SilverSun Technologies, Inc. - Quarter Report: 2012 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2012
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: 000-50302
SILVERSUN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
|
Delaware
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16-1633636
|
|
(State or other jurisdiction of incorporation)
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(IRS Employer Identification No.)
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5 Regent Street
Livingston, NJ 07039
(Address of principal executive offices)
(973) 758-9555
(Registrant’s telephone number, including area code)
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer
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¨
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Accelerated filer
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¨
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|
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Non-accelerated filer
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¨
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Smaller reporting company
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x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of November 14, 2012, there were 116,978,291 shares outstanding of the registrant’s common stock.
SILVERSUN TECHNOLOGIES, INC.
TABLE OF CONTENTS
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Page No.
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PART I. FINANCIAL INFORMATION
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||
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Item 1.
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3
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3
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4
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5
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6
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8
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Item 2.
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13
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Item 3.
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16
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Item 4.
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16
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PART II. OTHER INFORMATION
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||
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Item 1.
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17
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Item 1A.
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17
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Item 2.
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17
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Item 3.
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17
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Item 4.
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17
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Item 5.
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17
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Item 6.
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17
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statement
SILVER SUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
ASSETS
|
September 30, 2012
|
December 31, 2011
|
||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
101,340
|
$
|
233,722
|
||||
|
Accounts receivable, net of allowance of $41,000 and $41,000
|
1,667,757
|
881,217
|
||||||
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Prepaid expenses and other current assets
|
153,873
|
115,024
|
||||||
|
Total current assets
|
1,922,970
|
1,229,963
|
||||||
|
Property and equipment, net of accumulated depreciation of $639,000 and $593,000
|
175,805
|
137,948
|
||||||
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Intangible assets, net
|
941,701
|
95,445
|
||||||
|
Deposits and other assets
|
37,477
|
57,921
|
||||||
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Total assets
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$
|
3,077,953
|
$
|
1,521,277
|
||||
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
||||||||
|
Current liabilities:
|
||||||||
|
Line of credit
|
$
|
403,008
|
$
|
-
|
||||
|
Accounts payable and accrued expenses
|
1,641,327
|
1,260,045
|
||||||
|
Accrued interest
|
12,883
|
7,675
|
||||||
|
Due to related parties
|
5,663
|
6,335
|
||||||
|
Capital lease obligations
|
74,369
|
64,367
|
||||||
|
Deferred revenue
|
1,484,449
|
1,015,750
|
||||||
|
Notes payable to related party
|
20,000
|
20,000
|
||||||
|
Convertible promissory note – related party, net of discount of $-0- and $4,250
|
7,054
|
46,750
|
||||||
|
Total current liabilities
|
3,648,753
|
2,420,922
|
||||||
|
Commitments and contingencies
|
-
|
-
|
||||||
|
Stockholders’ deficit:
|
||||||||
|
Preferred stock, $1.00 par value; authorized 1,000,000 shares;
No shares issued and outstanding
|
-
|
-
|
||||||
|
Series A Convertible Preferred Stock, $1.00 par value; authorized 2 shares;
no shares issued and outstanding at September 30, 2012, and 2 shares issued and outstanding at December 31, 2011
|
-
|
22,886
|
||||||
|
Series B Preferred Stock, 1.00 par value; authorized 1 share;
1 shares issued and outstanding
|
1
|
1
|
||||||
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Common stock:
|
||||||||
|
Class A – par value $.0001; authorized 750,000,000 shares;
116,950,933 and 4,456,912 shares issued and outstanding
|
11,695
|
446
|
||||||
|
Class B – par value $.0001: authorized 50,000,000 shares;
no shares issued and outstanding
|
-
|
-
|
||||||
|
Additional paid-in capital
|
10,653,674
|
9,326,572
|
||||||
|
Accumulated deficit
|
(11,236,170
|
)
|
(10,296,756
|
)
|
||||
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Total SilverSun stockholders’ deficit
|
(570,800
|
)
|
(946,851
|
)
|
||||
|
Non-controlling interest in SWK Technologies, Inc.
