Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2018 | May 11, 2018 | |
Text Block [Abstract] | ||
Registrant Name | CYNERGISTEK, INC. | |
Registrant CIK | 1,011,432 | |
SEC Form | 10-Q | |
Period End date | Mar. 31, 2018 | |
Fiscal Year End | --12-31 | |
Trading Symbol | ctek | |
Tax Identification Number (TIN) | 371,867,101 | |
Number of common stock shares outstanding | 9,616,133 | |
Filer Category | Smaller Reporting Company | |
Current with reporting | Yes | |
Voluntary filer | No | |
Well-known Seasoned Issuer | No | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q1 | |
Contained File Information, File Number | 000-27507 | |
Entity Incorporation, State Country Name | Delaware | |
Entity Address, Address Line One | 27271 Las Ramblas, Suite 200 | |
Entity Address, Address Line Two | Mission Viejo, California | |
Entity Address, Postal Zip Code | 92,691 | |
City Area Code | 949 | |
Local Phone Number | 614-0700 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Current assets: | ||
Cash and cash equivalents | $ 3,409,293 | $ 4,252,060 |
Accounts receivable, net | 10,577,287 | 13,264,323 |
Prepaid and other current assets | 1,590,277 | 557,426 |
Supplies | 1,085,762 | 1,156,006 |
Total current assets | 16,662,619 | 19,229,815 |
Property and equipment, net | 766,476 | 831,784 |
Deposits | 87,778 | 87,376 |
Deferred income taxes | 3,350,310 | 3,120,310 |
Intangible assets, net | 10,448,190 | 10,900,924 |
Goodwill | 18,525,206 | 18,525,206 |
Total assets | 49,840,579 | 52,695,415 |
Current liabilities: | ||
Accounts payable and accrued expenses | 5,171,719 | 9,631,634 |
Accrued compensation and benefits | 2,715,474 | 3,711,551 |
Deferred revenue | 1,035,470 | 1,425,821 |
Note payable | 343,750 | 0 |
Current portion of long-term liabilities | 3,130,230 | 5,494,837 |
Total current liabilities | 12,396,643 | 20,263,843 |
Long-term liabilities: | ||
Term loan, less current portion | 14,676,081 | 9,438,333 |
Promissory notes to related parties, less current portion | 5,437,500 | 6,000,000 |
Capital lease obligations, less current portion | 124,392 | 147,861 |
Total long-term liabilities | 20,237,973 | 15,586,194 |
Stockholders' equity: | ||
Common stock, par value at $0.001, 33,333,333 shares authorized, 9,592,547 shares issued and outstanding at March 31, 2018 and 9,576,028 shares issued and outstanding at December 31, 2017 | 9,593 | 9,576 |
Additional paid-in capital | 31,344,607 | 31,156,362 |
Accumulated deficit | (14,148,237) | (14,320,560) |
Total stockholders' equity | 17,205,963 | 16,845,378 |
Total liabilities and stockholders' equity | $ 49,840,579 | $ 52,695,415 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Mar. 31, 2018 | Dec. 31, 2017 |
Text Block [Abstract] | ||
Common Stock, Par or Stated Value Per Share | $ 0.001 | $ 0.001 |
Common Stock, Shares Authorized | 33,333,333 | 33,333,333 |
Common Stock, Shares, Issued | 9,592,547 | 9,576,028 |
Common Stock, Shares, Outstanding | 9,592,547 | 9,576,028 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Text Block [Abstract] | ||
Net revenues | $ 16,383,317 | $ 18,254,689 |
Cost of revenues | 12,237,865 | 13,667,541 |
Gross profit | 4,145,452 | 4,587,148 |
Operating expenses: | ||
Sales and marketing | 1,499,047 | 1,369,008 |
General and administrative expenses | 2,635,547 | 2,174,435 |
Depreciation | 91,583 | 91,224 |
Amortization of acquisition-related intangibles | 452,734 | 520,343 |
Total operating expenses | 4,678,911 | 4,155,010 |
(Loss) income from operations | (533,459) | 432,138 |
Other income (expense): | ||
Other income | 19 | 19 |
Interest expense | (403,461) | (412,334) |
Total other income (expense) | (403,442) | (412,315) |
(Loss) Income before provision for income taxes | (936,901) | 19,823 |
Income tax benefit (expense) | 229,558 | (13,539) |
Net (loss) income | $ (707,343) | $ 6,284 |
Net (loss) income per share: | ||
Basic | $ (0.07) | $ 0 |
Diluted | $ (0.07) | $ 0 |
Number of weighted average shares: | ||
Basic | 9,586,608 | 9,216,719 |
Diluted | 9,586,608 | 9,615,285 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) - 3 months ended Mar. 31, 2018 - USD ($) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Stockholders Equity, Beginning Balance at Dec. 31, 2017 | $ 9,576 | $ 31,156,362 | $ (14,320,560) | $ 16,845,378 |
Shares, Outstanding, Beginning Balance at Dec. 31, 2017 | 9,576,028 | |||
Stock compensation expense for options and warrants granted to employees and directors | 11,516 | 11,516 | ||
Stock compensation expense for restricted stock units granted to employees | 176,746 | 176,746 | ||
Stock options exercised, value | $ 17 | (17) | ||
Stock options exercised, shares | 16,519 | 16,519 | ||
Cumulative effect of adoption of revenue recognition standard ASC 606 | 879,666 | $ 879,666 | ||
Net loss | (707,343) | (707,343) | ||
Stockholders Equity, Ending Balance at Mar. 31, 2018 | $ 9,593 | $ 31,344,607 | $ (14,148,237) | $ 17,205,963 |
Shares, Outstanding, Ending Balance at Mar. 31, 2018 | 9,592,547 |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Cash flows from operating activities: | ||
Net (loss) income | $ (707,343) | $ 6,284 |
Adjustments to reconcile net (loss) income to net cash provided by (used for) operating activities: | ||
Depreciation | 91,583 | 91,224 |
Amortization of intangible assets | 452,734 | 520,343 |
Deferred income taxes | (230,000) | 0 |
Bad debt recoveries | (13,469) | 0 |
Stock compensation expense for warrants and options granted to employees and directors | 11,516 | 24,659 |
Stock compensation expense for restricted stock units granted to employees and directors | 176,746 | 0 |
Note payable issued in consideration for severance pay | 343,750 | 0 |
Interest expense related to loan acquisition costs | 1,617 | 0 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 2,700,505 | (633,273) |
Supplies | 70,244 | 68,707 |
Prepaid and other current assets | (153,185) | 769,404 |
Deposits | (402) | (45,854) |
Accounts payable and accrued expenses | (709,915) | (1,030,525) |
Accrued compensation and benefits | (996,077) | (1,293,876) |
Deferred revenue | (390,351) | (146,948) |
Net cash provided by (used for) operating activities | 647,953 | (1,669,855) |
Cash flows from investing activities: | ||
Purchases of property and equipment | (26,275) | (152,177) |
Amount paid to purchase CynergisTek, net of cash received | 0 | (13,448,521) |
Net cash used for investing activities | (26,275) | (13,600,698) |
Cash flows from financing activities: | ||
Proceeds from term loan | 17,250,000 | 14,000,000 |
Loan acquisition fees paid | (111,250) | 0 |
Payments on term loans | (11,818,333) | (1,646,667) |
Payments on promissory notes to related parties | (6,750,000) | 0 |
Payments on capital leases | (34,862) | (43,890) |
Proceeds from issuance of common stock through stock options and warrants | 0 | 32,665 |
Net cash (used for) provided by financing activities | (1,464,445) | 12,342,108 |
Net decrease in cash and cash equivalents | (842,767) | (2,928,445) |
Cash and cash equivalents, beginning of period | 4,252,060 | 6,090,844 |
Cash and cash equivalents, end of period | 3,409,293 | 3,162,399 |
Supplemental disclosure of cash flow information: | ||
Interest paid | 644,895 | 198,416 |
Income taxes paid | 20,262 | 1,950 |
Non-cash investing and financing activities: | ||
Property and equipment acquired through capital leases | 0 | 110,657 |
Common stock issued in connection with the acquisition of CynergisTek, Inc. | 0 | 2,772,000 |
Promissory notes issued in connection with the acquisition of CynergisTek, Inc. | 0 | 9,000,000 |
Fair value of earnout liability in connection with the acquisition of CynergisTek, Inc. | $ 0 | $ 2,356,000 |
1. Basis of Presentation
1. Basis of Presentation | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure Text Block [Abstract] | |
1. Basis of Presentation | 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Cynergistek, Inc. and its subsidiaries (the “Company”, “we”, “us” or “Cynergistek”) have been prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) for interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission (“SEC”) on March 28, 2018. The unaudited condensed consolidated financial statements included herein reflect all adjustments (which include only normal, recurring adjustments) that are, in the opinion of management, necessary to state fairly our financial position and results of operations as of and for the periods presented. The results for such periods are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As a result, actual results could differ from those estimates. The accompanying unaudited condensed consolidated financial statements include the accounts of Cynergistek and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. Based on the Company’s recent integration with CTEK Security and an analysis of how our Chief Operating Decision Makers review, manage and are compensated, we have determined that the Company operates in two segments, services and equipment & software resale. The equipment & software resale operating segment is not reported separately in the accompanying condensed consolidated financial statements, as this segment did not meet the quantitative thresholds established in ASC 280-10-50-12, For the periods presented, all revenues were derived from domestic operations. As described in