SilverSun Technologies, Inc. - Quarter Report: 2012 June (Form 10-Q)

---

---

 

 

 

Delaware	16-1633636
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

  

Large accelerated filer	¨		Accelerated filer	¨
Non-accelerated filer	¨		Smaller reporting company	x

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

 

		Page No.
PART I.    FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited):	3
	Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011	3
	Condensed Consolidated Statements of Operations for the Three and Six Months June 31, 2012 and 2011	4
	Consolidated Statement of Stockholders' Deficit for the periods ended June 30, 2012 and December 31, 2012	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2012 and 2011	6
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.	Controls and Procedures	15
PART II.   OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Mine Safety Disclosures	16
Item 5.	Other Information	16
Item 6.	Exhibits	16

 

ASSETS		June 30,  2012				December 31, 2011
Current assets:
Cash and cash equivalents		$	176,996			$	233,722
Accounts receivable, net of allowance of $41,000 and $41,000			1,289,275				881,217
Prepaid expenses and other current assets			65,255				115,024
Total current assets			1,531,526				1,229,963
Property and equipment, net of accumulated depreciation of $639,000 and $593,000			165,686				137,948
Intangible assets, net			893,404				95,445
Deposits and other assets			36,619				57,921
Total assets		$	2,627,235			$	1,521,277
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Line of credit		$	579,824			$	-
Accounts payable and accrued expenses			1,177,019				1,260,045
Accrued interest			12,868				7,675
Due to related parties			5,383				6,335
Capital lease obligations			63,790				64,367
Deferred revenue			1,516,938				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			3,382,876				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 June 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
Common stock:
Class A – par value $.0001; authorized 750,000,000 shares;               116,800,933 and 4,456,912 shares issued and outstanding			11,680				446
Class B – par value $.0001: authorized 50,000,000 shares;               no shares issued and outstanding			-				-
Additional paid-in capital			10,571,656				9,326,572
Accumulated deficit			(11,338,978	)			(10,296,756	)
Total SilverSun stockholders’ deficit			(755,641	)			(946,851	)
Non-controlling interest in SWK Technologies, Inc.			-				47,206
Total stockholders’ deficit			(755,641	)			(899,645	)
Total liabilities and stockholders’ deficit		$	2,627,235			$	1,521,277

 

		Three Months Ended								Six Months Ended
		June 30, 2012				June 30, 2011				June 30, 2012				June 30, 2011
Revenues:
Product, net		$	462,161			$	321,953			$	821,135			$	1,196,952
Service, net			2,609,264				2,370,125				5,159,149				4,256,571
Total revenues, net			3,071,425				2,692,078				5,980,284				5,453,523
Cost of revenues:
Product			203,982				212,846				373,320				644,033
Service			1,570,013				1,314,249				3,126,360				2,442,453
Cost of revenues			1,773,995				1,527,095				3,499,680				3,086,486
Gross profit			1,297,430				1,164,983				2,480,604				2,367,037
Selling, general and administrative expenses:
Selling expenses			569,857				431,690				1,084,207				856,848
General and administrative expenses			606,621				623,021				1,222,567				1,138,842
Shared-based compensation			408,183				-				1,127,450				-
Depreciation and amortization			32,550				26,124				51,752				52,312
Total selling, general and administrative expenses			1,617,211				1,080,835				3,485,976				2,048,002
Income (loss) from operations			(319,781	)			84,148				(1,005,372	)			319,035
Other income (expense):
Gain (loss) on revaluation of derivatives			-				99,247				-				362,035
Gain on extinguishment of debt and derivative liability			-				2,228,939				-				2,228,939
Amortization of debt discount			-				(12,750)				(4,250	)			(21,250	)
Interest expense, net			(14,250	)			(47,053)				(32,600	)			(70,575	)
Total other income (expense)			(14,250	)			2,268,383				(36,850	)			2,499,149
Net income (loss)			(334,031	)			2,352,531				(1,042,222	)			2,818,184
Net income (loss) attributable to the    noncontrolling interest in SWK Technologies			-				61,317				-				87,331
Net income (loss) attributable to SilverSun Technologies		$	(334,031	)		$	2,291,214			$	(1,042,222	)		$	2,730,853
											-				-
Net income (loss) per common share:             Basic		$	(0.00	)		$	0.52			$	(0.01	)		$	0.61
Fully diluted			(0.00	)			0.02				(0.01	)			0.03
Weighted average shares:
Basic			116,800,933				4,447,028				113,823,898				4,504,992
Diluted			116,800,933				105,724,210				113,823,898				105,782,173

