UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
xx ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2015
or
oo TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-50302
SILVERSUN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
16-1633636
(I.R.S. Employer
Identification No.)
5 Regent Street
Livingston, NJ 07039
(Address of principal executive offices)
(973) 396-1720
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.00001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes x No o
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
Accelerated filer
o
o
Non-accelerated filer
Smaller reporting company
o
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2015 based on a
closing price of $3.92 was $4,595,463. As of March 30, 2016, the registrant had 4,410,736 shares of its common stock, par value $0.00001 per
share, outstanding.
Documents Incorporated By Reference: None.
Table of Contents
PART I
TABLE OF CONTENTS
Page No.
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Item 13.
Item 14.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statements Schedules
SIGNATURES
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included in this Annual Report on Form 10-K are “forward-looking” statements, as well as historical information. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-
looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a
result of certain factors, including matters described in the section titled “Risk Factors.” Forward-looking statements include those that use
forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,”
“should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-
looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results
will be consistent with these forward-looking statements. We undertake no obligation to update or revise these forward-looking statements,
whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.
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Item 1. Business Overview
PART I
We are a business application, technology and consulting company providing strategies and solutions to meet our clients’ information, technology
and business management needs. Our services and technologies enable customers to manage, protect and monetize their enterprise assets whether
on-premise or in the “Cloud”. As a value added reseller of business application software, we offer solutions for accounting and business
management, financial reporting, Enterprise Resource Planning (“ERP”), Warehouse Management Systems (“WMS”), Customer Relationship
Management (“CRM”), and Business Intelligence (“BI”). Additionally, we have our own development staff building software solutions for
Electronic Data Interchange (“EDI”), time and billing, and various ERP enhancements. Our value-added services focus on consulting and
professional services, specialized programming, training, and technical support. We have a dedicated network services practice that provides
managed services, hosting, business continuity, cloud, email and web services. Our customers are nationwide, with concentrations in the New
York/New Jersey metropolitan area, Chicago, Dallas, Arizona, Southern California, North Carolina and Washington.
Our core business is divided into the following practice areas:
ERP (Enterprise Resource Management) and Accounting Software
We are a value-added reseller for a number of industry-leading ERP applications. We are a Sage Software Authorized Business Partner and Sage
Certified Gold Development Partner. We believe we are among the largest Sage ERP X3 partners in North America, with a sales and
implementation presence complemented by a scalable software development practice for customizations and enhancements. Due to the growing
demand for true cloud-based ERP solutions, we have added two (2) industry leading applications to our ERP portfolio: (1) NetSuite ERP, among
the world’s leading cloud ERP solutions; and (2) Acumatica, a browser-based ERP solution that can be offered on premise, in the public cloud,
or in a private cloud. We develop and resell a variety of add-on solutions to all our ERP and accounting packages that help customize the
installation to our customers’ needs and streamline their operations.
Value-Added Services for ERP
We go beyond simply reselling software packages; we have a consulting and professional services organization that manages the process as we
move from the sales stage into implementation, go live, and production. We work inside our customers’ organizations to ensure all software and
Information Technology (“IT”) solutions are enhancing their business needs. A significant portion of our services revenue comes from
continuing to work with existing customers as their business needs change, upgrading from one version of software to another, or providing
additional software solutions to help them grow their revenue. We have a dedicated help desk team that fields hundreds of calls every week.
Our custom programming department builds specialized software packages as well as “off the shelf” enhancements and time and billing
software.
EDI (Electronic Data Interchange) Software and Services
EDI is the computer to computer exchange of standard business documents, such as purchase orders and invoices, in electronic format. A
standard file format is established for each kind of document in order to facilitate the exchange of data across a variety of platforms and programs.
We have a proprietary software solution, MAPADOC, which is fully integrated with the Sage ERPs. MAPADOC allows businesses to
dramatically cut data entry time by eliminating duplicate entries and reduces costly errors with trading partners. MAPADOC is the only EDI
solution that is built within the framework of the Sage ERPs, allowing customers to stay within one application to get their job done.
Network and Managed Services
We provide comprehensive network and managed services designed to eliminate the IT concerns of our customers. Businesses can focus on their
core strengths rather than technology issues. We adapt our solutions for virtually any type of business, from large national and international
product and service providers, to small businesses with local customers. Our business continuity services provide automatic on and off site
backups, complete encryption, and automatic failure testing. We also provide email and web security, IT consulting, managed network, and
emergency IT services. Our focus in the network and managed services practice is to focus on industry verticals in order to demonstrate our
ability to better understand our customers’ needs.
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Industry Overview
As a value added reseller of business application software, we offer solutions for accounting and business management, financial reporting,
managed services, ERP, WMS, CRM, and BI. Additionally, we have our own development staff building software solutions for EDI, time and
billing, and various ERP enhancements. Our value-added services focus on consulting and professional services, specialized programming,
training, and technical support. The majority of our customers are small and medium businesses (“SMBs”).
Potential Competitive Strengths
•
•
•
•
Independent Software Vendor. As an independent software vendor we have published integrations between ERPs and third party
products which differentiates us from other business application providers because, as a value-added reseller of the ERPs that our
proprietary products integrate with, we have specific software solution expertise in the ERPs we resell, which affords us the
opportunity to ensure that our proprietary products tightly integrate with the ERPs. We own the intellectual property related to these
integrations, and sell the solutions both directly and through other software resellers within the Sage network.
Sage Certified Gold Development Partner. As a Sage Certified Gold Development Partner, we are licensed to customize the source
code of the Sage ERPs. Very few resellers are master developers, and in fact, we provide custom programming services for many other
resellers. We have full-time programmers on staff, which provides us with a depth and breadth of expertise that we believe very few
competitors can match.