more detail in our Current Report on Form 8-K filed with the Securities and Exchange Commission on September 8, 2017, Auxilio, Inc., a Nevada corporation (“Auxilio”) changed its name and state of incorporation from the State of Nevada to the State of Delaware by merging (the “Reincorporation”) with and into its wholly-owned subsidiary, CynergisTek, Inc., a Delaware corporation, which was established for the purpose of the Reincorporation. As a result of the Reincorporation, Auxilio ceased to exist as a separate entity. As of the date of the merger, each outstanding share of Auxilio’s common stock was deemed, by operation of law, to represent the same number of shares of our common stock. In accordance with Rule 12g-3 under the Securities Exchange Act of 1934, as amended, the shares of our common stock were deemed to be registered under Section 12(b) of the Exchange Act as a successor to Auxilio. Effective as of September 8, 2017, the Company’s trading symbol changed to “CTEK.” As part of the Reincorporation, two wholly owned subsidiaries of the Company also changed their corporate names, as follows: (i) Auxilio Solutions, Inc., a California corporation, has changed its name to CTEK Solutions, Inc.; and (ii) CynergisTek, Inc., a Texas corporation, has changed its name to CTEK Security, Inc. (“CTEK Security”). We have performed an evaluation of subsequent events through the date of filing these unaudited condensed consolidated financial statements with the SEC. |
2. Recently Issued Accounting P
2. Recently Issued Accounting Pronouncements | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure Text Block [Abstract] | |
2. Recently Issued Accounting Pronouncements | 2 . RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In May 2014, the FASB issued guidance which provides a single, comprehensive accounting model for revenue arising from contracts with customers (“Topic 606”). 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 adopted this standard beginning January 1, 2018 and are using the modified retrospective method of adoption. Under the new guidance, based on the nature of our contracts, we will continue to recognize revenue in a similar manner as with the current guidance. Additionally, the unit of accounting, that is, the identification of performance obligations, is consistent with current revenue guidance. Accordingly, the adoption of this standard did not significantly impact our revenues. In February 2016, the FASB issued a new accounting standard on leasing. The new standard will require companies to record most leased assets and liabilities on the balance sheet, and also proposes a dual model for recognizing expense. This guidance will be effective in the first quarter of 2019 with early adoption permitted. We have evaluated the impact of adopting this guidance and we are preparing for the changes to be made to our consolidated financial statements. We expect the adoption of these accounting changes will materially increase our assets and liabilities but will not have a material impact on our net income or equity. In January 2017, the FASB issued a new accounting standard simplifying the test for goodwill impairment. Currently, the fair value of the reporting unit is compared with the carrying value of the reporting unit (identified as "Step 1"). If the fair value of the reporting unit is lower than its carrying amount, then the implied fair value of goodwill is calculated. If the implied fair value of goodwill is lower than the carrying value of goodwill an impairment is recognized (identified as "Step 2"). The new standard eliminates Step 2 from the impairment test; therefore, a goodwill impairment will be recognized as the difference of the fair value and the carrying value. The new standard becomes effective on January 1, 2020 with early adoption permitted. We are currently evaluating the impact that the new standard will have on our financial position, results of operations and cash flows. In August 2016, the FASB issued new accounting standard which is intended to reduce the existing diversity in practice in how certain cash receipts and cash payments are classified in the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted, provided that all of the amendments are adopted in the same period. We are currently evaluating the impact of adopting this standard on our consolidated financial statements. In January 2017, the FASB issued new accounting standard which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. This guidance will be effective for the Company for the year ending December 31, 2019 and interim reporting periods within that year. Early adoption is permitted for transactions that have not been reported in financial statements that have been issued or made available for issuance. We are currently evaluating the effect of the adoption of this guidance on our consolidated financial statements. In May 2017, the FASB issued new accounting standard which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC Topic 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. This guidance will be effective for the year ending December 31, 2019 and interim reporting periods within that year. Early adoption is permitted. We expect the adoption of this guidance will not have a material effect on our consolidated financial statements or footnotes. |
3. Revenues
3. Revenues | 3 Months Ended |
Mar. 31, 2018 | |
Revenue from Contract with Customer [Abstract] | |
3. Revenues | 3. REVENUES On January 1, 2018, we adopted Topic 606 using a modified retrospective method applied to those customer contracts which were not completed as of January 1, 2018. There was no change in revenues reported using this method as compared to the previous guidance. Below is a summary of our revenues disaggregated by revenue source. Three Months Ended March 31, 2018 2017 Managed services $ 13,340,944 $ 15,800,427 Consulting and professional services 2,019,854 1,257,136 Office equipment, hardware and software resales 1,022,519 1,197,126 Net revenues $ 16,383,317 $ 18,254,689 |
4. Options, Warrants and Restri
4. Options, Warrants and Restricted Stock Units | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure Text Block [Abstract] | |
4. Options, Warrants and Restricted Stock Units | 4. OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS Below is a summary of stock option, warrant and restricted stock activity during the three-month period ended March 31, 2018: Options Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Outstanding at December 31, 2017 724,400 $ 3.09 Granted — — Exercised (16,519 ) 2.75 Cancelled (33,659 ) 3.34 Outstanding at March 31, 2018 674,222 $ 3.15 4.05 $ 1,295,077 Exercisable at March 31, 2018 620,438 $ 3.10 4.05 $ 1,185,334 Warrants Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Outstanding at December 31, 2017 77,779 $ 3.03 Granted — — Exercised — — Cancelled — — Outstanding at March 31, 2018 77,779 $ 3.03 4.80 $ 151,659 Exercisable at March 31, 2018 77,779 $ 3.03 4.80 $ 151,659 Restricted Stock Units Shares Weighted Average Price Weighted Average Remaining Term in Years Outstanding at December 31, 2017 506,500 $ 3.35 Granted — — Exercised — — Cancelled (6,000 ) 2.76 Outstanding at March 31, 2018 500,500 $ 3.35 2.46 For the three months ended March 31, 2018 and 2017, stock-based compensation expense recognized in the consolidated statements of operations as follows: Three Months Ended March 31, 2018 2017 Cost of revenues $ 32,332 $ 13,955 Sales and marketing 57,490 182 General and administrative expense 98,440 10,522 Total stock-based compensation expense $ 188,262 $ 24,659 |
5. Net (Loss) Income Per Share
5. Net (Loss) Income Per Share | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure Text Block [Abstract] | |
5. Net (Loss) Income Per Share | 5. NET (LOSS) INCOME PER SHARE Basic net (loss) 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 (loss) income by the weighted average number of shares of our common stock issued and outstanding during such period. Diluted net (loss) 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. Diluted net (loss) income per share does not include potentially dilutive securities because such inclusion in the computation would be anti-dilutive. For the three months ended March 31, 2018, potentially dilutive securities consisted of options and warrants to purchase 280,416 shares of common stock at prices ranging from $0.90 to $6.45 per share and 500,500 shares of restricted stock units. Of these potentially dilutive securities, none of the shares to purchase common stock from the options and warrants or shares related to the restricted stock units are included in the computation of diluted earnings per share because the effect of including these instruments would be anti-dilutive. For the three months ended March 31, 2017, potentially dilutive securities consisted of options and warrants to purchase 1,454,051 shares of common stock at prices ranging from $0.90 to $6.45 per share. Of these potentially dilutive securities, 398,566 of the shares of common stock underlying the options and warrants are included in the computation of diluted earnings per share because the effect of including the remaining instruments would be anti-dilutive. Three Months Ended March 31, 2018 2017 Numerator: Net (loss) income $ (707,343 ) $ 6,284 Denominator: Denominator for basic calculation weighted average shares 9,586,608 9,216,719 Dilutive common stock equivalents: Options and warrants — 398,566 Denominator for diluted calculation weighted average shares 9,586,608 9,615,285 Net income per share: Basic net (loss) income per share $ (0.07 ) $ 0.00 Diluted net (loss) income per share $ (0.07 ) $ 0.00 |
