Filed Pursuant to Rule 424(b)(4)
Registration No. 333-200726
PROSPECTUS
471,142
Shares Common Stock
Warrants
to Purchase 235,571 Shares of Common Stock
SilverSun Technologies, Inc. is
offering 471,142 shares of its Common Stock and warrants to purchase 235,571 shares of its Common Stock. The investment in
our Common Stock is not linked to the investment in the warrants and the securities are being offered separately. The warrant
to purchase one share of Common Stock will have an exercise price of $5.30 per share (125% of the public offering price of the
Common Stock). The warrants are exercisable immediately and will expire five years from the date of issuance. Currently, our
Common Stock is quoted on the OTCQB Marketplace (the “OTCQB”) operated by the OTC Markets Group, under the symbol
“SSNT”. Currently, there is no market for our warrants. The last reported sale price of our Common Stock on the
OTCQB on March 3, 2015 was $6.00 per share. On February 4, 2015, we effected a 1-for-30 reverse stock split of our
outstanding common stock (the “Reverse Stock Split”).
_________________________
Investing
in our common stock and warrants involve a high degree of risk. See “Risk Factors” beginning on page 8 of this prospectus
for a discussion of the risks that should be considered in connection with an investment in our common stock and warrants.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or
disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
_________________________
|
|
Per
Share
|
|
|
Per
Warrant
|
|
|
|
|
|
|
|
|
|
Public
offering price
|
|
$
|
4.24
|
|
|
$ |
0.01 |
|
Placement
agent commissions(1)
|
|
$
|
0.297
|
|
|
$ |
0.0007 |
|
Offering
proceeds to us, before expenses
|
|
$
|
3.943
|
|
|
$ |
0.0093 |
|
Alexander Capital, L.P.,
the placement agent, has agreed to act as our placement agent in connection with this offering and is arranging for the sale
of shares of the Common Stock and warrants to purchase shares of Common Stock offered in this prospectus on
a “reasonable best efforts” basis and we may not sell the entire amount of securities being offered pursuant
to this prospectus. In addition, we may engage one or more sub agents or selected brokers, including without limitation
The Benchmark Company. The placement agent is not required to sell any specific number or dollar amount of the shares of
Common Stock or warrants to purchase shares of Common Stock offered by this prospectus, but will use its best efforts to sell
all such shares of Common Stock and warrants to purchase shares of Common Stock up to the maximum of $4,000,000. We expect
the offering to end on March 24, 2015, and there are no minimum purchase requirements. The offering will close no later than
15 business days following the effectiveness of the registration statement. The shares being offered may be priced at a
discount to the market price of our Common Stock, although as of the date hereof, there has been no definitive pricing of the
securities. We have agreed to pay the placement agent a cash fee equal to 7% of the gross proceeds of the offering. Subject
to compliance with FINRA Rule 5110(f)(2)(D), we have also agreed to pay the placement agent for out-of-pocket expenses
related to the Offering. We have also agreed to issue the placement agent Common Stock purchase warrants equal to 5% of the
aggregate number of shares of Common Stock sold in the offering. The offering will terminate on the earlier of the date on
which all shares of Common Stock and warrants to purchase shares of common stock offered are sold, or March 24, 2015.
We
may complete the offering even if we do not raise the entire maximum offering amount. The amount raised may be substantially less
than the total maximum offering amount and the investor funds may be used by the Company prior to the maximum offering being sold.
Delivery
of the shares of Common Stock and warrants to purchase shares of Common Stock will be made to the purchasers between
March 4, 2015 and March 24, 2015, subject to customary closing conditions. The shares of Common Stock will be delivered
in book-entry form through The Depository Trust Company, New York, New York. The warrants to purchase shares of common
stock will be physically delivered to investors.
Placement
Agent
Alexander
Capital, L.P.
Sub-Agent
The
Benchmark Company
The
date of this prospectus is March 4, 2015.
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
|
1
|
THE
OFFERING
|
6
|
SUMMARY
CONSOLIDATED FINANCIAL DATA
|
7
|
RISK
FACTORS
|
8
|
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
|
16
|
USE
OF PROCEEDS
|
17
|
CAPITALIZATION
|
18
|
DILUTION
|
19
|
PRICE
RANGE OF OUR COMMON STOCK
|
21
|
DIVIDEND
POLICY
|
22
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
23
|
BUSINESS
|
30
|
MANAGEMENT
|
39
|
EXECUTIVE
COMPENSATION
|
41
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
43
|
CERTAIN
RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
|
44
|
DESCRIPTION
OF SECURITIES
|
45
|
SHARES
ELIGIBLE FOR FUTURE SALE
|
51
|
MATERIAL
U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
|
52
|
PLAN
OF DISTRIBUTION
|
55
|
LEGAL
MATTERS
|
58
|
EXPERTS
|
58
|
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
|
58
|
INDEX
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
F-1
|
You
should rely only on the information contained in this prospectus. Neither we, nor the placement agent have
authorized anyone to provide you with information that is different from that contained in this prospectus or any free-writing
prospectus prepared by us or on our behalf. The information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. This prospectus is not an
offer to sell or solicitation of an offer to buy these shares of our common stock or warrants in any circumstances under which
the offer of solicitation is unlawful.
Information contained in, and that can be
accessed through, our website, www.silversuntech.com,
does not constitute part of this prospectus.
i
PROSPECTUS SUMMARY
This summary highlights selected
information contained in greater detail elsewhere in this
prospectus. This summary does not contain all the information you
should consider before investing in our common stock and warrants. You should
read the entire prospectus carefully, especially the “Risk
Factors”, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”, and the
consolidated financial statements and the related notes, before
making an investment decision. Certain statements in this summary
are forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly
from future results contemplated in the forward-looking
statements. See “Cautionary Note Regarding
Forward-Looking Statements.” Unless the context provides
otherwise, all references herein to “SilverSun”, the
“Company”, “we”, “our” and
“us” refer to SilverSun Technologies, Inc. and its
wholly-owned operating subsidiary SWK Technologies,
Inc.
All
share and per share amounts in this prospectus give retroactive effect to the 1-for-30 reverse stock split (the “Reverse
Stock Split”) that became effective on February 4, 2015.
BUSINESS OVERVIEW
Our
Company
We
are a business application, technology and consulting company providing strategies and solutions to meet our clients’ information,
technology and business management needs. Our services and technologies enable customers to manage, protect and monetize their
enterprise assets whether on-premise or in the “Cloud”. As a value added reseller of business application software,
we offer solutions for accounting and business management, financial reporting, Enterprise Resource Planning (“ERP”),
Warehouse Management Systems (“WMS”), Customer Relationship Management (“CRM”), and Business Intelligence
(“BI”). Additionally, we have our own development staff building software solutions for Electronic Data Interchange
(“EDI”), time and billing, and various ERP enhancements. Our value-added services focus on consulting and professional
services, specialized programming, training, and technical support. We have a dedicated network services practice that provides
managed services, hosting, business continuity, cloud, e-mail and web services. Our customers are nationwide, with concentrations
in the New York/New Jersey metropolitan area, Chicago, Dallas, Arizona and Southern California.
Our core business is divided into the following
practice areas:
ERP (Enterprise Resource Management)
and Accounting Software
We
are a value-added reseller for a number of industry-leading ERP applications. We are a Sage Software Authorized Business Partner
and Sage Certified Gold Development Partner. Forty-five percent of our customer base consists of Sage ERP X3, Sage 100 ERP, Sage
500 ERP, and Sage BusinessWorks customers. According to “Bob Scott’s Insights, 2014 VAR Stars” we are among
the largest Sage ERP X3 partners in North America, with a sales and implementation presence complemented by a scalable software
development practice for customizations and enhancements. Due to the growing demand for true cloud-based ERP solutions, we have
added two (2) industry leading applications to our ERP portfolio: (1) NetSuite ERP, among the world’s leading cloud
ERP solutions; and (2) Acumatica, a browser-based ERP solution that can be offered on premise, in the public cloud, or in
a private cloud. We develop and resell a variety of add-on solutions to all our ERP and accounting packages that help customize
the installation to our customers’ needs and streamline their operations.
Value-Added Services for
ERP
We
go beyond simply reselling software packages; we have a consulting and professional services organization that manages the process
as we move from the sales stage into implementation, go live, and production. We work inside our customers’ organizations
to ensure all software and Information Technology (“IT”) solutions are enhancing their business needs. A significant
portion of our services revenue comes from continuing to work with existing customers as their business needs change, upgrading
from one version of software to another, or providing additional software solutions to help them grow their revenue. We have a
dedicated help desk team that fields hundreds of calls every week. Our custom programming department builds specialized software
packages as well as “off the shelf” enhancements, time and billing software, and a cloud solution dedicated to the
craft brewing industry.
1
EDI (Electronic Data Interchange)
Software and Services
EDI
is the computer to computer exchange of standard business documents, such as purchase orders and invoices, in electronic format.
A standard file format is established for each kind of document in order to facilitate the exchange of data across a variety of
platforms and programs. We have a proprietary software solution, MAPADOC, which is fully integrated with the Sage ERPs. MAPADOC
allows businesses to dramatically cut data entry time by eliminating duplicate entries and reduces costly errors with trading
partners. MAPADOC is the only EDI solution that is built within the framework of the Sage ERPs, allowing customers to stay within
one application to get their job done.
Network and Managed
Services
We provide comprehensive network and managed
services designed to eliminate the IT concerns of our customers.
Businesses can focus on their core strengths rather than technology
issues. We adapt our solutions for virtually any type of business,
from large national and international product and service
providers, to small businesses with local customers. Our business
continuity services provide automatic on and off site backups,
complete encryption, and automatic failure testing. We also provide
email and web security, IT consulting, managed network, and
emergency IT services. Our focus in the network and managed
services practice is to focus on industry verticals in order to
demonstrate our ability to better understand our customers’
needs.
Potential
Competitive Strengths
•
Independent Software
Vendor. As an independent
software vendor we have published integrations between ERPs and
third party products which differentiates us from other business
application providers because, as a value-added reseller of the
ERPs that our proprietary products integrate with, we have specific
software solution expertise in the ERPs we resell which affords us
the opportunity to ensure that our proprietary products tightly
integrate with the ERPs. We own the intellectual property related
to these integrations, and sell the solutions through other
software resellers within the Sage network.
•
Sage Certified Gold Development
Partner. As a Sage
Certified Gold Development Partner, we are licensed to customize
the source code of the Sage ERPs. Very few resellers are master
developers, and in fact, we provide custom programming services for
many other resellers. We currently have seven (7) full-time
programmers on staff, which provides us with a depth and breadth of
expertise that we believe very few competitors can
match.
•
Experienced Leadership. We have a senior management team which in the aggregate has many years
of experience across a broad range of disciplines.
•
Ability to Recruit, Manage and Retain Quality
Personnel. We have a track record of recruiting, managing and retaining skilled
labor and our ability to do so represents an important advantage in
an industry in which a shortage of skilled labor is often a key
limitation for both clients and competitors alike. We recruit
skilled labor from competitors and from amongst end users with
experience using the various products we sell, whom we then train
as consultants. We believe our ability to hire, manage and
maintain skilled labor gives an edge over our competitors as we
continue to grow.
•
Combination of Hardware/Software Expertise. Many competitors have software solution expertise. Others have
network/hardware expertise. We believe we are among the very few organizations with an expertise in both software and hardware,
affording us the opportunity to provide turnkey solutions for our customers without the need to bring in additional vendors on
a project.
•
Technical Expertise. Our geographical reach and vast technical capabilities afford our clients the ability
to customize and tailor solutions to satisfy all of their business needs.
2
Our
Growth Strategy
General
Our
strategy is to grow our business through a combination of intra-company growth of our software applications and technology solutions,
as well as expansion through acquisitions, both within our existing geographic reach and
through geographic expansion. We have established a national presence via our internal marketing and sales programs, and acquisitions,
and now have ERP customers and MAPADOC customers throughout most of the United States.
Intra-Company
Growth
Our
intra-company growth strategy is to increase our market penetration and client retention through the upgrade of, and expanded
sales efforts with, our existing products and development of new and enhanced software and technology solutions. Our client retention
is sustained by our providing of responsive, ongoing software and technical support, monitoring and maintenance services for both
the solutions we sell and other client technology needs we provide.
Repeat business from our existing customer base
has been key to our success and we expect it will continue to play
a vital role in our growth. We focus on nurturing long-standing
relationships with existing customers while also establishing
relationships with new customers.
Acquisitions
The markets in which we provide our services are
occupied by a number of competitors, many substantially larger than
us, and with significantly greater resources and geographic reach.
We believe that to remain competitive, we need to take advantage of
acquisition opportunities that arise which may help us achieve
greater geographic presence and economies both within our existing
footprint and expanded territories. As such, we have completed
six (6) acquisitions and/or collaborative agreements in the
past thirty-six (36) months. We may also utilize acquisitions,
whenever appropriate, to expand our technological capabilities and
product offerings. We focus on acquisitions that are profitable and
fit seamlessly with our existing operations.
We believe our markets contain a number of
attractive acquisition candidates. We foresee expanding through
acquisitions of one or more of the following types of software and
technology organizations:
•
Managed Service Providers
(“MSPs”). MSPs
provide their small and medium-sized business clients with a suite
of services, which may include 24/7/365 remote monitoring of
networks, disaster recovery, business continuity, data back-up,
cyber-security and the like. There are hundreds of providers of
such services in the U.S., most with annual recurring revenue of
less than $10 million. We believe that we may be able to
consolidate a number of these MSPs with our existing operation in
an effort to become one of the more significant providers of these
services in the U.S.
•
Independent Software Vendors (“ISVs”). ISVs are publishers of both stand-alone software solutions
and integrations that integrate with other third party products. Our interest lies with ISVs selling into the small and medium-sized
business marketplace, providing applications addressing e-commerce, mobility, security, and other functionalities. Since we have
expertise in both selling directly to end-users and selling through a sales channel, we believe we can significantly enhance the
sales volume of any potential acquisition via our existing infrastructure, our sales channel, and our internal marketing programs.
There are many ISVs in North America, constituting a large and significant target base for our acquisition efforts.
•
Value-Added Resellers (“VARs”) of ERP, Warehouse Management Systems (“WMS”), CRM and BI Software. Of
the thousands of VARs in the Sage Software sales channel, we are the sixth largest according to “Bob Scott’s Insights,
2014 VAR Stars” based on our estimated 2014 revenue. VARs gross margins are a function of the sales volume they provide
a publisher in a twelve (12) month period, and we are currently operating at the highest margins. Smaller resellers, who
sell less and operate at significantly lower margins, are at a competitive disadvantage to companies such as ours, and are often
amenable to creating a liquidity event for themselves by selling to larger organizations. This dynamic has enabled us to complete
six (6) acquisitions and/or collaborative agreements in the past thirty-six (36) months. We have benefitted
3
from completing such acquisitions in a number of ways, including but not limited to: (i) garnering new customers to whom we
can upsell and cross-sell our broad range of products and services; (ii) gaining technical resources that enhance our
capabilities; and (iii) extending our geographic reach.
Our business strategy provides that we will
examine the potential acquisition of businesses within our
industry. In determining a suitable acquisition candidate, we will
carefully analyze a target’s potential to add to and
complement our product mix, expand our existing revenue base,
improve our margins, expand our geographic coverage, strengthen our
management team, add technical resources and expertise, and, above
all, improve stockholder returns. More specifically, we have
identified the criteria listed below, by which we evaluate
potential acquisition targets in an effort to gain the synergies
necessary for successful growth of the Company:
•
Access to new customers and geographic
markets;
•
Recurring revenue of the target;
•
Opportunity to gain operating leverage and
increased profit margins;
•
Diversification of sales by customer and/or
product;
•
Improvements in product/service offerings;
and
•
Ability to attract public capital and increased
investor interest.
We are unable to predict the nature, size or
timing of any acquisition. We can give no assurance that we will
reach agreement or procure the financial resources necessary to
fund any acquisition, or that we will be able to successfully
integrate or improve returns as a result of any such
acquisition.
We continue to seek out and hold preliminary
discussions with various acquisition candidates. However, currently
we have not entered into any agreements or understandings for any
acquisitions that management deems material.
Recent Developments
On
May 6, 2014, we acquired certain assets of ESC, Inc. (d/b/a ESC Software) (the “Seller”) pursuant to an Asset Purchase
Agreement (the “Purchase Agreement”). In consideration for the acquired assets, the Company issued in favor of Seller
a promissory note in the aggregate principal amount of $350,000 (the “Note”). The Note is due sixty (60) months
from the Closing Date, as defined in the Purchase Agreement and bears interest at a rate of two percent (2%) per annum. Any overdue
principal or interest on the Note shall bear interest, payable on demand, for each day until paid at a rate per annum equal to
the lesser of (i) the maximum interest rate permitted by applicable law or (ii) ten percent (10%). The outstanding balance
at September 30, 2014 was $327,739.
Summary
of Risk Factors
Investing in our Common Stock involves a high
degree of risk. You should carefully consider the risks described
in “Risk Factors” before making a decision to invest in
our Common Stock. If any of these risks actually occurs, our
business, financial condition and results of operations would
likely be materially adversely affected. In such case, the trading
price of our Common Stock would likely decline, and you may lose
part or all of your investment. The risks include, but are not
limited to:
•
We
cannot accurately forecast our future revenues and operating
results, which may fluctuate;
•
We
may fail to develop new products, or may incur unexpected expenses
or delays;
•
If
our technologies and products contain defects or otherwise do not
work as expected, we may incur significant expenses in attempting
to correct these defects or in defending lawsuits over any such
defects;
•
If
we are not able to protect our trade secrets through enforcement of
our confidentiality and non-competition agreements, then we may not
be able to compete effectively and we may not be
profitable;
•
The trend toward consolidation in our industry may impede
our ability to compete effectively;
4
•
If
we lose the services of any of our key personnel, including Mark
Meller and Jeffrey D. Roth, our business may
suffer;
•
We
currently have a limited trading volume, which results in higher
price volatility for, and reduced liquidity of, our Common
Stock;
•
You will experience dilution of your ownership interest because of the future issuance of additional shares
of our Common Stock and our preferred stock;
•
There has not been a trading market for our warrants and there is no assurance that an active market will develop in the future;
•
Our Chief Executive Officer controls a significant
percentage of our capital stock and has sufficient voting power to
control the vote on substantially all corporate matters;
and
•
We
have broad discretion in the use of the net proceeds from this
offering and may not use them effectively.
Corporate Information
We are incorporated in the state of Delaware and
our principal executive offices are located at 5 Regent Street,
Livingston, NJ 07039. Our telephone number is (973) 369-1720. Our
website address is www.silversuntech.com.
The
information contained on or accessible through our website is not part of this prospectus or the registration statement of which
this prospectus forms a part, and potential investors should not rely on such information in making a decision to purchase our
Common Stock and warrants in this offering.
5
THE
OFFERING
Common
Stock offered by us
|
471,142
shares of our Common Stock and warrants to purchase up to an aggregate of 235,571 shares of Common Stock.
|
|
|
Description
of Warrants
|
The
warrants will have a per share exercise price of $5.30 (125% of the public offering price of the common stock). The warrants
are exercisable immediately and will expire five (5) years from the date of
issuance. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the warrants are subject to adjustment upon the
occurrence of specific events, including stock dividends, stock splits, combinations
and reclassifications of our Common Stock.
|
|
|
Common
Stock to be outstanding after this offering
|
4,431,835
shares of Common Stock (4,667,406 shares of Common Stock if the warrants are exercised
in full).
|
|
|
Use
of Proceeds
|
Assuming
we complete the maximum offering, we estimate that the net proceeds from our sale of
shares of our Common Stock and warrants to purchase shares of our Common Stock in this
offering will be approximately $1,393,000, with a public offering price of $4.24
per share and $0.01 per warrant, after deducting estimated placement agent commissions
and estimated offering expenses payable by us. Since this is a best efforts offering,
there is no assurance that we will complete the maximum offering. We intend to use the
net proceeds we receive from this offering for general corporate purposes, including
working capital, sales and marketing activities, product development, general and administrative
matters and capital expenditures, and acquisitions.
|
|
|
Risk
Factors
|
Investing
in our Common Stock and warrants involves a high degree of risk. See “Risk Factors”
beginning on page 8 of this prospectus for a discussion of factors you should carefully
consider before deciding to invest in our Common Stock and warrants.
|
|
|
Market
Symbol and Listing
|
Our
Common Stock is quoted on the OTCQB under the symbol “SSNT”. On February
4, 2015, we effected a 1-for-30 reverse stock split.
|
The
number of shares of our Common Stock to be outstanding after this offering is based on 3,960,683 shares of Common Stock outstanding
as of March 3, 2015 and excludes, as of that date:
•
169,116 shares of our Common Stock issuable upon the exercise of options outstanding under our 2004 Stock Incentive Plan
with a weighted-average exercise price of $4.50 per share.
6
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents a summary of
certain consolidated historical financial data. Historical results
are not necessarily indicative of results to be expected for any
future period. You should read the following summary financial
information together with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and our consolidated financial statements and related notes
included elsewhere in this prospectus. The summary consolidated
statements of operations data for the nine months ended September
30, 2014 and 2013 have been derived from our unaudited condensed
consolidated financial statements included elsewhere in this
prospectus. The summary consolidated financial data for each of the
fiscal years ended December 31, 2013 and 2012 have been derived
from our audited consolidated financial statements included
elsewhere in this prospectus. The unaudited condensed consolidated
financial statements were prepared on the same basis as our audited
consolidated financial statements and, in the opinion of
management, reflect all adjustments that we consider necessary for
a fair statement of the financial information.
|
|
Nine
Months Ended
|
|
|
Year
Ended
|
|
|
|
September 30,
2014
|
|
|
September 30,
2013
|
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
16,266,032
|
|
|
$
|
12,290,088
|
|
|
$
|
17,400,051
|
|
|
$
|
13,178,985
|
|
Gross
profit
|
|
|
6,911,428
|
|
|
|
4,872,717
|
|
|
|
6,750,141
|
|
|
|
5,334,100
|
|
Total
operating expenses
|
|
|
6,109,551
|
|
|
|
4,725,822
|
|
|
|
6,491,537
|
|
|
|
6,510,532
|
|
Income
(loss) from operations
|
|
|
801,877
|
|
|
|
146,895
|
|
|
|
258,604
|
|
|
|
(1,176,432
|
)
|
Total
other (expense)
|
|
|
(45,717
|
)
|
|
|
(51,399
|
)
|
|
|
(56,056
|
)
|
|
|
(58,738
|
)
|
Provision
(benefit) for income taxes
|
|
|
327,364
|
|
|
|
—
|
|
|
|
(120,000
|
)
|
|
|
—
|
|
Net
income (loss)
|
|
$
|
428,796
|
|
|
$
|
95,496
|
|
|
$
|
322,548
|
|
|
$
|
(1,235,170
|
)
|
Net
income (loss) per common share – basic and diluted
|
|
$
|
0.11
|
|
|
$
|
0.02
|
|
|
$
|
0.08
|
|
|
$
|
(0.32
|
)
|
Weighted
average common shares: Basic
|
|
|
3,938,618
|
|
|
|
3,902,008
|
|
|
|
3,902,008
|
|
|
|
3,846,518
|
|
Diluted
|
|
|
3,939,642
|
|
|
|
3,902,008
|
|
|
|
3,902,008
|
|
|
|
3,846,518
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,449,773
|
|
|
$
|
762,892
|
|
|
$
|
4,483
|
|
Total current assets
|
|
|
4,034,622
|
|
|
|
2,537,164
|
|
|
|
1,645,535
|
|
Total assets
|
|
|
5,129,999
|
|
|
|
3,569,775
|
|
|
|
2,802,277
|
|
Total current liabilities
|
|
|
4,606,587
|
|
|
|
3,816,473
|
|
|
|
3,616,808
|
|
Total stockholder’s equity
(deficit)
|
|
|
238,410
|
|
|
|
(399,839
|
)
|
|
|
(814,531
|
)
|
7
RISK
FACTORS
Investing
in our securities involves a high degree of risk. The most significant risks include those described below; however, additional
risks that we currently do not know about or that we currently believe to be immaterial may also impair our business operations.
You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding
whether to invest in our securities. If any of the following risks actually occurs, our business, results of operations and financial
condition could be materially adversely affected. In this case, the trading price of our Common Stock would likely decline and
you might lose part or all of your investment in our securities.
Risks
Related to Our Business
We
have a large accumulated deficit, may incur future losses and may be unable to maintain profitability.
As
of September 30, 2014 and December 31, 2013, we had an accumulated deficit of $10,780,582 and $11,209,378, respectively. As of
September 30, 2014 we had stockholders' equity of $238,410 and as of December 31, 2013, we had a stockholders' deficit of $399,839.
We may incur net losses in the future. Our ability to achieve and sustain long-term profitability is largely dependent on our
ability to successfully market and sell our products and services, control our costs, and effectively manage our growth. We cannot
assure you that we will be able to maintain profitability. In the event we fail to maintain profitability, our stock price could
decline.
We cannot accurately forecast our future
revenues and operating results, which may
fluctuate.
Our operating history and the rapidly changing
nature of the markets in which we compete make it difficult to
accurately forecast our revenues and operating
results. Furthermore, we expect our revenues and operating
results to fluctuate in the future due to a number of factors,
including the following:
•
the timing of sales of our products and
services;
•
the timing of product implementation,
particularly large design projects;
•
unexpected delays in introducing new products
and services;
•
increased expenses, whether related to sales and
marketing, product development, or administration;
•
deferral in the recognition of revenue in
accordance with applicable accounting principles, due to the time
required to complete projects;
•
the mix of product license and services revenue;
and
•
costs related to possible acquisitions of
technology or businesses.
We may fail to develop new products, or may
incur unexpected expenses or delays.
Although we currently have fully developed
products available for sale, we may need to develop various new
technologies, products and product features and to remain
competitive. Due to the risks inherent in developing new
products and technologies — limited financing, loss of key
personnel, and other factors — we may fail to develop these
technologies and products, or may experience lengthy and costly
delays in doing so. Although we are able to license some of
our technologies in their current stage of development, we cannot
assure that we will be able to develop new products or enhancements
to our existing products in order to remain competitive.
We may need additional financing which we may
not be able to obtain on acceptable terms. If we are unable to
raise additional capital, as needed, the future growth of our
business and operations could be severely
limited.
A limiting factor on our growth is our limited
capitalization, which could impact our ability to execute on our
business plan. If we raise additional capital through the issuance
of debt, this will result in increased interest expense. If we
raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of the
Company held by existing shareholders will be reduced and our
shareholders may experience significant dilution. In addition, new
securities may contain rights, preferences or privileges that are
senior to those of our Common Stock. If additional funds are raised
by the issuance of debt or other equity instruments, we may become
subject to certain operational limitations (for example, negative
operating covenants). There can be no assurance that acceptable
financing necessary to further implement our business plan can be
obtained on suitable terms, if at all. Our ability to develop our
business, fund expansion, develop or enhance products or respond to
8
competitive pressures, could suffer if we are unable to raise the
additional funds on acceptable terms, which would have the effect
of limiting our ability to increase our revenues or possibly attain
profitable operations in the future.
If we fail to establish and maintain an
effective system of internal control, we may not be able to report
our financial results accurately or to prevent fraud. Any inability
to report and file our financial results accurately and timely
could harm our reputation and adversely impact the trading price of
our Common Stock.
Effective internal control is necessary for us
to provide reliable financial reports and prevent fraud. If we
cannot provide reliable financial reports or prevent fraud, we may
not be able to manage our business as effectively as we would if an
effective control environment existed, and our business and
reputation with investors may be harmed.
Our evaluations under the Sarbanes-Oxley Act
have concluded that our disclosure controls and procedures are not
effective due to insufficient written policies and procedures for
accounting and financial reporting with respect to the requirements
and application of US GAAP and SEC disclosure requirements, a lack
of formal processes and timeline for closing the books and records
at the end of each reporting period and limited segregation of
duties.
Our management is composed of a small number of
individuals resulting in a situation where limitations on
segregation of duties exist. In order to remedy this situation we
would need to hire additional staff. Currently, we are unable to
allocate the necessary resources to hire additional staff and to
facilitate greater segregation of duties. However, we will reassess
our resources capabilities and priorities in the following year and
evaluate the cost-benefit relationship of possible changes in our
controls over financial reporting and disclosure controls and
procedures.
Management believes that the material weaknesses
are the result of the lack of scale of our operations and are
intrinsic to our small size. Nonetheless, our small size and our
current internal control deficiencies may have a material adverse
effect on our ability to accurately and timely report our financial
information which, in turn, may have a material adverse effect on
our financial condition. This could result in a loss of investor
confidence in the reliability of our financial statements, which in
turn could negatively impact the price of our Common Stock as well
as our access to additional capital.
We may fail to recruit and retain qualified
personnel.
We expect to
rapidly expand our operations and grow our sales, development and
administrative operations. Accordingly, recruiting and retaining
such personnel in the future will be critical to our success. There
is intense competition from other companies for qualified personnel
in the areas of our activities, particularly sales, marketing and
managed services. If we fail to identify, attract, retain and
motivate these highly skilled personnel, we may be unable to
continue our marketing and managed services activities and service
our clients’ needs, and this could have a material adverse
effect on the Company’s business, financial condition,
results of operations and future prospects.
If our technologies and products contain defects
or otherwise do not work as expected, we may incur significant
expenses in attempting to correct these defects or in defending
lawsuits over any such defects.
Software products are not currently accurate in
every instance, and may never be. Furthermore, we could
inadvertently release products and technologies that contain
defects. In addition, third-party technology that we include
in our products could contain defects. We may incur
significant expenses to correct such defects. Clients who are
not satisfied with our products or services could bring claims
against us for substantial damages. Such claims could cause us
to incur significant legal expenses and, if successful, could
result in the plaintiffs being awarded significant
damages. Our payment of any such expenses or damages could
prevent us from becoming profitable.
Our success is highly dependent upon our ability
to compete against competitors that have significantly greater
resources than we have.
The ERP software, EDI software, MSP and business
consulting industries are highly competitive, and we believe that
this competition will intensify. Many of our competitors have
longer operating histories, significantly greater financial,
technical, product development and marketing resources, greater
name recognition and larger client bases than we do. Our
competitors could use these resources to market or develop products
or services that are more effective or less costly than any or all
of our products or services or that could render any or all of our
products or services obsolete. Our competitors could also use
their economic strength to influence the market to continue to buy
their existing products.
9
If
we are not able to protect our trade secrets through enforcement of our confidentiality and non-competition agreements, then we
may not be able to compete effectively and we may not be profitable.
We attempt to protect our trade secrets,
including the processes, concepts, ideas and documentation
associated with our technologies, through the use of
confidentiality agreements and non-competition agreements with our
current employees and with other parties to whom we have divulged
such trade secrets. If the employees or other parties breach
our confidentiality agreements and non-competition agreements or if
these agreements are not sufficient to protect our technology or
are found to be unenforceable, our competitors could acquire and
use information that we consider to be our trade secrets and we may
not be able to compete effectively. Some of our competitors
have substantially greater financial, marketing, technical and
manufacturing resources than we have, and we may not be profitable
if our competitors are also able to take advantage of our trade
secrets.
Our failure to secure trademark registrations
could adversely affect our ability to market our product candidates
and our business.
Our trademark applications in the United States
and any other jurisdictions where we may file may be denied, and we
may not be able to maintain or enforce our registered trademarks.
