UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 


 

FORM 10-Q

 


 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2019

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number: 001-38063

 

SILVERSUN TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

16-1633636

(State or other jurisdiction of incorporation)

(IRS Employer Identification No.)

 

120 Eagle Rock Ave

East Hanover, NJ 07936

(Address of principal executive offices)

 

(973) 396-1720

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class 

Trading Symbol(s) 

Name of each exchange on which registered

Common Stock, par value $0.00001 per share  

SSNT 

The NASDAQ Capital Market

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

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

 

Large accelerated filer ☐

 

Accelerated filer ☐

 

 

 

Non-accelerated filer ☒

 

Smaller Reporting Company ☒

 

 

 

Emerging Growth Company  ☐

 

 

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

 

As of November 11, 2019, there were 4,500,755 shares outstanding of the registrant’s common stock.  

 

 

 

 

SILVERSUN TECHNOLOGIES, INC.

 

TABLE OF CONTENTS

 

 

 

Page No.

PART I.    FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited):

3

 

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

3

 

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2019 and 2018

4

 

Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2019 and 2018

5

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 30, 2019 and 2018

6

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

7

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

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

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

 

 

 

PART II.   OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

34

Item 6.

Exhibits

35

 

 

 

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 (Unaudited) 

 

   

September 30, 2019

   

December 31, 2018

 

ASSETS

               
                 

Current assets:

               

Cash

  $ 10,721,629     $ 1,900,857  

Cash - escrow account

    1,150,000       -  

Accounts receivable, net of allowance of $375,000

    2,692,052       1,900,336  

Unbilled services

    403,593       166,593  

Prepaid expenses and other current assets

    383,984       433,727  

Current assets held for sale

    -       484,242  
                 

Total current assets

    15,351,258       4,885,755  
                 

Property and equipment, net

    752,545       688,122  

Operating lease right-of-use assets

    770,894       -  

Intangible assets, net

    2,703,060       2,916,367  

Goodwill

    891,000       885,000  

Deferred tax assets

    1,218,055       1,292,055  

Deposits and other assets

    41,732       39,791  

Other assets held for sale

    -       1,037,295  
                 

Total assets

  $ 21,728,544     $ 11,744,385  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               
                 

Current liabilities:

               

Accounts payable

  $ 2,179,904     $ 2,028,218  

Accrued expenses

    1,218,720       1,647,593  

Accrued interest

    15,188       14,628  

Income taxes payable

    1,768,192       20,000  

Contingent consideration – current portion

    -       22,548  

Long term debt - current portion

    438,574       426,350  

Finance lease obligations – current portion

    167,277       87,355  

Operating lease liabilities – current portion

    268,569       -  

Deferred revenue

    1,977,439       1,386,618  

Current liabilities held for sale

    -       599,916  
                 

Total current liabilities

    8,033,863       6,233,226  
                 

Long term debt net of current portion

    865,901       1,068,487  

Finance lease obligations net of current portion

    216,798       108,512  

Operating lease liabilities net of current portion

    502,325       -  
                 

Total liabilities

    9,618,887       7,410,225  
                 

Commitments and contingencies

               
                 

Stockholders’ equity:

               

Preferred stock, $0.001 par value; authorized 1,000,000 shares

               

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;

     Zero and 1 share issued and outstanding as of September 30, 2019 and December 31, 2018, respectively.

    -       1  

Common stock, $0.00001 par value; authorized 75,000,000 shares;

     4,500,755 shares issued and outstanding

    46       46  

Additional paid-in capital

    11,777,434       11,763,923  

Accumulated earnings (deficit)

    332,177       (7,429,810

)

                 

Total stockholders’ equity

    12,109,657       4,334,160  
                 

Total liabilities and stockholders’ equity

  $ 21,728,544     $ 11,744,385  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30, 2019

   

September 30, 2018

   

September 30, 2019

   

September 30, 2018

 
                                 

Revenues:

                               

Software product, net

  $ 1,867,971     $ 1,456,658     $ 4,898,886     $ 3,989,130  

Service, net

    8,239,894       8,606,576       23,635,710       22,633,032  

Total revenues, net

    10,107,865       10,063,234       28,534,596       26,622,162  
                                 

Cost of revenues:

                               

Product

    1,232,446       892,208       3,039,836       2,487,145  

Service

    5,174,643       5,390,108       14,539,415       13,963,270  

Total cost of revenues

    6,407,089       6,282,316       17,579,251       16,450,415  
                                 

Gross profit

    3,700,776       3,780,918       10,955,345       10,171,747  
                                 

Selling, general and administrative expenses:

                               

Selling and marketing expenses

    1,765,271       1,606,792       5,073,687       4,662,057  

General and administrative expenses

    2,467,515       2,079,730       6,599,885       5,747,944  

Share-based compensation expenses

    3,400       6,713       13,510       66,592  

Impairment of intangible assets

    236,860       -       236,860       -  

Depreciation and amortization expenses

    178,109       239,782       538,907       551,378  

Total selling, general and administrative expenses

    4,651,155       3,933,017       12,462,849       11,027,971  
                                 

Loss from continuing operations

    (950,379

)

    (152,099

)

    (1,507,504

)

    (856,224

)

                                 

Other income (expense):

                               

               Other income

    18,677       -       18,677       -  

               Interest expense, net

    (18,171

)

    (15,089

)

    (58,782

)

    (29,887

)

Total other income (expense)

    506       (15,089

)

    (40,105

)

    (29,887

)

                                 

Loss from continuing operations before taxes

    (949,873

)

    (167,188

)

    (1,547,609

)

    (886,111

)

                                 

               Provision for income taxes

    -       -       -       -  

Loss from continuing operations

    (949,873

)

    (167,188

)

    (1,547,609

)

    (886,111

)

                                 

Discontinued operations

                               

              Income from discontinued operations

    269,554       407,170       988,525       1,231,944  

              Gain on sale of discontinued operations

    10,144,287       -       10,144,287       -  

              Provision for income taxes

    (1,795,127 )     (69,050 )     (1,823,216 )     (99,296 )

Income from discontinued operations

    8,618,714       338,120       9,309,596       1,132,648  
                                 

Net income

  $ 7,668,841     $ 170,932     $ 7,761,987     $ 246,537  
                                 

Basic earnings (loss) per share applicable to common shareholders:

                               

Continuing operations

  $ (0.21 )   $ (0.04 )   $ (0.34 )   $ (0.20 )

Discontinued operations

    1.91       0.08       2.07       0.25  

Net (loss) income

  $ 1.70     $ 0.04     $ 1.73     $ 0.05  
                                 

Diluted earnings (loss) per share applicable to common shareholders:

                               

Continuing operations

  $ (0.21 )   $ (0.04 )   $ (0.34 )   $ (0.20 )

Discontinued operations

    1.91       0.08       2.07       0.25  

Net (loss) income

  $ 1.70     $ 0.04     $ 1.73     $ 0.05  
                                 

Weighted average shares outstanding:

                               

Basic

    4,500,755       4,501,755       4,500,755       4,499,072  

Diluted

    4,500,755       4,501,755       4,500,755       4,499,072  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

 

   

Series A

Preferred Stock

   

Series B

Preferred Stock

   

Common Stock

Class A

   

Additional

Paid in

   

Accumulated

Earnings

   

Total

Stockholders’

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

(Deficit)

   

Equity

 

Balance at January 1, 2019

    -     $ -       1     $ 1       4,500,755     $ 46     $ 11,763,923     $ (7,429,810

)

  $ 4,334,160  
                                                                         

Cancellation of Series B stock

    -       -       (1

)

    (1

)

    -       -       1       -       -  

Share-based compensation

    -       -       -       -       -       -       13,510       -       13,510  

Net income

    -       -       -       -       -       -       -       7,761,987       7,761,987  
                                                                         

Balance at September 30, 2019

    -     $ -       -     $ -       4,500,755     $ 46     $ 11,777,434     $ 332,177     $ 12,109,657  

 

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

 

   

Series A

Preferred Stock

   

Series B

Preferred Stock

   

Common Stock

Class A

   

Additional

Paid in

   

Accumulated

   

Total

Stockholders’

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Equity

 

Balance at January 1, 2018

    -     $ -       1     $ 1       4,489,903     $ 46     $ 11,919,316     $ (7,692,242

)

  $ 4,227,121  
                                                                         

Issuance of common stock for services

    -       -       -       -       11,852       -       45,306       -       45,306  

Share-based compensation

    -       -       -       -       -       -       21,285       -       21,285  

Net income

    -       -       -       -       -       -       -       246,537       246,537  
                                                                         

Balance at September 30, 2018

    -     $ -       1     $ 1       4,501,755     $ 46     $ 11,985,907     $ (7,445,705

