See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
The Company acquired certain assets of Partners in Technology, Inc. (“PIT”) for a $174,000 promissory note in addition to a cash payment of $60,000. (see Note 10).
Operating lease right of use assets and operating lease liabilities were recognized in the amount of $911,000 at January 1, 2019.
On April 1, 2019 the Company entered into an operating lease in Lisle, IL. Accordingly, operating lease right of use assets and operating lease liabilities were recognized in the amount of $71,685.
The Company incurred approximately $291,936 in finance lease obligations for the purchase of equipment.
On September 6, 2019, the Company filed a Certificate of Elimination of Certificate of Designations (the “Certificate of Elimination”) with the Secretary of State of the State of Delaware. The Certificate of Withdrawal eliminated the Company’s Series B Preferred Stock, par value $.001 per share (the “Series B Preferred”), from the Company’s Certificate of Incorporation. Prior to filing the Certificate of Elimination, Mark Meller, the Company’s Chief Executive Officer and Chairman and owner of the only share of Series B Preferred, cancelled the only share of Series B Preferred issued and outstanding.
On August 26, 2019 the Company sold the EDI practice and $1,150,000 of the proceeds were put in an escrow receivable account (see Note 14).
On March 31, 2018, the remaining principal and accrued interest on the note payable to Oates & Company, LLC. was offset against a related party receivable of $47,043.
The Company acquired certain assets of Info Management Systems, Inc. (“ISM”) for a $1,000,000 promissory note in addition to a cash payment of $300,000 and the assumption of certain capital lease obligations of approximately $25,734 (see Note 10).
The Company acquired certain assets of Nellnube, Inc (“NNB”) for a $400,000 promissory note and the assumption of certain capital lease obligations of approximately $57,964 (see Note 10).
The Company incurred approximately $80,875 in capital lease obligations for the purchase of equipment.
See accompanying notes to the unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS
SilverSun Technologies, Inc. (“SilverSun”) through our wholly owned subsidiaries SWK Technologies, Inc. (“SWK”), Secure Cloud Services, Inc. (“SCS”) and Critical Cyber Defense Corp. (“CCD”) together with SWK, SCS and SilverSun, the “Company” is a value-added reseller and master developer for Sage Software’s Sage100/500 and Sage ERP X3 financial and accounting software and Acumatica, Inc.’s cloud-based ERP software as well as the publisher of proprietary software solutions, including its own Electronic Data Interchange (EDI) software, “MAPADOC ” (On August 26, 2019 the Company sold its EDI practice and it has been determined that it be reported as discontinued operations. See Notes 14 and 15). Further the Company provides cloud hosting for business applications through SCS and also provides enterprise cybersecurity services via CCD. The Company is also a managed network service provider, providing remote network monitoring services, business continuity, disaster recovery and data backup. The Company sells services and products to various industries including, but not limited to, manufacturers, wholesalers and distributors located throughout the United States. The Company is publicly traded and was quoted on the Over-the-Counter Market Place (“OTCQB”) under the symbol “SSNT” until April 18, 2017. Since April 19, 2017, the Company has been listed and is traded on the NASDAQ Capital Market under the symbol “SSNT”.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of September 30, 2019, the results of operations for the three and nine months ended September 30, 2019 and 2018 and cash flows for the nine months ended September 30, 2019 and 2018. These results are not necessarily indicative of the results to be expected for the full year.
The financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and consequently have been condensed and do not include all of the disclosures normally made in an Annual Report on Form 10-K. The December 31, 2018 balance sheet included herein was derived from the audited consolidated financial statements included in the Company’s annual report on Form 10-K. Accordingly, the financial statements included herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 28, 2019.
All financial results of the EDI practice are classified as discontinued operations for the purpose of this quarterly report.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of SilverSun and its wholly-owned subsidiaries SWK, SCS, and CCD. All significant inter-company transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Goodwill
Goodwill is the excess of acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired. Goodwill is not amortized, but tested for impairment annually or whenever indicators of impairment exist. These indicators may include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. No impairment losses were identified or recorded for the three and nine months ended September 30, 2019 and 2018.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Capitalization of proprietary developed software
Software development costs are accounted for in accordance with ASC 985-20, Software — Costs of Software to be Sold, Leased or Marketed. Costs associated with the planning and designing phase of software development are expensed as incurred. Once technological feasibility has been determined, a portion of the costs incurred in development, including coding, testing and quality assurance, are capitalized until available for general release to clients, and subsequently reported at the lower of unamortized cost or net realizable value. Amortization is calculated on a solution-by-solution basis and is over the estimated economic life of the software. Amortization commences when a solution is available for general release to clients.
Definite Lived Intangible Assets and Long-lived Assets
Purchased intangible assets are recorded at fair value using an independent valuation at the date of acquisition and are amortized over the useful lives of the asset using the straight-line amortization method.
The Company assesses potential impairment of its intangible assets and other long-lived assets when there is evidence that recent events or changes in circumstances have made recovery of an asset’s carrying value unlikely. Factors the Company considers important, which may cause impairment include, among others, significant changes in the manner of use of the acquired asset, negative industry or economic trends, and significant underperformance relative to historical or projected operating results. Impairment losses of $ 236,860 and $0, were identified and recorded for the three and nine months ended September 30, 2019 and 2018 respectively.
Revenue Recognition
The Financial Accounting Standards Board “FASB” issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606 which superseded nearly all existing revenue recognition guidance under GAAP. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, among others. Topic 606 also provides guidance on the recognition of costs related to obtaining customer contracts.
With the adoption of ASC 606, the Company has elected the significant financing component practical expedient. In determining the transaction price, the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Software product revenue is recognized when the product is delivered to the customer and the Company’s performance obligation is fulfilled.