|
-
|
47,206
|
||||||
|
Total stockholders’ deficit
|
(570,800
|
)
|
(899,645
|
)
|
||||
|
Total liabilities and stockholders’ deficit
|
$
|
3,077,953
|
$
|
1,521,277
|
||||
See accompanying notes to condensed consolidated financial statements.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 30, 2012
|
September 30, 2011
|
September 30, 2012
|
September 30, 2011
|
|||||||||||||
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Revenues:
|
||||||||||||||||
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Product, net
|
$
|
851,656
|
$
|
356,909
|
$
|
1,672,791
|
$
|
1,553,861
|
||||||||
|
Service, net
|
2,616,698
|
2,014,891
|
7,775,847
|
6,271,462
|
||||||||||||
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Total revenues, net
|
3,468,354
|
2,371,800
|
9,448,638
|
7,825,323
|
||||||||||||
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Cost of revenues:
|
||||||||||||||||
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Product
|
433,320
|
146,447
|
806,550
|
790,480
|
||||||||||||
|
Service
|
1,648,416
|
1,214,116
|
4,774,866
|
3,656,569
|
||||||||||||
|
Cost of revenues
|
2,081,736
|
1,360,563
|
5,581,416
|
4,447,049
|
||||||||||||
|
Gross profit
|
1,386,618
|
1,011,237
|
3,867,222
|
3,378,274
|
||||||||||||
|
Selling, general and administrative expenses:
|
||||||||||||||||
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Selling expenses
|
523,352
|
450,345
|
1,607,559
|
1,307,193
|
||||||||||||
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General and administrative expenses
|
677,026
|
527,701
|
1,899,593
|
1,666,543
|
||||||||||||
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Shared-based compensation
|
4,404
|
-
|
1,131,854
|
-
|
||||||||||||
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Depreciation and amortization
|
62,624
|
22,548
|
114,376
|
74,860
|
||||||||||||
|
Total selling, general and administrative expenses
|
1,267,406
|
1,000,594
|
4,753,382
|
3,048,596
|
||||||||||||
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Income (loss) from operations
|
119,212
|
10,643
|
(886,160
|
)
|
329,678
|
|||||||||||
|
Other income (expense):
|
||||||||||||||||
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Gain (loss) on revaluation of derivatives
|
-
|
-
|
-
|
362,035
|
||||||||||||
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Gain on extinguishment of debt and derivative liability
|
-
|
-
|
-
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2,228,939
|
||||||||||||
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Amortization of debt discount
|
-
|
-
|
(4,250
|
)
|
(34,000
|
)
|
||||||||||
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Interest expense, net
|
(16,404
|
)
|
(24,784
|
)
|
(49,004
|
)
|
(82,609
|
)
|
||||||||
|
Total other income (expense)
|
(16,404
|
)
|
(24,784
|
)
|
(53,254
|
)
|
2,474,365
|
|||||||||
|
Net income (loss)
|
102,808
|
(14,141
|
)
|
(939,414
|
)
|
2,804,043
|
||||||||||
|
Net income (loss) attributable to the
noncontrolling interest in SWK Technologies
|
-
|
10,511
|
-
|
97,842
|
||||||||||||
|
Net income (loss) attributable to SilverSun Technologies
|
$
|
102,808
|
$
|
(24,652
|
)
|
$
|
(939,414
|
)
|
$
|
2,706,201
|
||||||
|
-
|
-
|
|||||||||||||||
|
Net income (loss) per common share:
Basic
|
$
|
0.00
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
0.60
|
||||||
|
Fully diluted
|
0.00
|
(0.01
|
)
|
(0.01
|
)
|
0.03
|
||||||||||
|
Weighted average shares:
|
||||||||||||||||
|
Basic
|
116,949,303
|
4,492,578
|
114,873,304
|
4,500,809
|
||||||||||||
|
Diluted
|
131,283,955
|
4,492,578
|
114,873,304
|
105,777,990
|
||||||||||||
See accompanying footnotes to the condensed consolidated financial statements.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD ENDED SEPTEMBER 30, 2012
|
Series A Preferred Stock
|
Series B Preferred Stock
|
Common Stock Class A
|
Additional Paid in
|
Accumulated
|
Noncontrolling Interest in SWK Technologies,
|
Total
Stockholders’
|
||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Inc.
