CynergisTek (CTEK) 10-Q 8 Nov 18 2018 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 08, 2018
Details
Registrant Name	CYNERGISTEK, INC.
Registrant CIK	1,011,432
SEC Form	10-Q
Period End date	Sep. 30, 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	Non-accelerated Filer
Small Business	true
Emerging Growth Company	false
Amendment Flag	false
Document Fiscal Year Focus	2,018
Document Fiscal Period Focus	Q3
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 - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 6,355,427	$ 4,252,060
Accounts receivable, net	9,389,407	13,264,323
Prepaid and other current assets	1,583,463	557,426
Supplies	1,043,964	1,156,006
Total current assets	18,372,261	19,229,815
Property and equipment, net	648,895	831,784
Deposits	87,778	87,376
Deferred income taxes	2,930,051	3,120,310
Intangible assets, net	9,542,722	10,900,924
Goodwill	18,525,206	18,525,206
Total assets	50,106,913	52,695,415
Current liabilities:
Accounts payable and accrued expenses	3,639,637	9,631,634
Accrued compensation and benefits	3,792,516	3,711,551
Deferred revenue	1,144,555	1,425,821
Note payable	343,750	0
Current portion of long-term liabilities	3,120,504	5,494,837
Total current liabilities	12,040,962	20,263,843
Long-term liabilities:
Term loan, less current portion	14,075,843	9,438,333
Promissory notes to related parties, less current portion	5,156,250	6,000,000
Capital lease obligations, less current portion	77,500	147,861
Total long-term liabilities	19,309,593	15,586,194
Stockholders' equity:
Common stock, par value at $0.001, 33,333,333 shares authorized, 9,616,133 shares issued and outstanding at September 30, 2018 and 9,576,028 shares issued and outstanding at December 31, 2017	9,616	9,576
Additional paid-in capital	31,619,720	31,156,362
Accumulated deficit	(12,872,978)	(14,320,560)
Total stockholders' equity	18,756,358	16,845,378
Total liabilities and stockholders' equity	$ 50,106,913	$ 52,695,415

CONDENSED CONSOLIDATED BALANC_2

CONDENSED CONSOLIDATED BALANCE SHEETS - Parenthetical - $ / shares	Sep. 30, 2018	Dec. 31, 2017
Details
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	9,616,133	9,576,028
Common Stock, Shares, Outstanding	9,616,133	9,576,028

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Details
Net revenues	$ 19,216,066	$ 17,897,076	$ 52,536,317	$ 52,950,678
Cost of revenues	13,428,831	11,743,838	38,131,617	37,847,138
Gross profit	5,787,235	6,153,238	14,404,700	15,103,540
Operating expenses:
Sales and marketing	1,313,388	1,329,909	4,288,893	4,070,765
General and administrative	1,789,959	1,849,164	6,405,355	5,876,895
Depreciation	84,840	97,568	265,424	287,727
Amortization of acquisition-related intangibles	452,734	520,030	1,358,201	1,560,716
Total operating expenses	3,640,921	3,796,671	12,317,873	11,796,103
Income from operations	2,146,314	2,356,567	2,086,827	3,307,437
Other income (expense):
Other income	17	1,862	44	1,884
Interest expense	(348,480)	(373,408)	(1,103,592)	(1,162,289)
Total other income (expense)	(348,463)	(371,546)	(1,103,548)	(1,160,405)
Income before provision for income taxes	1,797,851	1,985,021	983,279	2,147,032
Income tax expense	(643,725)	(895,360)	(415,363)	(976,899)
Net income	$ 1,154,126	$ 1,089,661	$ 567,916	$ 1,170,133
Net income per share:
Basic	$ 0.12	$ 0.11	$ 0.06	$ 0.12
Diluted	$ 0.12	$ 0.11	$ 0.06	$ 0.12
Number of weighted average shares outstanding:
Basic	9,616,133	9,501,760	9,605,536	9,387,264
Diluted	9,762,370	9,881,236	9,813,098	9,835,428

