (547,484 ) Customer relationships 400,000 (233,257 ) (166,743 ) 400,000 (200,000 ) (116,859 ) Trademarks 50,000 (50,000 ) — 50,000 (50,000 ) — Non-compete agreements 20,000 (17,292 ) (2,708 ) 20,000 (16,667 ) (2,707 ) Total Delphiis, Inc. $ 1,370,000 $ (542,551 ) $ (716,935 ) $ 1,370,000 $ (491,667 ) $ (667,050 ) Redspin Acquired technology $ 1,050,000 $ (248,519 ) $ (331,908 ) $ 1,050,000 $ (183,750 ) $ (331,908 ) Customer relationships 600,000 (550,000 ) (50,000 ) 600,000 (350,000 ) — Trademarks 200,000 (93,978 ) (106,022 ) 200,000 (70,000 ) (52,071 ) Non-compete agreements 100,000 (46,951 ) (53,049 ) 100,000 (35,000 ) (26,159 ) Total Redspin $ 1,950,000 $ (939,448 ) $ (540,979 ) $ 1,950,000 $ (638,750 ) $ (410,138 ) CTEK Security, Inc. Acquired technology $ 8,150,000 $ (815,000 ) $ — $ — $ — $ — Customer relationships 2,150,000 (537,500 ) — — — — Trademarks 1,550,000 (310,000 ) — — — — Non-compete agreements 200,000 (66,663 ) — — — — Total CTEK Security, Inc. $ 12,050,000 $ (1,729,163 ) $ — $ — $ — $ — Total intangible assets $ 15,370,000 $ (3,211,162 ) $ (1,257,914 ) $ 3,320,000 $ (1,130,417 ) $ (1,077,188 ) The amortization of intangible assets expected in future years is as follows: December 31, Amortization 2018 $1,810,938 2019 1,810,938 2020 1,744,271 2021 1,206,771 2022 896,771 Thereafter 3,431,235 Total $10,900,924 |
Goodwill | Goodwill consists of the following as of December 31, 2017 and 2016: December 31, 2017 December 31, 2016 Gross Carrying Amount Accumulated Impairment Net Carrying Amount Gross Carrying Amount Accumulated Impairment Net Carrying Amount CTEK Solutions, Inc $ 1,517,017 $ - $ 1,517,017 $ 1,517,017 $ - $ 1,517,017 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 - - - Total goodwill $ 20,081,719 $ (1,556,513) $18,525,206 $ 3.665,656 $ (1,556,513) $ 2,109,143 |
(7) Warrants_ Warrant Activity
(7) Warrants: Warrant Activity (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Table Text Block Supplement [Abstract] | |
Warrant Activity | Below is a summary of warrant activity during the years ended December 31, 2016 and 2017: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at January 1, 2016 658,428 $ 3.38 Granted in 2016 - $ - Exercised in 2016 (35,047) $ 1.80 Cancelled in 2016 (302,122) $ 3.84 Outstanding at December 31, 2016 321,259 $ 3.11 5.53 $- Granted in 2017 - $ - Exercised in 2017 (53,516) $ 3.03 Cancelled in 2017 (189,964) $ 3.17 Outstanding at December 31, 2017 77,779 $ 3.03 5.05 $- Warrants exercisable at December 31, 2017 77,779 $ 3.03 5.05 $- |
Schedule of Share-based Compensation, Warrants, by Exercise Price Range | The following tables summarize information about warrants outstanding and exercisable at December 31, 2017: Range of Exercise Prices Number of Shares Outstanding Weighted Average Remaining in Contractual Life in Years Outstanding Warrants Weighted Average Exercise Price Number of Warrants Exercisable Exercisable Warrants Weighted Average Exercise Price $3.03 77,779 5.05 $ 3.03 77,779 $ 3.03 Total 77,779 5.05 $ 3.03 77,779 $ 3.03 |
(8) Stock Option and Stock In28
(8) Stock Option and Stock Incentive Plans (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Table Text Block Supplement [Abstract] | |
Schedule of Share-based Compensation, Stock Options, Activity | Additional information with respect to these Plans’ 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, 2016 1,521,304 $ 3.00 Granted in 2016 215,845 $ 2.73 Exercised in 2016 - $ - Cancelled in 2016 (282,907) $ 3.78 Outstanding at December 31, 2016 1,454,242 $ 2.87 4.32 $184,991 Granted in 2017 25,000 $ 3.06 Exercised in 2017 (169,700) $ 2.25 Cancelled in 2017 (585,142) $ 2.79 Outstanding at December 31, 2017 724,400 $ 3.09 4.19 $747,380 Options exercisable at December 31, 2017 643,919 $ 3.10 4.19 $662,591 |
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, 2017: Range of Exercise Prices Number of Shares Outstanding Weighted Average Remaining in Contractual Life in Years Outstanding Options Weighted Average Exercise Price Number of Options Exercisable Exercisable Options Weighted Average Exercise Price $0.90 to $2.27 37,166 2.52 $ 1.99 37,167 $ 1.99 $2.28 to $2.72 207,009 3.17 $ 2.46 188,006 $ 2.45 $2.72 to $5.54 472,723 4.83 $ 3.40 411,244 $ 3.44 $5.55 to $8.99 7,502 0.67 $ 6.45 7,502 $ 6.45 $0.90 to $8.99 724,400 4.19 $ 3.09 643,919 $ 3.10 |
(9) Restricted Stock (Table)
(9) Restricted Stock (Table) | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure Text Block [Abstract] | |
