CynergisTek (CTEK) 10-K 29 Mar 17 2016 FY Annual report Financial data

Document and Entity Information

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2016	Mar. 27, 2017	Jun. 30, 2016
Document and Entity Information:
Entity Registrant Name	AUXILIO INC
Document Type	10-K
Document Period End Date	Dec. 31, 2016
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		9,379,477
Entity Public Float			$ 15,000,000
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	2,016
Document Fiscal Period Focus	FY

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 6,090,844	$ 6,436,732
Accounts receivable, net	9,614,486	7,397,957
Prepaid and other current assets	438,140	625,806
Supplies	1,087,318	1,458,609
Total current assets	17,230,788	15,919,104
Property and equipment, net	689,418	495,324
Deposits	41,522	58,118
Deferred income taxes	5,282,531
Intangible assets, net	1,112,395	2,731,250
Goodwill	2,109,143	3,665,656
Total assets	26,465,797	22,869,452
Current liabilities:
Accounts payable and accrued expenses	7,736,207	8,306,860
Accrued compensation and benefits	2,495,156	2,856,165
Deferred revenue	562,679	913,677
Current portion of long-term liabilities	606,686	598,750
Total current liabilities	11,400,728	12,675,452
Long-term liabilities:
Term loan, less current portion	750,000	1,250,000
Capital lease obligations, less current portion	199,644	125,496
Total long-term liabilities	949,644	1,375,496
Commitments and contingencies (Notes 12-14 and 16)
Stockholders' equity:
Common stock, par value at $0.001, 33,333,333 shares authorized, 8,185,936 shares issued and outstanding at December 31, 2016 and 8,150,695 shares issued and outstanding at December 31, 2015	8,186	8,151
Additional paid-in capital	27,985,448	27,698,363
Accumulated deficit	(13,878,209)	(18,888,010)
Total stockholders' equity	14,115,425	8,818,504
Total liabilities and stockholders' equity	$ 26,465,797	$ 22,869,452

CONSOLIDATED BALANCE SHEETS (Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 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	8,185,936	8,150,695
Common Stock, shares outstanding	8,185,936	8,150,695

CONSOLIDATED STATEMENTS OF INCO

CONSOLIDATED STATEMENTS OF INCOME - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Income Statement
Net revenues	$ 60,200,383	$ 61,253,853
Cost of revenues	47,888,296	50,664,713
Gross profit	12,312,087	10,589,140
Operating expenses:
Sales and marketing	2,723,735	2,809,377
General and administrative expenses	6,927,404	6,802,582
Impairment of goodwill and intangible assets (Note 4)	2,633,701
Total operating expenses	12,284,840	9,611,959
Income from operations	27,247	977,181
Other income (expense):
Interest expense	(91,885)	(127,576)
Reduction in contingent consideration in connection with acquisition of Redspin		623,000
Loss on disposition of property and equipment		(3,513)
Total other income (expense)	(91,885)	491,911
(Loss) income before provision for income taxes	(64,638)	1,469,092
Income tax benefit (expense)	5,074,439	(152,436)
Net income	$ 5,009,801	$ 1,316,656
Net income per share:
Basic	$ 0.61	$ 0.16
Diluted	$ 0.60	$ 0.16
Number of weighted average shares outstanding:
Basic	8,173,203	8,050,191
Diluted	8,283,862	8,326,312

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, 2014	$ 7,876	$ 26,592,255	$ (20,204,666)	$ 6,395,465
Equity Balance, beginning of period, Shares at Dec. 31, 2014	7,874,540
Stock compensation expense for options and warrants granted to employees and directors		277,668		277,668
Stock compensation expense for restricted stock granted to key employee, Value	$ 33	101,847		$ 101,880
Stock compensation expense for restricted stock granted to key employee, Shares	33,333
Stock options exercised, Value	$ 6	(6)
Stock options exercised, Shares	6,116			6,117
Conversion of related party note payable to common stock, Value	$ 86	257,749		$ 257,835
Conversion of related party note payable to common stock, Shares	85,945
Common stock issued in connection with the acquisition of Redspin, Value	$ 150	468,850		469,000
Common stock issued in connection with the acquisition of Redspin, Shares	150,761
Net income			1,316,656	1,316,656
Equity Balance, end of period, Value at Dec. 31, 2015	$ 8,151	27,698,363	(18,888,010)	8,818,504
Equity Balance, end of period, Shares at Dec. 31, 2015	8,150,695
Stock compensation expense for options and warrants granted to employees and directors		226,970		226,970
Stock options exercised, Value	$ 35	60,115		$ 60,150
Stock options exercised, Shares	35,046			0
Effect of reverse stock split, Shares	195
Net income			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

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Cash flows provided by operating activities:
Net income	$ 5,009,801	$ 1,316,656
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	211,654	155,183
Amortization of intangible assets	541,667	483,750
Impairment of intangible assets	2,633,701
Bad debt		22,000
Stock compensation expense for options and warrants granted to employees and directors	226,970	277,668
Stock compensation expense for restricted stock issued to key employee		101,880
Interest expense related to accretion of debt discount costs		30,189
Loss on disposition of property and equipment		3,513
Increase in net deferred tax assets	(5,282,531)
Changes in operating assets and liabilities:
Accounts receivable	(2,216,529)	(431,365)
Prepaid and other current assets	187,666	(395,870)
Supplies	371,291	(392,477)
Deposits	16,596	(20,527)
Accounts payable and accrued expenses	(570,653)	43,302
Accrued compensation and benefits	(361,009)	1,291,024
Deferred revenue	(350,998)	(39,340)
Net cash provided by operating activities	417,626	2,445,586
Cash flows (used for) investing activities:
Purchases of property and equipment	(205,121)	(214,478)
Purchase of Redspin		(1,876,966)
Net cash (used for) investing activities	(205,121)	(2,091,444)
Cash flows (used for) provided by financing activities:
Net repayments on line of credit agreement		(200,000)
Proceeds from term loan		2,000,000
Payments on term loan	(500,000)	(250,000)
Payments on notes payable to related parties		(105,888)
Payments on capital leases	(118,543)	(104,917)
Proceeds from exercise of options and warrants	60,150
Net cash (used for) provided by financing activities	(558,393)	1,339,195
Net change in cash and cash equivalents	(345,888)	1,693,337
Cash and cash equivalents, beginning of year	6,436,732	4,743,395
Cash and cash equivalents, end of year	6,090,844	6,436,732
Supplemental disclosure of cash flow information:
Interest paid	91,885	97,386
Income tax paid	220,076	158,521
Non-cash investing and financing activities:
Property and equipment acquired through capital leases	$ 200,627	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 and S

(1) Basis of Presentation and Summary of Significant Accounting Policies	12 Months Ended
	Dec. 31, 2016
Notes
(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 and Reverse Stock Split The accompanying consolidated financial statements were prepared in conformity with GAAP, and include the accounts of Auxilio and our wholly-owned subsidiaries. All intercompany balances and transactions were eliminated. 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 resulting in the reclassification of $15,749 from common stock to additional paid in capital at January 1, 2015. 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 revenue; (2) equipment revenue; (3) software subscriptions and managed services revenue, 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) cyber security professional services such as penetration testing, cyber security risk assessments and security program strategy development. The Company commences revenue recognition when all of the following conditions are satisfied: • there is persuasive evidence of an arrangement; • the service has been or is being provided to the customer; • the collection of the fees is reasonably assured; and • the amount of fees to be paid by the customer is fixed or determinable. · 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 has 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. · Cyber Security Professional Services Revenues The majority of the Company’s cyber security 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. Management believes that no accounts receivable were uncollectible at December 31, 2016 or 2015. 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 market 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 income 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. Based on management’s tests and reviews, no impairment of its goodwill, intangible assets or other long-lived assets existed at December 31, 2015. However, during the year ended December 31, 2016, management determined that the goodwill associated with the Delphiis and Redspin acquisitions were impaired (Note 4). 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 is recognized for the amount by which the goodwill carrying value exceeds the implied fair value of goodwill. 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, 2016, management determined there was impairment of certain definite lived intangible assets associated with the Delphiis and Redspin reporting units (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 standard applies to other accounting pronouncements, but does not require any new 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 market has not materially changed since the original borrowing date. 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, 2016 and 2015, stock-based compensation expense recognized in the consolidated statements of income is as follows: Year Ended December 31, 2016 2015 Cost of revenues $ 43,193 $ 137,279 Sales and marketing 38,510 34,203 General and administrative expenses 145,267 208,066 Total stock based compensation expense $ 226,970 $ 379,548 The weighted average estimated fair value of stock options granted during 2016 and 2015 was $0.86 and $1.26 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 in 2016 and 2015: 2016 2015 Risk-free interest rate 0.37% to 0.40% 0.08% to 0.12% Expected volatility of our Common Stock 45.95% to 46.77% 46.74% to 54.98% 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. As of December 31, 2016, we have not granted any restricted stock units under the 2011 Stock Incentive Plan. Basic and Diluted Net 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, 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. As of December 31, 2015 potentially dilutive securities consisted of options and warrants to purchase 2,176,595 shares of our Common Stock at prices ranging from $0.90 to $6.45 per share. Of these potentially dilutive securities, only 276,121 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 income per share: Year Ended December 31, 2016 2015 Numerator: Net income $ 5,009,801 $ 1,316,656 Denominator: Denominator for basic calculation weighted averages 8,173,203 8,050,191 Dilutive Common Stock equivalents: Options and warrants 110,659 276,121 Denominator for diluted calculation weighted average 8,283,862 8,326,312 Net income per share: Basic net income per share $ .61 $ .16 Diluted net income per share $ .60 $ .16 Segment Reporting Based on our integration and management strategies, we operate in a single business segment. For the years ended December 31, 2016 and 2015, all revenues were derived from domestic operations. New Accounting Pronouncements In April 2015, the FASB issued an update to a standard to simplify the presentation of debt issuance costs. This update requires debt issuance costs be presented on the balance sheet as a direct reduction from the carrying amount of the debt liability consistent with debt discounts or premiums. Adoption of this standard is required for interim and annual periods beginning after December 15, 2015 and is to be applied retrospectively. The adoption of this update on January 1, 2016 did not have a material impact on our consolidated financial statements. In November 2015, the FASB issued guidance related to the presentation of deferred income taxes. The guidance requires that deferred tax assets and liabilities are classified as non-current in a consolidated balance sheet. This guidance was adopted early by us and resulted in the Company classifying its deferred tax assets as non-current assets. 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 in the process of evaluating the impact of the new guidance on our consolidated financial statements. 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 that adopting this guidance and we are preparing for the changes to be made to our consolidated financial statements. In January 2017, the FASB issued a new accounting standard simplifying the test for goodwill impairment. Currently, the fair value of the reporting unit is compared with the carrying value of the reporting unit (identified as "Step 1"). If the fair value of the reporting unit is lower than its carrying amount then, the implied fair value of goodwill is calculated. If the implied fair value of goodwill is lower than the carrying value of goodwill an impairment is recognized (identified as "Step 2"). The new standard eliminates Step 2 from the impairment test; therefore, a goodwill impairment will be recognized as the difference of the fair value and the carrying value. 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 its financial position, results of operations and cash flows.