|
Deficit
|
|||||||||||||||||||||||||||||||
|
Balance at January 1, 2012
|
2 | $ | 22,886 | 1 | $ | 1 | 4,456,912 | $ | 446 | $ | 9,326,572 | $ | (10,296,756 | ) | $ | 47,206 | $ | (899,645 | ) | |||||||||||||||||||||
|
Exchange of shares of SWK for shares of SilverSun Technologies, Inc
|
- | - | - | - | 22,664,678 | 2,266 | 44,940 | - | (47,206 | ) | - | |||||||||||||||||||||||||||||
|
Conversion of Series A Preferred Stock to common stock
|
(2 | ) | (22,886 | ) | - | - | 2,385,650 | 239 | 22,647 | - | - | - | ||||||||||||||||||||||||||||
|
Conversion of convertible promissory note to common stock
|
- | - | - | - | 86,793,693 | 8,679 | 35,267 | - | - | 43,946 | ||||||||||||||||||||||||||||||
|
Share-Based Compensation
|
- | - | - | - | - | - | 1,131,854 | - | - | 1,131,854 | ||||||||||||||||||||||||||||||
|
Issuance of warrant for services
|
- | - | - | - | - | - | 57,459 | - | - | 57,459 | ||||||||||||||||||||||||||||||
|
Issuance of common stock for services
|
- | - | - | - | 650,000 | 65 | 34,935 | - | - | 35,000 | ||||||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | - | (939,414 | ) | - | (939,414 | ) | ||||||||||||||||||||||||||||
|
Balance at September 30, 2012
|
- | $ | - | 1 | $ | 1 | 116,950,933 | $ | 11,695 | $ | 10,653,674 | $ | (11,236,170 | ) | $ | - | $ | (570,800 | ) | |||||||||||||||||||||
See accompanying footnotes to the condensed consolidated financial statements.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
|
2012
|
2011
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net income (loss)
|
$
|
(939,414
|
)
|
$
|
2,804,043
|
|||
|
Adjustments to reconcile net income to net cash provided by operating activities
|
||||||||
|
Depreciation and amortization
|
61,776
|
74,860
|
||||||
|
Amortization of intangibles
|
52,600
|
-
|
||||||
|
Amortization of debt discount
|
4,250
|
56,886
|
||||||
|
Share-based compensation
|
1,131,854
|
-
|
||||||
|
Common stock issued for services
|
20,000
|
21,000
|
||||||
|
Warrants issued in exchange for services
|
31,089
|
-
|
||||||
|
Gain on extinguishment of debt and derivative liability
|
-
|
(2,228,939
|
)
|
|||||
|
Gain on revaluation of derivative liability
|
-
|
(362,035
|
)
|
|||||
|
Return of shares for services not rendered
|
-
|
(65,000
|
)
|
|||||
|
Changes in assets and liabilities:
|
||||||||
|
Accounts receivable
|
(786,540
|
)
|
(560,969
|
)
|
||||
|
Prepaid expenses and other current assets
|
2,521
|
55,076
|
||||||
|
Deposits and other assets
|
20,444
|
-
|
||||||
|
Accounts payable and accrued expenses
|
381,282
|
146,741
|
||||||
|
Accrued interest
|
5,208
|
34,519
|
||||||
|
Deferred revenue
|
169,065
|
750,648
|
||||||
|
Due to related parties
|
(672
|
)
|
49,330
|
|||||
|
Net cash provided by operating activities
|
153,463
|
776,160
|
||||||
|
Cash flows from investing activities:
|
||||||||
|
Capitalization of software costs
|
(157,258
|
)
|
-
|
|||||
|
Acquisition of new business
|
(441,964
|
)
|
-
|
|||||
|
Purchase of property and equipment
|
(56,077
|
)
|
(71,748
|
)
|
||||
|
Net cash used in investing activities
|
(655,299
|
)
|
(71,748
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Proceeds from line of credit
|
403,008
|
-
|
||||||
|
Proceeds from convertible promissory note – related party
|
-
|
51,000
|
||||||
|
Proceeds from promissory notes
|
-
|
550,000
|
||||||
|
Repayment of note payable to related party
|
(5,000
|
)
|
||||||
|
Repayment of promissory notes
|
-
|
(100,000
|
)
|
|||||
|
Repayment of convertible debentures
|
-
|
(735,000
|
)
|
|||||
|
Principal payments under capital leases obligations
|
(33,554
|
)
|
17,668
|
|||||
|
Net cash provided by (used in) financing activities
|
369,454
|
(221,332
|
)
|
|||||
|
Net increase (decrease) in cash and cash equivalents
|
(132,382
|
)
|
483,080
|
|||||
|
Cash and cash equivalents – beginning of period
|
233,722
|
104,344
|
||||||
|
Cash and cash equivalents – end of period
|
$
|
101,340
|
$
|
587,424
|
||||
|
Cash paid during period for:
|
||||||||
|
Interest paid
|
$
|
-
|
$
|
8,395
|
||||
|
Income taxes
|
$
|
-
|
$
|
-
|
||||
See accompanying footnotes to the condensed consolidated financial statements.
SILVERSUN TECGNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
For the nine months ended September 30, 2012:
a) The Company converted $43,946 of the Convertible Promissory Note (as defined herein) at a fixed conversion rate of 1,975 shares per $1 for 86,793,693 shares of the Company’s Class A common stock, par value $0.0001 (the “Common Stock”).
b) The Company converted 2 shares of Series A Convertible preferred stock for 2,385,650 shares of Common Stock.
c) The Company bought back their 20% interest in SWK Technologies, Inc. for 22,664,678 shares of Common Stock.
d) The Company incurred approximately $43,556 in capital lease obligations.
e) The Company issued 150,000 shares of common stock with a fair market value of $30,000 to Spencer Clark in exchange for services.
f) The Company issued warrants for services which resulted in a Black Scholes value of $57,459.