6. Accounts Receivable
6. Accounts Receivable | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure Text Block [Abstract] | |
6. Accounts Receivable | 6. ACCOUNTS RECEIVABLE A summary of accounts receivable is as follows: March 31, December 31, 2017 Trade receivables $ 11,901,408 $ 14,451,899 Unbilled revenue, net and unapplied advances (1,281,946 ) (1,081,525 ) Allowance for doubtful accounts (42,175 ) (106,551 ) Total accounts receivable, net $ 10,577,287 $ 13,264,323 |
7. Deferred Commissions
7. Deferred Commissions | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
7. Deferred Commissions | 7. DEFERRED COMMISSIONS Our incremental costs of obtaining a contract, which consist of sales commissions, are deferred and amortized over the period of contract performance. Effective January 1, 2018, when we adopted the modified retrospective method of the new revenue recognition pronouncement, we increased deferred commissions by $879,666 with a corresponding increase in beginning retained earnings. Deferred commissions are included in prepaid and other current assets in our consolidated balance sheets. As of March 31, 2018, we had $849,975 related to unamortized deferred commissions. We had $151,308 and $154,642 of commissions expense for the three months ended March 31, 2018 and 2017, respectively. If we had recognized commissions expense under the full retrospective approach, commission expense would have been $164,419 for the three months ended March 31, 2017. |
8. Intangible Assets
8. Intangible Assets | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure Text Block [Abstract] | |
8. Intangible Assets | 8. INTANGIBLE ASSETS Intangible assets are amortized over expected useful lives ranging from 1.5 to 10 years and consist of the following: March 31, 2018 December 31, 2017 Gross Carrying Amount Accumulated Amortization Accumulated Impairment Gross Carrying Amount Accumulated Amortization Accumulated Impairment Delphiis, Inc. Acquired technology $ 900,000 $ (246,253 ) $ (547,484 ) $ 900,000 $ (242,002 ) $ (547,484 ) Customer relationships 400,000 (233,257 ) (166,743 ) 400,000 (233,257 ) (166,743 ) Trademarks 50,000 (50,000 ) — 50,000 (50,000 ) — Non-compete agreements 20,000 (17,292 ) (2,708 ) 20,000 (17,292 ) (2,708 ) Total Delphiis, Inc. $ 1,370,000 $ (546,802 ) $ (716,935 ) $ 1,370,000 $ (542,551 ) $ (716,935 ) Redspin Acquired technology $ 1,050,000 $ (264,711 ) $ (331,908 ) $ 1,050,000 $ (248,519 ) $ (331,908 ) Customer relationships 600,000 (550,000 ) (50,000 ) 600,000 (550,000 ) (50,000 ) Trademarks 200,000 (93,978 ) (106,022 ) 200,000 (93,978 ) (106,022 ) Non-compete agreements 100,000 (46,951 ) (53,049 ) 100,000 (46,951 ) (53,049 ) Total Redspin $ 1,950,000 $ (955,640 ) $ (540,979 ) $ 1,950,000 $ (939,448 ) $ (540,979 ) CTEK Security, Inc. Acquired technology $ 8,150,000 $ (1,018,750 ) $ — $ 8,150,000 $ (815,000 ) $ — Customer relationships 2,150,000 (671,875 ) — 2,150,000 (537,500 ) — Trademarks 1,550,000 (387,500 ) — 1,550,000 (310,000 ) — Non-compete agreements 200,000 (83,329 ) — 200,000 (66,663 ) — Total CTEK Security, Inc. $ 12,050,000 $ (2,161,454 ) $ — $ 12,050,000 $ (1,729,163 ) $ — Total intangible assets $ 15,370,000 $ (3,663,896 ) $ (1,257,914 ) $ 15,370,000 $ (3,211,162 ) $ (1,257,914 ) |
9. Deferred Revenue
9. Deferred Revenue | 3 Months Ended |
Mar. 31, 2018 | |
Revenue Recognition and Deferred Revenue [Abstract] | |
9. Deferred Revenue | 9. DEFERRED REVENUE We record deferred revenues when amounts are billed to customers in advance of our performance. $307,780 and $640,962 of managed services revenues were recognized during the three months ended March 31, 2018 and 2017, respectively, that was included in deferred revenue at the beginning of the respective periods. $214,970 and $327,236 of consulting and professional services revenues were recognized during the three months ended March 31, 2018 and 2017, respectively, that was included in deferred revenue at the beginning of the respective periods. |
10. Remaining Performance Oblig
10. Remaining Performance Obligations | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
10. Remaining Performance Obligations | 10. REMAINING PERFORMANCE OBLIGATIONS Remaining performance obligations represent the amount of revenue from fixed-fee contracts, including those which have potential early cancellation provisions, for which work has not been performed. As of March 31, 2018, approximately $21,000,000 of revenue from fixed-fee contracts is expected to be recognized from these remaining performance obligations. We expect to recognize revenue on approximately 85% of these remaining performance obligations over the next 24 months, with the balance thereafter. We elected to utilize the practical expedience exemption to exclude from this disclosure, the amount of revenue from contracts which are not fixed-fee and where we do not have the right to invoice until the services have been performed. |
11. Line of Credit and Term Loa
11. Line of Credit and Term Loan | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure Text Block [Abstract] | |
11. Line of Credit and Term Loan | 11. LINE OF CREDIT AND TERM LOAN On January 13, 2017, as part of the acquisition of CTEK Security, Inc. (formerly CynergisTek, Inc.), we entered into an Amended and Restated Credit Agreement (the “A&R Credit Agreement”) with California Bank and Trust and Avidbank Corporate Finance, a Division of Avidbank (collectively the “Lenders”). The A&R Credit Agreement amended a loan and security agreement originally entered into on May 4, 2012, as amended by several amendments, between the Company and AvidBank Corporate Finance. Under the A&R Credit Agreement, the term of the revolving line-of-credit was available through January 13, 2019 at an interest rate of prime plus 1.0% per annum. As of September 30, 2017, the interest rate was 5.25%. The amount available to us at any given time was the lesser of (a) $5.0 million, or (b) the amount available under our borrowing base (80% of our eligible accounts receivable, minus (1) accrued client lease payables, and minus (2) accrued equipment pool liability). As of December 31, 2017, no amounts were outstanding under the line of credit. The A&R Credit Agreement provided a term loan facility for $14,000,000. Term loan repayments were to be made in 48 monthly principal installments of $198,333, plus accrued interest at an interest rate of prime plus 1.5% per annum, followed by 12 monthly principal installments of $373,333, plus accrued interest at an interest rate of prime plus 1.5%. As of December 31, 2017, outstanding borrowings under the term loan were $11,818,333 at an interest rate of 6.0%. We were in compliance with all covenants set forth in the A&R Credit Agreement as of December 31, 2017. In connection with the A&R Credit Agreement, the Company and its subsidiaries (collectively the “Borrowers”) entered into a security agreement (the “Security Agreement”), pursuant to which each of the Borrowers agreed to grant to Avidbank, in its capacity as contractual representative for itself and the other lender (the “Agent”), for the ratable benefit of itself, the Lenders and the other secured parties, a first priority security interest in certain collateral to secure prompt payment and performance of the secured obligations under the A&R Credit Agreement. Pursuant to the Security Agreement, the “Collateral” was defined as including any and all (all such terms as defined in the Security Agreement) of the Accounts, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Equipment, Instruments, Inventory, Investment Property, General Intangibles, Letter of Credit Rights, Negotiable Collateral, Supporting Obligations, Vehicles, Grantors’ Books, in each case whether now existing or hereafter acquired or created, any money or other assets of any Grantor that now or hereafter come into the possession, custody, or control of Agent and any Proceeds or products of any of the foregoing, or any portion thereof. In connection with the grant of the security interest in the Collateral, each of the Borrowers made standard representations and warranties relating to ownership of the collateral, location and control of the collateral, and certain rights to payment. Additionally, in connection with the A&R Credit Agreement and the acquisition of CTEK Security, Inc. (formerly CynergisTek, Inc.), Michael Hernandez, (f/k/a Dr Michael G. Mathews)(“Hernandez”), Michael McMillan (“McMillan”), the Company, and Avidbank entered into a subordination agreement (the “Subordination Agreement”), pursuant to which Hernandez and McMillan agreed that unless and until all of the Company’s obligations under the A&R Credit Agreement have been repaid in full, Hernandez and McMillan would not, except as provided in the Subordination Agreement, ask, demand, sue for, take or receive, or retain, from the Company or any other person or entity, by setoff or in any other manner, payment