		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			-				-				-				-				-				-				1,127,450				-				-				1,127,450
Issuance of warrant for services																											9,830												9,830
Issuance of common stock for services			-				-				-				-				500,000				50				4,950				-				-				5,000
Net loss			-				-				-				-				-				-				-				(1,042,222	)			-				1,042,222	)
Balance at June  30, 2012			-				-				1			$	1				116,800,933			$	11,680			$	10,571,656			$	(11,338,978	)			-			$	(755,641	)

		2012				2011
Cash flows from operating activities:
Net income (loss)		$	(1,042,222	)		$	2,818,184
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			45,452				52,312
Amortization of intangibles			6,300				-
Amortization of debt discount			4,250				44,136
Share-based compensation			1,127,450				-
Common stock issued for services			5,000				-
Warrants issued in exchange for services			9,830				-
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			(408,058	)			(241,437	)
Prepaid expenses and other current assets			49,769				37,369
Deposits and other assets			21,302				-
Accounts payable and accrued expenses			(83,026	)			135,862
Accrued interest			5,193				34,107
Deferred revenue			201,554				323,971
Due to related parties			(952	)			48,095
Net cash provided by (used in) operating activities			(58,158	)			596,625
Cash flows from investing activities:
Acquisition of intangible assets			(62,661	)			-
Acquisition of new business			(441,964	)			-
Purchase of property and equipment			(53,734	)			(29,562	)
Net cash used in investing activities			(558,359	)			(29,562	)
Cash flows from financing activities:
Proceeds from line of credit			579,824				-
Proceeds from convertible promissory note – related party			-				51,000
Proceeds from promissory notes			-				550,000
Repayment of promissory notes			-				(50,000	)
Repayment of convertible debentures			-				(735,000	)
Principal payments under capital leases obligations			(20,033	)			(11,216	)
Net cash used in financing activities			559,791				(195,216	)
Net increase (decrease) in cash and cash equivalents			(56,726	)			371,847
Cash and cash equivalents – beginning of period			233,722				104,344
Cash and cash equivalents – end of period		$	176,996			$	476,191
Cash paid during period for:
Interest expense		$	-			$	-
Income taxes		$	-			$	-
Capital lease obligations			19,456				-

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES

For the six months ended June 30, 2012:

a)  The Company converted $43,946 of the Convertible Promissory Note at a fixed conversion rate of 1,975 shares per $1 for 86,793,693 shares of Class A common stock.

 

 

 

 

 
 

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

 

 

 

 

 

 

 

 

 

		Three Months Ended				Three Months Ended
		June 30, 2012				June 30, 2011
Basic net income (loss)  per share attributable to common shareholders computation:
Net income (loss) attributable to common stockholders		$	(334,031	)		$	2,291,214
Weighted-average common shares outstanding			116,800,933				4,447,028
Basic net income (loss) per share attributable to common Stockholders		$	(0.00	)		$	0.52
Diluted net income (loss) per share attributable to common shareholders computation
Net income (loss) attributable to common stockholders		$	(334,031	)		$	2,291,214
Weighted-average common shares outstanding			116,800,933				4,447,028
Incremental shares attributable to the common stock  equivalents			-				101,277,181
Total adjusted weighted-average shares			116,800,933				105,724,210
Diluted net income (loss) per share attributable to common Stockholders		$	(0.00	)		$	0.02

 

