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: June 30, 2020

 

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 August 11, 2020, there were 4,501,271 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 June 30, 2020 and December 31, 2019

3

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019

4

 

Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2020 and 2019

5

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended June 30, 2020 and 2019

6

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

7

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

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

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

 

 

 

PART II.   OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 3.

Defaults Upon Senior Securities

29

Item 4.

Mine Safety Disclosures

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

 

 

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 (Unaudited) 

 

   

June 30, 2020

   

December 31, 2019

 

ASSETS

               
                 

Current assets:

               

Cash

  $ 6,859,030     $ 8,658,401  

Escrow accounts receivable

    575,000       1,150,000  

Accounts receivable, net of allowance of $375,000

    1,966,582       2,529,545  

Unbilled services

    660,962       183,484  

Prepaid expenses and other current assets

    295,489       455,434  
                 

Total current assets

    10,357,063       12,976,864  
                 

Property and equipment, net

    625,852       712,627  

Operating lease right-of-use assets

    1,375,542       698,840  

Intangible assets, net

    2,423,355       2,607,301  

Goodwill

    891,000       891,000  

Deferred tax assets

    1,126,262       874,482  

Deposits and other assets

    191,804       192,158  
                 

Total assets

  $ 16,990,878     $ 18,953,272  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               
                 

Current liabilities:

               

Accounts payable

  $ 1,612,286     $ 2,210,618  

Accrued expenses

    1,482,412       1,189,746  

Accrued dividend

    -       2,250,636  

Accrued interest

    15,751       15,378  

Income taxes payable

    325,355       152,355  

Long term debt – current portion

    69,100       131,795  

Long term convertible debt – current portion

    279,888       277,106  

Finance lease obligations – current portion

    136,861       162,625  

Operating lease liabilities – current portion

    434,523       262,020  

Deferred revenue

    2,317,871       2,006,983  
                 

Total current liabilities

    6,674,047       8,659,262  
                 

Long term debt net of current portion

    34,656       64,072  

Long term convertible debt net of current portion

    576,839       717,482  

Finance lease obligations net of current portion

    121,460       180,976  

Operating lease liabilities net of current portion

    941,019       436,820  

Total liabilities

    8,348,021       10,058,612  
                 

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

    -       -  

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

     4,501,271 shares issued and outstanding

    46       46  

Additional paid-in capital

    9,536,996       9,530,198  

Accumulated deficit

    (894,185 )     (635,584

)

                 

Total stockholders’ equity

    8,642,857       8,894,660  
                 

Total liabilities and stockholders’ equity

  $ 16,990,878     $ 18,953,272  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

30-Jun-20

   

30-Jun-19

   

30-Jun-20

   

30-Jun-19

 

Revenues:

                               

Software product, net

  $ 1,926,697     $ 1,424,639     $ 3,695,867     $ 3,030,915  

Service, net

    7,746,248       7,694,779       16,056,601       15,395,817  

Total revenues, net

    9,672,945       9,119,418       19,752,468       18,426,732  
                                 

Cost of revenues:

                               

Product

    1,233,165       910,939       2,362,557       1,807,389  

Service

    4,501,175       4,731,581       9,599,097       9,379,822  

Total cost of revenues

    5,734,340       5,642,520       11,961,654       11,187,211  
                                 

Gross profit

    3,938,605       3,476,898       7,790,814       7,239,521  
                                 

Selling, general and administrative expenses:

                               

Selling and marketing expenses

    1,733,472       1,565,966       3,674,795       3,308,416  

General and administrative expenses

    1,981,248       2,077,595       4,107,389       4,132,371  

Share-based compensation expenses

    3,399       3,398       6,798       10,111  

Depreciation and amortization expenses

    173,044       186,570       349,579       360,798  

Total selling, general and administrative expenses

    3,891,163       3,833,529       8,138,561       7,811,696  
                                 

Income (loss) from continuing operations

    47,442       (356,631

)

    (347,747

)

    (572,175

)

                                 

Other income (expense):

                               

Other income

    5,686       -       11,411       -  

Interest income (expense)

    (8,246

)

    (24,131

)

    (647

)

    (40,611

)

Total other income (expense)

    (2,560

)

    (24,131

)

    10,764       (40,611

)

                                 

Income (loss) from continuing operations before taxes

    44,882       (380,762

)

    (336,983

)

    (612,786

)

                                 

Provision (benefit) for income taxes

    11,368       (79,960 )     (78,382

)

    (128,685 )

Income (loss) from continuing operations

    33,514       (300,802

)

    (258,601

)

    (484,101

)

                                 
                                 

Discontinued operations

                               

Income from discontinued operations

    -       378,648       -       734,021  

Provision for income taxes

    -       80,736       -       156,774  

Income from discontinued operations

    -       297,912       -       577,247  
                                 

Net (loss) income

  $ 33,514     $ (2,890

)

  $ (258,601

)

  $ 93,146  
                                 

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

                               

Continuing operations

  $ 0.01     $ (0.07

)

  $ (0.06

)

  $ (0.11

)

Discontinued operations

  $ -     $ 0.07     $ -     $ 0.13  

Net (loss) income

  $ 0.01     $ (0.00

)

  $ (0.06

)

  $ 0.02  
                                 

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

                               