Service revenue is recognized when the professional consulting, maintenance or other ancillary services are provided to the customer. Shipping and handling costs charged to customers are classified as revenue, and the shipping and handling costs incurred are included in cost of sales.
|
|
For the Three Months Ending September 30,
|
|
|
For the Nine Months Ending September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Professional Consulting
|
|
$
|
2,957,174
|
|
|
$
|
3,074,464
|
|
|
$
|
8,974,457
|
|
|
$
|
9,437,828
|
|
Maintenance Revenue
|
|
$
|
2,360,335
|
|
|
$
|
2,678,585
|
|
|
$
|
5,794,705
|
|
|
$
|
5,865,071
|
|
Ancillary Service Revenue
|
|
$
|
2,922,385
|
|
|
$
|
2,853,527
|
|
|
$
|
8,866,548
|
|
|
$
|
7,330,133
|
|
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Unbilled Services
The Company recognizes revenue on its professional services as those services are performed or certain obligations are met. Unbilled services represent the revenue recognized but not yet invoiced.
Deferred Revenues
Deferred revenues consist of maintenance on proprietary products, customer telephone support services and deposits for future consulting services which will be earned as services are performed over the contractual or stated period, which generally ranges from three to twelve months. As of September 30, 2019, there was $147,066 in deferred maintenance, $195,252 in deferred support services, and $1,635,121 in deposits for future consulting services. As of December 31, 2018, there was $198,727 in deferred maintenance, $95,550 in deferred support services, and $1,092,341 in deposits for future consulting services.
Commissions
Sales commissions relating to service revenues are considered incremental and recoverable costs of obtaining a project with our customer. These commissions are calculated based on estimated revenue to be generated over the life of the project. These costs are deferred and expensed as the service revenue is earned. Commission expense is included in selling and marketing expenses in the accompanying unaudited condensed consolidated statements of income.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to federally insured limits. At times balances may exceed FDIC insured limits. The Company has not experienced any losses in such accounts.
Concentrations
The Company maintains its cash with various institutions, which exceed federally insured limits throughout the year. At September 30, 2019 and December 31, 2018, the Company had cash on deposit of $10,191,633 and $1,473,286, respectively, in excess of the federally insured limits of $250,000.
As of September 30, 2019 and December 31, 2018, no one customer represented more than 10% of the total accounts receivable and unbilled services.
For the nine months ended September 30, 2019 and 2018, the Company’s top ten customers accounted for 11% ($3,094,620) and 15% ($4,113,611), respectively, of our total revenues. The Company does not rely on any one specific customer for any significant portion of its revenue.
For the nine months ended September 30, 2019 and 2018, purchases from one supplier through a “channel partner” agreement were approximately 20% and 24% of cost of revenues, respectively. This channel partner agreement is for a one year term and automatically renews for an additional one year term on the anniversary of the agreements effective date.
As of September 30, 2019 and December 31, 2018, one supplier represented approximately 41% and 40% of total accounts payable respectively.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable, cash and cash-escrow. As of September 30, 2019, the Company believes it has no significant risk related to its concentration of accounts receivable.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounts Receivable
Accounts receivable consist primarily of invoices for maintenance and professional services. Full payment for software ordered by customers is primarily due in advance of ordering from the software supplier. Payments for maintenance and support plan renewals are due before the beginning of the maintenance period. Terms under our professional service agreements are generally 50% due in advance and the balance on completion of the services.
The Company maintains an allowance for bad debt estimated by considering a number of factors, including the length of time the amounts are past due, the Company’s previous loss history and the customer’s current ability to pay its obligations. Accounts are written off against the allowance when deemed uncollectable.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets, generally three to seven years. Leasehold improvements are amortized using the straight-line method over the estimated useful lives or the term of the lease, whichever is shorter. Maintenance and repairs that do not materially add to the value of the equipment nor appreciably prolong its life are charged to expense as incurred.
When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in the Unaudited Condensed Consolidated Statements of Income.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as net operating loss carryforwards. Based on ASU 2015-17, all deferred tax assets or liabilities are classified as long-term. Valuation allowances are established against deferred tax assets if it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in operations in the period that includes the enactment date.
The Company has federal net operating loss (“NOL”) carryforwards which are subject to limitations under Section 382 of the Internal Revenue Code.
The 2017 Tax Cuts and Jobs Act (“Tax Reform”) was enacted on December 22, 2017. The Tax Reform includes a number of changes in existing tax law impacting businesses including a permanent reduction in the U.S. federal statutory rate from 34% to 21%, effective on January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate. The rate reconciliation includes the Company’s assessment of the accounting under the Tax Reform which is based on information that was available to management at the time the unaudited condensed consolidated financial statements were prepared.
The Company files income tax returns in the U.S. federal and state jurisdictions. Tax years 2016 to 2018 remain open to examination for both the U.S. federal and state jurisdictions.
There were no liabilities for uncertain tax positions at September 30, 2019 or December 31, 2018.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value Measurement
The accounting standards define fair value and establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is as follows:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
The Company’s current financial assets and liabilities approximate fair value due to their short term nature and include cash, accounts receivable, accounts payable, and accrued liabilities. The carrying value of longer term leases and debt obligations approximate fair value as their stated interest rates approximate the rates currently available. The Company’s goodwill and intangibles are measured on a non-recurring basis using Level 3 inputs, as discussed in Notes 5 and 10.
Stock-Based Compensation
Compensation expense related to share-based transactions, including employee stock options, is measured and recognized in the financial statements based on a determination of the fair value. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For employee stock options, the Company recognizes expense over the requisite service period on a straight-line basis (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. Any changes in these highly subjective assumptions may significantly impact stock-based compensation expense.
Recently Adopted Authoritative Pronouncements
In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company adopted the new standard on January 1, 2019 and use the effective date as the date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company elects the ‘package of practical expedients’, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. On adoption, the Company recognized additional operating lease liabilities of approximately $911,000 with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In June 2018, the FASB, issued ASU No. 2018-07 to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance expands the scope of Accounting Standards Codification, or ASC, 718 to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505-50. The guidance is effective for public business entities in annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, including in an interim period for which financial statements have not been issued, but not before an entity adopts ASC 606. This was adopted on January 1, 2019 and did not have a material impact on the financial position and results of operations.