During trademark registration proceedings, we may receive
rejections. Although we are given an opportunity to respond to
those rejections, we may be unable to overcome such rejections. In
addition, with respect to the United States Patent and Trademark
Office and any corresponding foreign agencies, third parties are
given an opportunity to oppose pending trademark applications and
to seek to cancel registered trademarks. Opposition or cancellation
proceedings may be filed against our applications and/or
registrations, and our applications and/or registrations may not
survive such proceedings. Failure to secure such trademark
registrations in the United States and in foreign jurisdictions
could adversely affect our ability to market our product candidates
and our business.
We may unintentionally infringe on the
proprietary rights of others.
Many lawsuits currently are being brought in the
software industry alleging violation of intellectual property
rights. Although we do not believe that we are infringing on
any patent rights, patent holders may claim that we are doing
so. Any such claim would likely be time-consuming and
expensive to defend, particularly if we are unsuccessful, and could
prevent us from selling our products or services. In addition, we
may also be forced to enter into costly and burdensome royalty and
licensing agreements.
Our industry is characterized by rapid
technological change and failure to adapt our product development
to these changes may cause our products to become
obsolete.
We participate in a highly dynamic industry
characterized by rapid change and uncertainty relating to new and
emerging technologies and markets. Future technology or market
changes may cause some of our products to become obsolete more
quickly than expected.
The trend toward consolidation in our industry
may impede our ability to compete effectively.
As consolidation in the software industry
continues, fewer companies dominate particular markets, changing
the nature of the market and potentially providing consumers with
fewer choices. Also, many of these companies offer a broader
range of products than us, ranging from desktop to enterprise
solutions. We may not be able to compete effectively against
these competitors. Furthermore, we may use strategic
acquisitions, as necessary, to acquire technology, people and
products for our overall product strategy. The trend toward
consolidation in our industry may result in increased competition
in acquiring these technologies, people or products, resulting in
increased acquisition costs or the inability to acquire the desired
technologies, people or products. Any of these changes may have a
significant adverse effect on our future revenues and operating
results.
We face intense price-based competition for
licensing of our products which could reduce profit
margins.
Price
competition is often intense in the software market. Price competition may continue to increase and become even more significant
in the future, resulting in reduced profit margins.
10
The software and technology industry is highly
competitive. If we cannot develop and market desirable products
that the public is willing to purchase, we will not be able to
compete successfully. Our business may be adversely affected and we
may not be able to generate any revenues.
We have many
potential competitors in the software industry. We consider the
competition is competent, experienced, and have greater financial
and marketing resources than we do. Our ability to compete
effectively may be adversely affected by the ability of these
competitors to devote greater resources to the development, sales,
and marketing of their products than are available to us. Some of
the Company’s competitors, also, offer a wider range of
software products, have greater name recognition and more extensive
customer bases than the Company. These competitors may be able to
respond more quickly to new or changing opportunities, customer
desires, as well as undertake more extensive promotional
activities, offer terms that are more attractive to customers and
adopt more aggressive pricing policies than the Company. We cannot
provide any assurances that we will be able to compete successfully
against present or future competitors or that the competitive
pressure we may encounter will not force us to cease operations. As
a result, you may never be able to liquidate or sell any shares you
purchase in this offering.
If there are events or circumstances affecting
the reliability or security of the internet, access to our website
and/or the ability to safeguard confidential information could be
impaired causing a negative effect on the financial results of our
business operations.
Despite the implementation of security measures,
our website infrastructure may be vulnerable to computer viruses,
hacking or similar disruptive problems caused by members, other
internet users, other connected internet sites, and the
interconnecting telecommunications networks. Such problems caused
by third-parties could lead to interruptions, delays or cessation
of service to our customers. Inappropriate use of the internet by
third-parties could also potentially jeopardize the security of
confidential information stored in our computer system, which may
deter individuals from becoming customers. Such inappropriate use
of the internet includes attempting to gain unauthorized access to
information or systems, which is commonly known as
“cracking” or “hacking.” Although we have
implemented security measures, such measures have been circumvented
in the past by hackers on other websites on the internet, although
our networks have never been breached, and there can be no
assurance that any measures we implement would not be circumvented
in future. Dealing with problems caused by computer viruses or
other inappropriate uses or security breaches may require
interruptions, delays or cessation of service to our customers,
which could have a material adverse effect on our business,
financial condition and results of operations.
If we lose the services of any of our key
personnel, including Mark Meller and Jeffrey D. Roth, our business
may suffer.
We are dependent on Mark Meller, our Chief
Executive Officer and key employees in our operating subsidiary,
specifically Jeffrey D. Roth, Chief Executive Officer of
SWK. The loss of any of our key personnel could
materially harm our business because of the cost and time necessary
to retain and train a replacement. Such a loss would also
divert management attention away from operational issues. We
intend to purchase $1,000,000 key-man term life insurance policies
for both Mr. Meller and Mr. Roth.
To
service our debt obligations, we will require a significant amount of cash. Our ability to generate cash depends on many factors
beyond our control. Any failure to repay our outstanding indebtedness as it matures, could materially adversely impact our business,
prospects, financial condition, liquidity, results of operations and cash flows.
Our
ability to satisfy our debt obligations and repay or refinance our maturing indebtedness will depend principally upon our future
operating performance. We currently have a bank line of credit and term loan, each of which expires on July 31, 2015. The agreement
includes a borrowing base calculation tied to accounts receivable with maximum availability of $750,000 at prime plus 1.75% interest
(currently 5%). The line of credit is collateralized by substantially all of the assets of the Company and is guaranteed by the
Company’s Chief Executive Officer, Mr. Meller. At September 30, 2014, the line of credit had a zero outstanding balance
and maximum availability under this line of $750,000. The line of credit also requires us to pay a monitoring fee of $1,000 monthly.
The monthly payments under the term loan are at $15,776 including interest at eight percent (8%). The term loan is collateralized
by substantially all of the assets of the Company and is guaranteed by the Company’s Chief Executive Officer, Mr. Meller.
The outstanding balances at September 30, 2014 and December 31, 2013 were $151,125 and $279,517, respectively.
As
a result, prevailing economic conditions and financial, business, legislative, regulatory and other factors, many of which are
beyond our control, will affect our ability to make payments on our debt and comply with the covenants of
11
the
line of credit. If we do not generate sufficient cash flow from operations to satisfy our debt service obligations, we may have
to undertake alternative financing plans, such as refinancing or restructuring our debt, incurring additional debt, issuing equity
or convertible securities, utilizing our line of credit, reducing discretionary expenditures and selling certain assets (or combinations
thereof). Our ability to execute such alternative financing plans will depend on the capital markets and our financial condition
at such time. In addition, our ability to execute such alternative financing plans may be subject to certain restrictions under
our existing indebtedness, including our revolving credit facility and our term loan. Any refinancing of our debt could be at
higher interest rates and may require us to comply with more onerous covenants compared to those associated with any debt that
is being refinanced, which could further restrict our business operations. Our inability to generate sufficient cash flow to satisfy
our debt obligations, or our inability to refinance our debt obligations on commercially reasonable terms or at all, would have
a material adverse effect on our business, prospects, financial condition, liquidity, results of operations and cash flows.
Risks
Related to this Offering and an Investment in our Securities
We currently have a limited trading volume,
which results in higher price volatility for, and reduced liquidity
of, our Common Stock.
Our
shares of Common Stock have been quoted on the OTCQB since 2004. However, historically there has been limited daily volume of
trading in our Common Stock on the OTCQB, which has limited the overall and perceived liquidity of our Common Stock on that market.
The
public offering price for our Common Stock was determined through negotiations with the placement agent based on a number of factors,
including the historic trading prices of our Common Stock on the OTCQB, which might not be indicative of prices that will prevail
in the trading market for our Common Stock after the offering. An active trading market for our shares may never develop or be
sustained following this offering. Active trading markets generally result in lower price volatility and more efficient execution
of buy and sell orders. The absence of an active trading market increases price volatility and reduces the liquidity of our Common
Stock. As long as this condition continues, the sale of a significant number of shares of Common Stock at any particular time
could be difficult to achieve at the market prices prevailing immediately before such shares are offered and, if an active market
for our Common Stock does not develop, it may be difficult to sell shares you purchase in this offering without depressing the
market price for the shares, or at all. In addition, in the event that an active trading market does not develop, the price of
our Common Stock may not be a reliable indicator of the fair value of our Common Stock.
Furthermore,
if our Common Stock ceases to be quoted on the OTCQB, holders would find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, our Common Stock, and the market value of our Common Stock would likely decline.
If
you purchase shares of our Common Stock in this offering, you will experience dilution of your ownership interest because of the
future issuance of additional shares of our Common Stock and our preferred stock.
After
giving effect to the sale by us of $2,000,000 of shares of common stock and warrants to purchase shares of common stock in this
offering a public offering price of $4.24 per share and $0.01 per related warrant, investors in this offering can
expect an immediate dilution of $4.80 per share, or 89.7% at the public offering price. To the extent that the warrants
are ultimately converted or exercised, you will sustain further dilution.
In
the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership
interests of our present stockholders. We are currently authorized to issue an aggregate of 76,000,000 shares of capital stock
consisting of 1,000,000 shares of preferred stock, par value $0.001 per share and 75,000,000 shares of Common Stock, par value
$0.00001 per share.
We may also issue additional shares of our
Common Stock or other securities that are convertible into or
exercisable for Common Stock in connection with hiring or retaining
employees or consultants, future acquisitions, future sales of our
securities for capital raising purposes, or for other business
purposes. The future issuance of any such additional shares of our
Common Stock or other securities may create downward pressure on
the trading price of our Common Stock. There can be no assurance
that we will not be required to issue additional shares, warrants
or other convertible securities in the future in conjunction with
hiring or retaining employees or consultants, future acquisitions,
future sales of our securities for capital raising purposes or for
other business purposes, including at a price (or exercise prices)
below the price at which shares of our Common Stock are
trading.
12
Due
to the speculative nature of warrants, there is no guarantee that it will ever be profitable for holders of the warrants to exercise
the warrants.
The
warrants sold in this offering do not confer any rights of common stock ownership on their holders, such as voting rights
or the right to receive dividends, but rather merely represent the right to acquire shares of common stock at a fixed price for
a limited period of time. Specifically, commencing on the date of issuance, holders of the warrants may exercise their right to
acquire the common stock and pay an exercise price of $5.30 per share (125% of the public offering price
of the Common Stock), prior to five (5) years from the date of issuance, after which date any unexercised warrants will expire
and have no further value. Moreover, following this offering, the market value of the warrants is uncertain and there can be no
assurance that the market value of the warrants will equal or exceed their public offering price. There can be no assurance that
the market price of the common stock will ever equal or exceed the exercise price of the warrants, and, consequently, whether
it will ever be profitable for holders of the warrants to exercise the warrants.
There
is no trading market for our warrants and there is no assurance that an active trading market will develop in the future.
There
is no trading market for our warrants and there may never be one. The lack of an active market may impair your ability to sell
your warrants at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market for the
warrants may also reduce the fair market value of your warrants.
Provisions
of our Certificate of Incorporation and Bylaws may delay or prevent a take-over which may not be in the best interests of our
shareholders.
Provisions of our Certificate of Incorporation
and Bylaws may be deemed to have anti-takeover effects, which
include when and by whom special meetings of our shareholders may
be called, and may delay, defer or prevent a takeover attempt. In
addition, certain provisions of the Delaware General Corporation
Law also may be deemed to have certain anti-takeover effects which
include that control of shares acquired in excess of certain
specified thresholds will not possess any voting rights unless
these voting rights are approved by a majority of a
corporation’s disinterested shareholders.
Because FINRA sales practice requirements may
limit a stockholder’s ability to buy and sell our stock,
investors may not be able to sell their stock should they desire to
do so.
In
addition to the “penny stock” rules as defined below, FINRA has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other
information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers
to recommend that their customers buy our Common Stock, which may have the effect of reducing the level of trading activity in
our Common Stock. As a result, fewer broker-dealers may be willing to make a market in our Common Stock, reducing a stockholder’s
ability to resell shares of our Common Stock.
The
application of the Securities and Exchange Commission’s “penny stock” rules to our common stock could limit
trading activity in the market, and our stockholders may find it more difficult to sell their stock.
Our
Common Stock has recently traded at less than $5.00 per share and is therefore subject to the Securities and Exchange Commission’s
(“SEC” or the “Commission”) penny stock rules. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system).
Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver
a standardized risk disclosure document that provides information about penny stocks and
the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations
for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements
showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special
written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction. These requirements may have the
13
effect
of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock
rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions
in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict
the ability of broker-dealers to sell our Common Stock and may affect your ability to resell our Common Stock.
Our
Chief Executive Officer controls a significant percentage of our capital stock and has sufficient voting power to control the
vote on substantially all corporate matters.
As
of March 3, 2015, Mark Meller, our Chief Executive Officer, beneficially owned approximately 76% of the outstanding voting capital
of the Company. Mr. Meller may be able to influence all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. This concentration of ownership, which is not subject to any
voting restrictions, could limit the price that investors might be willing to pay for our Common Stock. In addition, Mr.
Meller is in a position to impede transactions that may be desirable for other stockholders. Mr. Meller’s majority
ownership, for example, could make it more difficult for anyone to take control of us.
On
September 23, 2011, SilverSun Technologies, Inc., entered into a Series B preferred stock purchase agreement (the “Preferred
Stock Purchase Agreement”) with Mr. Meller, pursuant to which Mr. Meller was issued one authorized share of Series
B Preferred Stock (“Series B”), par value $0.001 per share, as partial consideration for personally guaranteeing repayment
of the of the Company’s indebtedness to Transportation Alliance Bank, our senior secured lender.
Each
share of the Series B Preferred shall have voting rights equal to (x) the total issued and outstanding Common Stock and preferred
stock eligible to vote at the time of the respective vote divided by (y) forty nine one-hundredths (0.49) minus (z) the total
issued and outstanding Common Stock and preferred stock eligible to vote at the time of the respective vote. For the
avoidance of doubt, if the total issued and outstanding Common Stock eligible to vote at the time of the respective vote is 5,000,000,
the voting rights of the Series B Preferred Stock shall be equal to 5,204,082 (e.g. (5,000,000 / 0.49) – 5,000,000 = 5,204,082). At
March 3, 2015 voting rights of 4,116,322 shares are associated with Series B Preferred Stock and are included as part of the
beneficial ownership calculation. Upon closing of this offering, Mr. Meller will return his share of Series B Preferred Stock
to the treasury and the Company will cancel the Series B Preferred Stock certificate of designation.
If
and when a larger trading market for our Common Stock develops, the market price of our Common Stock is still likely to be highly
volatile and subject to wide fluctuations, and you may be unable to resell your shares at or above the price at which you acquired
them.
The market price of our Common Stock is likely
to be highly volatile and could be subject to wide fluctuations in
response to a number of factors that are beyond our control,
including, but not limited to:
•
variations in our revenue and operating
expenses;
•
market conditions in our industry and the
economy as a whole;
•
actual or expected changes in our growth rates
or our competitors’ growth rates;
•
announcements of innovations or new products or
services by us or our competitors;
•
sales of our Common Stock or other securities by
us or in the open market; and
•
changes in the market valuations of other
comparable companies.
In
addition, if the market for technology and technology services stocks or the stock market in general experiences loss of
investor confidence, the trading price of our Common Stock could decline for reasons unrelated to our business, financial
condition or operating results. The trading price of our shares might also decline in reaction to events that affect other
companies in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm
the value of your investment in our Common Stock. In the past, following periods of volatility in the market, securities
class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result
in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect
our business, operating results and financial condition.
14
We have broad discretion in the use of the net
proceeds from this offering and may not use them
effectively.
Our management will have broad discretion in the
application of the net proceeds, including for any of the purposes
described in the section of this prospectus entitled “Use of
Proceeds.” The failure by our management to apply these funds
effectively could harm our business.
If securities or industry analysts do not
publish research or reports about us, our business or our market,
or if they change their recommendations regarding our stock
adversely, our stock price and trading volume could
decline.
The trading market for our Common Stock will be
influenced by the research and reports that industry or securities
analysts may publish about us, our business, our market or our
competitors. If any of the analysts who may cover us change their
recommendation regarding our stock adversely, or provide more
favorable relative recommendations about our competitors, our stock
price would likely decline. If any analyst who may cover us were to
cease coverage of our company or fail to regularly publish reports
on us, we could lose visibility in the financial markets, which in
turn could cause our stock price or trading volume to
decline.
We have not paid dividends in the past and do
not expect to pay dividends for the foreseeable future, and any
return on investment may be limited to potential future
appreciation on the value of our Common Stock.
We currently intend to retain any future
earnings to support the development and expansion of our business
and do not anticipate paying cash dividends in the foreseeable
future. Our payment of any future dividends will be at the
discretion of our board of directors after taking into account
various factors, including without limitation, our financial
condition, operating results, cash needs, growth plans and the
terms of any credit agreements that we may be a party to at the
time. To the extent we do not pay dividends, our stock may be less
valuable because a return on investment will only occur if and to
the extent our stock price appreciates, which may never occur. In
addition, investors must rely on sales of their Common Stock after
price appreciation as the only way to realize their investment, and
if the price of our stock does not appreciate, then there will be
no return on investment. Investors seeking cash dividends should
not purchase our Common Stock.
15
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus includes forward-looking
statements in addition to historical information. These
forward-looking statements are included throughout this prospectus,
including in the sections entitled “Prospectus
Summary,” “Risk Factors,”
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and
“Business” and relate to matters such as our industry,
business strategy, goals and expectations concerning our market
position, future operations, margins, profitability, capital
expenditures, liquidity and capital resources and other financial
and operating information. We may use the words such as
“anticipate,” “assume,”
“believe,” “continue,” “could,”
“estimate,” “expect,” “intend,”
“may,” “plan,” “potential,”
“predict,” “project,” “future,”
“will,” “seek,” “foreseeable”
and similar terms and phrases to identify forward-looking
statements in this prospectus.
The forward-looking statements contained in this
prospectus are based on management’s current expectations and
are subject to uncertainty and changes in circumstances. We cannot
assure you that future developments affecting us will be those that
we have anticipated. Actual results may differ materially from
these expectations due to changes in global, regional or local
economic, business, competitive, market, regulatory and other
factors, many of which are beyond our control. We believe that
these factors include those described in “Risk
Factors.” Should one or more of these risks or uncertainties
materialize, or should any of our assumptions prove incorrect, our
actual results may vary in material respects from those projected
in these forward-looking statements. Any forward-looking statement
made by us in this prospectus speaks only as of the date of this
prospectus. Factors or events that could cause our actual results
to differ may emerge from time to time, and it is not possible for
us to predict all of them. We undertake no obligation to publicly
update any forward-looking statement, whether as a result of new
information, future developments or otherwise, except as may be
required by any applicable securities laws.
16
USE
OF PROCEEDS
Assuming
we complete the maximum offering of $2,000,000, we estimate that the net proceeds from our sale of shares of Common Stock and warrants
to purchase shares of our Common Stock in this offering will be approximately $1,393,000 based on a public offering price
of $4.24 per share and $0.01 per warrant, after deducting estimated placement agency commissions and estimated
offering expenses. Since this is a best efforts offering, there is no assurance that we will complete the maximum
offering.
The
principal purposes of this offering are to increase our capitalization and financial flexibility, obtain additional capital, increase
our public float and increase our visibility in the marketplace. We intend to use the net proceeds we receive from this offering
primarily for general corporate purposes, including working capital, sales and marketing activities, product development, general
and administrative matters and capital expenditures.
|
|
50%
|
|
|
75%
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
Use
of Proceeds
|
|
$
|
1,000,000
|
|
|
$
|
1,500,000
|
|
|
$
|
2,000,000
|
|
Expenses
associated with the offering (including Commissions)
|
|
$
|
537,000
|
|
|
$
|
572,000
|
|
|
$
|
607,000
|
|
General
working capital purposes
|
|
$
|
115,750
|
|
|
$
|
210,000
|
|
|
$
|
280,000
|
|
Sales
and marketing activities
|
|
$
|
115,750
|
|
|
$
|
232,000
|
|
|
$
|
348,250
|
|
Product
development
|
|
$
|
162,050
|
|
|
$
|
324,800
|
|
|
$
|
487,550
|
|
Capital
expenditures
|
|
$
|
69,450
|
|
|
$
|
161,200
|
|
|
$
|
277,200
|
|
17
CAPITALIZATION
The following table sets forth our cash and
capitalization as of September 30, 2014. You should read this table
together with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our
unaudited condensed consolidated financial statements included
elsewhere in this prospectus.
The
following table sets forth our cash and cash equivalents and capitalization as of September 30, 2014, as adjusted for the Reverse
Stock Split, on an actual basis:
|
|
September
30,
2014
(unaudited)
|
|
|
|
Actual
|
|
Cash
and Cash Equivalents
|
|
$
|
1,449,773
|
|
Long-Term
Liabilities
|
|
$
|
285,002
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
Preferred
stock:
|
|
|
|
|
Series
A Convertible Preferred Stock, $0.001 par value; 2 shares authorized, no shares issued
and outstanding;
|
|
|
—
|
|
Series
B Preferred Stock, $0.001 par value; 1 share authorized; 1 share issued and outstanding,
|
|
|
1
|
|
Common
stock:
|
|
|
|
|
par
value $0.00001; 75,000,000 shares authorized, 3,954,897 shares issued and outstanding,
|
|
|
40
|
|
Additional
paid in capital
|
|
|
11,018,951
|
|
Accumulated
deficit
|
|
|
(10,780,582
|
)
|
Total
Stockholders’ Equity
|
|
$
|
238,410
|
|
|
|
|
|
|
Total
Capitalization
|
|
$
|
523,412
|
|
18
Dilution
The
net tangible book value of our common stock as of September 30, 2014, was ($622,097), or approximately ($0.16) per share based
upon 3,954,897 shares of common stock outstanding on such date. Net tangible book value per share represents the amount of our
total tangible assets reduced by the amount of our total liabilities, divided by the total number of shares of common stock outstanding.
After
giving effect to the sale of 471,142 shares of the common stock and warrants to purchase common stock we are offering at a
public offering price of $4.24 per share and $0.01
per warrant, and after deducting placement agency commissions and estimated offering expenses of approximately $607,000, our
as adjusted net tangible book value as of September 30, 2014 would have been $770,903 or $0.17 per share.
If
you participate in this offering, your interest will be diluted to the extent of the difference between the offering price per
share and the as adjusted net tangible book value per share of our common stock immediately after completion after this offering.
This represents an immediate increase in as adjusted net tangible book value of $0.33 per share to our existing stockholders and
an immediate dilution of $4.08 per share to investors participating in this offering.
However,
given that there is no minimum offering size, it is possible that we will receive significantly less proceeds than the expected
proceeds of $2,000,000.
The
following table illustrates this dilution on a per share basis to new investors based on the amount of funds we expect to receive
on a sliding scale as a percentage of the total offering amount:
Offering Level | |
$500,000
(25%
of the
maximum
offering) | | |
$1,000,000
(50%
of the
maximum
offering) | | |
$1,500,000
(75%
of the
maximum
offering) | | |
$2,000,000
(100% of the
maximum
offering) | |
| |
| | |
| | |
| | |
| |
Public offering price per share and warrant | |
$ | 4.25 | | |
$ | 4.25 | | |
$ | 4.25 | | |
$ | 4.25 | |
Net tangible
book value per share as of September 30, 2014 before giving effect to this offering | |
$ | (0.16 | ) | |
$ | (0.16 | ) | |
$ | (0.16 | ) | |
$ | (0.16 | ) |
Increase in
as adjusted net tangible book value per share attributed to new investors purchasing shares of common stock and related
warrants from us in this offering | |
$ | 0.01 | | |
$ | 0.12 | | |
$ | 0.23 | | |
$ | 0.33 | |
As adjusted
net tangible book value per share after giving effect to this offering | |
$ | (0.15 | ) | |
$ | (0.04 | ) | |
$ | 0.07 | | |
$ | 0.17 | |
Dilution
in as adjusted net tangible book value per share to new investors in this offering | |
$ | 4.25 | | |
$ | 4.25 | | |
$ | 4.18 | | |
$ | 4.08 | |
Dilution Percentage | |
| 100 | % | |
| 100 | % | |
| 98 | % | |
| 96 | % |
Each
$1.00 increase (decrease) in the public offering price of $4.24 per share and $0.01 per warrant, would increase (decrease)
the net tangible book value, as adjusted to give effect to this offering, by $0.10 per share and the dilution to new investors
by $0.91 per share, assuming that the number of shares of common stock offered by us, as set forth on the cover page of this
prospectus, remains the same, and after deducting estimated placement agent commissions.
The
table below summarizes as of September 30, 2014, on an as adjusted basis described above, the number of shares of our common stock,
the total consideration and the average price per share (i) paid to us by our existing stockholders and (ii) to be paid by new
investors purchasing shares of our common stock in this offering at a public offering price of $4.24 per share and $0.01 per warrant, as well as raising the maximum offering amount,
before deducting estimated placement agent commissions and estimated offering expenses payable by us.
| |
Shares Purchased | | |
Total Consideration | | |
Average Price Per | |
| |
Number | | |
Percent | | |
Amount | | |
Percent | | |
Share | |
Existing stockholders | |
| 3,954,897 | | |
| 89 | % | |
$ | 237,294 | | |
| 11 | % | |
$ | 0.06 | |
New investors | |
| 471,142 | | |
| 11 | % | |
$ | 2,000,000 | | |
| 89 | % | |
$ | 4.24 | |
Total | |
| 4,426,039 | | |
| 100 | % | |
$ | 2,237,294 | | |
| 100 | % | |
$ | 0.51 | |
19
The
total number of shares of our common stock reflected in the discussion and tables above is based on 3,954,897 shares of our
common stock outstanding, as of September 30, 2014, and excludes:
•
exercise of any options, warrants or conversion rights outstanding as of September 30, 2014; and
•
any securities, options, warrants or conversion rights issued subsequent to September 30, 2014.
20
PRICE
RANGE OF OUR COMMON STOCK
Our
shares of Common Stock are quoted on the OTCQB under the symbol “SSNT.” Prior to 2011, our Common Stock was listed
under the symbol “TYRIA”. The OTCQB is a quotation service that displays real-time quotes, last-sale prices, and volume
information in over-the-counter (“OTC”) equity securities. An OTCQB equity security is not listed or traded on a national
securities exchange.
Price Range of Common Stock
The
following table sets forth the range of high and low sales prices, adjusted to give effect to the Reverse Stock Split, on the
OTCQB of our Common Stock for the periods indicated.
|
|
High
|
|
|
Low
|
|
Fiscal
2013:
|
|
|
|
|
|
|
|
|
First
Quarter (January 1 – March 31)
|
|
$
|
6.00
|
|
|
$
|
1.50
|
|
Second
Quarter (April 1 – June 30)
|
|
$
|
6.90
|
|
|
$
|
3.33
|
|
Third
Quarter (July 1 – September 30)
|
|
$
|
5.10
|
|
|
$
|
2.10
|
|
Fourth
Quarter (October 1 – December 31)
|
|
$
|
4.20
|
|
|
$
|
1.80
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2014:
|
|
|
|
|
|
|
|
|
First
Quarter (January 1 – March 31)
|
|
$
|
4.20
|
|
|
$
|
2.10
|
|
Second
Quarter (April 1 – June 30)
|
|
$
|
6.00
|
|
|
$
|
3.60
|
|
Third
Quarter (July 1 – September 30)
|
|
$
|
6.00
|
|
|
$
|
3.00
|
|
Fourth
Quarter (October 1 – December 31)
|
|
$
|
9.00
|
|
|
$
|
1.80
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2015:
|
|
|
|
|
|
|
|
|
First
Quarter (January 1 – March 31) (through March 3, 2015)
|
|
$
|
8.10
|
|
|
$
|
4.45
|
|
Second
Quarter (April 1 – June 30)
|
|
$
|
—
|
|
|
$
|
—
|
|
Third
Quarter (July 1 – September 30)
|
|
$
|
—
|
|
|
$
|
—
|
|
Fourth
Quarter (October 1 – December 31)
|
|
$
|
—
|
|
|
$
|
—
|
|
On
March 3, 2015, the closing price per share of our Common Stock on the OTCQB was $6.00.
Holders
As
of March 3, 2015, there were 732 stockholders of record. An additional number of stockholders are beneficial
holders of our Common Stock in “street name” through banks, brokers and other financial institutions that are the
record holders.
Penny
Stock
Our
common stock has recently traded at less than $5.00 per share; therefore, trading in our securities is subject to penny stock
considerations. Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain
penny stock rules adopted by the SEC.
Penny
stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock
not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations
for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements
showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special
written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the
secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers
by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their
market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common
stock and may affect the ability of our stockholders to resell our common stock.
21
Dividend
Policy
We have not paid any cash dividends to our
shareholders. The declaration of any future cash dividends is at
the discretion of our board of directors and depends upon our
earnings, if any, our capital requirements and financial position,
our general economic conditions, and other pertinent conditions. It
is our present intention not to pay any cash dividends in the
foreseeable future, but rather to reinvest earnings, if any, in our
business operations.
22
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results
may differ materially from those discussed in the forward-looking
statements as a result of various factors, including those set
forth in “Risk Factors” and “Special Note
Regarding Forward-Looking Statements.” The following
discussion of our financial condition and results of operations
should be read in conjunction with our consolidated financial
statements included elsewhere in this prospectus.
Overview
We are a business application, technology and
consulting company providing strategies and solutions to meet our
clients’ information, technology and business management
needs. Our services and technologies enable customers to manage,
protect and monetize their enterprise assets whether on-premise or
in the “Cloud”. As a value added reseller of business
application software, we offer solutions for accounting and
business management, financial reporting, Enterprise Resource
Planning (“ERP”), Warehouse Management Systems
(“WMS”), Customer Relationship Management
(“CRM”), and Business Intelligence (“BI”).
Additionally, we have our own development staff building software
solutions for Electronic Data Interchange (“EDI”), time
and billing, and various ERP enhancements. Our value-added services
focus on consulting and professional services, specialized
programming, training, and technical support. We have a dedicated
network services practice that provides managed services, hosting,
business continuity, cloud, e-mail and web services. Our customers
are nationwide, with concentrations in the New York/New Jersey
metropolitan area, Chicago, Dallas, Arizona and Southern
California.
Our core business is divided into the following
practice areas:
ERP (Enterprise Resource Management) and
Accounting Software
We
are a value-added reseller for a number of industry-leading ERP applications. We are a Sage Software Authorized Business Partner
and Sage Certified Gold Development Partner. Forty-five percent of our customer base consists of Sage ERP X3, Sage 100 ERP, Sage
500 ERP, and Sage BusinessWorks customers. According to “Bob Scott’s Insights, 2014 VAR Stars” we are among
the largest Sage ERP X3 partner in North America, with a sales and implementation presence complemented by a scalable software
development practice for customizations and enhancements. Due to the growing demand for true cloud-based ERP solutions, we have
added two (2) industry leading applications to our ERP portfolio: (1) NetSuite ERP, among the world’s leading cloud
ERP solutions, and (2) Acumatica, a browser-based ERP solution that can be offered on premise, in the public cloud, or in a private
cloud. We develop and resell a variety of add-on solutions to all our ERP and accounting packages that help customize the installation
to our customers’ needs and streamline their operations.
Value-Added Services for
ERP
We
go beyond simply reselling software packages; we have a consulting and professional services organization that manages the process
as we move from the sales stage into implementation, go live, and production. We work inside our customers’ organizations
to ensure all software and IT solutions are enhancing their business needs. A significant portion of our services revenue comes
from continuing to work with existing customers as their business needs change, upgrading from one version of software to another,
or providing additional software solutions to help them grow their revenue. We have a dedicated help desk team that fields hundreds
of calls every week. Our custom programming department builds specialized software packages as well as “off the shelf”
enhancements, time and billing software, and a cloud solution dedicated to the craft brewing industry.
