CynergisTek (CTEK) 10-Q 10 Nov 16 2016 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 07, 2016
Document and Entity Information
Entity Registrant Name	AUXILIO INC
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Entity Central Index Key	1,011,432
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		24,557,224
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	2,016
Document Fiscal Period Focus	Q3
Trading Symbol	auxo

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 5,390,883	$ 6,436,732
Accounts receivable, net	7,286,119	7,397,957
Supplies	1,115,038	1,458,609
Prepaid and other current assets	284,119	625,806
Total current assets	14,076,159	15,919,104
Property and equipment, net	758,647	495,324
Deposits	41,522	58,118
Intangible assets, net	2,325,000	2,731,250
Goodwill	3,665,656	3,665,656
Total assets	20,866,984	22,869,452
Current liabilities:
Accounts payable and accrued expenses	6,045,537	8,306,860
Accrued compensation and benefits	2,560,889	2,856,165
Deferred revenue	494,686	913,677
Current portion of long-term liabilities	613,724	598,750
Total current liabilities	9,714,836	12,675,452
Long-term liabilities:
Term loan, less current portion	875,000	1,250,000
Capital lease obligations less current portion	79,248	125,496
Total long-term liabilities	954,248	1,375,496
Commitments and contingencies
Stockholders' equity:
Common stock, par value at $0.001, 33,333,333 shares authorized, 24,557,224 and 24,452,085 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively	24,559	24,453
Additional paid-in capital	27,892,549	27,682,061
Accumulated deficit	(17,719,208)	(18,888,010)
Total stockholders' equity	10,197,900	8,818,504
Total liabilities and stockholders' equity	$ 20,866,984	$ 22,869,452

CONDENSED CONSOLIDATED BALANCE3

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Statement of Financial Position
Common Stock, par or stated value	$ 0.001	$ 0.001
Common Stock, shares authorized	33,333,333	33,333,333
Common Stock, shares issued	24,557,224	24,452,085
Common Stock, shares outstanding	24,557,224	24,452,085

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Statement
Revenues	$ 14,326,382	$ 15,725,616	$ 44,004,091	$ 45,190,062
Cost of revenues	11,082,739	12,853,601	35,359,229	38,069,271
Gross profit	3,243,643	2,872,015	8,644,862	7,120,791
Operating expenses:
Sales and marketing	676,871	712,522	2,078,366	2,263,410
General and administrative expenses	1,786,585	1,597,793	5,198,613	4,907,162
Total operating expenses	2,463,456	2,310,315	7,276,979	7,170,572
Income (loss) from operations	780,187	561,700	1,367,883	(49,781)
Other income (expense):
Interest expense	(21,714)	(31,886)	(70,968)	(100,284)
Total other income (expense)	(21,714)	(31,886)	(70,968)	(100,284)
Income (loss) before provision for income taxes	758,473	529,814	1,296,915	(150,065)
Income tax expense	(84,113)		(128,113)	(2,400)
Net income (loss)	$ 674,360	$ 529,814	$ 1,168,802	$ (152,465)
Net income (loss) per share:
Basic	$ 0.03	$ 0.02	$ 0.05	$ (0.01)
Diluted	$ 0.03	$ 0.02	$ 0.05	$ (0.01)
Number of weighted average shares:
Basic	24,557,224	24,274,815	24,506,934	24,050,960
Diluted	24,816,608	24,983,982	24,862,991	24,050,960

CONDENSED CONSOLIDATED STATEME5

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - 9 months ended Sep. 30, 2016 - USD ($)	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Total
Equity Balance, beginning of period, Value at Dec. 31, 2015	$ 24,453	$ 27,682,061	$ (18,888,010)	$ 8,818,504
Equity Balance, beginning of period, Shares at Dec. 31, 2015	24,452,085
Stock compensation expense for options and warrants granted to employees and directors		150,443		150,443
Stock options and warrants exercised, Value	$ 106	60,045		$ 60,151
Stock options and warrants exercised, Shares	105,139			0
Net income			1,168,802	$ 1,168,802
Equity Balance, end of period, Value at Sep. 30, 2016	$ 24,559	$ 27,892,549	$ (17,719,208)	$ 10,197,900
Equity Balance, end of period, Shares at Sep. 30, 2016	24,557,224

CONDENSED CONSOLIDATED STATEME6

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net income (loss)	$ 1,168,802	$ (152,465)
Adjustments to reconcile net income (loss) to net cash (used for) provided by operating activities:
Depreciation	169,514	110,963
Amortization of intangible assets	406,250	340,000
Stock compensation expense for warrants and options issued to employees and directors	150,443	232,403
Stock compensation expense for contingent earn-out stock to be issued to employees		62,000
Stock compensation expense for restricted stock issued to key employee		101,881
Interest expense related to accretion of debt discount costs		30,189
Changes in operating assets and liabilities:
Accounts receivable, net	111,838	3,201
Supplies	343,571	(377,628)
Prepaid and other current assets	341,687	(578,630)
Deposits	16,596	(71,420)
Accounts payable and accrued expenses	(2,261,323)	455,133
Accrued compensation and benefits	(295,276)	771,490
Deferred revenue	(418,991)	(51,745)
Net cash (used for) provided by operating activities	(266,889)	875,372
Cash flows from investing activities:
Purchases of property and equipment	(379,873)	(12,010)
Payment for purchase of Redspin		(1,876,966)
Net cash used for investing activities	(379,873)	(1,888,976)
Cash flows from financing activities:
Net repayments on line of credit agreement		(200,000)
Proceeds from term loan		2,000,000
Payments on term loan	(375,000)	(125,000)
Proceeds from issuance of common stock through warrants	60,151
Payments on notes payable to related party		(105,888)
Payments on capital leases	(84,238)	(77,984)
Net cash (used for) provided by financing activities	(399,087)	1,491,128
Net (decrease) increase in cash and cash equivalents	(1,045,849)	477,524
Cash and cash equivalents, beginning of period	6,436,732	4,743,395
Cash and cash equivalents, end of period	5,390,883	5,220,919
Supplemental disclosure of cash flow information:
Interest paid	70,968	70,095
Income taxes paid	96,740	141,850
Non-cash investing and financing activities:
Property and equipment acquired through capital leases	$ 52,964	223,795
Conversion of note payable to related party		257,835
Common stock issued in connection with the acquisition of Redspin		$ 469,000