CONDENSED CONSOLIDATED STATEM_2

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - 9 months ended Sep. 30, 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
Cumulative effect of adoption of revenue recognition standard ASC 606	$ 0	0	879,666	879,666
Stock compensation expense for options and warrants granted to employees and directors	0	28,996	0	28,966
Stock compensation expense for restricted stock units granted to employees and directors	0	434,402	0	434,402
Stock options and warrants exercised, value	$ 40	(40)	0	$ 0
Stock options and warrants exercised, shares	40,105			40,105
Net income	$ 0	0	567,916	$ 567,916
Stockholders Equity, Ending Balance at Sep. 30, 2018	$ 9,616	$ 31,619,720	$ (12,872,978)	$ 18,756,358
Shares, Outstanding, Ending Balance at Sep. 30, 2018	9,616,133

CONDENSED CONSOLIDATED STATEM_3

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities:
Net income	$ 567,916	$ 1,170,133
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation	265,424	287,727
Amortization of intangible assets	1,358,201	1,560,716
Deferred income taxes	190,259	726,258
Bad debts	109,673	109,207
Stock compensation expense for warrants and options granted to employees and directors	28,996	74,973
Stock compensation expense for restricted stock units granted to employees and directors	434,402	98,347
Note payable issued for severance pay	343,750	0
Interest expense related to loan acquisition costs	17,450	0
Changes in operating assets and liabilities:
Accounts receivable	3,765,243	(1,495,401)
Supplies	112,042	112,869
Prepaid and other current assets	(146,370)	(558,943)
Deposits	(402)	(45,854)
Accounts payable and accrued expenses	(2,241,997)	(2,933,971)
Accrued compensation and benefits	80,965	(36,368)
Deferred revenue	(281,266)	196,927
Net cash provided by (used for) operating activities	4,604,286	(733,380)
Cash flows from investing activities:
Purchases of property and equipment	(82,535)	(258,981)
Amount paid to purchase CynergisTek, net of cash received	0	(13,448,522)
Net cash used for investing activities	(82,535)	(13,707,503)
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	(12,434,404)	(2,836,667)
Payments on promissory notes to related parties	(7,031,250)	0
Payments on capital leases	(91,480)	(130,526)
Proceeds from issuance of common stock through stock options and warrants	0	66,452
Net cash (used for) provided by financing activities	(2,418,384)	11,099,259
Net increase (decrease) in cash and cash equivalents	2,103,367	(3,341,624)
Cash and cash equivalents, beginning of period	4,252,060	6,090,844
Cash and cash equivalents, end of period	$ 6,355,427	$ 2,749,220

CONDENSED CONSOLIDATED STATEM_4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Supplemental disclosure of cash flow information:
Interest paid	$ 1,214,439	$ 920,393
Income taxes paid	226,170	256,252
Non-cash investing and financing activities:
Property and equipment acquired through capital leases	0	128,939
Common stock issued in connection with the acquisition of CynergisTek, Inc.	0	2,771,999
Promissory notes issued in connection with the acquisition of CynergisTek, Inc.	0	9,000,000
Fair value of earn-out liability in connection with the acquisition of CynergisTek, Inc.	$ 0	$ 2,356,000

1. Basis of Presentation

1. Basis of Presentation	9 Months Ended
	Sep. 30, 2018
Notes
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 Maker reviews, manages and is 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. 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	9 Months Ended
	Sep. 30, 2018
Notes
2. Recently Issued Accounting Pronouncements	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, goodwill impairment will be recognized as the difference between 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 a 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 a 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	9 Months Ended
	Sep. 30, 2018
Notes
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 September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Managed services $ 13,594,227 $ 15,175,852 $ 40,155,977 $ 45,530,347 Consulting & professional services 2,911,982 1,931,169 6,708,121 4,837,297 Office equipment, hardware & software resales 2,709,857 790,055 5,672,219 2,583,034 Net revenues $ 19,216,066 $ 17,897,076 $ 52,536,317 $ 52,950,678

4. Options, Warrants and Restri

4. Options, Warrants and Restricted Stock Units	9 Months Ended
	Sep. 30, 2018
Notes
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 nine-month period ended September 30, 2018: Options Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2017 724,400 $ 3.09 Granted - - Exercised (40,105) 2.74 Cancelled (105,756) 3.88 Outstanding at September 30, 2018 578,539 $ 2.97 3.82 $ 520,796 Exercisable at September 30, 2018 543,423 $ 2.97 3.82 $ 488,666 Warrants Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2017 77,779 $ 3.03 Granted - - Exercised - - Cancelled - - Outstanding at September 30, 2018 77,779 $ 3.03 4.55 $ 63,779 Exercisable at September 30, 2018 77,779 $ 3.03 4.55 $ 63,779 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 (65,500) 3.68 Outstanding at September 30, 2018 441,000 $ 3.30 1.75 For the three and nine months ended September 30, 2018 and 2017, stock-based compensation expense recognized in the consolidated statements of operations as follows: Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Cost of revenues $ 21,148 $ 5,585 $ 82,173 $ 32,509 Sales and marketing 42,625 51,000 87,875 95,602 General and administrative 97,492 13,287 293,350 45,209 Total stock-based compensation expense $ 161,264 $ 69,872 $ 463,398 $ 173,320