EDI (Electronic Data Interchange)
Software and Services
EDI
is the computer to computer exchange of standard business documents, such as purchase orders and invoices, in electronic format.
A standard file format is established for each kind of document in order to facilitate the exchange of data across a variety of
platforms and programs. We have a proprietary software solution, MAPADOC, which is fully integrated with the Sage ERPs. MAPADOC
allows businesses to dramatically cut data entry time by eliminating duplicate entries and reduces costly errors with trading
partners. MAPADOC is the only EDI solution that is built within the framework of the Sage ERPs, allowing customers to stay within
one application to get their job done.
23
Network and Managed
Services
We provide comprehensive network and managed
services designed to eliminate the Information Technology
(“IT”) concerns of our customers. Businesses can focus
on their core strengths rather than technology issues. We adapt our
solutions for virtually any type of business, from large national
and international product and service providers, to small
businesses with local customers. Our business continuity services
provide automatic on and off site backups, complete encryption, and
automatic failure testing. We also provide email and web security,
IT consulting, managed network, and emergency IT services. Our
focus in the network and managed services practice is to focus on
industry verticals in order to demonstrate our ability to better
understand our customers’ needs.
Recent
Acquisitions
On May 6, 2014 (the “Closing Date”)
SWK Technologies, Inc., a wholly-owned subsidiary of SilverSun
Technologies, Inc, entered into an Asset Purchase Agreement (the
“Purchase Agreement”) with ESC, Inc. d/b/a ESC
Software, an Arizona corporation (the “Seller”), and
Alan H. Hardy and Michael Dobberpuhl (the
“Shareholders”) in their individual capacity as
Shareholders.
On the Closing
Date, pursuant to the terms of the Purchase Agreement, the Seller,
transferred, conveyed and delivered all of the Acquired Assets of
ESC (as defined in the Purchase Agreement) to the Company. In
consideration for the Acquired Assets, the Company issued in favor
of Seller a promissory note in the aggregate principal amount of
$350,000 (the “Note”). The Note is due sixty (60)
months from the Closing Date (the “Maturity Date”) and
bears interest at a rate of two percent (2%) per annum. Any overdue
principal or interest on the Note shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to the
lesser of (i) the maximum interest rate permitted by applicable law
or (ii) ten percent (10%).
Results of Operations
Comparison for the three and nine months ended
September 30, 2014 and September 30, 2013
Key highlights
During the first nine months of 2014 we
continued our sales growth as we continue to increase our market
penetration and provide the groundwork for which we believe will
provide a basis for the future. Some of the key highlights for the
first nine months of 2014 are as follows:
1)
Revenues
increased 32% for the nine months ended September 30, 2014 to $16.3
million as compared to $12.3 million for the same period in
the prior year, and reaching $6 million in revenues in a quarter
for the first time.
2)
Income from operations increased to $801,877 as
compared to $146,895 for the prior year with income from operations
of $467,506 for the quarter ended September 30, 2014.
3)
On May 6, 2014 acquired ESC Software, a leading
Arizona-based reseller of Sage Software and
Acumatica applications.
4)
Significant growth in our Managed Services
business.
5)
Sales of the
Company’s proprietary EDI solution, MAPADOC, has maintained
their rapid rate of growth.
6)
Continue to book major orders for Sage ERP
X3.
7)
Sales of our cloud-based business management
solutions created specifically for the U.S. craft brewery
and distribution industry has continued to increase since its
introduction to market in early 2012; and the number of new sales
prospects continues to climb.
Revenues
Revenues
for the three and nine months ended September 30, 2014 increased $1,711,514 (39.1%) and $3,975,944 (32.4%), respectively, to $6,086,465
and $16,266,032 as compared to $4,374,951 and $12,290,088 for the three and nine months ended September 30, 2013, respectively.
These revenues were generated by the Company’s
24
wholly-owned operating subsidiary, SWK. The increase in revenues from the existing business is related to an increase in new software sales, both proprietary and those for which we serve as a value-added reseller, new contracts for managed services, and higher consulting revenues. Software and consulting revenues have increased primarily due to Sage ERP X3 implementations.
Maintenance revenues also continue to increase as software sales
increase. The overall increases are primarily due to the continued
marketing efforts, which has resulted in increased market
penetration, increased depth and breadth of expertise and services,
which has resulted in an increased number of Company clients, and
the Company’s strategy to increase its business by seeking
additional opportunities through potential acquisitions,
partnerships or investments.
Gross Profit
Gross profit for the three and nine months ended
September 30, 2014 increased $927,560 (56.9%) and $2,038,710
(41.8%), respectively, to $2,558,547 and $6,911,428 as compared to
$1,630,987 and $4,872,718 for the three and nine months ended
September 30, 2013, respectively. The increase in gross profit for
this period is attributed primarily to the increase in revenues
from existing business. For the three months ended September 30,
2014, the gross profit percentage was 42.0%, as compared to 37.3%
for the three months ended September 30, 2013. For the nine months
ended September 30, 2014, the gross profit percentage was 42.5%, as
compared to 39.6% for the nine months ended September 30, 2013. The
mix of products being sold by the Company changes from time to time
and sometimes causes the overall gross margin percentage to
vary. The change in sales mix for the three and nine months
ended September 30, 2014 resulted in gross profit being slightly
higher as a percent of sales as compared to the three and nine
months ended September 30, 2013, primarily as a result of a higher
consulting and managed service revenues, which sales have a higher
gross profit.
Operating Expenses
Selling and marketing expenses decreased $72,920
(7.9%) for the three months ended September 30, 2014 to $853,818 as
compared to $926,738 for the three months ended September 30, 2013.
Selling and marketing expenses increased $131,017 (5.6%) for the
nine months ended September 30, 2014 to $2,476,720 as compared to
$2,345,703 for the nine months ended September 30, 2013. However,
selling and marketing expenses declined as a percentage of sales
from 19.1% for the nine months ended September 30, 2013 to 15.2%
for the nine months ended September 30, 2014. We continue to
monitor and rationalize expenses to increase our profit margins,
and have been successful in increasing sales while reducing
operating expenses as a percentage of total revenues. We have
also increased our attendance at trade shows to further promote our
products, services and technology.
General and administrative expenses increased
$417,507 (62.5%) and $1,124,312 (52.9%), respectively, for the
three and nine months ended September 30, 2014 to $1,086,033 and
$3,251,615 as compared to $668,526 and $2,127,303 for the three and
nine months ended September 30, 2013, respectively, primarily as a
result of the addition of new employees and increases in
compensation and payroll related expenses.
Other Income (Expense)
Total other expense was $21,494 and $45,717 for
the three and nine months ended September 30, 2014 as compared to
$20,135 and $51,399 for the three and nine months ended September
30, 2013. The decrease for the nine months ended September 30,
2014 was primarily due to lower interest on the term loan, which
continues to be paid down.
Provision for Income Taxes
The provision for income taxes for the three and
nine months ended September 30, 2014 was $197,847 and
$327,364. These amounts represent the statutory federal and state
rate on the Company’s income before taxes. The effective tax
rates of 44.3% and 43.3% for the three and nine months ended
September 30, 2014, respectively, were higher than the respective
statutory rates due to the non-cash expense associated with
incentive stock option share-based compensation for these
periods.
Net Income
As a result of the above, the Company recorded
net income of $248,165 and $428,796, respectively, for the three
and nine months ended September 30, 2014, as compared to a net loss
of $82,219 for the three months ended September 30, 2013 and
net income of $95,496 for the nine months ended September 30,
2013.
25
Comparison for the years ended December 31, 2013
and December 31, 2012
Key highlights
During 2013 the Company continued to expand its
customer base and growth trend which we believe will provide a
basis for future growth. Some of the key highlights for 2013 are as
follows:
1)
Revenues increased 32% from the prior
year.
2)
Income from operations increased to $258,604 as
compared to a loss of $1,176,432 in the prior year.
3)
Net income increased to $322,548 as compared to
a loss of $1,235,170 in the prior year.
4)
As a result of an increase in sales and
marketing expense, we continue to lay the foundation for continued
growth.
5)
Sales of the Company’s proprietary,
cloud-based business management solutions created specifically for
the U.S. craft brewery and distribution industry has continued to
increase since its introduction to market in early 2012; and the
number of new sales prospects continues to climb.
6)
Continued to book major orders for Sage ERP
X3.
Revenues
Revenues for the year ended December 31, 2013
increased $4,221,066 (32.0%) to $17,400,051 as compared to
$13,178,985 for the year ended December 31, 2012. The
increase is in revenues from the existing business related to an
increase in maintenance agreements and its software sales
base. Software and consulting revenues have increased
primarily due to Sage X3 implementations. Maintenance revenues also
continue to increase as software sales increase. The overall
increases are primarily due to the continued marketing efforts and
very competitive pricing, and the Company’s strategy to
increase its business by seeking additional opportunities through
potential acquisitions, partnerships or investments.
Gross Profit
Gross profit for
the year ended December 31, 2013 increased $1,416,041 (26.5%) to
$6,750,141 as compared to $5,334,100 for the year ended December
31, 2012. The increase in gross profit for this period is
attributed to the increase in revenues from existing business,
including the revenues from HTI. For the year ended December
31, 2013, the gross profit percentage was 38.8% as compared to
40.5% for the year ended December 31, 2012. The mix of
products being sold by the Company changes from time to time and
sometimes causes the overall gross margin percentage to
vary. The change in sales mix for the year ended December 31,
2013 resulted in gross profit being slightly lower as a percent of
sales as compared to the year ended December 31, 2012, primarily as
a result of a higher software sales mix year over year, which sales
have a lower gross profit. In addition, the Company will often
enter into revenue sharing agreements entered into with other
resellers. The Company currently has twelve (12) revenue sharing
arrangements, which often have the result of reducing the
Company’s reported gross margins.
Operating Expenses
Selling and marketing expenses increased
$942,079 (40.9%) to $3,244,337 for the year ended December 31, 2013
compared to $2,302,258 for the year ended December 31, 2012 due to
increased sales personnel and travel expenses as a result of the
increase in sales activity to provide for future
growth, incremental
expenses associated with HTI as well as expenses
associated with attending numerous trade shows.
General and administrative expenses increased
$51,166 (1.8%) to $2,927,622 for the year ended December 31, 2013
as compared to $2,876,456 for the year ended December 31, 2012
primarily as a result of increases in payroll related
expenses.
On January 4, 2012, in accordance with options
granted in January 2011, Mr. Meller sold portions of his
convertible note (the “Meller Note”) payable to certain
employees of SWK Technologies, Inc. in the amount of $13,235. On
January 4, 2012, Mr. Meller also converted $30,458 of the Meller
Note into 60,154,178 shares of the Company’s Common Stock,
and those certain employees converted their $13,235 into 23,139,523
shares of the Company’s
26
Common Stock. As a consequence the
Company recognized $719,267 of share-based compensation
expense in 2012 related to these transactions.
Additionally, during the year ended December 31, 2012, the Company
recognized $416,991 of share-based compensation expense as a result
of the granting of stock options to most of its non-executive
employees as compared to $17,616 for 2013.
Depreciation and amortization expense increased
$106,402 for the year ended December 31, 2013 to $301,962 as
compared to $195,560 for the year ended December 31, 2012. This
increase is primarily attributed to the increase in amortization
associated with the intangible assets acquired in the HTI
acquisition in 2012.
Income (Loss) from Operations
For the year ended December 31, 2013, the
Company had income from operations of $258,604 as compared to a net
loss from operations for $1,176,432 for the year ended December 31,
2012, primarily attributed to non-cash share-based
compensation of $1,136,258 in 2012, and other year over year
changes discussed above.
Other Income (Expense)
For the year ended December 31, 2013, the
Company had other expense of $56,056 as compared to $58,738 for the
year ended December 31, 2012. This change is primarily
attributed lower interest expense offset by the bargain purchase
gain associated with the HTI acquisition in 2012.
Income Taxes
For the year ended December 31, 2013, the
Company’s Federal and State provision requirements were
offset by the reversal of a portion of the valuation allowance
no longer deemed necessary, and recorded
a net tax benefit of $120,000, which represents
a reduction in its valuation allowance on tax attributes that are
expected to be utilized based on management’s assessment and
evaluation of historical and projected income.
Net Income (Loss)
For year ended December 31, 2013, the Company
had net income of $322,548 as compared to a net loss of $1,235,170
for the year ended December 31, 2012 for the reasons mentioned
above.
Liquidity and Capital Resources
During the nine months ended September 30, 2014,
the Company had a net increase in cash of $686,881. The
Company’s principal sources and uses of funds were as
follows:
Cash provided by operating activities
The Company generated $910,824 in cash from
operating activities for the nine months ended September 30, 2014,
as compared to $862,003 of cash from operating activities for the
nine months ended September 30, 2013. This increase in cash
provided by operating activities is primarily attributed to the
improvement in operating income, increase in accounts payable and
accrued expenses for the period offset mostly by increase in
accounts receivable and unbilled services for the
period.
Cash used in investing activities
Investing activities for the nine months ended
September 30, 2014 used $10,344 as compared to using $31,375 of
cash for the nine months ended September 30, 2013, which is
attributed to lower purchases of property and
equipment.
Cash (used in) provided by financing
activities
Financing activities for the nine months ended
September 30, 2014 used cash of $213,599, as compared to generating
$102,897 of cash for the nine months ended September 30, 2013. This
change is mostly attributed to the proceeds from a term loan in the
amount of $350,000 during the nine months ended September 30, 2013.
27
The Company had no borrowing during the nine months ended September
30, 2014, but continued to pay off the outstanding debt.
The Company anticipates that there will be no
significant impact on its liquidity as a result of its recent
acquisition of ESC, Inc. The Company believes that as a result of
the growth in business, recent acquisitions, and the availability
of its credit line, it has adequate liquidity to fund its operating
plans for at least the next twelve months.
We are currently seeking additional operating
income opportunities through potential acquisitions or
investments. Such acquisitions or investments may consume cash
reserves or require additional cash or equity. Our working
capital and additional funding requirements will depend upon
numerous factors, including: (i) strategic acquisitions or
investments; (ii) an increase to current company personnel; (iii)
the level of resources that we devote to sales and marketing
capabilities; (iv) technological advances; and (v) the activities
of competitors.
In addition to developing new products,
obtaining new customers and increasing sales to existing customers,
management plans to continue to sustain its profitability through
acquisitions of companies in the business software and information
technology consulting market with solid revenue streams,
established customer bases, and positive cash flow.
On August 1, 2013, the Company negotiated a new
line of credit and term loan from TAB bank. The term of the credit
line is for two years, expiring on July 31, 2015. The agreement
includes a borrowing base calculation tied to accounts receivable
with a maximum availability of $750,000 at prime plus 1.75%
interest (currently 5%). The credit line is collateralized by
substantially all of the assets of the Company and is guaranteed by
the Company’s Chief Executive Officer, Mr. Meller. The
credit facility requires the Company to pay a monitoring fee of
$1,000 monthly. At September 30, 2014, the Company was in
compliance with its required financial covenants, the fixed charge
ratio and debt to net worth. As of September 30, 2014, the
availability under this line was $750,000.
Under the term loan, the Company borrowed
$350,000 in July 2013 from TAB Bank. The term of the loan is for
two (2) years and expires on July 31, 2015. Monthly payments are at
$15,776 including interest at eight percent (8%). The term loan is
collateralized by substantially all of the assets of the Company
and is guaranteed by the Company’s Chief Executive Officer,
Mr. Meller. The outstanding balances at September 30, 2014 and
December 31, 2013 were $151,259 and $279,517,
respectively.
On May 6, 2014 SWK Technologies, Inc., a wholly
owned subsidiary of SilverSun Technologies, Inc, entered into an
Asset Purchase Agreement with ESC, Inc. d/b/a ESC Software, an
Arizona corporation, and Alan H. Hardy and Michael Dobberpuhl in
their individual capacity as Shareholders. SWK acquired certain
assets of ESC (as defined in the Purchase Agreement). In
consideration for the acquired assets, the Company issued in favor
of Seller a promissory note in the aggregate principal amount of
$350,000 (the “Note”). The Note is due sixty (60)
months from the Closing Date and bears interest at a rate of two
percent (2%) per annum. Any overdue principal or interest on the
Note shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the lesser of (i) the maximum
interest rate permitted by applicable law or (ii) ten percent
(10%). The outstanding balance at September 30, 2014 was
$327,739.
There was no significant impact on the
Company’s operations as a result of inflation for the nine
months ended September 30, 2014.
Off
Balance Sheet Arrangements
During the nine months ended September 30, 2014,
we did not engage in any material off-balance sheet activities nor
have any relationships or arrangements with unconsolidated entities
established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.
Further, we have not guaranteed any obligations of unconsolidated
entities nor do we have any commitment or intent to provide
additional funding to any such entities.
Critical Accounting Policies
Revenue Recognition
Revenue is recognized when products are shipped,
or services are rendered, evidence of a contract exists, the price
is fixed or reasonably determinable, and collectability is
reasonably assured.
28
Product Revenue
Software product revenue is recognized when the
product is shipped to the customer. The Company treats the software
component and the professional services consulting component as two
separate arrangements that represent separate units of accounting.
The arrangement consideration is allocated to each unit of
accounting based upon that unit’s proportion of the fair
value. In a situation where both components are present,
software sales revenue is recognized when collectability is
reasonably assured and the product is delivered and has stand-alone
value based upon vendor specific objective evidence.
Service Revenue
Service revenue is comprised of primarily
professional service consulting revenue, maintenance revenue and
other ancillary services provided as described below. Professional
service revenue is recognized as service is incurred.
With respect to maintenance services, upon the
completion of one year from the date of sale, considered to be the
warranty period, the Company offers customers an optional annual
software maintenance and support agreement for subsequent one-year
periods. Maintenance and support agreements are recorded as
deferred revenue and recognized over the respective terms of the
agreements, which typically range from three months to one year and
are included in service revenue in the Consolidated Statement of
Operations
Shipping and handling costs charged to customers
are classified as revenue, and the shipping and handling costs
incurred are included in cost of sales.
Accounts receivable
The Company performs ongoing credit evaluations
of its customers and adjusts credit limits based on customer
payment and current credit worthiness, as determined by review of
their current credit information. The Company continuously
monitors credits and payments from its customers and maintains
provision for estimated credit losses based on its historical
experience and any specific customer issues that have been
identified. While such credit losses have historically been
within our expectation and the provision established, the Company
cannot guarantee that it will continue to receive positive
results.
Intangible Assets
The values assigned to intangible assets were
based on an independent valuation. Purchased intangible assets are
amortized over the useful lives based on the estimate of the use of
economic benefit of the asset using the straight-line amortization
method.
The Company assesses potential impairment of its
intangible assets when there is evidence that recent events or
changes in circumstances have made recovery of an asset’s
carrying value unlikely. Factors the Company considers important,
which may cause impairment include, among others, significant
changes in the manner of use of the acquired asset, negative
industry or economic trends, and significant underperformance
relative to historical or projected operating results.
Income taxes
Deferred income taxes reflects the net tax
effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes, as well as operating
loss carryforwards. Deferred tax assets and liabilities are
classified as current or non-current based on the classification of
the related assets or liabilities for financial reporting, or
according to the expected reversal dates of the specific temporary
differences, if not related to an asset or liability for financial
reporting. Valuation allowances are established against deferred
tax assets if it is more likely than not that the assets will not
be realized. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates or laws is recognized in operations in the
period that includes the enactment date.
29
BUSINESS
Overview
We are a business application, technology and
consulting company providing strategies and solutions to meet our
clients’ information, technology and business management
needs. Our services and technologies enable customers to manage,
protect and monetize their enterprise assets whether on-premise or
in the “Cloud”. As a value added reseller of business
application software, we offer solutions for accounting and
business management, financial reporting, Enterprise Resource
Planning (“ERP”), Warehouse Management Systems
(“WMS”), Customer Relationship Management
(“CRM”), and Business Intelligence (“BI”).
Additionally, we have our own development staff building software
solutions for Electronic Data Interchange (“EDI”), time
and billing, and various ERP enhancements. Our value-added services
focus on consulting and professional services, specialized
programming, training, and technical support. We have a dedicated
network services practice that provides managed services, hosting,
business continuity, cloud, e-mail and web services. Our customers
are nationwide, with concentrations in the New York/New Jersey
metropolitan area, Chicago, Dallas, Arizona and Southern
California.
Our core business is divided into the following
practice areas:
ERP (Enterprise Resource Management) and Accounting
Software
We
are a value-added reseller for a number of industry-leading ERP applications. We are a Sage Software Authorized Business Partner
and Sage Certified Gold Development Partner. Forty-five percent of our customer base consists of Sage ERP X3, Sage 100 ERP, Sage
500 ERP, and Sage BusinessWorks customers. According to “Bob Scott’s Insights, 2014 VAR Stars” we are among
the largest Sage ERP X3 partners in North America, with a sales and implementation presence complemented by a scalable software
development practice for customizations and enhancements. Due to the growing demand for true cloud-based ERP solutions, we have
added two (2) industry leading applications to our ERP portfolio: (1) NetSuite ERP, among the world’s leading cloud ERP
solutions; and (2) Acumatica, a browser-based ERP solution that can be offered on premise, in the public cloud, or in a private
cloud. We develop and resell a variety of add-on solutions to all our ERP and accounting packages that help customize the installation
to our customers’ needs and streamline their operations.
Value-Added Services for ERP
We
go beyond simply reselling software packages; we have a consulting and professional services organization that manages the process
as we move from the sales stage into implementation, go live, and production. We work inside our customers’ organizations
to ensure all software and Information Technology (“IT”) solutions are enhancing their business needs. A significant
portion of our services revenue comes from continuing to work with existing customers as their business needs change, upgrading
from one version of software to another, or providing additional software solutions to help them grow their revenue. We have a
dedicated help desk team that fields hundreds of calls every week. Our custom programming department builds specialized software
packages as well as “off the shelf” enhancements, time and billing software, and a cloud solution dedicated to the
craft brewing industry.
EDI (Electronic Data Interchange) Software and
Services
EDI
is the computer to computer exchange of standard business documents, such as purchase orders and invoices, in electronic format.
A standard file format is established for each kind of document in order to facilitate the exchange of data across a variety of
platforms and programs. We have a proprietary software solution, MAPADOC, which is fully integrated with the Sage ERPs. MAPADOC
allows businesses to dramatically cut data entry time by eliminating duplicate entries and reduces costly errors with trading
partners. MAPADOC is the only EDI solution that is built within the framework of the Sage ERPs, allowing customers to stay within
one application to get their job done.
Network and Managed Services
We
provide comprehensive network and managed services designed to eliminate the IT concerns of our customers. Businesses can focus
on their core strengths rather than technology issues. We adapt our solutions for virtually any type of business, from large national
and international product and service providers, to small businesses with local customers. Our business continuity services provide
automatic on and off site backups, complete encryption, and automatic failure testing. We also provide email and web security,
IT consulting, managed network, and emergency
30
IT
services. Our focus in the network and managed services practice is to focus on industry verticals in order to demonstrate our
ability to better understand our customers’ needs.
Industry Overview
As a value added reseller of business
application software, we offer solutions for accounting and
business management, financial reporting, managed services, ERP,
WMS, CRM, and BI. Additionally, we have our own development
staff building software solutions for EDI, time and billing, and
various ERP enhancements. Our value-added services focus on
consulting and professional services, specialized programming,
training, and technical support. The majority of our customers
are small and medium businesses (“SMBs”).
According
to SMB Group’s (a technology industry research company) 2012 “Routes to Market Study”, 85% of SMBs that plan
to invest more in technology anticipate revenue increases. In addition, SMB Group also reported that technology integration moved
to the single most important technology challenge faced with continued growth.
Gartner, Inc. (“Gartner”), an
information technology research and advisory firm, reported that
the SMB market represents 44% of all technology spending worldwide.
Gartner predicts SMBs spent $847 billion on technology in 2012, and
is poised to pass the $1 trillion mark by 2015. Surveys
administered by Gartner listed business intelligence, cloud
computing (including SaaS), and collaboration technologies among
their top priorities in information technology. Gartner surveys
also reported the biggest weaknesses highlighted by SMBs with their
IT providers include understanding customers’ technology
needs, tailoring discussions specific to their industry, and a lack
of knowledge of services and products offered. In addition, Gartner
reports that two thirds of IT executives list peer recommendation
as the number one source in identifying potential technology
providers.
According to Gartner, the worldwide ERP market
grew to $25.8 billion in 2013 from $24.4 billion in 2012. The
Managed Services
Market — Global Advancements,
Market Forecasts and Analysis (2013 – 2018) estimates
the managed services market to grow to $256.05 billion by 2018 from
$147.75 billion in 2013. The report notes that North America is the
largest market for the managed services market, with a high demand
for managed service across every industry vertical.
Potential
Competitive Strengths
•
Independent Software Vendor. As an independent software vendor we have published
integrations between ERPs and third party products which
differentiates us from other business application providers
because, as a value-added reseller of the ERPs that our proprietary
products integrate with, we have specific software solution
expertise in the ERPs we resell which afford us the opportunity to
ensure that our proprietary products tightly integrate with the
ERPs. We own the intellectual property related to these
integrations, and sell the solutions through other software
resellers within the Sage network.
•
Sage Certified Gold Development
Partner. As a Sage Certified
Gold Development Partner, we are licensed to customize the source
code of the Sage ERPs. Very few resellers are master developers,
and in fact, we provide custom programming services for many other
resellers. We currently have seven (7) full-time programmers on
staff, which provides us with a depth and breadth of expertise that
we believe very few competitors can match.
•
Experienced Leadership. We have a senior management team which in the aggregate has many years
of experience across a broad range of disciplines.
•
Ability to Recruit, Manage and Retain
Quality Personnel. We have a track record of recruiting, managing and retaining skilled
labor and our ability to do so represents an important advantage in
an industry in which a shortage of skilled labor is often a key
limitation for both clients and competitors alike. We recruit
skilled labor from competitors and from amongst end users with
experience using the various products we sell, whom we then train
as consultants. We believe our ability to hire, manage and maintain
skilled labor gives an edge over our competitors as we continue to
grow.
•
Combination of Hardware/Software Expertise. Many competitors have software solution expertise. Others have
network/hardware expertise. We believe we are among the very few organizations with an
31
expertise
in both software and hardware, affording us the opportunity to provide turnkey solutions for our customers without the need to
bring in additional vendors on a project.
•
Technical Expertise. Our geographical reach and vast technical
capabilities afford our clients the ability to customize and tailor
solutions to satisfy all of their business needs.
Our
Growth Strategy
General
Our
strategy is to grow our business through a combination of intra-company growth of our software applications and technology solutions,
as well as expansion through acquisitions, both within our existing geographic reach and through geographic expansion. We have
established a national presence via our internal marketing and sales programs, and acquisitions, and now have ERP customers and
MAPADOC customers throughout most of the United States.
Intra-Company
Growth
Our
intra-company growth strategy is to increase our market penetration and client retention through the upgrade of, and expanded
sales efforts with, our existing products and development of new and enhanced software and technology solutions. Our client retention
is sustained by our providing of responsive, ongoing software and technical support, monitoring and maintenance services for both
the solutions we sell and other client technology needs we provide.
Repeat business from our existing customer base
has been key to our success and we expect it will continue to play
a vital role in our growth. We focus on nurturing long-standing
relationships with existing customers while also establishing
relationships with new customers.
Acquisitions
The markets in which we provide our services are
occupied by a number of competitors, many substantially larger than
us, and with significantly greater resources and geographic reach.
We believe that to remain competitive, we need to take advantage of
acquisition opportunities that arise which may help us achieve
greater geographic presence and economies both within our existing
footprint and expanded territories. As such, we have completed six
(6) acquisitions and/or collaborative agreements in the past
thirty-six (36) months. We may also utilize acquisitions, whenever
appropriate, to expand our technological capabilities and product
offerings. We focus on acquisitions that are profitable and fit
seamlessly with our existing operations.
We believe our markets contain a number of
attractive acquisition candidates. We foresee expanding through
acquisitions of one or more of the following types of software and
technology organizations:
•
Managed Service Providers
(“MSPs”). MSPs provide their
small and medium-sized business clients with a suite of services,
which may include 24/7/365 remote monitoring of networks, disaster
recovery, business continuity, data back-up, cyber-security and the
like. There are hundreds of providers of such services in the U.S.,
most with annual recurring revenue of less than $10 million. We
believe that we may be able to consolidate a number of these MSPs
with our existing operation in an effort to become one of the more
significant providers of these services in the U.S.
•
Independent Software Vendors (“ISVs”). ISVs are publishers of both stand-alone software solutions
and integrations that integrate with other third party products. Our interest lies with ISVs selling into the small and medium-sized
business marketplace, providing applications addressing e-commerce, mobility, security, and other functionalities. Since we have
expertise in both selling directly to end-users and selling through a sales channel, we believe we can significantly enhance the
sales volume of any potential acquisition via our existing infrastructure, our sales channel, and our internal marketing programs.
There are many ISVs in North America, constituting a large and significant target base for our acquisition efforts.
•
Value-Added Resellers (“VARs”) of ERP, Warehouse Management Systems (“WMS”), CRM and BI Software. Of
the thousands of VARs in the Sage Software sales channel, we are the sixth largest, according to “Bob Scott’s Insights,
2014 VAR Stars” based on our estimated 2014 revenue. VARs gross margins are
32
a
function of the sales volume they provide a publisher in a twelve (12) month period, and we are currently operating at the highest
margins. Smaller resellers, who sell less and operate at significantly lower margins, are at a competitive disadvantage to companies
such as ours, and are often amenable to creating a liquidity event for themselves by selling to larger organizations. This dynamic
has enabled us to complete six (6) acquisitions and/or collaborative agreements in the past thirty-six (36) months. We have benefitted
from completing such acquisitions in a number of ways, including but not limited to: (i) garnering new customers to whom we can
upsell and cross-sell our broad range of products and services; (ii) gaining technical resources that enhance our capabilities;
and (iii) extending our geographic reach.
Our business strategy provides that we will
examine the potential acquisition of businesses within our
industry. In determining a suitable acquisition candidate, we will
carefully analyze a target’s potential to add to and
complement our product mix, expand our existing revenue base,
improve our margins, expand our geographic coverage, strengthen our
management team, add technical resources and expertise, and, above
all, improve stockholder returns. More specifically, we have
identified the criteria listed below, by which we evaluate
potential acquisition targets in an effort to gain the synergies
necessary for successful growth of the Company:
•
Access to new customers and geographic
markets;
•
Recurring revenue of the target;
•
Opportunity to gain operating leverage and
increased profit margins;
•
Diversification of sales by customer and/or
product;
•
Improvements in product/service offerings;
and
•
Ability to attract public capital and increased
investor interest.
We are unable to predict the nature, size or
timing of any acquisition. We can give no assurance that we will
reach agreement or procure the financial resources necessary to
fund any acquisition, or that we will be able to successfully
integrate or improve returns as a result of any such
acquisition.
We continue to seek out and hold preliminary
discussions with various acquisition candidates. However, currently
we have not entered into any agreements or understandings for any
acquisitions that management deems material.