1. Basis of Presentation

1. Basis of Presentation	9 Months Ended
	Sep. 30, 2016
Notes
1. Basis of Presentation	1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Auxilio, Inc. and its subsidiaries (the "Company", "we", "us" or "Auxilio") have been prepared in accordance with generally accepted accounting principles of the United States of America ("GAAP") for interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as filed with the Securities and Exchange Commission ("SEC") on March 30, 2016. The unaudited condensed consolidated financial statements included herein reflect all adjustments (which include only normal, recurring adjustments) that are, in the opinion of management, necessary to state fairly our financial position and results of operations as of and for the periods presented. The results for such periods are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As a result, actual results could differ from those estimates. The accompanying financial statements include the accounts of Auxilio and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. We have performed an evaluation of subsequent events through the date of filing of our Form 10-Q with the SEC.

2. Recently Issued Accounting P

2. Recently Issued Accounting Pronouncements	9 Months Ended
	Sep. 30, 2016
Notes
2. Recently Issued Accounting Pronouncements	2 RECENTLY ISSUED 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 are currently evaluating our existing revenue recognition policies to determine the types of contracts that are within the scope of this guidance and the impact the adoption of this standard may have on our consolidated financial statements. We have not yet determined if we will apply the full retrospective or the modified retrospective method. In April 2015 and August 2015, the FASB issued guidance which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability consistent with the presentation of debt discounts, however debt issuance costs related to revolving credit agreements may be presented in the balance sheet as an asset. This guidance was effective for us in the first quarter of 2016. In November 2015, the FASB issued guidance related to the presentation of deferred income taxes. The guidance requires that deferred tax assets and liabilities be classified as non-current in a consolidated balance sheet. This guidance is effective for us in the first quarter of 2017 and is not expected to materially impact our financial position or net earnings. 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 utilizes a dual model for recognizing expense. This guidance will be effective in the first quarter of 2019 with early adoption permitted. We are evaluating the impact that adopting this guidance will have on our consolidated financial statements. In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting." This ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods. Early adoption is permitted. An entity that elects early adoption of the amendment under this ASU must adopt all aspects of the amendment in the same period. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

3. Options and Warrants

3. Options and Warrants	9 Months Ended
	Sep. 30, 2016
Notes
3. Options and Warrants	3. OPTIONS AND WARRANTS Below is a summary of stock option and warrant activity during the nine-month period ended September 30, 2016: Options Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2015 4,563,555 $1.00 Granted 647,500 0.96 Exercised - - Cancelled (794,118) 1.17 Outstanding at September 30, 2016 4,416,937 $0.96 4.60 $274,890 Exercisable at September 30, 2016 3,587,683 $0.95 4.60 $270,940 During the nine months ended September 30, 2016, we granted a total of 647,500 options to our employees and directors to purchase shares of our common stock at an exercise price range of $0.80 to $1.02 per share. The exercise price equals the fair value of our stock on the grant date. The options have graded vesting annually over three years. The fair value of the options was determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate range of 0.08% to 0.40%; (ii) estimated volatility range of 45.95% to 46.29%; (iii) dividend yield of 0.0%; and (iv) expected life of the options of three years. Warrants Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2015 1,975,231 $1.21 Granted - - Exercised (105,139) 0.60 Cancelled (891,328) 1.27 Outstanding at September 30, 2016 978,764 $1.05 5.78 $- Exercisable at September 30, 2016 745,432 $1.06 5.61 $- For the three and nine months ended September 30, 2016 and 2015, stock-based compensation expense recognized in the consolidated statements of operations as follows: Three Months Ended September 30, Nine months Ended September 30, 2016 2015 2016 2015 Cost of revenues $9,620 $70,396 $33,535 $127,953 Sales and marketing 6,927 8,319 23,529 25,885 General and administrative expense 31,704 30,955 93,379 180,446 Total stock based compensation expense $48,251 $109,670 $150,443 $334,284 In 2015, we also recognized stock-based compensation of $62,000 in connection with the acquisition of Redspin (Note 11)

