10-Q Q3 2017

CYNERGISTEK, INC. - Form 10-Q SEC filing
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UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 000-27507

CYNERGISTEK, INC.

(Exact name of registrant as specified in its charter)

Delaware

371867101

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

 

27271 Las Ramblas, Suite 200

Mission Viejo, California  92691

(Address of principal executive offices, zip code)

(949) 614-0700

(Issuer’s telephone number)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ  No o.

Indicated by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer oAccelerated filer o 

Non-accelerated filer oSmaller Reporting Company þ 

Emerging growth company  ¨

Indicate by check mark whether the registrant is a shell company (as defined by Section 12b-2 of the Exchange Act).  Yes o No þ.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act.

 

The number of shares of the issuer’s common stock, $0.001 par value, outstanding as of November 9, 2017 was 9,501,760.



CYNERGISTEK, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

Page

PART I – FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

Condensed Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016

3

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)

4

 

Condensed Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2017 (unaudited)

5

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (unaudited)

6

 

Notes to Condensed Consolidated Financial Statements (unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

30

Item 4.

Controls and Procedures

31

PART –II - OTHER INFORMATION

 

Item 1a.

Risk Factors

31

Item 6.

Exhibits

32

Signatures

33


2


Table of Contents


PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

 

CYNERGISTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

 

(unaudited)

 

 

 

 

 

 

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

 Cash and cash equivalents

 

2,749,220   

 

6,090,844   

 Accounts receivable, net

 

12,727,078   

 

9,614,486   

 Supplies

 

974,449   

 

1,087,318   

 Prepaid and other current assets

 

1,343,523   

 

438,140   

   Total current assets

 

17,794,270   

 

17,230,788   

 

 

 

 

 

Property and equipment, net

 

900,268   

 

689,418   

Deposits

 

87,376   

 

41,522   

Deferred income taxes

 

4,556,273   

 

5,282,531   

Intangible assets, net

 

11,601,679   

 

1,112,395   

Goodwill

 

18,525,206   

 

2,109,143   

   Total assets

 

53,465,072   

 

26,465,797   

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 Accounts payable and accrued expenses

 

7,817,439   

 

7,736,207   

 Accrued compensation and benefits

 

3,494,310   

 

2,495,156   

 Deferred revenue

 

2,137,918   

 

562,679   

 Current portion of long-term liabilities

 

4,758,458   

 

606,686   

   Total current liabilities

 

18,208,125   

 

11,400,728   

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 Term loan, less current portion

 

10,033,333   

 

750,000   

 Promissory notes to related parties, less current portion

 

6,750,000   

 

-   

 Capital lease obligations, less current portion

 

176,285   

 

199,644   

   Total long-term liabilities

 

16,959,618   

 

949,644   

   Total liabilities

 

35,167,743   

 

12,350,372   

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 Common stock, par value at $0.001, 33,333,333 shares

   authorized, 9,501,760 and 8,185,936 shares issued and

   outstanding at September 30, 2017 and December 31, 2016

 

9,502   

 

8,186   

 Additional paid-in capital

 

30,995,903   

 

27,985,448   

 Accumulated deficit

 

(12,708,076)  

 

(13,878,209)  

   Total stockholders’ equity

 

18,297,329   

 

14,115,425   

   Total liabilities and stockholders’ equity

 

53,465,072   

 

26,465,797   

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.


3


Table of Contents


CYNERGISTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

Three Months

Nine Months

 

Ended September 30,

Ended September 30,

 

2017

2016

2017

2016

Revenues

17,897,076   

14,326,382   

52,950,678   

44,004,091   

Cost of revenues

11,743,838   

11,082,739   

37,847,138   

35,359,229   

 

 

 

 

 

Gross profit

6,153,238   

3,243,643   

15,103,540   

8,644,862   

 

 

 

 

 

Operating expenses:

 

 

 

 

Sales and marketing 

1,329,909   

636,120   

4,070,765   

1,981,282   

General and administrative expenses 

1,849,164   

1,624,259   

5,876,895   

4,719,933   

Depreciation 

97,568   

111,827   

287,727   

302,014   

Amortization of acquisition-related intangibles 

520,030   

91,250   

1,560,716   

273,750   

 

 

 

 

 

Total operating expenses

3,796,671   

2,463,456   

11,796,103   

7,276,979   

 

 

 

 

 

Income from operations

2,356,567   

780,187   

3,307,437   

1,367,883   

 

 

 

 

 

Other income (expense):

 

 

 

 

Other income 

1,862   

-   

1,884   

-   

Interest expense 

(373,408)  

(21,714)  

(1,162,289)  

(70,968)  

 

 

 

 

 

Total other income (expense)

(371,546)  

(21,714)  

(1,160,405)  

(70,968)  

 

 

 

 

 

Income before provision for income taxes

1,985,021   

758,473   

2,147,032   

1,296,915   

 

 

 

 

 

Income tax expense

(895,360)  

(84,113)  

(976,899)  

(128,113)  

 

 

 

 

 

Net income

1,089,661   

674,360   

1,170,133   

1,168,802   

 

 

 

 

 

Net income per share:

 

 

 

 

Basic 

0.11   

0.08   

0.12   

0.14   

Diluted 

0.11   

0.08   

0.12   

0.14   

 

 

 

 

 

Number of weighted average shares:

 

 

 

 

Basic 

9,501,760   

8,185,741   

9,387,264   

8,168,978   

Diluted 

9,881,236   

8,272,202   

9,835,428   

8,287,664   

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.


4


Table of Contents


CYNERGISTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2017

(UNAUDITED)

 

 

 

 

 

 

 

 

Additional

 

 

 

Total

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity

Balance at December 31, 2016

8,185,936   

 

8,186   

 

27,985,448   

 

$ (13,878,209)  

 

14,115,425   

Stock compensation expense for options and warrants granted to employees and directors

-   

 

-   

 

74,973   

 

-   

 

74,973   

Stock compensation expense for restricted stock units granted to employees

-   

 

-   

 

98,347   

 

-   

 

98,347   

Common stock issued in connection with the acquisition of CynergisTek, Inc.

1,166,666   

 

1,166   

 

2,770,833   

 

-   

 

2,771,999   

Stock options and warrants exercised

148,948   

 

150   

 

66,302   

 

-   

 

66,452   

Reverse stock split round-up shares issued

210   

 

-   

 

-   

 

-   

 

-   

Net income

-   

 

-   

 

-   

 

1,170,133   

 

1,170,133   

Balance at September 30, 2017

9,501,760   

 

9,502   

 

30,995,903   

 

$ (12,708,076)  

 

18,297,329   

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.


5


Table of Contents


CYNERGISTEK, INC. AND SUBSIDIARIES