Electronic Data Interchange Software
Strategy
Our strategy for
our proprietary EDI software, including specifically
“MAPADOC” is to continue to achieve market penetration
with new customers within our existing and expanding footprint and
increase sales of new modules and enhanced functionality to our
existing customer base. To remain competitive, we must periodically
upgrade our software to the platform most commonly requested by the
market. We must also continue our focus on enhancing applications
through the addition of new functionality. Towards that end, we are
exploring the development of a cloud offering or
Software-as-a-Service model for MAPADOC, and are investigating the
EDI markets for automotive suppliers and grocers.
Enterprise Resource Planning Software
Strategy
Our
ERP software strategy is focused on serving the needs of our expansive installed base of customers for our Sage 100 ERP, Sage
500 ERP, and Sage BusinessWorks practices, while rapidly growing the number of customers using Sage ERP X3, NetSuite, and Acumatica.
We currently have approximately 2,450 active ERP customers using one of these six solutions, including customers using certain
add-on support products to these solutions. In the past we, have focused primarily on on-premise mid-market Sage Software
solutions but in the past two years have shifted our focus to the more enterprise-level Sage ERP X3 offering, as well as diversifying
into cloud ERP solutions. This has allowed us to increase our average deal size significantly and also keep pace with the
changing trends that we see in the industry.
Managed Services Strategy
The Managed
Services market is broadly segmented by types of services, for
example managed data center, managed network, managed mobility,
managed infrastructure, managed communications, managed
information, managed security and other managed services. In
addition, the market is segmented by market verticals, such as
public sector, banking, financial services and insurance,
education, retail, contact centers and service industries, high
tech and
33
telecommunications,
healthcare and pharmaceuticals, travel and logistics, manufacturing, energy and utilities among others.
The recent trend in the industry shows that
there is a high demand for managed services across every industry
vertical. The implementation of managed services reduces IT costs
by 30% to 40% in such enterprises. This enables organizations to
have flexibility and technical advantage. Enterprises having their
services outsourced look forward to risk sharing and to reduce
their IT costs and IT commitments, so that they are able to
concentrate on their core competencies. Organizations implementing
managed services have reported almost a 50% to 60% increase in the
operational efficiency of their outsourced processes. Enterprises
have accepted outsourcing services as a means to enable them to
reduce their Capital Expenditure (CapEx) and free up internal
sources. Newer managed services that penetrate almost all the industry domains, along
with aggressive pricing in services, are being offered. This
results in an increase in the overall revenues of the managed
services market. It is observed that there is an increase in
outsourcing of wireless, communications, mobility and other
value-added services, such as content and e-commerce facilities.
With increasing technological advancements and the cost challenges
associated with having the IT services in-house, we believe the
future seems optimistic for managed services providers.
Our strategy is to continue to expand our
product offerings to the small and medium sized business
marketplace, and to increase our scale and capabilities via
acquisition throughout the United States, but initially in those
regions where we currently have existing offices.
Geographic Expansion
Generally,
our technology offerings require on-premise implementation and support. When we expand into new geographic territories, we prefer
to find qualified personnel in an area to augment our current staff of 31 consultants to service our business. The
need for hands-on implementation and support may also require investment in additional physical offices and other overhead. We
believe our approach is conservative. The 2011 acquisition of the software customer accounts of IncorTech, a Southern California-based
Sage business partner, reflects this strategy of geographic expansion. The focus in Southern California is to sell and support
our MAPADOC integrated EDI solution and to market Sage ERP X3 to both former IncorTech customers, as well as market to new potential
customers.
We may accelerate
expansion if we find complementary businesses in other regions that
we are able to acquire. We are currently focused on markets in the
Northeast, Midwest, Texas, Arizona and Southern California. Our
marketing efforts to expand into new territories have included
attendance at trade shows, in addition to personal
contact.
Our
Products and Services
Enterprise Resource Planning Software
Substantially all of our initial sales of ERP
financial accounting solutions consist of prepackaged software and
associated services to customers in the United States.
The Company resells ERP software published by
Sage Software and other providers for the financial accounting
requirements of small- and medium-sized businesses focused on
manufacturing and distribution, and the delivery of related
services from the sales of these products, including installation,
support and training. The programs perform and support a wide
variety of functions related to accounting, including financial
reporting, accounts payable and accounts receivable, and inventory
management.
We provide a variety of services along with our
financial accounting software sales to assist our customers in
maximizing the benefits from these software applications. These
services include training, technical support, and professional
services. We employ class instructors and have formal,
specific training in the topics they are teaching. We can also
provide on-site training services that are highly tailored to meet
the needs of a particular customer. Our instructors must pass
annual subject-matter examinations required by Sage to retain their
product-based teaching certifications.
We provide end-user technical support services
through our support/help desk. Our product and technology
consultants assist customers calling with questions about product
features, functions, usability issues, and
34
configurations. The
support/help desk offers services in a variety of ways, including
prepaid services, time and materials billed as utilized and annual
support contracts. Customers can communicate with the support/help
desk through e-mail, telephone, and fax channels. Standard
support/help desk services are offered during normal business hours
five (5) days per week.
Electronic Data Interchange Software
We publish our own proprietary EDI software,
“MAPADOC.” EDI can be used to automate existing
processes, to rationalize procedures and reduce costs, and to
improve the speed and quality of services. Because EDI necessarily
involves business partners, it can be used as a catalyst for
gaining efficiencies across organizational boundaries.
Our
“MAPADOC” EDI solution is a fully integrated EDI solution that provides users of Sage Software’s
market-leading Sage 100 ERP/500 ERP/ERP X3 software products with a feature rich product that is easy to use.
“MAPADOC” provides the user with dramatically decreased data entry time, elimination of redundant steps, the
lowering of paper and postage costs, the reduction of time spent typing, signing, checking and approving documents and
the ability to self-manage EDI and to provide a level of independence that saves time and money.
We market our “MAPADOC” solutions to
our existing and new small and medium-sized business customers, and
through a network of resellers. We have a sales team of
technical specialists involved in marketing and supporting sales of
the “MAPADOC” product and associated
services.
Warehouse Management Systems
We are resellers of the Accellos Warehouse
Management System software published by High Jump, Inc.
(“High Jump”). High Jump develops warehouse
management software for mid-market distributors. The primary
purpose of a WMS is to control the movement and storage of
materials within an operation and process the associated
transactions. Directed picking, directed replenishment, and
directed put-away are the key to WMS. The detailed setup and
processing within a WMS can vary significantly from one software
vendor to another. However, the basic WMS will use a
combination of item, location, quantity, unit of measure, and order
information to determine where to stock, where to pick, and in what
sequence to perform these operations.
The Accellos WMS software improves accuracy and
efficiency, streamlines materials handling, meets retail compliance
requirements, and refines inventory control. Accellos also
works as part of a complete operational solution by integrating
seamlessly with radio frequency hardware, accounting software,
shipping systems and warehouse automation equipment.
We market the Accellos solution to our existing
and new medium-sized business customers.
Managed Network Services and Business
Consulting
We provide managed services, data back-up,
network maintenance and service upgrades for our business
clients. We are a Microsoft Solutions Provider. Our staff
includes engineers who maintain certifications from Microsoft and
Sage Software. They are Microsoft Certified Systems Engineers
and Microsoft Certified Professionals, and they provide a host of
services for our clients, including remote network monitoring,
server implementation, support and assistance, operation and
maintenance of large central systems, technical design of network
infrastructure, technical troubleshooting for large scale problems,
network and server security, and backup, archiving, and storage of
data from servers. There are numerous competitors, both larger
and smaller, nationally and locally, with whom we compete in this
market.
Craft Brewery Business Management
Solutions
We
provide a proprietary series of cloud-based business management solutions created specifically for the U.S. craft brewery
and distribution industry. Currently, implementations of BeerRun, BrewPub, BrewX ERP (powered by Sage ERP X3) and the
Distributor Relationship Management System — Software-as-a-Service (SaaS) solutions jointly developed by SWK
Technologies — have been sold to one hundred and twenty six (126) craft breweries throughout the country and ten (10)
internationally. These innovative solutions provide brew masters with a single, turnkey database batch/process solution
capable of managing their manufacturing operations — from forecasting and planning to recipe management to inventory
control and traceability, among other critical business functions, including automated Alcohol and Tobacco Tax and Trade
Bureau reporting.
35
Product Development
We are continually looking to improve and
develop new products. Our product initiatives include various new
product offerings, which are either extensions of existing products
or newly conceptualized product offerings including, but not
limited to:
•
Time and Billing Exact (TBX)
•
SPS RSX Connector
•
MAPADOC Express
•
Fusion X3 Integration
•
Accellos X3 Integration
•
License Plate Modification
We are using a dual-shore development approach
to keep product development costs at a minimum. All of our
product development is led by SWK US-based employees. The
project leaders are technical resources who are involved in
developing technical specifications, design decisions, usability
testing, and transferring the project knowledge to our offshore
development team. Several times per week, the product
development leadership team meets with our project leaders and
development teams to discuss project status, development obstacles,
and project timelines.
Arrangements with Principal Suppliers
Our revenues are primarily derived from the
resale of vendor software products and services. These resales are
made pursuant to channel sales agreements whereby we are granted
authority to purchase and resell the vendor products and
services. Under these agreements, we either resell software
directly to our customers or act as a sales agent for various
vendors and receive commissions for our sales efforts.
We are required to enter into an annual Channel
Partner Agreement with Sage Software whereby Sage Software appoints
us as a non-exclusive partner to market, distribute, and support
Sage 100 ERP, Sage 500 ERP and Sage ERP X3. The Channel Partner
Agreement is for a one-year term, and automatically renews for an
additional one-year term on the anniversary of the
agreement’s effective date. These agreements authorize us to
sell these software products to customers in the United States.
There are no clauses in this agreement that limit or restrict the
services that we can offer to customers. We also operate a
Sage Software Authorized Training Center Agreement and also are
party to a Master Developers Program License Agreement.
For the years ended December 31, 2013 and 2012,
purchases from Sage Software were approximately 31% and 47%,
respectively, of the Company’s total cost of revenue.
Generally, the Company does not rely on any one specific
supplier for all of its purchases and maintains relationships with
other suppliers that could replace its existing supplier should the
need arise.
Customers
We
market our products throughout North America. For the years ended December 31, 2013 and 2012, our top ten (10) customers
accounted for 19% ($3,159,000) and 17% ($2,262,000), respectively, of our total revenues. Generally, we do not rely on any
one specific customer for any significant portion of our revenue base. No single customer accounted for ten percent or more of
our consolidated revenues base.
Intellectual Property
We regard our
technology and other proprietary rights as essential to our
business. We rely on copyright, trade secret, confidentiality
procedures, contract provisions, and trademark law to protect our
technology and intellectual property. We have also entered into
confidentiality agreements with our consultants and corporate
partners and intend to control access to, and distribution of our
products, documentation, and other proprietary
information.
We
own two trademarks registered with the U.S. Patent and Trademark Office for “MAPADOC” and have two (2) trademark
applications pending. We have no patents or patent applications pending.
36
Competition
Our markets are highly fragmented and the
business is characterized by a large number of participants,
including several large companies, as well significant number of
small, privately-held, local competitors. Our current and potential
larger competitors include NexTech Group, Inc., Blytheco, and
Net@Work. A significant portion of our revenue is currently
derived from requests for proposals (RFPs”) and price is
often an important factor in awarding such agreements. Accordingly,
our competitors may underbid us if they elect to price their
services aggressively to procure such business. Our competitors may
also develop the expertise, experience and resources to provide
services that are equal or superior in both price and quality to
our services, and we may not be able to enhance our competitive
position. The principal competitive factors for our
professional services include geographic presence, breadth of
service offerings, technical skills, quality of service and
industry reputation. We believe we compete favorably with our
competitors on the basis of these factors.
Employees
As
of March 3, 2015, we had approximately 95 full time employees with 21 of our employees engaged in sales and marketing
activities, 60 employees are engaged in service fulfillment, and 12 employees employed in administrative activities.
Our future success depends in significant part
upon the continued services of our key sales, technical, and senior
management personnel and our ability to attract and retain highly
qualified sales, technical, and managerial personnel. None of our
employees are represented by a collective bargaining agreement and
we have never experienced a work stoppage.
Properties
We
do not own any real property for use in our operations or otherwise. Our main offices are located at 5 Regent Street, Livingston,
NJ 07039 where we have 6,986 square feet of office space at a monthly rent of $7,400. The lease expires December 31,
2016. The Company has a two-year lease, with a one-year extension, for office space at 6834 Buckley Road, North Syracuse, New
York, at a monthly rent of $2,100. The lease expires May 31, 2015. The Company also leases 2,700 square feet of office
space for sales and support in Skokie, Illinois with a monthly rent of $3,000. This lease expires April 30, 2018. The Company
also leases 500 square feet for sales and support in Minneapolis, Minnesota with a monthly rent of $400 a month. This lease expires
August 2014, and was extended on a month-to-month basis with a monthly rent of $500 per month. We believe our current facilities
are sufficient for our current needs and will be adequate, or that suitable additional or substitute space will be available on
commercially reasonable terms, for the foreseeable future. We also
believe that our insurance coverage adequately covers our interest in our leased space. We
have a good relationship with our landlords and believe that these facilities will adequately
serve our business purposes for the foreseeable future.
Legal
Proceedings
We are not currently involved in any litigation
that we believe could have a materially adverse effect on our
financial condition or results of operations. There is no action,
suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the executive officers of our
Company or any of our subsidiaries, threatened against or affecting
us, our Common Stock, any of our subsidiaries or of our or our
subsidiaries’ officers or directors in their capacities as
such, in which an adverse decision could have a material adverse
effect.
Our
Corporate History
We were incorporated on October 3, 2002, as a
wholly owned subsidiary of iVoice, Inc.
(“iVoice”). On February 11, 2004, the Company was
spun off from iVoice and became an independent publicly traded
company. On September 5, 2003, we changed our corporate name
to Trey Resources, Inc. In March 2004, Trey Resources, Inc.
began trading on the OTCBB under the symbol TYRIA.OB. In June 2011,
we changed our name to SilverSun Technologies, Inc.
Prior to June 2004, we were engaged in the
design, manufacture, and marketing of specialized telecommunication
equipment. On June 2, 2004, our wholly-owned subsidiary, SWK
Technologies, Inc. (“SWK”) completed its
37
acquisition of
SWK, Inc. Since the acquisition of SWK, Inc. we have focused on
three (3) core business sectors, including acting as the following:
(i) a managed service provider for computer networks, providing
24/7 remote monitoring of networks, data backup, hosting, and
business continuity and disaster recovery services; (ii) a value
added reseller and master developer for Sage Software’s Sage
100 ERP/500 and ERP X3 enterprise resource planning
(“ERP”) financial software; and (iii) publisher of its
own proprietary software solutions and integrations, including its
Electronic Data Interchange (“EDI”) software,
“MAPADOC.” We also publish twenty (20) other
assorted software solutions. We focus on the business application
software and the information technology consulting market for small
and medium-sized businesses (“SMB’s”), selling
services and products to various end users, manufacturers,
wholesalers and distributors located throughout the United
States.
Our
strategy is to grow our business through a combination of intra-company growth of our software applications and technology solutions,
as well as expansion through acquisitions, both within our existing geographic reach and through geographic expansion. To that
end, since 2006, we have completed a number of acquisitions that have increased our client base, technical expertise and geographic
footprint.
On June 2, 2006, SWK completed the acquisition
of certain assets of AMP-Best Consulting, Inc. (“AMP”)
of Syracuse, New York. AMP is an information technology
company and value added reseller of licensed ERP software published
by Sage Software. AMP sold services and products to various
end users, manufacturers, wholesalers and distribution industry
clients located throughout the United States, with special emphasis
on companies located in the upstate New York region.
During
2011, SWK acquired Sage’s Software’s customer accounts in connection with IncorTech, LLC (“IncorTech”),
a Southern California-based Sage business partner. This transaction increased our geographical influence in Southern California
for the sale and support of our MAPADOC integrated EDI solution and the marketing of our Sage ERP X3 to both former IncorTech
customers as well as new consumers. IncorTech had previously provided professional accounting, technology, and business consulting
services to over 300 clients.
In May 2014, we completed the purchase of selected assets of ESC Software (“ESC”),
a leading Arizona-based reseller of Sage Software and Acumatica applications. Founded in 2000, ESC has implemented technology
solutions at prominent companies throughout the Southwest. ESC’s customers and business products and services have
been integrated into the infrastructure of SWK. In addition to the strategic benefits of this acquisition, it has given
us additional annual revenues, approximately 300 additional Sage Software ERP customers and affords us market penetration
in the Southwest.
38
MANAGEMENT
Executive Officers and Directors
The
following table and biographical summaries set forth information, including principal occupation and business experience, about
our directors and executive officers at March 3, 2015:
|
|
|
Officer
and/or Director Since
|
|
|
|
|
Mark
Meller
|
55
|
Chairman,
President, Chief Executive Officer and Director
|
2003
|
|
|
|
|
Crandall
Melvin III
|
58
|
Chief
Financial Officer
|
2015
|
|
|
|
|
Stanley
Wunderlich
|
63
|
Director
|
2011
|
|
|
|
|
Joseph
Macaluso
|
63
|
Director
|
2015
|
Mark
Meller, Chief Executive Officer, President,
Director
Mr.
Mark Meller has been the President and Director of the Company since September 15, 2003, and was further appointed Chief Executive
Officer on September 1, 2004. He became Chairman of the Board on May 10, 2009. Mr. Meller is currently the President, Chief Executive
Officer and Chairman of the Board of Directors. From September 2003 through January 2015, he was Chief Financial Officer of the
Company. From October 2004 until February 2007, Mr. Meller was the President, Chief Executive Officer, Chief Financial Officer
and Director of Deep Field Technologies, Inc. From December 15, 2004 until September 2009, Mr. Meller was the President, Chief
Executive Officer, Chief Financial Officer and Director of MM2 Group, Inc. From August 29, 2005 until August 2006, Mr. Meller
was the President, Chief Executive Officer and Chief Financial Officer of iVoice Technology, Inc. Since 1988, Mr. Meller has been
Chief Executive Officer of Bristol Townsend and Co., Inc., a New Jersey based consulting firm providing merger and acquisition
advisory services to middle market companies. From 1986 to 1988, Mr. Meller was Vice President of Corporate Finance and General
Counsel of Crown Capital Group, Inc, a New Jersey based consulting firm providing advisory services for middle market leveraged
buy-outs (LBO’s). Prior to 1986, Mr. Meller was a financial consultant and practiced law in New York City. He is a member
of the New York State Bar.
Mr. Meller has a B.A. from the State University
of New York at Binghamton and a J.D. from the Boston University
School of Law.
In
evaluating Mr. Meller’s specific experience, qualifications, attributes and skills in connection with his appointment to
our board, we took into account his experience in the industry and his knowledge of running and managing the Company.
Crandall
Melvin III, Chief Financial Officer
Crandall
Melvin III combines over 30 years of experience in public accounting and industry, holding a number of senior management positions
following a 5 year career in retail, commercial banking and equipment leasing. Mr. Melvin is also currently the CFO of SWK, the
Company’s operating subsidiary, and has been so since 2007.
From
2002 to 2006, he was Co-Founder and Chief Operating Officer of AMP-Best Consulting, Inc. (“AMP-Best”) a company involved
in software sales and implementation. AMP-Best was acquired by SWK Technologies in 2006. From 1993 to 2002, he worked
in public accounting in Alaska and New York, and is currently a Certified Public Accountant licensed in the State of New York
and also holds the designation of Certified Global Management Accountant. Mr. Melvin is also currently a director of Community
Baseball of Central New York, Inc. the Minor League AAA affiliate of The Washington Nationals. Mr. Melvin has also served
on boards of directors of various not-for-profit organizations located in the Syracuse Area.
Mr.
Melvin has an undergraduate degree from the University of Southern California and an MBA from Syracuse University with additional
graduate studies from the University of Alaska at Anchorage.
Stanley Wunderlich, Director
Mr.
Stanley Wunderlich has over 40 years of experience on Wall Street as a business owner and consultant. Mr. Wunderlich is a
founding partner and has been Chairman and Chief Executive Officer of Consulting for Strategic
39
Growth
1, specializing in investor and media relations and the formation of capital for early-growth stage companies both domestic and
international, from 2000 through the present. Since 1987, he has been the Chief Executive Officer of Consulting For Strategic
Growth 1, Ltd.
Mr. Wunderlich has a Bachelor’s degree
from Brooklyn College.
In
evaluating Mr. Wunderlich’s experience, qualifications, attributes and skills in connection with his appointment to our
Board, we took into account his experience in finance and investor relations.
Joseph
Macaluso, Director
Joseph
Macaluso has over 30 years of experience in financial management. Mr. Macaluso has been the Principal Accounting Officer of Tel-Instrument
Electronics Corp., a developer and manufacturer of avionics test equipment for both the commercial and military markets since
2002. Previously, he had been involved in companies in the medical device and technology industries holding positions including
Chief Financial Officer, Treasurer and Controller. He has a B.S. in Accounting from Fairfield University.
In
evaluating Mr. Macaluso’s specific experience, qualifications, attributes and skills in connection with his appointment
to Board, we took into account his expertise in general management, finance, corporate governance and strategic planning, as well
as his experience in operations and mergers and acquisitions.
Family Relationships
There are no family relationships among any of
our directors or executive officers.
Board
Composition and Director Independence
As
of the date of this prospectus, our board of directors consists of three members: Mr. Mark Meller, Mr. Stanley Wunderlich, and
Mr. Joseph Macaluso. The Board is currently evaluating additional candidates for appointment to the board of directors upon the
effectiveness of the registration statement of which this prospectus forms a part. The directors will serve until our next annual
meeting and until their successors are duly elected and qualified. The Company defines “independent” as that term
is defined in Rule 5605(a)(2) of the NASDAQ listing standards.
In
making the determination of whether a member of the board is independent, our board considers, among other things, transactions
and relationships between each director and his immediate family and the Company, including those reported under the caption “Certain
Relationships and Related-Party Transactions”. The purpose of this review is to determine whether any such relationships
or transactions are material and, therefore, inconsistent with a determination that the directors are independent. On the basis
of such review and its understanding of such relationships and transactions, our board affirmatively determined that Mr. Wunderlich
and Mr. Macaluso have qualified as independent and that he has no material relationship with us that might interfere with his
or her exercise of independent judgment.
Board
Committees
Currently,
the Audit Committee consists of Mr. Mark Meller, the Company’s Chief Executive Officer and President, Mr. Stanley Wunderlich
and Joseph Macaluso. The Audit Committee has two (2) independent members and Mr. Macaluso may be deemed a financial expert
as defined in §228.401(e) of the regulations promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended.
The
Company does not currently have a standing nominating committee or compensation committee.
Involvement
in Certain Legal Proceedings
During
the past ten years, none of the following occurred with respect to any of our officers or directors: (1) any bankruptcy petition
filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy
or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending
or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court
of competent jurisdiction (in a civil action), the SEC or the commodities futures trading commission to have violated a federal
or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
40
EXECUTIVE COMPENSATION
Summary Compensation Table
The
following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers
paid by us during the years ended December 31, 2014, 2013 and 2012.
Name
and Position(s) |
|
Year |
|
|
Salary($) |
|
|
Bonus($) |
|
|
Stock
Awards($) |
|
|
Option
Awards($) |
|
|
Non-Equity
Incentive Plan Compensation($) |
|
|
Nonqualified
Deferred Compensation Earnings($) |
|
|
All
Other Compensation($) |
|
|
Total
Compensation($) |
|
Mark Meller |
|
|
2014 |
|
|
$ |
480,491 |
|
|
$ |
16,859
|
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
497,350
|
|
President, |
|
|
2013 |
|
|
$ |
436,506
|
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
436,506
|
|
Chief Executive Officer, Chief Financial Officer President
and Director |
|
|
2012 |
|
|
$ |
366,823 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
366,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crandall Melvin III(1) |
|
|
2014 |
|
|
$ |
181,730
|
|
|
$ |
17,000
|
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
198,730
|
|
Chief Financial Officer |
|
|
2013 |
|
|
$ |
174,999
|
|
|
$ |
10,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
184,999
|
|
|
|
|
2012 |
|
|
$ |
177,023 |
|
|
$ |
5,000
|
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
182,023
|
|
Potential Payments upon Termination or Change in
Control
Mr. Meller’s employment agreement (the
“Meller Employment Agreement”) provides for a severance
payment to him of three hundred percent (300%), less $100,000 of
his gross income for services rendered to the Company in each of
the five prior calendar years should his employment be terminated
following a change in control (as defined in the Meller Employment
Agreement).
Employment Agreements
Mark Meller, Chief Executive
Officer
The
Company has an Employment Agreement with Mark Meller, President and Chief Executive Officer of the Company, which began on September
15, 2003, was extended on September 15, 2010 (the “Renewal Date”), and expires on September 15, 2017. As of the renewal
date, the Company agreed to pay Mr. Meller an annual salary of $318,881 per annum, with a ten percent (10%) increase every year
thereafter. As of December 31, 2013, Mr.
Meller agreed to accept a salary of $426,500 for 2013. The employment agreement with Mr. Meller also provides for a severance
payment to him of three hundred percent (300%), less $100,000 of his gross income for services rendered to the Company in each
of the five prior calendar years should his employment be terminated following a change in control, as defined in the employment
agreement.
Total
amounts owed to Mr. Meller as of December 31, 2013 and December 31, 2012, representing accrued interest totaled $2,672 and $5,942,
respectively.
Outstanding Equity Awards at Fiscal Year-End
2014
The Company had no outstanding equity awards at
the end of the most recent completed fiscal year.
Director Compensation
We
pay only our independent directors for their service on our board of directors. Mr. Wunderlich will be paid $1,000 per month,
payable at the end of each fiscal quarter for his service as a member of the board. Mr. Macaluso will be paid $1,500 per month,
payable at the end of each fiscal quarter for his service as a member of the board and as Chairman of the Audit Committee.
41
The following Director Compensation Table sets
forth the compensation of our directors for the fiscal year ending
on December 31, 2014.
Director Compensation for Fiscal 2014
Name
|
|
Fees
Earned
or Paid in Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
Non-Qualified
Deferred
Compensation
Earnings
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Stanley
Wunderlich
|
|
|
12,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Macaluso(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Director Agreements
On
July 26, 2011, we entered into a director agreement with Stanley Wunderlich, pursuant to which Mr. Wunderlich was appointed to
the Board effective July 26, 2011. On August 3, 2011 the Company entered into an amended and restated director agreement
(the “Amended Agreement”). The term of the Amended Agreement is one year from August 3, 2011. The Amended Agreement
may, at the option of the Board, be automatically renewed on such date that Mr. Wunderlich is re-elected to the Board. Under the
Amended Agreement, Mr. Wunderlich is to be paid a stipend of one thousand dollars ($1,000) (the “Stipend”) per month,
payable at the end of each fiscal quarter. Additionally, Mr. Wunderlich shall receive warrants (the “Warrants”) to
purchase such number of shares of the Company’s Common Stock, as shall equal (the “Formula”) (A) $20,000 divided
by (B) the closing price of the Common Stock on the OTC Markets on the date of grant of the Warrant. The exercise price
of the Warrant shall be the closing price on the date of the grant of such Warrant (the “Grant Date”) plus
$0.01. The Warrant shall be fully vested upon receipt thereof (the “Vesting Date”). For the duration of the
directorship term, on the three month anniversary of the Vesting Date, and for each successive three month period thereafter,
Mr. Wunderlich shall receive a warrant exercisable for the number of shares of Common Stock resulting from the application of
the Formula on the applicable Grant Date. To date no warrants have been issued pursuant to this agreement.
On
January 29, 2015, we entered into a director agreement (“Macaluso Director Agreement”) with Joseph Macaluso,
pursuant to which Mr. Macaluso was appointed to the Board effective January 29, 2015 (the “Effective Date”). The
Macaluso Director Agreement may, at the option of the Board, be automatically renewed on such date that Mr. Macaluso is
re-elected to the Board. Under the Macaluso Director Agreement, Mr. Macaluso is to be paid a stipend of one thousand five
hundred dollars ($1,500) (the “Stipend”) per month, payable at the end of each fiscal quarter. Additionally, Mr.
Macaluso shall receive warrants (the “Warrants”) to purchase such number of shares of the Company’s Common
Stock, as shall equal (the “Formula”) (A) $20,000 divided by (B) the closing price of the Common Stock on the OTC
Markets on the date of grant of the Warrant. The exercise price of the Warrant shall be the closing price on the date
of the grant of such Warrant (the “Grant Date”) plus $0.01. The Warrant shall be fully vested upon receipt
thereof (the “Vesting Date”). To date no warrants have been issued pursuant to this agreement.
42
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the beneficial ownership of our Common Stock as of March 3, 2015
by (a) each stockholder who is known to us to own beneficially 5% or more of our outstanding Common Stock; (b) all directors;
(c) our executive officers, and (d) all executive officers and directors as a group. Except as otherwise indicated, all persons
listed below have (i) sole voting power and investment power with respect to their shares of Common Stock, except to the extent
that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their shares
of Common Stock.
For
purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of Common
Stock that such person has the right to acquire within 60 days of March 3, 2015. For purposes of computing the percentage
of outstanding shares of our Common Stock held by each person or group of persons named above, any shares that such person or
persons has the right to acquire within 60 days of March 3, 2015 is deemed to be outstanding, but is not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially
owned does not constitute an admission of beneficial ownership. Unless otherwise identified, the address of our directors
and officers is c/o SilverSun Technologies, Inc. at 5 Regent Street Livingston, NJ 07039.
Name
and Address of Beneficial
|
|
Outstanding
Common Stock
|
|
|
Percentage
of Ownership of Common Stock(1)
|
|
|
Outstanding
Preferred Stock
|
|
|
Percentage
Ownership of Preferred Stock(2)
|
|
5%
Beneficial Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
Roth(3)
|
|
|
1,067,181
|
|
|
|
26.94
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
and Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Meller(4)
Chief Executive Officer,
President and Chairman
|
|
|
2,006,533
|
|
|
|
50.66
|
%
|
|
|
1
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crandall
Melvin III
Chief Financial Officer
|
|
|
74,588
|
|
|
|
1.9
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
P. Macaluso
Director
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stanley
Wunderlich
Director
|
|
|
23,333
|
|
|
|
|
*
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
and Directors as a Group (4 persons)
|
|
|
2,104,454
|
|
|
|
53.13
|
%
|
|
|
1
|
|
|
|
100
|
%
|
(4)
Upon
closing of this offering, Mr. Meller will return his shares of Series B Preferred Stock to the treasury and the Company will cancel
the Series B Preferred Stock certificate of designation.
43
CERTAIN RELATIONSHIPS AND RELATED-PARTY
TRANSACTIONS
On
October 19, 2010, the Company borrowed $45,000 in exchange for issuing the Meller Note payable to Mr. Meller. The Meller Note
is not collateralized, and carries an interest rate of three percent (3%) per annum on the unpaid balance. In January 2013, Mr.
Meller extended the due date of the Meller Note to January 2014. In January 2014, Mr. Meller extended the due date of the Meller
Note to January 2015. The outstanding balance at December 31, 2013 and 2012 was $20,000. The Meller Note was paid in full in October
2014.
The
Company leases its North Syracuse office space from its current CFO, Crandall Melvin III. The monthly rent for this office space
is $2,100.
44
DESCRIPTION OF SECURITIES
Introduction
In
the discussion that follows, we have summarized selected provisions of our certificate of incorporation, bylaws and the Delaware
General Corporation Law relating to our capital stock. This summary is not complete. This discussion is subject to the relevant
provisions of Delaware law and is qualified by reference to our certificate of incorporation and our bylaws. You should read the
provisions of our certificate of incorporation and our bylaws as currently in effect for provisions that may be important to you.