(2) Accounts Receivable

(2) Accounts Receivable	12 Months Ended
	Dec. 31, 2016
Notes
(2) Accounts Receivable	(2) Accounts Receivable A summary of accounts receivable follows: As of December 31, 2016 2015 Trade receivables $ 8,046,561 $ 7,458,022 Unapplied advances and unbilled revenue, net 1,567,925 (60,065) Allowance for doubtful accounts - - $ 9,614,486 $ 7,397,957

(3) Property and Equipment

(3) Property and Equipment	12 Months Ended
	Dec. 31, 2016
Notes
(3) Property and Equipment	(3) Property and Equipment A summary of property and equipment follows: As of December 31, 2016 2015 Furniture and fixtures $ 156,831 $ 102,316 Computers and office equipment 773,246 623,810 Fleet equipment 539,310 373,572 Leasehold improvements 140,052 103,993 1,609,439 1,203,691 Less accumulated depreciation and amortization (920,021) (708,367) $ 689,418 $ 495,324 Depreciation and amortization expense for property, equipment, and improvements amounted to $211,654 and $155,183 for the years ended December 31, 2016 and 2015, respectively.

(4) Intangible Assets

(4) Intangible Assets	12 Months Ended
	Dec. 31, 2016
Notes
(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, 2015: Gross Carrying Amount Accumulated Amortization Delphiis, Inc. Acquired technology $ 900,000 $ (135,000) Customer relationships 400,000 (120,000) Trademarks 50,000 (50,000) Non-compete agreements 20,000 (10,000) Total intangible assets, Delphiis, Inc. $ 1,370,000 $ (315,000) Redspin Acquired technology $ 1,050,000 $ (78,750) Customer relationships 600,000 (150,000) Trademarks 200,000 (30,000) Non-compete agreements 100,000 (15,000) Total intangible assets, Redspin $ 1,950,000 $ (273,750) Total intangible assets $ 3,320,000 $ (588,750) The Company performed its annual impairment testing for Delphiis and Redspin as of December 31, 2016, and 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, 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 an aggregate impairment charge of $1,077,188. With respect to the goodwill analysis, 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. A summary of the Company’s intangible assets and goodwill carrying amounts and impairment charges as of December 31, 2016 follows: Intangible Assets Gross Carrying Amount Accumulated Amortization Net Carrying Amount Estimated Fair Value Impairment Delphiis, Inc. Acquired technology $ 900,000 $ (225,000) $ 675,000 $ 127,516 $ (547,484) Customer relationships 400,000 (200,000) 200,000 83,141 (116,859) Trademarks 50,000 (50,000) - - - Non-compete agreements 20,000 (16,667) 3,333 626 (2,707) Total Delphiis, Inc. $ 1,370,000 $ (491,667) $ 878,333 $ 211,283 $ (667,050) Redspin Acquired technology $ 1,050,000 $ (183,750) $ 866,250 $ 534,342 $ (331,908) Customer relationships 600,000 (350,000) 250,000 250,000 - Trademarks 200,000 (70,000) 130,000 77,929 (52,071) Non-compete agreements 100,000 (35,000) 65,000 38,841 (26,159) Total Redspin $ 1,950,000 $ (638,750) $ 1,311,250 $ 901,112 $ (410,138) Total intangible assets $ 3,320,000 $ (1,130,417) $ 2,189,583 $ 1,112,395 $ (1,077,188) Goodwill Carrying Amount Valuation Impairment Delphiis, Inc. $ 956,639 $ 119,513 $ (837,126) Redspin 1,192,000 472,613 (719,387) Auxilio Solutions, Inc 1,517,017 1,517,017 - Total $ 3,665,656 $ 2,109,143 $ (1,556,513)

(5) Line of Credit and Term Loa

(5) Line of Credit and Term Loan	12 Months Ended
	Dec. 31, 2016
Notes
(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”). 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 December 31, 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). The Fourth Avidbank Amendment also provided for a term loan facility which allows for advances up to $4,000,000 through June 19, 2016. Our initial draw was for $2,000,000 in 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. 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 during each of the years ended December 31, 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 supplies, 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 24,033 shares of our common stock at an exercise price of $4.17 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 years ended December 31, 2016 and 2015, respectively. Interest charges associated with the Avidbank term loan, including loan origination costs, totaled $75,801 and $59,385, respectively for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016 outstanding borrowings under the term loan was $1,250,000 and the interest rate was 5.0%. On January 13, 2017, this term loan was repaid as part of the acquisition of CynergisTek, Inc. Please see Note 16 regarding the acquisition.

(6) Notes Payable - Related Par

(6) Notes Payable - Related Parties	12 Months Ended
	Dec. 31, 2016
Notes
(6) Notes Payable - Related Parties	(6) Notes Payable – Related Parties We assumed debt totaling $463,723 when we acquired Delphiis, Inc. effective July 1, 2014 (see Note 15). In July 2014, we paid $100,000 to the note holders upon Delphiis’s collection of $100,000 from accounts receivable outstanding as of June 30, 2014. On February 19, 2015, a holder of $257,835 of the notes agreed to convert the principal amount of his note into 85,945 shares of our common stock and the other note holder was paid $52,944. The remaining $52,944 principal was repaid in September 2015 when, pursuant to the terms of the note, we accelerated payment on the outstanding amount due at such time as Delphiis, Inc. achieved $4,000,000 of bookings measured from July 1, 2014. Pursuant to a Note Conversion Agreement, dated February 19, 2015 (the “Conversion Agreement”), the holder of the $257,835 note agreed to convert the principal amount of his note into 85,945 shares of our common stock. In February 2015 he received 42,972 shares of common stock, and in October 2015 he received the remaining 42,973 shares when, under the terms of the Conversion Agreement, we accelerated the issuance at such time as Delphiis, Inc. achieved $4,000,000 of bookings measured from July 1, 2014. The foregoing summary of the note conversion is qualified in its entirety by reference to the full context of the Conversion Agreement which is found as Exhibit 99.1 to our 8-K filing on February 27, 2015. Interest expense on the notes, including amortization of the discount, was $33,258 for the year ended December 31, 2015.