Experienced Leadership. We have a senior management team which in the aggregate has greater than 60 years of experience across a
broad range of disciplines.
Ability to Recruit, Manage and Retain Quality Personnel. We have a track record of recruiting, managing and retaining skilled labor
and our ability to do so represents an important advantage in an industry in which a shortage of skilled labor is often a key limitation
for both clients and competitors alike. We recruit skilled labor from competitors and from amongst end users with experience using the
various products we sell, whom we then train as consultants. We believe our ability to hire, manage and maintain skilled labor gives an
edge over our competitors as we continue to grow.
• Combination of Hardware/Software Expertise. Many competitors have software solution expertise. Others have network/hardware
expertise. We believe we are among the very few organizations with an expertise in both software and hardware, affording us the
opportunity to provide turnkey solutions for our customers without the need to bring in additional vendors on a project.
•
Technical Expertise. Our geographical reach and substantial technical capabilities afford our clients the ability to customize and tailor
solutions to satisfy all of their business needs.
Our Growth Strategy
General
Our strategy is to grow our business through a combination of intra-company growth of our software applications, technology solutions and
managed services, as well as expansion through acquisitions, both within our existing geographic reach and through geographic expansion. We
have established a national presence via our internal marketing, sales programs, and acquisitions and now have ERP customers and MAPADOC
customers throughout most of the United States.
Intra-Company Growth
Our intra-company growth strategy is to increase our market penetration and client retention through the upgrade of, and expanded sales efforts
with, our existing products and managed services and development of new and enhanced software and technology solutions. Our client retention
is sustained by our providing responsive, ongoing software and technical support and monitoring and maintenance services for both the
solutions we sell and other client technology needs we provide.
Repeat business from our existing customer base has been key to our success and we expect it will continue to play a vital role in our growth.
We focus on nurturing long-standing relationships with existing customers while also establishing relationships with new customers.
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Acquisitions
The markets in which we provide our services are occupied by a large number of competitors, many substantially larger than us, and with
significantly greater resources and geographic reach. We believe that to remain competitive, we need to take advantage of acquisition
opportunities that arise which may help us achieve greater geographic presence and economies both within our existing footprint and expanded
territories. As such, we have completed ten (10) acquisitions and/or collaborative agreements in the past forty-eight (48) months. We may also
utilize acquisitions, whenever appropriate, to expand our technological capabilities and product offerings. We focus on acquisitions that are
profitable and fit seamlessly with our existing operations.
We believe our markets contain a number of attractive acquisition candidates. We foresee expanding through acquisitions of one or more of the
following types of software and technology organizations:
• Managed Service Providers (“MSPs”). MSPs provide their small and medium-sized business clients with a suite of services,
which may include 24/7/365 remote monitoring of networks, disaster recovery, business continuity, data back-up, cyber-security and the
like. There are hundreds of providers of such services in the U.S., most with annual recurring revenue of less than $10 million. We
believe that we may be able to consolidate a number of these MSPs with our existing operation in an effort to become one of the more
significant providers of these services in the U.S.
•
Independent Software Vendors (“ISVs”) . ISVs are publishers of both stand-alone software solutions and integrations that
integrate with other third party products. Our interest lies with ISVs selling into the small and medium-sized business marketplace,
providing applications addressing e-commerce, mobility, security, and other functionalities. Since we have expertise in both selling
directly to end-users and selling through a sales channel, we believe we can significantly enhance the sales volume of any potential
acquisition via our existing infrastructure, our sales channel, and our internal marketing programs. There are many ISVs in North
America, constituting a large and significant target base for our acquisition efforts.
• Value-Added Resellers (“VARs”) of ERP, Warehouse Management Systems (“WMS”), CRM and BI Software . Of the hundreds
of VARs in the Sage Software sales channel, we believe we are among the ten largest based on our 2015 revenue. VARs gross margins
are a function of the sales volume they provide a publisher in a twelve (12) month period, and we are currently operating at the highest
margins. Smaller resellers, who sell less and operate at significantly lower margins, are at a competitive disadvantage to companies such
as ours, and are often amenable to creating a liquidity event for themselves by selling to larger organizations. This dynamic has enabled
us to complete ten (10) acquisitions and/or collaborative agreements in the past forty-eight (48) months. We have benefitted from
completing such acquisitions in a number of ways, including but not limited to: (i) garnering new customers to whom we can upsell and
cross-sell our broad range of products and services; (ii) gaining technical resources that enhance our capabilities; and (iii) extending our
geographic reach.
Our business strategy provides that we will examine the potential acquisition of businesses within our industry. In determining a suitable
acquisition candidate, we will carefully analyze a target’s potential to add to and complement our product mix, expand our existing revenue base,
improve our margins, expand our geographic coverage, strengthen our management team, add technical resources and expertise, and, above all,
improve stockholder returns. More specifically, we have identified the criteria listed below, by which we evaluate potential acquisition targets in
an effort to gain the synergies necessary for successful growth of the Company:
• Access to new customers and geographic markets;
• Recurring revenue of the target;
• Opportunity to gain operating leverage and increased profit margins;
• Diversification of sales by customer and/or product;
• Improvements in product/service offerings; and
• Ability to attract public capital and increased investor interest.
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We are unable to predict the nature, size or timing of any acquisition. We can give no assurance that we will reach agreement or procure the
financial resources necessary to fund any acquisition, or that we will be able to successfully integrate or improve returns as a result of any such
acquisition.