For the nine months ended September 30, 2011:
a) SilverSun Technologies, Inc. (“the Company”) recorded a derivative liability of $105,000 related to a conversion features embedded in a $51,000 convertible note issued during the period to an executive officer of the Company. The derivative liability was recorded as debt discount and the excess as an expense on the statement of operations as other income expense.
b) The Company issued warrants to a financial services company in exchange for financial services to be provided over one year with a fair value of $107,398. The Company recorded a prepaid expense and will amortize over the period of service.
c) On June 29, 2011, Mr. Mark Meller, the Company's Chief Executive Officer, forgave outstanding liabilities representing unpaid salary, unpaid expense and auto allowances, and the one-time payment in connection with a previous transaction in the amount of $1,338,967. Such amount is recorded as Additional Paid-In Capital in the accompanying balance sheet.
See accompanying footnotes to the condensed consolidated financial statements.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
SilverSun Technologies, Inc. (the “Company”) is an information technology company, and a value added reseller and master developer for Sage Software’s MAS 90/200/500 and ERP X3 financial and accounting software as well as the publisher of its own proprietary Electronic Data Interchange (EDI) software, “MAPADOC.” The Company focuses on the business software and information technology consulting market, and is looking for other opportunities to grow its business. The Company sells services and products to various end users, manufacturers, wholesalers and distributor industry clients located throughout the United States.
In June 2012 the Company completed the purchase of selected assets and obligations of HighTower, Inc., a leading Chicago-based reseller of Sage software applications and a publisher of proprietary business management enhancements.
The Company is publicly traded and is currently quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “SSNT.”
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 SilverSun Technologies, Inc. as of September 30, 2012, the results of operations and cash flows for the three and nine months ended September 30, 2012 and 2011. 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, 2011 balance sheet included herein was derived from the audited financial statements included in the Company’s annual report on Form 10-K as of that date. Accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
Summary of Significant Accounting Policies
During 2012, there have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s Form 10-K for the year ended December 31, 2011.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation. A reclassification in the condensed balance sheet of approximately $95,000 from prepaid expenses and other current assets to intangible assets had no impact on the financial position, operations or cash flows as of December 31, 2011.
NOTE 2 – NET INCOME (LOSS) 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, warrants and beneficial conversion of related party accounts. The computation of diluted loss per share for the nine months ended September 30, 2012 does not include share equivalents in the amount of 17,504,000 as they would have an anti-dilutive effect on the earnings resulting from the Company’s net loss position for these periods.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – NET INCOME (LOSS) PER COMMON SHARE (continued)
|
Three Months Ended
|
Three Months Ended
|
|||||||
|
September 30, 2012
|
September 30, 2011
|
|||||||
|
Basic net income (loss) per share attributable to common shareholders computation:
|
||||||||
|
Net income (loss) attributable to common stockholders
|
$
|
102,808
|
$
|
(24,652
|
)
|
|||
|
Weighted-average common shares outstanding
|
116,949,303
|
4,492,578
|
||||||
|
Basic net income (loss) per share attributable to common Stockholders
|
$
|
0.00
|
$
|
(0.01
|
)
|
|||
|
Diluted net income (loss) per share attributable to common shareholders computation
|
||||||||
|
Net income (loss) attributable to common stockholders
|
$
|
102,808
|
$
|
(24,652
|
)
|
|||
|
Weighted-average common shares outstanding
|
116,949,303
|
4,492,578
|
||||||
|
Incremental shares attributable to the common stock equivalents
|
14,334,652
|
-
|
||||||
|
Total adjusted weighted-average shares
|
131,283,955
|
4,492,578
|
||||||
|
Diluted net income (loss) per share attributable to common Stockholders
|
$
|
0.00
|
$
|
(0.01
|
)
|
|||
|
Nine Months Ended
|
Nine Months Ended
|
|||||||
|
September 30, 2012
|
September 30, 2011
|
|||||||
|
Basic net income (loss) per share attributable to common shareholders computation:
|
||||||||
|
Net income (loss) attributable to common stockholders
|
$
|
(939,414
|
)
|
$
|
2,706,201
|
|||
|
Weighted-average common shares outstanding
|
114,873,304
|
4,500,809
|
||||||
|
Basic net income (loss) per share attributable to common Stockholders
|
$
|
(0.01
|
)
|
$
|
0.60
|
|||
|
Diluted net income (loss) per share attributable to common shareholders computation
|
||||||||
|
Net income (loss) attributable to common stockholders
|
$
|
(939,414
|
)
|
$
|
2,706,201
|
|||
|
Weighted-average common shares outstanding
|
114,873,304
|
4,500,809
|
||||||
|
Incremental shares attributable to the common stock equivalents
|
-
|
101,277,181
|
||||||
|
Total adjusted weighted-average shares
|
114,873,304
|
105,777,990
|
||||||
|
Diluted net income (loss) per share attributable to common Stockholders
|
$
|
(0.01
|
)
|
$
|
0.03
|
|||
NOTE 3 – CONVERTIBLE PROMISSORY NOTE – RELATED PARTY
The 7% Convertible Promissory Note (“Convertible Note”), due January 28, 2012 was extended to January 28, 2013.