5. Net Income Per Share

5. Net Income Per Share	9 Months Ended
	Sep. 30, 2018
Notes
5. Net Income Per Share	For the nine months ended September 30, 2017, potentially dilutive securities consisted of options and warrants to purchase 1,416,747 shares of common stock at prices ranging from $0.90 to $6.45 per share. Of these potentially dilutive securities, 448,164 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 September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Numerator: Net income $ 1,154,126 $ 1,089,661 $ 567,916 $ 1,170,133 Denominator: Denominator for basic calculation weighted average shares 9,616,133 9,501,760 9,605,536 9,387,264 Dilutive common stock equivalents: Options and warrants 146,237 379,476 207,562 448,164 Denominator for diluted calculation weighted average shares 9,762,370 9,881,236 9,813,098 9,835,428 Net income per share: Basic net income per share $ 0.12 $ 0.11 $ 0.06 $ 0.12 Diluted net income per share $ 0.12 $ 0.11 $ 0.06 $ 0.12

6. Accounts Receivable

6. Accounts Receivable	9 Months Ended
	Sep. 30, 2018
Notes
6. Accounts Receivable	6. ACCOUNTS RECEIVABLE A summary of accounts receivable is as follows: September 30, 2018 December 31, 2017 Trade receivables $ 11,051,436 $ 14,451,899 Unbilled revenue, net and unapplied advances (1,662,029) (1,081,525) Allowance for doubtful accounts - (106,551) Total accounts receivable, net $ 9,389,407 $ 13,264,323

7. Deferred Commissions

7. Deferred Commissions	9 Months Ended
	Sep. 30, 2018
Notes
7. Deferred Commissions	7. DEFERRED COMMISSIONS Our incremental costs of obtaining a contract, which consist of sales commissions on multi-year contracts, 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 September 30, 2018, we had $1,016,751 related to unamortized deferred commissions. We had $211,920 and $633,060 of commissions expense for the three and nine months ended September 30, 2018, respectively. Commissions expense for the three and nine months ended September 30, 2017 were $232,968 and $611,059, respectively. If we had recognized commissions expense under the full retrospective approach, commission expense would have been $171,611 and $507,799, respectively, for the three and nine months ended September 30, 2017.

8. Intangible Assets

8. Intangible Assets	9 Months Ended
	Sep. 30, 2018
Notes
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: September 30, 2018 December 31, 2017 Gross Carrying Amount Accumulated Amortization Accumulated Impairment Gross Carrying Amount Accumulated Amortization Accumulated Impairment Delphiis, Inc. Acquired technology $ 900,000 $ (254,754) $ (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 $ (555,303) $ (716,935) $ 1,370,000 $ (542,551) $ (716,935) Redspin Acquired technology $ 1,050,000 $ (297,095) $ (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 $ (988,024) $ (540,979) $ 1,950,000 $ (939,448) $ (540,979) CTEK Security, Inc. Acquired technology $ 8,150,000 $ (1,426,250) $ - $ 8,150,000 $ (815,000) $ - Customer relationships 2,150,000 (940,625) - 2,150,000 (537,500) - Trademarks 1,550,000 (542,500) - 1,550,000 (310,000) - Non-compete agreements 200,000 (116,662) - 200,000 (66,663) - Total CTEK Security, Inc. $ 12,050,000 $ (3,026,037) $ - $ 12,050,000 $ (1,729,163) $ - Total intangible assets $ 15,370,000 $ (4,569,364) $ (1,257,914) $ 15,370,000 $ (3,211,162) $ (1,257,914)