We continue to seek out and hold preliminary discussions with various acquisition candidates. However, currently we have not entered into any
agreements or understandings for any acquisitions that management deems material.
Electronic Data Interchange Software Strategy
Our strategy for our proprietary EDI software, including specifically “MAPADOC” is to continue to achieve market penetration with new
customers within our existing and expanding footprint and increase sales of new modules and enhanced functionality to our existing customer
base. To remain competitive, we must periodically upgrade our software to the platform most commonly requested by the market. We must also
continue our focus on enhancing applications through the addition of new functionality. Towards that end, we are exploring the development of
a cloud offering or Software-as-a-Service model for MAPADOC.
Enterprise Resource Planning Software Strategy
Our ERP software strategy is focused on serving the needs of our expansive installed base of customers for our Sage 100 ERP, Sage 500 ERP,
and Sage BusinessWorks practices, while rapidly growing the number of customers using Sage ERP X3, NetSuite, and Acumatica. We
currently have approximately 2,300 active ERP customers using one of these six solutions, including customers using certain add-on support
products to these solutions. In the past we, have focused primarily on on-premise mid-market Sage Software solutions but in the past three
years have shifted our focus to the more enterprise-level Sage ERP X3 offering, as well as diversifying into cloud ERP solutions. This has
allowed us to increase our average deal size significantly and also keep pace with the changing trends that we see in the industry.
Managed Services Strategy
The Managed Services market is broadly segmented by types of services as such, for example managed data-center, managed network,
managed mobility, managed infrastructure, managed communications, managed information, managed security and other managed services. In
addition, the market is segmented by market verticals, such as public sector, banking, financial services and insurance, education, retail, contact
centers and service industries, high tech and telecommunications, healthcare and pharmaceuticals, travel and logistics, manufacturing, energy
and utilities among others.
The recent trend in the industry shows that there is a high demand for managed services across every industry vertical. The implementation of
managed services reduces IT costs by 30% to 40% in such enterprises. This enables organizations to have flexibility and technical advantage.
Enterprises having their services outsourced look forward to risk sharing and to reduce their IT costs and IT commitments, so that they are able to
concentrate on their core competencies. Organizations implementing managed services have reported almost a 50% to 60% increase in the
operational efficiency of their outsourced processes. Enterprises have accepted outsourcing services as a means to enable them to reduce their
capital expenditure (CapEx) and free up internal sources. Newer managed services that penetrate almost all the industry domains, along with
aggressive pricing in services, are being offered. This results in an increase in the overall revenues of the managed services market. It is observed
that there is an increase in outsourcing of wireless, communications, mobility and other value-added services, such as content and e-commerce
facilities. With increasing technological advancements and the cost challenges associated with having the IT services in-house, we believe the
future seems optimistic for managed services providers.
Our strategy is to continue to expand our product offerings to the small and medium sized business marketplace, and to increase our scale and
capabilities via acquisition throughout the United States, but initially in those regions where we currently have existing offices.
Geographic Expansion
Generally, our technology offerings require on-premise implementation and support. When we expand into new geographic territories, we prefer
to find qualified personnel in an area to augment our current staff of consultants to service our business. The need for hands-on implementation
and support may also require investment in additional physical offices and other overhead. We believe our approach is conservative.
We may accelerate expansion if we find complementary businesses that we are able to acquire in other regions. Our marketing efforts to expand
into new territories have included attendance at trade shows in addition to personal contact.
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Our Products and Services
Enterprise Resource Planning Software
Substantially all of our initial sales of ERP financial accounting solutions consist of pre-packaged software and associated services to customers
in the United States.
The Company resells ERP software published by Sage Software and other providers for the financial accounting requirements of small- and
medium-sized businesses focused on manufacturing and distribution, and the delivery of related services from the sales of these products,
including installation, support and training. The programs perform and support a wide variety of functions related to accounting, including
financial reporting, accounts payable and accounts receivable, and inventory management.
We provide a variety of services along with our financial accounting software sales to assist our customers in maximizing the benefits from these
software applications. These services include training, technical support, and professional services. We employ class instructors and have formal,
specific training in the topics they are teaching. We can also provide on-site training services that are highly tailored to meet the needs of a
particular customer. Our instructors must pass annual subject-matter examinations required by Sage to retain their product-based teaching
certifications.
We provide end-user technical support services through our support/help desk. Our product and technology consultants assist customers calling
with questions about product features, functions, usability issues, and configurations. The support/help desk offers services in a variety of ways,
including prepaid services, time and materials billed as utilized and annual support contracts. Customers can communicate with the support/help
desk through e-mail, telephone, and fax channels. Standard support/help desk services are offered during normal business hours five (5) days per
week.
Electronic Data Interchange Software
We publish our own proprietary EDI software, “MAPADOC.” EDI can be used to automate existing processes, to rationalize procedures and
reduce costs, and to improve the speed and quality of services. Because EDI necessarily involves business partners, it can be used as a catalyst for
gaining efficiencies across organizational boundaries.
Our “MAPADOC” EDI solution is a fully integrated EDI solution that provides users of Sage Software’s market-leading Sage 100 ERP/Sage 500
ERP/Sage ERP X3 software products with a feature rich product that is easy to use. “MAPADOC” provides the user with dramatically decreased
data entry time, elimination of redundant steps, the lowering of paper and postage costs, the reduction of time spent typing, signing, checking and
approving documents and the ability to self-manage EDI and to provide a level of independence that saves time and money.
We market our “MAPADOC” solutions to our existing and new small and medium-sized business customers, and through a network of
resellers. We have a sales team of technical specialists involved in marketing and supporting sales of the “MAPADOC” product and associated
services.