On January 4, 2012 the holder of the Convertible Note, Mr. Mark Meller, Chief Executive Officer of the Company, converted $30,458 into 60,154,178 shares of Common Stock. In addition, the holder had sold $13,488 of the Convertible Note to certain employees of the Company for cash in January 2012, which were subsequently converted into 26,639,515 shares of Common Stock. The fair value of the shares issued to the employees upon conversion was recorded as share-based compensation valued of $719,000 which was recorded as a charge in the consolidated statement of operations.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – NOTES PAYABLE TO RELATED PARTY
In January 2012, Mr. Meller extended the due date of the Note Payable in the amount of $20,000 from January 1, 2012 to January 1, 2013.
NOTE 5 – BUSINESS COMBINATION
In June 2012, the Company’s wholly-owned subsidiary, SWK Technologies, Inc., acquired certain assets of HighTower Inc. for total consideration of $741,598, including $441,964 in cash and noncash portion assumption of deferred revenue obligation of $299,634. The preliminary purchase price was primarily allocated based on their estimated fair value to intangible assets. Upon completion of an independent valuation the purchase price allocated to the tangible and identifiable intangible assets acquired and liabilities assumed will be modified according to their respective estimated fair values, with the excess purchase consideration, if any, being allocated to goodwill at the closing of the transaction.
The Company’s condensed consolidated financial statements for the three months and nine months September 30, 2012 include the results of Hightower since date of acquisition. The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisition occurred on January 1, 2011, nor is the financial information indicative of the results of future operations. The unaudited pro forma financial information includes the depreciation and amortization expense related to the acquisition.
The following table represents the unaudited consolidated pro forma results of operations for the nine months ended September 30, 2012 and 2011 as if the acquisition occurred on January 1, 2011. Operating expenses have been increased for the estimated amortization expense associated with the fair value adjustment as of September 2012 of expected definite lived intangible assets, for a net adjustment of $111,000 in the nine months ended September 30, 2012 and 2011
|
Pro – Forma
|
||||||||
|
Nine Months Ended
September 30, 2012
|
Nine Months Ended
September 30, 2011
|
|||||||
|
Net sales
|
$
|
10,043,620
|
$
|
10,418,752
|
||||
|
Operating expenses
|
4,824,622
|
3,159,836
|
||||||
|
Income (loss) before taxes
|
(1,108,354
|
)
|
2,258,226
|
|||||
|
Net income (loss)
|
$
|
(1,108,354
|
)
|
$
|
2,258,226
|
|||
|
Basic income (loss) per common share
|
$
|
(0.01
|
)
|
$
|
0.50
|
|||
|
Diluted income (loss) per common share
|
$
|
(0.01
|
)
|
$
|
0.02
|
|||
For the quarter ended September 30, 2012, the HighTower operations contributed approximately $159,000 in net income, which consisted of approximately $366,000 in revenues and $207,000 in expenses. For the nine months ended September 30, 2012, the HighTower operations contributed approximately $350,000 in net income, which consisted approximately of $768,000 in revenues and $418,000 in expenses. These revenues were generated in combination with HighTower and SWK personnel, and likely would not have been achieved if HighTower was a standalone business.
NOTE 6 – INTANGIBLE ASSETS
Intangible assets consist of intellectual property and customer lists acquired and are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives.
The components of intangible assets are as follows:
|
September 30, 2012
|
December 31, 2011
|
Estimated Useful Lives
|
||||||||||
|
Proprietary software
|
$ | 252,703 | $ | 95,445 | 5 | |||||||
|
Intellectual property, customer list, and acquired contracts
|
741,598 | * | -0- | 5 | ||||||||
|
Total intangible assets
|
$ | 994,301 | $ | 95,445 | ||||||||
|
Less: accumulated amortization
|
52,600 | -0- | ||||||||||
| $ | 941,701 | $ | 95,445 | |||||||||
* Estimated pending results of independent appraisal.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – INTANGIBLE ASSETS (continued)
Expected amortization of intangible assets is as follows:
|
2012
|
$
|
44,894
|
||
|
2013
|
198,152
|
|||
|
2014
|
198,152
|
|||
|
2015
|
198,152
|
|||
|
2016
|
198,152
|
|||
|
Thereafter
|
104,199
|
|||
|
$
|
941,701
|
Amortization expense included in depreciation and amortization was $46,300 and $ -0- for the three months ended September 30, 2012 and 2011, respectively and $52,600 and $-0- for the nine months ended September 30, 2012 and 2011, respectively.