)

  $ 4,540,249  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019

 

 

 

Series A

Preferred Stock

 

 

Series B

Preferred Stock

 

 

Common Stock

Class A

 

 

Additional

Paid in

 

 

Accumulated 

Earnings

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Deficit)

 

 

Equity

 

Balance at July 1, 2019

 

 

-

 

 

$

-

 

 

 

1

 

 

$

1

 

 

 

4,500,755

 

 

$

46

 

 

$

11,774,034

 

 

$

(7,336,664

)

 

$

4,437,417

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of the Series B stock

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-  

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,399

 

 

 

-

 

 

 

3,399

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,668,841

 

 

 

7,668,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2019

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

4,500,755

 

 

$

46

 

 

$

11,777,434

 

 

$

332,177

 

 

$

12,109,657

 

 

 

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018

 

 

 

Series A

Preferred Stock

 

 

Series B

Preferred Stock

 

 

Common Stock

Class A

 

 

Additional

Paid in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at July 1, 2018

 

 

-

 

 

$

-

 

 

 

1

 

 

$

1

 

 

 

4,501,755

 

 

$

46

 

 

$

11,979,194

 

 

$

(7,616,637

)

 

$

4,362,604

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,713

 

 

 

-

 

 

 

6,713

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

170,932

 

 

 

170,932

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2018

 

 

-

 

 

$

-

 

 

 

1

 

 

$

1

 

 

 

4,501,755

 

 

$

46

 

 

$

11,985,907

 

 

$

(7,445,705

)

 

$

4,540,249

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

 

   

Nine Months Ended

September 30,

 
   

2019

   

2018

 

Cash flows from operating activities:

               

Net income

  $ 7,761,987     $ 246,537  

Net income from discontinued operations

    9,309,596       1,132,648  

Net loss from continuing operations

    (1,547,609 )     (886,111

)

Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:

               

Deferred income taxes

    74,000       77,000  

Depreciation and amortization

    252,734       239,004  

Amortization of intangibles

    286,173       311,358  

Amortization of right of use assets

    140,106       -  

Bad debt expense

    103,815       15,974  

Share-based compensation

    13,510       21,285  

Impairment of intangible asset

    236,860       -  

Common stock for services

    -       45,307  
                 

Changes in assets and liabilities:

               

Accounts receivable

    (895,533

)

    239,256  

Unbilled services

    (236,997

)

    (218,575

)

Prepaid expenses and other current assets

    49,744       54,069  

Deposits and other assets

    (1,942

)

    2,613  

Accounts payable

    151,685       (218,233

)

Accrued expenses

    (203,832

)

    87,942  

Income tax payable

    (75,024 )     (32,754

)

Accrued interest

    560       685  

Deferred revenues

    590,821       (82,669

)

Operating lease obligations

    (140,106

)

    -  

 Net cash used in operating activities of continuing operations

    (1,201,035

)

    (343,849

)

                 

Cash flows from investing activities:

               

Purchase of property and equipment

    (25,221 )     (100,244

)

Acquisition of business

    (60,000 )     (300,000

)

Proceeds from sale of EDI practice, net of fees

    10,132,574       -  

Software development costs

    (81,730 )     (163,006

)

Net cash provided by (used in) investing activities of continuing operations

    9,965,623       (563,250

)

                 

Cash flows from financing activities:

               

Payment of cash dividend

    (225,038

)

    -  

Payment of contingent consideration

    (22,548

)

    (67,911

)

Payment of long term debt

    (364,362

)

    (231,175

)

Payment of finance lease obligations

    (103,727

)

    (97,340

)

Net cash used in financing activities of continuing operations

    (715,675

)

    (396,426

)

                 

Cash flows from discontinued operations:

               

               Operating activities of discontinued operations

    899,537       1,164,310  

               Investing activities of discontinued operations

    (127,678 )     (288,044

)

Net cash provided by discontinued operations

    771,859       876,266  
                 

Net increase (decrease) in cash

    8,820,772       (427,259 )
                 

Cash, beginning of period

    1,900,857       2,235,348  
                 

Cash, end of period

  $ 10,721,629     $ 1,808,089  
                 

Cash paid during period for:

               

Interest

  $ 58,782     $ 31,608  

Income taxes

  $ 901     $ 56,564  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

 

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

 

For the nine months ended September 30, 2019:

 

The Company acquired certain assets of Partners in Technology, Inc. (“PIT”) for a $174,000 promissory note in addition to a cash payment of $60,000. (see Note 10).

 

Operating lease right of use assets and operating lease liabilities were recognized in the amount of $911,000 at January 1, 2019.

 

On April 1, 2019 the Company entered into an operating lease in Lisle, IL. Accordingly, operating lease right of use assets and operating lease liabilities were recognized in the amount of $71,685.

 

The Company incurred approximately $291,936 in finance lease obligations for the purchase of equipment.

 

On September 6, 2019, the Company filed a Certificate of Elimination of Certificate of Designations (the “Certificate of Elimination”) with the Secretary of State of the State of Delaware. The Certificate of Withdrawal eliminated the Company’s Series B Preferred Stock, par value $.001 per share (the “Series B Preferred”), from the Company’s Certificate of Incorporation. Prior to filing the Certificate of Elimination, Mark Meller, the Company’s Chief Executive Officer and Chairman and owner of the only share of Series B Preferred, cancelled the only share of Series B Preferred issued and outstanding.

 

On August 26, 2019 the Company sold the EDI practice and $1,150,000 of the proceeds were put in an escrow receivable account (see Note 14).

 

For the nine months ended September 30, 2018:

 

On March 31, 2018, the remaining principal and accrued interest on the note payable to Oates & Company, LLC. was offset against a related party receivable of $47,043.

 

The Company acquired certain assets of Info Management Systems, Inc. (“ISM”) for a $1,000,000 promissory note in addition to a cash payment of $300,000 and the assumption of certain capital lease obligations of approximately $25,734 (see Note 10).

 

The Company acquired certain assets of Nellnube, Inc (“NNB”) for a $400,000 promissory note and the assumption of certain capital lease obligations of approximately $57,964 (see Note 10).

 

The Company incurred approximately $80,875 in capital lease obligations for the purchase of equipment.

 

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – DESCRIPTION OF BUSINESS

 

SilverSun Technologies, Inc. (“SilverSun”) through our wholly owned subsidiaries SWK Technologies, Inc. (“SWK”), Secure Cloud Services, Inc. (“SCS”) and Critical Cyber Defense Corp. (“CCD”) together with SWK, SCS and SilverSun, the “Company” is a value-added reseller and master developer for Sage Software’s Sage100/500 and Sage ERP X3 financial and accounting software and Acumatica, Inc.’s cloud-based ERP software as well as the publisher of proprietary software solutions, including its own Electronic Data Interchange (EDI) software, “MAPADOC ” (On August 26, 2019 the Company sold its EDI practice and it has been determined that it be reported as discontinued operations.  See Notes 14 and 15).  Further the Company provides cloud hosting for business applications through SCS and also provides enterprise cybersecurity services via CCD. The Company is also a managed network service provider, providing remote network monitoring services, business continuity, disaster recovery and data backup. The Company sells services and products to various industries including, but not limited to, manufacturers, wholesalers and distributors located throughout the United States. The Company is publicly traded and was quoted on the Over-the-Counter Market Place (“OTCQB”) under the symbol “SSNT” until April 18, 2017. Since April 19, 2017, the Company has been listed and is traded on the NASDAQ Capital Market under the symbol “SSNT”. 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of September 30, 2019, the results of operations for the three and nine months ended September 30, 2019 and 2018 and cash flows for the nine months ended September 30, 2019 and 2018.  These results are not necessarily indicative of the results to be expected for the full year.

 

The financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and consequently have been condensed and do not include all of the disclosures normally made in an Annual Report on Form 10-K.  The December 31, 2018 balance sheet included herein was derived from the audited consolidated financial statements included in the Company’s annual report on Form 10-K. Accordingly, the financial statements included herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 28, 2019.

 

All financial results of the EDI practice are classified as discontinued operations for the purpose of this quarterly report.

 

Principles of Consolidation

 

The unaudited condensed consolidated financial statements include the accounts of SilverSun and its wholly-owned subsidiaries SWK, SCS, and CCD. All significant inter-company transactions and accounts have been eliminated in consolidation. 

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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.