On February 4, 2015 the Company effected the Reverse Stock Split and every thirty (30) shares of outstanding
Common Stock decreased to one (1) share of Common Stock. Similarly, the number of shares of Common Stock into which each outstanding
option and warrant to purchase Common Stock is to be exercisable decreased on 1-for-30 basis and the exercise price of each outstanding
option and warrant to purchase Common Stock increased proportionately.
On
January 29, 2015 the Company filed an amendment to its fourth amended and restated certificate of incorporation (the “Amendment”)
with the Secretary of State of Delaware. The Amendment (i) reflected the Reverse Stock Split; (ii) combined the Company’s
Class A Common Stock, par value $0.00001 per share (the “Class A Common Stock”) and the Company’s Class B Common
Stock, par value $0.00001 per share (the “Class B Common Stock”) into one class of general common stock, par value
$0.00001 (the “Common Stock”); and (iii) reduced the number of authorized shares of Common Stock from 750,000,000
to 75,000,000.
Authorized
Capital Stock
We
are authorized to issue up to 76,000,000 shares of capital stock consisting of: 75,000,000 shares of Common Stock, par value $0.00001
per share and 1,000,000 shares of preferred stock, par value of $0.001 per share. As of March 3, 2015, 3,960,683
shares of Common Stock were issued and outstanding, 1 share of preferred stock was issued and outstanding and 169,116 shares of
Common Stock were reserved for issuance under our outstanding options and warrants as described below.
Common Stock
Each
holder of our Common Stock is entitled to one vote for each share held of record. Holders of our Common Stock have no preemptive,
subscription, conversion, or redemption rights. Upon liquidation, dissolution or winding-up, the holders of Common
Stock are entitled to receive our net assets pro rata. Each holder of Common Stock is entitled to receive ratably any dividends
declared by our board of directors out of funds legally available for the payment of dividends. We have not paid any dividends
on our Common Stock and do not contemplate doing so in the foreseeable future. We anticipate that any earnings generated from
operations will be used to finance our growth.
Preferred Stock
The
Company’s certificate of incorporation authorizes the issuance of 1,000,000 shares of Preferred Stock, par value $0.001
per share from time to time.
Our board of directors is authorized (by
resolution and by filing an amendment to our certificate of
incorporation and subject to limitations prescribed by the General
Corporation Law of the State of Delaware) to issue, from to time,
shares of Preferred Stock in one or more series, to establish from
time to time the number of shares to be included in each series,
and to fix the designation, powers, preferences and other rights of
the shares of each such series and to fix the qualifications,
limitations and restrictions thereon, including, but without
limiting the generality of the foregoing, the following:
•
the number of shares constituting that series
and the distinctive designation of that series;
•
the dividend rate on the shares of that series,
whether dividends are cumulative, and, if so, from which date or
dates, and the relative rights of priority, if any, of payment of
dividends on shares of that series;
•
whether that series has voting rights, in
addition to voting rights provided by law, and, if so, the terms of
those voting rights;
45
•
whether that series has conversion privileges,
and, if so, the terms and conditions of conversion, including
provisions for adjusting the conversion rate in such events as our
board of directors determines;
•
whether or not the shares of that series are
redeemable, and, if so, the terms and conditions of redemption,
including the dates upon or after which they are redeemable, and
the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption
dates;
•
whether that series has a sinking fund for the
redemption or purchase of shares of that series, and, if so, the
terms and amount of that sinking fund;
•
the rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or
winding up of the Company, and the relative rights of priority, if
any, of payment of shares of that series; and
•
any other relative powers, preferences and
rights of that series, and qualifications, limitations or
restrictions on that series.
If we liquidate, dissolve or wind up our
affairs, whether voluntarily or involuntarily, the holders of
Preferred Stock of each series will be entitled to receive only
that amount or those amounts as are fixed by the certificate of
designations or by resolution of the board of directors providing
for the issuance of that series.
Series A Preferred
Stock
The
Company issued to the each holder of the Notes one (1) share of Series A Convertible Preferred Stock (“Series A”),
having the rights, preferences, privileges, powers and restrictions set forth in the Certificate of Designation filed with the
Secretary of State of Delaware. The Company has the right to convert, at its sole option, each share of Series A into Common Stock
equal to 1% of the outstanding shares of Common Stock at the time of conversion. The Company valued the Series A Convertible Preferred
Stock at $22,886 representing 1% of the outstanding shares deliverable multiplied by the fair market value of the stock on the
date of issuance and recorded as debt discount, which has been amortized to interest expense during 2011. Each one share of Series
A shall entitle the Series A Holder to voting rights equal to 2,666,667 votes of Common Stock.
On
January 12, 2012, the Series A Convertible Preferred Stock was converted into 2,385,650 shares of Common Stock. As of March
3, 2015, the Company has authorized 2 shares of Series A Preferred Stock, of which none are issued or outstanding.
Series B Preferred
Stock
The
Series B Preferred Stock has the rights, privileges, preferences and restrictions set forth in the Certificate of Designation
(the “Certificate of Designation”) filed by the Corporation with the Secretary of State of the State of Delaware (“Delaware
Secretary of State”) on September 23, 2011.
In
the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the Series
B Preferred holders shall be entitled to receive, on parity with the Common Stock holders, assets of the Company available for
distribution to the holders of capital stock of the Company. The holders of Series B preferred shall not have any priority of
preference with respect to any assets of the Company.
So
long as any shares of Series B Preferred are outstanding, the Company shall not, without first obtaining the unanimous written
consent of the holders of Series B Preferred, alter or change the rights, preferences or privileges of the Series B Preferred
so as to affect adversely the holders of Series B Preferred.
Each share of the Series B Preferred shall have voting rights equal to (x) the total issued and outstanding Common Stock and preferred
stock eligible to vote at the time of the respective vote divided by (y) forty nine one-hundredths (0.49) minus (z)
the total issued and outstanding Common Stock and preferred stock eligible to vote at the time of the respective vote.
For the avoidance of doubt, if the total issued and outstanding Common Stock eligible to vote at the time of the respective vote
is 5,000,000, the voting rights of the Series B Preferred Stock shall be equal to 5,204,082 (e.g. (5,000,000 / 0.49) – 5,000,000
= 5,204,082).
On
September 23, 2011, SilverSun Technologies, Inc., entered into a Series B preferred stock purchase agreement (the “Preferred
Stock Purchase Agreement”) with Mr. Meller, pursuant to which Mr. Meller was issued one authorized share of Series
B Preferred Stock (“Series B”), par value $0.001 per share. Mr. Meller was issued one share of Series B
as partial consideration for personally guaranteeing repayment of the Notes.
46
As
of March 3, 2015, the Company has authorized 1 share of Series B Preferred Stock, of which 1 shares is issued and outstanding.
Upon closing of this offering, Mr. Meller will return his share of Series B Preferred Stock to the treasury and the Company
will cancel the Series B Preferred Stock certificate of designation.
Dividends
We have not paid any cash dividends to our
shareholders. The declaration of any future cash dividends is at
the discretion of our board of directors and depends upon our
earnings, if any, our capital requirements and financial position,
our general economic conditions, and other pertinent conditions. It
is our present intention not to pay any cash dividends in the
foreseeable future, but rather to reinvest earnings, if any, in our
business operations.
Warrants
The
following summary of certain terms and provisions of the warrants offered hereby is not complete and is subject to, and is qualified
by, the provisions of the form of the warrant, which is filed as an exhibit to the registration statement of which this prospectus
is a part. Prospective investors should carefully review the terms and provisions set forth in the form of warrant.
Exercisability.
The warrants are exercisable immediately upon issuance and at any time up to the date that is five (5) years from the
date of issuance. The warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a
duly executed exercise notice accompanied by payment in full for the number of shares of our common stock purchased upon such
exercise (except in the case of a cashless exercise as discussed below). Each warrant will be exercisable to purchase one
share of common stock, subject to certain adjustments. Unless otherwise specified in the warrant, the holder will not
have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in
excess of 4.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise, as
such percentage ownership is determined in accordance with the terms of the warrants.
Cashless
Exercise. In the event that a registration statement covering shares of common stock underlying the warrants,
or an exemption from registration, is not available for the resale of such shares of common stock underlying the warrants, the
holder may, in its sole discretion, exercise the warrant in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to us upon such exercise in payment of the aggregate exercise price, elect instead to receive upon such
exercise the net number of shares of common stock determined according to the formula set forth in the warrant. In no event shall
we be required to make any cash payments or net cash settlement to the registered holder in lieu of issuance of common stock underlying
the warrants.
Exercise
Price. The initial exercise price per share of common stock purchasable upon exercise of the warrants is $5.30 per
share (125% of the public offering price of the Common Stock). The exercise price is subject to appropriate adjustment in the
event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting
our common stock and also upon any distributions of assets, including cash, stock or other property to our stockholders.
Certain
Adjustments. The exercise price and the number of shares of common stock purchasable upon the exercise of the
warrants are subject to adjustment upon the occurrence of specific events, including stock dividends, stock splits, combinations
and reclassifications of our common stock.
Transferability. Subject
to applicable laws, the warrants may be transferred at the option of the holders upon surrender of the warrants to us together
with the appropriate instruments of transfer.
Fundamental
Transaction. If, at any time while the warrants are outstanding, (1) we consolidate or merge with or into another
corporation and we are not the surviving corporation, (2) we sell, lease, license, assign, transfer, convey or otherwise
dispose of all or substantially all of our assets, (3) any purchase offer, tender offer or exchange offer (whether by us or
another individual or entity) is completed pursuant to which holders of our shares of common stock are permitted to sell,
tender or exchange their shares of common stock for other securities, cash or property and has been accepted by the holders
of 50% or more of our outstanding shares of common stock, (4) we effect any reclassification or recapitalization of our
shares of common stock or any compulsory share exchange pursuant to which our shares of common stock are converted into or
exchanged for other securities, cash or property, or (5) we consummate a stock or share purchase agreement or other business
combination with another person or entity whereby such other person or entity acquires more than 50% of our outstanding
shares of common stock
47
(each,
a "Fundamental Transaction"), then upon any subsequent exercise of the warrants, the holders thereof will have the
right to receive the same amount and kind of securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of
the number of warrant shares then issuable upon exercise of the warrant, and any additional consideration payable as part of
the Fundamental Transaction.
Rights
as a Stockholder. Except as otherwise provided in the warrants or by virtue of such holder's ownership of shares
of our common stock, the holder of a warrant does not have the rights or privileges of a holder of our common stock, including
any voting rights, until the holder exercises the warrant.
There
are current no outstanding warrants to purchase our securities.
Options and Stock Awards
There
are 169,116 outstanding options to purchase our securities.
In
May 2012, the Company issued approximately 96,000 Common Stock options from the 2004 Stock Incentive Plan with a weighted average
exercise price of $4.80 and an expected life of five (5) years. Approximately, 75,000 of the Common Stock options vest
immediately. The remaining 21,000 options shall vest as follows: fifty percent (50%) at the grant date; and the balance vested
ratably over a three-year period.
In
February 2014, the Company granted 50,000 incentive stock options with an exercise price of $4.50 per option to certain non-executive
employees under the 2004 Stock Incentive Plan. Approximately 25,000 of the options vest immediately with the remaining
50% vesting ratably over a three-year period.
In
May 2014, the Company granted 20,000 incentive stock options with an exercise price of $4.50 per option to Mr. Alan
H. Hardy under the 2004 Stock Incentive Plan. The Options shall vest at 20% year over year for five years.
In
July 2014, the Company granted 10,000 incentive stock options with an exercise price of $4.50 per option to certain non-executive
employees under the 2004 Stock Incentive Plan. Options vest immediately.
2004 Stock Incentive
Plan
The
Company adopted the 2004 Stock Incentive as the amended Plan (the “2004 Plan”) which reserves for issuance up to 169,116
shares of the Company’s Common Stock in order to attract and retain qualified employees, directors, independent contractors
or agents of the Company. The 2004 Plan (but not the awards theretofore granted under the 2004 Plan) terminated on
September 29, 2014.
2004 Directors’ and
Officers’ Stock Incentive Plan
The
Company adopted the 2004 Directors’ and Officers’ Stock Incentive Plan (the “2004 D&O Plan”) which
reserves for issuance up to 5,520 shares of the Company’s Common Stock in order to provide long-term incentive and rewards
to officers and directors of the Company and subsidiaries and to attract and retain qualified employees, directors, independent
contractors or agents of the Company. The 2004 D&O Plan (but not the awards theretofore granted under the Plan) was terminated
on September 29, 2014 and no awards shall be granted thereafter. As of March 3, 2015, no securities were issued pursuant to
the 2004 D&O Plan.
2007 Consultant Stock Incentive
Plan
The
Company adopted the 2007 Consultant Stock Incentive Plan (the “2007 Plan”) to: (i) provide long-term incentives, payment
in stock in lieu of cash and rewards to consultants, advisors, attorneys, independent contractors or agents (“Eligible Participants”)
of the Company; (ii) assist the Company in attracting and retaining independent contractors or agents with experience and/or ability
on a basis competitive with industry practices; and (iii) associate the interests of such independent contractors or agents with
those of the Company’s stockholders. The Company has reserved 19,393 shares for issuance under this plan. Awards
under the 2007 Plan may include, but need not be limited to, stock options (including non-statutory stock options and incentive
stock options qualifying under Section 422 of the Code), stock appreciation rights (including free-standing, tandem and limited
stock appreciation rights), warrants, dividend equivalents, stock awards, restricted stock, phantom stock, performance shares
or other securities
48
or
rights that the Board determines to be consistent with the objectives and limitations of the 2007 Plan. The price shall be
equal to or greater than 50% of the fair market value of such shares on the date of grant of such award. The Board shall determine
the extent to which awards shall be payable in cash, shares of the Company’s Common Stock or any combination thereof. The
Board may determine that all or a portion of a payment to a participant under the Plan, whether it is to be made in cash, shares
of the Company’s Common Stock or a combination thereof shall be deferred. Deferrals shall be for such periods
and upon such terms as the Board may determine in its sole discretion. The 2007 Plan (but not the awards theretofore granted under
the 2007 Plan) shall terminate on January 22, 2017 and no awards shall be granted thereafter. As of March 3, 2015, no securities
were issued pursuant to the 2007 Plan.
Limitation on Directors’ Liability
Delaware law authorizes Delaware corporations to
limit or eliminate the personal liability of their directors to
them and their stockholders for monetary damages for breach of a
director’s fiduciary duty of care. The duty of care requires
that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material
information reasonably available to them. Absent the limitations
Delaware law authorizes, directors of Delaware corporations are
accountable to those corporations and their stockholders for
monetary damages for conduct constituting gross negligence in the
exercise of their duty of care. Delaware law enables Delaware
corporations to limit available relief to equitable remedies such
as injunction or rescission. Our certificate of incorporation
limits the liability of our directors to us and our stockholders to
the fullest extent Delaware law permits. Specifically, no director
will be personally liable for monetary damages for any breach of
the director’s fiduciary duty as a director, except for
liability:
•
for any breach of the director’s duty of
loyalty to us or our stockholders;
•
for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation
of law;
•
for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the
DGCL; and
•
for any transaction from which the director
derived an improper personal benefit.
This provision could have the effect of reducing
the likelihood of derivative litigation against our directors and
may discourage or deter our stockholders or management from
bringing a lawsuit against our directors for breach of their duty
of care, even though such an action, if successful, might otherwise
have benefited us and our stockholders. Our bylaws provide
indemnification to our officers and directors and other specified
persons with respect to their conduct in various
capacities.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors,
officers or person controlling the Company pursuant to the
foregoing provisions, the Company has been informed that in the
opinion of the SEC such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
Anti-Takeover Effects of Provisions of the DGCL and our
Certificate of Incorporation and Bylaws
Provisions of the DGCL and our certificate of
incorporation and bylaws could make it more difficult to acquire us
by means of a tender offer, a proxy contest or otherwise, or to
remove incumbent officers and directors. These provisions,
summarized below, are expected to discourage certain types of
coercive takeover practices and takeover bids that our board of
directors may consider inadequate and to encourage persons seeking
to acquire control of us to first negotiate with our board of
directors. We believe that the benefits of increased protection of
our ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging takeover or acquisition proposals
because, among other things, negotiation of these proposals could
result in improved terms for our stockholders.
Delaware
Anti-Takeover Statute. We were subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203
of the DGCL prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an
“interested stockholder” for a period of three years following the time the person became an interested stockholder,
unless the business combination or the acquisition of shares that resulted in a stockholder becoming an interested stockholder
is approved in a prescribed manner. Generally, a “business combination”
includes a merger, asset or stock sale, or other transaction resulting
in a financial benefit to the interested
49
stockholder.
Generally, an “interested stockholder” is a person who, together
with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status
did own) 15% or more of a corporation’s voting stock. The
existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in
advance by the board of directors, including discouraging attempts that might result in a premium over the market price for
the shares of Common Stock held by stockholders.
As
of March 3, 2015, we are not subject to Section 203 of the DGCL because we do not have a class of voting stock that is listed
on a national securities exchange or held of record by more than 2,000 stockholders and we have not elected by a provision in
our original certificate of incorporation to be governed by Section 203. Unless we adopt an amendment of our certificate of incorporation
by action of our stockholders expressly electing not to be governed by Section 203, we would generally become subject to Section
203 of the DGCL at such time that we have a class of voting stock that is either listed on a national securities exchange or held
of record by more than 2,000 stockholders, except that the restrictions contained in Section 203 would not apply if the business
combination is with an interested stockholder who became an interested stockholder before the time that we have a class of voting
stock that is either listed on a national securities exchange or held of record by more than 2,000 stockholders.
Amendments to Our Certificate of
Incorporation. Under the DGCL, the affirmative vote of a
majority of the outstanding shares entitled to vote thereon and a
majority of the outstanding stock of each class entitled to vote
thereon is required to amend a corporation’s certificate of incorporation. Under the DGCL,
the holders of the outstanding shares of a class of our capital
stock shall be entitled to vote as a class upon a proposed
amendment, whether or not entitled to vote thereon by the
certificate of incorporation, if the amendment would:
•
increase or decrease the aggregate number of
authorized shares of such class;
•
increase or decrease the par value of the shares
of such class; or
•
alter or change the powers, preferences or
special rights of the shares of such class so as to affect them
adversely.
If any proposed amendment would alter or change
the powers, preferences or special rights of one or more series of
any class of our capital stock so as to affect them adversely, but
shall not so affect the entire class, then only the shares of the
series so affected by the amendment shall be considered a separate
class for the purposes of this provision.
Vacancies in the Board of
Directors. Our bylaws provide that,
subject to limitations, any vacancy occurring in our board of
directors for any reason may be filled by a majority of the
remaining members of our board of directors then in office, even if
such majority is less than a quorum. Each director so elected shall
hold office until the expiration of the term of the other
directors. Each such directors shall hold office until his or her
successor is elected and qualified, or until the earlier of his or
her death, resignation or removal.
Special Meetings of Stockholders. Under our bylaws, special meetings
of stockholders may be called by the directors or by any officer
instructed by the directors to call the meeting. Under the DGCL,
written notice of any special meeting must be given not less than
10 nor more than
60 days before the date of the special meeting to each stockholder
entitled to vote at such meeting.
No
Cumulative Voting. The DGCL provides that stockholders are denied
the right to cumulate votes in the election of directors unless our
certificate of incorporation provides otherwise.
Our certificate of incorporation does not provide for cumulative
voting.
Listing
Our
Common Stock is currently quoted on the OTC Markets OTCQB, under the symbol “SSNT”. On February 4, 2015, we effected
the Reverse Stock Split.
Transfer
Agent and Registrar
The
transfer agent and registrar for our Common Stock is Fidelity Transfer Company at 8915 South 700 East, Sandy, Utah 84070.
50
SHARES
ELIGIBLE FOR FUTURE SALE
Lock-Up Agreements
There
are approximately 3,073,708 shares of Common Stock (including shares underlying options, restricted stock) held by our directors
and executive officers, who are subject to lock-up agreements under which they have agreed not to sell or otherwise dispose of
their shares of Common Stock for a period of 180 days after the date of this prospectus. The placement agent may, in its discretion
and at any time without notice, release all or any portion of the securities subject to any such lock-up agreements.
Future sales of our Common Stock in the public
market, or the availability of such shares for sale in the public
market, could adversely affect market prices prevailing from time
to time. As described below, only a limited number of shares will
be available for sale shortly after this offering due to
contractual and legal restrictions on resale. Nevertheless, sales
of our Common Stock in the public market after such restrictions
lapse, or the perception that those sales may occur, could
adversely affect the prevailing market price at such time and our
ability to raise equity capital in the future.
Based
on the number of shares outstanding as of the date of this prospectus, upon the closing of this offering 4,431,835 shares of Common
Stock (4,667,406 shares of Common Stock if the warrants are exercised in full) will be issued and outstanding, assuming no exercise
of outstanding options or warrants (excluding the warrants issued in this offering). Of the outstanding shares, all of the shares
sold in this offering will be freely tradable, except that any shares held by our affiliates, as that term is defined in Rule
144 under the Securities Act, may only be sold in compliance with the limitations described below.
2,104,454
shares of our Common Stock outstanding after this offering are restricted securities as such term is defined in Rule 144 under
the Securities Act and/or are subject to lock-up agreements with us as described below. Following the expiration of the lock-up
period, restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration
under the Securities Act, as described in greater detail below.
Rule
144
In general, under Rule 144 as currently in
effect, a person who has beneficially owned restricted shares of
our Common Stock for at least six months would be entitled to sell
their securities provided that (i) such person is not deemed to
have been one of our affiliates at the time of, or at any time
during the 90 days preceding, a sale and (ii) we have been
subject to the Securities Exchange Act of 1934, as amended,
periodic reporting requirements for at least 90 days before the
sale. Persons who have beneficially owned restricted shares of our
Common Stock for at least six months but who are our affiliates at
the time of, or any time during the 90 days preceding, a sale,
would be subject to volume restrictions, by which such person would
be entitled to sell within any three-month period only a number of
securities that does not exceed the greater of either of the
following:
•
1% of the number of shares of our Common Stock then outstanding, which will equal approximately 44,318 shares (46,674 shares
if the warrants from this offering are exercised in full) immediately after this offering, based on the number of shares of Common
Stock outstanding as of the date of this prospectus; or
•
the average weekly trading volume of our Common
Stock during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Provided, in each case, that we have been
subject to and are current with the Exchange Act periodic reporting
requirements for at least 90 days before the sale. Sales by
affiliates must also comply with the manner of sale and notice
provisions of Rule 144.
Rule
701
Rule
701 under the Securities Act, as in effect on the date of this prospectus, permits resales of shares in reliance upon Rule 144
but without compliance with certain restrictions of Rule 144, including the holding period requirement. Most of our employees,
executive officers, directors or consultants who purchased shares under a written compensatory plan or contract may be entitled
to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the
date of this prospectus before selling their shares. However, substantially all Rule 701 shares are subject to lock-up agreements
as described below and under “Underwriting” and will become eligible for sale at the expiration of those agreements.
Employees can only sell vested shares. Employees who do not hold vested shares, including shares subject to options, upon expiration
of these selling restrictions will not be able to sell shares until they vest.
51
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S.
HOLDERS
This section summarizes the material U.S.
federal income and estate tax consequences of the ownership and
disposition of our Common Stock by a non-U.S. holder. For purposes
of this summary, a “non-U.S. holder” is any beneficial
owner that for U.S. federal income tax purposes is not a U.S.
person. The term “U.S. person” means:
•
an individual citizen or resident of the
U.S.;
•
a corporation or entity treated as a corporation
for U.S. federal income tax purposes, created or organized under
the laws of the U.S. or any state, including the District of
Columbia, or otherwise treated as such for U.S. federal income tax
purposes;
•
an estate whose income is subject to U.S.
federal income tax regardless of source; or
•
a trust (i) whose administration is subject to
the primary supervision of a court within the U.S. and which has
one or more U.S. persons who have authority to control all
substantive decisions of the trust or (ii) which has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
Generally, an individual may be treated as a
resident of the U.S. in any calendar year for U.S. federal income
tax purposes by, among other ways, being present in the U.S. for at
least 31 days in that calendar year and for an aggregate of at
least 183 days during a three-year period ending in the current
calendar year. For purposes of this calculation, such individual
would count all of the days in which the individual was present in
the current year, one-third of the days present in the immediately
preceding year, and one-sixth of the days present in the second
preceding year. Residents are taxed for U.S. federal income tax
purposes as if they were citizens of the U.S.
This summary does not consider the tax
consequences for partnerships, entities classified as a partnership
for U.S. federal income tax purposes, or persons who hold their
interests through a partnership or other entity classified as a
partnership for U.S. federal income tax purposes. If a partnership,
including any entity treated as a partnership for U.S. federal
income tax purposes, is a beneficial owner of Common Stock, the tax
treatment of a partner in the partnership will depend upon the
status of the partner and the activities of the partnership.
Partnerships that are beneficial owners of our Common Stock, and
partners in such partnerships, should consult their tax advisors
regarding the tax consequences to them of the ownership and
disposition of our Common Stock.
This summary applies only to non-U.S. holders
who acquire our Common Stock pursuant to this offering and who hold
our Common Stock as a capital asset (generally property held for
investment). This summary generally does not address tax
considerations that may be relevant to particular investors because
of their specific circumstances, or because they are subject to
special rules. Certain former U.S. citizens or long-term residents,
controlled foreign corporations, passive foreign investment
companies, corporations that accumulate earnings to avoid U.S.
federal income tax, life insurance companies, tax-exempt
organizations, dealers in securities or currencies, brokers, banks
or other financial institutions, certain trusts, hybrid entities,
pension funds and investors that hold our Common Stock as part of a
hedge, straddle or conversion transaction are among those
categories of potential investors that are subject to special rules
not covered in this discussion. This summary does not address any
U.S. federal gift tax consequences, or state or local or non-U.S.
tax consequences. This summary does not provide a complete analysis
of all potential tax considerations. The information provided below
is based on existing authorities. These authorities may change, or
the Internal Revenue Service (“IRS”), might interpret
the existing authorities differently. In either case, the tax
considerations of owning or disposing of Common Stock could differ
from those described below.
INVESTORS CONSIDERING THE PURCHASE OF COMMON
STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR
PARTICULAR SITUATIONS AND THE CONSEQUENCES OF OTHER U.S. FEDERAL,
STATE, OR LOCAL OR NON-U.S. LAWS AND ANY APPLICABLE TAX
TREATIES.
Dividends
As
discussed under “Dividend Policy” above, we do not currently expect to pay regular dividends on our Common
Stock. Any payments of cash and other property that we make to our stockholders with respect to our Common Stock will
constitute dividends to the extent paid from our current or accumulated earnings and profits, as determined under U.S.
federal income tax principles. To the extent those dividends exceed our current and
52
accumulated earnings and profits, the
dividends will constitute a return of capital and will first reduce a holder’s basis, but not below zero, and then will
be treated as gain from the sale of stock.
The gross amount of any dividend (out of
earnings and profits) paid to a non-U.S. holder of Common Stock
generally will be subject to U.S. withholding tax at a rate of 30%
unless the holder is entitled to an exemption from or reduced rate
of withholding under an applicable income tax treaty. In order to
receive an exemption or a reduced treaty rate, prior to the payment
of a dividend, a non-U.S. holder must provide us with an IRS Form
W-8BEN (or successor form) certifying qualification for the
exemption or reduced rate.
Dividends received by a non-U.S. holder that are
effectively connected with a U.S. trade or business conducted by
the non-U.S. holder (and dividends attributable to a non-U.S.
holder’s permanent establishment in the U.S. if an income tax
treaty applies) are exempt from this withholding tax. To obtain
this exemption, prior to the payment of a dividend, a non-U.S.
holder must provide us with an IRS Form W-8ECI (or successor form)
properly certifying this exemption. Effectively connected dividends
(or dividends attributable to a permanent establishment in the U.S.
if an income tax treaty applies), although not subject to
withholding tax, are taxed at the same graduated rates applicable
to U.S. persons, net of certain deductions and credits. In
addition, dividends received by a corporate non-U.S. holder that
are effectively connected with a U.S. trade or business of the
corporate non-U.S. holder (or dividends attributable to a corporate
non-U.S. holder’s permanent establishment in the U.S. if an
income tax treaty applies) may also be subject to a branch profits
tax at a rate of 30% (or such lower rate as may be specified by an
applicable income tax treaty).
A non-U.S. holder who provides us with an IRS
Form W-8BEN or an IRS Form W-8ECI will be required to periodically
update such form.
A non-U.S. holder
of Common Stock that is eligible for a reduced rate of withholding
tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld if an appropriate claim for
refund is timely filed with the IRS.
Gain
on Disposition of Common Stock
A non-U.S. holder will generally not be subject
to U.S. federal income tax on any gains realized on the sale,
exchange or other disposition of Common Stock unless:
•
the gain is effectively connected with a U.S.
trade or business of the non-U.S. holder (or attributable to a
permanent establishment in the U.S. if an income tax treaty
applies), in which case the non-U.S. holder generally will be
required to pay tax on the net gain derived from the sale under
regular graduated U.S. federal income tax rates and, if the
non-U.S. holder is a corporation, the branch profits tax may apply,
at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty;
•
the non-U.S. holder is an individual who is
present in the U.S. for a period or periods aggregating 183 days or
more during the calendar year in which the sale or disposition
occurs and certain other conditions are met, in which case the
non-U.S. holder will be required to pay a flat 30% tax (or such
lower rate as may be specified by an applicable income tax treaty
between the U.S. and such non-U.S. holder’s country of
residence) on the net gain derived from the disposition, which tax
may be offset by U.S. source capital losses, if any, provided that
the non-U.S. holder has timely filed U.S. federal income tax
returns with respect to such losses; or
•
our Common Stock constitutes a U.S. real
property interest by reason of our status as a “U.S. real
property holding corporation” for U.S. federal income tax
purposes at any time within the shorter of the five-year period
preceding the disposition or the holder’s holding period for
our Common Stock. We believe that we are not currently, and we are
not likely to become, a “U.S. real property holding
corporation” for U.S. federal income tax purposes.
If we become a U.S. real property holding
corporation after this offering, so long as our Common Stock is
regularly traded on an established securities market and continues
to be so traded, a non-U.S. holder will not be subject to U.S.
federal income tax on gain recognized from the sale, exchange or
other disposition of shares of our Common Stock as a result of such
status unless (i) such holder actually or constructively owned more
than 5% of our Common Stock at any time during the shorter of (A)
the five-year period preceding the disposition, or (B) the
holder’s holding
53
period
for our Common Stock, and (ii) we were a U.S. real property holding corporation at any time during such period when the more
than 5% ownership test was met. If any gain on your disposition is taxable because we are a U.S. real property holding
corporation and your ownership of our Common Stock exceeds 5%, you will be taxed on such disposition generally in the manner
applicable to U.S. persons. Any such non-U.S. holder that owns or has owned, actually or constructively, more than 5% of our
Common Stock is urged to consult that holder’s own tax advisor with respect to the particular tax consequences to such
holder for the gain from the sale, exchange or other disposition of shares of our Common Stock if we were to be or to become
a U.S. real property holding corporation.
Backup Withholding and Information
Reporting
Generally, we must report annually to the IRS
the amount of dividends paid, the name and address of the
recipient, and the amount, if any, of tax withheld. A similar
report is sent to the recipient. Pursuant to tax treaties or other
agreements, the IRS may make its reports available to tax
authorities in the non-U.S. holder’s country of
residence.