NOTE 7 – LINE OF CREDIT
In October 2011 the Company negotiated a line of credit from a bank. The agreement included a borrowing base calculation tied to accounts receivable with a maximum availability of $750,000. Interest on outstanding balances is payable daily at an interest rate that is two and three quarter’s percentage points (2.75%) above the Prime Rate. The Company’s interest rate was 6% as of September 30, 2012. The line is collateralized by substantially all of the assets of the Company and is guaranteed by the Company’s Chief Executive Officer. The credit facility required the Company to pay a monitoring fee of 0.315% of eligible collateral to be paid monthly. An annual facility fee equal to one percent (1%) of the Maximum Credit is assessed upon the initial funding, annually thereafter. The term of the agreement is for three years and expires in October 2014. At September 30, 2012, the Company was in compliance with the required financial covenants, the fixed charge ratio and debt to net worth.
As of September 30, 2012 the outstanding balance open under this agreement was $403,008. As of September 30, 2012, the availability under this line was $346,992.
NOTE 8 – STOCKHOLDERS’ EQUITY
Series A Convertible Preferred Stock
The Company issued to the each holder of the Notes one (1) share of Series A Convertible Preferred Stock (“Series A”), having the rights, preferences, privileges, powers and restrictions set forth in the Certificate of Designation filed with the Secretary of State of Delaware. The Company has the right to convert, at its sole option, each share of Series A into Common Stock equal to 1% of the outstanding shares of Common Stock at the time of conversion. The Company valued the Series A Convertible Preferred Stock at $22,886 representing 1% of the outstanding shares deliverable multiplied by the fair market value of the stock on the date of issuance and recorded as debt discount, which has been amortized to interest expense during 2011. Each one share of Series A shall entitle the Series A Holder to voting rights equal to 2,666,667 votes of Common Stock.
On January 12, 2012, the Series A Convertible Preferred Stock was converted into 2,385,650 shares of Common Stock. As of September 30, 2012, no shares Series A Convertible Preferred Stock were outstanding.
Series B Preferred Stock
The Series B Preferred Stock has the rights, privileges, preferences and restrictions set for in the Certificate of Designation (the “Certificate of Designation”) filed by the Corporation with the Secretary of State of the State of Delaware (“Delaware Secretary of State”) on September 23, 2011.
The one (1) share of the Series B Preferred shall have voting rights equal to (x) the total issued and outstanding Common Stock and preferred stock eligible to vote at the time of the respective vote divided by (y) forty nine one-hundredths (0.49) minus (z) the total issued and outstanding Common Stock and preferred stock eligible to vote at the time of the respective vote. For the avoidance of doubt, if the total issued and outstanding Common Stock eligible to vote at the time of the respective vote is 5,000,000, the voting rights of the Series B Preferred Stock shall be equal to 5,204,082 (e.g. (5,000,000 / 0.49) – 5,000,000 = 5,204,082).
On September 23, 2011, SilverSun Technologies, Inc., entered into a Series B preferred stock purchase agreement (the “Preferred Stock Purchase Agreement”) with Mr. Mark Meller (the “Series B Holder”), pursuant to which the Series B Holder was issued one authorized share of Series B Preferred Stock (“Series B”), par value $0.001 per share. The Series B Holder was issued one share of Series B as partial consideration for personally guaranteeing repayment of the Notes.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – NON-CONTROLLING INTEREST
On January 12, 2012, SilverSun Technologies, Inc. entered into a share exchange agreement with SWK Technologies, Inc shareholders to purchase the remaining 20% interest from the non-controlling shareholders. Pursuant to the terms of the Agreement, the non-controlling shareholders exchanged an aggregate of 25 shares of SWK for a total of 22,664,678 shares (the “Exchange Shares”) of the Company’s Common Stock.
NOTE 10 – STOCK OPTIONS
ASC 718 requires the measurement of stock-based compensation based on the fair value of the award on the date of grant. In May 2012, the Company issued approximately 2,875,000 common stock options with a weighted average exercise price of $0.16 and an expected life of 5 years. Approximately, 2,257,000 of the common stock options vest immediately. The remaining 618,000 options shall vest at 50% with the balance vested ratably over a three-year period.
The Company estimated the value of the options at approximately $460,000 using the Black Scholes option-pricing model. Compensation cost is recognized on a straight-line basis over the vesting period and, as such, the Company recorded compensation expense of approximately $4,404 and $412,587 for the three and nine months ended September 30, 2012.
The weighted average inputs into the Black Scholes were as follows:
|
1.
|
Expected dividend yield of 0.0%,
|
|
2.
|
Risk-free interest rate of 0.86%
|
|
3.
|
Expected Volatility at 298%
|
|
4.
|
Expected term of 5 years
|
|
5.
|
Exercise price of $0.16
|
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. (the “Company”) 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, 2011, 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 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 financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our 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
The Company focuses on the business software and information technology consulting market, and is looking to acquire other companies in this industry. SWK Technologies, Inc. (“SWK Technologies”), is a New Jersey-based information technology subsidiary of the Company, value added reseller, and master developer of licensed accounting and financial software published by Sage Software. SWK Technologies also publishes fourteen proprietary software solutions, including its supply-chain software, the Electronic Data Interchange (EDI) solution “MAPADOC.” SWK Technologies sells services and products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States, along with network services provided by the Company.