Continuing operations

  $ 0.01     $ (0.07

)

  $ (0.06

)

  $ (0.11

)

Discontinued operations

  $ -     $ 0.07     $ -     $ 0.13  

Net (loss) income

  $ 0.01     $ (0.00

)

  $ (0.06

)

  $ 0.02  
                                 

Weighted average shares outstanding:

                               

Basic

    4,501,271       4,500,755       4,501,271       4,500,755  

Diluted

    4,714,070       4,500,755       4,501,271       4,500,755  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

FOR THE SIX MONTHS ENDED JUNE 30, 2020

 

 

 

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, 2020

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

4,501,271

 

 

$

46

 

 

$

9,530,198

 

 

$

(635,584

)

 

$

8,894,660

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,798

 

 

 

-

 

 

 

6,798

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(258,601

)

 

 

(258,601

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2020

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

4,501,271

 

 

$

46

 

 

$

9,536,996

 

 

$

(894,185

)

 

$

8,642,857

 

 

 

FOR THE SIX MONTHS ENDED JUNE 30, 2019

 

 

 

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, 2019

 

 

-

 

 

$

-

 

 

 

1

 

 

$

1

 

 

 

4,500,755

 

 

$

46

 

 

$

11,763,923

 

 

$

(7,429,810

)

 

$

4,334,160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,111

 

 

 

-

 

 

 

10,111

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

93,146

 

 

 

93,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

 

-

 

 

$

-

 

 

 

1

 

 

$

1

 

 

 

4,500,755

 

 

$

46

 

 

$

11,774,034

 

 

$

(7,336,664

)

 

$

4,437,417

 

 

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 JUNE 30, 2020

 

 

 

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 April 1, 2020

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

4,501,271

 

 

$

46

 

 

$

9,533,597

 

 

$

(927,699

)

 

$

8,605,944

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,399

 

 

 

-

 

 

 

3,399

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

33,514

 

 

 

33,514

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2020

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

 

4,501,271

 

 

$

46

 

 

$

9,536,996

 

 

$

(894,185

)

 

$

8,642,857

 

 

 

FOR THE THREE MONTHS ENDED JUNE 30, 2019

 

 

 

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 April 1, 2019

 

 

-

 

 

$

-

 

 

 

1

 

 

$

1

 

 

 

4,500,755

 

 

$

46

 

 

$

11,770,636

 

 

$

(7,333,774

)

 

$

4,436,909

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,398

 

 

 

-

 

 

 

3,398

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,890)

 

 

 

(2,890

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

 

-

 

 

$

-

 

 

 

1

 

 

$

1

 

 

 

4,500,755

 

 

$

46

 

 

$

11,774,034

 

 

$

(7,336,664

)

 

$

4,437,417

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

 

   

Six Months Ended

June 30,

 
   

2020

   

2019

 

Cash flows from operating activities:

               

Net (loss) income

  $ (258,601

)

  $ 93,146  

Net income from discontinued operations

    -       577,247  

Net loss from continuing operations

    (258,601

)

    (484,101

)

Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities:

               

Deferred income taxes

    (251,780

)

    (132,774 )

Depreciation and amortization

    165,633       161,112  

Amortization of intangibles

    183,946       199,687  

Amortization of right of use assets

    230,960       139,742  

Bad debt expense

    9,175       -  

Share-based compensation

    6,798       10,111  
                 

Changes in assets and liabilities:

               

Accounts receivable

    553,788       (835,652

)

Unbilled services

    (477,478

)

    (469,940

)

Prepaid expenses and other current assets

    159,945       27,361  

Deposits and other assets

    354       (2,642

)

Accounts payable

    (598,332

)

    (325,692

)

Accrued expenses

    292,666       (439,639

)

Income tax payable

    173,000       3,313  

Accrued interest

    373       371  

Deferred revenues

    310,888       924,194  

Operating lease obligations

    (230,960

)

    (139,742

)

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

    270,375       (1,364,291

)

                 

Cash flows from investing activities:

               

Purchase of property and equipment

    (78,858

)

    (23,693

)

Acquisition of business

    -       (60,000

)

Software development costs

    -       (80,534

)

Escrow accounts receivable

    575,000       -  

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

    496,142       (164,227

)

                 

Cash flows from financing activities:

               

Payment of cash dividend

    (2,250,636

)

    (225,038

)

Proceeds from PPP loan

    3,150,832       -  

Payment of PPP loan

    (3,150,832

)

    -  

Payment of contingent consideration

    -       (22,548

)

Payment of long term debt

    (92,112

)

    (115,784

)

Payment of long term convertible debt

    (137,860

)

    (135,133

)

Payment of finance lease obligations

    (85,280

)

    (58,539

)

Net cash used in financing activities of continuing operations

    (2,565,888

)

    (557,042

)

                 

Cash flows from discontinued operations:

               

               Operating activities of discontinued operations

    -       806,189  

               Investing activities of discontinued operations

    -       (93,826

)

Net cash provided by discontinued operations

    -       712,363  
                 

Net decrease in cash

    (1,799,371

)

    (1,373,197

)

                 

Cash, beginning of period

    8,658,401       1,900,857  
                 

Cash, end of period

  $ 6,859,030     $ 527,660  
                 

Cash paid during period for:

               

Interest

  $ 21,796     $ 40,611  

Income taxes

  $ 25,648     $ 901  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

 

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

 

For the six months ended June 30, 2020:

 

On January 23, 2020 the Company entered into an operating lease for equipment with VAR Technology Finance. Accordingly, operating lease right of use assets and operating lease liabilities were recognized in the amount of $453,379.