(7) Warrants

(7) Warrants	12 Months Ended
	Dec. 31, 2016
Notes
(7) Warrants	(7) Warrants Below is a summary of warrant activity during the years ended December 31, 2015 and 2016: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at January 1, 2015 736,199 $ 3.33 Granted in 2015 - $ - Exercised in 2015 - $ - Cancelled in 2015 (77,780) $ 3.03 Outstanding at December 31, 2015 658,419 $ 3.39 3.46 $ 265,750 Granted in 2016 - $ - Exercised in 2016 (35,047) $ 1.80 Cancelled in 2016 (297,123) $ 3.81 Outstanding at December 31, 2016 326,249 $ 3.15 5.53 $ - Warrants exercisable at December 31, 2016 326,249 $ 3.15 5.53 $ - The following tables summarize information about warrants outstanding and exercisable at December 31, 2016: 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 $0.91 to $1.84 326,249 5.53 $ 3.15 326,249 $ 3.15 Total 326,249 5.53 $ 3.15 326,249 $ 3.15 On January 16, 2013, we granted warrants to four executive employees to purchase a total of 500,000 shares of common stock with a strike price set at $3.03. The exercise price equals the fair value of our stock on the grant date. Of these warrants, 50,000 vested immediately and 450,000 vest contingent upon the Company achieving certain performance targets for fiscal years 2013 through 2016 Year Ended December 31, Number of Shares 2013 150,000 2014 122,222 2015 122,222 2016 55,556 The fair value of the warrants that vest is 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 of 0.14%, (ii) estimated volatility of 62.94%; (iii) dividend yield of 0.0%; and (iv) expected life of the warrants of five years. The performance targets in 2013 were deemed achieved by the Board of Directors. We have recorded stock compensation for the 50,000 initially vested shares and the 150,000 contingent shares totaling $315,176 for the year ended December 31, 2013. In March 2014, one of the executives separated from the Company which resulted in the full vesting of all 66,667 shares of his remaining warrant grants. We have recorded stock compensation for the shares totaling $105,059 for the year ended December 31, 2014. Also in 2014, three of the executives’ employment agreements provided for a modification of the vesting of this warrant grant. The revised vesting schedule is as follows: Year Ended December 31, Number of Shares 2014 77,778 2015 77,778 2016 77,777 Our Board of Directors determined that the performance measures for 2014 were not met. As such the warrants for 2014 did not vest to the three executives. This tranche of warrants was cancelled. Our Board of Directors determined that the performance measures for 2015 and 2016 were met. As such the warrants for 2015 and 2016 vested to the three remaining executives. We have recorded stock compensation for the warrants totaling $122,569 for the year ended December 31, 2015 and $122,568 for the year ended December 31, 2016.

(8) Stock Option and Stock Ince

(8) Stock Option and Stock Incentive Plans	12 Months Ended
	Dec. 31, 2016
Notes
(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 authorizes 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. As of December 31, 2016, there were 398,071 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, 2015 1,632,068 $ 3.15 Granted in 2015 90,091 $ 3.45 Exercised in 2015 (6,117) $ 1.41 Cancelled in 2015 (194,738) $ 4.56 Outstanding at December 31, 2015 1,521,304 $ 3.00 4.22 $ 966,509 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 Options exercisable at December 31, 2016 1,177,614 $ 2.86 4.32 $ 184,991 The following table summarizes information about stock options outstanding and exercisable at December 31, 2016: 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 $2.27 322,011 2.00 $ 1.83 322,012 $ 1.83 $2.28 to $2.72 329,187 5.60 $ 2.48 196,848 $ 2.44 $2.72 to $5.54 795,542 4.75 $ 3.42 651,252 $ 3.45 $5.55 to $8.99 7,502 1.67 $ 6.45 7,502 $ 6.45 $0.90 to $8.99 1,454,242 4.32 $ 2.87 1,177,614 $ 2.86 Unamortized compensation expense associated with unvested options approximates $222,688 as of December 31, 2016. The weighted average period over which these costs are expected to be recognized is approximately 1.5 years.

(9) Restricted Stock

(9) Restricted Stock	12 Months Ended
	Dec. 31, 2016
Notes
(9) Restricted Stock	(9) Restricted Stock In July 2014, in connection with our acquisition of the common stock of Delphiis, Inc., we issued to a key employee 133,333 shares of restricted stock as part of his employment agreement. The shares vest as follows: Vesting Date Shares July 1, 2016 33,333 July 1, 2017 33,333 July 1, 2018 33,333 July 1, 2019 33,334 In August 2015, the key employee’s employment agreement was revised such that the first 33,333 shares became fully vested and the remaining shares were cancelled on January 1, 2016. The stock-based compensation expense recognized for these shares totaled $101,881 for the year ended December 31, 2015.

(10) Income Taxes

(10) Income Taxes	12 Months Ended
	Dec. 31, 2016
Notes
(10) Income Taxes	(10) Income Taxes For the years ended December 31, 2016 and 2015, the components of income tax benefit (expense) are as follows: Year Ended December 31, 2016 2015 Current provision: Federal $ (58,092) $ (70,436) State (150,000) (82,000) (208,092) (152,436) Deferred: Federal 4,685,565 - State 596,966 - 5,282,531 - Income tax benefit (expense) $ 5,074,439 $ (152,436) Income tax benefit (expense) amounted to $5,074,439 and ($152,436) for the years ended December 31, 2016 and 2015, respectively (an effective rate of (7,851)% for 2016 and 10.4% for 2015). 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, 2016 2015 Computed tax at federal statutory rate of 34% $ 21,977 $ (448,479) State taxes, net of federal benefit (104,225) (54,121) Non-deductible items (29,683) (43,654) Other (30,718) (75,828) Change in valuation allowance 5,217,088 469,646 $ 5,074,439 $ (152,436) Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which is uncertain. A valuation allowance, in an amount equal to the net deferred tax asset as of December 31, 2015 has been established to reflect these uncertainties. 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, 2016 2015 Deferred tax assets: Accrued salaries/vacation $ 267,500 $ 253,600 Accrued equipment pool 54,500 127,900 State taxes 34,000 18,700 Stock options 901,500 864,500 Credits 205,700 153,000 Net operating loss carryforwards 3,444,900 5,064,000 Total deferred tax assets 4,908,100 6,481,700 Deferred tax liabilities: Depreciation 302,000 9,100 Amortization of intangibles (1,056,400) 343,500 Other 379,969 541,600 Total deferred tax liabilities (374,431) 894,200 Net deferred assets before valuation allowance 5,282,531 5,587,500 Valuation allowance - (5,587,500) Net deferred tax assets $ 5,282,531 $ - At December 31, 2016, we have available unused net operating loss carryforwards of approximately $9,497,000 for federal purposes and $7,079,000 for state purposes that may be applied against future taxable income and that, if unused, expire beginning in 2023 through 2032. 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 and state net operating loss carryforwards will begin to expire in 2023 and 2020, respectively. 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 additional liability for unrecognized tax benefits and interest was necessary.

(11) Retirement Plan

(11) Retirement Plan	12 Months Ended
	Dec. 31, 2016
Notes
(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, 2016 and 2015, we made matching contributions totaling $117,762 and $94,042, respectively.

(12) Commitments

(12) Commitments	12 Months Ended
	Dec. 31, 2016
Notes
(12) Commitments	(12) Commitments Leases We lease our Mission Viejo, California facility under a non-cancellable operating lease effective December 2015 that expires in April 2021. Our Carpinteria, California office lease is currently on a month-to-month basis. Rent expense for the years ended December 31, 2016 and 2015 totaled $441,058 and $272,064 respectively. Future minimum lease payments under non-cancelable operating leases during subsequent years are as follows: December 31, Payments 2017 $ 374,751 2018 421,084 2019 433,716 2020 446,728 2021 132,926 Total $ 1,809,206 Employment Agreements Effective January 1, 2016, we entered into an employment agreement with Mr. Flynn (the “2016 Flynn Agreement”). 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 Annual Report on Form 10-K filed with the SEC on March 30, 2016. Effective January 1, 2016, we entered into a new employment agreement with Mr. 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 retroactive to January 1, 2017, and increased his potential annual bonus amount to $150,000.

(13) Concentrations

(13) Concentrations	12 Months Ended
	Dec. 31, 2016
Notes
(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, 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. For the year ended December 31, 2015, there were three customers that each generated at least 10% of our revenues and these customers represented a total of 50% of revenues. As of December 31, 2015, net accounts receivable due from these customers totaled approximately $3,100,000.

(14) Asset Purchase Agreement -

(14) Asset Purchase Agreement - Redspin	12 Months Ended
	Dec. 31, 2016
Notes
(14) Asset Purchase Agreement - Redspin	(14) 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”) and certain owners of 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 150,761 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 estimated the fair value of the contingent consideration to be approximately $623,000. Because the earnings targets were not met, this portion of the acquisition purchase price is recorded as other income on the consolidated statement of income for the year ended December 31, 2015. The Purchase Agreement also provided 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. Because the minimum earnings targets were not be achieved, no related stock compensation expense has been recorded for the year ended December 31, 2015. 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. Our estimated useful life of the identifiable intangible assets acquired ranges from three to ten years. We 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. During 2016, certain intangible assets and goodwill were deemed impaired (Note 4). 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 Agreement 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 was 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 was $250,000, and Berger was 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 was 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 years ended December 31, 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. Year Ended December 31 2016 2015 Pro forma net revenue $ 60,200,383 $ 61,952,529 Pro forma net income $ 5,009,801 $ 1,115,777 Pro forma basic net income per share $ 0.61 $ 0.15 Pro forma diluted net income per share $ 0.60 $ 0.12