Warehouse Management Systems
We are resellers of the Accellos Warehouse Management System software published by High Jump, Inc. (“High Jump”). High Jump develops
warehouse management software for mid-market distributors. The primary purpose of a WMS is to control the movement and storage of
materials within an operation and process the associated transactions. Directed picking, directed replenishment, and directed put-away are the key
to WMS. The detailed setup and processing within a WMS can vary significantly from one software vendor to another. However, the basic WMS
will use a combination of item, location, quantity, unit of measure, and order information to determine where to stock, where to pick, and in what
sequence to perform these operations.
The Accellos WMS software improves accuracy and efficiency, streamlines materials handling, meets retail compliance requirements, and
refines inventory control. Accellos also works as part of a complete operational solution by integrating seamlessly with radio frequency
hardware, accounting software, shipping systems and warehouse automation equipment.
We market the Accellos solution to our existing and new medium-sized business customers.
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Managed Network Services and Business Consulting
We provide managed services, data back-up, network maintenance and service upgrades for our business clients. We are a Microsoft Solutions
Provider. Our staff includes engineers who maintain certifications from Microsoft and Sage Software. They are Microsoft Certified Systems
Engineers and Microsoft Certified Professionals, and they provide a host of services for our clients, including remote network monitoring, server
implementation, support and assistance, operation and maintenance of large central systems, technical design of network infrastructure, technical
troubleshooting for large scale problems, network and server security, and backup, archiving, and storage of data from servers. There are
numerous competitors, both larger and smaller, nationally and locally, with whom we compete in this market.
Product Development
We are continually looking to improve and develop new products. Our product initiatives include various new product offerings, which are either
extensions of existing products or newly conceptualized product offerings including, but not limited to:
• Time and Billing Exact (TBX)
• SPS RSX Connector
• MAPADOC Express
• Fusion X3 Integration
• Accellos X3 Integration
We are using a dual-shore development approach to keep product development costs at a minimum. All of our product development is led by
U.S. based employees. The project leaders are technical resources who are involved in developing technical specifications, design decisions,
usability testing, and transferring the project knowledge to our offshore development team. Several times per week, the product development
leadership team meets with our project leaders and development teams to discuss project status, development obstacles, and project timelines.
Arrangements with Principal Suppliers
Our revenues are primarily derived from the resale of vendor software products and services. These resales are made pursuant to channel sales
agreements whereby we are granted authority to purchase and resell the vendor products and services. Under these agreements, we either resell
software directly to our customers or act as a sales agent for various vendors and receive commissions for our sales efforts.
We are required to enter into an annual Channel Partner Agreement with Sage Software whereby Sage Software appoints us as a non-exclusive
partner to market, distribute, and support Sage 100 ERP, Sage 500 ERP and Sage ERP X3. The Channel Partner Agreement is for a one-year
term, and automatically renews for an additional one-year term on the anniversary of the agreement’s effective date. These agreements authorize
us to sell these software products to customers in the United States. There are no clauses in this agreement that limit or restrict the services that
we can offer to customers. We also operate a Sage Software Authorized Training Center Agreement and also are party to a Master Developers
Program License Agreement.
For the years ended December 31, 2015 and 2014, purchases from Sage Software were approximately 24% and 26%, respectively, of the
Company’s total cost of revenue. Generally, the Company does not rely on any one specific supplier for all of its purchases and maintains
relationships with other suppliers that could replace its existing supplier should the need arise.
Customers
We market our products throughout North America. For the years ended December 31, 2015 and 2014, our top ten (10) customers accounted for
19% ($5,179,085) and 16% ($3,381,090), respectively, of our total revenues. Generally, we do not rely on any one specific customer for any
significant portion of our revenue base. No single customer accounted for ten percent or more of our consolidated revenues base.
Intellectual Property
We regard our technology and other proprietary rights as essential to our business. We rely on copyright, trade secret, confidentiality procedures,
contract provisions, and trademark law to protect our technology and intellectual property. We have also entered into confidentiality agreements
with our consultants and corporate partners and intend to control access to, and distribution of our products, documentation, and other proprietary
information.
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We own two trademarks registered with the U.S. Patent and Trademark Office for “MAPADOC” and have two (2) trademark applications
pending. We have no patents or patent applications pending.
Competition
Our markets are highly fragmented and the business is characterized by a large number of participants, including several large companies, as well
significant number of small, privately-held, local competitors. A significant portion of our revenue is currently derived from requests for
proposals (RFPs”) and price is often an important factor in awarding such agreements. Accordingly, our competitors may underbid us if they
elect to price their services aggressively to procure such business. Our competitors may also develop the expertise, experience and resources to
provide services that are equal or superior in both price and quality to our services, and we may not be able to enhance our competitive position.
The principal competitive factors for our professional services include geographic presence, breadth of service offerings, technical skills, quality
of service and industry reputation. We believe we compete favorably with our competitors on the basis of these factors.
Employees
As of March 30, 2016, we had approximately 139 full time employees with 32 of our employees engaged in sales and marketing activities, 82
employees are engaged in service fulfillment, and 25 employees employed in administrative activities.
Our future success depends in significant part upon the continued services of our key sales, technical, and senior management personnel and our
ability to attract and retain highly qualified sales, technical, and managerial personnel. None of our employees are represented by a collective
bargaining agreement and we have never experienced a work stoppage.
Legal Proceedings
We are not currently involved in any litigation that we believe could have a materially 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 our subsidiary, threatened against or affecting us,
our Common Stock, our subsidiary or of our subsidiary’ officers or directors in their capacities as such, in which an adverse decision could have a
material adverse effect.