 

Goodwill

 

Goodwill is the excess of acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired.  Goodwill is not amortized, but tested for impairment annually or whenever indicators of impairment exist. These indicators may include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. No impairment losses were identified or recorded for the three and nine months ended September 30, 2019 and 2018.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Capitalization of proprietary developed software

 

Software development costs are accounted for in accordance with ASC 985-20, Software — Costs of Software to be Sold, Leased or Marketed. Costs associated with the planning and designing phase of software development are expensed as incurred. Once technological feasibility has been determined, a portion of the costs incurred in development, including coding, testing and quality assurance, are capitalized until available for general release to clients, and subsequently reported at the lower of unamortized cost or net realizable value. Amortization is calculated on a solution-by-solution basis and is over the estimated economic life of the software. Amortization commences when a solution is available for general release to clients.

 

Definite Lived Intangible Assets and Long-lived Assets

 

Purchased intangible assets are recorded at fair value using an independent valuation at the date of acquisition and are amortized over the useful lives of the asset using the straight-line amortization method. 

 

The Company assesses potential impairment of its intangible assets and other long-lived 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. Impairment losses of $ 236,860 and $0, were identified and recorded for the three and nine months ended September 30, 2019 and 2018 respectively.

 

Revenue Recognition

 

The Financial Accounting Standards Board “FASB” issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606 which superseded nearly all existing revenue recognition guidance under GAAP. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, among others. Topic 606 also provides guidance on the recognition of costs related to obtaining customer contracts.

 

With the adoption of ASC 606, the Company has elected the significant financing component practical expedient.  In determining the transaction price, the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

 

Software product revenue is recognized when the product is delivered to the customer and the Company’s performance obligation is fulfilled.

 

Service revenue is recognized when the professional consulting, maintenance or other ancillary services are provided to the customer. Shipping and handling costs charged to customers are classified as revenue, and the shipping and handling costs incurred are included in cost of sales.

 

   

For the Three Months Ending September 30,

   

For the Nine Months Ending September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Professional Consulting

  $ 2,957,174     $ 3,074,464     $ 8,974,457     $ 9,437,828  

Maintenance Revenue

  $ 2,360,335     $ 2,678,585     $ 5,794,705     $ 5,865,071  

Ancillary Service Revenue

  $ 2,922,385     $ 2,853,527     $ 8,866,548     $ 7,330,133  

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Unbilled Services

 

The Company recognizes revenue on its professional services as those services are performed or certain obligations are met. Unbilled services represent the revenue recognized but not yet invoiced. 

 

Deferred Revenues

 

Deferred revenues consist of maintenance on proprietary products, customer telephone support services 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. As of September 30, 2019, there was $147,066 in deferred maintenance, $195,252 in deferred support services, and $1,635,121 in deposits for future consulting services. As of December 31, 2018, there was $198,727 in deferred maintenance, $95,550 in deferred support services, and $1,092,341 in deposits for future consulting services.

 

Commissions

 

Sales commissions relating to service revenues are considered incremental and recoverable costs of obtaining a project with our customer. These commissions are calculated based on estimated revenue to be generated over the life of the project.  These costs are deferred and expensed as the service revenue is earned.  Commission expense is included in selling and marketing expenses in the accompanying unaudited condensed consolidated statements of income.

 

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.

 

Concentrations

 

The Company maintains its cash with various institutions, which exceed federally insured limits throughout the year.  At September 30, 2019 and December 31, 2018, the Company had cash on deposit of $10,191,633 and $1,473,286, respectively, in excess of the federally insured limits of $250,000.

 

As of September 30, 2019 and December 31, 2018, no one customer represented more than 10% of the total accounts receivable and unbilled services.

 

For the nine months ended September 30, 2019 and 2018, the Company’s top ten customers accounted for 11% ($3,094,620) and 15% ($4,113,611), respectively, of our total revenues.  The Company does not rely on any one specific customer for any significant portion of its revenue.

 

For the nine months ended September 30, 2019 and 2018, purchases from one supplier through a “channel partner” agreement were approximately 20% and 24% of cost of revenues, respectively.  This channel partner agreement is for a one year term and automatically renews for an additional one year term on the anniversary of the agreements effective date.

 

As of September 30, 2019 and December 31, 2018, one supplier represented approximately 41% and 40% of total accounts payable respectively.

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable,  cash and cash-escrow.  As of September 30, 2019, the Company believes it has no significant risk related to its concentration of accounts receivable.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Accounts Receivable

 

Accounts receivable consist primarily of invoices for maintenance and professional services. Full payment for software ordered by customers is primarily 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 and the customer’s current ability to pay its obligations.  Accounts are written off against the allowance when deemed uncollectable.

 

Property and Equipment

 

Property and equipment is stated at cost, net of accumulated depreciation and amortization.  Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets, generally three to seven years.  Leasehold improvements are amortized using the straight-line method over the estimated useful lives or the term of the lease, whichever is shorter. 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 Unaudited Condensed Consolidated Statements of Income.

 

Income Taxes

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as net operating loss carryforwards. Based on ASU 2015-17, all deferred tax assets or liabilities are classified as long-term. 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.

 

The 2017 Tax Cuts and Jobs Act (“Tax Reform”) was enacted on December 22, 2017. The Tax Reform includes a number of changes in existing tax law impacting businesses including a permanent reduction in the U.S. federal statutory rate from 34% to 21%, effective on January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate. The rate reconciliation includes the Company’s assessment of the accounting under the Tax Reform which is based on information that was available to management at the time the unaudited condensed consolidated financial statements were prepared.

 

The Company files income tax returns in the U.S. federal and state jurisdictions. Tax years 2016 to 2018 remain open to examination for both the U.S. federal and state jurisdictions.

 

There were no liabilities for uncertain tax positions at September 30, 2019 or December 31, 2018.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Fair Value Measurement

 

The accounting standards define fair value and establish 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 as follows:

 

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, and accrued liabilities.  The carrying value of longer term leases and debt obligations approximate fair value as their stated interest rates approximate the rates currently available. The Company’s goodwill and intangibles are measured on a non-recurring basis using Level 3 inputs, as discussed in Notes 5 and 10.

 

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. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For 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 and expected term. Any changes in these highly subjective assumptions may significantly impact stock-based compensation expense.

 

Recently Adopted Authoritative Pronouncements

 

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company adopted the new standard on January 1, 2019 and use the effective date as the date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company elects the ‘package of practical expedients’, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. On adoption, the Company recognized additional operating lease liabilities of approximately $911,000 with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

In June 2018, the FASB, issued ASU No. 2018-07 to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance expands the scope of Accounting Standards Codification, or ASC, 718 to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505-50. The guidance is effective for public business entities in annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, including in an interim period for which financial statements have not been issued, but not before an entity adopts ASC 606. This was adopted on January 1, 2019 and did not have a material impact on the financial position and results of operations.

 

Recent Authoritative Pronouncements

  

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), which includes provisions, intended to simplify the test for goodwill impairment. The standard is effective for annual periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of this standard to have a significant impact on our financial position and results of operations.

 

No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s consolidated financial statements.

 

NOTE 3 – NET (LOSS) 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 option and warrants to the extent they are dilutive. The computation of diluted income per share for the three and nine months ended September 30, 2019 and 2018 and does not include all share equivalents as the exercise price of certain warrants and options exceeded the average market price of the common stock. Options in the money under the treasury stock method and convertible debt, based on if-converted method are included below. For the three and nine months ended September 30, 2019 and 2018 all warrants, options and convertible debt are excluded as the Company is in a net loss from continuing operations position.

 

   

Three Months

Ended

   

Three Months

Ended

 
   

September 30, 2019

   

September 30, 2018

 

Basic net income (loss) from continuing operations per share computation:

               

Net income (loss) from continuing operations

  $ (949,873

)

  $ (167,188

)

Weighted-average common shares outstanding

    4,500,755       4,501,755  

Basic net loss per share

  $ (0.21

)

  $ (0.04

)

Diluted net income (loss) from continuing operations per share computation:

               

Net loss per above

  $ (949,873

)

  $ (167,188

)

Net loss

    (949,873

)

    (167,188

)

Weighted-average common shares outstanding

    4,500,755       4,501,755  

Total adjusted weighted-average shares

    4,500,755       4,501,755  

Diluted net loss per share

  $ (0.21

)

  $ (0.04

)

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – NET (LOSS) INCOME PER COMMON SHARE (Continued)

 

   

Nine Months

Ended

   

Nine Months

Ended

 
   

September 30, 2019

   

September 30, 2018

 

Basic net income (loss) from continuing operations per share computation:

               

Net loss from continuing operations

  $ (1,547,609

)

  $ (886,111

)

Weighted-average common shares outstanding

    4,500,755       4,499,072  

Basic net loss per share

  $ (0.34 )   $ (0.20 )

Diluted net income (loss) from continuing operations per share computation:

               

Net loss per above

  $ (1,547,609

)

  $ (886,111

)

Net loss

    (1,547,609

)

  $ (886,111

)

Weighted-average common shares outstanding

    4,500,755       4,499,072  

Total adjusted weighted-average shares

    4,500,755       4,499,072  

Diluted net loss per share

  $ (0.34 )   $ (0.20 )

 

The following table summarizes securities that, if exercised, would have an anti-dilutive effect on earnings (loss) per share.