(15) Subsequent events

(15) Subsequent events	12 Months Ended
	Dec. 31, 2016
Notes
(15) Subsequent events	(15) Subsequent events Stock Purchase Agreement – CynergisTek, Inc.; Amended and Restated Credit Agreement As previously disclosed in our Current Report on Form 8-K, filed with the Commission on January 17, 2017, we entered into a Stock Purchase Agreement (the “SPA”) with CynergisTek, Inc., a Texas corporation (“CynergisTek”), Dr. Michael G. Mathews (“Mathews”) and Michael H. McMillan (“McMillan,” and together with Mathews, the “Stockholders”), pursuant to which Auxilio acquired 100% of the issued and outstanding shares of common stock (the “Shares”) of CynergisTek from the Stockholders (the “CynergisTek 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. · Cash Consideration · Securities Consideration · Debt Consideration · Earn-out Consideration Pursuant to the SPA, CynergisTek and the Stockholders agreed to deliver to Auxilio certificates representing the Shares; the corporate record books of CynergisTek; and the employment agreements (described below). Auxilio agreed to deliver the Cash Consideration, the Securities Consideration, the Debt Consideration and the signed employment agreements. 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 Auxilio and the Stockholders, Auxilio agreed to grant piggy-back registration rights under certain circumstances, and demand registration rights under other circumstances. Briefly, for the piggy-back rights, if Auxilio proposes to register the sale of any of its 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 its common stock by other selling stockholders, Auxilio agreed that prior to such filing, it will give written notice to the Stockholders of its intention to do so. Upon the written request of a Stockholder given within twenty (20) days after Auxilio provides such notice (which request shall state the intended method of disposition of such registrable securities by the Stockholder), Auxilio will file a registration statement to register the resale of all such registrable securities which Auxilio has been requested by such Stockholder to register. With respect to the demand registration rights, Auxilio agreed that in the event that Auxilio fails 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 Auxilio (a “Demand Notice”), to require Auxilio 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, Auxilio agreed to file a registration statement not later than sixty (60) days after such Demand Notice, and will use its 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 shall not be 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, Auxilio and each of the Stockholders entered into an employment agreement, pursuant to which McMillan was appointed President and Chief Strategy Officer of Auxilio, and Mathews was appointed Executive Vice President of Auxilio. McMillan Employment Agreement. Auxilio and McMillan entered into an employment agreement (the “McMillan Employment Agreement”), pursuant to which Auxilio employs McMillan as President and Chief Strategy Officer of Auxilio. McMillan agreed that his duties for Auxilio and its subsidiaries CynergisTek, Inc. and Delphiis, Inc. would be substantially similar to those duties that McMillan has performed on behalf of CynergisTek, and would include, without limitation, responsibility for executive leadership and business development strategy. McMillan also agreed to perform additional duties as reasonably assigned by Auxilio’s Chief Executive Officer, and/or Board of Directors in order to advance the interests of Auxilio 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 employment. 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. Auxilio 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 Auxilio 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. Mathews Employment Agreement. Auxilio and Mathews entered into an employment agreement (the “Mathews Employment Agreement”), pursuant to which Auxilio employs Mathews as Executive Vice President of Auxilio. Mathews agreed that his duties for Auxilio and its subsidiaries CynergisTek, Inc. and Delphiis, Inc. would be substantially similar to those duties that Mathews has performed on behalf of CynergisTek, 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 Auxilio’s President, Chief Executive Officer, and/or Board of Directors in order to advance the interests of Auxilio 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 employment. Pursuant to the Mathews Employment Agreement, Mathew’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 Mathews Employment Agreement. Auxilio has the right to terminate Mathew’s 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) Mathew’s inability to perform the essential functions of his position due to a mental or physical disability or his death, or (iii) Mathew’s 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 Auxilio 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. Amended and Restated Credit Agreement and Related Agreements Also on January 13, 2017, Auxilio, and its subsidiaries Auxilio Solutions, Inc., a California corporation (“Solutions”), Delphiis, Inc., a California corporation (“Delphiis”), and immediately upon the consummation of the CynergisTek Transaction, CynergisTek (with Auxilio, Solutions, Delphiis, CynergisTek and such other subsidiaries collectively referred to as “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, Auxilio and Solutions 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 Auxilio and Solutions a term loan and a revolving line of credit. Subsequently, Auxilio advised Agent that Auxilio desired to acquire 100% of the ownership interests of CynergisTek pursuant to the SPA. The CynergisTek Transaction is prohibited by Section 7.3 of the Original Credit Agreement. Borrowers requested that Lenders (1) consent to the CynergisTek Transaction, and (2) provide additional financing in order to finance, in part, Auxilio’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 CynergisTek automatically would become a Borrower under the A&R Credit Agreement and under the Loan Documents on the closing date immediately upon consummation of the CynergisTek 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 $14,000,000.00 to Auxilio, which was paid to the Stockholders as part of the Cash Consideration in the CynergisTek 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 CynergisTek 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 CynergisTek transaction, Mathews, McMillan, Auxilio, and Avidbank entered into a subordination agreement (the “Subordination Agreement”), pursuant to which Mathews and McMillan agreed that unless and until all of Auxilio’s obligations under the A&R Credit Agreement has 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 Auxilio 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 Auxilio. Additionally, Mathews and McMillan each directed Auxilio to make, and Auxilio agreed to make, such prior payment of Auxilio’s obligations under the A&R Credit Agreement to Agent and the Lenders. The Subordination Agreement defines “Subordinate Debt” to include all debt of Auxilio 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, Auxilio may make regular payments to the Stockholders under the Seller Notes. Reverse Stock Split On January 12, 2017, Auxilio, Inc. announced that it had received approval from the Financial Industry Regulatory Authority ("FINRA") of the Company's Company Related Action Notification Form relating to the implementation of a reverse split of its common stock, par value $0.001 per share at a ratio of one-for-three, that is, one new share for each three old shares of the Company's common stock, whereby 24,557,224 outstanding shares of the Company’s common stock were exchanged for 8,185,936 newly issued shares of the Company's common stock. Under the terms of the reverse stock split, fractional shares issuable to stockholders were rounded up to the nearest whole share, resulting in a reverse split slightly less than one for three in the aggregate. On December 22, 2016, the Company filed a Certificate of Amendment to its Articles of Incorporation relating to the reverse split. The Amendment provides that no fractional shares of Common Stock will be issued to the holders of record of Common Stock prior to the reverse split. Instead, all fractional shares will be rounded up to the next whole number of shares. The reverse split was approved at the 2015 Annual Meeting of the Company's Shareholders. At that meeting, the Company's shareholders voted to approve a reverse split at a ratio between 1-for-1.5 shares and 1-for-3 shares, to be determined by the Company's Board of Directors. The Board determined to implement the reverse split at the ratio of one for three shares. The reverse stock split became effective with FINRA and in the marketplace at the open of business on Friday, January 13, 2017, whereupon the shares of common stock began trading on a reverse-split-adjusted basis.

(1) Basis of Presentation and22

(1) Basis of Presentation and Summary of Significant Accounting Policies (Policies)	12 Months Ended
	Dec. 31, 2016
Policies
Basis of Presentation	Basis of Presentation and Reverse Stock Split The accompanying consolidated financial statements were prepared in conformity with GAAP, and include the accounts of Auxilio and our wholly-owned subsidiaries. All intercompany balances and transactions were eliminated. 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 resulting in the reclassification of $15,749 from common stock to additional paid in capital at January 1, 2015.
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 revenue; (2) equipment revenue; (3) software subscriptions and managed services revenue, 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) cyber security professional services such as penetration testing, cyber security risk assessments and security program strategy development. The Company commences revenue recognition when all of the following conditions are satisfied: • there is persuasive evidence of an arrangement; • the service has been or is being provided to the customer; • the collection of the fees is reasonably assured; and • the amount of fees to be paid by the customer is fixed or determinable. · 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 has 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. · Cyber Security Professional Services Revenues The majority of the Company’s cyber security 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. Management believes that no accounts receivable were uncollectible at December 31, 2016 or 2015.
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 market 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 income 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. Based on management’s tests and reviews, no impairment of its goodwill, intangible assets or other long-lived assets existed at December 31, 2015. However, during the year ended December 31, 2016, management determined that the goodwill associated with the Delphiis and Redspin acquisitions were impaired (Note 4). 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 is recognized for the amount by which the goodwill carrying value exceeds the implied fair value of goodwill.
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, 2016, management determined there was impairment of certain definite lived intangible assets associated with the Delphiis and Redspin reporting units (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 standard applies to other accounting pronouncements, but does not require any new 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 market has not materially changed since the original borrowing date.
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, 2016 and 2015, stock-based compensation expense recognized in the consolidated statements of income is as follows: Year Ended December 31, 2016 2015 Cost of revenues $ 43,193 $ 137,279 Sales and marketing 38,510 34,203 General and administrative expenses 145,267 208,066 Total stock based compensation expense $ 226,970 $ 379,548 The weighted average estimated fair value of stock options granted during 2016 and 2015 was $0.86 and $1.26 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 in 2016 and 2015: 2016 2015 Risk-free interest rate 0.37% to 0.40% 0.08% to 0.12% Expected volatility of our Common Stock 45.95% to 46.77% 46.74% to 54.98% 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. As of December 31, 2016, we have not granted any restricted stock units under the 2011 Stock Incentive Plan.
Basic and Diluted Net Income Per Share	Basic and Diluted Net 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, 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. As of December 31, 2015 potentially dilutive securities consisted of options and warrants to purchase 2,176,595 shares of our Common Stock at prices ranging from $0.90 to $6.45 per share. Of these potentially dilutive securities, only 276,121 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 income per share: Year Ended December 31, 2016 2015 Numerator: Net income $ 5,009,801 $ 1,316,656 Denominator: Denominator for basic calculation weighted averages 8,173,203 8,050,191 Dilutive Common Stock equivalents: Options and warrants 110,659 276,121 Denominator for diluted calculation weighted average 8,283,862 8,326,312 Net income per share: Basic net income per share $ .61 $ .16 Diluted net income per share $ .60 $ .16
Segment Reporting	Segment Reporting Based on our integration and management strategies, we operate in a single business segment. For the years ended December 31, 2016 and 2015, all revenues were derived from domestic operations.
New Accounting Pronouncements	New Accounting Pronouncements In April 2015, the FASB issued an update to a standard to simplify the presentation of debt issuance costs. This update requires debt issuance costs be presented on the balance sheet as a direct reduction from the carrying amount of the debt liability consistent with debt discounts or premiums. Adoption of this standard is required for interim and annual periods beginning after December 15, 2015 and is to be applied retrospectively. The adoption of this update on January 1, 2016 did not have a material impact on our consolidated financial statements. In November 2015, the FASB issued guidance related to the presentation of deferred income taxes. The guidance requires that deferred tax assets and liabilities are classified as non-current in a consolidated balance sheet. This guidance was adopted early by us and resulted in the Company classifying its deferred tax assets as non-current assets. 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 in the process of evaluating the impact of the new guidance on our consolidated financial statements. 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 that adopting this guidance and we are preparing for the changes to be made to our consolidated financial statements. In January 2017, the FASB issued a new accounting standard simplifying the test for goodwill impairment. Currently, the fair value of the reporting unit is compared with the carrying value of the reporting unit (identified as "Step 1"). If the fair value of the reporting unit is lower than its carrying amount then, the implied fair value of goodwill is calculated. If the implied fair value of goodwill is lower than the carrying value of goodwill an impairment is recognized (identified as "Step 2"). The new standard eliminates Step 2 from the impairment test; therefore, a goodwill impairment will be recognized as the difference of the fair value and the carrying value. 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 its financial position, results of operations and cash flows.