Recent Authoritative Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), which includes provisions, intended to simplify the test for goodwill impairment. The standard is effective for annual periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of this standard to have a significant impact on our financial position and results of operations.
No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s consolidated financial statements.
NOTE 3 – NET (LOSS) INCOME PER COMMON SHARE
The Company’s basic income per common share is based on net income for the relevant period, divided by the weighted average number of common shares outstanding during the period. Diluted income per common share is based on net income, divided by the weighted average number of common shares outstanding during the period, including common share equivalents, such as outstanding option and warrants to the extent they are dilutive. The computation of diluted income per share for the three and nine months ended September 30, 2019 and 2018 and does not include all share equivalents as the exercise price of certain warrants and options exceeded the average market price of the common stock. Options in the money under the treasury stock method and convertible debt, based on if-converted method are included below. For the three and nine months ended September 30, 2019 and 2018 all warrants, options and convertible debt are excluded as the Company is in a net loss from continuing operations position.
|
|
Three Months
Ended
|
|
|
Three Months
Ended
|
|
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
Basic net income (loss) from continuing operations per share computation:
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(949,873
|
)
|
|
$
|
(167,188
|
)
|
Weighted-average common shares outstanding
|
|
|
4,500,755
|
|
|
|
4,501,755
|
|
Basic net loss per share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.04
|
)
|
Diluted net income (loss) from continuing operations per share computation:
|
|
|
|
|
|
|
|
|
Net loss per above
|
|
$
|
(949,873
|
)
|
|
$
|
(167,188
|
)
|
Net loss
|
|
|
(949,873
|
)
|
|
|
(167,188
|
)
|
Weighted-average common shares outstanding
|
|
|
4,500,755
|
|
|
|
4,501,755
|
|
Total adjusted weighted-average shares
|
|
|
4,500,755
|
|
|
|
4,501,755
|
|
Diluted net loss per share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.04
|
)
|
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – NET (LOSS) INCOME PER COMMON SHARE (Continued)
|
|
Nine Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
Basic net income (loss) from continuing operations per share computation:
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(1,547,609
|
)
|
|
$
|
(886,111
|
)
|
Weighted-average common shares outstanding
|
|
|
4,500,755
|
|
|
|
4,499,072
|
|
Basic net loss per share
|
|
$
|
(0.34
|
)
|
|
$
|
(0.20
|
)
|
Diluted net income (loss) from continuing operations per share computation:
|
|
|
|
|
|
|
|
|
Net loss per above
|
|
$
|
(1,547,609
|
)
|
|
$
|
(886,111
|
)
|
Net loss
|
|
|
(1,547,609
|
)
|
|
$
|
(886,111
|
)
|
Weighted-average common shares outstanding
|
|
|
4,500,755
|
|
|
|
4,499,072
|
|
Total adjusted weighted-average shares
|
|
|
4,500,755
|
|
|
|
4,499,072
|
|
Diluted net loss per share
|
|
$
|
(0.34
|
)
|
|
$
|
(0.20
|
)
|
The following table summarizes securities that, if exercised, would have an anti-dilutive effect on earnings (loss) per share.
|
|
Three Months
September 30,
2019
|
|
|
Three Months
September 30,
2018
|
|
Stock options
|
|
|
29,502
|
|
|
|
56,280
|
|
Warrants
|
|
|
208,241
|
|
|
|
208,241
|
|
Convertible promissory notes
|
|
|
264,035
|
|
|
|
347,740
|
|
|
|
|
|
|
|
|
|
|
Total potential dilutive securities not included in loss per share
|
|
|
501,778
|
|
|
|
612,261
|
|
|
|
Nine Months
September 30,
2019
|
|
|
Nine Months
September 30,
2018
|
|
Stock options
|
|
|
44,046
|
|
|
|
56,280
|
|
Warrants
|
|
|
208,241
|
|
|
|
208,241
|
|
Convertible promissory notes
|
|
|
264,035
|
|
|
|
155,839
|
|
|
|
|
|
|
|
|
|
|
Total potential dilutive securities not included in loss per share
|
|
|
516,322
|
|
|
|
420,360
|
|
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Leasehold improvements
|
|
$
|
98,831
|
|
|
$
|
98,831
|
|
Equipment, furniture and fixtures
|
|
|
2,796,889
|
|
|
|
2,479,732
|
|
|
|
|
2,895,720
|
|
|
|
2,578,563
|
|
Less: Accumulated depreciation and amortization
|
|
|
(2,143,175
|
)
|
|
|
(1,890,441
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
752,545
|
|
|
$
|
688,122
|
|
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 – PROPERTY AND EQUIPMENT (Continued)
Depreciation and amortization expense related to these assets was $91,622 and $252,734 respectively for the three and nine months ended September 30, 2019 as compared to $91,262 and $239,004 for the three and nine months ended September 30, 2018, respectively.
Property and equipment under finance leases are summarized as follows:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Equipment, furniture and fixtures
|
|
|
708,272
|
|
|
|
436,084
|
|
Less: Accumulated amortization
|
|
|
(199,503
|
)
|
|
|
(103,061
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
508,769
|
|
|
$
|
333,023
|
|
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consist of proprietary developed software, intellectual property, customer lists and acquired contracts carried at cost less accumulated amortization and customer lists acquired at fair value less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives.
The components of intangible assets are as follows:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Estimated Useful Lives
|
|
Proprietary developed software
|
|
$
|
390,082
|
|
|
$
|
545,216
|
|
|
5 – 7
|
|
Intellectual property, customer list, and acquired contracts
|
|
|
4,430,014
|
|
|
|
4,202,014
|
|
|
5 – 15
|
|
Total intangible assets
|
|
$
|
4,820,096
|
|
|
$
|
4,747,230
|
|
|
|
|
Less: accumulated amortization
|
|
|
(2,117,036
|
)
|
|
|
(1,830,863
|
)
|
|
|
|
|
|
$
|
2,703,060
|
|
|
$
|
2,916,367
|
|
|
|
|
Amortization expense included in depreciation and amortization expense was $86,487 and $286,173 for the three and nine months ended September 30, 2019, respectively as compared to $148,520 and $311,358 for the three and nine months ended September 30, 2018, respectively. Impairment on intangible assets was $236,860 and $0 for the three and nine months ended September 30, 2019 and 2018, respectively.