4. Net Income (loss) Per Share

4. Net Income (loss) Per Share	9 Months Ended
	Sep. 30, 2016
Notes
4. Net Income (loss) Per Share	4. NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is calculated using the weighted average number of shares of our common stock issued and outstanding during a certain period, and is calculated by dividing net income (loss) by the weighted average number of shares of our common stock issued and outstanding during such period. Diluted net income (loss) per share is calculated using the weighted average number of common and potentially dilutive common shares outstanding during the period, using the as-if converted method for secured convertible notes, and the treasury stock method for options and warrants. Diluted net income (loss) per share does not include potentially dilutive securities because such inclusion in the computation would be anti-dilutive. For the three months ended September 30, 2016, potentially dilutive securities consisted of options and warrants to purchase 5,395,701 shares of common stock at prices ranging from $0.30 to $2.15 per share. Of these potentially dilutive securities, only 259,384 of the shares to purchase common stock from the options and warrants are included in the computation of diluted earnings per share as their effect would be anti-dilutive. For the nine months ended September 30, 2016, potentially dilutive securities consisted of options and warrants to purchase 5,395,701 shares of common stock at prices ranging from $0.30 to $2.15 per share. Of these potentially dilutive securities, only 356,057 of the shares to purchase common stock from the options and warrants are included in the computation of diluted earnings per share as their effect would be anti-dilutive. For the three months ended September 30, 2015, potentially dilutive securities consisted of options and warrants to purchase 6,529,786 shares of common stock at prices ranging from $0.30 to $2.15 per share. Of these potentially dilutive securities, only 709,167 of the shares to purchase common stock from the options and warrants are included in the computation of diluted earnings per share as their effect would be anti-dilutive. For the nine months ended September 30, 2015, potentially dilutive securities consisted of options and warrants to purchase 6,529,786 shares of common stock at prices ranging from $0.30 to $2.15 per share. For the nine months ended September 30, 2015, of these potentially dilutive securities, none of the shares to purchase common stock from the options and warrants are included from the computation of diluted earnings per share as their effect would be anti-dilutive. Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Numerator: Net income (loss) $674,360 $529,814 $1,168,802 $(152,465) Denominator: Denominator for basic calculation weighted average shares 24,557,224 24,274,815 24,506,934 24,050,960 Dilutive common stock equivalents: Options and warrants 259,384 709,167 356,057 - Denominator for diluted calculation weighted average shares 24,816,608 24,983,982 24,862,991 24,050,960 Net loss per share: Basic net income (loss) per share $.03 $.02 $.05 $(.01) Diluted net income (loss) per share $.03 $.02 $.05 $(.01)

5. Accounts Receivable

5. Accounts Receivable	9 Months Ended
	Sep. 30, 2016
Notes
5. Accounts Receivable	5. ACCOUNTS RECEIVABLE A summary of accounts receivable is as follows: September 30, 2016 December 31, 2015 Trade receivables $6,293,565 $7,458,022 Unapplied advances and unbilled revenue, net 992,554 (60,065) Allowance for doubtful accounts - - Total accounts receivable $7,286,119 $7,397,957

6. Intangible Assets

6. Intangible Assets	9 Months Ended
	Sep. 30, 2016
Notes
6. Intangible Assets	6. INTANGIBLE ASSETS Intangible assets are amortized over expected useful lives ranging from 1.5 to 10 years and consist of the following: September 30, 2016 December 31, 2015 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Delphiis, Inc. Acquired technology $900,000 $(202,500) $900,000 $(135,000) Customer relationships 400,000 (180,000) 400,000 (120,000) Trademarks 50,000 (50,000) 50,000 (50,000) Non-compete agreements 20,000 (15,000) 20,000 (10,000) Total intangible assets, Delphiis, Inc. $1,370,000 $(447,500) $1,370,000 $(315,000) Redspin Acquired technology $1,050,000 $(157,500) $1,050,000 $(78,750) Customer relationships 600,000 (300,000) 600,000 (150,000) Trademarks 200,000 (60,000) 200,000 (30,000) Non-compete agreements 100,000 (30,000) 100,000 (15,000) Total intangible assets, Redspin $1,950,000 $(547,500) $1,950,000 $(273,750) Total intangible assets $3,320,000 $(995,000) $3,320,000 $(588,750) We assess goodwill for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount (ASC 350-35-30). In addition, we assess amortizing intangible assets for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable (ASC 360-10-35-21). During the quarter ended September 30, 2016, management assessed the goodwill and intangible assets of Delphiis and Redspin for impairment and concluded that no impairment charge was required.

7. Line of Credit and Term Loan

7. Line of Credit and Term Loan	9 Months Ended
	Sep. 30, 2016
Notes
7. Line of Credit and Term Loan	7. 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"). Under the Second Avidbank Amendment, the term of the revolving line-of-credit of up to $2.0 million was extended through April 25, 2015, at an interest rate of prime plus 1.0% per annum. 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. As of September 30, 2016, the interest rate was 4.25%. 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) $2.0 million, or (b) the amount available under our borrowing base (80% of our eligible accounts, minus (1) accrued client lease payables, and minus (2) accrued equipment pool liability). As of September 30, 2016 and December 31, 2015, no amounts were outstanding under the line of credit. The Fourth Avidbank Amendment also provided for a term loan facility which allowed for advances up to $4,000,000 through June 19, 2016. We made only one draw of $2,000,000 in June 2015. Term loan repayments shall be in 48 equal installments of principal, plus accrued interest at an interest rate of prime plus 1.25% per annum. As of September 30, 2016, outstanding borrowings under the term loan are $1,500,000, of which $500,000 is due within one year. The interest rate is 4.75% as of September 30, 2016. While there are outstanding credit extensions, we are to maintain a liquidity ratio of cash plus accounts receivable divided by all obligations owing to the bank of at least 1.75 to 1.00, measured monthly, and a debt coverage ratio, whereby adjusted EBITDA for the most recent twelve months shall be no less than 1.50 to 1.00 of the sum of the annual principal payments to come due in respect of the term loan advances plus the annualized interest expense of the quarter ending on the measurement date. We were in compliance with all of the Avidbank agreement covenants as of September 30, 2016 and December 31, 2015. The foregoing description is qualified in its entirety by reference to the Fourth Amendment to the Loan and Security Agreement between Avidbank Corporate Finance and Auxilio, Inc., which is found as Exhibit 10.1 of our form 10-Q filed on August 14, 2015. In connection with our entry into the Loan and Security Agreement, we granted Avidbank (a) a general, first-priority security interest in all of our assets, equipment and inventory, and (b) a security interest in all of our intellectual property under an Intellectual Property Security Agreement. As additional consideration for the Loan and Security Agreement, we issued Avidbank a 5-year warrant to purchase up to 72,098 shares of our common stock at an exercise price of $1.39 per share. The foregoing descriptions are qualified in their entirety by reference to the respective agreements. These agreements are found in our Form 8-K filed on May 9, 2012 as Exhibits 10.1, 10.2, 10.3 and 10.4. Interest charges associated with the Avidbank line of credit, including loan origination costs, totaled $0 and $16,347 respectively, for the nine months ended September 30, 2016 and 2015, respectively. Interest charges associated with the Avidbank term loan, including loan origination costs, totaled $57,224 and $38,120 for the nine months ended September 30, 2016 and 2015, respectively.