 

On January 29, 2020 the Company entered into an operating lease in Greensboro, NC. Accordingly, operating lease right of use assets and operating lease liabilities were recognized in the amount of $104,296.

 

On February 1, 2020 the Company entered into an operating lease in East Hanover, NJ. Accordingly, operating lease right of use assets and operating lease liabilities were recognized in the amount of $349,987.

 

 

For the six months ended June 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 and 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 purchases 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 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”), Human Capital Management (“HCM”), 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.

 

On August 26, 2019 SWK entered into and closed that certain Asset Purchase Agreement (the “MAPADOC Asset Purchase Agreement”) by and among the Company, SPS Commerce, Inc., as buyer (“SPS”), and SWK as seller, pursuant to which SPS agreed to acquire from SWK substantially all of the assets related to the MAPADOC business (See footnote 13).

 

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”.  

 

The Company’s operations may be affected by the recent and ongoing outbreak of the coronavirus disease 2019 (COVID-19) which in March 2020, was declared a pandemic by the World Health Organization. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible areas that may be affected include, but are not limited to, disruption to the Company’s customers and revenue, labor workforce, inability of customers to pay outstanding accounts receivable due and owing to the Company as they limit or shut down their businesses,  customers seeking relief or  extended payment plans relating to accounts receivable due and owing to the Company, unavailability of products and supplies used in operations, and the decline in value of assets held by the Company, including property and equipment.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

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 June 30, 2020, the results of operations for the three and six months ended June 30, 2020 and 2019 and cash flows for the six months ended June 30, 2020 and 2019.  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, 2019 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, 2019, filed with the SEC on March 26, 2020.

 

All financial results of the EDI practice are classified as discontinued operations for the purpose of this quarterly report (see Note 13).

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the “Company” and its wholly-owned subsidiaries. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. All significant inter-company transactions and accounts have been eliminated in consolidation.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

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 six months ended June 30, 2020 and 2019.

 

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. No impairment losses were identified or recorded for the three and six months ended June 30, 2020 and 2019.

 

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.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

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 June 30,

   

For the Six Months Ending June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Professional Consulting

  $ 3,357,915     $ 3,016,724     $ 6,905,493     $ 6,017,285  

Maintenance Revenue

  $ 1,592,449     $ 1,606,869     $ 3,290,925     $ 3,434,369  

Ancillary Service Revenue

  $ 2,795,884     $ 3,071,186     $ 5,860,183     $ 5,944,163  

 

Unbilled Services

 

The Company recognizes revenue on its professional services as those services are performed. Unbilled services (contract assets) represent the revenue recognized but not yet invoiced.

 

Deferred Revenues

 

Deferred revenues consist of maintenance on proprietary products (contract liabilities), customer telephone support services (contract liabilities) and deposits for future consulting services which will be earned as such services are performed over the contractual or stated period, which generally ranges from three to twelve months. As of June 30, 2020, there was $129,605 in deferred maintenance, $257,516 in deferred support services, and $1,930,750, in deposits for future consulting services. As of December 31, 2019, there was $145,977 in deferred maintenance, $159,165 in deferred support services, and $1,701,841 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 condensed consolidated statements of operations.

 

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 June 30, 2020 and December 31, 2019, the Company had cash on deposit of $6,087,520 and $8,016,900, respectively, in excess of the federally insured limits of $250,000.

 

As of June 30, 2020, one customer represented 10% of the total accounts receivable and unbilled services. As of December 31, 2019, one customer represented 14% of the total accounts receivable and unbilled services.

 

For the six months ended June 30, 2020 and 2019, the Company’s top ten customers accounted for 12% ($2,433,153) and 12% ($2,267,328), respectively, of total revenues.  The Company does not rely on any one specific customer for any significant portion of its revenue.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

For the six months ended June 30, 2020 and 2019, purchases from one supplier through a “channel partner” agreement were approximately 14% and 20% 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 June 30, 2020 and December 31, 2019, one supplier represented approximately 23% and 15% of total accounts payable respectively.

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable, cash and escrow accounts receivable.  As of June 30, 2020, the Company believes it has no significant risk related to its concentration of accounts receivable.

 

Accounts Receivable

 

Accounts receivable consist primarily of invoices for maintenance and professional services. Full payment for software ordered by customers is 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.  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 operations.

 

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 Company files income tax returns in the U.S. federal and state jurisdictions. Tax years 2016 to 2019 remain open to examination for both the U.S. federal and state jurisdictions.

 

There were no liabilities for uncertain tax positions at June 30, 2020 and December 31, 2019.

 

 

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 lease and debt obligations approximate fair value as their stated interest rates approximate the rates currently available. The Company’s goodwill and intangibles are measured at fair-value on a non-recurring basis using Level 3 inputs, as discussed in Note 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 significantly impact stock-based compensation expense.