9. Deferred Revenue

9. Deferred Revenue	9 Months Ended
	Sep. 30, 2018
Notes
9. Deferred Revenue	9. DEFERRED REVENUE We record deferred revenues when amounts are billed to customers, or cash is received from customers, in advance of our performance. $578,725 and $932,994 of managed services revenues were recognized during the nine months ended September 30, 2018 and 2017, respectively, that was included in deferred revenue at the beginning of the respective periods. $523,505 and $250,766 of consulting and professional services revenues were recognized during the nine months ended September 30, 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	9 Months Ended
	Sep. 30, 2018
Notes
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 September 30, 2018, approximately $23,000,000 of revenue from fixed-fee contracts is expected to be recognized from these remaining performance obligations. We expect to recognize revenue on approximately 88% of these remaining performance obligations over the next 24 months, with the balance thereafter. We elected to utilize the practical expedient 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	9 Months Ended
	Sep. 30, 2018
Notes
11. Line of Credit and Term 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 Michael McMillan (the “McMillan Seller Note”), (3) to finance payments to Dr. Michael Hernandez (f/k/a Dr. Michael G. Mathews), including the full repayment of a promissory note held by Hernandez (the “Hernandez Seller Note”; together with the McMillan Seller Note, the “Seller Notes”) in the original principal amount of $4,500,000, also issued as part of the Original SPA (as defined below), (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 September 30, 2018, outstanding borrowings under the term loan were $16,017,857 at an interest rate of 5.64%. 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. Beginning June 30, 2018, we are required to maintain certain financial covenants in connection with the 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. As of September 30, 2018, we were in compliance with all of the Credit Agreement’s financial covenants. 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. There were no borrowings on the BMO line of credit for the nine months ended September 30, 2018. During the nine months ended September 30, 2018, we paid $37,638 in revolving loan commitment fees associated with the line of credit. Interest charges associated with the BMO term loan totaled $234,989 and $521,785 for the three and nine months ended September 30, 2018. In addition, in March 2018, we paid a $86,250 commitment fee associated with the term loan. 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 Officer of the Company.

12. Promissory Notes

12. Promissory Notes	9 Months Ended
	Sep. 30, 2018
Notes
12. Promissory Notes	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. Accordingly, principal payments totaling $281,250 plus interest of $81,986 were made in 2018. 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 are qualified in their entirety by reference to such notes. The Seller Notes are found in our Form 8-K filed on January 17, 2017 as Exhibits 99.3 and 99.4. The foregoing descriptions of the A&R McMillan Seller Note are qualified in their entirety by reference such note, 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 $41,610 and $234,986, respectively for the three and nine months ended September 30, 2018, and $179,507 and $331,397, respectively for the three months and nine months ended September 30, 2017. Pursuant to the Separation Agreement (see Note 11), in lieu of any earn-out payments (as described in the Original SPA) 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 $47,713 and $140,721, respectively, for the three and nine months ended September 30, 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 $4,332 and $12,808, respectively for the three and nine months ended September 30, 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	9 Months Ended
	Sep. 30, 2018
Notes
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 “Anthony Agreement”). The Anthony Agreement provides that Mr. Anthony will continue to serve as our Executive Vice President and CFO. The Anthony Agreement has a term of two years and provided for an annual base salary of $245,000. The 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 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 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 amended the Anthony Agreement to extend the term thereof 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.The foregoing summary of the Anthony Agreement is qualified in its entirety by reference to the full context of the agreement, which is found as Exhibit 10.32 to our Annual Report on Form 10-K filed with the SEC on March 30, 2016, and the amendment to the Anthony Agreement, which is found as Exhibit 10.45 to our Annual Report on Form 10-K filed with the SEC on March 28, 2018.

14. Concentrations

14. Concentrations	9 Months Ended
	Sep. 30, 2018
Notes
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 57% of our revenues for the nine months ended September 30, 2018 and our two largest customers accounted for approximately 44% of our revenues for the nine months ended September 30, 2017. Our largest customers had accounts receivable totaling approximately $4,100,000 and $5,600,000 as of September 30, 2018 and December 31, 2017, respectively.