Our Corporate History
We were incorporated on October 3, 2002, as a wholly owned subsidiary of iVoice, Inc. (“iVoice”). On February 11, 2004, the Company was
spun off from iVoice and became an independent publicly traded company. On September 5, 2003, we changed our corporate name to Trey
Resources, Inc. In March 2004, Trey Resources, Inc. began trading on the OTCBB under the symbol TYRIA.OB. In June 2011, we changed our
name to SilverSun Technologies, Inc., trading under the symbol SSNT.
Prior to June 2004, we were engaged in the design, manufacture, and marketing of specialized telecommunication equipment. On June 2, 2004,
our wholly-owned subsidiary, SWK Technologies, Inc. (“SWK”) completed its acquisition of SWK, Inc. Since the acquisition of SWK, Inc. we
have focused on three (3) core business sectors, including acting as the following: (i) a managed service provider for computer networks,
providing 24/7 remote monitoring of networks, data backup, hosting, and business continuity and disaster recovery services; (ii) a value added
reseller and master developer for Sage Software’s Sage 100 ERP, Sage 500 ERP and Sage ERP X3 enterprise resource planning (“ERP”)
financial software; and (iii) publisher of its own proprietary software solutions and integrations, including its Electronic Data Interchange (“EDI”)
software, “MAPADOC.” We also publish twenty (20) other assorted software solutions. We focus on the business application software and the
information technology consulting market for small and medium-sized businesses (“SMB’s”), selling services and products to various end users,
manufacturers, wholesalers and distributors located throughout the United States.
Our strategy is to grow our business through a combination of intra-company growth of our software applications and technology solutions, as
well as expansion through acquisitions, both within our existing geographic reach and through geographic expansion. To that end, since 2006, we
have completed a number of acquisitions that have increased our client base, technical expertise and geographic footprint.
On June 2, 2006, SWK completed the acquisition of certain assets of AMP-Best Consulting, Inc. (“AMP”) of Syracuse, New York. AMP is an
information technology company and value added reseller of licensed ERP software published by Sage Software. AMP sold services and
products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States, with special
emphasis on companies located in the upstate New York region.
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During 2011, SWK acquired Sage’s Software’s customer accounts in connection with IncorTech, LLC (“IncorTech”), a Southern California-
based Sage business partner. This transaction increased our geographical influence in Southern California for the sale and support of our
MAPADOC integrated EDI solution and the marketing of our Sage ERP X3 to both former IncorTech customers as well as new consumers.
IncorTech had previously provided professional accounting, technology, and business consulting services to over 300 clients.
In June 2012, SWK acquired selected assets and obligations of Hightower, Inc., a Chicago-based reseller of Sage software applications. In
addition to the strategic geographic benefits that this acquisition brings to SWK, there is also a substantial suite of proprietary enhancement
software solutions.
In May 2014, we completed the purchase of selected assets of ESC Software (“ESC”), a leading Arizona-based reseller of Sage Software and
Acumatica applications. Founded in 2000, ESC has implemented technology solutions at prominent companies throughout the Southwest. In
addition to the strategic benefits of this acquisition, it has given us additional annual revenues, approximately 300 additional Sage Software ERP
customers and affords us market penetration in the Southwest.
On March 11, 2015 SWK entered into an Asset Purchase Agreement with 2000 SOFT, Inc. d/b/a Accounting Technology Resource (“ATR”), a
California corporation. In addition to the strategic geographic benefits of this acquisition, it will provide additional revenues from the
approximately 250 additional customers.
On July 6, 2015 SWK entered into an Asset Purchase Agreement with ProductiveTech, Inc. (“PTI”), a Southern New Jersey corporation. In
addition to the strategic geographic benefits of this acquisition, it will provide additional revenues from the approximately 85 additional
customers.
On October 1, 2015, SWK entered into an Asset Purchase Agreement with The Macabe Associates, Inc., (“Macabe”) a Washington based reseller
of Sage Software and Acumatica applications. In addition to the strategic geographic benefits of this acquisition, it will provide additional
revenues from the approximately 180 additional customers.
On October 19, 2015, SWK entered into an Asset Purchase Agreement with Oates & Company, (“Oates”) a North Carolina reseller of Sage
Software applications. In addition to the strategic geographic benefits of this acquisition, it will provide additional revenues from the
approximately 185 additional customers.
Where You Can Find More Information
Our website address is www.silversuntech.com. We do not intend our website address to be an active link or to otherwise incorporate by
reference the contents of the website into this Report. The public may read and copy any materials the Company files with the U.S. Securities
and Exchange Commission (the “SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet
website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file
electronically with the SEC.
Item 1A. Risk Factors.
Risks Relating to our Business
We have a large accumulated deficit, may incur future losses and may be unable to maintain profitability.
As of December 31, 2015 and December 31, 2014, we had an accumulated deficit of $10,642,172 and $11,016,477, respectively. As of
December 31, 2015 and December 31, 2014 we had stockholders' equity of $1,556,321 and $13,607 respectively. We may incur net losses in
the future. Our ability to achieve and sustain long-term profitability is largely dependent on our ability to successfully market and sell our
products and services, control our costs, and effectively manage our growth. We cannot assure you that we will be able to maintain
profitability. In the event we fail to maintain profitability, our stock price could decline.
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We cannot accurately forecast our future revenues and operating results, which may fluctuate.