Schedule of Restricted Stock Units, Activity | Restricted stock activity during the years ended December 31, 2017, and 2016, respectively, are as follows: Number of Shares Weighted Average Grant-Date Fair per Share Weighted Average Vesting Period in Years Outstanding at January 1, 2016 - - Granted in 2016 - - Vested in 2016 - - Cancelled and forfeited in 2016 - - Non-vested at December 31, 2016 - $- Granted in 2017 506,500 $3.35 Vested in 2017 - - Cancelled and forfeited in 2017 - - Non-vested at December 31, 2017 506,500 $3.35 2.47 |
(12) Commitments (Tables)
(12) Commitments (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Table Text Block Supplement [Abstract] | |
Schedule of Future Minimum Lease Payments for Operating Leases | Future minimum lease payments under non-cancelable operating leases during subsequent years are as follows: December 31, Payments 2018 $658,690 2019 654,019 2020 512,632 2021 132,926 Total $1,958,267 |
(14) Stock Purchase Agreement (
(14) Stock Purchase Agreement (Tables) - Redspin, Inc. | 12 Months Ended |
Dec. 31, 2017 | |
Schedule of Allocation of the Purchase Price of the Assets Acquired and Liabilities Assumed | The allocation of the purchase price of the assets acquired and liabilities assumed in the CTEK Security Transaction based on their fair values was as follows: Acquired technology $ 8,150,000 Customer relationships 2,150,000 Trademarks 1,550,000 Non-compete agreements 200,000 Goodwill 16,416,063 Cash 754,125 Accounts receivable 1,726,398 Other assets 346,439 Fixed assets, net 110,657 Accounts payable and accrued expenses (659,203) Accrued compensation (1,035,522) Deferred revenue (1,378,312) Total $ 28,330,645 |
Business Acquisition, Pro Forma Information | Year Ended December 31, 2017 2016 Pro forma revenue $ 71,638,947 $ 75,710,140 Pro forma net (loss) income $ (442,351) $ 4,238,104 Pro forma basic net (loss) income per share $ (0.05) $ 0.45 Pro forma diluted net (loss) income per share $ (0.05) $ 0.45 |
(1) Basis of Presentation and32
(1) Basis of Presentation and Summary of Significant Accounting Policies: Property and Equipment (Details) | 12 Months Ended |
Dec. 31, 2017 | |
Minimum | |
Property, Plant and Equipment, Useful Life | 2 years |
Maximum | |
Property, Plant and Equipment, Useful Life | 7 years |
(1) Basis of Presentation and33
(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, 2017 | Dec. 31, 2016 | |
Allocated Share-based Compensation Expense | $ 333,853 | $ 226,970 |
Cost of revenues {1} | ||
Allocated Share-based Compensation Expense | 80,771 | 43,193 |
Sales and marketing {1} | ||
Allocated Share-based Compensation Expense | 124,099 | 38,510 |
General and administrative expense | ||
Allocated Share-based Compensation Expense | $ 128,983 | $ 145,267 |
(1) Basis of Presentation and34
(1) Basis of Presentation and Summary of Significant Accounting Policies: Stock-based Compensation (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Text Block [Abstract] | ||
Options, Granted, Weighted Average Estimated Fair Value | $ 0.96 | $ 0.86 |
(1) Basis of Presentation and35
(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, 2017 | Dec. 31, 2016 | |
Risk-free interest rate | 0.38% | |
Expected volatility of our Common Stock | 46.29% | |
Dividend yield | 0.00% | 0.00% |
Expected life of options | 3 years | 3 years |
Maximum | ||
Risk-free interest rate | 0.40% | |
Expected volatility of our Common Stock | 46.77% | |
Minimum | ||
Risk-free interest rate | 0.37% | |
Expected volatility of our Common Stock | 45.95% |
(1) Basis of Presentation and36
(1) Basis of Presentation and Summary of Significant Accounting Policies: Basic and Diluted Net Income Per Share (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Options and warrants | 110,659 | |
Options And Warrants | ||
Potentially Dilutive Securities | 802,179 | 1,713,154 |
Options And Warrants | Minimum | ||
Potentially dilutive securities, exercise price | $ 1.65 | $ 1.41 |
Options And Warrants | Maximum | ||
Potentially dilutive securities, exercise price | $ 6.45 | $ 6.45 |
(1) Basis of Presentation and37
(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, 2017 | Dec. 31, 2016 | |
Numerator: | ||
Net income | $ (442,351) | $ 5,009,801 |
Effects of dilutive securities: | ||
Denominator for basic calculation weighted averages | 9,425,281 | 8,173,203 |
Dilutive Common Stock equivalents: | ||
Options and warrants | 110,659 | |
Denominator for diluted calculation weighted average | 9,425,281 | 8,283,862 |
Net income per share: | ||
Basic net income per share | $ (0.05) | $ 0.61 |
Diluted net income per share | $ (0.05) | $ 0.60 |
(2) Accounts Receivable_ Sche38