 

Recently Adopted 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. This was adopted on January 1, 2020  and did not have a significant impact on our financial position and results of operations.

 

Recent Authoritative Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments -Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements.  The amendment in this update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. We do not expect the adoption of this standard to have a significant impact on our financial position and results of operations.

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - simplifying the accounting for income taxes (Topic 740), which is meant to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes.  The amendment also improves consistent application and simplify GAAP for other areas of Topic 740 by clarifying  and amending existing guidance.  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 unaudited condensed consolidated financial statements.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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.

 

For the three and six months ended June 30, 2020 and 2019, the average market prices for the periods ended are less than the exercise price of all the outstanding stock options and warrants, therefore, the inclusion of the stock options and warrants would be anti-dilutive. In addition, since the effect of common stock equivalents is anti-dilutive with respect to losses, the convertible promissory notes have also been excluded from the Company’s computation of loss per common share for continuing operations for the six months ended June 30, 2020 and three and six months ended June 30, 2019. Therefore, basic and diluted income (loss) per common share for continuing operations for the six months ended June 30, 2020 and three and six months ended June 30, 2019 are the same. For the three months ended June 30, 2020 convertible promissory notes have been included in the Company’s computation of income per common share for continuing operations.

 

   

Three Months

Ended

   

Three Months

Ended

 
   

June 30, 2020

   

June 30, 2019

 

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

               

Net income (loss) from continuing operations

  $ 33,514     $ (300,802

)

Weighted-average common shares outstanding

    4,501,271       4,500,755  

Basic net income (loss) per share

  $ 0.01     $ (0.07

)

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

               

Net income (loss) per above

  $ 33,514     $ (300,802

)

Interest on Convertible debt

    4,514       -  

Net income (loss)

    38,028       (300,802

)

Weighted-average common shares outstanding

    4,501,271       4,500,755  

Incremental shares for convertible promissory notes

    212,799       -  

Total adjusted weighted-average shares

    4,714,070       4,500,755  

Diluted net income (loss) per share

  $ 0.01     $ (0.07

)

 

   

Six Months

Ended

   

Six Months

Ended

 
   

June 30, 2020

   

June 30, 2019

 

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

               

Net loss from continuing operations

  $ (258,601

)

  $ (484,101

)

Weighted-average common shares outstanding

    4,501,271       4,500,755  

Basic net loss per share

  $ (0.06

)

  $ (0.11

)

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

               

Net income (loss) per above

  $ (258,601

)

  $ (484,101

)

Net income (loss)

    (258,601

)

    (484,101

)

Weighted-average common shares outstanding

    4,501,271       4,500,755  

Incremental shares for convertible promissory notes

    -       -  

Total adjusted weighted-average shares

    4,501,271       4,500,755  

Diluted net income (loss) per share

  $ (0.06

)

  $ (0.11

)

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

   

Three Months

June 30, 2020

   

Three Months

June 30, 2019

 

Stock options

    22,280       46,947  

Warrants

    4,988       208,241  

Convertible promissory notes

    -       280,943  
                 

Total potential dilutive securities not included in loss per share

   

27,268

      536,131  

 

   

Six Months

June 30, 2020

   

Six Months

June 30, 2019

 

Stock options

    22,280       41,613  

Warrants

    4,988       208,241  

Convertible promissory notes

    212,799       280,943  
                 

Total potential dilutive securities not included in loss per share

    240,067       530,797  

 

NOTE 4 – PROPERTY AND EQUIPMENT

 

Property and equipment is summarized as follows:

 

   

June 30, 2020

   

December 31, 2019

 

Leasehold improvements

  $ 98,831     $ 98,831  

Equipment, furniture and fixtures

    2,921,198       2,842,340  
      3,020,029       2,941,171  

Less: Accumulated depreciation and amortization

    (2,394,177

)

    (2,228,544

)

                 

Property and equipment, net

  $ 625,852     $ 712,627  

 

Depreciation and amortization expense related to these assets was $81,070 and $165,633, respectively for the three and six months ended June 30, 2020 as compared to $86,726 and $161,112 for the three and six months ended June 30, 2019.  

 

Property and equipment under finance leases are summarized as follows:

 

   

June 30, 2020

   

December 31, 2019

 

Equipment, furniture and fixtures

    659,293       708,272  

Less: Accumulated amortization

    (296,144

)

    (248,497

)

                 

Property and equipment, net

  $ 363,149     $ 459,775  

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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:

 

   

June 30, 2020

   

December 31, 2019

   

Estimated Useful Lives

 

Proprietary developed software

  $ 390,082     $ 390,082       5 – 7  

Intellectual property, customer list, and acquired contracts

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

Total intangible assets

  $ 4,820,096     $ 4,820,096          

Less: accumulated amortization

    (2,396,741

)

    (2,212,795

)

       
    $ 2,423,355     $ 2,607,301          

 

Amortization expense related to the above intangible assets for the three and six months ended June 30, 2020 was $91,974 and $183,946, respectively as compared to $99,844 and $199,687 for the three and six months ended June 30, 2020 and 2019.