Our operating history and the rapidly changing nature of the markets in which we compete make it difficult to accurately forecast our revenues
and operating results. Furthermore, we expect our revenues and operating results to fluctuate in the future due to a number of factors, including
the following:
·
·
·
·
·
·
the timing of sales of our products and services;
the timing of product implementation, particularly large design projects;
unexpected delays in introducing new products and services;
increased expenses, whether related to sales and marketing, product development, or administration;
the mix of product license and services revenue; and
costs related to possible acquisitions of technology or businesses.
We may fail to develop new products, or may incur unexpected expenses or delays.
Although we currently have fully developed products available for sale, we may need to develop various new technologies, products and product
features and to remain competitive. Due to the risks inherent in developing new products and technologies — limited financing, loss of key
personnel, and other factors — we may fail to develop these technologies and products, or may experience lengthy and costly delays in doing
so. Although we are able to license some of our technologies in their current stage of development, we cannot assure that we will be able to
develop new products or enhancements to our existing products in order to remain competitive.
We may need additional financing which we may not be able to obtain on acceptable terms. If we are unable to raise additional capital, as
needed, the future growth of our business and operations could be severely limited.
A limiting factor on our growth is our limited capitalization, which could impact our ability to execute on our business plan. If we raise
additional capital through the issuance of debt, this will result in increased interest expense. If we raise additional funds through the issuance of
equity or convertible debt securities, the percentage ownership of the Company held by existing shareholders will be reduced and our
shareholders may experience significant dilution. In addition, new securities may contain rights, preferences or privileges that are senior to those
of our Common Stock. If additional funds are raised by the issuance of debt or other equity instruments, we may become subject to certain
operational limitations (for example, negative operating covenants). There can be no assurance that acceptable financing necessary to further
implement our business plan can be obtained on suitable terms, if at all. Our ability to develop our business, fund expansion, develop or enhance
products or respond to competitive pressures, could suffer if we are unable to raise the additional funds on acceptable terms, which would have
the effect of limiting our ability to increase our revenues or possibly attain profitable operations in the future.
If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or
to reduce probability of fraud occurrence. Any inability to report and file our financial results accurately and timely could harm our
reputation and adversely impact the trading price of our Common Stock.
Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. We may not be able to manage our
business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed.
Our evaluations under the Sarbanes-Oxley Act the Company concluded that the Company’s internal controls over financial reporting were not
effective due to our limited finance staff and corresponding segregation of duties, and the ineffective management review of complex
transactions included in the consolidated financial statements, and that such information is accumulated and communicated to the Company’s
management to allow timely decisions regarding required disclosure.
Our management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. In order to
remedy this situation we would need to hire additional staff. Currently, we are unable to allocate the necessary resources to hire additional staff
and to facilitate greater segregation of duties. However, we will reassess our resources capabilities and priorities in the following year and
evaluate the cost-benefit relationship of possible changes in our controls over financial reporting and disclosure controls and procedures.
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Management believes that the material weaknesses are the result of the lack of scale of our operations and are intrinsic to our small size.
Nonetheless, our small size and our current internal control deficiencies may have a material adverse effect on our ability to accurately and timely
report our financial information which, in turn, may have a material adverse effect on our financial condition. This could result in a loss of
investor confidence in the reliability of our financial statements, which in turn could negatively impact the price of our Common Stock as well as
our access to additional capital.
We may fail to recruit and retain qualified personnel.
We expect to rapidly expand our operations and grow our sales, development and administrative operations. Accordingly, recruiting and retaining
such personnel in the future will be critical to our success. There is intense competition from other companies for qualified personnel in the areas
of our activities, particularly sales, marketing and managed services. If we fail to identify, attract, retain and motivate these highly skilled
personnel, we may be unable to continue our marketing and managed services activities and service our clients’ needs, and this could have a
material adverse effect on the Company’s business, financial condition, results of operations and future prospects.
If our technologies and products contain defects or otherwise do not work as expected, we may incur significant expenses in attempting to
correct these defects or in defending lawsuits over any such defects.
Software products are not currently accurate in every instance, and may never be. Furthermore, we could inadvertently release products and
technologies that contain defects. In addition, third-party technology that we include in our products could contain defects. We may incur
significant expenses to correct such defects. Clients who are not satisfied with our products or services could bring claims against us for
substantial damages. Such claims could cause us to incur significant legal expenses and, if successful, could result in the plaintiffs being awarded
significant damages. Our payment of any such expenses or damages could prevent us from becoming profitable.
Our success is highly dependent upon our ability to compete against competitors that have significantly greater resources than we have.
The ERP software, EDI software, MSP and business consulting industries are highly competitive, and we believe that this competition will
intensify. Many of our competitors have longer operating histories, significantly greater financial, technical, product development and marketing
resources, greater name recognition and larger client bases than we do. Our competitors could use these resources to market or develop products
or services that are more effective or less costly than any or all of our products or services or that could render any or all of our products or
services obsolete. Our competitors could also use their economic strength to influence the market to continue to buy their existing products.
If we are not able to protect our trade secrets through enforcement of our confidentiality and non-competition agreements, then we may not
be able to compete effectively and we may not be profitable.
We attempt to protect our trade secrets, including the processes, concepts, ideas and documentation associated with our technologies, through the
use of confidentiality agreements and non-competition agreements with our current employees and with other parties to whom we have divulged
such trade secrets. If the employees or other parties breach our confidentiality agreements and non-competition agreements or if these agreements
are not sufficient to protect our technology or are found to be unenforceable, our competitors could acquire and use information that we consider
to be our trade secrets and we may not be able to compete effectively. Some of our competitors have substantially greater financial, marketing,
technical and manufacturing resources than we have, and we may not be profitable if our competitors are also able to take advantage of our trade
secrets.