of all or any part of the Subordinate Debt (as defined below), or take any other action with respect to the Subordinate Debt; forgive, cancel or discharge any of the Subordinate Debt; ask, demand or receive any security for the Subordinate Debt; amend any documents relating to the Subordinate Debt or any other agreement, instrument or document evidencing or executed in connection with the Subordinate Debt in a manner that could reasonably be expected to be adverse to Lenders or Agent (or any other holders of the obligations arising under the A&R Credit Agreement); or bring or join with any creditor in bringing any insolvency proceeding against the Company. Additionally, Hernandez and McMillan each directed the Company to make, and the Company agreed to make, such prior payment of the Company’s obligations under the A&R Credit Agreement to Agent and the Lenders. The Subordination Agreement defines “Subordinate Debt” to include all debt of the Company owing to Hernandez and McMillan (or either of them) (a) under the promissory notes due to Hernandez and McMillan (the “Seller Notes”) or (b) in respect of the Earn Out Payments, in either case whether now existing or hereafter arising and including all principal, premium, interest, fees, attorneys’ fees, costs, charges, expenses, reimbursement obligations, any other indemnities or guarantees in each case with respect thereto, in each case whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured. So long as the Borrowers are not in default under the terms of the A&R Credit Agreement, the Company may make regular payments to Hernandez and McMillan under the Seller Notes. The foregoing descriptions of the A&R Credit Agreement, Security Agreement and Subordination Agreement are qualified in their entirety by reference to the respective agreements. These agreements are found in our Form 8-K filed on January 17, 2017 as Exhibits 99.7, 99.8, and 99.9, respectively. On January 13, 2017, we paid a $25,000 revolving loan commitment fee. There were no borrowings on the line of credit for the three months ended March 31, 2018 or 2017. Interest charges associated with these term loans totaled $133,914 and $119,272 for the three months ended March 31, 2018 and 2017, respectively. In addition, on January 13, 2017, we paid a $70,000 term loan commitment fee. Debt Restructuring On March 12, 2018, we entered into a Credit Agreement (together with the other related documents defined therein, the “Credit Agreement”) with BMO Harris Bank N.A., a national banking association (“Bank”), as lender (the “BMO Loan”). The purposes of the BMO Loan are (1) to refinance and replace the facilities under the A&R Credit Agreement, thus terminating that agreement as of March 12, 2018, (2) to refinance $2,250,000 of a promissory note held by McMillan (the “McMillan Seller Note”), (3) to finance payments to Hernandez, including the full repayment of a promissory note held by Hernandez (the “Hernandez Seller Note”) in the original principal amount of $4,500,000, also issued as part of the Original SPA, (4) to finance working capital, (5) for general corporate purposes and (6) to fund certain fees and expenses associated with the closing of the BMO Loan. Loan Facilities Term Loan: Pursuant to the Credit Agreement, the Bank agreed to provide a term loan in the amount of $17,250,000 to the Company, which was paid in accordance with the purpose of the BMO Loan as described above. Pursuant to the Credit Agreement, the Company may elect that the term loan be outstanding as Base Rate Loans or Eurodollar Loans. The term loan is payable in principal payment installments on the last day of each fiscal quarter, commencing on June 30, 2018. All principal and interest not sooner paid on the term loan shall be due and payable on September 12, 2022, the final maturity thereof. As of March 31, 2018, outstanding borrowings under the term loan were $17,250,000 at an interest rate of 5.24%. Revolving Line of Credit: Additionally, pursuant to the Credit Agreement, the Bank agreed to provide a revolving loan or loans to the Company in an aggregate amount of up to $5,000,000 with a $500,000 sublimit for the issuance of letters of credit. Pursuant to the Credit Agreement, the Company may elect that each borrowing of revolving loans be either Base Rate Loans or Eurodollar Loans. Each revolving loan, both for principal and interest then outstanding, shall mature and be due and payable on March 12, 2020, or such earlier date on which the Revolving Credit Commitment (as defined in the Credit Agreement) is terminated in whole pursuant to the Credit Agreement. There were no borrowings on the line of credit for the three months ended March 31, 2018. Beginning June 30, 2018, we are required to maintain certain financial covenants in connection with this credit agreement, including a total leverage ratio, a senior leverage ratio, and a fixed charge coverage ratio. These covenants contain ratios which change over relevant periods of the credit agreement and can be found in Section 7.13 of the Credit Agreement. Interest Rates Base rate loans (“Base Rate Loans”) bear interest at an annual rate equal to the base rate (defined as the highest of (a) the rate of interest quoted in The Wall Street Journal, Money Rates Section as the prime rate in effect on such day, with any change in the Base Rate resulting from a change in such prime rate to be effective as of the date of the relevant change in such prime rate, (b) the sum of (i) the rate determined by the Bank to be the average of the rates per annum quoted to the Bank by two or more Federal funds brokers selected by the Bank for sale to the Bank at face value of Federal funds in the secondary market in an amount equal or comparable to the principal amount for which such rate is being determined, plus (ii) 1/2 of 1%, and (c) the overnight LIBOR rate plus 1.0%) plus an applicable margin of between 1.50% and 2.50%, depending upon the Company’s leverage ratio. Eurodollar loans (“Eurodollar Loans”) bear interest at a rate per annum equal to the sum of the Adjusted LIBOR rate (defined as the quotient obtained by dividing (a) the LIBOR index rate by (b) the maximum reserve percentage, expressed as a decimal, at which reserves are imposed by the Board of Governors of the Federal Reserve System (or any successor) on “eurocurrency liabilities,” as defined in such Board’s Regulation D (or any successor thereto), subject to any amendments of such reserve requirement by such Board or its successor, taking into account any transitional adjustments thereto) plus an applicable margin of between 2.50% and 3.50%, depending upon the Company’s leverage ratio. On March 12, 2018, we paid a $25,000 revolving loan commitment fee associated with the line of credit. Interest charges associated with the BMO term loan totaled $50,217 for the three months ended March 31, 2018. In addition, on March 12, 2018, we paid a $86,250 commitment fee associated with the term loan. Acceleration Pursuant to the Credit Agreement, the Bank may, by written notice to the Company, declare the principal of and the accrued interest on all outstanding loans to be forthwith due and payable upon the occurrence of certain Events of Default. The Credit Agreement defines Events of Default to include, inter alia, (i) a default in payment when due of all or any part of any obligation payable by the Company under the BMO Loan, (ii) a default in the observance or performance of certain of the covenants set forth in the BMO Loan, (iii) any representation or warranty made in connection with the BMO Loan proves untrue in any respect (or in any material respect if such representation, warranty, certification or statement is not by its terms already qualified as to materiality), (iv) default on any subordinated debt, (v) any judgment or judgments, writ or writs or warrant or warrants of attachment shall be entered or filed against the Company or any of its subsidiaries, or against any of its Property, in an aggregate amount in excess of $250,000 (except to the extent fully covered by insurance as to which the insurer has been notified of such judgment and has not denied coverage) which remains undischarged, unvacated, unbonded or unstayed for a period of 30 days, (vi) any change of control of the Company shall occur, and (vii) any other specified event of default. Security Agreement In connection with the Credit Agreement, the Company, including its subsidiaries as guarantors (“Guarantors”), and the Bank entered into a Pledge and Security Agreement (the “Security Agreement”), pursuant to which each of the Company and the Guarantors agreed to grant to the Bank a lien on and security interest in certain collateral to secure prompt payment and performance of the secured obligations under the Credit Agreement. Pursuant to the Security Agreement, the “Collateral” was defined as including, inter alia, any and all (all such terms as defined in the Security Agreement) of the Accounts, Chattel Paper, Instruments (including Promissory Notes), Documents, General Intangibles, Letter-of-Credit Rights, Supporting Obligations, Deposit Accounts, Pledged Collateral and other Investment Property (including all certificated and uncertificated Securities, Securities Accounts, Security Entitlements, Commodity Accounts, and Commodity