 

   

Three Months

September 30,

2019

   

Three Months

September 30, 

2018

 

Stock options

    29,502       56,280  

Warrants

    208,241       208,241  

Convertible promissory notes

    264,035       347,740  
                 

Total potential dilutive securities not included in loss per share

    501,778       612,261  

 

   

Nine Months

September 30,

2019

   

Nine Months

September 30, 

2018

 

Stock options

    44,046       56,280  

Warrants

    208,241       208,241  

Convertible promissory notes

    264,035       155,839  
                 

Total potential dilutive securities not included in loss per share

    516,322       420,360  

 

NOTE 4 – PROPERTY AND EQUIPMENT

 

Property and equipment is summarized as follows:

 

   

September 30, 2019

   

December 31, 2018

 

Leasehold improvements

  $ 98,831     $ 98,831  

Equipment, furniture and fixtures

    2,796,889       2,479,732  
      2,895,720       2,578,563  

Less: Accumulated depreciation and amortization

    (2,143,175

)

    (1,890,441

)

                 

Property and equipment, net

  $ 752,545     $ 688,122  

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 4 – PROPERTY AND EQUIPMENT (Continued)

 

Depreciation and amortization expense related to these assets was $91,622 and $252,734 respectively for the three and nine months ended September 30, 2019 as compared to $91,262 and $239,004 for the three and nine months ended September 30, 2018, respectively. 

 

Property and equipment under finance leases are summarized as follows:

 

   

September 30, 2019

   

December 31, 2018

 

Equipment, furniture and fixtures

    708,272       436,084  

Less: Accumulated amortization

    (199,503

)

    (103,061

)

                 

Property and equipment, net

  $ 508,769     $ 333,023  

 

NOTE 5 – INTANGIBLE ASSETS

 

Intangible assets consist of proprietary developed software, intellectual property, customer lists and acquired contracts carried at cost less accumulated amortization and customer lists acquired at fair value less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives.

 

The components of intangible assets are as follows:

 

   

September 30, 2019

   

December 31, 2018

   

Estimated Useful Lives

 

Proprietary developed software

  $ 390,082     $ 545,216     5 – 7  

Intellectual property, customer list, and acquired contracts

    4,430,014       4,202,014     5 – 15  

Total intangible assets

  $ 4,820,096     $ 4,747,230        

Less: accumulated amortization

    (2,117,036

)

    (1,830,863

)

     
    $ 2,703,060     $ 2,916,367        

 

Amortization expense included in depreciation and amortization expense was $86,487 and $286,173 for the three and nine months ended September 30, 2019, respectively as compared to $148,520 and $311,358 for the three and nine months ended September 30, 2018, respectively. Impairment on intangible assets was $236,860 and $0 for the three and nine months ended September 30, 2019 and 2018, respectively.

 

The Company expects future amortization expense to be the following:

   

   

Amortization

 

Balance of 2019

  $ 95,760  

2020

    365,045  

2021

    328,495  

2022

    261,792  

2023

    198,680  

Thereafter

    1,453,288  
         

Total

  $ 2,703,060  

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 6 – LINE OF CREDIT AND LONG-TERM DEBT, RELATED PARTY

 

On September 11, 2018, SWK entered into a Revolving Demand Note (the “JPM Revolving Demand Note”) by and between SWK and JPMorgan Chase Bank (“JPM Lender”), a commercial lender. JPM Lender agreed to loan SWK up to a principal amount of two million dollars. The interest rate on the JPM Revolving Demand Note was a variable rate, equal to the “Adjusted LIBOR Rate”, plus two and one quarter percent (2.25%) per annum (4.45% at September 30, 2019).  The JPM Revolving Demand Note was secured by all of SWK’s assets pursuant to a Security Agreement. The line was also collateralized by substantially all of the assets of the Company. On August 26, 2019, all amounts owed to JPM Lender under the JPM Revolving Demand Note were paid and the JPM Revolving Demand Note terminated and is of no further force or effect.

 

On May 6, 2014, SWK acquired certain assets of ESC, Inc. pursuant to an Asset Purchase Agreement and the issuance of a promissory note in the aggregate principal amount of $350,000 (the “ESC Note”). The ESC Note matured on April 1, 2019 and was paid off on that date. Monthly payments were $6,135 including interest at two percent (2%) per year. At September 30, 2019 and December 31, 2018, the outstanding balance was $0 and $30,521, respectively. 

 

On July 6, 2015, SWK acquired certain assets of ProductiveTech Inc. (“PTI”) pursuant to an Asset Purchase Agreement for cash of $500,000 and a promissory note in the aggregate principal amount of $600,000 (the “PTI Note”).  The PTI Note is due 60 months from the closing date and bears interest at a rate of two and one half percent (2.5%).  Monthly payments including interest are $10,645. At September 30, 2019 and December 31, 2018, the outstanding balance was $105,242 and $198,106, respectively.

 

On May 31, 2018, SWK acquired certain assets of Info Sys Management, Inc. (“ISM”) pursuant to an Asset Purchase Agreement for cash of $300,000 and a promissory note issued in the aggregate principal amount of $1,000,000 (the “ISM Note”).  The ISM Note is due five years from the closing date and bears interest at a rate of two percent (2%) per annum. Monthly payments including interest are $17,528. The ISM Note has an optional conversion feature where the holder may, at its sole and exclusive option, elect to convert, at any time and from time to time, until payment in full of the ISM Note, all of the outstanding principal amount of the ISM Note, plus accrued interest, into shares (the “Conversion Shares”) of the Company’s Common Stock, (“Common Stock”) at per share price equal to $4.03, a price equal to the average closing price of its Common Stock for the five (5) trading days immediately preceding the issuance date of the ISM Note (the “Fixed Conversion Price”). At September 30, 2019 and December 31, 2018 the outstanding balance on the ISM Note was $759,288 and $904,436 respectively. 

 

On May 31, 2018, Secure Cloud Services acquired certain assets of Nellnube, Inc. (“Nellnube”) pursuant to an Asset Purchase Agreement for a promissory note issued in the aggregate principal amount of $400,000 (the “Nellnube Note”).  The Nellnube Note is due five years from the closing date and bears interest at a rate of two percent (2%) per annum. Monthly payments including interest are $7,011. The Nellnube Note has an optional conversion feature where the holder may, at its sole and exclusive option, elect to convert, at any time and from time to time, until payment in full of the Nellnube Note, all of the outstanding principal amount of the Nellnube Note, plus accrued interest, into shares (the “Conversion Shares”) of the Company’s Common Stock, (“Common Stock”) at per share price equal to $4.03, a price equal to the average closing price of its Common Stock for the five (5) trading days immediately preceding the issuance date of the Nellnube Note (the “Fixed Conversion Price”). At September 30, 2019 and December 31, 2018 the outstanding balance on the Nellnube Note was $303,715 and $361,774 respectively.

 

On January 1, 2019, SWK acquired certain assets of Partners in Technology, Inc. (“PIT”) pursuant to an Asset Purchase Agreement for cash of $60,000 and the issuance of a promissory note in the aggregate principal amount of $174,000 (the “PIT Note”).  The PIT Note is due in 36 months from the closing date and bears interest at a rate of two percent (2.0%) per annum.  Monthly payments including interest are $4,984. At September 30, 2019 the outstanding balance was $136,230.

 

At September 30, 2019, future payments of long term debt are as follows:

 

Remainder of 2019

  $ 114,053  

2020

    408,901  

2021

    341,763  

2022

    293,380  

2023

    146,378  

Total

  $ 1,304,475  

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 7 – FINANCE AND CAPITAL LEASE OBLIGATIONS

 

The Company has entered into lease commitments for equipment that meet the requirements for capitalization. The equipment has been capitalized and is included in the accompanying unaudited condensed consolidated balance sheets.  The related obligations are based upon the present value of the future minimum lease payments with the following:

 

   

September 30, 2019

 

Weighted average remaining lease term

    2.53  

Weighted average interest rate

    5.53

%

 

At September 30, 2019, future payments under finance leases are as follows:

 

Remainder of 2019

  $ 47,245  

2020

    174,006  

2021

    125,589  

2022

    57,585  

2023

    6,640  

Total minimum lease payments

    411,065  

Less amounts representing interest

    (26,990

)

Present value of net minimum lease payments

    384,075  

Less current portion

    (167,277

)

Long-term finance lease obligation

  $ 216,798  

 

The Company included capital lease obligations as of December 31, 2018 under the finance lease obligations caption in the unaudited condensed consolidated balance sheet.