Our failure to secure trademark registrations could adversely affect our ability to market our product candidates and our business.
Our trademark applications in the United States and any other jurisdictions where we may file may be denied, and we may not be able to maintain
or enforce our registered trademarks. During trademark registration proceedings, we may receive rejections. Although we are given an
opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, with respect to the United States Patent
and Trademark Office and any corresponding foreign agencies, third parties are given an opportunity to oppose pending trademark applications
and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our applications and/or registrations, and
our applications and/or registrations may not survive such proceedings. Failure to secure such trademark registrations in the United States and in
foreign jurisdictions could adversely affect our ability to market our product candidates and our business.
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We may unintentionally infringe on the proprietary rights of others.
Many lawsuits currently are being brought in the software industry alleging violation of intellectual property rights. Although we do not believe
that we are infringing on any patent rights, patent holders may claim that we are doing so. Any such claim would likely be time-consuming and
expensive to defend, particularly if we are unsuccessful, and could prevent us from selling our products or services. In addition, we may also be
forced to enter into costly and burdensome royalty and licensing agreements.
Our industry is characterized by rapid technological change and failure to adapt our product development to these changes may cause our
products to become obsolete.
We participate in a highly dynamic industry characterized by rapid change and uncertainty relating to new and emerging technologies and
markets. Future technology or market changes may cause some of our products to become obsolete more quickly than expected.
The trend toward consolidation in our industry may impede our ability to compete effectively.
As consolidation in the software industry continues, fewer companies dominate particular markets, changing the nature of the market and
potentially providing consumers with fewer choices. Also, many of these companies offer a broader range of products than us, ranging from
desktop to enterprise solutions. We may not be able to compete effectively against these competitors. Furthermore, we may use strategic
acquisitions, as necessary, to acquire technology, people and products for our overall product strategy. The trend toward consolidation in our
industry may result in increased competition in acquiring these technologies, people or products, resulting in increased acquisition costs or the
inability to acquire the desired technologies, people or products. Any of these changes may have a significant adverse effect on our future
revenues and operating results.
We face intense price-based competition for licensing of our products which could reduce profit margins.
Price competition is often intense in the software market. Price competition may continue to increase and become even more significant in the
future, resulting in reduced profit margins.
The software and technology industry is highly competitive. If we cannot develop and market desirable products that the public is willing to
purchase, we will not be able to compete successfully. Our business may be adversely affected and we may not be able to generate any
revenues.
We have many potential competitors in the software industry. We consider the competition to be competent, experienced, and may have greater
financial and marketing resources than we do. Our ability to compete effectively may be adversely affected by the ability of these competitors to
devote greater resources to the development, sales, and marketing of their products than are available to us. Some of the Company’s competitors,
also, offer a wider range of software products, have greater name recognition and more extensive customer bases than the Company. These
competitors may be able to respond more quickly to new or changing opportunities, customer desires, as well as undertake more extensive
promotional activities, offer terms that are more attractive to customers and adopt more aggressive pricing policies than the Company. We
cannot provide any assurances that we will be able to compete successfully against present or future competitors or that the competitive pressure
we may encounter will not force us to cease operations.
If there are events or circumstances affecting the reliability or security of the internet, access to our website and/or the ability to safeguard
confidential information could be impaired causing a negative effect on the financial results of our business operations.
Despite the implementation of security measures, our website infrastructure may be vulnerable to computer viruses, hacking or similar disruptive
problems caused by members, other internet users, other connected internet sites, and the interconnecting telecommunications networks. Such
problems caused by third-parties could lead to interruptions, delays or cessation of service to our customers. Inappropriate use of the internet by
third-parties could also potentially jeopardize the security of confidential information stored in our computer system, which may deter individuals
from becoming customers. Such inappropriate use of the internet includes attempting to gain unauthorized access to information or systems,
which is commonly known as “cracking” or “hacking.” Although we have implemented security measures, such measures have been
circumvented in the past by hackers on other websites on the internet, although our networks have never been breached, and there can be no
assurance that any measures we implement would not be circumvented in future. Dealing with problems caused by computer viruses or other
inappropriate uses or security breaches may require interruptions, delays or cessation of service to our customers, which could have a material
adverse effect on our business, financial condition and results of operations.
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If we lose the services of any of our key personnel, including Mark Meller and Jeffrey D. Roth, our business may suffer.
We are dependent on Mark Meller, our Chief Executive Officer and key employees in our operating subsidiary, specifically Jeffrey D. Roth,
Chief Executive Officer of SWK. The loss of any of our key personnel could materially harm our business because of the cost and time
necessary to retain and train a replacement. Such a loss would also divert management attention away from operational issues.
To service our debt obligations, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond
our control. Any failure to repay our outstanding indebtedness as it matures, could materially adversely impact our business, prospects,
financial condition, liquidity, results of operations and cash flows.
Our ability to satisfy our debt obligations and repay or refinance our maturing indebtedness will depend principally upon our future operating
performance.
As a result, prevailing economic conditions and financial, business, legislative, regulatory and other factors, many of which are beyond our
control, will affect our ability to make payments on our debt and comply with the covenants of the line of credit. If we do not generate sufficient
cash flow from operations to satisfy our debt service obligations, we may have to undertake alternative financing plans, such as refinancing or
restructuring our debt, incurring additional debt, issuing equity or convertible securities, utilizing our line of credit, reducing discretionary
expenditures and selling certain assets (or combinations thereof). Our ability to execute such alternative financing plans will depend on the
capital markets and our financial condition at such time. In addition, our ability to execute such alternative financing plans may be subject to
certain restrictions under our existing indebtedness, including our revolving credit facility and our term loan. Any refinancing of our debt could
be at higher interest rates and may require us to comply with more onerous covenants compared to those associated with any debt that is being
refinanced, which could further restrict our business operations. Our inability to generate sufficient cash flow to satisfy our debt obligations, or
our inability to refinance our debt obligations on commercially reasonable terms or at all, would have a material adverse effect on our business,
prospects, financial condition, liquidity, results of operations and cash flows.