Contracts), Goods, Fixtures, Inventory and Equipment, Commercial Tort Claims, and Rights to merchandise and other Goods, any Monies, personal property, and interests in personal property, in each case whether now existing or hereafter acquired or created, any money or other assets of any grantor that now or hereafter come into the possession, custody, or control of Bank and any Proceeds or products of any of the foregoing, or any portion thereof. In connection with the grant of the security interest in the Collateral, each of the Company and the Guarantors made standard representations and warranties relating to ownership of the collateral, location and control of the collateral, and certain rights to payment. The foregoing summary of the BMO Harris Bank N.A. Credit Agreement and related agreements is qualified in its entirety by reference to the full context of the agreement, which is found in our Current Report on Form 8-K filed with the SEC on March 12, 2018. Separation Agreement and Mutual Release with Hernandez On March 12, 2018, the Company, CTEK Security and Hernandez entered into a Separation Agreement and Mutual Release (the “Separation Agreement”). Pursuant to the Separation Agreement, Hernandez’s employment with the Company as the Company’s Chief Operating Officer was terminated and the Company and Hernandez mutually agreed to release the other from any and all claims, disputes, demands, actions, liabilities, damages, suits (whether at law or in equity), promises, accounts, costs, expenses, setoffs, contributions, attorneys’ fees and/or causes of action of whatever kind or character, whether past, present, future, known or unknown, liquidated or unliquidated, accrued or unaccrued, from the beginning of time, or which may hereinafter accrue as a result of the discovery of new and/or additional facts, which such party has had, may now have, or might claim to have, arising out of the agreements between the parties or any transaction contemplated thereby, based upon the acts or omissions of the other party prior to the date of the Separation Agreement. Further, pursuant to the Separation Agreement, in lieu of any earn-out payments (as described in the Original SPA (as defined below)) that could be earned by Hernandez under the Original SPA, the Company agreed to pay Hernandez the amount of $3,750,000 in the form of a promissory note (the “Earn-out Note”). The Earn-out Note provides for (i) a maturity date of March 12, 2023, at which all principal and accrued and unpaid interest is due, (ii) a simple interest rate of 5% per annum commencing on January 1, 2018, and compounding annually, and (iii) the right of the Company to prepay all or any portion of the Earn-out Note without premium or penalty. As a result, the Company recorded an additional accrual of $1,394,000 at December 31, 2017 related to the earn-out contingent liability. Also pursuant to the Separation Agreement, the Company paid off the outstanding amount due under the Hernandez Seller Note and paid Hernandez a severance payment consisting of a $250,000 payment upon execution of the Separation Agreement and the delivery of a promissory note in the original principal amount of $343,750 (the “Severance Payment Note”). The Severance Payment Note bears interest at a rate of 5% per annum, compounds annually, allows for prepayment by the Company and matures on January 10, 2019, at which time all principal and accrued and unpaid interest is due. Amounts due and owing under the Earn-out Note and Severance Payment Note are subordinate to the right of payment due under the BMO Loan pursuant to a Subordination Agreement among the Company, the Bank and Hernandez. Amendment to CTEK Security, Inc. (formerly CynergisTek, Inc.) Stock Purchase Agreement; Amended and Restated Promissory Note On March 12, 2018, the Company, CTEK Security and McMillan entered into an Amendment to Stock Purchase Agreement (“Amendment”). Pursuant to the Amendment, certain provisions of the Stock Purchase Agreement dated as of January 13, 2017 which memorialized the acquisition of CTEK Security, Inc. (formerly CynergisTek, Inc.) (the “Original SPA”) related to the Earn-Out (as defined in the Original SPA and described in the Company’s Form 8-K dated January 13, 2017) were amended. The earn-out provisions were amended to remove all obligations to make earn-out payments to Hernandez. As to McMillan, the Amendment modified the maximum earn-out payment which could be earned by McMillan to $1,200,000, with a maximum of $400,000 per year based on revised performance metrics (rather than the benchmarks described in the Original SPA) during the 2018, 2019 and 2020 calendar years, as determined by the Company’s board of directors and/or a committee thereof. On March 12, 2018, the Company repaid $2,250,000 plus accrued interest on the McMillan Seller Note. The Company and Mr. McMillan agreed to amend and restate the McMillan Seller Note pursuant to an Amended and Restated Promissory Note (the “A&R McMillan Seller Note”). The A&R McMillan Seller Note is in the principal amount of $2,250,000, bears interest at a rate of 8% per annum, provides for quarterly payments of principal and interest and matures on March 31, 2022. Amounts due and owing under the A&R McMillan Seller Note are subordinate to the right of payment due under the BMO Loan pursuant to a Subordination Agreement among the Company, the Bank and Mr. McMillan. Mr. McMillan is a director and the President and Chief Executive of the Company. |
12. Promissory Notes
12. Promissory Notes | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure Text Block [Abstract] | |
12. Promissory Notes | 12. PROMISSORY NOTES In connection with the acquisition of CTEK Security, Inc. (formerly CynergisTek, Inc.) we issued two promissory notes totaling $9,000,000 to Michael Hernandez and Michael McMillan (the “Seller Notes”), with each of the Seller Notes having an initial principal amount of $4,500,000. These Seller Notes bear interest at 8% per annum, require quarterly interest-only payments during the first 12 months, quarterly payments of principal and interest during the last 24 months, using a 36-month amortization period commencing from that point, with a balloon payment due on the maturity date. Amounts due and owing under the Seller Notes are subordinate to the right of payment due under the A&R Credit Agreement pursuant to the Subordination Agreement (Note 11). The Company had the right to prepay all or any portion of the outstanding principal balance of the Seller Notes, provided that such prepayment is accompanied by accrued interest on the amount of principal prepaid, calculated to the date of such prepayment. On March 12, 2018, the Company fully repaid the $4,500,000 plus accrued interest on the Hernandez Seller Note. As part of the debt restructuring with BMO Harris Bank N.A. (Note 10), on March 12, 2018, the Company repaid $2,250,000 plus accrued interest on the McMillan Seller Note. The Company and Mr. McMillan agreed to amend and restate the McMillan Seller Note pursuant to the A&R McMillan Seller Note. The A&R McMillan Seller Note is in the principal amount of $2,250,000, bears interest at a rate of 8% per annum, provides for quarterly payments of principal and interest and matures on March 31, 2022. Amounts due and owing under the A&R McMillan Seller Note are subordinate to the right of payment due under the BMO Loan pursuant to a Subordination Agreement among the Company, the Bank and Mr. McMillan. The foregoing descriptions of the Seller Notes and Subordination Agreement are qualified in their entirety by reference to the respective agreements. These agreements are found in our Form 8-K filed on January 17, 2017 as Exhibits 99.3, 99.4 and 99.9, respectively. The foregoing descriptions of the A&R McMillan Seller Note are qualified in their entirety by reference to the agreement which is found in our Form 8-K filed on March 13, 2018 as Exhibit 10.5. Interest charges associated with the Seller Notes totaled $149,425 and $151,890 for the three months ended March 31, 2018 and 2017, respectively. Pursuant to the Separation Agreement (see Note 11), in lieu of any earn-out payments (as described in the Original SPA (as defined below)) that could be earned by Hernandez under the Original SPA, the Company agreed to pay Hernandez the amount of $3,750,000 in the form of a promissory note (the “Earn-out Note”). The Earn-out Note provides for (i) a maturity date of March 12, 2023, at which all principal and accrued and unpaid interest is due, (ii) a simple interest rate of 5% per annum commencing on January 1, 2018, and compounding annually, and (iii) the right of the Company to prepay all or any portion of the Earn-out Note without premium or penalty. Interest charges associated with the Earn-out Note totaled $45,813 for the three months ended March 31, 2018. Pursuant to the Separation Agreement, the Company also issued a Severance Payment Note to Hernandez in the original principal amount of $343,750 (the “Severance Payment Note”). The Severance Payment Note bears interest at a rate of 5% per annum, compounds annually, allows for prepayment by the Company and matures on January 10, 2019, at which time all principal and accrued and unpaid interest is due. Interest charges associated with the Severance Payment Note totaled $4,191 for the three months ended March 31, 2018. Amounts due and owing under the Earn-out Note and Severance Payment Note are subordinate to the right of payment due under the BMO Loan pursuant to a Subordination Agreement among the Company, the Bank and Hernandez. |