8. Employment Agreements

8. Employment Agreements	9 Months Ended
	Sep. 30, 2016
Notes
8. Employment Agreements	8. EMPLOYMENT AGREEMENTS Effective January 1, 2014, we entered into an employment agreement with Joseph J. Flynn, our President and Chief Executive Officer ("CEO") since 2009 (the "Flynn Agreement"). The Flynn Agreement provided that Mr. Flynn would continue his employment as our President and CEO. The Flynn Agreement had a term of two years and provided for an annual base salary of $275,000. Mr. Flynn was also entitled to receive a bonus of up to $150,000 per year, the achievement of which was based on Company performance metrics. Further, the Flynn Agreement revised the vesting schedule of warrants granted to Mr. Flynn in January 2013. The revision spreads the vesting date of the remaining 300,000 unvested shares from 150,000 on January 1, 2015 and 150,000 on January 1, 2016 to 100,000 on January 1, 2015, 100,000 on January 1, 2016 and 100,000 on January 1, 2017. The warrants will vest contingent with the achievement of certain financial performance metrics of the Company for calendar years 2015 and 2016. The calendar year 2014 performance metrics were not met and as such, they did not vest. The calendar year 2015 performance metrics were met. The foregoing summary of the Flynn Agreement is qualified in its entirety by reference to the full context of the employment agreement which is found as Exhibit 10.2 to our 10-Q filing on May 14, 2014. Effective January 1, 2016, we entered into a new employment agreement with Mr. Flynn (the "2016 Flynn Agreement") whereupon the Flynn Agreement terminated. The 2016 Flynn Agreement provides that Mr. Flynn will continue his employment as our President and CEO. The 2016 Flynn Agreement has a term of two years, provides for an annual base salary of $300,000, and 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. Flynn also receives the customary employee benefits available to our employees. Mr. Flynn is also entitled to receive a bonus of up to $180,000 per year, the achievement of which is based on Company performance metrics. We may terminate Mr. Flynn's employment under the Flynn Agreement without cause at any time on thirty (30) days advance written notice, at which time Mr. Flynn 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 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 Form 10-K filed on March 30, 2016. Effective January 1, 2014, we entered into an employment agreement with Paul T. Anthony, our Chief Financial Officer ("CFO") since 2004 (the "Anthony Agreement"). The Anthony Agreement provided that Mr. Anthony would continue to serve as our EVP and CFO. The Anthony Agreement had a term of two years and provided for an annual base salary of $225,000. Mr. Anthony was also entitled to receive a bonus of up to $108,000 per year, the achievement of which is based on Company performance metrics. Further, the Anthony Agreement revised the vesting schedule of warrants granted to Mr. Anthony in January 2013. The revision spreads the vesting date of the remaining 200,000 unvested shares from 100,000 on January 1, 2015 and 100,000 on January 1, 2016 to 66,667 on January 1, 2015, 66,667 on January 1, 2016 and 66,666 on January 1, 2017. The warrants will vest contingent with the achievement of certain financial performance metrics of the Company for calendar years 2015 and 2016. The calendar year 2014 performance metrics were not met and as such, they did not vest. The calendar year 2015 performance metrics were met. The foregoing summary of the Anthony Agreement is qualified in its entirety by reference to the full context of the employment agreement which is found as Exhibit 10.3 to our 10-Q filing on May 14, 2014. Effective January 1, 2016, we entered into a new employment agreement with Mr. Anthony (the "2016 Anthony Agreement") whereupon the Anthony Agreement terminated. 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 Form 10-K filed on March 30, 2016.

9. Concentrations

9. Concentrations	9 Months Ended
	Sep. 30, 2016
Notes
9. Concentrations	9. CONCENTRATIONS Cash Concentrations At times, cash balances held in financial institutions are in excess of federally insured limits. Management performs periodic evaluations of the relative credit standing of financial institutions and limits the amount of risk by selecting financial institutions with a strong credit standing . Major Customers Our two largest customers accounted for approximately 50% of our revenues for the nine months ended September 30, 2016 and our two largest customers accounted for approximately 35% of our revenues for the nine months ended September 30, 2015. Our largest customers had net accounts receivable totaling approximately $4,000,000 and $2,600,000 as of September 30, 2016 and December 31, 2015 respectively.

10. Segment Reporting

10. Segment Reporting	9 Months Ended
	Sep. 30, 2016
Notes
10. Segment Reporting	10. SEGMENT REPORTING We operate in one business segment based on our integration and management strategies.