Payments of dividends or of proceeds on the
disposition of stock made to a non-U.S. holder may be subject to
additional information reporting and backup withholding. Backup
withholding will not apply if the non-U.S. holder establishes an
exemption, for example, by properly certifying its non-U.S. person
status on an IRS Form W-8BEN (or successor form). Notwithstanding
the foregoing, backup withholding may apply if either we or our
paying agent has actual knowledge, or reason to know, that the
holder is a U.S. person.
Backup withholding is not an additional tax.
Rather, the U.S. federal income tax liability of persons subject to
backup withholding will be reduced by the amount of tax withheld.
If withholding results in an overpayment of taxes, a credit or
refund may be obtained from the IRS, provided that the required
information is furnished to the IRS in a timely manner.
Legislation Relating to Foreign Accounts
Under legislation enacted in 2010, a 30% U.S.
federal withholding tax will be imposed on dividends on stock of
U.S. corporations, and on the gross proceeds from the
disposition of such stock, paid to a “foreign financial
institution” (as specially defined for this purpose), unless
such institution enters into an agreement with the U.S. Treasury to
collect and provide to the U.S. Treasury substantial information
regarding its U.S. account holders and certain account holders that
are foreign entities with U.S. owners. A 30% U.S. federal
withholding tax will also apply to dividends paid on stock of U.S.
corporations and on the gross proceeds from the disposition of such
stock paid to a non-financial foreign entity unless such entity
provides the withholding agent with a certification that it does
not have any substantial U.S. owners or a certification identifying
the direct and indirect substantial U.S. owners of the entity. The
withholding taxes described above generally will apply to dividend
payments made after June 30, 2014 and payments of gross proceeds
made after December 31, 2016. Under certain circumstances, a
non-U.S. holder may be eligible for refunds or credits of such
withholding taxes. Investors are urged to consult with their own
tax advisors regarding the possible application of these rules to
their investment in our Common Stock.
U.S.
Federal Estate Tax
The estates of nonresident alien individuals are
generally subject to U.S. federal estate tax on property with a
U.S. situs. Because we are a U.S. corporation, our Common Stock
will be U.S. situs property and therefore will be included in the
taxable estate of a nonresident alien decedent. The U.S. federal
estate tax liability of the estate of a nonresident alien may be
affected by a tax treaty between the U.S. and the decedent’s
country of residence.
54
PLAN OF DISTRIBUTION
We
have entered into a placement agency agreement, dated as of March 3,
2015, with Alexander Capital, L.P. (“Alexander Capital”), which we refer to as the placement agency agreement. Subject
to the terms and conditions contained in the placement agency agreement, Alexander Capital has agreed to act as our placement
agent in connection with this offering. In addition, we may engage one or more sub agents or selected brokers, including without
limitation The Benchmark Company. Alexander Capital is not purchasing or selling any securities offered by this prospectus, nor
is Alexander Capital required to arrange the purchase or sale of any specific number or dollar amount of the securities, but Alexander
Capital has agreed to use its reasonable best efforts to arrange for the sale of all of the securities in this offering and has
proposed to arrange for the sale to one or more purchasers of the securities offered pursuant to this prospectus. There is no
requirement that any minimum number of securities or dollar amount of securities to be sold in this offering and there can be
no assurance that we will sell all or any of the shares of common stock and warrants to purchase shares of common stock being
offered. Therefore, we will enter into a subscription agreement directly with investors in connection with this offering and we
may not sell the entire amount of securities being offered pursuant to this prospectus. The officers, directors, and/or employees
of the Company may participate in the solicitation of offers to purchase our securities in this offering in compliance with SEC
Rule 3a4-1. The securities may be priced at a discount to the market price but such determination of the offering price will be
negotiated between the Company, Alexander Capital and the investors.
The
placement agency agreement provides that the obligations of Alexander Capital and the investors are subject to certain conditions
precedent, including, among other things, the absence of any material adverse change in our business and the receipt of certain
opinions, letters and certificates from us or our counsel. We currently anticipate that the closing of this offering will take
place on or about March 24, 2015. On the closing date, the following
will occur:
•
we will receive funds in the amount of the aggregate purchase price;
•
Alexander Capital will receive the placement agent fees in accordance with the terms of the placement agency agreement;
and
•
we will deliver the shares of common stock and the warrants to purchase shares of common stock to the investors.
In
order to comply with certain state securities laws, if applicable, the common stock and the warrants to purchase shares of common
stock will be sold in such jurisdictions only through registered or licensed brokers or dealers. In certain states the shares
of common stock and the warrants to purchase shares of common stock may not be sold unless they have been registered or qualify
for sale in such state or an exemption from registration or qualification is available and is complied with.
Unless
the investors have requested physical delivery, we will deposit the shares of common stock with The Depository Trust Company upon
receiving notice from Alexander Capital. At the closing, The Depository Trust Company will credit the shares of common stock to
the respective accounts of the investors. The warrants to purchase shares of common stock will be physically delivered to the
investors.
We
have agreed to pay Alexander Capital an aggregate fee equal to 7% of the gross proceeds received by us from investors in
connection with the sale of shares of common stock and warrants to purchase shares of common stock in this offering. We have
also agreed to issue the placement agent common stock purchase warrants equal to 5% of the aggregate number of shares of
common stock sold in the offering. The placement agent’s warrants shall be exercisable at a price per share equal to
one hundred and twenty percent (120%) of the offering price of the common stock. Alexander Capital’s placement
agent warrant will be exercisable for one share of common stock and will be subject to FINRA Rule 5110(g)(1) in that for a
period of 180 days following the effectiveness of the registration statement (which shall not be earlier than the closing
date of the offering pursuant to which the placement agent warrants are being issued), neither the placement agent warrants
nor any warrant shares issued upon exercise of the placement agent warrants shall be (A) sold, transferred, assigned,
pledged, or hypothecated, or (B) the subject of any hedging, short sale, derivative, put, or call transaction that would
result in the effective economic disposition of the securities by any person for a period of 180 days immediately following
the date of effectiveness of the registration statement pursuant to which the placement agent warrants are being issued,
except the transfer of any security as permitted by FINRA rules. Alexander Capital will also be entitled to a non-accountable
expense allowance equal to 0.5% of the gross proceeds received by us from investors in connection with the sale of shares of
common stock and warrants to purchase shares of common stock in this offering.
55
In
addition, we have agreed to bear all fees, disbursements and expenses (including but not limited to all representations) in connection
with this offering, including, without limitation, our legal and accounting fees and disbursements, the costs of preparing,
printing and delivering this registration statement on Form S-1, as amended, under the Securities Act of 1933, as amended,
the prospectus included herein and amendments, post-effective amendments and supplements thereto.
In
particular, we shall compensate or reimburse Alexander Capital for the following in connection with the sale of shares of
common stock and warrants to purchase shares of common stock in this offering: (1) an amount not to exceed 0.25% of the gross
proceeds received by us from investors for due diligence expenses (2) an amount not to exceed 0.25% of the gross proceeds
received by us from investors for actual accountable “road show expenses” (including, but not limited to, (i) if
applicable, the costs associated with bound volumes of the offering materials to be provided to Alexander Capital by our
counsel, and (ii) if applicable, the costs associated with the Placement Agent’s use of Ipreo’s book-building,
prospectus tracking and compliance software for this offering); (3) an amount not to exceed 0.75% of the gross proceeds
received by us from investors for accountable expenses; (4) an amount not to exceed 1.875% of the gross proceeds received by
us from investors for the counsel fees of Alexander Capital (excluding “blue sky” fees and expenses”); (5)
an amount not to exceed 1% of the gross proceeds received by us from investors for a right of first refusal granted to
Alexander Capital for a period of twelve (12) months; and (6) an amount not to exceed 1.125% of the gross proceeds received
by us from investors for the estimated FINRA valuation of the Placement Agent’s warrants. In connection with the
foregoing, we have agreed to pay on any applicable closing date, if any, to the extent not paid at the closing date, all
expenses incident to the performance of the obligations of us in connection with this offering, including, but not limited
to: (1) all filing fees and communication expenses relating to the registration of the shares of common stock and warrants to
purchase shares of common stock to be sold in this offering with the Commission; (2) all public filing system filing fees
associated with the review of this offering by FINRA; (3) all fees, expenses and disbursements relating to the registration
or qualification of such shares of common stock and warrants to purchase shares of common stock under the “blue
sky” securities laws of such states and other jurisdictions as we and Alexander Capital together determine (including,
without limitation, all filing and registration fees, and the reasonable fees and disbursements of “blue sky”
counsel); (4) all fees, expenses and disbursements relating to the registration, qualification or exemption of the securities
offered herein under the securities laws of such foreign jurisdictions as we and Alexander Capital together determine; (5)
the costs of all mailing and printing of the placement agency documents (including, without limitation, the Placement Agency
Agreement, any blue sky surveys and, if appropriate, a Sub-Agent Agreement, Placement Agent’s Questionnaire and Power
of Attorney), this registration statement, as amended, prospectuses and all amendments, supplements and exhibits thereto and
as many preliminary and final prospectuses as Alexander Capital may reasonably deem necessary; (6) the costs of preparing,
printing and delivering certificates representing the securities offered in the offering; (7) fees and expenses of the
transfer agent for the shares of Common Stock; (8) stock transfer and/or stamp taxes, if any, payable upon the transfer of
securities from the Company to Alexander Capital; (9) if applicable, the costs associated with bound volumes of the offering
materials to be provided to Alexander Capital by our counsel; and (10) if applicable, the costs associated with the Placement
Agent’s use of Ipreo’s book-building, prospectus tracking and compliance software for this offering.
Accordingly,
we may compensate or reimburse Alexander Capital in an amount not to exceed 12.75% of
the gross proceeds received by us from investors in connection with the sale of shares of common stock and warrants to purchase
shares of common stock in this offering. Subject to compliance with Financial Industry Regulatory Authority, or FINRA, Rule 5110(f)(2)(D),
we will reimburse Alexander Capital for actual legal and other expenses incurred by it in connection with this offering in an
amount up to $75,000 if this offering does not close.
The
estimated offering expenses payable by us, are approximately $607,000, which includes legal, accounting and filing fees various
other fees and expenses associated with registering the securities and listing the common stock and the non-accountable expense
allowance payable to Alexander. After deducting certain fees due to Alexander and our estimated offering expenses, we expect the
net proceeds from this offering to be approximately $1,393,000 if the maximum number of securities are sold.
The
following table shows the per fixed combination and total placement agency commissions we will pay to Alexander in connection
with the sale of the securities offered pursuant to this prospectus supplement assuming the purchase of all of the securities
offered hereby:
Placement
agency commission per fixed combination(1)
|
|
$
|
0.2977
|
|
56
Because
there is no minimum offering amount required as a condition to closing in this offering, the actual total offering fees, if any,
are not presently determinable and may be substantially less than the maximum amount set forth above.
We
have agreed to indemnify Alexander and certain other persons against certain liabilities relating to or arising out of Alexander’s
activities under the placement agency agreement. We also have agreed to contribute to payments that Alexander may be required
to make in respect of such liabilities.
Alexander
has informed us that it will not engage in over allotment, stabilizing transactions or syndicate covering transactions in connection
with this offering.
From
time to time in the ordinary course of business, Alexander or its affiliates may in the future engage in investment banking and/or
other services with us for which they may receive compensation, but we have no current agreement in place with Alexander.
Our
common stock is traded on the OTCQB under the symbol “SSNT”. On February 4, 2015, we effected a 1-for-30 reverse stock
split. The transfer agent for our common stock to be issued in this offering is Fidelity Transfer Company.
The
description of the placement agency agreement contained herein does not purport to be complete and is qualified by reference to
the placement agency agreement.
A
prospectus in electronic format may be made available on the web sites maintained by Alexander Capital and it may distribute the
prospectus electronically.
The
placement agent may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act and any commissions
received by it and any profit realized on the sale of the securities by them while acting as principal might be deemed to be underwriting
discounts or commissions under the Securities Act. The placement agent would be required to comply with the requirements of the
Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange
Act, including, without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit
the timing of purchases and sales of shares of common stock and warrants to purchase shares of common stock by the placement agent.
Under these rules and regulations, the placement agent may not (i) engage in any stabilization activity in connection with our
securities; and (ii) bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities,
other than as permitted under the Exchange Act, until they have completed their participation in the distribution.
57
LEGAL
MATTERS
The
validity of the issuance of the shares of Common Stock offered hereby will be passed upon for SilverSun Technologies, Inc. by
Lucosky Brookman LLP. Certain legal matters in connection with this offering will be passed upon for the placement agent by Robinson
Brog Leinwand Greene Genovese & Gluck P.C.
EXPERTS
The consolidated financial statements as of
December 31, 2013 and 2012 included in this registration statement,
of which this prospectus forms a part, have been audited by
Friedman LLP, an independent registered public accounting firm, as
set forth in their report appearing elsewhere herein and are
included in reliance of such report given on the authority of said
firm as experts in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration
statement on Form S-1 under the Securities Act with respect to the
shares of Common Stock offered hereby. This prospectus does not
contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. For further
information with respect to the company and its Common Stock,
reference is made to the registration statement and the exhibits
and any schedules filed therewith. Statements contained in this
prospectus as to the contents of any contract or other document
referred to are not necessarily complete and in each instance, if
such contract or document is filed as an exhibit, reference is made
to the copy of such contract or document filed as an exhibit to the
registration statement, each statement being qualified in all
respects by such reference. A copy of the registration statement,
including the exhibits and schedules thereto, may be read and
copied at the SEC’s Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains an Internet website
that contains reports, proxy statements and other information about
issuers, like us, that file electronically with the SEC. The
address of that site is www.sec.gov.
We
are subject to the full informational requirements of the Exchange Act. We fulfill our obligations with respect to such requirements
by filing periodic reports and other information with the SEC. We furnish our stockholders with annual reports containing consolidated
financial statements certified by an independent public accounting firm. We also maintain a website at www.silversuntech.com.
However, the information contained on or accessible through our website is not part of this prospectus or the registration
statement of which this prospectus forms a part, and potential investors should not rely on such information in making a decision
to purchase our Common Stock in this offering.
58
SILVERSUN TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
|
|
Condensed Consolidated Balance Sheets as of
September 30, 2014 (unaudited) and December 31, 2013
|
|
F-2
|
|
|
|
|
|
Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 2014 and
2013 (unaudited)
|
|
F-3
|
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2014 and 2013
(unaudited)
|
|
F-4
|
|
|
|
|
|
Notes to Condensed Consolidated Financial
Statements (unaudited)
|
|
F-6
|
|
|
|
|
|
Report of Independent Registered Public
Accounting Firm
|
|
F-12
|
|
|
|
|
|
Consolidated Balance Sheets as of December 31,
2013 and 2012
|
|
F-13
|
|
|
|
|
|
Consolidated Statements of operations for the
Years Ended December 31, 2013 and 2012
|
|
F-14
|
|
|
|
|
|
Consolidated Statement of Stockholders’
Deficit for the Years Ended December 31, 2013 and 2012
|
|
F-15
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2013 and 2012
|
|
F-16
|
|
|
|
|
|
Notes to Consolidated Financial
Statements
|
|
F-18
|
|
F-1
PART I — FINANCIAL
INFORMATION
Item 1. Financial Statements
SILVER SUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
|
|
September
30, 2014
|
|
|
December
31, 2013
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,449,773
|
|
|
$
|
762,892
|
|
Accounts
receivable, net of allowance of $90,000 and $80,000
|
|
|
1,924,428
|
|
|
|
1,574,996
|
|
Unbilled
services
|
|
|
488,000
|
|
|
|
90,000
|
|
Deferred
tax asset – current
|
|
|
40,000
|
|
|
|
40,000
|
|
Prepaid
expenses and other current assets
|
|
|
132,421
|
|
|
|
69,276
|
|
Total
current assets
|
|
|
4,034,622
|
|
|
|
2,537,164
|
|
Property
and equipment, net
|
|
|
179,295
|
|
|
|
241,895
|
|
Intangible
assets, net
|
|
|
860,507
|
|
|
|
687,880
|
|
Deferred
tax asset
|
|
|
29,000
|
|
|
|
80,000
|
|
Deposits
and other assets
|
|
|
26,575
|
|
|
|
22,836
|
|
Total
assets
|
|
$
|
5,129,999
|
|
|
$
|
3,569,775
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Note
payable to related party
|
|
$
|
—
|
|
|
$
|
20,000
|
|
Current
portion of long-term debt
|
|
|
218,805
|
|
|
|
175,000
|
|
Accounts
payable and accrued expenses
|
|
|
2,234,039
|
|
|
|
1,836,229
|
|
Accrued
interest
|
|
|
14,692
|
|
|
|
13,291
|
|
Due
to related party
|
|
|
—
|
|
|
|
2,672
|
|
Capital
lease obligations
|
|
|
46,199
|
|
|
|
53,726
|
|
Deferred
revenue
|
|
|
2,092,852
|
|
|
|
1,715,555
|
|
Total
current liabilities
|
|
|
4,606,587
|
|
|
|
3,816,473
|
|
Capital
lease obligations – long-term
|
|
|
24,943
|
|
|
|
48,624
|
|
Long-term
debt
|
|
|
260,059
|
|
|
|
104,517
|
|
Total
liabilities
|
|
|
4,891,589
|
|
|
|
3,969,614
|
|
Commitments
and contingencies
|
|
|
—
|
|
|
|
—
|
|
Stockholders’
equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; authorized 1,000,000 shares; no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Series
A Convertible Preferred Stock, $0.001 par value; authorized 2 shares; no shares
issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Series
B Preferred Stock, $0.001 par value; authorized 1 share; 1 share issued and outstanding
|
|
|
1
|
|
|
|
1
|
|
Common
stock:
|
|
|
|
|
|
|
|
|
Class
A – par value $.00001; authorized 75,000,000 shares; 3,954,897 and 3,922,566 shares
issued and outstanding
|
|
|
40
|
|
|
|
39
|
|
Class
B – par value $.00001: authorized 50,000,000 shares; no shares issued and Outstanding
|
|
|
—
|
|
|
|
—
|
|
Additional
paid-in capital
|
|
|
11,018,951
|
|
|
|
10,809,499
|
|
Accumulated
deficit
|
|
|
(10,780,582
|
)
|
|
|
(11,209,378
|
)
|
Total
stockholders’ equity (deficit)
|
|
|
238,410
|
|
|
|
(399,839
|
)
|
Total
liabilities and stockholders’ equity (deficit)
|
|
$
|
5,129,999
|
|
|
$
|
3,569,775
|
|
See accompanying notes to condensed consolidated
financial statements.
F-2
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
2014
|
|
|
September 30,
2013
|
|
|
September 30,
2014
|
|
|
September 30,
2013
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product, net
|
|
$
|
1,345,238
|
|
|
$
|
995,145
|
|
|
$
|
2,902,011
|
|
|
$
|
2,239,773
|
|
Service, net
|
|
|
4,741,227
|
|
|
|
3,379,806
|
|
|
|
13,364,021
|
|
|
|
10,050,315
|
|
Total revenues, net
|
|
|
6,086,465
|
|
|
|
4,374,951
|
|
|
|
16,266,032
|
|
|
|
12,290,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
699,750
|
|
|
|
563,858
|
|
|
|
1,481,915
|
|
|
|
1,146,150
|
|
Service
|
|
|
2,828,168
|
|
|
|
2,180,106
|
|
|
|
7,872,689
|
|
|
|
6,271,221
|
|
Cost of revenues
|
|
|
3,527,918
|
|
|
|
2,743,964
|
|
|
|
9,354,604
|
|
|
|
7,417,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,558,547
|
|
|
|
1,630,987
|
|
|
|
6,911,428
|
|
|
|
4,872,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
853,818
|
|
|
|
926,738
|
|
|
|
2,476,720
|
|
|
|
2,345,703
|
|
General and administrative expenses
|
|
|
1,086,033
|
|
|
|
668,526
|
|
|
|
3,251,615
|
|
|
|
2,127,303
|
|
Shared-based compensation
|
|
|
56,092
|
|
|
|
25,404
|
|
|
|
119,161
|
|
|
|
34,212
|
|
Depreciation and amortization
|
|
|
95,098
|
|
|
|
72,403
|
|
|
|
262,055
|
|
|
|
218,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,091,041
|
|
|
|
1,693,071
|
|
|
|
6,109,551
|
|
|
|
4,725,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
467,506
|
|
|
|
(62,084
|
)
|
|
|
801,877
|
|
|
|
146,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(21,494
|
)
|
|
|
(20,135
|
)
|
|
|
(45,717
|
)
|
|
|
(51,399
|
)
|
Total other income (expense)
|
|
|
(21,494
|
)
|
|
|
(20,135
|
)
|
|
|
(45,717
|
)
|
|
|
(51,399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
446,012
|
|
|
|
(82,219
|
)
|
|
|
756,160
|
|
|
|
95,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
197,847
|
|
|
|
—
|
|
|
|
327,364
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
248,165
|
|
|
$
|
(82,219
|
)
|
|
$
|
428,796
|
|
|
$
|
95,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.11
|
|
|
$
|
0.02
|
|
Fully diluted
|
|
|
0.06
|
|
|
|
(0.02
|
)
|
|
|
0.11
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,945,924
|
|
|
|
3,906,506
|
|
|
|
3,938,618
|
|
|
|
3,902,008
|
|
Diluted
|
|
|
3,947,376
|
|
|
|
3,906,506
|
|
|
|
3,939,642
|
|
|
|
3,902,008
|
|
See accompanying footnotes to the condensed
consolidated financial statements.
F-3
SILVERSUN
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended
September 30,
|
|
|
|
2014
|
|
|
2013
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
428,796
|
|
|
$
|
95,496
|
|
Adjustments to reconcile net income to net cash
provided by operating activities
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
51,000
|
|
|
|
—
|
|
Depreciation and amortization
|
|
|
84,682
|
|
|
|
71,374
|
|
Amortization of intangibles
|
|
|
177,373
|
|
|
|
147,231
|
|
Share-based compensation
|
|
|
119,161
|
|
|
|
34,212
|
|
Common stock issued in exchange for
services
|
|
|
69,500
|
|
|
|
—
|
|
Stock warrants issued in exchange for
services
|
|
|
—
|
|
|
|
28,528
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(349,432
|
)
|
|
|
335,833
|
|
Unbilled services
|
|
|
(398,000
|
)
|
|
|
(133,000
|
)
|
Prepaid expenses and other current
assets
|
|
|
(63,146
|
)
|
|
|
50,077
|
|
Deposits and other assets
|
|
|
(3,739
|
)
|
|
|
(161
|
)
|
Accounts payable and accrued expenses and due to
related party
|
|
|
415,931
|
|
|
|
(153,774
|
)
|
Accrued interest
|
|
|
1,401
|
|
|
|
788
|
|
Deferred revenue
|
|
|
377,297
|
|
|
|
385,399
|
|
Net cash provided by operating
activities
|
|
|
910,824
|
|
|
|
862,003
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(10,344
|
)
|
|
|
(31,375
|
)
|
Net cash used in investing activities
|
|
|
(10,344
|
)
|
|
|
(31,375
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment of bank line of credit
|
|
|
—
|
|
|
|
(178,633
|
)
|
Proceeds from term loan
|
|
|
—
|
|
|
|
350,000
|
|
Repayment of note payable to related
party
|
|
|
(20,000
|
)
|
|
|
—
|
|
Repayment of long-term debt
|
|
|
(150,653
|
)
|
|
|
(29,250
|
)
|
Principal payments under capital leases
obligations
|
|
|
(42,946
|
)
|
|
|
(39,220
|
)
|
Net cash (used in) provided by financing
activities
|
|
|
(213,599
|
)
|
|
|
102,897
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
686,881
|
|
|
|
933,525
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents – beginning of
period
|
|
|
762,892
|
|
|
|
4,483
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents – end of
period
|
|
$
|
1,449,773
|
|
|
$
|
938,008
|
|
|
|
|
|
|
|
|
|
|
Cash paid during period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
48,391
|
|
|
$
|
50,525
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
See accompanying footnotes to the condensed
consolidated financial statements.
F-4
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND
2013
SUPPLEMENTAL SCHEDULE OF NON-CASH
ACTIVITIES
For the nine months ended September 30,
2014:
a)
In connection with the acquisition of ESC, the
Company issued ESC, Inc. a promissory note in the aggregate
principal amount of $350,000 and the fair value of the assets
was recorded at $350,000.
b)
The Company issued 5,331 shares of common stock with a fair value of $20,792 for repayment of accrued liabilities of $20,792.
For the nine months ended September 30,
2013:
a)
The Company incurred approximately $45,383 in
capital lease obligations.
b)
The Company issued 7,018 shares of common stock in a cashless exercise of warrants for 8,333 shares at an exercise price
of $0.90 per share.
c)
The Company issued 7,184 shares of common stock with a fair value of $25,000 for repayment of accrued liabilities in the amount
of $25,000.
See accompanying footnotes to the condensed
consolidated financial statements.
F-5
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — DESCRIPTION OF BUSINESS AND BASIS
OF PRESENTATION
Description of Business
SilverSun Technologies, Inc. and subsidiaries
(the “Company”, “we”, “us”,
“our”) are involved in the acquisition and build-out of
technology engaged in providing transformational business
management applications and professional consulting services to
small and medium companies, primarily in manufacturing,
distribution and service industries. We are executing a growth
strategy centered on the development of our own proprietary
business management solutions, including our MAPADOC®
Electronic Data Interchange (EDI) solution and 36 other proprietary
solutions and enhancements; as well as on the acquisition of
application resellers and software publishers of unique and
proprietary solutions in the extensive and expanding, but
highly fragmented, business solutions marketplace.
The Company is
publicly traded and is currently quoted on the OTCQB marketplace
(“OTCQB”) under the symbol
“SSNT.”
Basis of Presentation
The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States
of America (“GAAP”) for interim financial information
pursuant to the rules and regulations of the Securities and
Exchange Commission (the “SEC) and consequently do not
include all information and footnotes required by GAAP for complete
financial statements. In the opinion of management, the
accompanying unaudited condensed financial statements contain all
adjustments considered necessary for a fair presentation of such
interim results. These results are not necessarily indicative of
the results to be expected for the full year. The December 31, 2013
balance sheet included herein was derived from the audited
financial statements included in the Company’s annual report
on Form 10-K as of that date. Accordingly, the financial statements
included herein should be reviewed in conjunction with the
financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2013 filed with the SEC on March 31,
2014.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Certain information in footnote disclosures
normally included in the financial statements were prepared in
conformity with accounting principles generally accepted in the
United States of America, and have been condensed or omitted
pursuant to such principles and the financial results for the
periods presented may not be indicative of the full year’s
results. The Company believes the disclosures are adequate to make
the information presented not misleading.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Deferred Revenues
Deferred revenues consist of maintenance
service, customer support services, including telephone support and
deposits for future consulting services which will be earned as
services are performed over the contractual or stated period, which
generally ranges from three to twelve months.
Revenue Recognition
Revenue is recognized when products are shipped,
or services are rendered, evidence of a contract exists, the price
is fixed or reasonably determinable, and collectability is
reasonably assured.
F-6
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Product Revenue
Software product revenue is recognized when the
product is shipped to the customer. The Company treats the software
component and the professional services consulting component as two
separate arrangements that represent separate units of accounting.
The arrangement consideration is allocated to each unit of
accounting based upon that unit’s proportion of the fair
value. In a situation where both components are present, software
sales revenue is recognized when collectability is reasonably
assured and the product is delivered and has stand-alone value
based upon vendor specific objective evidence (see below for
recognition of professional service revenue).
Service Revenue
Service revenue
is comprised of primarily professional service consulting revenue,
maintenance revenue and other ancillary services provided as
described below. Professional service revenue is recognized as
service time is incurred.
With respect to maintenance services, upon the
completion of one year from the date of sale, considered to be the
warranty period, the Company offers customers an optional annual
software maintenance and support agreement for subsequent one-year
periods. Maintenance and support agreements are recorded as
deferred revenue and recognized over the respective terms of the
agreements, which typically range from three months to one year and
are included in services revenue in the Condensed Consolidated
Statements of Operations.
Shipping and handling costs charged to customers
are classified as revenue, and the shipping and handling costs
incurred are included in cost of sales.
Long-Lived Assets
Long-lived assets are reviewed for impairment
when circumstances indicate that the carrying value of an asset may
not be recoverable. Recoverability of such assets is
measured by a comparison of the carrying amount
of the assets to the future net cash flows estimated by the Company
to be generated by such assets. If such assets are considered to be
impaired, the impairment to be recognized is the amount by which
the carrying amount of the assets exceeds the fair value of the
assets. No impairment losses were identified or recorded for the
nine months ended September 30, 2014.
Reclassifications
Certain prior
year amounts have been reclassified to conform to the current year
presentation. The reclassifications have had no effect on the
financial position, operations or cash flows for the nine month
period ended September 30, 2013.
NOTE 3 — NET INCOME PER COMMON
SHARE
The Company’s basic income per common
share is based on net income for the relevant period, divided by
the weighted average number of common shares outstanding during the
period. Diluted income per common share is based on net income,
divided by the weighted average number of common shares outstanding
during the period, including common share equivalents, such as
outstanding stock options and warrants to the extent they are
dilutive. The computation of diluted income per share for the three
and nine months ended September 30, 2013 does not include share
equivalents as all warrants and options exceeded the average market
price of the common stock and were therefore
antidilutive.
|
|
Three
Months
Ended
September
30,
2014
|
|
|
Three
Months
Ended
September
30,
2013
|
|
|
Nine
Months
Ended
September
30,
2014
|
|
|
Nine
Months
Ended
September
30,
2013
|
|
Basic
net income (loss) per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
248,165
|
|
|
$
|
(82,219
|
)
|
|
$
|
428,796
|
|
|
$
|
95,496
|
|
Weighted-average
common shares outstanding
|
|
|
3,945,924
|
|
|
|
3,906,506
|
|
|
|
3,938,618
|
|
|
|
3,902,008
|
|
Basic
net income (loss) per share
|
|
$
|
0.06
|
|
|
$
|
(0.02
|
) |
|
$
|
0.11
|
|
|
$
|
0.02
|
|
F-7
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
Three
Months
Ended
September
30,
2014
|
|
|
Three
Months
Ended
September
30,
2013
|
|
|
Nine
Months
Ended
September
30,
2014
|
|
|
Nine
Months
Ended
September
30,
2013
|
|
Diluted
net income (loss) per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
248,165
|
|
|
$
|
(82,219
|
)
|
|
$
|
428,796
|
|
|
$
|
95,496
|
|
Weighted-average
common shares outstanding
|
|
|
3,945,924
|
|
|
|
3,906,506
|
|
|
|
3,938,618
|
|
|
|
3,902,008
|
|
Incremental
shares attributable to the common stock equivalents
|
|
|
1,452
|
|
|
|
—
|
|
|
|
1,024
|
|
|
|
—
|
|
Total
adjusted weighted-average shares
|
|
|
3,947,376
|
|
|
|
3,906,506
|
|
|
|
3,939,642
|
|
|
|
3,902,008
|
|
Diluted
net income (loss) per share
|
|
$
|
0.06
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.11
|
|
|
$
|
0.02
|
|
The following table summarizes securities that,
if exercised, would have an anti-dilutive effect on earnings per
share.
|
|
Nine
Months
September
30,
2014
|
|
|
Nine
Months
September
30,
2013
|
|
Stock
options
|
|
|
169,116
|
|
|
|
89,116
|
|
Warrants
|
|
|
16,667
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Total
potential dilutive securities not included in income per share
|
|
|
185,783
|
|
|
|
114,116
|
|
|
|
Three
Months
September
30,
2014
|
|
|
Three
Months
September
30,
2013
|
|
Stock
options
|
|
|
169,116
|
|
|
|
89,116
|
|
Warrants
|
|
|
16,667
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Total
potential dilutive securities not included in income per share
|
|
|
185,783
|
|
|
|
114,116
|
|
NOTE 4 — NOTES PAYABLE TO RELATED
PARTY
On October 19, 2010, the Company borrowed
$45,000 in exchange for issuing a Note payable to Mr.