13. Employment Agreements
13. Employment Agreements | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure Text Block [Abstract] | |
13. Employment Agreements | 13. EMPLOYMENT AGREEMENTS Michael H. McMillan In January 2017, we entered into an employment agreement with Michael H. McMillan (“McMillan”) (the “McMillan Employment Agreement”), pursuant to which we employed McMillan as President and Chief Strategy Officer of the Company. The initial term of the McMillan Employment Agreement is 36 months and will automatically renew for subsequent 12-month terms unless either party provides written notice to the other party of a desire to not renew the agreement. Pursuant to the McMillan Employment Agreement, the Company has the right to terminate McMillan’s employment without cause at any time on thirty (30) days’ advance written notice to McMillan. Additionally, McMillan has the right to resign for “Good Reason” (as defined in the McMillan Employment Agreement) on thirty (30) days’ written notice. In the event of (i) such termination without cause, or (ii) McMillan’s inability to perform the essential functions of his position due to a mental or physical disability or his death, or (iii) McMillan’s resignation for Good Reason, McMillan is entitled to receive the base salary then in effect and full target annual bonus, prorated to the date of termination, and a “Severance Payment” equivalent to (a) payment of compensation for an additional twelve months, payable as a lump sum, and (b) the acceleration of all unvested stock options and warrants then held by McMillan, subject to certain conditions set forth in the McMillan Employment Agreement. If McMillan resigns for other than Good Reason, he will be entitled to receive the base salary for the thirty (30) day written notice period, but no other amounts. On October 2, 2017, the Board appointed McMillan as Chief Executive Officer and his base salary was increased to $325,000. In February 2018, the Company amended the McMillan Employment agreement to extend the term thereof through December 31, 2020 and increased his base salary to $334,700 for 2018, $359,700 for 2019, and the 2020 base salary to be determined by the Board of Directors at the end of the 2019 calendar year. He will also be eligible for a bonus of up to $219,375 and $242,798 in 2018 and 2019, respectively, and his 2020 bonus will be up to 67.5% of his base salary. The foregoing summary of the McMillan Employment Agreement is qualified in its entirety by reference to the full context of the agreement, which is found as Exhibit 99.6 to our Current Report on Form 8-K filed with the SEC on January 17, 2017, and the amendment to the McMillan Employment Agreement, which is found as Exhibit 10.44 to our Annual Report on Form 10-K filed with the SEC on March 28, 2018. Paul T. Anthony Effective January 1, 2016, we entered into an employment agreement with Paul T. Anthony (the “2016 Anthony Agreement”). The 2016 Anthony Agreement provides that Mr. Anthony will continue to serve as our Executive Vice President and CFO. The 2016 Anthony Agreement has a term of two years and provided 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 was also entitled to receive a bonus of up to $132,000 per year, the achievement of which is based on Company performance metrics. We may terminate Mr. Anthony’s employment under the 2016 Anthony Agreement without cause at any time on thirty (30) days advance written notice, at which time Mr. Anthony would receive severance pay for twelve months and be fully vested in all options and warrants granted to date. The foregoing summary of the 2016 Anthony Agreement is qualified in its entirety by reference to the full context of the employment agreement, which is found as Exhibit 10.32 to our Annual Report on Form 10-K filed with the SEC on March 30, 2016. In March 2017, the Board of Directors authorized an increase in Mr. Anthony’s base salary to $250,000 and increased his potential annual bonus amount to $150,000. In February 2018, the Company extended the Anthony Employment agreement through December 31, 2020 and increased his base salary to $284,700 for 2018, and $309,700 for 2019, with the 2020 base salary to be determined by the Board of Directors at the end of the 2019 calendar year. He will also be eligible for a bonus of up to $185,625 and $209,047 in 2018 and 2019, respectively, and his 2020 bonus will be up to 67.5% of his base salary. Michael G. Mathews We entered into an employment agreement with Michael G. Mathews (“Mathews”), (the “Mathews Employment Agreement”), pursuant to which we employed Mathews as Executive Vice President (Mathews was also appointed Chief Operations Officer on April 27, 2017). The initial term of the Mathews Employment Agreement was 36 months and would automatically renew for subsequent 12-month terms unless either party provided written notice to the other party of a desire to not renew the agreement. Pursuant to the Mathews Employment Agreement, Mathews’ base salary was $250,000, and he was entitled to incentive bonus compensation and equity compensation (consisting of stock options), as set forth in the Mathews Employment Agreement. Effective March 12, 2018, Michael G. Hernandez (formerly Michael G. Mathews) (“Hernandez”) resigned as a Director of the Company and as the Company’s Chief Operating Officer. At that time, the Company, CTEK Security and Hernandez entered into a Separation Agreement and Mutual Release (the “Separation Agreement”). Pursuant to the Separation Agreement, Hernandez’ employment with the Company as the Company’s Chief Operating Officer was terminated and the Company and Hernandez mutually agreed to release the other from any and all claims, disputes, demands, actions, liabilities, damages, suits (whether at law or in equity), promises, accounts, costs, expenses, setoffs, contributions, attorneys’ fees and/or causes of action of whatever kind or character, whether past, present, future, known or unknown, liquidated or unliquidated, accrued or unaccrued, from the beginning of time, or which may hereinafter accrue as a result of the discovery of new and/or additional facts, which such party has had, may now have, or might claim to have, arising out of the agreements between the parties or any transaction contemplated thereby, based upon the acts or omissions of the other party prior to the date of the Separation Agreement. Pursuant to the Separation Agreement, the Company paid Hernandez a severance payment consisting of a $250,000 payment upon execution of the Separation Agreement and also issued a Severance Payment Note to Hernandez in the original principal amount of $343,750 (See Note 11). The Severance Payment Note bears interest at a rate of 5% per annum, compounds annually, allows for prepayment by the Company and matures on January 10, 2019, at which time all principal and accrued and unpaid interest is due. The foregoing summary of the Separation Agreement is qualified in its entirety by reference to the full context of the agreement, which is found as Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on March 13, 2018. |
14. Concentrations
14. Concentrations | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure Text Block [Abstract] | |
14. Concentrations | 14. CONCENTRATIONS Cash Concentrations At times, cash balances held in financial institutions are in excess of federally insured limits. Management performs periodic evaluations of the relative credit standing of financial institutions and limits the amount of risk by selecting financial institutions with a strong credit standing . Major Customers Our two largest customers accounted for approximately 51% of our revenues for the three months ended March 31, 2018 and our two largest customers accounted for approximately 41% of our revenues for the three months ended March 31, 2017. Our largest customers had accounts receivable totaling approximately $5,300,000 and $5,600,000 as of March 31, 2018 and December 31, 2017, respectively. |
3. Revenues (Tables)
3. Revenues (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Revenue from Contract with Customer [Abstract] | |
Summary of revenue | Below is a summary of our revenues disaggregated by revenue source. Three Months Ended March 31, 2018 2017 Managed services $ 13,340,944 $ 15,800,427 Consulting and professional services 2,019,854 1,257,136 Office equipment, hardware and software resales 1,022,519 1,197,126 Net revenues $ 16,383,317 $ 18,254,689 |
4. Options, Warrants and Rest22
4. Options, Warrants and Restricted Stock Units (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Table Text Block Supplement [Abstract] | |
Schedule of Stock Options, Activity | Below is a summary of stock option, warrant and restricted stock activity during the three-month period ended March 31, 2018: Options Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Outstanding at December 31, 2017 724,400 $ 3.09 Granted — — Exercised (16,519 ) 2.75 Cancelled (33,659 ) 3.34 Outstanding at March 31, 2018 674,222 $ 3.15 4.05 $ 1,295,077 Exercisable at March 31, 2018 620,438 $ 3.10 4.05 $ 1,185,334 |