(1) Basis of Presentation and23

(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 (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs	For the years ended December 31, 2016 and 2015, stock-based compensation expense recognized in the consolidated statements of income is as follows: Year Ended December 31, 2016 2015 Cost of revenues $ 43,193 $ 137,279 Sales and marketing 38,510 34,203 General and administrative expenses 145,267 208,066 Total stock based compensation expense $ 226,970 $ 379,548

(1) Basis of Presentation and24

(1) Basis of Presentation and Summary of Significant Accounting Policies: Stock-based Compensation: Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions	2016 2015 Risk-free interest rate 0.37% to 0.40% 0.08% to 0.12% Expected volatility of our Common Stock 45.95% to 46.77% 46.74% to 54.98% Dividend yield 0% 0% Expected life of options 3 years 3 years

(1) Basis of Presentation and25

(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 (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
Schedule of Earnings Per Share, Basic and Diluted	The following table sets forth the computation of basic and diluted net income per share: Year Ended December 31, 2016 2015 Numerator: Net income $ 5,009,801 $ 1,316,656 Denominator: Denominator for basic calculation weighted averages 8,173,203 8,050,191 Dilutive Common Stock equivalents: Options and warrants 110,659 276,121 Denominator for diluted calculation weighted average 8,283,862 8,326,312 Net income per share: Basic net income per share $ .61 $ .16 Diluted net income per share $ .60 $ .16

(2) Accounts Receivable_ Schedu

(2) Accounts Receivable: Schedule of Accounts Receivable (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
Schedule of Accounts Receivable	A summary of accounts receivable follows: As of December 31, 2016 2015 Trade receivables $ 8,046,561 $ 7,458,022 Unapplied advances and unbilled revenue, net 1,567,925 (60,065) Allowance for doubtful accounts - - $ 9,614,486 $ 7,397,957

(3) Property and Equipment_ Pro

(3) Property and Equipment: Property, Plant and Equipment (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
Property, Plant and Equipment	A summary of property and equipment follows: As of December 31, 2016 2015 Furniture and fixtures $ 156,831 $ 102,316 Computers and office equipment 773,246 623,810 Fleet equipment 539,310 373,572 Leasehold improvements 140,052 103,993 1,609,439 1,203,691 Less accumulated depreciation and amortization (920,021) (708,367) $ 689,418 $ 495,324

(4) Intangible Assets_ Schedule

(4) Intangible Assets: Schedule of Intangible Assets (Tables)	12 Months Ended
	Dec. 31, 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 as of December 31, 2015: Gross Carrying Amount Accumulated Amortization Delphiis, Inc. Acquired technology $ 900,000 $ (135,000) Customer relationships 400,000 (120,000) Trademarks 50,000 (50,000) Non-compete agreements 20,000 (10,000) Total intangible assets, Delphiis, Inc. $ 1,370,000 $ (315,000) Redspin Acquired technology $ 1,050,000 $ (78,750) Customer relationships 600,000 (150,000) Trademarks 200,000 (30,000) Non-compete agreements 100,000 (15,000) Total intangible assets, Redspin $ 1,950,000 $ (273,750) Total intangible assets $ 3,320,000 $ (588,750) The Company performed its annual impairment testing for Delphiis and Redspin as of December 31, 2016, and 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, 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 an aggregate impairment charge of $1,077,188. With respect to the goodwill analysis, 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. A summary of the Company’s intangible assets and goodwill carrying amounts and impairment charges as of December 31, 2016 follows: Intangible Assets Gross Carrying Amount Accumulated Amortization Net Carrying Amount Estimated Fair Value Impairment Delphiis, Inc. Acquired technology $ 900,000 $ (225,000) $ 675,000 $ 127,516 $ (547,484) Customer relationships 400,000 (200,000) 200,000 83,141 (116,859) Trademarks 50,000 (50,000) - - - Non-compete agreements 20,000 (16,667) 3,333 626 (2,707) Total Delphiis, Inc. $ 1,370,000 $ (491,667) $ 878,333 $ 211,283 $ (667,050) Redspin Acquired technology $ 1,050,000 $ (183,750) $ 866,250 $ 534,342 $ (331,908) Customer relationships 600,000 (350,000) 250,000 250,000 - Trademarks 200,000 (70,000) 130,000 77,929 (52,071) Non-compete agreements 100,000 (35,000) 65,000 38,841 (26,159) Total Redspin $ 1,950,000 $ (638,750) $ 1,311,250 $ 901,112 $ (410,138) Total intangible assets $ 3,320,000 $ (1,130,417) $ 2,189,583 $ 1,112,395 $ (1,077,188)

(4) Intangible Assets_ Goodwill

(4) Intangible Assets: Goodwill (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
Goodwill	Goodwill Carrying Amount Valuation Impairment Delphiis, Inc. $ 956,639 $ 119,513 $ (837,126) Redspin 1,192,000 472,613 (719,387) Auxilio Solutions, Inc 1,517,017 1,517,017 - Total $ 3,665,656 $ 2,109,143 $ (1,556,513)

(7) Warrants_ Warrant Activity

(7) Warrants: Warrant Activity (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
Warrant Activity	Below is a summary of warrant activity during the years ended December 31, 2015 and 2016: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at January 1, 2015 736,199 $ 3.33 Granted in 2015 - $ - Exercised in 2015 - $ - Cancelled in 2015 (77,780) $ 3.03 Outstanding at December 31, 2015 658,419 $ 3.39 3.46 $ 265,750 Granted in 2016 - $ - Exercised in 2016 (35,047) $ 1.80 Cancelled in 2016 (297,123) $ 3.81 Outstanding at December 31, 2016 326,249 $ 3.15 5.53 $ - Warrants exercisable at December 31, 2016 326,249 $ 3.15 5.53 $ -

(7) Warrants_ Schedule of Share

(7) Warrants: Schedule of Share-based Compensation, Warrants, by Exercise Price Range (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
Schedule of Share-based Compensation, Warrants, by Exercise Price Range	The following tables summarize information about warrants outstanding and exercisable at December 31, 2016: 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 $0.91 to $1.84 326,249 5.53 $ 3.15 326,249 $ 3.15 Total 326,249 5.53 $ 3.15 326,249 $ 3.15

(7) Warrants_ Executive Perform

(7) Warrants: Executive Performance Warrants, Vesting Schedule (Tables)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Tables/Schedules
Executive Performance Warrants, Vesting Schedule	The revised vesting schedule is as follows: Year Ended December 31, Number of Shares 2014 77,778 2015 77,778 2016 77,777	Year Ended December 31, Number of Shares 2013 150,000 2014 122,222 2015 122,222 2016 55,556

(8) Stock Option and Stock In33

(8) Stock Option and Stock Incentive Plans: Schedule of Share-based Compensation, Stock Options, Activity (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
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, 2015 1,632,068 $ 3.15 Granted in 2015 90,091 $ 3.45 Exercised in 2015 (6,117) $ 1.41 Cancelled in 2015 (194,738) $ 4.56 Outstanding at December 31, 2015 1,521,304 $ 3.00 4.22 $ 966,509 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 Options exercisable at December 31, 2016 1,177,614 $ 2.86 4.32 $ 184,991

(8) Stock Option and Stock In34

(8) Stock Option and Stock Incentive Plans: Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
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, 2016: 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 $2.27 322,011 2.00 $ 1.83 322,012 $ 1.83 $2.28 to $2.72 329,187 5.60 $ 2.48 196,848 $ 2.44 $2.72 to $5.54 795,542 4.75 $ 3.42 651,252 $ 3.45 $5.55 to $8.99 7,502 1.67 $ 6.45 7,502 $ 6.45 $0.90 to $8.99 1,454,242 4.32 $ 2.87 1,177,614 $ 2.86