 

The Company expects future amortization expense to be the following:

   

 

 

Amortization

 

Remainder of 2020

 

$

181,097

 

2021

 

 

328,495

 

2022

 

 

261,792

 

2023

 

 

198,680

 

2024

 

 

198,680

 

Thereafter

 

 

1,254,611

 

 

 

 

 

 

Total

 

$

2,423,355

 

 

NOTE 6 – CONVERTIBLE DEBT AND LONG-TERM DEBT, RELATED PARTY AND PPP LOAN

 

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 for $600,000 (the “PTI Note”).  The PTI Note is due in 60 months from the closing date and bears interest at a rate of two and one half (2.5%) percent per annum.  Monthly payments including interest are $10,645. At June 30, 2020 and December 31, 2019, the outstanding balance on the PTI Note was $10,623 and $73,899, 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 whereby 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 June 30, 2020 and December 31, 2019 the outstanding balance on the ISM Note was $611,948 and $710,420 respectively.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 6 – CONVERTIBLE DEBT AND LONG-TERM DEBT, RELATED PARTY AND PPP LOAN (Continued)

 

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 whereby the holder may, at its sole and exclusive option, elect to convert, at any time and from time to time, 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 (the “Fixed Conversion Price”). At June 30, 2020 and December 31, 2019 the outstanding balance on the Nellnube Note was $244,779 and $284,168 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 June 30, 2020 and December 31, 2019 the outstanding balance on the PIT Note was $93,133 and $121,968 respectively.

 

At June 30, 2020, future payments of long term debt are as follows:

 

Remainder of 2020

 

$

178,962

 

2021

 

 

341,763

 

2022

 

 

293,380

 

2023

 

 

146,378

 

Total

 

$

960,483

 

 

On April 9, 2020, SWK Technologies, Inc. (“SWK”), a wholly-owned subsidiary of SilverSun Technologies, Inc. (the “Company”), issued  a promissory note (the “Note”) to  JPMorgan Chase Bank, N.A., in the principal aggregate amount of $3,150,832 (the “PPP Loan”) pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan had a two-year term and an interest at a rate of 0.98% per annum. Monthly principal and interest payments were deferred for six months after the date of disbursement. The PPP Loan could be prepaid at any time prior to maturity with no prepayment penalties.

 

Beginning seven months from the date of the PPP Loan SWK was required to make 24 monthly payments of principal and interest in the amount of $132,629.06.

 

Under the terms of the CARES Act, PPP loan recipients could apply for and be granted forgiveness for all or a portion of loan granted under the program. Such forgiveness would be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. No assurance was provided that SWK would obtain forgiveness of the PPP Loan in whole or in part.

 

At the time the Company applied for the PPP Loan, the Company believed it qualified to receive the funds pursuant to the PPP. However, on April 23, 2020, subsequent to the Company’s receipt of the PPP Loan, the SBA, in consultation with the Department of Treasury, issued new guidance that creates uncertainty regarding the qualification requirements for a PPP loan for public companies, and provided a safe harbor whereby a public company could repay its PPP loan without consequence by May 7, 2020.  On May 5, 2020, the SBA issued additional guidance, whereby they extended the safe harbor date until May 14, 2020, and furthermore committed to provide additional guidance relative to a public’s company ability to retain its PPP loan.  The Company reviewed the new guidance and subsequently returned the full amount of the loan on May 18, 2020. 

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 7 – FINANCE 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 property and equipment 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:

 

   

June 30, 2020

 

Weighted average remaining lease term

    1.95  

Weighted average interest rate

    5.36

%

 

At June 30, 2020 future payments under finance leases are as follows:

 

Remainder of 2020

  $ 83,138  

2021

    125,591  

2022

    57,584  

2023

    6,640  

Total minimum lease payments

    272,953  

Less amounts representing interest

    (14,632

)

Present value of net minimum lease payments

    258,321  

Less current portion

    (136,861

)

Long-term finance lease obligation

  $ 121,460  

 

NOTE 8 – OPERATING LEASE LIABILITY

 

The Company leases office space in ten different locations with monthly payments ranging from $720 to $10,044 which expire at various dates through March 2025. The Company also leases equipment with a monthly payment of $10,279 which expires February 2024.

 

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 June 30, 2020 are as follows:

 

   

June 30, 2020

 

Weighted average remaining lease term

    3.40  

Weighted average discount rate

    3.90

%

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 8 – OPERATING LEASE LIABILITY (Continued)

 

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 June 30, 2020:

 

Remainder 2020

  $ 255,759  

2021

    456,075  

2022

    364,083  

2023

    328,032  

2024

    141,457  

Thereafter

    20,510  

Total undiscounted future minimum lease payments

    1,565,916  

Less: Difference between undiscounted lease payments and discounted lease liabilities

    (190,374 )

Total operating lease liabilities

  $ 1,375,542  

Less current portion

    (434,523 )

Long-term operating lease liabilities

  $ 941,019  

 

Total rent expense under operating leases for the three and six months ended June 30, 2020 was $134,485 and $263,270 as compared to $103,438 and $260,823 for the three and six months ended June 30, 2019.

 

NOTE 9 – EQUITY

 

Equity

 

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 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 June 30, 2020 and December 31, 2019, no repurchases have been made.