The Company expects future amortization expense to be the following:
|
|
Amortization
|
|
Balance of 2019
|
|
$
|
95,760
|
|
2020
|
|
|
365,045
|
|
2021
|
|
|
328,495
|
|
2022
|
|
|
261,792
|
|
2023
|
|
|
198,680
|
|
Thereafter
|
|
|
1,453,288
|
|
|
|
|
|
|
Total
|
|
$
|
2,703,060
|
|
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – LINE OF CREDIT AND LONG-TERM DEBT, RELATED PARTY
On September 11, 2018, SWK entered into a Revolving Demand Note (the “JPM Revolving Demand Note”) by and between SWK and JPMorgan Chase Bank (“JPM Lender”), a commercial lender. JPM Lender agreed to loan SWK up to a principal amount of two million dollars. The interest rate on the JPM Revolving Demand Note was a variable rate, equal to the “Adjusted LIBOR Rate”, plus two and one quarter percent (2.25%) per annum (4.45% at September 30, 2019). The JPM Revolving Demand Note was secured by all of SWK’s assets pursuant to a Security Agreement. The line was also collateralized by substantially all of the assets of the Company. On August 26, 2019, all amounts owed to JPM Lender under the JPM Revolving Demand Note were paid and the JPM Revolving Demand Note terminated and is of no further force or effect.
On May 6, 2014, SWK acquired certain assets of ESC, Inc. pursuant to an Asset Purchase Agreement and the issuance of a promissory note in the aggregate principal amount of $350,000 (the “ESC Note”). The ESC Note matured on April 1, 2019 and was paid off on that date. Monthly payments were $6,135 including interest at two percent (2%) per year. At September 30, 2019 and December 31, 2018, the outstanding balance was $0 and $30,521, respectively.
On July 6, 2015, SWK acquired certain assets of ProductiveTech Inc. (“PTI”) pursuant to an Asset Purchase Agreement for cash of $500,000 and a promissory note in the aggregate principal amount of $600,000 (the “PTI Note”). The PTI Note is due 60 months from the closing date and bears interest at a rate of two and one half percent (2.5%). Monthly payments including interest are $10,645. At September 30, 2019 and December 31, 2018, the outstanding balance was $105,242 and $198,106, respectively.
On May 31, 2018, SWK acquired certain assets of Info Sys Management, Inc. (“ISM”) pursuant to an Asset Purchase Agreement for cash of $300,000 and a promissory note issued in the aggregate principal amount of $1,000,000 (the “ISM Note”). The ISM Note is due five years from the closing date and bears interest at a rate of two percent (2%) per annum. Monthly payments including interest are $17,528. The ISM Note has an optional conversion feature where the holder may, at its sole and exclusive option, elect to convert, at any time and from time to time, until payment in full of the ISM Note, all of the outstanding principal amount of the ISM Note, plus accrued interest, into shares (the “Conversion Shares”) of the Company’s Common Stock, (“Common Stock”) at per share price equal to $4.03, a price equal to the average closing price of its Common Stock for the five (5) trading days immediately preceding the issuance date of the ISM Note (the “Fixed Conversion Price”). At September 30, 2019 and December 31, 2018 the outstanding balance on the ISM Note was $759,288 and $904,436 respectively.
On May 31, 2018, Secure Cloud Services acquired certain assets of Nellnube, Inc. (“Nellnube”) pursuant to an Asset Purchase Agreement for a promissory note issued in the aggregate principal amount of $400,000 (the “Nellnube Note”). The Nellnube Note is due five years from the closing date and bears interest at a rate of two percent (2%) per annum. Monthly payments including interest are $7,011. The Nellnube Note has an optional conversion feature where the holder may, at its sole and exclusive option, elect to convert, at any time and from time to time, until payment in full of the Nellnube Note, all of the outstanding principal amount of the Nellnube Note, plus accrued interest, into shares (the “Conversion Shares”) of the Company’s Common Stock, (“Common Stock”) at per share price equal to $4.03, a price equal to the average closing price of its Common Stock for the five (5) trading days immediately preceding the issuance date of the Nellnube Note (the “Fixed Conversion Price”). At September 30, 2019 and December 31, 2018 the outstanding balance on the Nellnube Note was $303,715 and $361,774 respectively.
On January 1, 2019, SWK acquired certain assets of Partners in Technology, Inc. (“PIT”) pursuant to an Asset Purchase Agreement for cash of $60,000 and the issuance of a promissory note in the aggregate principal amount of $174,000 (the “PIT Note”). The PIT Note is due in 36 months from the closing date and bears interest at a rate of two percent (2.0%) per annum. Monthly payments including interest are $4,984. At September 30, 2019 the outstanding balance was $136,230.
At September 30, 2019, future payments of long term debt are as follows:
Remainder of 2019
|
|
$
|
114,053
|
|
2020
|
|
|
408,901
|
|
2021
|
|
|
341,763
|
|
2022
|
|
|
293,380
|
|
2023
|
|
|
146,378
|
|
Total
|
|
$
|
1,304,475
|
|
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 – FINANCE AND CAPITAL LEASE OBLIGATIONS
The Company has entered into lease commitments for equipment that meet the requirements for capitalization. The equipment has been capitalized and is included in the accompanying unaudited condensed consolidated balance sheets. The related obligations are based upon the present value of the future minimum lease payments with the following:
|
|
September 30, 2019
|
|
Weighted average remaining lease term
|
|
|
2.53
|
|
Weighted average interest rate
|
|
|
5.53
|
%
|
At September 30, 2019, future payments under finance leases are as follows:
Remainder of 2019
|
|
$
|
47,245
|
|
2020
|
|
|
174,006
|
|
2021
|
|
|
125,589
|
|
2022
|
|
|
57,585
|
|
2023
|
|
|
6,640
|
|
Total minimum lease payments
|
|
|
411,065
|
|
Less amounts representing interest
|
|
|
(26,990
|
)
|
Present value of net minimum lease payments
|
|
|
384,075
|
|
Less current portion
|
|
|
(167,277
|
)
|
Long-term finance lease obligation
|
|
$
|
216,798
|
|
The Company included capital lease obligations as of December 31, 2018 under the finance lease obligations caption in the unaudited condensed consolidated balance sheet.