We continue to develop and increase our existing business by aggressively seeking new business and offering solutions to our customers, including our own proprietary software. We specialize in ERP software sales and implementation, programming, and training and technical support, aimed at improving the financial reporting and operational efficiencies of small and medium sized companies. The sale of our financial accounting software is concentrated in the northeastern United States, while our software and programming services are sold to corporations nationwide.
Additionally, it is our intention to increase our business by seeking additional opportunities through potential acquisitions, partnerships or investments. Such acquisitions, partnerships or investments may consume cash reserves or require additional cash or equity. Our working capital and additional funding requirements will depend upon numerous factors, including: (i) strategic acquisitions or investments; (ii) an increase to current company personnel; (iii) the level of resources that we devote to sales and marketing capabilities; (iv) technological advances; and (v) the activities of competitors.
In June 2012 the Company completed the purchase of selected assets and obligations of HighTower, Inc., a leading Chicago-based reseller of Sage software applications and a publisher of thirteen proprietary business management solutions and enhancements (the “HighTower Solutions”).
Revenues
All revenues reported by the Company are derived from the sales and service of Sage Software, MAPADOC, the HighTower Solutions, and third-party software products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States, along with consulting and customer support and network services provided by the Company.
Revenues for the three and nine months ended September 30, 2012, increased $1,096,554 (46.2%) and $1,623,315 (20.7%), respectively, to $3,468,354 and $9,448,638 for these periods, as compared to $2,371,800 and $7,825,323 for the three and nine months September 30, 2011. These revenues were all generated by the Company’s wholly-owned operating subsidiary, SWK Technologies. For the three months ended September 30, 2012 the increase is attributed to revenues associated with its newly acquired operation HighTower, Inc. (“HTI”) which generated approximately $366,000, as well as an increase in revenues from the existing business related to an increase in maintenance agreements and software sales base. For the nine months ended September 30, 2012, the increase is attributed to revenues associated with its newly acquired operation HTI of approximately $768,000 as well as an increase in revenues from its existing customer base. The overall increases are primarily due to the continued marketing efforts and very competitive pricing as well as the Company’s strategy to increase its business by seeking additional opportunities through potential acquisitions, partnerships or investments.
Gross Profit
Gross profit for the three and nine months ended September 30, 2012, increased $375,381 (37.1%) and $488,948 (14.5%) to $1,386,618 and $3,867,222 for these periods, as compared to $1,011,237 and $3,378,274 for the three and nine months ended September 30, 2011. The increase in gross profit for this period is mostly attributed to the recent acquisition of HTI as well as the higher level of sales. For the three months ended September 30, 2012, the gross profit percentage was 40.0%, as compared to 42.6% for the three months ended September 30, 2011. For the nine months ended September 30, 2012, the gross profit percentage was 40.9%, as compared to 43.2% for the nine months ended September 30, 2011. The mix of products being sold by the Company changes from time to time and sometimes causes the overall gross margin percentage to vary. The change in sales mix for the three and nine months ended September 30, 2012, resulted in gross profit being slightly lower as a percent of sales as compared to the three and nine months ended September 30, 2011.
Operating Expenses
Selling and marketing expenses increased $73,007 (16.2%) and $300,366 (23.0%) to $523,352 and $1,607,559, respectively, for the three and nine months ended September 30, 2012 as compared to $450,345 and $1,307,193 for the three and nine months ended September 30, 2011 as a result of the continued increase in sales activity and incremental expenses associated with HTI.
General and administrative expenses increased $149,325 (28.3%) and $233,050 (14.0%) to $677,026 and $1,899,593, respectively, for the three and nine months ended September 30, 2012 as compared to $527,701 and $1,666,543 for the three and nine months ended September 30, 2011 primarily as a result of increases in payroll related expenses, rent, investor relations and insurance expenses.
On January 4, 2012 in accordance with options granted in January 2011, Mr. Meller sold portions of his Convertible Note payable to certain employees of SWK Technologies, Inc. in the amount of $13,235. On January 4, 2012, Mr. Meller converted $30,458 of the Convertible Note into 60,154,178 shares of Common Stock, and those certain employees converted the $13,238 into 23,139,523 shares of Common Stock. As a consequence the Company recognized $719,267 expense in 2012. Additionally, during the nine months ended September 30, 2012, the Company recognized $412,587 of share-based compensation as a result of the granting of stock options to most of its non-executive employees.
Other Income (Expense)
Total other expense for the three months ended September 30, 2012 was $16,404 as compared to $24,784 for the three months ended September 30, 2011 which was a result of lower interest expense. Total other expense for the nine months ended September 30, 2012 was $53,254 as compared to other income of $2,474,365 for the nine months ended September 30, 2011. This change is primarily attributed to the gain on the extinguishment of debt and derivative liability and the gain on the revaluation of derivative during the nine months ended September 30, 2011.