3. Revenues (Tables)

3. Revenues (Tables)	9 Months Ended
	Sep. 30, 2018
Tables/Schedules
Schedule of Revenue	Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Managed services $ 13,594,227 $ 15,175,852 $ 40,155,977 $ 45,530,347 Consulting & professional services 2,911,982 1,931,169 6,708,121 4,837,297 Office equipment, hardware & software resales 2,709,857 790,055 5,672,219 2,583,034 Net revenues $ 19,216,066 $ 17,897,076 $ 52,536,317 $ 52,950,678

4. Options, Warrants and Rest_2

4. Options, Warrants and Restricted Stock Units (Tables)	9 Months Ended
	Sep. 30, 2018
Tables/Schedules
Schedule of Stock Options, Activity	Below is a summary of stock option, warrant and restricted stock activity during the nine-month period ended September 30, 2018: Options Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2017 724,400 $ 3.09 Granted - - Exercised (40,105) 2.74 Cancelled (105,756) 3.88 Outstanding at September 30, 2018 578,539 $ 2.97 3.82 $ 520,796 Exercisable at September 30, 2018 543,423 $ 2.97 3.82 $ 488,666
Schedule of Warrants, Activity	Warrants Shares Weighted Average Exercise Price Weighted Average Remaining Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2017 77,779 $ 3.03 Granted - - Exercised - - Cancelled - - Outstanding at September 30, 2018 77,779 $ 3.03 4.55 $ 63,779 Exercisable at September 30, 2018 77,779 $ 3.03 4.55 $ 63,779
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 (65,500) 3.68 Outstanding at September 30, 2018 441,000 $ 3.30 1.75
Schedule of Stock-Based Compensation Exprense Allocation	For the three and nine months ended September 30, 2018 and 2017, stock-based compensation expense recognized in the consolidated statements of operations as follows: Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Cost of revenues $ 21,148 $ 5,585 $ 82,173 $ 32,509 Sales and marketing 42,625 51,000 87,875 95,602 General and administrative 97,492 13,287 293,350 45,209 Total stock-based compensation expense $ 161,264 $ 69,872 $ 463,398 $ 173,320

5. Net Income Per Share (Tables

5. Net Income Per Share (Tables)	9 Months Ended
	Sep. 30, 2018
Tables/Schedules
Schedule of Computation of Earnings Per Share, Basic and Diluted	Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Numerator: Net income $ 1,154,126 $ 1,089,661 $ 567,916 $ 1,170,133 Denominator: Denominator for basic calculation weighted average shares 9,616,133 9,501,760 9,605,536 9,387,264 Dilutive common stock equivalents: Options and warrants 146,237 379,476 207,562 448,164 Denominator for diluted calculation weighted average shares 9,762,370 9,881,236 9,813,098 9,835,428 Net income per share: Basic net income per share $ 0.12 $ 0.11 $ 0.06 $ 0.12 Diluted net income per share $ 0.12 $ 0.11 $ 0.06 $ 0.12

6. Accounts Receivable (Tables)

6. Accounts Receivable (Tables)	9 Months Ended
	Sep. 30, 2018
Tables/Schedules
Schedule of Accounts Receivable	A summary of accounts receivable is as follows: September 30, 2018 December 31, 2017 Trade receivables $ 11,051,436 $ 14,451,899 Unbilled revenue, net and unapplied advances (1,662,029) (1,081,525) Allowance for doubtful accounts - (106,551) Total accounts receivable, net $ 9,389,407 $ 13,264,323

8. Intangible Assets (Tables)

8. Intangible Assets (Tables)	9 Months Ended
	Sep. 30, 2018
Tables/Schedules
Schedule of Intangible Assets	Intangible assets are amortized over expected useful lives ranging from 1.5 to 10 years and consist of the following: September 30, 2018 December 31, 2017 Gross Carrying Amount Accumulated Amortization Accumulated Impairment Gross Carrying Amount Accumulated Amortization Accumulated Impairment Delphiis, Inc. Acquired technology $ 900,000 $ (254,754) $ (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 $ (555,303) $ (716,935) $ 1,370,000 $ (542,551) $ (716,935) Redspin Acquired technology $ 1,050,000 $ (297,095) $ (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 $ (988,024) $ (540,979) $ 1,950,000 $ (939,448) $ (540,979) CTEK Security, Inc. Acquired technology $ 8,150,000 $ (1,426,250) $ - $ 8,150,000 $ (815,000) $ - Customer relationships 2,150,000 (940,625) - 2,150,000 (537,500) - Trademarks 1,550,000 (542,500) - 1,550,000 (310,000) - Non-compete agreements 200,000 (116,662) - 200,000 (66,663) - Total CTEK Security, Inc. $ 12,050,000 $ (3,026,037) $ - $ 12,050,000 $ (1,729,163) $ - Total intangible assets $ 15,370,000 $ (4,569,364) $ (1,257,914) $ 15,370,000 $ (3,211,162) $ (1,257,914)