(10) Income Taxes_ Schedule of

(10) Income Taxes: Schedule of Components of Income Tax Benefit (Expense) (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
Schedule of Components of Income Tax Benefit (Expense)	For the years ended December 31, 2016 and 2015, the components of income tax benefit (expense) are as follows: Year Ended December 31, 2016 2015 Current provision: Federal $ (58,092) $ (70,436) State (150,000) (82,000) (208,092) (152,436) Deferred: Federal 4,685,565 - State 596,966 - 5,282,531 - Income tax benefit (expense) $ 5,074,439 $ (152,436)

(10) Income Taxes_ Schedule o36

(10) Income Taxes: Schedule of Effective Income Tax Rate Reconciliation (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
Schedule of Effective Income Tax Rate Reconciliation	Year Ended December 31, 2016 2015 Computed tax at federal statutory rate of 34% $ 21,977 $ (448,479) State taxes, net of federal benefit (104,225) (54,121) Non-deductible items (29,683) (43,654) Other (30,718) (75,828) Change in valuation allowance 5,217,088 469,646 $ 5,074,439 $ (152,436)

(10) Income Taxes_ Schedule o37

(10) Income Taxes: Schedule of Deferred Tax Assets and Liabilities (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
Schedule of Deferred Tax Assets and Liabilities	Year Ended December 31, 2016 2015 Deferred tax assets: Accrued salaries/vacation $ 267,500 $ 253,600 Accrued equipment pool 54,500 127,900 State taxes 34,000 18,700 Stock options 901,500 864,500 Credits 205,700 153,000 Net operating loss carryforwards 3,444,900 5,064,000 Total deferred tax assets 4,908,100 6,481,700 Deferred tax liabilities: Depreciation 302,000 9,100 Amortization of intangibles (1,056,400) 343,500 Other 379,969 541,600 Total deferred tax liabilities (374,431) 894,200 Net deferred assets before valuation allowance 5,282,531 5,587,500 Valuation allowance - (5,587,500) Net deferred tax assets $ 5,282,531 $ -

(12) Commitments_ Schedule of F

(12) Commitments: Schedule of Future Minimum Lease Payments for Operating Leases (Tables)	12 Months Ended
	Dec. 31, 2016
Tables/Schedules
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 2017 $ 374,751 2018 421,084 2019 433,716 2020 446,728 2021 132,926 Total $ 1,809,206

(14) Asset Purchase Agreement39

(14) Asset Purchase Agreement - Redspin: Schedule of Allocation of the Purchase Price of the Assets Acquired and Liabilities Assumed (Tables)	12 Months Ended
	Dec. 31, 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

(14) Asset Purchase Agreement40

(14) Asset Purchase Agreement - Redspin: Business Acquisition, Pro Forma Information (Tables)	12 Months Ended
	Dec. 31, 2016
Redspin, Inc.
Business Acquisition, Pro Forma Information	Year Ended December 31 2016 2015 Pro forma net revenue $ 60,200,383 $ 61,952,529 Pro forma net income $ 5,009,801 $ 1,115,777 Pro forma basic net income per share $ 0.61 $ 0.15 Pro forma diluted net income per share $ 0.60 $ 0.12

(1) Basis of Presentation and41

(1) Basis of Presentation and Summary of Significant Accounting Policies: Property and Equipment (Details)	12 Months Ended
	Dec. 31, 2016
Minimum
Property, Plant and Equipment, Useful Life	2 years
Maximum
Property, Plant and Equipment, Useful Life	7 years

(1) Basis of Presentation and42

(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, 2016	Dec. 31, 2015
Allocated Share-based Compensation Expense	$ 226,970	$ 379,548
Cost of revenues
Allocated Share-based Compensation Expense	43,193	137,279
Sales and marketing
Allocated Share-based Compensation Expense	38,510	34,203
General and administrative expense
Allocated Share-based Compensation Expense	$ 145,267	$ 208,066

(1) Basis of Presentation and43

(1) Basis of Presentation and Summary of Significant Accounting Policies: Stock-based Compensation (Details) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Details
Options, Granted, Weighted Average Estimated Fair Value	$ 0.86	$ 1.26

(1) Basis of Presentation and44

(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, 2016	Dec. 31, 2015
Dividend yield	0.00%	0.00%
Expected life of options	3 years	3 years
Minimum
Risk-free interest rate	0.37%	0.08%
Expected volatility of our Common Stock	45.95%	46.74%
Maximum
Risk-free interest rate	0.40%	0.12%
Expected volatility of our Common Stock	46.77%	54.98%

(1) Basis of Presentation and45

(1) Basis of Presentation and Summary of Significant Accounting Policies: Basic and Diluted Net Income Per Share (Details) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Options and warrants	110,659	276,121
Options And Warrants
Potentially Dilutive Securities	1,713,154	2,176,595
Options And Warrants | Minimum
Potentially dilutive securities, exercise price	$ 1.41	$ 0.90
Options And Warrants | Maximum
Potentially dilutive securities, exercise price	$ 6.45	$ 6.45

(1) Basis of Presentation and46

(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, 2016	Dec. 31, 2015
Numerator:
Net income	$ 5,009,801	$ 1,316,656
Effects of dilutive securities:
Denominator for basic calculation weighted averages	8,173,203	8,050,191
Dilutive Common Stock equivalents:
Options and warrants	110,659	276,121
Denominator for diluted calculation weighted average	8,283,862	8,326,312
Net income per share:
Basic net income per share	$ 0.61	$ 0.16
Diluted net income per share	$ 0.60	$ 0.16

(2) Accounts Receivable_ Sche47

(2) Accounts Receivable: Schedule of Accounts Receivable (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Details
Trade receivables	$ 8,046,561	$ 7,458,022
Unapplied advances and unbilled revenue	1,567,925	(60,065)
Allowance for doubtful accounts	0	0
Accounts Receivable, Net, Current, Total	$ 9,614,486	$ 7,397,957

(3) Property and Equipment_ P48

(3) Property and Equipment: Property, Plant and Equipment (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Property, Plant and Equipment, Gross	$ 1,609,439	$ 1,203,691
Less accumulated depreciation and amortization	(920,021)	(708,367)
Property and equipment, net	689,418	495,324
Furniture and Fixtures
Property, Plant and Equipment, Gross	156,831	102,316
Office Equipment
Property, Plant and Equipment, Gross	773,246	623,810
Fleet Equipment
Property, Plant and Equipment, Gross	539,310	373,572
Leasehold Improvements
Property, Plant and Equipment, Gross	$ 140,052	$ 103,993

(3) Property and Equipment (Det

(3) Property and Equipment (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Details
Depreciation and amortization expense	$ 211,654	$ 155,183

(4) Intangible Assets_ Schedu50

(4) Intangible Assets: Schedule of Intangible Assets (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Gross Carrying Amount	$ 3,320,000	$ 3,320,000
Accumulated Amortization	(1,130,417)	(588,750)
Net Carrying Amount	2,189,583
Estimated Fair Value	1,112,395	2,731,250
Impairment	(1,077,188)
Delphiis, Inc.
Gross Carrying Amount	1,370,000	1,370,000
Accumulated Amortization	(491,667)	(315,000)
Net Carrying Amount	878,333
Estimated Fair Value	211,283
Impairment	(667,050)
Delphiis, Inc. | Acquired Technology
Gross Carrying Amount	900,000	900,000
Accumulated Amortization	(225,000)	(135,000)
Net Carrying Amount	675,000
Estimated Fair Value	127,516
Impairment	(547,484)
Delphiis, Inc. | Customer Relationships
Gross Carrying Amount	400,000	400,000
Accumulated Amortization	(200,000)	(120,000)
Net Carrying Amount	200,000
Estimated Fair Value	83,141
Impairment	(116,859)
Delphiis, Inc. | Trademarks
Gross Carrying Amount	50,000	50,000
Accumulated Amortization	(50,000)	(50,000)
Net Carrying Amount	0
Estimated Fair Value	0
Impairment	0
Delphiis, Inc. | Noncompete Agreements
Gross Carrying Amount	20,000	20,000
Accumulated Amortization	(16,667)	(10,000)
Net Carrying Amount	3,333
Estimated Fair Value	626
Impairment	(2,707)
Redspin, Inc.
Gross Carrying Amount	1,950,000	1,950,000
Accumulated Amortization	(638,750)	(273,750)
Net Carrying Amount	1,311,250
Estimated Fair Value	901,112
Impairment	(410,138)
Redspin, Inc. | Acquired Technology
Gross Carrying Amount	1,050,000	1,050,000
Accumulated Amortization	(183,750)	(78,750)
Net Carrying Amount	866,250
Estimated Fair Value	534,342
Impairment	(331,908)
Redspin, Inc. | Customer Relationships
Gross Carrying Amount	600,000	600,000
Accumulated Amortization	(350,000)	(150,000)
Net Carrying Amount	250,000
Estimated Fair Value	250,000
Impairment	0
Redspin, Inc. | Trademarks
Gross Carrying Amount	200,000	200,000
Accumulated Amortization	(70,000)	(30,000)
Net Carrying Amount	130,000
Estimated Fair Value	77,929
Impairment	(52,071)
Redspin, Inc. | Noncompete Agreements
Gross Carrying Amount	100,000	100,000
Accumulated Amortization	(35,000)	$ (15,000)
Net Carrying Amount	65,000
Estimated Fair Value	38,841
Impairment	$ (26,159)
Minimum
Intangible Asset, Useful Life	1 year 6 months
Maximum
Intangible Asset, Useful Life	10 years