(2) Accounts Receivable: Schedule of Accounts Receivable (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Text Block [Abstract] | ||
Trade receivables | $ 14,451,899 | $ 8,046,561 |
Unapplied advances and unbilled revenue | (1,081,025) | 1,567,925 |
Allowance for doubtful accounts | (106,551) | 0 |
Accounts Receivable, Net, Current, Total | $ 13,264,323 | $ 9,614,486 |
(3) Property and Equipment_ P39
(3) Property and Equipment: Property, Plant and Equipment (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Property, Plant and Equipment, Gross | $ 2,134,518 | $ 1,609,439 |
Less accumulated depreciation and amortization | (1,302,734) | (920,021) |
Property and equipment, net | 831,784 | 689,418 |
Furniture and Fixtures | ||
Property, Plant and Equipment, Gross | 316,925 | 156,831 |
Computers and office equipment | ||
Property, Plant and Equipment, Gross | 1,009,292 | 773,246 |
Fleet Equipment | ||
Property, Plant and Equipment, Gross | 668,249 | 539,310 |
Leasehold Improvements | ||
Property, Plant and Equipment, Gross | $ 140,052 | $ 140,052 |
(3) Property and Equipment (Det
(3) Property and Equipment (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Text Block [Abstract] | ||
Depreciation and amortization expense | $ 383,419 | $ 211,654 |
(4) Intangible Assets_ Schedu41
(4) Intangible Assets: Schedule of Intangible Assets (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Gross Carrying Amount | $ 15,370,000 | $ 3,320,000 |
Accumulated Amortization | (3,211,162) | (1,130,417) |
Accumulated Impairment | (1,556,513) | (1,556,513) |
Delphiis, Inc. | ||
Gross Carrying Amount | 1,370,000 | 1,370,000 |
Accumulated Amortization | (542,551) | (491,667) |
Accumulated Impairment | (716,935) | (667,050) |
Delphiis, Inc. | Acquired technology | ||
Gross Carrying Amount | 900,000 | 900,000 |
Accumulated Amortization | (242,002) | (225,000) |
Accumulated Impairment | (547,484) | (547,484) |
Delphiis, Inc. | Customer Relationships | ||
Gross Carrying Amount | 400,000 | 400,000 |
Accumulated Amortization | (233,257) | (200,000) |
Accumulated Impairment | (166,743) | (116,859) |
Delphiis, Inc. | Trademarks | ||
Gross Carrying Amount | 50,000 | 50,000 |
Accumulated Amortization | (50,000) | (50,000) |
Accumulated Impairment | ||
Delphiis, Inc. | Noncompete Agreements | ||
Gross Carrying Amount | 20,000 | 20,000 |
Accumulated Amortization | (17,292) | (16,667) |
Accumulated Impairment | (2,708) | (2,707) |
Redspin, Inc. | ||
Gross Carrying Amount | 1,950,000 | 1,950,000 |
Accumulated Amortization | (939,448) | (638,750) |
Accumulated Impairment | (540,979) | (410,138) |
Redspin, Inc. | Acquired technology | ||
Gross Carrying Amount | 1,050,000 | 1,050,000 |
Accumulated Amortization | (248,519) | (183,750) |
Accumulated Impairment | (331,908) | (331,908) |
Redspin, Inc. | Customer Relationships | ||
Gross Carrying Amount | 600,000 | 600,000 |
Accumulated Amortization | (550,000) | (350,000) |
Accumulated Impairment | (50,000) | |
Redspin, Inc. | Trademarks | ||
Gross Carrying Amount | 200,000 | 200,000 |
Accumulated Amortization | (93,978) | (70,000) |
Accumulated Impairment | (106,022) | (52,071) |
Redspin, Inc. | Noncompete Agreements | ||
Gross Carrying Amount | 100,000 | 100,000 |
Accumulated Amortization | (46,951) | (35,000) |
Accumulated Impairment | (53,049) | (26,159) |
CTEK Security, Inc | ||
Gross Carrying Amount | 12,050,000 | |
Accumulated Amortization | (1,729,163) | |
Accumulated Impairment | ||
CTEK Security, Inc | Acquired technology | ||
Gross Carrying Amount | 200,000 | |
Accumulated Amortization | (66,663) | |
Accumulated Impairment | ||
CTEK Security, Inc | Customer Relationships | ||
Gross Carrying Amount | 1,550,000 | |
Accumulated Amortization | (310,000) | |
Accumulated Impairment | ||
CTEK Security, Inc | Trademarks | ||
Gross Carrying Amount | 2,150,000 | |
Accumulated Amortization | (537,500) | |
Accumulated Impairment | ||
CTEK Security, Inc | Noncompete Agreements | ||
Gross Carrying Amount | 8,150,000 | |
Accumulated Amortization | (815,000) | |
Accumulated Impairment |
(4) Intangible Assets _ Amortiz
(4) Intangible Assets : Amortization of intangible assets (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Disclosure Text Block [Abstract] | ||
2,018 | $ 1,810,938 | |
2,019 | 1,810,938 | |
2,020 | 1,744,271 | |
2,021 | 1,206,771 | |
2,022 | 896,771 | |
Thereafter | 3,431,235 | |
Total | $ 10,900,924 | $ 1,112,395 |
(4) Intangible Assets_ Goodwill
(4) Intangible Assets: Goodwill (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Carrying Amount | $ 20,081,719 | $ 3,665,656 |