3. Revenues_ Schedule of Revenu

3. Revenues: Schedule of Revenue (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net revenues	$ 19,216,066	$ 17,897,076	$ 52,536,317	$ 52,950,678
Managed services revenues
Net revenues	13,594,227	15,175,852	40,155,977	45,530,347
Consulting and professional services revenues
Net revenues	2,911,982	1,931,169	6,708,121	4,837,297
Office equipment, hardware and software resales
Net revenues	$ 2,709,857	$ 790,055	$ 5,672,219	$ 2,583,034

4. Options, Warrants and Rest_3

4. Options, Warrants and Restricted Stock Units: Schedule of Stock Options, Activity (Details)	9 Months Ended
	Sep. 30, 2018USD ($)$ / sharesshares
Details
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	(40,105)
Exercised, Weighted Average Exercise Price | $ / shares	$ 2.74
Cancelled | shares	(105,756)
Cancelled, Weighted Average Exercise Price | $ / shares	$ 3.88
Outstanding, Ending Balance | shares	578,539
Outstanding, Weighted Average Exercise Price, Ending Balance | $ / shares	$ 2.97
Outstanding, Weighted Average Remaining Term in Years	3 years 9 months 25 days
Outstanding, Aggregate Intrinsic Value | $	$ 520,796
Exercisable | shares	543,423
Exercisable, Weighted Average Exercise Price | $ / shares	$ 2.97
Exercisable, Weighted Average Remaining Term in Years	3 years 9 months 25 days
Exercisable, Aggregate Intrinsic Value | $	$ 488,666

4. Options, Warrants and Rest_4

4. Options, Warrants and Restricted Stock Units: Schedule of Warrants, Activity (Details) - Warrant	9 Months Ended
	Sep. 30, 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 6 months 18 days
Outstanding, Intrinsic Value | $	$ 63,779
Exercisable | shares	77,779
Exercisable, Weighted Average Exercise Price | $ / shares	$ 3.03
Exercisable, Weighted Average Remaining Contractual Life	4 years 6 months 18 days
Exercisable, Intrinsic Value | $	$ 63,779

4. Options, Warrants and Rest_5

4. Options, Warrants and Restricted Stock Units: Schedule of Restricted Stock Units, Activity (Details) - Restricted Stock Units (RSUs)	9 Months Ended
	Sep. 30, 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	(65,500)
Cancelled, Weighted Average Price	3.68
Outstanding, Ending Balance	441,000
Outstanding, Weighted Average Price, Ending Balance | $ / shares	$ 3.30
Outstanding, Weighted Average Remaining Term in Years	1 year 9 months

4. Options, Warrants and Rest_6

4. Options, Warrants and Restricted Stock Units: Schedule of Stock-Based Compensation Exprense Allocation (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Stock-based compensation expense	$ 161,264	$ 69,872	$ 463,398	$ 173,320
Cost of Sales
Stock-based compensation expense	21,148	5,585	82,173	32,509
Selling and Marketing Expense
Stock-based compensation expense	42,625	51,000	87,875	95,602
General and Administrative Expense
Stock-based compensation expense	$ 97,492	$ 13,287	$ 293,350	$ 45,209

5. Net Income Per Share (Detail

5. Net Income Per Share (Details) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Potentially dilutive securities	656,318	1,416,747	656,318	1,416,747
Exercise Price Range, Lower Range Limit	$ 0.90	$ 0.90	$ 0.90	$ 0.90
Exercise Price Range, Upper Range Limit	$ 6.45	$ 6.45	$ 6.45	$ 6.45
Options and warrants	146,237	379,476	207,562	448,164
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	441,000		441,000		506,500

5. Net Income Per Share_ Schedu

5. Net Income Per Share: Schedule of Computation of Earnings Per Share, Basic and Diluted (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Numerator:
Net income	$ 1,154,126	$ 1,089,661	$ 567,916	$ 1,170,133
Denominator:
Denominator for basic calculation weighted average shares	9,616,133	9,501,760	9,605,536	9,387,264
Dilutive Common Stock equivalents
Options and warrants	146,237	379,476	207,562	448,164
Diluted	9,762,370	9,881,236	9,813,098	9,835,428
Net income per share:
Basic net income per share	$ 0.12	$ 0.11	$ 0.06	$ 0.12
Diluted net income per share	$ 0.12	$ 0.11	$ 0.06	$ 0.12