 

Disclosures related to periods prior to adoption of ASU 2016-02

 

The Company adopted ASU 2016-02 using a modified retrospective adoption method at January 1, 2019 as noted in Note 2 “Recently Adopted Authoritative Standards”. As required, the following disclosure is provided for periods prior to adoption. Minimum capital lease commitments as of December 31, 2018 that have initial or remaining lease terms in excess of one year are as follows:

 

2019

  $ 97,259  

2020

    70,147  

2021

    21,728  

2022

    19,920  

2023

    6,640  

Total minimum lease payments

    215,694  

Less amounts representing interest

    (19,827

)

Present value of net minimum lease payments

    195,867  

Less current portion

    (87,355

)

Long-term capital lease obligation

  $ 108,512  

 

NOTE 8 – OPERATING LEASE LIABILITY

 

The Company leases office space in ten different locations with monthly payments ranging from $720 to $9,403 which expire at various dates through April 2024.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 8 – OPERATING LEASE LIABILITY (Continued)

 

The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company used incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date.

 

The Company's weighted average remaining lease term and weighted average discount rate for operating leases as of September 30, 2019 are as follows:

 

   

September 30, 2019

 

Weighted average remaining lease term

    3.58  

Weighted average discount rate

    4.77

%

 

The following table reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total lease liabilities recognized on the condensed consolidated balance sheet as of September 30, 2019:

 

Remainder 2019

  $ 78,440  

2020

    285,289  

2021

    221,018  

2022

    133,568  

2023

    119,677  

Thereafter

    40,177  

Total undiscounted future minimum lease payments

    878,169  

Less: Difference between undiscounted lease payments and discounted lease liabilities

    (107,275

)

Total operating lease liabilities

  $ 770,894  

Less current portion

    (268,569

)

Long-term operating lease liabilities

  $ 502,325  

 

Total rent expense under operating leases for the three and nine months ended September 30, 2019 was $100,764 and $315,235 as compared to $104,822 and $315,202 for the three and nine months ended September 30, 2018.

 

Disclosures related to periods prior to adoption of ASU 2016-02

 

The Company adopted ASU 2016-02 using a modified retrospective adoption method at January 1, 2019 as noted in Note 2 “Recently Adopted Authoritative Standards”. As required, the following disclosure is provided for periods prior to adoption. Minimum operating lease commitments as of December 31, 2018 that have initial or remaining lease terms in excess of one year are as follows:

 

2019

  $ 369,561  

2020

    261,542  

2021

    196,680  

2022

    127,447  

2023

    119,677  

Thereafter

    40,177  
    $ 1,115,084  

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 9 – EQUITY

 

Equity

 

On January 18, 2018, the Company issued 100 shares of stock each to 10 non-executive employees of SWK valued at $3,830 based on the current market price at issuance date.  On October 24, 2018, the Company cancelled an aggregate of 1,000 shares of stock previously issued on January 18, 2018 to ten non-executive employees of SWK in order to comply with Nasdaq Listing Rule 5365(c). Upon cancellation of such shares, the Company regained compliance with Nasdaq Listing Rule 5365(c).

 

On February 8, 2018 and March 23, 2018, the Company issued 4,825 and 5,115 shares of stock, respectively, in exchange for financial advisory services. The shares are based on the current market price at issuance date with a value of $17,852 and $20,204, respectively.

 

On March 30, 2018, the Company issued 912 shares of stock for legal services valued at $3,420 based on the current market price at issuance date.

 

All shares issued during the three month period ended March 31, 2018 were fully vested.

 

 

On December 24, 2018, the Company announced the payment of a $0.05 special cash dividend per share of Common Stock. The dividend payments announced in December were paid out on January 14, 2019 for an aggregate amount of approximately $225,038, which was applied against additional paid in capital and included in accrued expenses at December 31, 2018. 

 

On September 6, 2019, the Company filed a Certificate of Elimination of Certificate of Designations (the “Certificate of Elimination”) with the Secretary of State of the State of Delaware. The Certificate of Withdrawal eliminated the Company’s Series B Preferred Stock, par value $.001 per share (the “Series B Preferred”), from the Company’s Certificate of Incorporation. Prior to filing the Certificate of Elimination, Mark Meller, the Company’s Chief Executive Officer and Chairman and owner of the only share of Series B Preferred, cancelled the only share of Series B Preferred issued and outstanding. 

 

Options

 

A summary of the status of the Company’s stock option plans for the fiscal years ended December 31, 2018 and the nine months ending September 30, 2019 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, 2018

 

 

62,280

 

 

$

3.78

 

 

2.0 years

 

 

$

-0-

 

Options granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

Options canceled/forfeited

 

 

(6,000

)

 

$

4.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding options at December 31, 2018

 

 

56,280

 

 

$

3.75

 

 

1.0 years

 

 

$

-0-

 

Options granted

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Options exercised

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Options canceled/forfeited/expired

 

 

(30,000

)

 

$

3.78

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding options at September 30, 2019

 

 

26,280

 

 

$

3.71

 

 

0.9 years

 

 

$

-0-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested Options:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   September 30, 2019:

 

 

17,640

 

 

$

3.74

 

 

0.9 years

 

 

$

-0-

 

   December 31, 2018:

 

 

43,640

 

 

$

3.70

 

 

0.9 years

 

 

$

-0-

 

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 9 – EQUITY (Continued)

 

As of September 30, 2019, the unamortized compensation expense for stock options was $13,593.  Unamortized compensation expense is expected to be recognized over a weighted-average period of 1.0 year. 

 

Warrants

 

The following table summarizes the warrants transactions:

 

   

Warrants

Outstanding

   

Weighted Average

Exercise Price

 

Average Remaining

Contractual Term

                   

Balance, January 1, 2018

    208,241     $ 5.26  

2.3 years

Granted

    -     $ -    

Exercised

    -     $ -    

Canceled

    -     $ -    

Outstanding and Exercisable December 31, 2018

    208,241     $ 5.26  

1.3 years

                   

Granted

    -     $ -    

Exercised

    -     $ -    

Canceled

    -     $ -    

Outstanding and Exercisable September 30, 2019

    208,241     $ 5.26  

0.5 years

 

NOTE 10 – BUSINESS COMBINATION

 

On May 31, 2018 SWK acquired certain assets of Info Sys Management, Inc. (“ISM”), a reseller of Sage and Acumatica software, pursuant to an Asset Purchase Agreement in exchange for a convertible promissory note in the aggregate principal amount of $1,000,000 (“ISM Note”, see Note 6) and a cash payment of $300,000.  The allocation of the purchase price to customer lists with an estimated life of fifteen years, deposits and other assets, fixed assets and goodwill, which is deductible for tax purposes, has been based on an independent valuation. 

 

On May 31, 2018 SCS acquired certain assets of Nellnube, Inc. (“Nellnube”), a business application hosting company, pursuant to an Asset Purchase Agreement in exchange for a convertible promissory note (“Nellnube Note”, see Note 6) in the aggregate principal amount of $400,000. The allocation of the purchase price to customer lists with an estimated life of fifteen years, fixed assets and goodwill, which is deductible for tax purposes, has been based on an independent valuation.

 

On January 1, 2019, SWK acquired certain assets of Partners in Technology, Inc. (“PIT”) pursuant to an Asset Purchase Agreement in exchange for cash of $60,000 and a promissory note in the aggregate principal amount of $174,000 (“PIT Note”).  The PIT Note is due in 36 months from the closing date and bears interest at a rate of two percent (2.0%).  Monthly payments including interest are $4,984.  The allocation of the purchase price to customer list with an estimated life of fifteen years and goodwill, which is deductible for tax purposes, has been based on an independent valuation.