Accumulated Impairment | (1,556,513) | (1,556,513) |
Net Carrying Amount | 18,525,206 | 2,109,143 |
CTEK Solutions, Inc | ||
Carrying Amount | 1,517,017 | 1,517,017 |
Accumulated Impairment | ||
Net Carrying Amount | 1,517,017 | 1,517,017 |
Delphiis, Inc. | ||
Carrying Amount | 956,639 | 956,639 |
Accumulated Impairment | (716,935) | (667,050) |
Net Carrying Amount | 119,513 | 119,513 |
Redspin, Inc. | ||
Carrying Amount | 1,192,000 | 1,192,000 |
Accumulated Impairment | (540,979) | (410,138) |
Net Carrying Amount | 472,613 | 472,613 |
CTEK Security, Inc | ||
Carrying Amount | 16,416,063 | |
Accumulated Impairment | ||
Net Carrying Amount | $ 16,416,063 |
(4) Intangible Assets (Details)
(4) Intangible Assets (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Impairment charges | $ 180,726 | $ 1,077,188 |
Total of carrying value of goodwill and impairment charge | $ 1,556,513 | $ 1,556,513 |
Minimum | ||
Intangible Asset, Useful Life | 1 year 6 months | |
Maximum | ||
Intangible Asset, Useful Life | 10 years |
(5) Line of Credit and Term L45
(5) Line of Credit and Term Loan (Details) - USD ($) | Apr. 06, 2017 | Jan. 13, 2017 | Dec. 31, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | Jan. 17, 2017 | Jun. 19, 2016 | Jun. 19, 2015 | May 04, 2012 |
Line of Credit Facility, Initiation Date | May 4, 2012 | |||||||||
Loan and Security Agreement | Avidbank | ||||||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 2,000,000 | |||||||||
Line of Credit Facility, Borrowing Capacity, Description | The amount available to us at any given time is 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). As of September 30, 2017, and December 31, 2016, no amounts were outstanding under the line of credit. | |||||||||
Warrant exercise price | $ 4.16 | |||||||||
Loan and Security Agreement | Warrant | Avidbank | ||||||||||
Stock Repurchased During Period, Shares | 24,033 | |||||||||
Stock Repurchased During Period, Value | $ 4,743 | |||||||||
Seller Notes | ||||||||||
Debt Instrument, Interest Rate, Stated Percentage | 8.00% | |||||||||
Interest Charges | $ 179,507 | $ 694,356 | ||||||||
Line of Credit | Avidbank | ||||||||||
Long-term Line of Credit | $ 0 | |||||||||
Interest Charges | $ 1,285 | 0 | ||||||||
Debt Instrument, Fee Amount | $ 25,000 | |||||||||
Line of Credit | Loan and Security Agreement | Avidbank | ||||||||||
Debt Instrument, Interest Rate, Effective Percentage | 5.00% | 5.00% | ||||||||
A&R Credit Agreement Term Loan | ||||||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 14,000,000 | |||||||||
Debt Instrument, Maturity Date | Jan. 12, 2022 | |||||||||
Debt Instrument, Description of Variable Rate Basis | Prime | prime | ||||||||
Debt Instrument, Interest Rate, Effective Percentage | 6.00% | 6.00% | ||||||||
Long-term Line of Credit | $ 11,818,333 | $ 11,818,333 | ||||||||
Debt Instrument, Basis Spread on Variable Rate | 1.50% | |||||||||
Debt Instrument, Covenant Description | While there are outstanding credit extensions, we are to maintain an asset coverage ratio of cash plus accounts receivable divided by all obligations owing to the bank within one year of at least 1.50 to 1.00, measured monthly, and a fixed charge coverage ratio, whereby adjusted EBITDA for the most recent twelve months shall be no less than 1.15 to 1.00 of the sum of the following: (i) Non-Financed Capital Expenditures, (ii) taxes paid in cash during such period, (iii) Distributions paid in cash during such period, (iv) any Earnout Payment paid in cash during such period, and (v) Debt Service for such period, all as determined in accordance with GAAP. We were in compliance with all covenants as of September 30, 2017 and December 31, 2016. | |||||||||
A&R Credit Agreement Term Loan | Debt Instrument, Redemption, Period Two | ||||||||||
Debt Instrument, Periodic Payment, Principal | $ 373,333 | |||||||||
Debt Instrument, Basis Spread on Variable Rate | 1.50% | |||||||||
A&R Credit Agreement Term Loan | Debt Instrument, Redemption, Period One | ||||||||||
Debt Instrument, Periodic Payment, Principal | $ 198,333 | |||||||||
Debt Instrument, Basis Spread on Variable Rate | 1.50% | |||||||||
Term Loan | Avidbank | ||||||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 4,000,000 | |||||||||
Long-term Line of Credit | $ 1,250,000 | $ 1,250,000 | $ 2,000,000 | |||||||
Debt Instrument, Interest Rate, Stated Percentage | 4.75% | 4.75% | ||||||||
Interest Charges | $ 706,872 | $ 75,801 | ||||||||
Debt Instrument, Fee Amount | $ 70,000 | |||||||||
Term Loan | Loan and Security Agreement | Avidbank | ||||||||||