Disclosures related to periods prior to adoption of ASU 2016-02
The Company adopted ASU 2016-02 using a modified retrospective adoption method at January 1, 2019 as noted in Note 2 “Recently Adopted Authoritative Standards”. As required, the following disclosure is provided for periods prior to adoption. Minimum capital lease commitments as of December 31, 2018 that have initial or remaining lease terms in excess of one year are as follows:
2019
|
|
$
|
97,259
|
|
2020
|
|
|
70,147
|
|
2021
|
|
|
21,728
|
|
2022
|
|
|
19,920
|
|
2023
|
|
|
6,640
|
|
Total minimum lease payments
|
|
|
215,694
|
|
Less amounts representing interest
|
|
|
(19,827
|
)
|
Present value of net minimum lease payments
|
|
|
195,867
|
|
Less current portion
|
|
|
(87,355
|
)
|
Long-term capital lease obligation
|
|
$
|
108,512
|
|
NOTE 8 – OPERATING LEASE LIABILITY
The Company leases office space in ten different locations with monthly payments ranging from $720 to $9,403 which expire at various dates through April 2024.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – OPERATING LEASE LIABILITY (Continued)
The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company used incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date.
The Company's weighted average remaining lease term and weighted average discount rate for operating leases as of September 30, 2019 are as follows:
|
|
September 30, 2019
|
|
Weighted average remaining lease term
|
|
|
3.58
|
|
Weighted average discount rate
|
|
|
4.77
|
%
|
The following table reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total lease liabilities recognized on the condensed consolidated balance sheet as of September 30, 2019:
Remainder 2019
|
|
$
|
78,440
|
|
2020
|
|
|
285,289
|
|
2021
|
|
|
221,018
|
|
2022
|
|
|
133,568
|
|
2023
|
|
|
119,677
|
|
Thereafter
|
|
|
40,177
|
|
Total undiscounted future minimum lease payments
|
|
|
878,169
|
|
Less: Difference between undiscounted lease payments and discounted lease liabilities
|
|
|
(107,275
|
)
|
Total operating lease liabilities
|
|
$
|
770,894
|
|
Less current portion
|
|
|
(268,569
|
)
|
Long-term operating lease liabilities
|
|
$
|
502,325
|
|
Total rent expense under operating leases for the three and nine months ended September 30, 2019 was $100,764 and $315,235 as compared to $104,822 and $315,202 for the three and nine months ended September 30, 2018.
Disclosures related to periods prior to adoption of ASU 2016-02
The Company adopted ASU 2016-02 using a modified retrospective adoption method at January 1, 2019 as noted in Note 2 “Recently Adopted Authoritative Standards”. As required, the following disclosure is provided for periods prior to adoption. Minimum operating lease commitments as of December 31, 2018 that have initial or remaining lease terms in excess of one year are as follows:
2019
|
|
$
|
369,561
|
|
2020
|
|
|
261,542
|
|
2021
|
|
|
196,680
|
|
2022
|
|
|
127,447
|
|
2023
|
|
|
119,677
|
|
Thereafter
|
|
|
40,177
|
|
|
|
$
|
1,115,084
|
|
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – EQUITY
Equity
On January 18, 2018, the Company issued 100 shares of stock each to 10 non-executive employees of SWK valued at $3,830 based on the current market price at issuance date. On October 24, 2018, the Company cancelled an aggregate of 1,000 shares of stock previously issued on January 18, 2018 to ten non-executive employees of SWK in order to comply with Nasdaq Listing Rule 5365(c). Upon cancellation of such shares, the Company regained compliance with Nasdaq Listing Rule 5365(c).
On February 8, 2018 and March 23, 2018, the Company issued 4,825 and 5,115 shares of stock, respectively, in exchange for financial advisory services. The shares are based on the current market price at issuance date with a value of $17,852 and $20,204, respectively.
On March 30, 2018, the Company issued 912 shares of stock for legal services valued at $3,420 based on the current market price at issuance date.
All shares issued during the three month period ended March 31, 2018 were fully vested.
On December 24, 2018, the Company announced the payment of a $0.05 special cash dividend per share of Common Stock. The dividend payments announced in December were paid out on January 14, 2019 for an aggregate amount of approximately $225,038, which was applied against additional paid in capital and included in accrued expenses at December 31, 2018.
On September 6, 2019, the Company filed a Certificate of Elimination of Certificate of Designations (the “Certificate of Elimination”) with the Secretary of State of the State of Delaware. The Certificate of Withdrawal eliminated the Company’s Series B Preferred Stock, par value $.001 per share (the “Series B Preferred”), from the Company’s Certificate of Incorporation. Prior to filing the Certificate of Elimination, Mark Meller, the Company’s Chief Executive Officer and Chairman and owner of the only share of Series B Preferred, cancelled the only share of Series B Preferred issued and outstanding.