 

The Company expects these acquisitions to create synergies by combining operations and expanding geographic market share and product offerings.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 10 – BUSINESS COMBINATION (Continued)

 

The following summarizes the purchase price allocation for all prior year and current year’s acquisitions:

 

   

ISM

   

Nellnube

   

PIT

 
                         

Cash consideration

  $ 300,000     $ -     $ 60,000  

Note payable

    1,000,000     $ 400,000       174,000  

Total purchase price

  $ 1,300,000     $ 400,000     $ 234,000  
                         

Deposits and other assets

  $ 7,235     $ -     $ -  

Property and equipment

    170,000       50,000       -  

Customer List

    750,499       321,964       228,000  

Goodwill

    398,000       86,000       6,000  

Total assets acquired

    1,325,734       457,964       234,000  
                         

Capital lease obligations

    (25,734

)

    (57,964

)

    (-

)

Liabilities acquired

    (25,734

)

    (57,964

)

    (-

)

Net assets acquired

  $ 1,300,000     $ 400,000     $ 234,000  

 

The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisitions occurred on January 1, 2018, 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 three and nine months ended September 30, 2018 as if the acquisition occurred on January 1, 2018. Operating expenses have been increased for the amortization expense associated with the estimated fair value adjustment as of September 30, 2018 of expected definite lived intangible assets and interest on the notes payable.

 

Pro Forma

 

Three Months Ended

September 30, 2018

 

Net revenues

  $ 10,313,923  

Cost of revenues

    6,481,552  

Operating expenses

    3,990,625  

Loss before taxes

    (149,136

)

Net loss from continuing operations

  $ (149,136

)

Basic and diluted loss per common share

  $ (0.05 )

 

Pro Forma

 

Nine Months Ended

September 30, 2018

 

Net revenues

  $ 29,256,186  

Cost of revenues

    17,763,686  

Operating expenses

    12,161,406  

Loss before taxes

    (710,097

)

Net loss from continuing operations

  $ (710,097

)

Basic and diluted loss per common share

  $ (0.19 )

 

The Company’s condensed consolidated financial statements for the three and nine months ending September 30, 2019 include the actual results of PIT since the date of acquisition, January 1, 2019. 

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 10 – BUSINESS COMBINATION (Continued)

 

The three months ended September 30, 2018 pro-forma results above do not include any months of results of ISM and Nellnube and include three months of PIT. The nine months ended September 30, 2018 pro-forma results above include five months of results of ISM and Nellnube and nine months of PIT. For the three months ending September 30, 2018, there is $3,800 of estimated amortization expense included in the ISM/Nellnube/PIT pro-forma results. For the nine months ending September 30, 2018, there is $41,191 of estimated amortization expense included in the ISM/Nellnube/PIT pro-forma results.

 

For the nine months ended September 30, 2019, the ISM/Nellnube/PIT operations had a net income before taxes of $250,562 which represented nine months operations that was included in the Company’s Condensed Unaudited Consolidated Statement of Income. This consisted of approximately $2,900,946 in revenues, $1,371,473 in cost of revenues, and $1,278,911 in operating expenses.

 

For the three months ended September 30, 2019, the ISM/Nellnube/PIT operations had a net income before taxes of $88,694 which represented three months operations that was included in the Company’s Condensed Unaudited Consolidated Statement of Income. This consisted of approximately $1,064,433 in revenues, $502,753 in cost of revenues, and $472,986 in operating expenses.

 

For the three months ended September 30, 2018, the ISM/NNB operations had a net income before taxes of $78,172 which represented three months of operations that was included in the Company’s Condensed Unaudited Consolidated Statement of Income. This consisted of approximately $810,456 in revenues, $307,284 in cost of revenues, and $425,000 in operating expenses.

 

For the nine months ended September 30, 2018, the ISM/NNB operations had a net income before taxes of $97,496 which represented four months of operations that was included in the Company’s Condensed Unaudited Consolidated Statement of Income. This consisted of approximately $1,010,799 in revenues, $383,244 in cost of revenues, and 530,059 in operating expenses.

 

NOTE 11 – INCOME TAXES

 

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 $6,177,000 as of September 30, 2019, 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 2024 to 2033. 

 

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.

 

Income tax provision from continuing operations:

 

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2019

   

2018

 

Current:

               

Federal

  $ -     $ -  

State and local

    -       -  
                 

Total current tax provision

    -       -  
                 

Deferred:

               

Federal

    -       -  

State and local

    -       -  
                 

Total deferred tax provision

    -       -  
                 

Total provision

  $ -     $ -  

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 11 – INCOME TAXES (Continued)

 

For the nine months ended September 30, 2019, the Company’s Federal and State provision requirements were calculated based on the estimated tax rate. The Federal effective rate is higher than the statutory rate primarily due to Incentive Stock Options (ISO) expense and 50% of meals, 100% entertainment expenses which are not deductible. The provision from continuing operations for the nine months ended September 30, 2019 was $0 as there was a loss from continuing operations. The effective tax rate consists primarily of the 21% federal statutory tax rate and a blended 5% state and local tax rate.

 

NOTE 12 – RELATED PARTY TRANSACTIONS

 

The Company leases its North Syracuse office space from its former CFO, Crandall Melvin III, which expires on May 31, 2021. The monthly rent for this office space is $2,300. Total rent expense for the three and nine months ended September 30, 2019 was $6,900 and $20,700 as compared to $6,900 and $19,700 for the three and nine months ended September 30, 2018.

 

The Company leased its Seattle office space from Mary Abdian, an employee of SWK, which expired September 30, 2018 however, this lease was terminated on May 31, 2018 by mutual consent. The monthly rent for this office space was $3,090 and increased 3% each year. Total rent expense for the three months ended September 30, 2018 was $15,915.

 

As of September 30, 2019, long term debt is considered related party liabilities as holders are current employees of the Company, see Note 6.

 

NOTE 13 – COMMITMENTS AND CONTINGENCIES

 

Contingent Consideration

 

On October 1, 2015, SWK entered into an Asset Purchase Agreement (the “Macabe Purchase Agreement”) with The Macabe Associates, Inc., (“Macabe”), a Washington corporation and Mary Abdian and John Nicholson in their individual capacity as Macabe Shareholders. Pursuant to the Macabe Purchae Agreement, SWK acquired certain assets and liabilities of Macabe (as defined in the Macabe Purchase Agreement). In consideration for the acquired assets, the Company paid $21,423 in cash. Additionally, the Company will pay 35% of the net margin on software maintenance renewals for former Macabe customers for the first twelve months, and then 30%, 25% and 20% of the net margin on software maintenance renewals for the following three years. The Company will also pay 50% the first year, and 40%, 30% and 20% the three years after on the net margin on EASY Solution Maintenance, new software & license to existing Macabe customers and EASY Solutions software and maintenance sales to new customers. On any former Macabe customers migrating to Netsuite, X3 or Acumatica, the Company will pay 50% of the net margin of the sale after applicable costs and commissions for the three year period after the acquisition. The Company estimated this contingent consideration to be approximately $417,971 at acquisition. Payments totaling $55,695 were made in each of these contingent consideration components for the nine months ended September 30, 2019, resulting in a remaining balance of $0 as of September 30, 2019.  The agreement expired on September 30, 2019 and no further payments are expected.

 

Contingencies

 

On March 4, 2019, plaintiff John Solak (“Plaintiff”) commenced a direct and derivative action in the Delaware Court of Chancery (the “Action”): both on his own behalf as a stockholder of Silversun and derivatively on behalf of Silversun against the Company’s officers and directors relating to stockholder voting rights granted to the Company’s Chairman and Chief Executive Officer, Mark Meller in the form of Series B Preferred Stock.

 

On or about April 22, 2019, the Company determined to undertake certain actions relating to the Series B Preferred Stock challenged in Plaintiff’s complaint, as well as certain changes to the Company’s governance policies.

 

The Company’s officers and directors have at all relevant times denied, and continue to deny, any alleged violations of Delaware law. Plaintiff’s counsel believe that the remedial measures by SilverSun in response to the Action render the Action moot, and give rise only to a claim for attorney’s fees. The Company and the Plaintiff agreed that the Company shall pay $115,000 to Plaintiff’s counsel for fees and expenses. The Court of Chancery of the State of Delaware has not been asked to review, and will pass no judgment on, this payment of fees and expenses or its reasonableness.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 13 – COMMITMENTS (Continued)

 

The Stipulation and Order Regarding Notice to Stockholders was entered into by Solak, the Company and the Company’s officers and directors on August 2, 2019 and this matter is now resolved.