6. Accounts Receivable_ Schedul

6. Accounts Receivable: Schedule of Accounts Receivable (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Details
Trade receivables	$ 11,051,436	$ 14,451,899
Unbilled revenue, net and unapplied advances	(1,662,029)	(1,081,525)
Allowance for doubtful accounts	0	(106,551)
Accounts receivable	$ 9,389,407	$ 13,264,323

7. Deferred Commissions (Detail

7. Deferred Commissions (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Sales Commissions and Fees	$ 211,920	$ 232,968	$ 633,060	$ 611,059
Full retrospective approach
Sales Commissions and Fees		$ 171,611		$ 507,799
Cost of Sales
Deferred Costs and Other Assets	$ 1,016,751		$ 1,016,751		$ 879,666

8. Intangible Assets_ Schedule

8. Intangible Assets: Schedule of Intangible Assets (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Delphiis, Inc.
Gross Carrying Amount	$ 1,370,000	$ 1,370,000
Accumulated Amortization	(555,303)	(542,551)
Accumulated Impairment	(716,935)	(716,935)
Delphiis, Inc. | Acquired technology
Gross Carrying Amount	900,000	900,000
Accumulated Amortization	(254,754)	(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	(988,024)	(939,448)
Accumulated Impairment	(540,979)	(540,979)
Redspin, Inc. | Acquired technology
Gross Carrying Amount	1,050,000	1,050,000
Accumulated Amortization	(297,095)	(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)
Cynergistek Inc
Gross Carrying Amount	12,050,000	12,050,000
Accumulated Amortization	(3,026,037)	(1,729,163)
Accumulated Impairment	0	0
Cynergistek Inc | Acquired technology
Gross Carrying Amount	8,150,000	8,150,000
Accumulated Amortization	(1,426,250)	(815,000)
Accumulated Impairment	0	0
Cynergistek Inc | Customer Relationships
Gross Carrying Amount	2,150,000	2,150,000
Accumulated Amortization	(940,625)	(537,500)
Accumulated Impairment	0	0
Cynergistek Inc | Trademarks
Gross Carrying Amount	1,550,000	1,550,000
Accumulated Amortization	(542,500)	(310,000)
Accumulated Impairment	0	0
Cynergistek Inc | Noncompete Agreements
Gross Carrying Amount	200,000	200,000
Accumulated Amortization	(116,662)	(66,663)
Accumulated Impairment	0	0
Company Totals
Gross Carrying Amount	15,370,000	15,370,000
Accumulated Amortization	(4,569,364)	(3,211,162)
Accumulated Impairment	$ (1,257,914)	$ (1,257,914)

9. Deferred Revenue (Details)

9. Deferred Revenue (Details) - USD ($)	Sep. 30, 2018	Sep. 30, 2017
Deferred Revenue	$ 23,000,000
Managed services revenues
Deferred Revenue	578,725	$ 932,994
Consulting and professional services revenues
Deferred Revenue	$ 523,505	$ 250,766

10. Remaining Performance Obl_2

10. Remaining Performance Obligations (Details)	9 Months Ended
	Sep. 30, 2018USD ($)
Details
Deferred Revenue	$ 23,000,000
Revenue Recognition, Deferred Revenue	We expect to recognize revenue on approximately 88% of these remaining performance obligations over the next 24 months,