Schedule of Warrants, Activity | Warrants Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Outstanding at December 31, 2017 77,779 $ 3.03 Granted — — Exercised — — Cancelled — — Outstanding at March 31, 2018 77,779 $ 3.03 4.80 $ 151,659 Exercisable at March 31, 2018 77,779 $ 3.03 4.80 $ 151,659 |
Schedule of Restricted Stock Units, Activity | Restricted Stock Units Shares Weighted Average Price Weighted Average Remaining Term in Years Outstanding at December 31, 2017 506,500 $ 3.35 Granted — — Exercised — — Cancelled (6,000 ) 2.76 Outstanding at March 31, 2018 500,500 $ 3.35 2.46 |
Schedule of Stock-Based Compensation Exprense Allocation | For the three months ended March 31, 2018 and 2017, stock-based compensation expense recognized in the consolidated statements of operations as follows: Three Months Ended March 31, 2018 2017 Cost of revenues $ 32,332 $ 13,955 Sales and marketing 57,490 182 General and administrative expense 98,440 10,522 Total stock-based compensation expense $ 188,262 $ 24,659 |
5. Net (Loss) Income Per Share
5. Net (Loss) Income Per Share (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Table Text Block Supplement [Abstract] | |
Schedule of Computation of Earnings Per Share, Basic and Diluted | Three Months Ended March 31, 2018 2017 Numerator: Net (loss) income $ (707,343 ) $ 6,284 Denominator: Denominator for basic calculation weighted average shares 9,586,608 9,216,719 Dilutive common stock equivalents: Options and warrants — 398,566 Denominator for diluted calculation weighted average shares 9,586,608 9,615,285 Net income per share: Basic net (loss) income per share $ (0.07 ) $ 0.00 Diluted net (loss) income per share $ (0.07 ) $ 0.00 |
6. Accounts Receivable (Tables)
6. Accounts Receivable (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Table Text Block Supplement [Abstract] | |
Schedule of Accounts Receivable | A summary of accounts receivable is as follows: March 31, December 31, 2017 Trade receivables $ 11,901,408 $ 14,451,899 Unbilled revenue, net and unapplied advances (1,281,946 ) (1,081,525 ) Allowance for doubtful accounts (42,175 ) (106,551 ) Total accounts receivable, net $ 10,577,287 $ 13,264,323 |
8. Intangible Assets (Tables)
8. Intangible Assets (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Table Text Block Supplement [Abstract] | |
Schedule of Intangible Assets | Intangible assets are amortized over expected useful lives ranging from 1.5 to 10 years and consist of the following: March 31, 2018 December 31, 2017 Gross Carrying Amount Accumulated Amortization Accumulated Impairment Gross Carrying Amount Accumulated Amortization Accumulated Impairment Delphiis, Inc. Acquired technology $ 900,000 $ (246,253 ) $ (547,484 ) $ 900,000 $ (242,002 ) $ (547,484 ) Customer relationships 400,000 (233,257 ) (166,743 ) 400,000 (233,257 ) (166,743 ) Trademarks 50,000 (50,000 ) — 50,000 (50,000 ) — Non-compete agreements 20,000 (17,292 ) (2,708 ) 20,000 (17,292 ) (2,708 ) Total Delphiis, Inc. $ 1,370,000 $ (546,802 ) $ (716,935 ) $ 1,370,000 $ (542,551 ) $ (716,935 ) Redspin Acquired technology $ 1,050,000 $ (264,711 ) $ (331,908 ) $ 1,050,000 $ (248,519 ) $ (331,908 ) Customer relationships 600,000 (550,000 ) (50,000 ) 600,000 (550,000 ) (50,000 ) Trademarks 200,000 (93,978 ) (106,022 ) 200,000 (93,978 ) (106,022 ) Non-compete agreements 100,000 (46,951 ) (53,049 ) 100,000 (46,951 ) (53,049 ) Total Redspin $ 1,950,000 $ (955,640 ) $ (540,979 ) $ 1,950,000 $ (939,448 ) $ (540,979 ) CTEK Security, Inc. Acquired technology $ 8,150,000 $ (1,018,750 ) $ — $ 8,150,000 $ (815,000 ) $ — Customer relationships 2,150,000 (671,875 ) — 2,150,000 (537,500 ) — Trademarks 1,550,000 (387,500 ) — 1,550,000 (310,000 ) — Non-compete agreements 200,000 (83,329 ) — 200,000 (66,663 ) — Total CTEK Security, Inc. $ 12,050,000 $ (2,161,454 ) $ — $ 12,050,000 $ (1,729,163 ) $ — Total intangible assets $ 15,370,000 $ (3,663,896 ) $ (1,257,914 ) $ 15,370,000 $ (3,211,162 ) $ (1,257,914 ) |
3. Revenues (Details)
3. Revenues (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Net revenues | $ 16,383,317 | $ 18,254,689 |
Managed services revenues | ||
Net revenues | 13,340,944 | 15,800,427 |
Consulting and professional services revenues | ||
Net revenues | 2,019,854 | 1,257,136 |
Office equipment, hardware and software resales | ||
Net revenues | $ 1,022,519 | $ 1,197,126 |
4. Options, Warrants and Rest27
4. Options, Warrants and Restricted Stock Units: Schedule of Stock Options, Activity (Details) | 3 Months Ended |
Mar. 31, 2018USD ($)$ / sharesshares | |
Text Block [Abstract] | |
Outstanding, Beginning Balance | shares | 724,400 |
Outstanding, Weighted Average Exercise Price, Beginning Balance | $ / shares | $ 3.09 |
Granted | shares | 0 |
Granted, Weighted Average Exercise Price | $ / shares | $ 0 |
Exercised | shares | (16,519) |
Exercised, Weighted Average Exercise Price | $ / shares | $ 2.75 |
Cancelled | shares | (33,659) |
Cancelled, Weighted Average Exercise Price | $ / shares | $ 3.34 |
Outstanding, Ending Balance | shares | 674,222 |
Outstanding, Weighted Average Exercise Price, Ending Balance | $ / shares | $ 3.15 |
Outstanding, Weighted Average Remaining Term in Years | 4 years 18 days |
Outstanding, Aggregate Intrinsic Value | $ | $ 1,295,077 |
Exercisable | shares | 620,438 |
Exercisable, Weighted Average Exercise Price | $ / shares | $ 3.10 |
Exercisable, Weighted Average Remaining Term in Years | 4 years 18 days |
Exercisable, Aggregate Intrinsic Value | $ | $ 1,185,334 |
4. Options, Warrants and Rest28
4. Options, Warrants and Restricted Stock Units: Schedule of Warrants, Activity (Details) - Warrant | 3 Months Ended |
Mar. 31, 2018USD ($)$ / sharesshares | |
Outstanding, Beginning Balance | shares | 77,779 |
Outstanding, Weighted Average Exercise Price, Beginning Balance | $ / shares | $ 3.03 |
Granted | shares | 0 |
Granted, Weighted Average Exercise Price | $ / shares | $ 0 |
Exercised | shares | 0 |
Exercised, Weighted Average Exercise Price | $ / shares | $ 0 |
Cancelled | shares | 0 |
Cancelled, Weighted Average Exercise Price | $ / shares | $ 0 |
Outstanding, Ending Balance | shares | 77,779 |
Outstanding, Weighted Average Exercise Price, Ending Balance | $ / shares | $ 3.03 |
Outstanding, Weighted Average Remaining Contractual Life | 4 years 9 months 18 days |
Outstanding, Intrinsic Value | $ | $ 151,659 |
Exercisable | shares | 77,779 |
Exercisable, Weighted Average Exercise Price | $ / shares | $ 3.03 |
Exercisable, Weighted Average Remaining Contractual Life | 4 years 9 months 18 days |
Exercisable, Intrinsic Value | $ | $ 151,659 |
4. Options, Warrants and Rest29
4. Options, Warrants and Restricted Stock Units: Schedule of Restricted Stock Units, Activity (Details) - Restricted Stock Units (RSUs) | 3 Months Ended |
Mar. 31, 2018$ / sharesshares | |
Outstanding, Beginning Balance | 506,500 |
Outstanding, Weighted Average Price, Beginning Balance | $ / shares | $ 3.35 |
Granted | 0 |
Granted, Weighted Average Price | $ / shares | $ 0 |
Exercised | 0 |
Exercised, Weighted Average Price | $ / shares | $ 0 |
Cancelled | (6,000) |
Cancelled, Weighted Average Price | 2.76 |
Outstanding, Ending Balance | 500,500 |
Outstanding, Weighted Average Price, Ending Balance | $ / shares | $ 3.35 |
Outstanding, Weighted Average Remaining Term in Years | 2 years 5 months 16 days |
4. Options, Warrants and Rest30
4. Options, Warrants and Restricted Stock Units: Schedule of Stock-Based Compensation Exprense Allocation (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Stock-based compensation expense | $ 188,262 | $ 24,659 |
Cost of Sales | ||
Stock-based compensation expense | 32,332 | 13,955 |
Selling and Marketing Expense | ||
Stock-based compensation expense | 57,490 | 182 |
General and Administrative Expense | ||
Stock-based compensation expense | $ 98,440 | $ 10,522 |
5. Net (Loss) Income Per Shar31
5. Net (Loss) Income Per Share (Details) - $ / shares | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Text Block [Abstract] | ||
Potentially dilutive securities | 280,416 | 1,454,051 |
Exercise Price Range, Lower Range Limit | $ 0.90 | $ 0.90 |
Exercise Price Range, Upper Range Limit | $ 6.45 | $ 6.45 |
Restricted stock units | 500,500 | |
Options and warrants | 0 | 398,566 |
5. Net (Loss) Income Per Shar32
5. Net (Loss) Income Per Share : Schedule of Computation of Earnings Per Share, Basic and Diluted (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Numerator: | ||
Net (loss) income | $ (707,343) | $ 6,284 |
Denominator: | ||
Denominator for basic calculation weighted average shares | 9,586,608 | 9,216,719 |
Dilutive Common Stock equivalents | ||
Options and warrants | 0 | 398,566 |
Diluted | 9,586,608 | 9,615,285 |
Net income per share: | ||
Basic net income per share | $ (0.07) | $ 0 |
Diluted net income per share | $ (0.07) | $ 0 |
6. Accounts Receivable_ Schedul
6. Accounts Receivable: Schedule of Accounts Receivable (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Text Block [Abstract] | ||
Trade receivables | $ 11,901,408 | $ 14,451,899 |
Unbilled revenue, net and unapplied advances | (1,281,946) | (1,081,525) |
Allowance for doubtful accounts | (42,175) | (106,551) |
Accounts receivable, net | $ 10,577,287 | $ 13,264,323 |
7. Deferred Commissions (Detail