 

NOTE 14 – SALE OF EDI PRACTICE

 

On August 26, 2019 the Company entered into and closed that certain Asset Purchase Agreement (the “Asset Purchase Agreement”) by and among the Company, SPS Commerce, Inc., as buyer (“Buyer” or “SPS”), and SWK, as seller (the “Seller”), pursuant to which the Buyer has agreed to acquire from the Seller certain assets (all intellectual property and accounts receivable) related to the MAPADOC business, which was the EDI practice. In consideration for the Acquired Assets (as defined in the Asset Purchase Agreement), at closing, SPS: (i) paid Seller $10,350,000 in cash (the “Initial Cash Payment”); and (ii) delivered $1,150,000 to an escrow account (the “Escrowed Property”) pursuant to the terms and conditions of that certain Escrow Agreement dated August 26, 2019 (the “Escrow Agreement”), for an aggregate consideration of $11,500,000 (the “Purchase Price”). Pursuant to the terms and conditions of that certain Escrow Agreement entered into in connection with the Asset Purchase Agreement, portions of the Escrowed Property will be released at six months and at twelve months following the date of closing of the Asset Purchase Agreement, to the extent that no indemnity claims against the Escrowed Property have been filed by the Buyer.

 

NOTE 15 – DISCONTINUED OPERATIONS

 

The financial results of our EDI Practice (“Mapadoc”) through September 30, 2019 are presented as discontinued operations.  The following table presents the financial results of “Mapadoc.”

 

Mapadoc Balance Sheet

 

   

December 31,

 
   

2018

 

Current assets:

       

Accounts receivable

  $ 477,808  

Unbilled services

    5,854  

Prepaid expenses and other current assets

    580  
         

Total current assets

    484,242  
         

Long term assets:

       

Intangible assets, net

    1,037,295  
         

Total assets

    1,521,537  
         
         

Current liabilities:

       

Accrued expenses

    137,713  

Deferred revenue

    462,203  
         

Total current liabilities

  $ 599,916  

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 15 – DISCONTINUED OPERATIONS (Continued)

 

Mapadoc Income Statement

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30, 2019

   

September 30, 2018

   

September 30, 2019

   

September 30, 2018

 

Revenues:

                               

Software product, net

    139,168       221,122       445,025       691,371  

Service, net

    751,203       1,002,702       2,936,898       2,966,823  

Total revenues, net

    890,371       1,223,824       3,381,923       3,658,194  
                                 

Cost of revenues:

                               

Product

    399       396       2,745       10,180  

Service

    382,777       488,830       1,387,926       1,337,610  

Cost of revenues

    383,176       489,226       1,390,671       1,347,790  
                                 

Gross profit

    507,195       734,598       1,991,252       2,310,404  
                                 

Selling, general and administrative expenses:

                               

Selling and marketing expenses

    130,929       93,248       371,061       353,840  

General and administrative expenses

    85,690       220,512       540,822       705,873  

Depreciation and amortization expenses

    21,022       13,668       90,844       18,747  

Total selling, general and administrative expenses

    237,641       327,428       1,002,727       1,078,460  
                                 

Income from discontinued operations

    269,554       407,170       988,525       1,231,944  

Gain from sale of discontinued operations

    10,144,287       -       10,144,287       -  

Provision for income taxes

    (1,795,127 )     (69,050 )     (1,823,216 )      (99,296 )

Income from discontinued operations

    8,618,714       338,120       9,309,596       1,132,648  

 

Calculation of gain on sale 

 

Purchase Price

  $ 11,500,000  

Net Assets at August 26, 2019

    (1,575,547 )

Net Liabilities at August 26, 2019

    437,260  

Expenses associated with the sale

    (217,426 )

Gain on sale

    10,144,287  

 

NOTE 16 – SUBSEQUENT EVENTS

 

On October 10, 2019, the Company’s Board of Directors authorized a new stock repurchase program, under which the Company may repurchase up to $2 million of its outstanding common stock.  Under this new stock repurchase program, the Company may repurchase shares in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by the Company’s management. The repurchase program may be extended, suspended or discontinued at any time. The Company expects to finance the program from existing cash resources.  As of November 12, 2019, no repurchases have been made.

 

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations,

 

This quarterly report on Form 10-Q and other reports filed by SilverSun Technologies, Inc. and its wholly owned subsidiaries, SWK Technologies, Inc., Secure Cloud Services, Inc., and Critical Cyber Defense Corp. (collectively the “Company”, “we”, “our”, and “us”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management.  Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof.  When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements.  Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire.  Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements.  Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made.  These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.  The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

 

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 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, cybersecurity, application hosting, disaster recovery business continuity, cloud and other services. Our customers are nationwide, with concentrations in the New York/New Jersey metropolitan area, Arizona, Southern California, North Carolina, Washington, Oregon and Illinois.

 

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. We believe we are among the largest Sage 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 cloud-based ERP solutions, we also have in our ERP portfolio 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 and time and billing software. 

 

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 application hosting, IT consulting and managed network 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.

 

Results of Operations for the Three and Nine Months Ended September 30, 2019 and 2018.

 

During the nine months ended September 30, 2019 the Company continued to expand its customer base and growth trend which we believe will provide a basis for future growth, as revenues increased 7.18% from the same nine month period in the prior year.

 

In addition, the Company successfully completed the sale of its Mapadoc EDI division in the third quarter, selling all Intellectual Property and consulting practices related to the product to a strategic acquiror for $11.5 million cash on August 26, 2019. The Company, which had not previously been seeking to sell the division, decided to move forward with the transaction after evaluating the following variables:

 

 

The rate of growth of the ERP products with which Mapadoc integrates;

 

The rate of growth, year over year, of Mapadoc itself;

 

Technological threats;

 

The cost of developing new integrations, and funding new go-to-market strategies for these integrations once developed;

 

The valuation offered for the sale, and how that valuation compared to other consummated transactions for similarly situated business applications.

 

After evaluating these and other variables and engaging an investment bank to provide guidance on the valuation, the Company subsequently closed on the transaction.  The Company now intends to use the proceeds of the transaction to further enhance its business and to maximize shareholder value.  The actions under consideration, which are illustrative and not exhaustive, include:

 

 

A special dividend

 

A stock buyback

 

Acquisitions – The Company has engaged an investment bank to identify potential acquisitions for the Company which will enhance and accelerate its growth profile. 

 

Mergers – The Company will evaluate potential mergers with larger companies that seek to become part of a publicly-traded entity and which could enhance the rate of growth and profitability of the Company.

 

Such other actions as the Board of Directors deems appropriate which leads to maximizing shareholder value.

 

Revenues

 

Revenues for the three months ended September 30, 2019 increased $44,631 (.44%) to $10,107,865 as compared to $10,063,234 for the three months ended September 30, 2018.  Revenues for the nine months ended September 30, 2019 increased $1,912,434 (7.18%) to $28,534,596 as compared to $26,622,162 for the nine months ended September 30, 2018.  The increase can be attributed to both the increase in software sales as well as an increase in subscription income.

 

 

Software sales increased $411,313 (28.24%) to $1,867,971 for the three months ended September 30, 2019 as compared to $1,456,658 for the three months ended September 30, 2018. For the nine months ended September 30, 2019 software sales increased $909,756 (22.81%) to $4,898,886 from $3,989,130 for the same period in 2018. The increase is attributable to increased Acumatica sales and increased sales of third-party products to our installed customer base.

 

Service revenue decreased by $366,682 to $8,239,894 for the three months ended September 30, 2019 from $8,606,576 for the same period in 2018 for an overall decrease of 4.26%. This is due to a delay in consulting projects. Service revenue increased by $1,002,678 to $23,635,710 for the nine months ended September 30, 2019 from $22,633,032 for the same period in 2018 for an overall increase of 4.43%. This increase is attributed to the increase in subscription revenue.

 

Gross Profit

 

Gross profit for the three months ended September 30, 2019 decreased $80,142 (2.12%) to $3,700,776 as compared to $3,780,918 for the three months ended September 30, 2018. For the three month period ended September 30, 2019, the overall gross profit percentage was 36.6% as compared to 37.6% for the period ended September 30, 2018.

 

Gross profit for the nine months ended September 30, 2019 increased $783,598 (7.7%) to $10,955,345 as compared to $10,171,747 for the nine months ended September 30, 2018. For the nine month period ended September 30, 2019, the overall gross profit percentage was 38.4% as compared to 38.2% for the period ended September 30, 2018.  

 

The gross profit attributed to software sales increased $71,075 to $635,525 for the three months ending September 30, 2019 from $564,450 in the three months ending September 30, 2018 and gross profit attributed to software sales increased $357,065 to $1,859,050 for the nine months ending September 30, 2019 from $1,501,985 in the nine months ending September 30, 2018.  This increase is attributed to the increase in software sales for the period.

 

The gross profit attributed to services decreased $151,217 to $3,065,251 for the three months ending September 30, 2019 from $3,216,468 for the three months ending September 30, 2018 due to delays in consulting projects. Gross profit attributed to services increased $426,533 to $9,096,295 for the nine months ending September 30, 2019 from $8,669,762 for the nine months ending September 30, 2018. This increase is primarily attributed to the increase in sales of Acumatica software.