Options
A summary of the status of the Company’s stock option plans for the fiscal years ended December 31, 2018 and the nine months ending September 30, 2019 and changes during the years are presented below (in number of options):
|
|
Number
of Options
|
|
|
Average
Exercise Price
|
|
|
Average Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options at January 1, 2018
|
|
|
62,280
|
|
|
$
|
3.78
|
|
|
2.0 years
|
|
|
$
|
-0-
|
|
Options granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Options canceled/forfeited
|
|
|
(6,000
|
)
|
|
$
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options at December 31, 2018
|
|
|
56,280
|
|
|
$
|
3.75
|
|
|
1.0 years
|
|
|
$
|
-0-
|
|
Options granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options canceled/forfeited/expired
|
|
|
(30,000
|
)
|
|
$
|
3.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options at September 30, 2019
|
|
|
26,280
|
|
|
$
|
3.71
|
|
|
0.9 years
|
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019:
|
|
|
17,640
|
|
|
$
|
3.74
|
|
|
0.9 years
|
|
|
$
|
-0-
|
|
December 31, 2018:
|
|
|
43,640
|
|
|
$
|
3.70
|
|
|
0.9 years
|
|
|
$
|
-0-
|
|
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – EQUITY (Continued)
As of September 30, 2019, the unamortized compensation expense for stock options was $13,593. Unamortized compensation expense is expected to be recognized over a weighted-average period of 1.0 year.
Warrants
The following table summarizes the warrants transactions:
|
|
Warrants
Outstanding
|
|
|
Weighted Average
Exercise Price
|
|
Average Remaining
Contractual Term
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2018
|
|
|
208,241
|
|
|
$
|
5.26
|
|
2.3 years
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
Canceled
|
|
|
-
|
|
|
$
|
-
|
|
|
Outstanding and Exercisable December 31, 2018
|
|
|
208,241
|
|
|
$
|
5.26
|
|
1.3 years
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
Canceled
|
|
|
-
|
|
|
$
|
-
|
|
|
Outstanding and Exercisable September 30, 2019
|
|
|
208,241
|
|
|
$
|
5.26
|
|
0.5 years
|
NOTE 10 – BUSINESS COMBINATION
On May 31, 2018 SWK acquired certain assets of Info Sys Management, Inc. (“ISM”), a reseller of Sage and Acumatica software, pursuant to an Asset Purchase Agreement in exchange for a convertible promissory note in the aggregate principal amount of $1,000,000 (“ISM Note”, see Note 6) and a cash payment of $300,000. The allocation of the purchase price to customer lists with an estimated life of fifteen years, deposits and other assets, fixed assets and goodwill, which is deductible for tax purposes, has been based on an independent valuation.
On May 31, 2018 SCS acquired certain assets of Nellnube, Inc. (“Nellnube”), a business application hosting company, pursuant to an Asset Purchase Agreement in exchange for a convertible promissory note (“Nellnube Note”, see Note 6) in the aggregate principal amount of $400,000. The allocation of the purchase price to customer lists with an estimated life of fifteen years, fixed assets and goodwill, which is deductible for tax purposes, has been based on an independent valuation.
On January 1, 2019, SWK acquired certain assets of Partners in Technology, Inc. (“PIT”) pursuant to an Asset Purchase Agreement in exchange for cash of $60,000 and a promissory note in the aggregate principal amount of $174,000 (“PIT Note”). The PIT Note is due in 36 months from the closing date and bears interest at a rate of two percent (2.0%). Monthly payments including interest are $4,984. The allocation of the purchase price to customer list with an estimated life of fifteen years and goodwill, which is deductible for tax purposes, has been based on an independent valuation.
The Company expects these acquisitions to create synergies by combining operations and expanding geographic market share and product offerings.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – BUSINESS COMBINATION (Continued)
The following summarizes the purchase price allocation for all prior year and current year’s acquisitions:
|
|
ISM
|
|
|
Nellnube
|
|
|
PIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash consideration
|
|
$
|
300,000
|
|
|
$
|
-
|
|
|
$
|
60,000
|
|
Note payable
|
|
|
1,000,000
|
|
|
$
|
400,000
|
|
|
|
174,000
|
|
Total purchase price
|
|
$
|
1,300,000
|
|
|
$
|
400,000
|
|
|
$
|
234,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits and other assets
|
|
$
|
7,235
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Property and equipment
|
|
|
170,000
|
|
|
|
50,000
|
|
|
|
-
|
|
Customer List
|
|
|
750,499
|
|
|
|
321,964
|
|
|
|
228,000
|
|
Goodwill
|
|
|
398,000
|
|
|
|
86,000
|
|
|
|
6,000
|
|
Total assets acquired
|
|
|
1,325,734
|
|
|
|
457,964
|
|
|
|
234,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
(25,734
|
)
|
|
|
(57,964
|
)
|
|
|
(-
|
)
|
Liabilities acquired
|
|
|
(25,734
|
)
|
|
|
(57,964
|
)
|
|
|
(-
|
)
|
Net assets acquired
|
|
$
|
1,300,000
|
|
|
$
|
400,000
|
|
|
$
|
234,000
|
|
The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisitions occurred on January 1, 2018, nor is the financial information indicative of the results of future operations. The following table represents the unaudited consolidated pro forma results of operations for the three and nine months ended September 30, 2018 as if the acquisition occurred on January 1, 2018. Operating expenses have been increased for the amortization expense associated with the estimated fair value adjustment as of September 30, 2018 of expected definite lived intangible assets and interest on the notes payable.
Pro Forma
|
|
Three Months Ended
September 30, 2018
|
|
Net revenues
|
|
$
|
10,313,923
|
|
Cost of revenues
|
|
|
6,481,552
|
|
Operating expenses
|
|
|
3,990,625
|
|
Loss before taxes
|
|
|
(149,136
|
)
|
Net loss from continuing operations
|
|
$
|
(149,136
|
)
|
Basic and diluted loss per common share
|
|
$
|
(0.05
|
)
|
Pro Forma
|
|
Nine Months Ended
September 30, 2018
|
|
Net revenues
|
|
$
|
29,256,186
|
|
Cost of revenues
|
|
|
17,763,686
|
|
Operating expenses
|
|
|
12,161,406
|
|
Loss before taxes
|
|
|
(710,097
|
)
|
Net loss from continuing operations
|
|
$
|
(710,097
|
)
|
Basic and diluted loss per common share
|
|
$
|
(0.19
|
)
|
The Company’s condensed consolidated financial statements for the three and nine months ending September 30, 2019 include the actual results of PIT since the date of acquisition, January 1, 2019.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – BUSINESS COMBINATION (Continued)
The three months ended September 30, 2018 pro-forma results above do not include any months of results of ISM and Nellnube and include three months of PIT. The nine months ended September 30, 2018 pro-forma results above include five months of results of ISM and Nellnube and nine months of PIT. For the three months ending September 30, 2018, there is $3,800 of estimated amortization expense included in the ISM/Nellnube/PIT pro-forma results. For the nine months ending September 30, 2018, there is $41,191 of estimated amortization expense included in the ISM/Nellnube/PIT pro-forma results.