(4) Intangible Assets_ Goodwi51

(4) Intangible Assets: Goodwill (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Carrying Amount	$ 3,665,656
Valuation	2,109,143	$ 3,665,656
Impairment	(1,556,513)
Delphiis, Inc.
Carrying Amount	956,639
Valuation	119,513
Impairment	(837,126)
Redspin, Inc.
Carrying Amount	1,192,000
Valuation	472,613
Impairment	(719,387)
Auxilio Solutions Inc
Carrying Amount	1,517,017
Valuation	1,517,017
Impairment	$ 0

(5) Line of Credit and Term L52

(5) Line of Credit and Term Loan (Details) - USD ($)	1 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Jun. 19, 2016	Jun. 19, 2015	Apr. 25, 2014	May 09, 2012
Line of Credit Facility, Initiation Date		May 4, 2012
Term loan, less current portion		$ 750,000	$ 1,250,000
Line of Credit
Line of Credit Facility, Maximum Borrowing Capacity						$ 2,000,000	$ 2,000,000
Debt Instrument, Description of Variable Rate Basis			prime	prime
Debt Instrument, Basis Spread on Variable Rate			0.75%	1.00%
Line of Credit Facility, Interest Rate at Period End		4.25%
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).
Line of Credit | Avidbank
Interest Charges		$ 0	$ 16,347
Term Loan
Line of Credit Facility, Maximum Borrowing Capacity					$ 4,000,000
Debt Instrument, Description of Variable Rate Basis		prime
Debt Instrument, Basis Spread on Variable Rate		1.25%
Proceeds from Lines of Credit	$ 2,000,000
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 during each of the years ended December 31, 2016 and December 31, 2015.
Term Loan | Avidbank
Warrants, Outstanding								24,033
Exercise Price of Warrants								$ 4.17
Interest Charges		$ 75,801	$ 59,385
Term loan, less current portion		$ 1,250,000
Debt Instrument, Interest Rate During Period		5.00%

(6) Notes Payable - Related P53

(6) Notes Payable - Related Parties (Details) - Delphiis, Inc. - USD ($)	Feb. 19, 2015	Oct. 31, 2015	Sep. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2014
Acquisition, Debt Assumed						$ 463,723
$100,000 Promissory Note
Repayments of Debt						$ 100,000
Delphiis Noteholder 1 | Conversion 1
Debt Conversion, Original Debt, Amount				$ 257,835
Delphiis Noteholder 1 | Conversion 1 | Common Stock
Debt Conversion, Converted Instrument, Shares Issued	42,972	42,973		85,945
Delphiis Noteholder 2
Repayments of Notes Payable			$ 52,944	$ 52,944
$363,723 Promissory Note
Amortization of Debt Discount					$ 33,258

(7) Warrants_ Warrant Activit54

(7) Warrants: Warrant Activity (Details)	12 Months Ended
	Dec. 31, 2016USD ($)$ / sharesshares	Dec. 31, 2015USD ($)$ / sharesshares
Details
Warrants, Outstanding, Beginning Balance | shares	658,419	736,199
Outstanding, Weighted Average Exercise Price, Beginning Balance	$ 3.39	$ 3.33
Granted | shares	0	0
Granted, Weighted Average Exercise Price	$ 0	$ 0
Exercised | shares	(35,047)	0
Exercised, Weighted Average Exercise Price	$ 1.80	$ 0
Cancelled | shares	(297,123)	(77,780)
Cancelled, Weighted Average Exercise Price	$ 3.81	$ 3.03
Warrants, Outstanding, Ending Balance | shares	326,249	658,419
Outstanding, Weighted Average Exercise Price, Ending Balance	$ 3.15	$ 3.39
Outstanding, Weighted Average Remaining Contractual Life	5.53	3.46
Outstanding, Intrinsic Value | $	$ 0	$ 265,750
Exercisable	326,249
Exercisable, Weighted Average Exercise Price	$ 3.15
Exercisable, Weighted Average Remaining Contractual Life	5.53
Exercisable, Intrinsic Value | $	$ 0

(7) Warrants_ Schedule of Sha55

(7) Warrants: Schedule of Share-based Compensation, Warrants, by Exercise Price Range (Details) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Number of Shares Outstanding	326,249	658,419	736,199
Weighted Average Remaining in Contractual Life in Years	5 years 6 months 11 days
Outstanding Warrants Weighted Average Exercise Price	$ 3.15
Number of Warrants Exercisable	326,249
Exercisable Warrants Weighted Average Exercise Price	$ 3.15
Warrants | $0.91 to 1.84
Number of Shares Outstanding	326,249
Weighted Average Remaining in Contractual Life in Years	5 years 6 months 11 days
Outstanding Warrants Weighted Average Exercise Price	$ 3.15
Number of Warrants Exercisable	326,249
Exercisable Warrants Weighted Average Exercise Price	$ 3.15

(7) Warrants (Details)

(7) Warrants (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Jan. 16, 2013
Expected Dividend Rate	0.00%	0.00%
Expected Term	3 years	3 years
Allocated Share-based Compensation Expense	$ 226,970	$ 379,548
Executive Performance Target Warrants
Warrants, Outstanding					500,000
Fair Value Assumptions, Method Used				Black-Scholes option-pricing model
Risk Free Interest Rate				0.14%
Expected Volatility Rate				62.94%
Expected Dividend Rate				0.00%
Expected Term				5 years
Equity Instruments Other than Options, Vested in Period			66,667
Executive Performance Target Warrants | Vested
Warrants, Outstanding					50,000
Allocated Share-based Compensation Expense	$ 122,568	$ 122,569	$ 105,059	$ 315,176
Executive Performance Target Warrants | Unvested
Warrants, Outstanding					450,000

(7) Warrants_ Executive Perfo57

(7) Warrants: Executive Performance Warrants, Vesting Schedule (Details) - shares	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
2,013
Warrants to Vest		150,000
2,014
Warrants to Vest	77,778	122,222
2,015
Warrants to Vest	77,778	122,222
2,016
Warrants to Vest	77,777	55,556

(8) Stock Option and Stock In58

(8) Stock Option and Stock Incentive Plans (Details) - USD ($)	12 Months Ended	40 Months Ended	52 Months Ended	89 Months Ended
	Dec. 31, 2016	May 15, 2003	May 12, 2004	May 16, 2007	May 12, 2011	Oct. 31, 2001
Employee Stock Option
Unamortized compensation expense associated with unvested options	$ 222,688
Weighted average period over which costs are expected to be recognized	1 year 6 months
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
Number of Shares Authorized					1,990,000
Number of Shares Available for Grant	398,071

(8) Stock Option and Stock In59

(8) Stock Option and Stock Incentive Plans: Schedule of Share-based Compensation, Stock Options, Activity (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Details
Outstanding, Beginning Balance	1,521,304	1,632,068
Outstanding, Weighted Average Exercise Price, Beginning Balance	$ 3	$ 3.15
Granted	215,845	90,091
Granted, Weighted Average Exercise Price	$ 2.73	$ 3.45
Exercised	0	(6,117)
Exercised, Weighted Average Exercise Price	$ 0	$ 1.41
Cancelled	(282,907)	(194,738)
Cancelled, Weighted Average Exercise Price	$ 3.78	$ 4.56
Outstanding, Ending Balance	1,454,242	1,521,304
Outstanding, Weighted Average Exercise Price, Ending Balance	$ 2.87	$ 3
Outstanding, Weighted Average Remaining Term in Years	4 years 3 months 25 days	4 years 2 months 19 days
Outstanding, Aggregate Intrinsic Value	$ 184,991	$ 966,509
Exercisable	1,177,614
Exercisable, Weighted Average Exercise Price	$ 2.86
Exercisable, Weighted Average Remaining Term in Years	4 years 3 months 25 days
Exercisable, Aggregate Intrinsic Value	$ 184,991