Debt Instrument, Maturity Date | Jun. 19, 2017 | |||||||||
Debt Instrument, Description of Variable Rate Basis | prime plus 1.0% per annum | prime plus 0.75% per annum | ||||||||
A&R Credit Agreement Revolving Line Of Credit | ||||||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 5,000,000 |
(6) Promissory Notes (Details)
(6) Promissory Notes (Details) - Seller Notes - USD ($) | 3 Months Ended | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2017 | Jan. 17, 2017 | |
Debt Instrument, Face Amount | $ 9,000,000 | ||
Debt Instrument, Interest Rate, Stated Percentage | 8.00% | ||
Interest Charges | $ 179,507 | $ 694,356 | |
Michael Mathews | |||
Debt Instrument, Face Amount | $ 4,500,000 | ||
Michael Mcmillan | |||
Debt Instrument, Face Amount | $ 4,500,000 |
(7) Warrants_ Warrant Activit47
(7) Warrants: Warrant Activity (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Text Block [Abstract] | ||
Warrants, Outstanding, Beginning Balance | 321,259 | 658,428 |
Outstanding, Weighted Average Exercise Price, Beginning Balance | $ 3.11 | $ 3.38 |
Granted | 0 | 0 |
Granted, Weighted Average Exercise Price | $ 0 | $ 0 |
Exercised | (53,516) | (35,047) |
Exercised, Weighted Average Exercise Price | $ 3.03 | $ 1.80 |
Cancelled | (189,964) | (302,122) |
Cancelled, Weighted Average Exercise Price | $ 3.17 | $ 3.84 |
Warrants, Outstanding, Ending Balance | 77,779 | 321,259 |
Outstanding, Weighted Average Exercise Price, Ending Balance | $ 3.03 | $ 3.11 |
Outstanding, Weighted Average Remaining Contractual Life | 5 years 18 days | 5 years 6 months 10 days |
Outstanding, Intrinsic Value | $ 0 | $ 0 |
Exercisable | 77,779 | |
Exercisable, Weighted Average Exercise Price | $ 3.03 | |
Exercisable, Weighted Average Remaining Contractual Life | 5 years 18 days | |
Exercisable, Intrinsic Value | $ 0 |
(7) Warrants_ Schedule of Share
(7) Warrants: Schedule of Share-based Compensation, Warrants, by Exercise Price Range (Details) - $ / shares | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Number of Shares Outstanding | 77,779 | 321,259 | 658,428 |
Weighted Average Remaining in Contractual Life in Years | 5 years 18 days | ||
Outstanding Warrants Weighted Average Exercise Price | $ 3.03 | ||
Number of Warrants Exercisable | 77,779 | ||
Exercisable Warrants Weighted Average Exercise Price | $ 3.03 | ||
Warrants | 3.03 | |||
Number of Shares Outstanding | 77,779 | ||
Weighted Average Remaining in Contractual Life in Years | 5 years 18 days | ||
Outstanding Warrants Weighted Average Exercise Price | $ 3.03 | ||
Number of Warrants Exercisable | 77,779 | ||
Exercisable Warrants Weighted Average Exercise Price | $ 3.03 |
(8) Stock Option and Stock In49
(8) Stock Option and Stock Incentive Plans (Details) - USD ($) | Jun. 08, 2017 | May 15, 2003 | May 16, 2007 | May 31, 2004 | Dec. 31, 2017 | May 12, 2012 | May 16, 2008 | May 12, 2005 | May 15, 2004 | Oct. 31, 2002 |
2001 Stock Option Plan | ||||||||||
Number of Shares Authorized | 1,800,000 | |||||||||
Terms of Award | Under the 2001 Stock Option Plan (the “2001 Plan”), the option exercise price was equal to the fair market value of the Common Stock on the date of grant. Options expired no later than 10 years from the grant date and generally vested within five years. | |||||||||
Granted | 189,056 | |||||||||
2003 Stock Option Plan | ||||||||||
Number of Shares Authorized | 1,466,667 | |||||||||
Terms of Award | Under the 2003 Plan, the option exercise price was equal to the fair market value of the Common Stock at the date of grant. Stock options expired no later than 10 years from the grant date and generally vested within five years. | |||||||||
Number of Shares Available for Grant | 299,833 | |||||||||
Granted | 238,250 | |||||||||
2004 Stock Option Plan | ||||||||||
Number of Shares Authorized | 2,133,333 | |||||||||
Terms of Award | Under the terms and conditions of the 2004 Plan, the option exercise price is equal to the fair market value of the Common Stock at the date of grant. Options expired no later than 10 years from the grant date and generally vested within five years. | |||||||||
Granted | 963,382 | |||||||||
2007 Stock Option Plan | ||||||||||
Number of Shares Authorized | 1,490,000 | |||||||||
Terms of Award | Under the 2007 Plan, the option exercise price was equal to the fair market value of the Common Stock at the date of grant. Options expired no later than 10 years from the grant date and generally vested within three years. | |||||||||
2011 Stock Option Plan | ||||||||||
Granted | 2,990,000 | |||||||||
2011 Stock Option Plan | ||||||||||
Number of Shares Authorized | 1,990,000 | |||||||||
