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
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 |
|
| |
|
|