7. Deferred Commissions (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Notes to Financial Statements | ||
Increased in deferred commissions | $ 879,666 | |
Unamortized deferred commissions | 849,975 | |
Commissions expense | $ 151,308 | $ 154,642 |
Recognized commissions expense | $ 164,419 |
8. Intangible Assets_ Schedule
8. Intangible Assets: Schedule of Intangible Assets (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Gross Carrying Amount | $ 15,370,000 | $ 15,370,000 |
Accumulated Amortization | (3,663,896) | (3,211,162) |
Accumulated Impairment | (1,257,914) | (1,257,914) |
Delphiis, Inc. | ||
Gross Carrying Amount | 1,370,000 | 1,370,000 |
Accumulated Amortization | (546,802) | (542,551) |
Accumulated Impairment | (716,935) | (716,935) |
Delphiis, Inc. | Acquired technology | ||
Gross Carrying Amount | 900,000 | 900,000 |
Accumulated Amortization | (246,253) | (242,002) |
Accumulated Impairment | (547,484) | (547,484) |
Delphiis, Inc. | Customer Relationships | ||
Gross Carrying Amount | 400,000 | 400,000 |
Accumulated Amortization | (233,257) | (233,257) |
Accumulated Impairment | (166,743) | (166,743) |
Delphiis, Inc. | Trademarks | ||
Gross Carrying Amount | 50,000 | 50,000 |
Accumulated Amortization | (50,000) | (50,000) |
Accumulated Impairment | 0 | 0 |
Delphiis, Inc. | Noncompete Agreements | ||
Gross Carrying Amount | 20,000 | 20,000 |
Accumulated Amortization | (17,292) | (17,292) |
Accumulated Impairment | (2,708) | (2,708) |
Redspin, Inc. | ||
Gross Carrying Amount | 1,950,000 | 1,950,000 |
Accumulated Amortization | (955,640) | (939,448) |
Accumulated Impairment | (540,979) | (540,979) |
Redspin, Inc. | Acquired technology | ||
Gross Carrying Amount | 1,050,000 | 1,050,000 |
Accumulated Amortization | (264,711) | (248,519) |
Accumulated Impairment | (331,908) | (331,908) |
Redspin, Inc. | Customer Relationships | ||
Gross Carrying Amount | 600,000 | 600,000 |
Accumulated Amortization | (550,000) | (550,000) |
Accumulated Impairment | (50,000) | (50,000) |
Redspin, Inc. | Trademarks | ||
Gross Carrying Amount | 200,000 | 200,000 |
Accumulated Amortization | (93,978) | (93,978) |
Accumulated Impairment | (106,022) | (106,022) |
Redspin, Inc. | Noncompete Agreements | ||
Gross Carrying Amount | 100,000 | 100,000 |
Accumulated Amortization | (46,951) | (46,951) |
Accumulated Impairment | (53,049) | (53,049) |
CTEK Security, Inc | ||
Gross Carrying Amount | 12,050,000 | 12,050,000 |
Accumulated Amortization | (2,161,454) | (1,729,163) |
Accumulated Impairment | 0 | 0 |
CTEK Security, Inc | Acquired technology | ||
Gross Carrying Amount | 8,150,000 | 8,150,000 |
Accumulated Amortization | (1,018,750) | (815,000) |
Accumulated Impairment | 0 | 0 |
CTEK Security, Inc | Customer Relationships | ||
Gross Carrying Amount | 2,150,000 | 2,150,000 |
Accumulated Amortization | (671,875) | (537,500) |
Accumulated Impairment | 0 | 0 |
CTEK Security, Inc | Trademarks | ||
Gross Carrying Amount | 1,550,000 | 1,550,000 |
Accumulated Amortization | (387,500) | (310,000) |
Accumulated Impairment | 0 | 0 |
CTEK Security, Inc | Noncompete Agreements | ||
Gross Carrying Amount | 200,000 | 200,000 |
Accumulated Amortization | (83,329) | (66,663) |
Accumulated Impairment | $ 0 | $ 0 |
9. Deferred Revenue (Details)
9. Deferred Revenue (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Managed services revenues | ||
Deferred revenues | $ 307,780 | $ 640,962 |
Consulting and professional services revenues | ||
Deferred revenues | $ 214,970 | $ 327,236 |
10. Remaining Performance Obl37
10. Remaining Performance Obligations (Details) | 3 Months Ended |
Mar. 31, 2018USD ($) | |
Notes to Financial Statements | |
Revenue from fixed-fee contracts | $ 21,000,000 |
Revenue percentage | 85.00% |
Remaining performance obligations, expiration term | 24 months |
11. Line of Credit and Term L38
11. Line of Credit and Term Loan (Details) - USD ($) | Mar. 12, 2018 | Jan. 13, 2017 | Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 | Sep. 30, 2017 | Jan. 17, 2017 |
Line of Credit Facility, Initiation Date | May 4, 2012 | ||||||
McMillan Seller Note | |||||||
Repayment of loan | $ 2,250,000 | ||||||
Original principal amount | $ 2,250,000 | ||||||
Due date | Mar. 31, 2022 | ||||||
Interest Rates | 8.00% | ||||||
Line of Credit | |||||||
Due date | Mar. 12, 2020 | ||||||
Revolving Line of Credit | $ 5,000,000 | ||||||
A&R Credit Agreement Term Loan | |||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 14,000,000 | ||||||
Debt Instrument, Maturity Date | Jan. 13, 2019 | ||||||
Debt Instrument, Description of Variable Rate Basis | prime plus 1.0% per annum | ||||||
Debt Instrument, Interest Rate, Effective Percentage | 5.25% | ||||||
Long-term Line of Credit | $ 11,818,333 | ||||||
Debt Instrument, Interest Rate, Stated Percentage | 6.00% | ||||||
Debt Instrument, Basis Spread on Variable Rate | 1.50% | ||||||
A&R Credit Agreement Term Loan | Debt Instrument, Redemption, Period Two | |||||||
Debt Instrument, Periodic Payment, Principal | $ 373,333 | ||||||
Debt Instrument, Basis Spread on Variable Rate | 1.50% | ||||||
A&R Credit Agreement Term Loan | Debt Instrument, Redemption, Period One | |||||||
Debt Instrument, Periodic Payment, Principal | $ 198,333 | ||||||
Debt Instrument, Basis Spread on Variable Rate | 1.50% | ||||||
Term Loan | |||||||
Debt Instrument, Fee Amount | 86,250 | ||||||
Term Loan | $ 17,250,000 | $ 17,250,000 | |||||
Due date | Sep. 12, 2022 | ||||||
Interest Rates | 5.24% | ||||||
A&R Credit Agreement Revolving Line Of Credit | |||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 5,000,000 | ||||||
Separation Agreement | Chief Operating Officer | |||||||
Refinance of promissory note | $ 3,750,000 | ||||||
Earn-out contingent liability | 1,394,000 | ||||||
Separation Agreement | McMillan Seller Note | |||||||
Refinance of promissory note | 250,000 | ||||||
Original principal amount | $ 343,750 | ||||||
Due date | Jan. 10, 2019 | ||||||
Interest Rates | 5.00% | ||||||
Avidbank | Loan and Security Agreement | |||||||
Line of Credit Facility, Borrowing Capacity, Description | The amount available to us at any given time was the lesser of (a) $5.0 million, or (b) the amount available under our borrowing base (80% of our eligible accounts receivable, minus (1) accrued client lease payables, and minus (2) accrued equipment pool liability). As of December 31, 2017, no amounts were outstanding under the line of credit. | ||||||
Avidbank | Line of Credit | |||||||
Interest Charges | $ 0 | $ 0 | |||||
Debt Instrument, Fee Amount | 25,000 | ||||||
Avidbank | Term Loan | |||||||
Interest Charges | 133,914 | $ 119,272 | |||||
Debt Instrument, Fee Amount | $ 70,000 | ||||||
Avidbank | BMO Term Loan | |||||||
Interest Charges | $ 50,217 |
12. Promissory Notes (Details)
12. Promissory Notes (Details) - USD ($) | Mar. 12, 2018 | Mar. 31, 2018 | Mar. 31, 2017 | Jan. 17, 2017 |
Separation Agreement | Chief Operating Officer | ||||
Refinance of promissory note | $ 3,750,000 | |||
Earn-out contingent liability | 1,394,000 | |||
McMillan Seller Note | ||||
Repayment of loan | 2,250,000 | |||
Original principal amount | $ 2,250,000 | |||
Due date | Mar. 31, 2022 | |||
Interest Rates | 8.00% | |||
McMillan Seller Note | Separation Agreement | ||||
Refinance of promissory note | $ 250,000 | |||
Original principal amount | $ 343,750 | |||
Due date | Jan. 10, 2019 | |||
Interest Rates | 5.00% | |||
Seller Notes | ||||
Debt Instrument, Face Amount | $ 9,000,000 | |||
Debt Instrument, Interest Rate, Stated Percentage | 8.00% | |||
Interest Charges | $ 149,425 | $ 151,890 | ||
Seller Notes | Michael Hernandez | ||||
Debt Instrument, Face Amount | $ 4,500,000 | |||
Seller Notes | Michael Mcmillan | ||||
Debt Instrument, Face Amount | $ 4,500,000 | |||
Mathews Seller Note | ||||
Interest Charges | $ 4,500,000 | |||
Severance Payment Note | ||||
Interest Charges | 4,191 | |||
Earn-out Note | ||||
Interest Charges | $ 45,813 |
13. Employment Agreements (Deta
13. Employment Agreements (Details) - USD ($) | Mar. 12, 2018 | Oct. 02, 2017 | Jan. 17, 2017 | Mar. 31, 2017 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2016 |
Michael Mcmillan | |||||||
Base Salary, Annual Amount | $ 359,700 | $ 334,700 | |||||
Salary Bonus, Annual Amount | 242,798 | 219,375 | |||||
Michael Mathews | |||||||
Base Salary, Annual Amount | $ 250,000 | ||||||
Chief Executive Officer | |||||||
Base Salary, Annual Amount | $ 325,000 | ||||||
Paul T. Anthony | |||||||
Base Salary, Annual Amount | $ 250,000 | 309,700 | 284,700 | $ 245,000 | |||
Salary Bonus, Annual Amount | $ 150,000 | $ 209,047 | $ 185,625 | $ 132,000 | |||
McMillan Seller Note | |||||||
Original principal amount | $ 2,250,000 | ||||||
Due date | Mar. 31, 2022 | ||||||
Interest Rates | 8.00% | ||||||
McMillan Seller Note | Separation Agreement | |||||||
Refinance of promissory note | $ 250,000 | ||||||
Original principal amount | $ 343,750 | ||||||
Due date | Jan. 10, 2019 | ||||||
Interest Rates | 5.00% |
14. Concentrations (Details)
14. Concentrations (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 | |
Accounts receivable, net | $ 10,577,287 | $ 13,264,323 | |
Customer Concentration Risk | |||
Accounts receivable, net | $ 5,300,000 | $ 5,600,000 | |
Revenue | Customer Concentration Risk | |||
Concentration Risk, Percentage | 51.00% | 41.00% |