Number of Shares Available for Grant | 1,451,713 | |||||||||
Employee Stock Option | ||||||||||
Unamortized compensation expense associated with unvested options | $ 49,299 | |||||||||
Weighted average period over which costs are expected to be recognized | 1 year |
(8) Stock Option and Stock In50
(8) Stock Option and Stock Incentive Plans: Schedule of Share-based Compensation, Stock Options, Activity (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Text Block [Abstract] | ||
Outstanding, Beginning Balance | 1,454,242 | 1,521,304 |
Outstanding, Weighted Average Exercise Price, Beginning Balance | $ 2.87 | $ 3 |
Granted | 25,000 | 215,845 |
Granted, Weighted Average Exercise Price | $ 3.06 | $ 2.73 |
Exercised | (169,700) | 0 |
Exercised, Weighted Average Exercise Price | $ 2.25 | $ 0 |
Cancelled | (585,142) | (282,907) |
Cancelled, Weighted Average Exercise Price | $ 2.79 | $ 3.78 |
Outstanding, Ending Balance | 724,400 | 1,454,242 |
Outstanding, Weighted Average Exercise Price, Ending Balance | $ 3.09 | $ 2.87 |
Outstanding, Weighted Average Remaining Term in Years | 4 years 2 months 8 days | 4 years 3 months 26 days |
Outstanding, Aggregate Intrinsic Value | $ 747,380 | $ 184,991 |
Exercisable | 643,919 | |
Exercisable, Weighted Average Exercise Price | $ 3.10 | |
Exercisable, Weighted Average Remaining Term in Years | 4 years 2 months 8 days | |
Exercisable, Aggregate Intrinsic Value | $ 662,591 |
(8) Stock Option and Stock In51
(8) Stock Option and Stock Incentive Plans: Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range (Details) - $ / shares | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Number of Shares Outstanding | 724,400 | 1,454,242 | 1,521,304 |
Weighted Average Remaining in Contractual Life in Years | 5 years 18 days | ||
Outstanding Options Weighted Average Exercise Price | $ 3.03 | ||
Number of Options Exercisable | 77,779 | ||
Exercisable Options Weighted Average Exercise Price | $ 3.03 | ||
$0.90 to 2.27 | |||
Number of Shares Outstanding | 37,166 | ||
Weighted Average Remaining in Contractual Life in Years | 2 years 6 months 7 days | ||
Outstanding Options Weighted Average Exercise Price | $ 1.99 | ||
Number of Options Exercisable | 37,167 | ||
Exercisable Options Weighted Average Exercise Price | $ 1.99 | ||
$2.28 to 2.72 | |||
Number of Shares Outstanding | 207,009 | ||
Weighted Average Remaining in Contractual Life in Years | 3 years 2 months 1 day | ||
Outstanding Options Weighted Average Exercise Price | $ 2.46 | ||
Number of Options Exercisable | 188,006 | ||
Exercisable Options Weighted Average Exercise Price | $ 2.45 | ||
$2.72 to 5.54 | |||
Number of Shares Outstanding | 472,723 | ||
Weighted Average Remaining in Contractual Life in Years | 4 years 9 months 29 days | ||
Outstanding Options Weighted Average Exercise Price | $ 3.40 | ||
Number of Options Exercisable | 411,244 | ||
Exercisable Options Weighted Average Exercise Price | $ 3.44 | ||
$5.55 to 8.99 | |||
Number of Shares Outstanding | 7,502 | ||
Weighted Average Remaining in Contractual Life in Years | 8 months 2 days | ||
Outstanding Options Weighted Average Exercise Price | $ 6.45 | ||
Number of Options Exercisable | 7,502 | ||
Exercisable Options Weighted Average Exercise Price | $ 6.45 | ||
$0.90 to 8.99 | |||
Number of Shares Outstanding | 724,400 | ||
Weighted Average Remaining in Contractual Life in Years | 4 years 2 months 8 days | ||
Outstanding Options Weighted Average Exercise Price | $ 3.09 | ||
Number of Options Exercisable | 643,919 | ||
Exercisable Options Weighted Average Exercise Price | $ 3.10 |
(9). Restricted Stock Awards _
(9). Restricted Stock Awards : Schedule of Restricted Stock Units, Activity (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Granted | 0 | 0 |
Cancelled | (189,964) | (302,122) |
Outstanding, Weighted Average Remaining Term in Years | 5 years 18 days | 5 years 6 months 10 days |
Restricted Stock Units (RSUs) | ||
Outstanding, Beginning Balance | 0 | 0 |
Outstanding, Weighted Average Price, Beginning Balance | $ 0 | $ 0 |
Granted | 506,500 | 0 |
Granted, Weighted Average Price | $ 3.35 | $ 0 |
Vested | 0 | 0 |
Vested, Weighted Average Price | $ 0 | $ 0 |
Cancelled | 0 | 0 |
Cancelled, Weighted Average Price | 0 | 0 |
Outstanding, Ending Balance | 506,500 | 0 |
Outstanding, Weighted Average Price, Ending Balance | $ 3.35 | $ 0 |
Outstanding, Weighted Average Remaining Term in Years | 2 years 5 months 20 days |
(9) Restricted Stock (Details)
(9) Restricted Stock (Details) | 12 Months Ended |
Dec. 31, 2017USD ($)shares | |