11. Line of Credit and Term L_2

11. Line of Credit and Term Loan (Details) - USD ($)	Dec. 31, 2017	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Mar. 31, 2018	Jan. 17, 2017	Jan. 13, 2017
Separation Agreement
Notes Payable	$ 343,750
Debt Instrument, Face Amount		$ 3,750,000		$ 3,750,000
Debt Instrument, Maturity Date	Jan. 10, 2019
Debt Instrument, Interest Rate, Stated Percentage	5.00%	5.00%		5.00%
Loss Contingency Accrual, Product Liability, Gross	$ 1,394,000
Severance Costs	250,000
Michael Mcmillan
Maximum earn-out payment				$ 1,200,000
Loan and Security Agreement | Avidbank
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).
Seller Notes
Interest Charges		$ 41,610	$ 179,507	$ 234,986	$ 331,397
Debt Instrument, Face Amount		9,000,000		9,000,000
Debt Instrument, Interest Rate, Stated Percentage							8.00%
Seller Notes | Michael Mcmillan
Debt Instrument, Face Amount		$ 4,500,000		$ 4,500,000
Debt Instrument, Maturity Date				Mar. 31, 2022
Debt Instrument, Interest Rate, Stated Percentage		8.00%		8.00%
Repayments of Debt				$ 2,250,000
Term Loan
Line of Credit Facility, Maximum Borrowing Capacity		$ 5,000,000		5,000,000
Debt Instrument, Fee Amount						$ 86,250
Debt Instrument, Face Amount		17,250,000		$ 17,250,000
Debt Instrument, Maturity Date				Sep. 12, 2022
Long-term Debt, Gross		$ 16,017,857		$ 16,017,857
Debt Instrument, Interest Rate, Stated Percentage		5.64%		5.64%
Payments for Commissions				$ 37,638
Interest and Debt Expense		$ 234,989		$ 521,785
Term Loan | Avidbank
Interest Charges			184,964		343,028
Debt Instrument, Fee Amount								$ 70,000
Term Loan | Loan and Security Agreement | Avidbank
Debt Instrument, Description of Variable Rate Basis				prime plus 1.0% per annum
A&R Credit Agreement Term Loan
Line of Credit Facility, Maximum Borrowing Capacity		$ 14,000,000		$ 14,000,000
Long-term Line of Credit	$ 11,818,333
Debt Instrument, Interest Rate, Effective Percentage		6.00%		6.00%
Line of Credit | Avidbank
Interest Charges			$ 1,285		$ 1,285
Debt Instrument, Fee Amount								$ 25,000
BMO Term Loan | McMillan Seller Note
Notes Payable		$ 2,250,000		$ 2,250,000
BMO Term Loan | Hernandez Seller Note
Notes Payable		$ 4,500,000		$ 4,500,000

12. Promissory Notes (Details)

12. Promissory Notes (Details) - USD ($)	Dec. 31, 2017	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Jan. 17, 2017
Interest Expense		$ 348,480	$ 373,408	$ 1,103,592	$ 1,162,289
Separation Agreement
Debt Instrument, Face Amount		$ 3,750,000		$ 3,750,000
Debt Instrument, Interest Rate, Stated Percentage	5.00%	5.00%		5.00%
Interest Expense		$ 4,332		$ 12,808
Notes Payable	$ 343,750
Debt Instrument, Maturity Date	Jan. 10, 2019
Seller Notes
Debt Instrument, Face Amount		9,000,000		9,000,000
Debt Instrument, Interest Rate, Stated Percentage						8.00%
Interest Charges		41,610	$ 179,507	234,986	$ 331,397
Seller Notes | Michael Mcmillan
Debt Instrument, Face Amount		$ 4,500,000		$ 4,500,000
Debt Instrument, Interest Rate, Stated Percentage		8.00%		8.00%
Repayments of Debt				$ 2,250,000
Debt Instrument, Maturity Date				Mar. 31, 2022
Seller Notes | Hernandez
Repayments of Debt				$ 4,500,000
Earn-out Note
Debt Instrument, Face Amount		$ 3,750,000		$ 3,750,000
Debt Instrument, Payment Terms				(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 Expense		$ 47,713		$ 140,721

13. Employment Agreements (Deta

13. Employment Agreements (Details) - USD ($)	Oct. 02, 2017	Sep. 30, 2018	Dec. 31, 2017	Dec. 31, 2016
Chief Executive Officer
Base Salary, Annual Amount	$ 325,000
Chief Executive Officer | Year 2018
Base Salary, Annual Amount		$ 334,700
Bonus		219,375
Chief Executive Officer | Year 2019
Base Salary, Annual Amount		359,700
Bonus		$ 242,798
Chief Executive Officer | Year 2020
Bonus rate		67.50%
Chief Financial Officer
Base Salary, Annual Amount			$ 250,000	$ 245,000
Bonus			$ 150,000	$ 132,000
Chief Financial Officer | Year 2018
Base Salary, Annual Amount		$ 284,700
Bonus		185,625
Chief Financial Officer | Year 2019
Base Salary, Annual Amount		309,700
Bonus		$ 209,047
Chief Financial Officer | Year 2020
Bonus rate		67.50%

14. Concentrations (Details)

14. Concentrations (Details) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Sales | Customer Concentration Risk
Concentration Risk, Percentage	57.00%	44.00%
Revenue
Accounts Receivable, Gross	$ 4,100,000		$ 5,600,000