Net Income (Loss)
For three months ended September 30, 2012, the Company had net income of $102,808, as compared to a net loss of $14,141 for the three months ended September 30, 2011. For the nine months ended September 30, 2012, the Company had a net loss of $939,414 as compared to net income of $2,804,043 for the nine months ended September 30, 2011. This change is primarily attributed share-based compensation expense of $1,131,854 for the nine months ended September 30, 2012 and the gain on the extinguishment of debt of $2,228,939and derivative liability of $362,035 during the nine months ended September 30, 2011 as well as other factors as described above.
Liquidity and Capital Resources
We are currently seeking additional operating income opportunities through potential acquisitions or investments. Such acquisitions or investments may consume cash reserves or require additional cash or equity. Our working capital and additional funding requirements will depend upon numerous factors, including: (i) strategic acquisitions or investments; (ii) an increase to current company personnel; (iii) the level of resources that we devote to sales and marketing capabilities; (iv) technological advances; and (v) the activities of competitors.
In addition to developing new products, obtaining new customers and increasing sales to existing customers, management plans to achieve profitability through acquisitions of companies in the business software and information technology consulting market with solid revenue streams, established customer bases, and positive cash flow.
In October 2011 the Company negotiated a line of credit from a bank. The agreement included a borrowing base calculation tied to accounts receivable with a maximum availability of $750,000. Interest on outstanding balances is payable daily at an interest rate that is two and three quarter percentage points (2.75%) above the Prime Rate. The Company’s interest rate was 6% at September 30, 2012. The line was collateralized by substantially all of the assets of the Company and is personally guaranteed by the Company’s Chief Executive Office, Mr. Mark Meller. The credit facility required the Company to pay a monitoring fee of 0.315% of eligible collateral to be paid monthly. An annual facility fee equal to one percent (1%) of the Maximum Credit is assessed upon the initial funding, annually thereafter. The term of the agreement is for three years and expires in October 2014. As of September 30 2012, the Company has an outstanding balance of $403,008. As of September 30, 2012, the availability under this line was $346,992. At September 30, 2012, the Company was in compliance with the required financial covenants, the fixed charge ratio and debt to net worth.
During the nine months ended September 30, 2012, the Company had a net decrease in cash of $132,382. The Company's principal sources and uses of funds were as follows:
Cash provided by (used in) operating activities
The Company provided $153,463 in cash from operating activities for the nine months ended September 30, 2012, as compared to providing $776,160 of cash for operating activities for the nine months ended September 30, 2011. This decrease in cash used in operating activities is primarily attributed to a decrease in cash from operations and an increase in accounts receivable.
Cash used in investing activities
Investing activities for the nine months ended September 30, 2012 used cash of $679,399, as compared to using $71,748 of cash for the nine months ended September 30, 2011. This increase in cash used is attributed to the increase in purchases of property and equipment and intangible assets, including the acquisition of selected assets of HighTower.
Cash provided by (used in) financing activities
Financing activities for the nine months ended September 30, 2012 provided cash of $393,554, as compared to using $221,332 of cash for the nine months ended September 30, 2011. This increase in cash provided by operating activities is attributed to proceeds from the line of credit and as compared to receiving proceeds from the promissory notes and convertible debenture offset by the repayment of convertible debentures during the nine months ended September 30, 2011.
The Company believes that as a result of the growth in business, recent acquisitions, and the availability of its credit line it has adequate liquidity to fund its operating plans for at least the next twelve months.
There was no significant impact on the Company’s operations as a result of inflation for the nine months ended September 30, 2012. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K to the SEC for the fiscal year ended December 31, 2011.
Off Balance Sheet Arrangements
During the nine months ended September 30, 2012, we did not engage in any material off-balance sheet activities nor have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities.
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 Controls and Procedures
Pursuant to Rule 13a- 15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s PEO and PFO concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended September 30, 2012, 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. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our 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 believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 29, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Other than disclosed above, there were no unregistered sales of equity securities during the nine month period ending September 30, 2012, that were not otherwise required to be disclosed in a current report on Form 8-K.
Item 3. Defaults Upon Senior Securities
There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
There is no other information required to be disclosed under this item which has not been previously reported.
Item 6. Exhibits
|
31.1
|
||
|
31.2
|
||
|
32.1
|
||
|
32.2
|
||
|
101.INS
|
XBRL Instance Document
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|
* Filed herewith
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
|
SILVERSUN TECHNOLOGIES, INC.
|
|||||
|
Dated: November 14, 2012
|
By:
|
/s/ Mark Meller
|
|||
|
Mark Meller
|
|||||
|
Chief Executive Officer (Principal Executive Officer)
|
|||||
|
Chief Financial Officer (Principal Accounting Officer)
|
|||||