11. Asset Purchase Agreement -

11. Asset Purchase Agreement - Redspin	9 Months Ended
	Sep. 30, 2016
Notes
11. Asset Purchase Agreement - Redspin	11. ASSET PURCHASE AGREEMENT - REDSPIN On March 31, 2015, Auxilio entered into an Asset Purchase Agreement (the "Purchase Agreement") with Redspin, Inc., a California corporation ("Redspin"), to acquire substantially all of the assets and certain liabilities of Redspin (the "Acquired Assets"). A copy of the Purchase Agreement was filed as an exhibit to the Current Report on Form 8-K filed with the SEC on April 6, 2015. On April 7, 2015, the Company completed its acquisition of the Acquired Assets in an asset purchase transaction (the "Transaction") pursuant to the terms and conditions of the Purchase Agreement. As a result of the consummation of the Purchase Agreement, on April 7, 2015, in consideration for the Acquired Assets, the Company paid Redspin $2,076,966 in cash, less a holdback of $200,000 to cover any indemnification claims made pursuant to the Transaction, and issued 452,284 shares of the Company's restricted common stock, par value $0.001, which was the number of shares having an aggregate value of $500,000, with the price per share equal to the average of the closing price of Auxilio common stock on the OTC Markets for the 20 most recent trading days prior to the date of the Purchase Agreement, rounded up to the nearest whole number of shares. The Company also agreed to pay a cash Earn-out Payment, as defined in the Purchase Agreement, upon the achievement of certain earnings targets in the first year following the date of the Purchase Agreement. Management assigned the fair value of the contingent consideration to be $0 because the earnings targets were not met. No indemnification claims were made prior to June 30, 2016. As such, in July 2016 the Company released the holdback funds to Redspin. The Company reduced the holdback amount paid by $67,811 which represented unrecorded liabilities of Redspin as of the acquisition date. The Purchase Agreement also provides for the Company to pay employee bonus shares of common stock upon the achievement of the same certain earnings targets and provided they remain with the Company for one year subsequent to the acquisition date. Management previously had considered the $124,000 of fair value of these employee bonus shares to be a component of the acquisition cost. After completing the analysis of the earn-out provisions, Management has determined that the employee bonus shares would be post-combination compensation. The minimum earnings targets were not achieved. Accordingly, no related stock compensation expense has been recorded for the year ended December 31, 2015 or the nine months ended September 30, 2016. The allocation of the purchase price of the assets acquired and liabilities assumed based on their fair values was as follows: Acquired technology $1,050,000 Customer relationships 600,000 Trademarks 200,000 Non-compete agreements 100,000 Goodwill 1,192,000 Accounts receivable 180,409 Other assets received 19,009 Accounts payable and accrued expenses (23,196) Accrued compensation (118,009) Deferred revenue (31,247) Total $3,168,966 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 $1,192,000. 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 Auxilio's customers. The Company incurred approximately $70,000 in legal, accounting and other professional fees related to this acquisition, all of which were expensed during the year ended December 31, 2015. Employment and Independent Contractor Agreements In connection with the Purchase Agreement, Auxilio and Daniel Berger ("Berger"), CEO of Redspin, entered into an employment agreement (the "Berger Employment Agreement"), pursuant to which Berger was employed to serve as Executive Vice President of Auxilio. The initial term of the Berger Employment Agreement is for two years (unless sooner terminated), and automatically renews for subsequent twelve-month periods unless either party determines to not renew. Berger's base annual salary is $250,000, and Berger is eligible to receive incentive compensation, consistent with that generally offered to executives of the Company. In addition, Auxilio and John Abraham ("Abraham"), Founder of Redspin, entered into an independent contractor agreement (the "Abraham Agreement"), pursuant to which Abraham was retained to perform the work assigned by the Company. The term of the Abraham Agreement is for two years (unless sooner terminated). In consideration for such services, the Company agreed to pay Abraham $11,000 per month. Pro Forma Information The following supplemental unaudited pro forma information presents the combined operating results of the Company and the acquired business during the nine months ended September 30, 2016 and 2015, 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. Nine Months Ended September 30, 2016 2015 Pro forma revenue $44,004,091 $45,888,738 Pro forma net income (loss) $1,168,802 $(353,344) Pro forma basic net income (loss) per share $0.05 $(0.01) Pro forma diluted net loss per share $0.05 $(0.01)

3. Options and Warrants_ Schedu

3. Options and Warrants: Schedule of Stock Options, Activity (Tables)	9 Months Ended
	Sep. 30, 2016
Tables/Schedules
Schedule of Stock Options, Activity	Below is a summary of stock option and warrant activity during the nine-month period ended September 30, 2016: Options Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2015 4,563,555 $1.00 Granted 647,500 0.96 Exercised - - Cancelled (794,118) 1.17 Outstanding at September 30, 2016 4,416,937 $0.96 4.60 $274,890 Exercisable at September 30, 2016 3,587,683 $0.95 4.60 $270,940

3. Options and Warrants_ Sche19

3. Options and Warrants: Schedule of Warrants, Activity (Tables)	9 Months Ended
	Sep. 30, 2016
Tables/Schedules
Schedule of Warrants, Activity	Warrants Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2015 1,975,231 $1.21 Granted - - Exercised (105,139) 0.60 Cancelled (891,328) 1.27 Outstanding at September 30, 2016 978,764 $1.05 5.78 $- Exercisable at September 30, 2016 745,432 $1.06 5.61 $-

3. Options and Warrants_ Sche20

3. Options and Warrants: Schedule of Stock-Based Compensation Exprense Allocation (Tables)	9 Months Ended
	Sep. 30, 2016
Tables/Schedules
Schedule of Stock-Based Compensation Exprense Allocation	For the three and nine months ended September 30, 2016 and 2015, stock-based compensation expense recognized in the consolidated statements of operations as follows: Three Months Ended September 30, Nine months Ended September 30, 2016 2015 2016 2015 Cost of revenues $9,620 $70,396 $33,535 $127,953 Sales and marketing 6,927 8,319 23,529 25,885 General and administrative expense 31,704 30,955 93,379 180,446 Total stock based compensation expense $48,251 $109,670 $150,443 $334,284