(8) Stock Option and Stock In60

(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, 2016	Dec. 31, 2015	Dec. 31, 2014
Number of Shares Outstanding	1,454,242	1,521,304	1,632,068
Weighted Average Remaining in Contractual Life in Years	5 years 6 months 11 days
Outstanding Options Weighted Average Exercise Price	$ 3.15
Number of Options Exercisable	326,249
Exercisable Options Weighted Average Exercise Price	$ 3.15
$0.90 to 2.27
Number of Shares Outstanding	322,011
Weighted Average Remaining in Contractual Life in Years	2 years
Outstanding Options Weighted Average Exercise Price	$ 1.83
Number of Options Exercisable	322,012
Exercisable Options Weighted Average Exercise Price	$ 1.83
$2.28 to 2.72
Number of Shares Outstanding	329,187
Weighted Average Remaining in Contractual Life in Years	5 years 7 months 6 days
Outstanding Options Weighted Average Exercise Price	$ 2.48
Number of Options Exercisable	196,848
Exercisable Options Weighted Average Exercise Price	$ 2.44
$2.72 to 5.54
Number of Shares Outstanding	795,542
Weighted Average Remaining in Contractual Life in Years	4 years 9 months
Outstanding Options Weighted Average Exercise Price	$ 3.42
Number of Options Exercisable	651,252
Exercisable Options Weighted Average Exercise Price	$ 3.45
$5.55 to 8.99
Number of Shares Outstanding	7,502
Weighted Average Remaining in Contractual Life in Years	1 year 8 months 1 day
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	1,454,242
Weighted Average Remaining in Contractual Life in Years	4 years 3 months 25 days
Outstanding Options Weighted Average Exercise Price	$ 2.87
Number of Options Exercisable	1,177,614
Exercisable Options Weighted Average Exercise Price	$ 2.86

(9) Restricted Stock (Details)

(9) Restricted Stock (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Allocated Share-based Compensation Expense	$ 226,970	$ 379,548
Delphiis, Inc. | Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			133,333
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights			The shares vest as follows: Vesting Date Shares July 1, 2016 33,333 July 1, 2017 33,333 July 1, 2018 33,333 July 1, 2019 33,334
Equity Instruments Other than Options, Vested in Period		33,333
Allocated Share-based Compensation Expense			$ 101,881

(10) Income Taxes_ Schedule o62

(10) Income Taxes: Schedule of Components of Income Tax Benefit (Expense) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Current provision:
Federal	$ (58,092)	$ (70,436)
State	(150,000)	(82,000)
Current Income Tax Expense (Benefit)	208,092	152,436
Deferred benefit:
Federal	4,685,565	0
State	596,966	0
Deferred Income Tax Expense (Benefit)	(5,282,531)	0
Income tax benefit (expense)	$ 5,074,439	$ (152,436)

(10) Income Taxes (Details)

(10) Income Taxes (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Effective Income Tax Rate Reconciliation, Percent	(7851.00%)	10.40%
Minimum
Operating Loss Carryforwards, Expiration Date	Dec. 31, 2023
Maximum
Operating Loss Carryforwards, Expiration Date	Dec. 31, 2032
Internal Revenue Service (IRS)
Operating Loss Carryforwards	$ 9,497,000
Internal Revenue Service (IRS) | Minimum
Operating Loss Carryforwards, Expiration Date	Dec. 31, 2023
State and Local Jurisdiction
Operating Loss Carryforwards	$ 7,079,000
State and Local Jurisdiction | Minimum
Operating Loss Carryforwards, Expiration Date	Dec. 31, 2020

(10) Income Taxes_ Schedule o64

(10) Income Taxes: Schedule of Effective Income Tax Rate Reconciliation (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Details
Computed tax at federal statutory rate of 34%	$ 21,977	$ (448,479)
State taxes, net of federal benefit	(104,225)	(54,121)
Non-deductible items	(29,683)	(43,654)
Other	(30,718)	(75,828)
Change in valuation allowance	5,217,088	469,646
Income tax benefit (expense)	$ 5,074,439	$ (152,436)

(10) Income Taxes_ Schedule o65

(10) Income Taxes: Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Deferred tax assets:
Accrued salaries/vacation	$ 267,500	$ 253,600
Accrued equipment pool	54,500	127,900
State taxes	34,000	18,700
Stock options	901,500	864,500
Credits	205,700	153,000
Net operating loss carryforwards	3,444,900	5,064,000
Total deferred tax assets	4,908,100	6,481,700
Deferred tax liabilities:
Depreciation	302,000	9,100
Amortization of intangibles	(1,056,400)	343,500
Other	379,969	541,600
Total deferred tax liabilities	(374,431)	894,200
Net deferred assets before valuation allowance	5,282,531	5,587,500
Valuation allowance	0	(5,587,500)
Net deferred tax assets	$ 5,282,531	$ 0

(11) Retirement Plan (Details)

(11) Retirement Plan (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
401(k) Plan
Defined Benefit Plan, Contributions by Employer	$ 117,762	$ 94,042

(12) Commitments (Details)

(12) Commitments (Details) - USD ($)	1 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Operating Leases, Rent Expense		$ 441,058	$ 272,064
Chief Executive Officer
Base Salary, Annual Amount		300,000
Salary Bonus, Annual Amount		180,000
Chief Financial Officer
Base Salary, Annual Amount		245,000
Salary Bonus, Annual Amount		$ 132,000
Chief Financial Officer | Subsequent Event
Base Salary, Annual Amount	$ 250,000
Salary Bonus, Annual Amount	$ 150,000

(12) Commitments_ Schedule of68

(12) Commitments: Schedule of Future Minimum Lease Payments for Operating Leases (Details)	Dec. 31, 2016USD ($)
Details
2,017	$ 374,751
2,018	421,084
2,019	433,716
2,020	446,728
2,021	132,926
Total	$ 1,809,206

(13) Concentrations (Details)

(13) Concentrations (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Accounts receivable, net	$ 9,614,486	$ 7,397,957
Customer Concentration Risk
Accounts receivable, net	$ 4,600,000	$ 3,100,000
Sales | Customer Concentration Risk
Concentration Risk, Percentage	49.00%	50.00%

(14) Asset Purchase Agreement70

(14) Asset Purchase Agreement - Redspin (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Cash Payments to Acquire Business		$ 1,876,966
Common stock issued in connection with the acquisition of Redspin, Value		$ 469,000
Daniel Berger
Base Salary, Annual Amount	$ 250,000
John Abraham
Base Salary, Monthly Amount	11,000
Common Stock
Common stock issued in connection with the acquisition of Redspin, Shares		150,761
Common stock issued in connection with the acquisition of Redspin, Value		$ 150
Redspin, Inc.
Cash Payments to Acquire Business	2,076,966
Allocated Holdback	$ 200,000
Business Combination, Contingent Consideration Arrangements, Basis for Amount	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 estimated the fair value of the contingent consideration to be approximately $623,000. Because the earnings targets were not met, this portion of the acquisition purchase price is recorded as other income on the consolidated statement of income for the year ended December 31, 2015. The Purchase Agreement also provided 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.
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
Common stock issued in connection with the acquisition of Redspin, Shares	150,761
Common stock issued in connection with the acquisition of Redspin, Value	$ 500,000

(14) Asset Purchase Agreement71

(14) Asset Purchase Agreement - Redspin: Schedule of Allocation of the Purchase Price of the Assets Acquired and Liabilities Assumed (Details)	12 Months Ended
	Dec. 31, 2016USD ($)
Goodwill	$ 3,665,656
Redspin, Inc.
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
Redspin, Inc. | Acquired Technology
Finite-lived Intangible Assets Acquired	1,050,000
Redspin, Inc. | Customer Relationships
Finite-lived Intangible Assets Acquired	600,000
Redspin, Inc. | Trademarks
Finite-lived Intangible Assets Acquired	200,000
Redspin, Inc. | Noncompete Agreements
Finite-lived Intangible Assets Acquired	$ 100,000

(14) Asset Purchase Agreement72

(14) Asset Purchase Agreement - Redspin: Business Acquisition, Pro Forma Information (Details) - Redspin, Inc. - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Pro forma net revenue	$ 60,200,383	$ 61,952,529
Pro forma net income	$ 5,009,801	$ 1,115,777
Pro forma basic net income per share	$ 0.61	$ 0.15
Pro forma diluted net income per share	$ 0.60	$ 0.12

(15) Subsequent events (Details

(15) Subsequent events (Details) - USD ($)	Jan. 17, 2017	Jan. 13, 2017	Jan. 12, 2017	Dec. 31, 2015
Cash Payments to Acquire Business				$ 1,876,966
Cynergistek Inc
Acquisition, Debt Assumed	$ 9,000,000
Subsequent Event
Stockholders' Equity, Reverse Stock Split			On January 12, 2017, Auxilio, Inc. announced that it had received approval from the Financial Industry Regulatory Authority ('FINRA') of the Company's Company Related Action Notification Form relating to the implementation of a reverse split of its common stock, par value $0.001 per share at a ratio of one-for-three
Stock Issued During Period, Shares, Reverse Stock Splits			8,185,936
Subsequent Event | A&R Credit Agreement Term Loan
Line of Credit Facility, Maximum Borrowing Capacity	14,000,000
Debt Instrument, Description of Variable Rate Basis		Prime
Debt Instrument, Basis Spread on Variable Rate		1.50%
Debt Instrument, Maturity Date		Jan. 12, 2022
Subsequent Event | A&R Credit Agreement Revolving Line Of Credit
Line of Credit Facility, Maximum Borrowing Capacity		$ 5,000,000
Subsequent Event | Michael Mcmillan
Base Salary, Annual Amount	250,000
Subsequent Event | Michael Mathews
Base Salary, Annual Amount	$ 250,000
Subsequent Event | Cynergistek Inc
Percentage of issued and outstanding shares of common stock acquired	100.00%
Cash Payments to Acquire Business	$ 14,202,644
Business Acquisition, Equity Interest Issued, Number of Shares	1,166,666
Debt Instrument, Interest Rate, Stated Percentage	8.00%
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High	$ 7,500,000