For the nine months ended September 30, 2019, the ISM/Nellnube/PIT operations had a net income before taxes of $250,562 which represented nine months operations that was included in the Company’s Condensed Unaudited Consolidated Statement of Income. This consisted of approximately $2,900,946 in revenues, $1,371,473 in cost of revenues, and $1,278,911 in operating expenses.
For the three months ended September 30, 2019, the ISM/Nellnube/PIT operations had a net income before taxes of $88,694 which represented three months operations that was included in the Company’s Condensed Unaudited Consolidated Statement of Income. This consisted of approximately $1,064,433 in revenues, $502,753 in cost of revenues, and $472,986 in operating expenses.
For the three months ended September 30, 2018, the ISM/NNB operations had a net income before taxes of $78,172 which represented three months of operations that was included in the Company’s Condensed Unaudited Consolidated Statement of Income. This consisted of approximately $810,456 in revenues, $307,284 in cost of revenues, and $425,000 in operating expenses.
For the nine months ended September 30, 2018, the ISM/NNB operations had a net income before taxes of $97,496 which represented four months of operations that was included in the Company’s Condensed Unaudited Consolidated Statement of Income. This consisted of approximately $1,010,799 in revenues, $383,244 in cost of revenues, and 530,059 in operating expenses.
NOTE 11 – INCOME TAXES
The recognized deferred tax asset is based upon the expected utilization of its benefit from future taxable income. The Company has federal net operating loss (“NOL”) carryforwards of approximately $6,177,000 as of September 30, 2019, which is subject to limitations under Section 382 of the Internal Revenue Code. These carryforward losses are available to offset future taxable income, and begin to expire in the year 2024 to 2033.
The foregoing amounts are management’s estimates and the actual results could differ from those estimates. Future profitability in this competitive industry depends on continually obtaining and fulfilling new profitable sales agreements and modifying products. The inability to obtain new profitable contracts could reduce estimates of future profitability, which could affect the Company’s ability to realize the deferred tax assets.
Income tax provision from continuing operations:
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State and local
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total current tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
State and local
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
-
|
|
|
$
|
-
|
|
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 – INCOME TAXES (Continued)
For the nine months ended September 30, 2019, the Company’s Federal and State provision requirements were calculated based on the estimated tax rate. The Federal effective rate is higher than the statutory rate primarily due to Incentive Stock Options (ISO) expense and 50% of meals, 100% entertainment expenses which are not deductible. The provision from continuing operations for the nine months ended September 30, 2019 was $0 as there was a loss from continuing operations. The effective tax rate consists primarily of the 21% federal statutory tax rate and a blended 5% state and local tax rate.
NOTE 12 – RELATED PARTY TRANSACTIONS
The Company leases its North Syracuse office space from its former CFO, Crandall Melvin III, which expires on May 31, 2021. The monthly rent for this office space is $2,300. Total rent expense for the three and nine months ended September 30, 2019 was $6,900 and $20,700 as compared to $6,900 and $19,700 for the three and nine months ended September 30, 2018.
The Company leased its Seattle office space from Mary Abdian, an employee of SWK, which expired September 30, 2018 however, this lease was terminated on May 31, 2018 by mutual consent. The monthly rent for this office space was $3,090 and increased 3% each year. Total rent expense for the three months ended September 30, 2018 was $15,915.
As of September 30, 2019, long term debt is considered related party liabilities as holders are current employees of the Company, see Note 6.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Contingent Consideration
On October 1, 2015, SWK entered into an Asset Purchase Agreement (the “Macabe Purchase Agreement”) with The Macabe Associates, Inc., (“Macabe”), a Washington corporation and Mary Abdian and John Nicholson in their individual capacity as Macabe Shareholders. Pursuant to the Macabe Purchae Agreement, SWK acquired certain assets and liabilities of Macabe (as defined in the Macabe Purchase Agreement). In consideration for the acquired assets, the Company paid $21,423 in cash. Additionally, the Company will pay 35% of the net margin on software maintenance renewals for former Macabe customers for the first twelve months, and then 30%, 25% and 20% of the net margin on software maintenance renewals for the following three years. The Company will also pay 50% the first year, and 40%, 30% and 20% the three years after on the net margin on EASY Solution Maintenance, new software & license to existing Macabe customers and EASY Solutions software and maintenance sales to new customers. On any former Macabe customers migrating to Netsuite, X3 or Acumatica, the Company will pay 50% of the net margin of the sale after applicable costs and commissions for the three year period after the acquisition. The Company estimated this contingent consideration to be approximately $417,971 at acquisition. Payments totaling $55,695 were made in each of these contingent consideration components for the nine months ended September 30, 2019, resulting in a remaining balance of $0 as of September 30, 2019. The agreement expired on September 30, 2019 and no further payments are expected.
Contingencies
On March 4, 2019, plaintiff John Solak (“Plaintiff”) commenced a direct and derivative action in the Delaware Court of Chancery (the “Action”): both on his own behalf as a stockholder of Silversun and derivatively on behalf of Silversun against the Company’s officers and directors relating to stockholder voting rights granted to the Company’s Chairman and Chief Executive Officer, Mark Meller in the form of Series B Preferred Stock.
On or about April 22, 2019, the Company determined to undertake certain actions relating to the Series B Preferred Stock challenged in Plaintiff’s complaint, as well as certain changes to the Company’s governance policies.