4. Net Income (loss) Per Share_

4. Net Income (loss) Per Share: Schedule of Computation of Earnings Per Share, Basic and Diluted (Tables)	9 Months Ended
	Sep. 30, 2016
Tables/Schedules
Schedule of Computation of Earnings Per Share, Basic and Diluted	Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Numerator: Net income (loss) $674,360 $529,814 $1,168,802 $(152,465) Denominator: Denominator for basic calculation weighted average shares 24,557,224 24,274,815 24,506,934 24,050,960 Dilutive common stock equivalents: Options and warrants 259,384 709,167 356,057 - Denominator for diluted calculation weighted average shares 24,816,608 24,983,982 24,862,991 24,050,960 Net loss per share: Basic net income (loss) per share $.03 $.02 $.05 $(.01) Diluted net income (loss) per share $.03 $.02 $.05 $(.01)

5. Accounts Receivable_ Schedul

5. Accounts Receivable: Schedule of Accounts Receivable (Tables)	9 Months Ended
	Sep. 30, 2016
Tables/Schedules
Schedule of Accounts Receivable	A summary of accounts receivable is as follows: September 30, 2016 December 31, 2015 Trade receivables $6,293,565 $7,458,022 Unapplied advances and unbilled revenue, net 992,554 (60,065) Allowance for doubtful accounts - - Total accounts receivable $7,286,119 $7,397,957

6. Intangible Assets_ Schedule

6. Intangible Assets: Schedule of Intangible Assets (Tables)	9 Months Ended
	Sep. 30, 2016
Tables/Schedules
Schedule of Intangible Assets	Intangible assets are amortized over expected useful lives ranging from 1.5 to 10 years and consist of the following: September 30, 2016 December 31, 2015 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Delphiis, Inc. Acquired technology $900,000 $(202,500) $900,000 $(135,000) Customer relationships 400,000 (180,000) 400,000 (120,000) Trademarks 50,000 (50,000) 50,000 (50,000) Non-compete agreements 20,000 (15,000) 20,000 (10,000) Total intangible assets, Delphiis, Inc. $1,370,000 $(447,500) $1,370,000 $(315,000) Redspin Acquired technology $1,050,000 $(157,500) $1,050,000 $(78,750) Customer relationships 600,000 (300,000) 600,000 (150,000) Trademarks 200,000 (60,000) 200,000 (30,000) Non-compete agreements 100,000 (30,000) 100,000 (15,000) Total intangible assets, Redspin $1,950,000 $(547,500) $1,950,000 $(273,750) Total intangible assets $3,320,000 $(995,000) $3,320,000 $(588,750)

11. Asset Purchase Agreement 24

11. Asset Purchase Agreement - Redspin: Schedule of Allocation of the Purchase Price of the Assets Acquired and Liabilities Assumed (Tables)	9 Months Ended
	Sep. 30, 2016
Redspin, Inc.
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 based on their fair values was as follows: Acquired technology $1,050,000 Customer relationships 600,000 Trademarks 200,000 Non-compete agreements 100,000 Goodwill 1,192,000 Accounts receivable 180,409 Other assets received 19,009 Accounts payable and accrued expenses (23,196) Accrued compensation (118,009) Deferred revenue (31,247) Total $3,168,966

11. Asset Purchase Agreement 25

11. Asset Purchase Agreement - Redspin: Business Acquisition, Pro Forma Information (Tables)	9 Months Ended
	Sep. 30, 2016
Redspin, Inc.
Business Acquisition, Pro Forma Information	Nine Months Ended September 30, 2016 2015 Pro forma revenue $44,004,091 $45,888,738 Pro forma net income (loss) $1,168,802 $(353,344) Pro forma basic net income (loss) per share $0.05 $(0.01) Pro forma diluted net loss per share $0.05 $(0.01)

3. Options and Warrants_ Sche26

3. Options and Warrants: Schedule of Stock Options, Activity (Details)	9 Months Ended
	Sep. 30, 2016USD ($)$ / sharesshares
Details
Outstanding, Beginning Balance | shares	4,563,555
Outstanding, Weighted Average Exercise Price, Beginning Balance | $ / shares	$ 1
Granted | shares	647,500
Granted, Weighted Average Exercise Price | $ / shares	$ 0.96
Exercised | shares	0
Exercised, Weighted Average Exercise Price | $ / shares	$ 0
Cancelled | shares	(794,118)
Cancelled, Weighted Average Exercise Price | $ / shares	$ 1.17
Outstanding, Ending Balance | shares	4,416,937
Outstanding, Weighted Average Exercise Price, Ending Balance | $ / shares	$ 0.96
Outstanding, Weighted Average Remaining Term in Years	4 years 7 months 6 days
Outstanding, Aggregate Intrinsic Value | $	$ 274,890
Exercisable | shares	3,587,683
Exercisable, Weighted Average Exercise Price | $ / shares	$ 0.95
Exercisable, Weighted Average Remaining Term in Years	4 years 7 months 6 days
Exercisable, Aggregate Intrinsic Value | $	$ 270,940

3. Options and Warrants (Detail

3. Options and Warrants (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Granted, Weighted Average Exercise Price			$ 0.96
Fair Value Assumptions, Method Used			Black-Scholes option-pricing model
Dividend yield			0.00%
Expected life of options			3 years
Stock-based compensation expense	$ 48,251	$ 109,670	$ 150,443	$ 334,284
Redspin, Inc.
Stock-based compensation expense			$ 62,000
Minimum
Granted, Weighted Average Exercise Price			$ 0.80
Risk-free interest rate			0.08%
Estimated volatility			45.95%
Maximum
Granted, Weighted Average Exercise Price			$ 1.02
Risk-free interest rate			0.40%
Estimated volatility			46.29%