Recognized restricted stock units cost | $ | $ 255,201 |
Board of Director [Member] | |
Restricted stock units issued | shares | 506,500 |
(10) Income Taxes (Details)
(10) Income Taxes (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income tax benefit (expense) | $ (2,365,476) | $ 5,074,439 |
Effective Income Tax Rate Reconciliation, Percent | 124.00% | 7851.00% |
State and Local Jurisdiction | ||
Operating Loss Carryforwards | $ 7,047,000 | |
Operating Loss Carryforwards, Expiration Date | Dec. 31, 2025 | |
Internal Revenue Service (IRS) | ||
Operating Loss Carryforwards | $ 0 | |
Operating Loss Carryforwards, Expiration Date | Dec. 31, 2025 |
(10) Income Taxes_ Schedule of
(10) Income Taxes: Schedule of Components of Income Tax Benefit (Expense) (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Current provision: | ||
Federal | $ (62,913) | $ (58,092) |
State | (156,000) | (150,000) |
Current Income Tax Expense (Benefit) | (218,913) | (208,092) |
Deferred benefit: | ||
Federal | (1,977,963) | 4,685,565 |
State | (168,600) | 596,966 |
Deferred Income Tax Expense (Benefit) | (2,146,563) | 5,282,531 |
Income tax benefit (expense) | $ (2,365,476) | $ 5,074,439 |
(10) Income Taxes_ Schedule o56
(10) Income Taxes: Schedule of Effective Income Tax Rate Reconciliation (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Text Block [Abstract] | ||
Computed tax at federal statutory rate of 34% | $ (653,863) | $ 21,977 |
State taxes, net of federal benefit | (172,176) | (104,225) |
Non-deductible items | (33,305) | (29,683) |
Other | (5,073) | (30,718) |
Federal rate and law change effect | (1,511,207) | 0 |
Change in valuation allowance | 0 | 5,217,088 |
Income tax benefit (expense) | $ (2,365,476) | $ 5,074,439 |
(10) Income Taxes_ Schedule o57
(10) Income Taxes: Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Deferred tax assets: | ||
Accrued salaries/vacation | $ 454,000 | $ 267,500 |
Accrued equipment other | 49,900 | 54,500 |
Amortization of intangibles | 702,300 | 1,056,400 |
State taxes | (700) | 34,000 |
Stock options | 589,800 | 901,500 |
Credits | 250,800 | 205,700 |
Net operating loss carryforwards | 1,479,800 | 3,444,900 |
Total deferred tax assets | 3,525,900 | 5,964,500 |
Deferred tax liabilities: | ||
Depreciation | 203,100 | 302,000 |
Other | 202,490 | 379,969 |
Total deferred tax liabilities | 405,590 | 681,969 |
Net deferred tax assets | $ 3,120,310 | $ 5,282,531 |
(11) Retirement Plan (Details)
(11) Retirement Plan (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
401(k) Plan | ||
Defined Benefit Plan, Contributions by Employer | $ 416,127 | $ 117,762 |
(12) Commitments (Details)
(12) Commitments (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Operating Leases, Rent Expense | $ 744,866 | $ 441,058 |
Daniel Berger | ||
Base Salary, Annual Amount | 250,000 | |
Salary Bonus, Annual Amount | 150,000 | |
Chief Financial Officer | ||
Base Salary, Annual Amount | 245,000 | $ 250,000 |
Salary Bonus, Annual Amount | 132,000 | |
Chief Executive Officer | ||
Base Salary, Annual Amount | 300,000 | |
Salary Bonus, Annual Amount | $ 180,000 |
(12) Commitments_ Schedule of F
(12) Commitments: Schedule of Future Minimum Lease Payments for Operating Leases (Details) | Dec. 31, 2017USD ($) |
Text Block [Abstract] | |
2,018 | $ 658,690 |
2,019 | 654,019 |
2,020 | 512,632 |
2,020 | 132,926 |
Total | $ 1,958,267 |
(13) Concentrations (Details)
(13) Concentrations (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Accounts receivable, net | $ 13,264,323 | $ 9,614,486 |
Customer Concentration Risk | ||
Accounts receivable, net | $ 5,600,000 | $ 4,600,000 |
Sales | Customer Concentration Risk | ||
Concentration Risk, Percentage | 46.00% | 49.00% |
(14). Stock Purchase Agreement
(14). Stock Purchase Agreement - CTEK Security, Inc (Details) - USD ($) | Jan. 17, 2017 | Jan. 13, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | Jun. 19, 2016 | May 04, 2012 |
Payments to Acquire Businesses, Gross | $ 13,448,522 | $ 0 | |||||
Cynergistek Inc | |||||||
Percentage of issued and outstanding shares of common stock acquired | 100.00% | ||||||
Payments to Acquire Businesses, Net of Cash Acquired | $ 14,202,645 | ||||||
Business Acquisition, Equity Interest Issued, Number of Shares | 1,166,666 | ||||||
Business Acquisition, Equity Interest Issued or Issuable, Value Assigned | $ 2,800,000 | ||||||
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High | 7,500,000 | ||||||
Estimated Fair value of Earn-out | 2,300,000 | ||||||
Legal, accounting and other professional fees related to acquisition, expensed this period | 174,000 | ||||||