 

On December 24, 2019, the Company announced the payment of a $0.50 special cash dividend per share of Common Stock payable on January 14, 2020 for an aggregate amount of $2,250,636, which was applied against paid in capital.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 9 – EQUITY (Continued)

 

Options

 

A summary of the status of the Company’s stock option plans for the fiscal years ended December 31, 2019 and the six months ending June 30, 2020 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, 2019

 

 

56,280

 

 

$

3.75

 

 

1.0 years

 

 

$

-0-

 

Options granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

Options canceled/forfeited

 

 

(30,000

)

 

$

3.78

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding options at December 31, 2019

 

 

26,280

 

 

$

3.71

 

 

0.7 years

 

 

$

-0-

 

Options granted

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Options exercised

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Options canceled/forfeited/expired

 

 

(4,000

)

 

$

4.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding options at June 30, 2020

 

 

22,280

 

 

$

3.66

 

 

0.3 years

 

 

$

-0-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested Options:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   June 30, 2020:

 

 

17,960

 

 

$

3.66

 

 

0.3 years

 

 

$

-0-

 

   December 31, 2019:

 

 

21,960

 

 

$

3.72

 

 

0.6 years

 

 

$

-0-

 

 

As of June 30, 2020 the unamortized compensation expense for stock options was $3,396.  Unamortized compensation expense is expected to be recognized over a weighted-average period of 0.3 years. 

 

Warrants

 

The following table summarizes the warrants transactions:

 

 

 

Warrants

Outstanding

 

 

Weighted Average

Exercise Price

 

Average Remaining

Contractual Term

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2019

 

 

208,241

 

 

$

5.26

 

2.3 years

Granted

 

 

-

 

 

$

-

 

 

Exercised

 

 

16,698

 

 

$

5.09

 

 

Canceled

 

 

-

 

 

$

-

 

 

Outstanding and Exercisable December 31, 2019

 

 

191,543

 

 

$

5.28

 

0.3 years

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

$

-

 

 

Exercised

 

 

-

 

 

$

-

 

 

Expired

 

 

186,555

 

 

$

5.30

 

 

Outstanding and Exercisable June 30, 2020

 

 

4,988

 

 

$

4.01

 

1.8 years

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 10 – BUSINESS COMBINATION

 

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 this acquisition to create synergies by combining operations and expanding geographic market share and product offerings.

 

The following summarizes the purchase price allocation for the prior year’s acquisition:

 

   

PIT

 
         

Cash consideration

  $ 60,000  

Note payable

    174,000  

Total purchase price

  $ 234,000  
         

Customer List

  $ 228,000  

Goodwill

    6,000  

Total assets acquired

    234,000  
         

Liabilities acquired

    -  

Net assets acquired

  $ 234,000  

 

The Company’s unaudited condensed consolidated financial statements for the three and six months ending June 30, 2020 and 2019 include the actual results of PIT since the date of acquisition, January 1, 2019. 

 

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 June 30, 2020, 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.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 11 – INCOME TAXES (Continued)

 

Income tax provision (benefit) from continuing operations:

 

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2020

   

2019

 

Current:

               

Federal

  $ 139,425     $ -  

State and local

    33,973       4,089  
                 

Total current tax provision

    173,398       4,089  
                 

Deferred:

               

Federal

    (186,780

)

    (130,774 )

State and local

    (65,000

)

    (2,000 )
                 

Total deferred tax provision (benefit)

    (251,780

)

    (132,774 )
                 

Total provision (benefit)

  $ (78,382

)

  $ (128,685 )

 

For the six months ended June 30, 2020, 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) and 50% of meals, 100% entertainment expense which are not tax deductible. The benefit from continuing operations for the six months ended June 30, 2020 was $78,382. 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

 

As of June 30, 2020 and December 31, 2019, long term debt and long term convertible debt issued in conjunction with various acquisitions are considered related party liabilities as holders are current employees of the Company, see Note 6.

 

NOTE 13 – SALE OF EDI PRACTICE

 

On August 26, 2019 the Company entered into 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. On February 28, 2020, the Company received the first half of the escrow agreement ($575,000), per the agreement. There was also an adjustment to the Working Capital and an additional $162,868 was added to the gain on the sale of Mapadoc which was recognized in 2019 and paid in February 2020.

 

 

SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 14 – DISCONTINUED OPERATIONS

 

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

 

Mapadoc Income Statement for the three and six months ended June 30, 2019

 

   

3 Months Ending June 30, 2019

   

6 Months Ending June 30, 2019

 

Revenues:

               

Software product, net

    177,175       305,857  

Service, net

    1,128,932       2,185,694  

Total revenues, net

    1,306,107       2,491,551  
                 

Cost of revenues:

               

Product

    279       2,346  

Service

    520,990       990,099  

Cost of revenues

    521,269       992,445  
                 

Gross profit

    784,838       1,499,106  
                 

Selling, general and administrative expenses:

               

Selling and marketing expenses

    142,520       240,132  

General and administrative expenses

    228,759       455,131  

Depreciation and amortization expenses

    34,911       69,822  

Total selling, general and administrative expenses

    406,190       765,085  
                 

Income from discontinued operations

    378,648       734,021  

Provision for income taxes

    (776 )     (156,774 )

Income from discontinued operations

    377,872       577,247  

 

NOTE 15 – SUBSEQUENT EVENTS

 