3. Options and Warrants_ Sche28

3. Options and Warrants: Schedule of Warrants, Activity (Details)	9 Months Ended
	Sep. 30, 2016USD ($)$ / sharesshares
Details
Outstanding, Beginning Balance | shares	1,975,231
Outstanding, Weighted Average Exercise Price, Beginning Balance	$ 1.21
Granted | shares	0
Granted, Weighted Average Exercise Price	$ 0
Exercised | shares	(105,139)
Exercised, Weighted Average Exercise Price	$ 0.60
Cancelled | shares	(891,328)
Cancelled, Weighted Average Exercise Price	$ 1.27
Outstanding, Ending Balance | shares	978,764
Outstanding, Weighted Average Exercise Price, Ending Balance	$ 1.05
Outstanding, Weighted Average Remaining Contractual Life	5 years 9 months 11 days
Outstanding, Intrinsic Value | $	$ 0
Exercisable	745,432
Exercisable, Weighted Average Exercise Price	$ 1.06
Exercisable, Weighted Average Remaining Contractual Life	5 years 7 months 10 days
Exercisable, Intrinsic Value | $	$ 0

3. Options and Warrants_ Sche29

3. Options and Warrants: Schedule of Stock-Based Compensation Exprense Allocation (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Stock-based compensation expense	$ 48,251	$ 109,670	$ 150,443	$ 334,284
Cost of revenues
Stock-based compensation expense	9,620	70,396	33,535	127,953
Sales and marketing
Stock-based compensation expense	6,927	8,319	23,529	25,885
General and administrative expense
Stock-based compensation expense	$ 31,704	$ 30,955	$ 93,379	$ 180,446

4. Net Income (loss) Per Share

4. Net Income (loss) Per Share (Details) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Dilutive securities included in the computation of earnings per share	259,384	709,167	356,057	0
Options And Warrants
Potentially Dilutive Securities	5,395,701	6,529,786	5,395,701	6,529,786
Dilutive securities included in the computation of earnings per share	259,384		356,057
Options And Warrants | Minimum
Potentially dilutive securities, exercise price	$ 0.30	$ 0.30	$ 0.30	$ 0.30
Options And Warrants | Maximum
Potentially dilutive securities, exercise price	$ 2.15	$ 2.15	$ 2.15	$ 2.15

4. Net Income (loss) Per Shar31

4. Net Income (loss) Per Share: Schedule of Computation of Earnings Per Share, Basic and Diluted (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Numerator:
Net income (loss)	$ 674,360	$ 529,814	$ 1,168,802	$ (152,465)
Denominator:
Denominator for basic calculation weighted average shares	24,557,224	24,274,815	24,506,934	24,050,960
Dilutive Common Stock equivalents:
Options and warrants	259,384	709,167	356,057	0
Denominator for diluted calculation weighted average	24,816,608	24,983,982	24,862,991	24,050,960
Net loss per share:
Basic net income (loss) per share	$ 0.03	$ 0.02	$ 0.05	$ (0.01)
Diluted net loss per share	$ 0.03	$ 0.02	$ 0.05	$ (0.01)

5. Accounts Receivable_ Sched32

5. Accounts Receivable: Schedule of Accounts Receivable (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Details
Trade receivables	$ 6,293,565	$ 7,458,022
Unapplied advances and unbilled revenue, net	992,554	(60,065)
Allowance for doubtful accounts	0	0
Total accounts receivable	$ 7,286,119	$ 7,397,957

6. Intangible Assets_ Schedul33

6. Intangible Assets: Schedule of Intangible Assets (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Gross Carrying Amount	$ 3,320,000	$ 3,320,000
Accumulated Amortization	(995,000)	(588,750)
Delphiis, Inc.
Gross Carrying Amount	1,370,000	1,370,000
Accumulated Amortization	(447,500)	(315,000)
Delphiis, Inc. | Acquired Technology
Gross Carrying Amount	900,000	900,000
Accumulated Amortization	(202,500)	(135,000)
Delphiis, Inc. | Customer Relationships
Gross Carrying Amount	400,000	400,000
Accumulated Amortization	(180,000)	(120,000)
Delphiis, Inc. | Trademarks
Gross Carrying Amount	50,000	50,000
Accumulated Amortization	(50,000)	(50,000)
Delphiis, Inc. | Noncompete Agreements
Gross Carrying Amount	20,000	20,000
Accumulated Amortization	(15,000)	(10,000)
Redspin, Inc.
Gross Carrying Amount	1,950,000	1,950,000
Accumulated Amortization	(547,500)	(273,750)
Redspin, Inc. | Acquired Technology
Gross Carrying Amount	1,050,000	1,050,000
Accumulated Amortization	(157,500)	(78,750)
Redspin, Inc. | Customer Relationships
Gross Carrying Amount	600,000	600,000
Accumulated Amortization	(300,000)	(150,000)
Redspin, Inc. | Trademarks
Gross Carrying Amount	200,000	200,000
Accumulated Amortization	(60,000)	(30,000)
Redspin, Inc. | Noncompete Agreements
Gross Carrying Amount	100,000	100,000
Accumulated Amortization	$ (30,000)	$ (15,000)
Minimum
Intangible Asset, Useful Life	1 year 6 months
Maximum
Intangible Asset, Useful Life	10 years