Meller. The Note Payable is not collateralized, not
convertible, and carries an interest rate of 3% per annum on the
unpaid balance. Mr. Meller extended the due date of the
remaining Note Payable from January 2014 to January 2015. In
September 2014, the note and accrued interest was paid in full. The
outstanding balance at September 30, 2014 and December 31, 2013 was
$-0- and $20,000, respectively, plus accrued interest of $-0- and
$2,672, respectively, which was included in Due to Related Party in
the accompanying balance sheet at December 31, 2013.
NOTE 5 — PROPERTY AND
EQUIPMENT
Property and equipment is summarized as
follows:
|
|
September 30,
2014
|
|
|
December 31,
2013
|
|
Leasehold improvements
|
|
$
|
30,557
|
|
|
$
|
30,557
|
|
Equipment, furniture and fixtures
|
|
|
1,024,002
|
|
|
|
1,001,920
|
|
|
|
|
1,054,559
|
|
|
|
1,032,477
|
|
Less: Accumulated depreciation
|
|
|
(875,264
|
)
|
|
|
(790,582
|
)
|
Property and equipment, net
|
|
$
|
179,295
|
|
|
$
|
241,895
|
|
Depreciation and amortization expense related to
these assets for the three and nine months ended September 30, 2014
was $28,196 and $84,682, respectively, as compared to $23,000 and
$71,374 for the three and nine months ended September 30, 2013,
respectively.
F-8
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 — BUSINESS COMBINATION
On May 6, 2014 SWK Technologies, Inc.
(“SWK”) , a wholly owned subsidiary of SilverSun
Technologies, Inc, entered into an Asset Purchase Agreement with
ESC, Inc. d/b/a ESC Software, an Arizona corporation, and Alan H.
Hardy and Michael Dobberpuhl in their individual capacity as
Shareholders. SWK acquired certain assets of ESC (as defined in the
Purchase Agreement). In full consideration for the acquired assets,
the Company issued in favor of Seller a promissory note in the
aggregate principal amount of $350,000 (see Note 8). The
purchase price has been initially allocated based on the
Company’s estimate of fair value to intangible
assets, which
are expected to consist primarily of customers
lists with an estimated life of five years. Upon completion of an
independent valuation, the allocation of the purchase price may be
modified accordingly, with the excess purchase consideration, if
any, being allocated to goodwill.
Additionally,
in connection with the Purchase Agreement, the Company entered into an Employment Agreement with Alan H. Hardy pursuant to which
Mr. Hardy will serve as SWK’s Senior Vice President of business development. Mr. Hardy’s duties will vary, but
will focus primarily on business development and software application sales. The term of the Employment Agreement is three
years (the “Term”). SWK shall pay Mr. Hardy a base salary of $162,000 per annum. Additionally, Mr. Hardy shall receive
20,000 options to purchase the Company’s common stock (see Note 10) at a strike price of $4.50 per share (the “Options”). The
Options shall vest at 20% year over year for five years.
The Company’s condensed consolidated
financial statements for the three months and nine months September
30, 2014 include the results of ESC since date of
acquisition. For the nine months ended September 30, 2014, the
ESC operations had a net profit of $9,000 that was included in the
Company’s Condensed Consolidated Statement of Operations,
which consisted of approximately $429,000 in revenues and $420,000
in expenses.
The following unaudited pro forma information
does not purport to present what the Company’s actual results
would have been had the acquisition occurred on January 1, 2013,
nor is the financial information indicative of the results of
future operations. The following table represents the
unaudited consolidated pro forma results of operations for the nine
months ended September 30, 2014 and 2013 as if the acquisition
occurred on January 1, 2013. Operating expenses have been
increased for the amortization expense associated with the
estimated fair value adjustment as of September 30, 2014 of
expected definite lived intangible assets.
Pro
Forma
|
|
Nine
Months Ended
September
30, 2014
|
|
|
Nine
Months Ended
September
30, 2013
|
|
Net
sales
|
|
$
|
17,000,967
|
|
|
$
|
13,530,826
|
|
Operating
expenses
|
|
|
6,238,390
|
|
|
|
5,035,264
|
|
Income before
taxes
|
|
|
858,658
|
|
|
|
104,756
|
|
Net
income
|
|
$
|
493,370
|
|
|
$
|
104,756
|
|
Basic
and diluted income per common share
|
|
$
|
0.13
|
|
|
$
|
0.03
|
|
NOTE 7 — INTANGIBLE ASSETS
Intangible assets consist of intellectual
property and customer lists acquired and are carried at cost less
accumulated amortization. Amortization is computed using the
straight-line method over five years for all of the
intangibles.
The components of intangible assets are as
follows:
|
|
September 30,
2014
|
|
|
December 31,
2013
|
|
Proprietary developed software
|
|
$
|
294,036
|
|
|
$
|
294,036
|
|
Intellectual property, customer list, and
acquired contracts
|
|
|
1,044,000
|
|
|
|
694,000
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
1,338,036
|
|
|
$
|
988,036
|
|
Less: accumulated amortization
|
|
|
(477,529
|
)
|
|
|
(300,156
|
)
|
|
|
$
|
860,507
|
|
|
$
|
687,880
|
|
F-9
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Amortization
expense included in depreciation and amortization was $66,902 and $177,373, respectively, for the three and nine months ended
September 30, 2014 as compared to $49,402 and $147,231, respectively, for the three and nine months ended September 30, 2013.
The Company expects future amortization expense
to be the following:
|
|
Amortization
|
|
Balance of 2014
|
|
$
|
66,901
|
|
2015
|
|
|
267,607
|
|
2016
|
|
|
267,607
|
|
2017
|
|
|
165,059
|
|
2018
|
|
|
70,000
|
|
2019
|
|
|
23,333
|
|
|
|
|
|
|
Total
|
|
$
|
860,507
|
|
NOTE 8 — LINE OF
CREDIT, TERM
LOAN AND PROMISSORY NOTE
On August 1, 2013, the Company entered into a
line of credit and term loan with a bank. The term of the line is
for two years, expiring on July 31, 2015. The agreement includes a
borrowing base calculation tied to accounts receivable with a
maximum availability of $750,000 at prime plus 1.75% interest
(currently 5%). The line is collateralized by substantially
all of the assets of the Company and is guaranteed by the
Company’s Chief Executive Officer, Mr. Meller. The
credit facility requires the Company to pay a monitoring fee of
$1,000 monthly. At September 30, 2014, the Company was in
compliance with its required financial covenants, the fixed charge
ratio and debt to net worth. As of September 30, 2014, the
availability under this line was $750,000.
Under the term loan, the Company borrowed
$350,000 in July 2013 from a bank. The term of the loan is for
two years and expires on July 31, 2015. Monthly payments are
at $15,776 including interest at 8%. The term loan is
collateralized by substantially all of the assets of the Company
and is guaranteed by the Company’s Chief Executive Officer,
Mr. Meller. The outstanding balances at September 30, 2014 and
December 31, 2013 were $151,125 and $279,517,
respectively.
In connection with the May 6 acquisition of ESC,
Inc., the Company issued a promissory note in the amount of
$350,000 (the “Note”). The Note is due sixty (60)
months from the Closing Date (the “Maturity Date”) and
bears interest at a rate of two percent (2%) per annum. Monthly
principal and interest payments are $6,135. Any overdue principal
or interest on the Note shall bear interest, payable on demand, for
each day until paid at a rate per annum equal to the lesser of (i)
the maximum interest rate permitted by applicable law or (ii) ten
percent (10%). The outstanding balance at September 30, 2014 was
$327,739.
NOTE 9 — RECENT ACCOUNTING
PRONOUNCEMENTS
In May 2014, the FASB issued Accounting Standard
Update No. 2014-09, “Revenue from Contracts with Customers
(Topic 606),” (“ASU 2014-09”). ASU 2014-09
outlines a new, single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers and
supersedes most current revenue recognition guidance, including industry-specific guidance.
This new revenue recognition model provides a five-step analysis in
determining when and how revenue is recognized. The new model will
require revenue recognition to depict the transfer of promised
goods or services to customers in an amount that reflects the
consideration a company expects to receive in exchange for those
goods or services. This ASU is effective for annual reporting
periods beginning after December 15, 2016 and early adoption is not
permitted. Accordingly, the Company will adopt this ASU on January
1, 2017. Companies may use either a full retrospective or modified
retrospective approach to adopt this ASU and management is
currently evaluating which transition approach to use. The Company
is currently assessing the impact that adopting this new accounting
guidance will have on its consolidated financial statements and
footnote disclosures.
No
other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s consolidated
financial statements.
F-10
SILVERSUN
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 — STOCK OPTIONS
In
February 2014, the Company granted 50,000 incentive stock options with an exercise price of $4.50 per option to certain non-executive
employees under the 2004 Stock Incentive Plan. Approximately 25,000 of the options vest immediately with the remaining 50%
vesting ratably over a three-year period. The Company estimated the fair value of each option using the Black Scholes option-pricing
model with the following weighted-average assumptions: expected dividend yield of 0.0%, risk-free interest rate of 0.71%, volatility
at 353.95% and an expected life of 5 years. The Company estimates the forfeiture rate based on historical data. Based on an analysis
of historical information, the Company has applied a forfeiture rate of 15%. As a result, the Company estimated the value of these
options at $115,488.
In
May 2014, the Company granted 20,000 incentive stock options with an exercise price of $4.50 per option to Mr. Alan H. Hardy (see
Note 6) under the 2004 Stock Incentive Plan. The Company recognizes compensation cost on awards on a straight-line basis over
the vesting period, approximately five years. The Company estimated the fair value of each option using the Black Scholes option-pricing
model with the following weighted-average assumptions: expected dividend yield of 0.0%, risk-free interest rate of 1.68%, volatility
at 328.76% and an expected life of 5 years. The Company estimates the forfeiture rate based on historical data. Based on an analysis
of historical information, the Company has applied a forfeiture rate of 15%. As a result, the Company estimated the value of these
options at $77,981.
In
July 2014, the Company granted 10,000 incentive stock options with an exercise price of $4.50 per option to certain non-executive
employees under the 2004 Stock Incentive Plan. Options vest immediately. The Company estimated the fair value of
each option using the Black Scholes option-pricing model with the following weighted-average assumptions: expected dividend yield
of 0.0%, risk-free interest rate of 1.0%, volatility at 323.81% and an expected life of 5 years. As a result, the Company estimated
the value of these options at $44,987.
For the three and nine months ended September
30, 2014, share-based compensation was $56,092 and $119,161, as
compared to $25,404 and $34,212 for the three and nine months ended
September 30, 2013.
NOTE 11 — INCOME TAXES
The Company provides for income taxes for each
interim period based on the estimated annual effective rate for the
year, adjusting for discrete items in the quarter which they arise.
The provision for income taxes for the three and nine months ended
September 30, 2014 was $197,847 and $327,364. These amounts
represent the statutory federal and state rate on the
Company’s income before taxes. The effective tax rates of
44.3% and 43.3% for the three and nine months ended September 30,
2014, respectively, were higher than the respective statutory rates
due to the expenses associated with non-deductible incentive stock
option share-based compensation for these periods.
Note
12 — Subsequent Events
The
Company’s board of directors and stockholders authorized a reverse stock split of its outstanding common stock at a ratio
of 1-for-30. On February 4, 2015, the reverse stock split was effected such that, (i) each 30 shares of then-outstanding
common stock was reduced to one share of common stock; (ii) the number of shares of common stock into which each then-outstanding
share of our common stock and our then-outstanding warrants or options to purchase common stock is exercisable was proportionately
reduced; and (iii) the exercise price of each then-outstanding warrant or option to purchase common stock was proportionately
increased. The accompanying consolidated financial statements give retroactive effect as though the 1-for-30 reverse stock split
of the Company’s common stock occurred for all periods presented, without any change in the par value per share. Fractional
shares resulting from the reverse stock split have been rounded up to the next whole share. On January 29, 2015, the Company's
board of directors and stockholders authorized (i) a reduction in authorized shares of the Company's common stock from 750,000,000
to 75,000,000, and (ii) the combination of the Company's Class A Common Stock, par value $0.00001 per share, and Class B Common
Stock, par value $0.00001 per share, into a general class of common stock, par value $0.00001 per share.
On
January 29, 2015, Mark Meller resigned as Chief Financial Officer of the Company and Crandall Melvin III was appointed.
F-11
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
SilverSun Technologies, Inc.
We have audited the accompanying consolidated
balance sheets of SilverSun Technologies, Inc. and Subsidiaries
(the “Company”) as of December 31, 2013 and 2012, and
the related consolidated statements of operations,
stockholders’ deficit, and cash flows for each of the two
years in the period ended December 31, 2013. The
Company’s management is responsible for these consolidated
financial statements. Our responsibility is to express an
opinion on these financial statements based on our
audits.
We conducted our audits in accordance with
standards established by the Public Company Accounting Oversight
Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company as of
December 31, 2013 and 2012, and the consolidated results of its
operations and its cash flows for each of the two years in the
period ended December 31, 2013 in conformity with accounting
principles generally accepted in the United States of
America.
/s/
Friedman LLP
East Hanover, NJ
March 31, 2014, except as to Note 15 to the consolidated financial statements,
which is as of February 5, 2015
F-12
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
|
|
2013
|
|
|
2012
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
762,892
|
|
|
$
|
4,483
|
|
Accounts
receivable, net of allowance for bad debts of $80,000 and $80,000
|
|
|
1,574,996
|
|
|
|
1,509,532
|
|
Deferred
tax asset – current
|
|
|
40,000
|
|
|
|
—
|
|
Prepaid
expenses and other current assets
|
|
|
159,276
|
|
|
|
131,520
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,537,164
|
|
|
|
1,645,535
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
241,895
|
|
|
|
250,233
|
|
Intangible
assets, net
|
|
|
687,880
|
|
|
|
884,513
|
|
Deferred
tax asset
|
|
|
80,000
|
|
|
|
—
|
|
Deposits
and other assets
|
|
|
22,836
|
|
|
|
21,996
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,569,775
|
|
|
$
|
2,802,277
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
& STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Bank
line of credit
|
|
$
|
—
|
|
|
$
|
178,633
|
|
Note
payable to related party
|
|
|
20,000
|
|
|
|
20,000
|
|
Current
portion of long-term debt
|
|
|
175,000
|
|
|
|
—
|
|
Accounts
payable and accrued expenses
|
|
|
1,836,229
|
|
|
|
1,953,182
|
|
Accrued
interest
|
|
|
13,291
|
|
|
|
12,422
|
|
Due
to related party
|
|
|
2,672
|
|
|
|
5,942
|
|
Capital lease
obligations – current portion
|
|
|
53,726
|
|
|
|
88,829
|
|
Deferred
revenue
|
|
|
1,715,555
|
|
|
|
1,357,800
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,816,473
|
|
|
|
3,616,808
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations – long-term
|
|
|
48,624
|
|
|
|
—
|
|
Long-term
debt
|
|
|
104,517
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
3,969,614
|
|
|
|
3,616,808
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
|
|
|
|
|
Preferred
Stock, $0.001 par value; authorized 1,000,000 shares; no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Series
A Preferred Stock, $0.001 par value; authorized 2 shares No shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Series
B Preferred Stock, $0.001 par value; authorized 1 share 1 share issued and outstanding
|
|
|
1
|
|
|
|
1
|
|
Common
stock:
|
|
|
|
|
|
|
|
|
Class
A – par value $.00001, authorized 75,000,000 shares; 3,922,566 and 3,898,364 shares
issued and outstanding
|
|
|
39
|
|
|
|
39
|
|
Class
B – par value $.00001, authorized 50,000,000 shares; -0- issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Additional
paid-in capital
|
|
|
10,809,499
|
|
|
|
10,717,355
|
|
Accumulated
deficit
|
|
|
(11,209,378
|
)
|
|
|
(11,531,926
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficit
|
|
|
(399,839
|
)
|
|
|
(814,531
|
)
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
|
$
|
3,569,775
|
|
|
$
|
2,802,277
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
F-13
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the Years Ended
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Software product, net
|
|
$
|
3,419,154
|
|
|
$
|
2,432,187
|
|
Service, net
|
|
|
13,980,897
|
|
|
|
10,746,798
|
|
Total revenues, net
|
|
|
17,400,051
|
|
|
|
13,178,985
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
Product
|
|
|
1,707,142
|
|
|
|
1,173,510
|
|
Service
|
|
|
8,942,768
|
|
|
|
6,671,375
|
|
Total cost of revenues
|
|
|
10,649,910
|
|
|
|
7,844,885
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,750,141
|
|
|
|
5,334,100
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
3,244,337
|
|
|
|
2,302,258
|
|
General and administrative expenses
|
|
|
2,927,622
|
|
|
|
2,876,456
|
|
Share-based compensation
|
|
|
17,616
|
|
|
|
1,136,258
|
|
Depreciation and amortization
|
|
|
301,962
|
|
|
|
195,560
|
|
Total operating expenses
|
|
|
6,491,537
|
|
|
|
6,510,532
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
258,604
|
|
|
|
(1,176,432
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Gain from bargain purchase
|
|
|
—
|
|
|
|
17,932
|
|
Interest expense, net
|
|
|
(56,056
|
)
|
|
|
(76,670
|
)
|
Total other income (expense)
|
|
|
(56,056
|
)
|
|
|
(58,738
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income
taxes
|
|
|
202,548
|
|
|
|
(1,235,170
|
)
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
(120,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
322,548
|
|
|
$
|
(1,235,170
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per share
attributable to SilverSun Technologies, Inc.
shareholders:
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share
|
|
$
|
0.08
|
|
|
$
|
(0.32
|
)
|
Diluted income (loss) per common
share
|
|
$
|
0.08
|
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,902,008
|
|
|
|
3,846,518
|
|
Diluted
|
|
|
3,902,008
|
|
|
|
3,846,518
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
F-14
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
controlling
|
|
|
|
|
|
|
Series
A
|
|
|
Series
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
in
|
|
|
|
|
|
|
Preferred
|
|
|
Preferred
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
SWK
|
|
|
Total
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Class
A
|
|
|
Paid
in
|
|
|
Accumulated
|
|
|
Technologies,
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Inc.
|
|
|
Deficit
|
|
Balance
at January 1, 2012
|
|
|
2
|
|
|
$
|
22,886
|
|
|
|
1
|
|
|
$
|
1
|
|
|
|
148,564
|
|
|
$
|
1
|
|
|
$
|
9,327,017
|
|
|
$
|
(10,296,756
|
)
|
|
$
|
47,206
|
|
|
$
|
(899,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
of shares of SWK for shares of SilverSun Technologies, Inc
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
755,489
|
|
|
|
8
|
|
|
|
47,198
|
|
|
|
—
|
|
|
|
(47,206
|
)
|
|
|
—
|
|
Conversion
of Series A Preferred Stock to common stock
|
|
|
(2
|
)
|
|
|
(22,886
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
79,522
|
|
|
|
1
|
|
|
|
22,885
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Conversion
of convertible promissory note to common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,893,122
|
|
|
|
29
|
|
|
|
44,547
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,946
|
|
Share-Based
Compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,136,258
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,136,258
|
|
Issuance
of warrant for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
105,080
|
|
|
|
—
|
|
|
|
—
|
|
|
|
105,080
|
|
Issuance
of common stock for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,667
|
|
|
|
—
|
|
|
|
35,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,000
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,235,170
|
)
|
|
|
—
|
|
|
|
(1,235,170
|
)
|
Balance
at December 31, 2012
|
|
|
—
|
|
|
$
|
—
|
|
|
|
1
|
|
|
$
|
1
|
|
|
|
3,898,364
|
|
|
$
|
39
|
|
|
$
|
10,717,355
|
|
|
$
|
(11,531,926
|
)
|
|
$
|
—
|
|
|
$
|
(814,531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrant for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,528
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,528
|
|
Common
stock issued in a cashless exercise of warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,018
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issuance
of common stock for repayment of accrued liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,184
|
|
|
|
—
|
|
|
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,000
|
|
Share-Based
Compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,616
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,616
|
|
Issuance
of common stock for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
21,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,000
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
322,548
|
|
|
|
—
|
|
|
|
322,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2013
|
|
|
—
|
|
|
$
|
—
|
|
|
|
1
|
|
|
$
|
1
|
|
|
|
3,922,566
|
|
|
$
|
39
|
|
|
$
|
10,809,499
|
|
|
$
|
(11,209,378
|
)
|
|
$
|
—
|
|
|
$
|
(399,839
|
)
|
The accompanying notes are an integral part of
these consolidated financial statements.
F-15
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
|
|
2013
|
|
|
2012
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
322,548
|
|
|
$
|
(1,235,170
|
)
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(120,000
|
)
|
|
|
—
|
|
Depreciation and amortization
|
|
|
105,330
|
|
|
|
92,037
|
|
Amortization of intangibles
|
|
|
196,633
|
|
|
|
103,523
|
|
Amortization of debt discount
|
|
|
—
|
|
|
|
4,250
|
|
Provision for bad debts
|
|
|
—
|
|
|
|
39,000
|
|
Share-based compensation
|
|
|
17,616
|
|
|
|
1,136,258
|
|
Gain from bargain purchase
|
|
|
—
|
|
|
|
(17,932
|
)
|
Common stock issued for services
|
|
|
21,000
|
|
|
|
35,000
|
|
Warrant issued in exchange for
services
|
|
|
28,528
|
|
|
|
105,080
|
|
|
|
|
|
|
|
|
|
|
Changes in certain assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(65,464
|
)
|
|
|
(667,315
|
)
|
Prepaid expenses and other assets
|
|
|
(27,756
|
)
|
|
|
22,240
|
|
Deposits and other assets
|
|
|
(840
|
)
|
|
|
35,925
|
|
Accounts payable and accrued
liabilities
|
|
|
(91,953
|
)
|
|
|
693,137
|
|
Accrued interest
|
|
|
869
|
|
|
|
4,747
|
|
Due to related parties
|
|
|
(3,270
|
)
|
|
|
(393
|
)
|
Deferred revenues
|
|
|
357,755
|
|
|
|
42,416
|
|
Net cash provided by operating
activities
|
|
|
740,996
|
|
|
|
392,803
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of new business
|
|
|
—
|
|
|
|
(441,964
|
)
|
Software development costs
|
|
|
—
|
|
|
|
(198,591
|
)
|
Purchases of equipment
|
|
|
(30,364
|
)
|
|
|
(103,819
|
)
|
Net cash used in investing activities
|
|
|
(30,364
|
)
|
|
|
(744,374
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment of notes payable to related
parties
|
|
|
—
|
|
|
|
(7,054
|
)
|
Proceeds from (repayment of) line of credit,
net
|
|
|
(178,633
|
)
|
|
|
178,633
|
|
Proceed from term loan
|
|
|
350,000
|
|
|
|
—
|
|
Repayment of term loan
|
|
|
(70,483
|
)
|
|
|
—
|
|
Principal payment under capital lease
obligations
|
|
|
(53,107
|
)
|
|
|
(49,247
|
)
|
Net cash provided by financing
activities
|
|
|
47,777
|
|
|
|
122,332
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
|
758,409
|
|
|
|
(229,239
|
)
|
Cash and cash equivalents, beginning of
year
|
|
|
4,483
|
|
|
|
233,722
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
year
|
|
$
|
762,892
|
|
|
$
|
4,483
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Cash Flow
Information:
|
|
|
|
|
|
|
|
|
During the year, cash was paid for the
following:
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest
|
|
$
|
69,134
|
|
|
$
|
66,776
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
F-16
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
STATEMENTS OF CASH FLOWS (Continued)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
For the Year Ended December 31, 2013:
a)
The Company incurred approximately $66,628 in
capital lease obligations.
b)
The Company issued 7,018 shares of common stock in a cashless exercise of warrants for 8,333 shares at an exercise
price of $0.90 per share.
c)
The Company issued 7,184 shares of common stock with a fair value of $25,000 for repayment of accrued liabilities in the
amount of $25,000.
d)
The Company issued 10,000 shares of common stock with a fair value of $21,000 in exchange for services.
For the Year Ended December 31, 2012:
a)
The Company converted $43,946 of the Convertible Promissory Note (as defined herein) at a fixed conversion rate of 66 shares
per $30 for 2,893,123 shares of the Company’s Class A common stock, par value $0.00001 (the “Common Stock”).
b)
The Company converted 2 shares of Series A Convertible preferred stock for 79,522 shares of Common Stock.
c)
The Company bought back their 20% interest in SWK Technologies, Inc. for 755,489 shares of Common Stock.
d)
The Company incurred approximately $73,709 in
capital lease obligations.
The accompanying notes are an integral part of
these consolidated financial statements.
F-17
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
NOTE 1 — DESCRIPTION OF
BUSINESS
Description of Business
SilverSun
Technologies, Inc. (the “Company”) is an information
technology company, and a value added reseller and master developer
for Sage Software’s Sage100/500 and ERP X3 financial and
accounting software as well as the publisher of its own proprietary
Electronic Data Interchange (EDI) software,
“MAPADOC.” The Company focuses on the business
software and information technology consulting market, and is
looking for other opportunities to grow its business. The Company
sells services and products to various end users, manufacturers,
wholesalers and distributor industry clients located throughout the
United States. In June 2011, the Company changed its name from Trey
Resources, Inc. to SilverSun Technologies, Inc. The Company is
publicly traded and is currently quoted on the Over-the-Counter
Bulletin Board (“OTCBB”) under the symbol
“SSNT.”
In June 2012 the Company completed the purchase
of selected assets and obligations of HighTower, Inc., a leading
Chicago-based reseller of Sage software applications and a
publisher of proprietary business management
enhancements.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying consolidated financial
statements include the accounts of SilverSun Technologies, Inc.
(the “Company”) and its wholly-owned subsidiary, SWK
Technologies, Inc. These consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States. All significant inter-company
transactions and accounts have been eliminated in
consolidation.
Noncontrolling interest had represented third
party ownership in the net assets of our consolidated subsidiaries.
For financial reporting purposes, the assets and liabilities of our
majority owned subsidiaries are consolidated with those of our own,
with any third party investor’s interest shown as
noncontrolling interest.
On May 6, 2009, the Company sold twenty-five
(25) newly issued shares or 20% of the stock of SWK Technologies,
Inc. (“SWK”), a subsidiary of SilverSun Technologies,
Inc., for a purchase price of $150,000 to the President of
SWK.
On
January 12, 2012, SilverSun Technologies, Inc. entered into a share exchange agreement (the “Agreement”) with certain
shareholders and the President (the “SWK Shareholders”) of SWK Technologies, Inc. Pursuant to the terms of the
Agreement, the SWK Shareholders exchanged an aggregate of 25 shares of SWK to the Company for a total of 755,489 shares (the “Exchange
Shares”) of the Company’s common stock (the “Exchange”). The shares had a fair value of approximately
$612,000 ($0.81 per share) at the time of exchange. The transaction was recorded as an equity transaction. SWK is now a wholly-owned
subsidiary of the Company.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual
results could differ from those estimates. The most significant
estimates include:
1.
Revenue recognition of software sales
2.
Allowance for doubtful accounts
F-18
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
3.
Fair market value of share based payments and
other equity instruments
4.
Valuation of intangible assets
5.
Valuation of deferred tax assets and
liabilities
Revenue Recognition
Revenue is recognized when products are shipped,
or services are rendered, evidence of a contract exists, the price
is fixed or reasonably determinable, and collectability is
reasonably assured.
Product Revenue
Software product revenue is recognized when the
product is shipped to the customer. The Company treats the software
component and the professional services consulting component as two
separate arrangements that represent separate units of accounting.
The arrangement consideration is allocated to each unit of
accounting based upon that unit’s proportion of the fair
value. In a situation where both components are present,
software sales revenue is recognized when collectability is
reasonably assured and the product is delivered and has stand-alone
value based upon vendor specific objective evidence (see below for
recognition of professional service revenue).
Service Revenue
Service revenue is comprised of primarily
professional service consulting revenue, maintenance revenue and
other ancillary services provided as described below. Professional
service revenue is recognized as service time is
incurred.
With respect to maintenance services, upon the
completion of one year from the date of sale, considered to be the
warranty period, the Company offers customers an optional annual
software maintenance and support agreement for subsequent one-year
periods. Maintenance and support agreements are recorded as
deferred revenue and recognized over the respective terms of the
agreements, which typically range from three months to one year and
are included in services revenue in the Consolidated Statements of
Operations.
Shipping and handling costs charged to customers
are classified as revenue, and the shipping and handling costs
incurred are included in cost of sales.
Cash and Cash Equivalents
The Company considers all highly liquid
investments purchased with original maturities of three months or
less to be cash equivalents. The Company maintains cash balances at
financial institutions that are insured by the Federal Deposit
Insurance Corporation (“FDIC”) up to federally insured
limits. At times balances may exceed FDIC insured limits. The
Company has not experienced any losses in such accounts.
Concentration of Credit Risk
For the years ended December 31, 2013 and 2012,
our top ten customers accounted for 19% ($3,159,000) and 17%
($2,262,000), respectively, of our total revenues. The Company does
not rely on any one specific customer for any significant portion
of our revenue base.
For the years ended December 31 2013 and 2012,
purchases from one supplier were approximately 31% and 47% of cost
of revenues, respectively.
For the years ended December 31, 2013 and 2012,
one supplier represented approximately 52% and 43% of total
accounts payable, respectively.
F-19
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of
trade accounts receivable and cash and cash equivalents. As of
December 31, 2013 the Company believes it has no significant risk
related to its concentration of accounts receivable.
Accounts Receivable
Accounts receivable consist primarily of
invoices for maintenance and professional services. Full payment
for software ordered by customers is due in advance of ordering
from the software supplier. Payments for maintenance and support
plan renewals are due before the beginning of the maintenance
period. Terms under our professional service agreements are
generally 50% due in advance and the balance on completion of the
services.
The Company maintains an allowance for bad debt
estimated by considering a number of factors, including the length
of time the amounts are past due, the Company’s previous loss
history, the customer’s current ability to pay its
obligations and the condition of the general economy and the
industry as a whole.
Property and Equipment
Property and equipment is stated at cost, net of
accumulated depreciation. Depreciation is computed using the
straight-line method based upon the estimated useful lives of the
assets, generally five to seven years. Maintenance and
repairs that do not materially add to the value of the equipment
nor appreciably prolong its life are charged to expense as
incurred.
When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from
the accounts and the resulting gain or loss is included in the
Statements of Operations.
Deferred Revenues
Deferred revenues consist of maintenance
service, customer support services, including telephone support and
deposits for future consulting services which will be earned as
services are performed over the contractual or stated period, which
generally ranges from three to twelve months.
Deferred Income Taxes
Deferred income taxes reflects the net tax
effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes, as well as net operating loss
carryforwards. Deferred tax assets and liabilities are classified
as current or non-current based on the classification of the
related assets or liabilities for financial reporting, or according
to the expected reversal dates of the specific temporary
differences, if not related to an asset or liability for financial
reporting. Valuation allowances are established against deferred
tax assets if it is more likely than not that the assets will not
be realized. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates or laws is recognized in operations in the
period that includes the enactment date.