On July 31, 2020, the Company acquired certain assets of Prairie Technology Solutions Group, LLC (“Prairie Tech”) pursuant to an Asset Purchase Agreement.  In consideration for the acquired assets, the Company paid $185,000 in cash and issued three promissory notes to Prairie Tech (“Prairie Tech Note 1”, “Prairie Tech Note 2” and “Prairie Tech Note 3”), each in the principal aggregate amount of $103,333 (collectively the “Prairie Tech  Notes”).  The Prairie Tech Notes bear interest at a rate of 4% per annum.  Prairie Tech Note 1 has a term of one (1) year and is subject to downward adjustment based on whether certain revenue milestones are achieved.  Prairie Tech Note 2 has a term of two (2) years and is also subject to downward adjustment based on whether certain revenue milestones are achieved.  Prairie Tech Note 3 has a term of three (3) years and is not be subject to a downward adjustment.

 

 

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, 2019, 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”), Human Capital Management (“HCM”), Warehouse Management Systems (“WMS”), Customer Relationship Management (“CRM”), and Business Intelligence (“BI”). Additionally, we have our own development staff building software solutions for various ERP enhancements. Our value-added services focus on consulting and professional services, specialized programming, training, and technical support. We have a dedicated Information Technology (“IT”) 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 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 manage their business and 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 IT 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-site and off-site backups, complete encryption, and automatic failure testing. We also provide cybersecurity, 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 Six Months Ended June 30, 2020 and 2019.

 

During the six months ended June 30, 2020 the Company continued to expand its customer base, which prior to Covid-19, we believed would provide a basis for future growth, as revenues increased 7% from the same six month period in the prior year.  The Company will continue to monitor the Covid 19 situation as it pertains to the disruption of our business and growth in future quarters and will take steps to establish mitigation strategies in order to try and minimize risk of any potential downturn for shareholders as well the health, safety and wellbeing of its employees and customers.

 

Revenues

 

Revenues for the three months ended June 30, 2020 increased $553,527 (6.07%) to $9,672,945 as compared to $9,119,418 for the three months ended June 30, 2019.  Revenues for the six months ended June 30, 2020 increased $1,325,736 (7.19%) to $19,752,468 as compared to $18,426,732 for the six months ended June 30, 2019.The increase can be attributed to both the increase in software sales and consulting revenue, as well as an increase in subscription revenue.

 

Software sales increased $502,058 (35.24%) to $1,926,697 for the three months ended June 30, 2020 as compared to $1,424,639 for the three months ended June 30, 2019. For the six months ended June 30, 2019 software sales increased $664,952 (21.94%) to $3,695,867 from $3,030,915 for the same period in 2019. The increase is attributable to increased sales of third party solutions which add functionality to customer’s existing systems.

 

Service revenue increased by $51,469 to $7,746,248 for the three months ended June 30, 2020 from $7,694,779 for the same period in 2019, which represents an overall increase of 0.67%. Service revenue increased by $660,784 to $16,056,601 for the six months ended June 30, 2020 from $15,395,817 for the same period in 2019, representing an overall increase of 4.29%. This increase is attributed to the increase in both consulting and subscription revenue.

 

Gross Profit

 

Gross profit for the three months ended June 30, 2020 increased $461,707 (13.28%) to $3,938,605 as compared to $3,476,898 for the three months ended June 30, 2019. For the three month period ended June 30, 2020, the overall gross profit percentage was 40.72% as compared to 38.13% for the period ended June 30, 2019.

 

Gross profit for the six months ended June 30, 2020 increased $551,293 (7.62%) to $7,790,814 as compared to $7,239,521 for the six months ended June 30, 2019. For the six month period ended June 30, 2020, the overall gross profit percentage was 39.44% as compared to 39.29% for the period ended June 30, 2019.  

 

 

The gross profit attributed to software sales increased $179,832, or 35%,  to $693,532 for the three months ending June 30, 2020 versus  $513,700 in the three months ending June 30, 2019, Gross profit attributed to software sales increased $109,784, or 8.97%, to $1,333,310 for the six months ending June 30, 2020 versus $1,223,526 in the six months ending June 30, 2019.   This increase is attributed to the increase in software sales for the period.

 

The gross profit attributed to services increased $281,875, or 9.51%, to $3,245,073 for the three months ending June 30, 2020 versus  $2,963,198 for the three months ending June 30, 2019, while gross profit attributed to services increased $441,509, or 7.33%, to $6,457,504 for the six months ending June 30, 2020 versus $ 6,015,995 for the six months ending June 30, 2019. This increase is attributed to the increase in subscription revenue for the period.

 

Operating Expenses 

 

Selling and marketing expenses increased $167,506 (10.70%) to $1,733,472 for the three months ending June 30, 2020 from $1,565,966 in the three months ending June 30, 2019. Selling and marketing expenses increased $366,379 (11.07%) to $3,674,795 for the six months ended June 30, 2020 compared to $3,308,416 for the six months ended June 30, 2019. This is due to increased variable compensation as a result of increased sales.

 

General and administrative expenses decreased $96,347 (4.64%) to $1,981,248 for the three months ending June 30, 2020 from $2,077,595 in the three months ending June 30, 2019. General and administrative expenses decreased $24,982 (0.60%) to $4,107,389 for the six months ended June 30, 2020 as compared to $4,132,371 for the six months ended June 30, 2019. This is primarily as a result of decreases in travel expenses as a result of less employees traveling during the pandemic. 