 

Operating Expenses 

 

Selling and marketing expenses increased $158,479 (9.86%) to $1,765,271 for the three months ending September 30, 2019 from $1,606,792 in the three months ending September 30, 2018. Selling and marketing expenses increased $411,630 (8.83%) to $5,073,687 for the nine months ended September 30, 2019 compared to $4,662,057 for the nine months ended September 30, 2018. This is due to increased sales personnel expense as well as an increase in both outside sales expense and professional development.

 

General and administrative expenses increased $387,785 (18.65%) to $2,467,515 for the three months ending September 30, 2019 from $2,079,730 in the three months ending September 30, 2018. General and administrative expenses increased $851,941 (14.82%) to $6,599,885 for the nine months ended September 30, 2019 as compared to $5,747,944 for the nine months ended September 30, 2018. This is primarily as a result of increases in payroll and related expenses associated with the addition of management personnel, reclassification of employees to G&A from other departments, as well as an increase in bad debt expense.  In addition, the Company incurred extraordinary one-time legal expenses of approximately $115,000 associated with the cost of defense of the previously announced and settled shareholder derivative suit.

 

Depreciation and amortization expense decreased $61,673 for the three months ended September 30, 2019 to $178,109 as compared to $239,782 for the three months ended September 30, 2018. Depreciation and amortization expense decreased $12,471 for the nine months ended September 30, 2019 to $538,907 as compared to $551,378 for the nine months ended September 30, 2018. This decrease is due to an adjustment made for the amortization of Partners In Technology after the final valuation was completed. Amortization for the customer list is estimated at the time of acquisition.  Also the ISM amortization was higher per month in 2018 until December 2018 when the adjustment was made after the valuation was complete.

 

 

Loss from Continuing operations 

 

For the three and nine months ended September 30, 2019, the Company had a loss from continuing operations of $949,873 and $1,547,609 respectively as compared to loss from continuing operations of $167,188 and $886,111, respectively for the three and nine months ended September 30, 2018. The decreases for the three months ended September 30, 2019 is due to increases in payroll and related expenses associated with the addition of management and sales personnel as well as the impairment of intangible assets and the sale of the EDI practice, in which the financial results are shown in discontinued operations.  The Company is implementing cost-cutting measures to increase the operating margins of the organization.

 

Liquidity and Capital Resources

 

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 increase its business and profitability by entering into collaboration agreements, buying assets, and acquiring companies in the business software and information technology consulting and managed services market with solid revenue streams and established customer bases that generate positive cash flow. 

 

On September 11, 2018, SWK entered into a Revolving Demand Note (the “JPM Revolving Demand Note”) by and between SWK and JPMorgan Chase Bank (“JPM Lender”), a commercial lender. JPM Lender through the JPM Revolving Demand Note, had agreed to loan SWK up to a principal amount of two million dollars ($2,000,000). The interest rate on the JPM Revolving Demand Note was a variable rate, equal to the “Adjusted LIBOR Rate”, plus two and one quarter percent (2.25%) per annum (4.66% at June 30, 2019).  The JPM Revolving Demand Note was secured by all of SWK’s assets pursuant to a Security Agreement. The JPM Revolving Demand Note was collateralized by substantially all of the assets of the Company. On August 26, 2019, all amounts owed to JPM Lender under the JPM Revolving Demand Note were paid and the JPM Revolving Demand Note terminated and is of no further force or effect.

 

As of September 30, 2019, the Company has $1,304,475 notes outstanding from acquisitions occurring between 2014 and through 2019. Future payments on these notes are as follows:

 

Remainder of 2019

  $ 114,053  

2020

    408,901  

2021

    341,763  

2022

    293,380  

2023

    146,378  

Total

  $ 1,304,475  

 

During the nine months ended September 30, 2019, the Company had a net increase in cash of $8,820,772.  The Company’s principal sources and uses of funds were as follows:

 

Cash used in operating activities of continuing operations

 

The Company used $1,201,035 in cash from continuing operating activities for the nine months ended September 30, 2019 as compared to using cash of $343,849 for the same period in 2018. This increase is primarily due to the increase in accounts receivable and a decrease in accrued expenses.

 

Cash provided by investing activities of continuing operations

 

Investing activities for the nine months ended September 30, 2019 provided cash of $9,965,623 as compared to using cash of $563,250 for the same period in 2018. This increase is due to the sale of the EDI practice.

 

 

Cash used in financing activities of continuing operations

 

Financing activities for the nine months ended September 30, 2019 used cash of $715,675 as compared to using cash of $396,426 for the same period in 2018. The use was due primarily to the payment of the cash dividend in January 2019 as well as the repayment of long term debt and finance lease obligations.

 

Cash flows from discontinued operations

 

Operating activities for discontinued operations for the nine months ended September 30, 2019 provided cash of $899,537 as compared to $1,164,310 for the same period in 2018.  This is due to the fact that the EDI practice was sold in August 2019, providing eight months of operating activities in 2019 as compared to the nine months in 2018.

 

Investing activities of discontinued operations for the nine months ended September 30, 2019 used cash of $127,678 as compared to $288,044 for the same period in 2018. This was due to less software being put into production in 2019.

 

The Company believes that as a result of the growth in business, and the funds available from the sale of its Mapadoc division, it has adequate liquidity to fund its operating plans for at least the next twelve months.

 

There was no significant impact on the Company’s operations as a result of inflation for the nine months ended September 30, 2019.  

 

Off Balance Sheet Arrangements

 

During the nine months ended September 30, 2019 or for fiscal 2018, we did not engage in any material off-balance sheet activities or 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.

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

Item 4.  Controls and Procedures

 

(a) Evaluation of Disclosure and Control Procedures

 

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act.  Based on the controls evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the date of their evaluation, our disclosure controls and procedures were effective to provide reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (b) such information is accumulated and communicated to our management, including our Chief Executive Officer and President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

PART II – OTHER INFORMATION

 

Item 1.     Legal Proceedings

 

Other than indicated below, we are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. Other than indicated below, to our knowledge, 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 our subsidiaries, threatened against or affecting our Company, our common stock, our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

On March 4, 2019, plaintiff John Solak (“Plaintiff”) commenced a direct and derivative action in the Delaware Court of Chancery (the “Action”): both on his own behalf as a stockholder of Silversun Technologies, Inc. (“SilverSun” or the “Company”) and derivatively on behalf of Silversun against the Company’s officers and directors relating to stockholder voting rights granted to the Company’s Chairman and Chief Executive Officer, Mark Meller in the form of Series B Preferred Stock.

 

On or about April 22, 2019, the Company determined to undertake certain actions relating to the Series B Preferred Stock challenged in Plaintiff’s complaint, as well as certain changes to the Company’s governance policies.

 

The Company’s officers and directors have at all relevant times denied, and continue to deny, any alleged violations of Delaware law. Plaintiff’s counsel believe that the remedial measures by SilverSun in response to the Action render the Action moot, and give rise only to a claim for attorney’s fees. The Company and the Plaintiff agreed that the Company shall pay $115,000 to Plaintiff’s counsel for fees and expenses. The Court of Chancery of the State of Delaware has not been asked to review, and will pass no judgment on, this payment of fees and expenses or its reasonableness.

 

The Stipulation and Order Regarding Notice to Stockholders was entered into by Solak, the Company and the Company’s officers and directors on August 2, 2019 and this matter is now resolved.

 

Item 1A.  Risk Factors

 

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 28, 2019.

 

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

 

Other than disclosed above in the financial statements and footnotes, there were no unregistered sales of equity securities that were not otherwise disclosed in a current report on Form 8-K.

 

Item 3.     Defaults upon Senior Securities

 

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

 

Item 4.     Mine Safety Disclosures

 

Not Applicable.

 

Item 5.     Other Information

 

There is no other information required to be disclosed under this item which has not been previously reported.

 

 

Item 6.     Exhibits

 

31.1

 

Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*

31.2

 

Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*

32.1

 

Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2

 

Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

 

* Filed herewith

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

SILVERSUN TECHNOLOGIES, INC.

 

 

 

 

 

 

 

 

 

 

 

 

Dated: November 12, 2019

 

By:

/s/ Mark Meller

 

 

 

 

 

Mark Meller

 

 

 

 

 

Principal Executive Officer

 

 

 

 

 

 

 

 

Dated: November 12, 2019 

 

By:

/s/ Christine Dye

 

 

 

 

Christine Dye

 

 

 

Principal Financial Officer and Principal Accounting Officer

 

 

 

 

 

 

 

35

 

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