The Company has federal net operating loss
(“NOL”) carryforwards which are subject to limitations
under Section 382 of the Internal Revenue Code.
Income Tax Uncertainties
The calculation of the Company’s tax
liabilities involves dealing with uncertainties in the application
of complex tax regulations. The Company recognizes liabilities for
uncertain tax positions based on the two-step process prescribed by
applicable accounting principles. The first step is to evaluate the
tax
F-20
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires the
Company to estimate and measure the tax benefit as the largest
amount that is more than 50% likely of being realized upon ultimate
settlement. It is inherently difficult and subjective to estimate
such amounts, as this requires the Company to determine the
probability of various possible outcomes. The Company reevaluates
these uncertain tax positions, based on factors including, but not
limited to, changes in facts or circumstances, changes in tax law,
effectively settled issues under audit, and new audit activity.
Such a change in recognition or measurement would result in the
recognition of a tax benefit or an additional charge to the tax
provision in the period. The Company recognizes interest and
penalties as incurred in finance income (expense), net in the
Consolidated Statements of Operations.
There were no liabilities for uncertain tax
positions at December 31, 2013 and 2012.
Fair Value Measurement
The Company
adopted the provisions of the accounting pronouncement which
defines fair value, establishes a framework for measuring fair
value and enhances fair value measurement disclosure. Under the
provisions of the pronouncement, fair value is defined as the price
that would be received to sell an asset or paid to transfer a
liability (i.e., the “exit price”) in an orderly
transaction between market participants at the measurement
date.
The pronouncement establishes a hierarchy for
inputs used in measuring fair value that maximizes the use of
observable inputs and minimizes the use on unobservable inputs by
requiring that the most observable inputs be used when available.
Observable inputs are inputs that market participants would use in
pricing the asset or liability developed based on market data
obtained from sources independent of the Company. Unobservable
inputs are inputs that reflect the Company’s assumptions
about the assumptions market participants would use in pricing the
asset or liability developed based on the best information
available in the circumstances. The hierarchy is described
below:
Level 1: Quoted prices (unadjusted) in active
markets that are accessible at the measurement date for assets or
liabilities. The fair value hierarchy gives the highest priority to
Level 1 inputs.
Level 2: Observable prices that are based on
inputs not quoted on active markets, but corroborated by market
data.
Level 3: Unobservable inputs are used when
little or no market data is available. The fair value hierarchy
gives the lowest priority to Level 3 inputs.
The Company’s current financial assets and
liabilities approximate fair value due to their short term nature
and include cash, accounts receivable, accounts payable, capital
leases and line of credit.
See also Notes 4, 5 and 13.
Definite Lived Intangible Assets
The values
assigned to purchased intangible assets were based on an
independent valuation. Purchased intangible assets are amortized
over the useful lives of the asset using the straight-line
amortization method.
The Company assesses potential impairment of its
intangible assets when there is evidence that recent events or
changes in circumstances have made recovery of an asset’s
carrying value unlikely. Factors the Company considers important,
which may cause impairment include, among others, significant
changes in the manner of use of the acquired asset, negative
industry or economic trends, and significant underperformance
relative to historical or projected operating results.
F-21
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
Long-Lived Assets
Long-lived assets are reviewed for impairment
when circumstances indicate that the carrying value of an asset may
not be recoverable. Recoverability of such assets is
measured by a comparison of the carrying amount
of the assets to the future net cash flows estimated by the Company
to be generated by such assets. If such assets are considered to be
impaired, the impairment to be recognized is the amount by which
the carrying amount of the assets exceeds the fair value of the
assets. No impairment losses were identified or recorded in the
years ended December 31, 2013 and 2012.
Stock-Based Compensation
Compensation expense related to share-based
transactions, including employee stock options, is measured and
recognized in the financial statements based on a determination of
the fair value of the stock options. The grant date fair value is
determined using the Black-Scholes-Merton
(“Black-Scholes”) pricing model. For all employee stock
options, the Company recognizes expense over the requisite service
period on a straight-line basis (generally the vesting period of
the equity grant). The Company’s option pricing model
requires the input of highly subjective assumptions, including the
expected stock price volatility, expected term, and forfeiture
rate. Any changes in these highly subjective assumptions
significantly impact stock-based compensation expense.
Earnings per Share
The
Company’s basic income (loss) per common share is based on
net income (loss) for the relevant period, divided by the weighted
average number of common shares outstanding during the
period. Diluted income per common share is based on net
income, divided by the weighted average number of common shares
outstanding during the period, including common share equivalents,
such as outstanding stock options and warrants to the extent they
are dilutive. Diluted loss per share does not include common stock
equivalents, stock options and warrants, as these shares would have
an anti-dilutive effect as their exercise prices were above the
market price of the Company’s common stock at December 31,
2013.
The computation of EPS is approximately as
follows:
|
|
Year
Ended
December
31, 2013
|
|
|
Year
Ended
December
31, 2012
|
|
Basic
net income (loss) per share:
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to common stockholders
|
|
$
|
322,548
|
|
|
$
|
(1,235,170
|
)
|
Weighted-average
common shares outstanding
|
|
|
3,902,008
|
|
|
|
3,846,518
|
|
Basic
net income (loss) per share attributable to common stockholders
|
|
$
|
0.08
|
|
|
$
|
(0.32
|
)
|
Diluted
net income (loss) per share:
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to common stockholders
|
|
$
|
322,548
|
|
|
$
|
(1,235,170
|
)
|
Weighted-average
common shares outstanding
|
|
|
3,902,008
|
|
|
|
3,846,518
|
|
Incremental
shares attributable to warrants and convertible promissory note
|
|
|
—
|
|
|
|
—
|
|
Total
adjusted weighted-average shares
|
|
|
3,902,008
|
|
|
|
3,846,518
|
|
Diluted
net income (loss) per share attributable to common stockholders
|
|
$
|
0.08
|
|
|
$
|
(0.32
|
)
|
F-22
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
The following table summarizes securities that,
if exercised, would have an anti-dilutive effect on earnings per
share.
|
|
2013
|
|
|
2012
|
|
Stock
options
|
|
|
89,116
|
|
|
|
95,824
|
|
Warrants
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Total
potential dilutive securities not included in loss per share
|
|
|
114,113
|
|
|
|
120,824
|
|
Recent Accounting Pronouncements
No recently issued accounting pronouncements had
or are expected to have a material impact on the Company’s
consolidated financial statements.
NOTE 3 — PROPERTY AND EQUIPMENT
Property and equipment is summarized as
follows:
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
Leasehold improvements
|
|
$
|
30,557
|
|
|
$
|
30,557
|
|
Equipment, furniture and fixtures
|
|
|
1,001,920
|
|
|
|
904,928
|
|
|
|
|
1,032,477
|
|
|
|
935,485
|
|
Less: Accumulated depreciation
|
|
|
(790,582
|
)
|
|
|
(685,252
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
241,895
|
|
|
$
|
250,233
|
|
Depreciation and amortization expense related to
these assets for the years ended December 31, 2013 and 2012 was
$105,330 and $92,037.
NOTE 4 — BUSINESS COMBINATION
In June 2012, the Company’s wholly-owned
subsidiary, SWK Technologies, Inc., acquired certain assets of
HighTower Inc. for total consideration of $441,964 in
cash and
noncash assumption of deferred revenue
obligation of $299,634. Based on an independent valuation, the
purchase price was allocated to the tangible and identifiable
intangible assets acquired and liabilities according to their
respective estimated fair values. The following summarizes the
purchase price allocation:
Current assets
|
|
$
|
38,736
|
|
Long-lived assets
|
|
|
26,794
|
|
Bargain purchase gain
|
|
|
(17,932
|
)
|
Intangible assets
|
|
|
694,000
|
|
Deferred maintenance liability
|
|
|
(299,634
|
)
|
|
|
|
|
|
Fair value of net assets acquired
|
|
$
|
459,896
|
|
|
|
|
|
|
Cash paid for acquisition
|
|
|
441,964
|
|
Bargain purchase gain
|
|
|
17,932
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
459,896
|
|
Intangible assets acquired are primarily made up
of a customer list acquired and proprietary technology. Acquisition
costs were approximately $46,000, which are included in general and
administrative expenses.
F-23
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
The
Company’s consolidated financial statements for the year ended December 31, 2012 include the results of HighTower since
date of acquisition. The following unaudited pro forma information assumes the acquisition occurred on January 1, but does not
purport to present what the Company’s actual results would have been had the acquisition actually occurred on January 1,
2011, nor is the financial information indicative of the results of future operations. The unaudited pro forma financial
information includes the depreciation and amortization expense related to the acquisition.
Pro
- Forma (unaudited)
|
|
Year
Ended
December
31, 2012
|
|
Total
revenue, net
|
|
$
|
13,773,967
|
|
Cost
of revenues
|
|
|
8,039,161
|
|
Operating
expenses
|
|
|
7,008,124
|
|
Other
expense (income)
|
|
|
56,635
|
|
Income
(loss) before taxes
|
|
|
(1,235,170
|
)
|
Net
income (loss)
|
|
$
|
(1,329,953
|
)
|
Basic
income (loss) per common share
|
|
$
|
(0.34
|
)
|
Diluted
income (loss) per common share
|
|
$
|
(0.34
|
)
|
For the year ended December 31, 2012, the
HighTower operations contributed approximately $461,647 in net
income, which consisted of approximately $1,145,319 in revenues and
$683,672 in expenses. These revenues were generated in
combination with HighTower and SWK personnel, and likely would not
have been achieved if HighTower was a standalone
business.
NOTE 5 — INTANGIBLE ASSETS
Intangible assets consist of intellectual
property and customer lists acquired and are carried at cost less
accumulated amortization. Amortization is computed using the
straight-line method over the estimated useful lives.
The components of intangible assets are as
follows:
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
|
Estimated
Useful Lives
|
|
Proprietary developed software
|
|
$
|
294,036
|
|
|
$
|
294,036
|
|
|
|
5
|
|
Intellectual property, customer list, and
acquired contracts
|
|
|
694,000
|
|
|
|
694,000
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
988,036
|
|
|
$
|
988,036
|
|
|
|
|
|
Less: accumulated amortization
|
|
|
300,156
|
|
|
|
103,523
|
|
|
|
|
|
|
|
$
|
687,880
|
|
|
$
|
884,513
|
|
|
|
|
|
Amortization expense related to the above
intangible assets was $196,633 and $103,523, respectively, the
tears ended December 31, 2013 and 2012.
The Company expects amortization expense to be
the following:
|
|
Amortization
|
|
2014
|
|
$
|
197,607
|
|
2015
|
|
|
197,607
|
|
2016
|
|
|
197,607
|
|
2017
|
|
|
95,059
|
|
|
|
|
|
|
Total
|
|
$
|
687,880
|
|
F-24
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
NOTE 6 — LINE OF CREDIT AND TERM
LOAN
In October 2011, the Company negotiated a line
of credit from a bank. The agreement included a borrowing base
calculation tied to accounts receivable with a maximum availability
of $750,000. On August 1, 2013, the Company negotiated a new
line of credit and term loan from the bank. The term of the line is
for two years and expires on July 31, 2015. The agreement included
a borrowing base calculation tied to accounts receivable with a
maximum availability of $750,000 at prime plus 1.75% interest
(currently 5%). The line is collateralized by substantially
all of the assets of the Company and is guaranteed by the Company’s Chief
Executive Officer, Mr. Meller. The credit facility
requires the Company to pay a monitoring fee of $1,000 monthly. At
December 31, 2013, the Company was in compliance with the required
financial covenants, the fixed charge ratio and debt to net worth.
As of December 31, 2013, the availability under this line was
$750,000.
Under the term loan, the Company borrowed
$350,000 in July 2013 from a bank. The term of the loan is for two
years and expires on July 31, 2015. Monthly payments are at $15,776
including interest at 8%. The term loan is collateralized by
substantially all of the assets of the Company and is guaranteed by
the Company’s Chief Executive Officer, Mr. Meller. At
December 31, 2013 the outstanding balance was $279,517.
NOTE 7 — INCOME TAXES
Significant components of the Company’s
deferred tax assets and liabilities are summarized as
follows:
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
2,928,000
|
|
|
$
|
2,920,000
|
|
Long lived assets
|
|
|
270,000
|
|
|
|
326,000
|
|
Share based payments
|
|
|
71,000
|
|
|
|
75,000
|
|
Other
|
|
|
35,000
|
|
|
|
32,000
|
|
Deferred tax asset
|
|
|
3,304,000
|
|
|
|
3,353,000
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Long lived assets
|
|
|
(44,000
|
)
|
|
|
(73,000
|
)
|
Deferred tax liabilities
|
|
|
(44,000
|
)
|
|
|
(73,000
|
)
|
Net deferred tax asset
|
|
|
3,260,000
|
|
|
|
3,280,000
|
|
Less: Valuation allowance
|
|
|
(3,140,000
|
)
|
|
|
(3,280,000
|
)
|
Net deferred tax asset
|
|
$
|
120,000
|
|
|
$
|
-0-
|
|
The recognized deferred tax asset is based upon
the expected utilization of its benefit from future taxable income.
The Company has federal net operating loss (“NOL”)
carryforwards of approximately $7,552,000 as of December 31, 2013,
which is subject to limitations under Section 382 of the Internal
Revenue Code. These carryforward losses are available to offset
future taxable income, and begin to expire in the year 2025 to
2030. A valuation allowance has been recorded, for those deferred
tax assets that management
does not believe that the realization is more
likely than not.
The foregoing amounts are management’s
estimates and the actual results could differ from those estimates.
Future profitability in this competitive industry depends on
continually obtaining and fulfilling new profitable sales
agreements and modifying products. The inability to obtain new
profitable contracts could reduce estimates of future
profitability, which could affect the Company’s ability to
realize the deferred tax assets.
F-25
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
A
reconciliation of the statutory income tax rate to the effective rate is as follows for the period December 31, 2013 and 2012:
|
|
December 31,
2013 |
|
|
December 31,
2012 |
|
Federal income tax rate |
|
|
34 |
% |
|
|
34 |
% |
State income tax, net of federal benefit |
|
|
6 |
% |
|
|
6 |
% |
Permanent differences |
|
|
6 |
% |
|
|
40 |
% |
Prior year adjustments |
|
|
(35 |
)% |
|
|
— |
% |
Effective income tax rate |
|
|
11 |
% |
|
|
80 |
% |
Effect on valuation allowance |
|
|
(70 |
)% |
|
|
(80 |
)% |
Effective income tax rate |
|
|
(59.0 |
)% |
|
|
0.0 |
% |
Income tax (benefit) provision:
|
|
Year Ended
|
|
|
|
December 31, 2013
|
|
|
December 31,
2012
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State and local
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total current tax provision
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
State and local
|
|
|
—
|
|
|
|
—
|
|
Release of valuation allowance
|
|
|
(120,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax (benefit)
provision
|
|
|
(120,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total (benefit) provision
|
|
$
|
(120,000
|
)
|
|
|
—
|
|
NOTE 8 — CAPITAL LEASE
OBLIGATIONS
The Company has entered into lease commitments
for equipment that meet the requirements for capitalization. The
equipment has been capitalized and shown in equipment, furniture
and leasehold improvements in the accompanying balance
sheets. The related obligations are also recorded in the
accompanying balance sheets and are based upon the present value of
the future minimum lease payments with interest rates ranging from
8.5% to 11.0%.
At December 31, 2013, future payments under
capital leases are as follows over each of the next
five fiscal years:
2014
|
|
$
|
62,499
|
|
2015
|
|
|
39,741
|
|
2016
|
|
|
12,457
|
|
2017
|
|
|
—
|
|
2018
|
|
|
—
|
|
Total minimum lease payments
|
|
|
114,697
|
|
Less amounts representing interest
|
|
|
(12,347
|
)
|
Present value of net minimum lease
payments
|
|
|
102,350
|
|
Less current portion
|
|
|
(53,726
|
)
|
Long-term capital lease obligation
|
|
$
|
48,624
|
|
NOTE 9 — DUE TO RELATED PARTY
Amounts owed to Mr. Meller as of December 31,
2013 and December 31, 2012, representing accrued interest totaled
$2,672 and $5,942, respectively.
F-26
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
NOTE 10 — NOTES PAYABLE TO RELATED
PARTY
On October 19, 2010, the Company borrowed
$45,000 in exchange for issuing a Note payable to Mr.
Meller. The Note Payable is not collateralized, and carries an
interest rate of 3% per annum on the unpaid balance. In January
2013, Mr. Meller extended the due date of the Note Payable to
January 2014. The outstanding balance at December 31, 2013 and 2012
was $20,000.
NOTE 11 — CONVERTIBLE PROMISSORY NOTE
— RELATED PARTY
On
January 28, 2011, the Company issued a 7% $51,000 convertible promissory note to Mr. Meller (“Convertible Note”).
The note is not collateralized. On January 4, 2012 the holder of the Convertible Note, Mr. Meller, converted $30,458 into 2,005,139
shares of Common Stock. In addition, the holder had sold $13,488 of the Convertible Note to certain employees of the Company for cash in January 2012, in accordance with
options which were granted to such employees in January 2011, which were immediately converted into 887,984 shares of Common Stock.
The additional fair value of the shares issued to the employees upon conversion was recorded as share-based compensation of $719,000
which was recorded as a charge in the consolidated statement of operations. In December 2012, the remaining balance of the note
was repaid to Mr. Meller in the amount of $7,054.
The outstanding balances at December 31, 2013
and 2012 were $-0. The accrued interest was paid in full in March
2013.
NOTE 12 — COMMITMENTS AND
CONTINGENCIES
Operating Leases
Our main offices are at 5 Regent Street,
Livingston, NJ 07039 where we have 6,986 square feet of office
space at a monthly rent of $7,400. The lease expires December
31, 2016. The Company has a two-year lease, with a one-year
extension, for office space at 6834 Buckley Road, North Syracuse,
New York, at a monthly rent of $2,100. The lease expires May
31, 2015. The Company also leases 2,700 square feet of office
space for sales and support in Skokie, IL with a monthly rent of
$3,000. This lease expires April 30, 2018. The Company also leases
500 square feet for sales and support in Minneapolis, MN for $400 a
month. This lease expires August 2014. We use our facilities to
house our corporate headquarters and operations and believe our
facilities are suitable for such purpose Total rent expense
under these operating leases for the year ended December 31, 2013
and 2012 was $153,000 and $130,000, respectively.
The following is a schedule of approximate
future minimum rental payments for operating leases subsequent to
the year ended December 31, 2013.
2014
|
|
$
|
141,000
|
|
2015
|
|
|
129,000
|
|
2016
|
|
|
121,000
|
|
2017
|
|
|
36,000
|
|
2018
|
|
|
36,000
|
|
Employment agreements
The Company has an Employment Agreement with
Mark Meller, President and Chief Executive Officer of the Company,
which began on September 15, 2003, which was extended on September
1, 2010, and expires on September 15, 2017. As consideration, the
Company agreed to pay Mr. Meller the sum of $180,000 the first year
with a 10% increase every year thereafter, as well as a monthly
travel expense allowance of $600 and an auto allowance of $800.
Based on this agreement Mr. Meller’s salary is $466,874. As
of December 31, 2013, Mr. Meller agreed to accept a salary of
$426,500 for 2013.
F-27
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
The employment agreement with Mr. Meller also
provides for a severance payment to him of three hundred percent
(300%), less $100,000 of his gross income for services rendered to
the Company in each of the five prior calendar years should his
employment be terminated following a change in control, as defined
in the employment agreement.
NOTE 13 — STOCKHOLDERS’
EQUITY
Series A Convertible Preferred
Stock
The
Company issued 2 shares of Series A Convertible Preferred Stock (“Series A”), having the rights, preferences, privileges,
powers and restrictions set forth in the Certificate of Designation filed with the Secretary of State of Delaware. The Company
has the right to convert, at its sole option, each share of Series A into Class A Common Stock equal to 1% of the outstanding
shares of Class A Common Stock at the time of conversion. Each one share of Series A shall entitle the Series A Holder to voting rights
equal to 88,889 votes of Class A Common Stock. On January 12, 2012, the Series A Convertible Preferred Stock was converted
into 79,522 shares of Common Stock. As of December 31, 2013 and 2012, no shares of Series A Convertible Preferred Stock
were outstanding.
Series B Preferred Stock
The
Series B Preferred Stock, par value $0.001 per share, has the rights, privileges, preferences and restrictions set for in the Certificate
of Designation (the “Certificate of Designation”) filed by the Corporation with the Secretary of State of the State
of Delaware (“Delaware Secretary of State”) on September 23, 2011.
The one (1) share of the Series B Preferred
shall have voting rights equal to (x) the total issued and
outstanding Common Stock and preferred stock eligible to vote at
the time of the respective vote divided by (y) forty nine
one-hundredths (0.49) minus (z) the total issued and outstanding
Common Stock and preferred stock eligible to vote at the time
of the respective vote. For the avoidance of doubt, if the
total issued and outstanding Common Stock eligible to vote at the
time of the respective vote is 5,000,000, the voting rights of the
Series B Preferred Stock shall be equal to 5,204,082 (e.g.
(5,000,000/0.49) – 5,000,000 = 5,204,082).
Common Stock
The
Company is authorized to issue 75,000,000 shares of common stock, par value $.00001 per share. At December 31, 2013 and December
31, 2012, there were 3,922,566 and 3,898,364 common shares issued and outstanding, respectively.
NOTE 14 — STOCK OPTIONS AND
WARRANTS
2004 Stock Incentive Plan
The
Company adopted the 2004 Stock Incentive as amended Plan (the “2004 Plan”) which reserves for issuance up to 116,067
shares of the Company’s Common Stock in order to attract and retain qualified employees, directors, independent contractors
or agents of the Company. Under the Plan, the Board of Directors (the “Board”), in its discretion may grant stock
options (including non-statutory stock options and incentive stock options qualifying under Section 422 of the Code), stock appreciation
rights (including free-standing, tandem and limited stock appreciation rights), warrants, dividend equivalents, stock awards,
restricted stock, phantom stock, performance shares or other securities or rights that the Board determines to be consistent with
the objectives and limitations of the plan at a price to be equal to or greater than 50% of the fair market value of such
shares on the date of grant of such award. The Board may determine that all or a portion of a payment to a participant
under the Plan, whether it is to be made in cash, shares of the Company common stock or a combination thereof, shall be vested
at such
F-28
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
times and upon such terms as may be selected by it in its sole discretion. The Plan (but not the awards theretofore granted
under the Plan) shall terminate on and no awards shall be granted after September 29, 2014.
2007 Consultant Stock Incentive Plan
The
Company adopted the 2007 Consultant Stock Incentive Plan (the “2007 Plan”) to: (i) provide long-term incentives, payment
in stock in lieu of cash and rewards to consultants, advisors, attorneys, independent contractors or agents (“Eligible Participants”)
of the Company; (ii) assist the Company in attracting and retaining independent contractors or agents with experience and/or ability
on a basis competitive with industry practices; and (iii) associate the interests of such independent contractors or agents with
those of the Company’s stockholders. The Company has reserved 19,393 shares for issuance under this plan. Awards under
the Plan may include, but need not be limited to, stock options (including non-statutory stock options and incentive stock options
qualifying under Section 422 of the Code), stock appreciation rights (including free-standing, tandem and limited stock appreciation
rights), warrants,
dividend equivalents, stock awards, restricted stock, phantom stock, performance shares or other securities or rights that the
Board determines to be consistent with the objectives and limitations of the Plan. The price shall be equal to or greater
than 50% of the fair market value of such shares on the date of grant of such award. The Board shall determine the extent to which
awards shall be payable in cash, shares of the Company common stock or any combination thereof. The Board may determine that
all or a portion of a payment to a participant under the Plan, whether it is to be made in cash, shares of the Company common
stock or a combination thereof shall be deferred. Deferrals shall be for such periods and upon such terms as the Board may
determine in its sole discretion. The Plan (but not the awards theretofore granted under the Plan) shall terminate on and no awards
shall be granted after January 22, 2017.
2004 Directors’ and Officers’ Stock Incentive
Plan
The
Company adopted the 2004 Directors’ and Officers’ Stock Incentive Plan (the “2004 D&O Plan”) which
reserves for issuance up to 5,520 shares of the Company’s Common Stock in order to provide long-term incentive and rewards
to officers and directors of the Company and subsidiaries and to attract and retain qualified employees, directors, independent
contractors or agents of the Company. Awards under the Plan may include, but need not be limited to, stock options (including
non-statutory stock options and incentive stock options qualifying under Section 422 of the Code), stock appreciation rights (including
free-standing, tandem and limited stock appreciation rights), warrants, dividend equivalents, stock awards, restricted stock,
phantom stock, performance shares or other securities or rights that the Board determines to be consistent with the objectives
and limitations of the Plan. The price shall be equal to or greater than 50% of the fair market value of such shares on the
date of grant of such award. The Board shall determine the extent to which awards shall be payable in cash, shares of the Company
common stock or any combination thereof. The Board may determine that all or a portion of a payment to a participant under
the Plan, whether it is to be made in cash, shares of the Company common stock or a combination thereof shall be deferred. Deferrals
shall be for such periods and upon such terms as the Board may determine in its sole discretion. The Plan (but not the awards
theretofore granted under the Plan) shall terminate on and no awards shall be granted after September 29, 2014.
In
May 2012, the Company issued approximately 95,833 common stock options from the 2004 Stock Incentive Plan with a weighted average
exercise price of $4.80 and an expected life of 5 years. Approximately, 75,233 of the common stock options vest immediately.
The remaining 20,600 options shall vest 50% at grant date with the balance vested ratably over a three-year period.
The Company estimated the value of the options
at approximately $460,000 using the Black Scholes option-pricing
model. Compensation cost is recognized on a straight-line
basis over the vesting period
F-29
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
and, as such, the Company recorded
compensation expense of approximately $17,616 and $416,991 for the
years ended December 31, 2013 and 2012, respectively.
The weighted average inputs into the Black
Scholes were as follows:
1.
Expected dividend yield of 0.0%,
2.
Risk-free interest rate of 0.86%
3.
Expected Volatility at 298%
4.
Expected term of 5 years
5.
Exercise price of $4.80
The Company uses judgment in estimating the
amount of stock-based awards that are expected to be forfeited. If
actual forfeitures differ significantly from the original estimate,
stock-based compensation expense and the results of operations
could be impacted.
A summary of the status of the Company’s
stock option plans for the fiscal years ended December 31, 2013 and
2012 and changes during the years are presented below: (in number
of options):
|
|
Number
of Options
|
|
|
Average
Exercise Price
|
|
|
Average
Remaining Contractual Term
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding
options at January 1, 2012
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
95,824
|
|
|
$
|
4.80
|
|
|
|
5.0
years
|
|
|
|
|
|
Options
exercised
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Options
canceled/forfeited
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
options at December 31, 2012
|
|
|
95,824
|
|
|
$
|
4.80
|
|
|
|
4.4
years
|
|
|
$
|
-0-
|
|
Options
granted
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
canceled/forfeited
|
|
|
(6,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
options at December 31, 2013
|
|
|
86,116
|
|
|
|
4.80
|
|
|
|
3.4
years
|
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2013:
|
|
|
85,044
|
|
|
$
|
4.80
|
|
|
|
3.4
years
|
|
|
$
|
-0-
|
|
December
31, 2012:
|
|
|
84,804
|
|
|
$
|
4.80
|
|
|
|
4.4
years
|
|
|
$
|
-0-
|
|
For the years ended December 31, 2013 and 2012,
the unamortized compensation expense for stock options was $21,000
and $43,000, respectively. Unamortized compensation expense is
expected to be recognized over a weighted-average period of 2
years.
Options immediately vest upon grant or 50% upon
grant with the remaining 50% vested evenly over the next three
years on the anniversary date after the year of grant.
Warrants Outstanding
During
2013 the Company issued 8,333 warrants for services with a fair value of approximately $29,000, which immediately vested. The estimated
fair value of the warrant has been calculated based on a Black-Scholes pricing model using the following assumptions: a) fair
market value of stock of $3.60; b) exercise price of $3.60; c) Dividend yield of 0%; d) Risk free interest rate of 0.27%; e) expected
volatility of 278.17%; f) Expected life of 2 years.
F-30
SILVERSUN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
During 2012 the Company issued 25,000 warrants for services with a fair value of approximately $105,000. The estimated
fair value of the warrant has been calculated based on a Black-Scholes pricing model using the following assumptions: a) fair market
value of stock of $0.90 – $6.00; b) exercise price of $0.60-$1.20; c) Dividend yield of 0%; d) Risk free interest rate of
0.25% – 0.33%; e) expected volatility of 280.02% – 296.79%; f) Expected life of 2 years.
Unexpired warrants outstanding are as follows as
of December 31, 2013:
Expiration
Date
|
|
Exercise
Price
|
|
|
Shares
|
|
July
1, 2014
|
|
$
|
6.00
|
|
|
|
8,333
|
|
October
1, 2014
|
|
$
|
6.00
|
|
|
|
8,333
|
|
January
1, 2015
|
|
$
|
3.60
|
|
|
|
8,333
|
|
The following table summarizes the warrants
transactions:
|
|
Warrants
Outstanding
|
|
|
Weighted
Average Exercise Price
|
|
Balance,
January 1, 2012
|
|
|
18,467
|
|
|
$
|
8.133
|
|
Granted
|
|
|
25,000
|
|
|
$
|
4.299
|
|
Exercised
|
|
|
—
|
|
|
$
|
.0000
|
|
Canceled
|
|
|
18,465
|
|
|
$
|
7.854
|
|
Balance,
December 31, 2012
|
|
|
25,002
|
|
|
$
|
4.50
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
8,333
|
|
|
$
|
3.60
|
|
Exercised
|
|
|
8,333
|
|
|
$
|
900
|
|
Canceled
|
|
|
1
|
|
|
$
|
3,803
|
|
Balance,
December 31, 2013
|
|
|
25,001
|
|
|
$
|
5.199
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and Exercisable,
|
|
|
|
|
|
|
|
|
December
31, 2013
|
|
|
25,001
|
|
|
$
|
5.199
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and Exercisable,
|
|
|
|
|
|
|
|
|
December
31, 2012
|
|
|
25,002
|
|
|
$
|
4.50
|
|
Note
15 — Subsequent Events
The
Company's board of directors and stockholders authorized a reverse stock split of its outstanding common stock at a ratio of 1-for-30.
On February 4, 2015, the reverse stock split was effected such that, (i) each 30 shares of then-outstanding common stock was reduced
to one share of common stock; (ii) the number of shares of common stock into which each then-outstanding share of our common stock
and our then-outstanding warrants or options to purchase common stock is exercisable was proportionately reduced; and (iii) the
exercise price of each then-outstanding warrant or option to purchase common stock was proportionately increased. The accompanying
consolidated financial statements give retroactive effect as though the 1-for-30 reverse stock split of the Company's common stock
occurred for all periods presented, without any change in the par value per share. Fractional shares resulting from the reverse
stock split have been rounded up to the next whole share. On January 29, 2015, the Company's board of directors and stockholders
authorized (i) a reduction in authorized shares of the Company's common stock from 750,000,000 to 75,000,000, and (ii) the combination
of the Company's Class A Common Stock, par value $0.00001 per share, and Class B Common Stock, par value $0.00001 per share, into
a general class of common stock, par value $0.00001 per share.
F-31
471,142
Shares Common Stock
Warrants
to Purchase 235,571 Shares of Common Stock
YOU
SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON STOCK AND IS NOT SOLICITING
AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Alexander
Capital, L.P.
The
Benchmark Company