 

Depreciation and amortization expense decreased $13,526 for the three months ended June 30, 2020 to $173,044 as compared to $186,570 for the three months ended June 30, 2019. Depreciation and amortization expense decreased $11,219 for the six months ended June 30, 2020 to $349,579 as compared to $360,798 for the six months ended June 30, 2019. This decrease is due to some equipment being fully depreciated in 2020.

 

Income (loss) from Continuing operations

 

For the three months ended June 30, 2020, the Company had income from continuing operations of $33,514 as compared to loss from continuing operations of $300,802 for the three months ended June 30, 2019. The increase is primarily due to increased revenue as well as less general and administrative expenses.

 

For the six months ended June 30, 2020, the Company had a loss from continuing operations of $258,601 as compared to loss from continuing operations of $484,101 for the six months ended June 30, 2019. The decrease in loss is primarily due to increased revenue as well as less general and administrative expenses.

 

Liquidity and Capital Resources

 

The negative impact of Covid-19 on the economy creates tremendous uncertainty for the Company in the coming months and quarters.  Recent government reports indicate that there are currently about 17 million people unemployed in the U.S., many of whom work at our customer’s businesses or businesses similar to our customers.  The negative impact on our business is impossible to determine at this point, although it is likely that we will suffer negative consequences as many of these companies go out of business or decrease their technology spending.  The current confusion in SBA guidance as to whether the Company, as a publicly-traded entity,  was eligible  to retain its PPP Loan, as well as the unavailability of other alternative sources of funding, means that we may need to rely on our own limited resources to weather the anticipated economic downturn., Our competitors, almost all of whom are privately-held, and able to avail themselves of the PPP program, will make it more difficult for the Company to compete in the marketplace. Management will continue to monitor developments, explore various cost-cutting measures, and explore other sources of funding, but there is no guarantee we will be successful in doing so. 

 

On July 31, 2020, the Company acquired certain assets of Prairie Technology Solutions Group, LLC (“PT”) pursuant to an Asset Purchase Agreement.  In consideration for the acquired assets, the Company paid $185,000 in cash and three promissory notes, each in the principal of $103,333 (“PT Notes”) with an interest rate of 4% per annum. The notes mature July 2021, July 2022 and July 2023 respectively.

 

The Company currently has no line of credit or other credit facility with any lender.

 

 

As of June 30, 2020, the Company has $960,483 notes outstanding from acquisitions occurring between 2014 and 2019. Future payments on these notes are as follows:

 

Remainder of 2020

 

$

178,962

 

2021

 

 

341,763

 

2022

 

 

293,380

 

2023

 

 

146,378

 

Total

 

$

960,483

 

 

During the six months ended June 30, 2020, the Company had a net decrease in cash of $1,799,371.  The Company’s principal sources and uses of funds were as follows:

 

Cash provided by (used in) operating activities of continuing operations

 

Operating activities for the six months ended June 30, 2020 provided cash of $270,375 as compared to using cash of $1,364,291 for the same period in 2019. This increase in cash is primarily due an increase in collections of accounts receivable as well as a decrease in accounts payable.

 

Cash provided by (used in) investing activities of continuing operations

 

Investing activities for the six months ended June 30, 2020 provided cash of $496,142 as compared to using cash of $164,227 for the same period in 2019. This increase in cash is due to a decrease in software development costs as well as a decrease in acquisition of business costs as well as partial payment of the Escrow from the EDI sale in August 2019.

 

Cash used in financing activities of continuing operations

 

Financing activities for the six months ended June 30, 2020 used cash of $2,565,888 as compared to $557,042 for the same period in 2019. The use was due primarily to the payment of the cash dividend in January 2020.

 

Cash flows from discontinued operations

 

Operating activities for discontinued operations for the six months ended June 30, 2020 provided cash of $0 as compared to $806,189 for the same period in 2019.  This is due to the fact that the EDI practice was sold in August 2019, providing six months of operating activities in 2019.

 

Investing activities of discontinued operations for the six months ended June 30, 2020 used cash of $0 as compared to $93,826 for the same period in 2019. This was due to having no software being put into production in 2020 as a result of the EDI practice being sold 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, provided however, that the Company cannot currently quantify the uncertainty related to the recent pandemic and its effects on the business in the coming quarters. The belief that the Company has sufficient liquidity may be incorrect as the impact of Covid-19 becomes clearer over the coming months and quarters.

 

There was no significant impact on the Company’s operations as a result of inflation for the six months ended June 30, 2020.  

 

Off Balance Sheet Arrangements

 

During the six months ended June 30, 2020 or for fiscal 2019, 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

 

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. 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.

 

Item 1A.  Risk Factors

 

We face risks related to Novel Coronavirus (COVID-19) which could significantly disrupt our, operations, sales, consulting services, and financial results.

 

Our business will be adversely impacted by the effects of the Novel Coronavirus (COVID-19). In addition to global macroeconomic effects, the Novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments will cause disruption to our operations, including but not limited to disruption to the labor workforce, unavailability of products and supplies used i