CTEK Security, Inc | |||||||
Legal, accounting and other professional fees related to acquisition | 330,000 | ||||||
Michael Mcmillan | |||||||
Base Salary, Annual Amount | $ 250,000 | ||||||
Michael Mcmillan | Cynergistek Inc | |||||||
Business Acquisition, Equity Interest Issued, Number of Shares | 583,333 | ||||||
Michael Mathews | |||||||
Base Salary, Annual Amount | $ 250,000 | ||||||
Michael Mathews | Cynergistek Inc | |||||||
Business Acquisition, Equity Interest Issued, Number of Shares | 583,333 | ||||||
Chief Financial Officer | |||||||
Base Salary, Annual Amount | 245,000 | $ 250,000 | |||||
Chief Executive Officer | |||||||
Base Salary, Annual Amount | $ 300,000 | ||||||
Loan and Security Agreement | Avidbank | |||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 2,000,000 | ||||||
Seller Notes | |||||||
Debt Instrument, Face Amount | $ 9,000,000 | ||||||
Debt Instrument, Interest Rate, Stated Percentage | 8.00% | ||||||
Seller Notes | Michael Mcmillan | |||||||
Debt Instrument, Face Amount | $ 4,500,000 | ||||||
Seller Notes | Michael Mathews | |||||||
Debt Instrument, Face Amount | 4,500,000 | ||||||
Term Loan | Cynergistek Inc | |||||||
Payments to Acquire Businesses, Gross | 15,000,000 | ||||||
Payments to Acquire Businesses, Net of Cash Acquired | 14,000,000 | ||||||
Term Loan | Avidbank | |||||||
Debt Instrument, Interest Rate, Stated Percentage | 4.75% | ||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 4,000,000 | ||||||
Term Loan | Loan and Security Agreement | Avidbank | |||||||
Debt Instrument, Description of Variable Rate Basis | prime plus 1.0% per annum | prime plus 0.75% per annum | |||||
Debt Instrument, Maturity Date | Jun. 19, 2017 | ||||||
A&R Credit Agreement Term Loan | |||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 14,000,000 | ||||||
Debt Instrument, Description of Variable Rate Basis | Prime | prime | |||||
Debt Instrument, Basis Spread on Variable Rate | 1.50% | ||||||
Debt Instrument, Maturity Date | Jan. 12, 2022 | ||||||
A&R Credit Agreement Revolving Line Of Credit | |||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 5,000,000 |
(14) Stock Purchase Agreement63
(14) Stock Purchase Agreement - CTEK Security, Inc: Schedule of Allocation of the Purchase Price of the Assets (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Goodwill | $ 20,081,719 | $ 3,665,656 |
CTEK Security, Inc | ||
Goodwill | 16,416,063 | |
Cash | 754,125 | |
Accounts receivable | 1,726,398 | |
Other assets | 346,439 | |
Fixed assets, net | 110,657 | |
Accounts payable and accrued expenses | (659,203) | |
Accrued compensation | (1,035,522) | |
Deferred revenue | (1,378,312) | |
Total | 28,330,645 | |
Customer Relationships | CTEK Security, Inc | ||
Finite-lived Intangible Assets Acquired | 2,150,000 | |
Trademarks | CTEK Security, Inc | ||
Finite-lived Intangible Assets Acquired | 1,550,000 | |
Noncompete Agreements | CTEK Security, Inc | ||
Finite-lived Intangible Assets Acquired | 200,000 | |
Acquired technology | CTEK Security, Inc | ||
Finite-lived Intangible Assets Acquired | $ 8,150,000 |
(14) Stock Purchase Agreement64
(14) Stock Purchase Agreement - CTEK Security, Inc: Business Acquisition, Pro Forma Information (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Text Block [Abstract] | ||
Pro forma revenue | $ 71,638,947 | $ 75,710,140 |
Pro forma net (loss) income | $ (442,351) | $ 4,238,104 |
Pro forma basic net (loss) income per share | $ (0.05) | $ 0.45 |
Pro forma diluted net (loss) income per share | $ (0.05) | $ 0.45 |
(15) Subsequent events (Details
(15) Subsequent events (Details) - Subsequent Event [Member] | Mar. 12, 2018USD ($) | Mar. 12, 2018USD ($) |
Term Loan | ||
Term Loan | $ 17,250,000 | $ 17,250,000 |
Due date | Sep. 12, 2022 | |
Line of Credit | ||
Due date | Mar. 12, 2020 | |
Revolving Line of Credit | $ 5,000,000 | $ 5,000,000 |
Separation Agreement | CTEK Security, Inc | ||
Refinance of promissory note | 2,250,000 | |
Original principal amount | $ 2,250,000 | |
Due date | Mar. 31, 2022 | |
Interest Rates | 8.00% | |
Separation Agreement | Chief Operating Officer [Member] | ||
Refinance of promissory note | $ 3,750,000 | |
Earn-out contingent liability | 1,394,000 | |
McMillan Seller Note [Member] | ||
Refinance of promissory note | 2,250,000 | |
Original principal amount | $ 4,500,000 | |
Interest Rates | 2.50% | |
McMillan Seller Note [Member] | Separation Agreement | ||
Refinance of promissory note | 250,000 | |
Original principal amount | $ 343,750 | |
Due date | Jan. 10, 2019 | |
Interest Rates | 5.00% |