		Six Months Ended				Six Months Ended
		June 30, 2012				June 30, 2011
Basic net income (loss)  per share attributable to common shareholders computation:
Net income (loss) attributable to common stockholders		$	(1,042,222	)		$	2,730,853
Weighted-average common shares outstanding			113,823,898				4,504,992
Basic net income (loss) per share attributable to common Stockholders		$	(0.01	)		$	0.61
Diluted net income (loss) per share attributable to common shareholders computation
Net income (loss) attributable to common stockholders		$	(1,042,222	)		$	2,730,853
Weighted-average common shares outstanding			113,823,898				4,504,992
Incremental shares attributable to the common stock  equivalents			-				101,277,181
Total adjusted weighted-average shares			113,823,898				105,782,173
Diluted net income (loss) per share attributable to common Stockholders		$	(0.01	)		$	0.03

 

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

2012		$	89,963
2013			179,228
2014			179,228
2015			179,228
2016			179,228
Thereafter			90,028
		$	899,704

 

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 Class A Common Stock equal to 1% of the outstanding shares of Class A 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 Class A Common Stock.

 

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.

NOTE 9 – NON-CONTROLLING INTEREST

 

Overview

 

 

Net Income (Loss)

For three months ended June 30, 2012, the Company had a net loss of $334,031, as compared to net income of $2,291,214 for the three months ended June 30, 2011. For the six months ended June 30, 2012, the Company had a net loss of $1,042,222 as compared to net income of $2,730,853 for the six months ended June 30, 2011.  This change is primarily attributed share-based compensation expense for the three and six months ended June 30, 2012 and the gain on the extinguishment of debt and derivative liability during the six months ended June 30, 2012 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.

On December 30, 2005, the Company entered into a Securities Purchase Agreement with YA Global Investments, L.P (YA Global). Pursuant to such purchase agreement, YA Global purchased $2,359,047 of secured convertible debentures, which are convertible into shares of the Company’s Class A common stock. Two such debentures were issued on December 30, 2005 for an aggregate of $1,759,047, interest payable at the rate of 7.5% per annum, and included a debenture was issued on May 6, 2006 equal to $600,000 with interest payable at the rate of 7.5% per annum (the “YA Global Debentures”).

On November 9, 2010, the YA Global Debentures were amended with the maturity date being extended to December 31, 2011. This amendment required an initial payment of $175,000 due on January 28, 2011, with additional monthly payments of $10,000 to be made for the following eleven months ending December 1, 2011. The remaining principal and all accrued interest is due on December 31, 2011. This agreement also modified and fixed the conversion price at $.0001, but is also subject to price protection features. The YA Global Debentures are also not convertible during 2011, provided that the payments required by the amended agreement have been made in a timely fashion. During the first three months of 2011, the Company made payments in the amount of $205,000 in accordance with the terms of the amendment. In April 2011, the Company paid YA Global $530,000 to satisfy any and all obligations owed to YA Global, including outstanding principal, accrued interest and liquidated damages.  As a result, the Company recorded a gain on the extinguishment of debt in the amount of $1,461,660 and is recorded as other income in the accompanying statement of operations.

Cash provided by (used in) operating activities

 

 

  

Financing activities for the six months ended June 30, 2012 provided cash of $560,882, as compared to using $195,216 of cash for the six months ended June 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 six months ended June 30, 2011.

 

 

 

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

 

 

(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 June 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

 

 

 

 

 

 

 

Not Applicable.

Item 6.  Exhibits

 

10.1		Share Exchange Agreement, dated January 12, 2012, by and among SilverSun Technologies, Inc. and certain signatories thereto (incorporated by reference to exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 20, 2012)
31.1		Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
31.2		Certification by the Principal Accounting Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
32.1		Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2		Certification by the Principal Accounting Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

 
 

 
 

		SILVERSUN TECHNOLOGIES, INC.
Dated: August 14, 2012		By:	/s/ Mark Meller
			Mark Meller
			Chief Executive Officer (Principal Executive Officer)
			Chief Financial Officer (Principal Accounting Officer)