7. Line of Credit and Term Lo34

7. Line of Credit and Term Loan (Details) - USD ($)	9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2012	Jun. 19, 2016	Jun. 19, 2015	May 09, 2012	May 04, 2012
Line of Credit Facility, Initiation Date	May 4, 2012
Avidbank | Line of Credit
Interest Charges	$ 0	$ 16,347
Avidbank | Term Loan
Line of Credit Facility, Maximum Borrowing Capacity				$ 4,000,000
Long-term Line of Credit	$ 1,500,000				$ 2,000,000
Debt Instrument, Interest Rate Terms	prime plus 1.25% per annum
Line of Credit, Current	$ 500,000
Debt Instrument, Interest Rate, Stated Percentage	4.75%
Warrants, Outstanding						72,098
Exercise Price of Warrants						$ 1.39
Interest Charges	$ 57,224	$ 38,120
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) $2.0 million, or (b) the amount available under our borrowing base (80% of our eligible accounts, minus (1) accrued client lease payables, and minus (2) accrued equipment pool liability). As of September 30, 2016 and December 31, 2015, no amounts were outstanding under the line of credit.
Loan And Security Agreement | Avidbank | Line of Credit
Debt Instrument, Description of Variable Rate Basis			prime plus 1.0% per annum
Debt Instrument, Interest Rate, Effective Percentage	4.25%
Loan And Security Agreement | Avidbank | Term Loan
Debt Instrument, Description of Variable Rate Basis	prime plus 0.75% per annum
Debt Instrument, Maturity Date	Jun. 19, 2017
Line of Credit Facility, Covenant Terms	While there are outstanding credit extensions, we are to maintain a liquidity ratio of cash plus accounts receivable divided by all obligations owing to the bank of at least 1.75 to 1.00, measured monthly, and a debt coverage ratio, whereby adjusted EBITDA for the most recent twelve months shall be no less than 1.50 to 1.00 of the sum of the annual principal payments to come due in respect of the term loan advances plus the annualized interest expense of the quarter ending on the measurement date. We were in compliance with all of the Avidbank agreement covenants as of September 30, 2016 and December 31, 2015.

8. Employment Agreements (Detai

8. Employment Agreements (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2014
Chief Executive Officer
Base Salary, Annual Amount	$ 300,000	$ 275,000
Salary Bonus, Annual Amount	180,000	$ 150,000
Employment Agreement, Revised Warrant Vesting Schedule Description		The revision spreads the vesting date of the remaining 300,000 unvested shares from 150,000 on January 1, 2015 and 150,000 on January 1, 2016 to 100,000 on January 1, 2015, 100,000 on January 1, 2016 and 100,000 on January 1, 2017
Chief Financial Officer
Base Salary, Annual Amount	245,000	$ 225,000
Salary Bonus, Annual Amount	$ 132,000	$ 108,000
Employment Agreement, Revised Warrant Vesting Schedule Description		The revision spreads the vesting date of the remaining 200,000 unvested shares from 100,000 on January 1, 2015 and 100,000 on January 1, 2016 to 66,667 on January 1, 2015, 66,667 on January 1, 2016 and 66,666 on January 1, 2017.

9. Concentrations (Details)

9. Concentrations (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Accounts receivable, net	$ 7,286,119		$ 7,397,957
Customer Concentration Risk
Accounts receivable, net	$ 4,000,000		$ 2,600,000
Sales | Customer Concentration Risk
Concentration Risk, Percentage	50.00%	35.00%

11. Asset Purchase Agreement 37

11. Asset Purchase Agreement - Redspin (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Payment for purchase of Redspin		$ 1,876,966
Daniel Berger
Base Salary, Annual Amount	$ 250,000
John Abraham
Base Salary, Monthly Amount	11,000
Redspin, Inc.
Payment for purchase of Redspin	2,076,966
Allocated Holdback	200,000
Holdback amount	$ 67,811
Business Combination, Contingent Consideration Arrangements, Basis for Amount	The Purchase Agreement also provides for the Company to pay employee bonus shares of common stock upon the achievement of the same certain earnings targets and provided they remain with the Company for one year subsequent to the acquisition date. Management previously had considered the $124,000 of fair value of these employee bonus shares to be a component of the acquisition cost. After completing the analysis of the earn-out provisions, Management has determined that the employee bonus shares would be post-combination compensation. The minimum earnings targets were not achieved. Accordingly, no related stock compensation expense has been recorded for the year ended December 31, 2015 or the nine months ended September 30, 2016.
Legal, accounting and other professional fees related to acquisition			$ 70,000
Redspin, Inc. | Minimum
Estimated useful life of the identifiable intangible assets acquired	3 years
Redspin, Inc. | Maximum
Estimated useful life of the identifiable intangible assets acquired	10 years
Redspin, Inc. | Common Stock
Stock Issued During Period, Shares, Acquisitions	452,284
Stock Issued During Period, Value, Acquisitions	$ 500,000

11. Asset Purchase Agreement 38

11. Asset Purchase Agreement - Redspin: Schedule of Allocation of the Purchase Price of the Assets Acquired and Liabilities Assumed (Details) - Redspin, Inc.	9 Months Ended
	Sep. 30, 2016USD ($)
Goodwill	$ 1,192,000
Accounts Receivable	180,409
Other assets received	19,009
Accounts payable and accrued expenses	(23,196)
Accrued compensation	(118,009)
Deferred revenue	(31,247)
Total	3,168,966
Acquired Technology
Finite-lived Intangible Assets Acquired	1,050,000
Customer Relationships
Finite-lived Intangible Assets Acquired	600,000
Trademarks
Finite-lived Intangible Assets Acquired	200,000
Noncompete Agreements
Finite-lived Intangible Assets Acquired	$ 100,000

11. Asset Purchase Agreement 39

11. Asset Purchase Agreement - Redspin: Business Acquisition, Pro Forma Information (Details) - Redspin, Inc. - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Pro forma revenue	$ 44,004,091	$ 45,888,738
Pro forma net income (loss)	$ 1,168,802	$ (353,344)
Pro forma basic net income (loss) per share	$ 0.05	$ (0.01)
Pro forma diluted net loss per share	$ 0.05	$ (0.01)