The Company’s officers and directors have at all relevant times denied, and continue to deny, any alleged violations of Delaware law. Plaintiff’s counsel believe that the remedial measures by SilverSun in response to the Action render the Action moot, and give rise only to a claim for attorney’s fees. The Company and the Plaintiff agreed that the Company shall pay $115,000 to Plaintiff’s counsel for fees and expenses. The Court of Chancery of the State of Delaware has not been asked to review, and will pass no judgment on, this payment of fees and expenses or its reasonableness.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 – COMMITMENTS (Continued)
The Stipulation and Order Regarding Notice to Stockholders was entered into by Solak, the Company and the Company’s officers and directors on August 2, 2019 and this matter is now resolved.
NOTE 14 – SALE OF EDI PRACTICE
On August 26, 2019 the Company entered into and closed that certain Asset Purchase Agreement (the “Asset Purchase Agreement”) by and among the Company, SPS Commerce, Inc., as buyer (“Buyer” or “SPS”), and SWK, as seller (the “Seller”), pursuant to which the Buyer has agreed to acquire from the Seller certain assets (all intellectual property and accounts receivable) related to the MAPADOC business, which was the EDI practice. In consideration for the Acquired Assets (as defined in the Asset Purchase Agreement), at closing, SPS: (i) paid Seller $10,350,000 in cash (the “Initial Cash Payment”); and (ii) delivered $1,150,000 to an escrow account (the “Escrowed Property”) pursuant to the terms and conditions of that certain Escrow Agreement dated August 26, 2019 (the “Escrow Agreement”), for an aggregate consideration of $11,500,000 (the “Purchase Price”). Pursuant to the terms and conditions of that certain Escrow Agreement entered into in connection with the Asset Purchase Agreement, portions of the Escrowed Property will be released at six months and at twelve months following the date of closing of the Asset Purchase Agreement, to the extent that no indemnity claims against the Escrowed Property have been filed by the Buyer.
NOTE 15 – DISCONTINUED OPERATIONS
The financial results of our EDI Practice (“Mapadoc”) through September 30, 2019 are presented as discontinued operations. The following table presents the financial results of “Mapadoc.”
Mapadoc Balance Sheet
|
|
December 31,
|
|
|
|
2018
|
|
Current assets:
|
|
|
|
|
Accounts receivable
|
|
$
|
477,808
|
|
Unbilled services
|
|
|
5,854
|
|
Prepaid expenses and other current assets
|
|
|
580
|
|
|
|
|
|
|
Total current assets
|
|
|
484,242
|
|
|
|
|
|
|
Long term assets:
|
|
|
|
|
Intangible assets, net
|
|
|
1,037,295
|
|
|
|
|
|
|
Total assets
|
|
|
1,521,537
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accrued expenses
|
|
|
137,713
|
|
Deferred revenue
|
|
|
462,203
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
599,916
|
|
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 15 – DISCONTINUED OPERATIONS (Continued)
Mapadoc Income Statement
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software product, net
|
|
|
139,168
|
|
|
|
221,122
|
|
|
|
445,025
|
|
|
|
691,371
|
|
Service, net
|
|
|
751,203
|
|
|
|
1,002,702
|
|
|
|
2,936,898
|
|
|
|
2,966,823
|
|
Total revenues, net
|
|
|
890,371
|
|
|
|
1,223,824
|
|
|
|
3,381,923
|
|
|
|
3,658,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
399
|
|
|
|
396
|
|
|
|
2,745
|
|
|
|
10,180
|
|
Service
|
|
|
382,777
|
|
|
|
488,830
|
|
|
|
1,387,926
|
|
|
|
1,337,610
|
|
Cost of revenues
|
|
|
383,176
|
|
|
|
489,226
|
|
|
|
1,390,671
|
|
|
|
1,347,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
507,195
|
|
|
|
734,598
|
|
|
|
1,991,252
|
|
|
|
2,310,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
130,929
|
|
|
|
93,248
|
|
|
|
371,061
|
|
|
|
353,840
|
|
General and administrative expenses
|
|
|
85,690
|
|
|
|
220,512
|
|
|
|
540,822
|
|
|
|
705,873
|
|
Depreciation and amortization expenses
|
|
|
21,022
|
|
|
|
13,668
|
|
|
|
90,844
|
|
|
|
18,747
|
|
Total selling, general and administrative expenses
|
|
|
237,641
|
|
|
|
327,428
|
|
|
|
1,002,727
|
|
|
|
1,078,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
269,554
|
|
|
|
407,170
|
|
|
|
988,525
|
|
|
|
1,231,944
|
|
Gain from sale of discontinued operations
|
|
|
10,144,287
|
|
|
|
-
|
|
|
|
10,144,287
|
|
|
|
-
|
|
Provision for income taxes
|
|
|
(1,795,127
|
)
|
|
|
(69,050
|
)
|
|
|
(1,823,216
|
)
|
|
|
(99,296
|
)
|
Income from discontinued operations
|
|
|
8,618,714
|
|
|
|
338,120
|
|
|
|
9,309,596
|
|
|
|
1,132,648
|
|
Calculation of gain on sale
Purchase Price
|
|
$
|
11,500,000
|
|
Net Assets at August 26, 2019
|
|
|
(1,575,547
|
)
|
Net Liabilities at August 26, 2019
|
|
|
437,260
|
|
Expenses associated with the sale
|
|
|
(217,426
|
)
|
Gain on sale
|
|
|
10,144,287
|
|
NOTE 16 – SUBSEQUENT EVENTS
On October 10, 2019, the Company’s Board of Directors authorized a new stock repurchase program, under which the Company may repurchase up to $2 million of its outstanding common stock. Under this new stock repurchase program, the Company may repurchase shares in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by the Company’s management. The repurchase program may be extended, suspended or discontinued at any time. The Company expects to finance the program from existing cash resources. As of November 12, 2019, no repurchases have been made.