Risks Related To Our Securities
Our common stock is quoted on the OTCBB and OTCQB, which may have an unfavorable impact on our stock price and liquidity.
Our common stock is quoted on the OTCBB and OTCQB. The quotation of our shares on the OTCBB and OTCQB may result in a less liquid
market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common
stock and could have a long-term adverse impact on our ability to raise capital in the future.
There is limited liquidity on the OTCBB and OTCQB, which enhances the volatile nature of our equity.
When fewer shares of a security are being traded on the OTCBB and OTCQB, volatility of prices may increase and price movement may outpace
the ability to deliver accurate quote information. Due to lower trading volumes in shares of our common stock, there may be a lower likelihood
that orders for shares of our common stock will be executed, and current prices may differ significantly from the price that was quoted at the time
of entry of the order.
Our stock price is likely to be highly volatile because of our limited public float.
The market price of our common stock is likely to be highly volatile because there has been a relatively thin trading market for our stock, which
causes trades of small blocks of stock to have a significant impact on our stock price. You may not be able to resell shares of our common stock
following periods of volatility because of the market’s adverse reaction to volatility. Other factors that could cause such volatility may include,
among other things: actual or anticipated fluctuations in our operating results; the absence of securities analysts covering us and distributing
research and recommendations about us; overall stock market fluctuations; economic conditions generally; announcements concerning our
business or those of our competitors; our ability to raise capital when we require it, and to raise such capital on favorable terms; conditions or
trends in the industry; litigation; changes in market valuations of other similar companies; announcements by us or our competitors of significant
contracts, acquisitions, strategic partnerships or joint ventures; future sales of common stock; actions initiated by the SEC or other regulatory
bodies; and general market conditions. Any of these factors could have a significant and adverse impact on the market price of our common
stock. These broad market fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating
performance.
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In order to raise sufficient funds to expand our operations, we may have to issue additional securities at prices which may result in substantial
dilution to our shareholders.
If we raise additional funds through the sale of equity or convertible debt, our current stockholders’ percentage ownership will be reduced. In
addition, these transactions may dilute the value of our common shares outstanding. We may also have to issue securities that may have rights,
preferences and privileges senior to our common stock.
Our stock is thinly traded, so you may be unable to sell at or near ask prices or at all.
The shares of our common stock are traded on the OTCBB and OTCQB and are thinly traded, meaning that the number of persons interested in
purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a
number of factors, including the fact that we are a smaller reporting company that is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community who generate or influence sales volume. Even in the event that we come to the
attention of such persons, they would likely be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of
our shares until such time as we become more seasoned and viable. As a consequence, our stock price may not reflect an actual or perceived
value. Also, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as is currently the case,
as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an
adverse effect on share price. A broader or more active public trading market for our common shares may not develop or if developed, may not
be sustained. Due to these conditions, you may not be able to sell your shares at or near ask prices or at all if you need money or otherwise desire
to liquidate your shares.
Currently, there is a limited public market for our securities, and there can be no assurances that any public market will ever develop and,
even if developed, it is likely to be subject to significant price fluctuations.
We have a trading symbol for our common stock, namely ‘SSNT’. However, our stock has been thinly traded. Consequently, there can be no
assurances as to whether:
·
·
·
any substantial market for our shares will develop;
the prices at which our common stock will trade; or
the extent to which investor interest in us will lead to the development of an active, liquid trading market. Active trading markets
generally result in lower price volatility and more efficient execution of buy and sell orders for investors.
Until our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades is likely to
fluctuate significantly. Prices for our common stock will be determined in the marketplace and may be influenced by many factors, including the
depth and liquidity of the market for shares of our common stock, developments affecting our business, including the impact of the factors
referred to elsewhere in these risk factors, investor perception of our Company and general economic and market conditions. No assurances can
be given that an orderly or liquid market will ever develop for the shares of our common stock.
We are subject to the penny stock rules which will make our securities more difficult to sell.
We are subject to the SEC’s “penny stock” rules because our securities sell below $5.00 per share. The penny stock rules require broker-dealers
to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the
customer’s account. In addition, the bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to
the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s
confirmation.
Furthermore, the penny stock rules require that prior to a transaction, the broker dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are
burdensome and may reduce purchases of any offerings and reduce the trading activity for our securities. As long as our securities are subject to
the penny stock rules, the holders of such securities will find it more difficult to sell their securities.
Item 1B. Unresolved Staff Comments.
Not applicable.
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Item 2. Properties.
Our main offices are located at 5 Regent Street, Livingston, NJ 07039 where we have 6,986 square feet of office space at a monthly rent of
$7,400. The lease expires December 31, 2016. The Company has a lease, with a one-year extension, for office space at 6834 Buckley Road,
North Syracuse, New York, at a monthly rent of $2,100. The lease expired on May 31, 2015 and was subsequently extended for a three year
term commencing June 1, 2015 and ending May 31, 2018. The Company also leases 2,700 square feet of office space for sales and support
in Skokie, Illinois with a monthly rent of $3,000. This lease expires April 30, 2018. The Company also leases 702 square feet for sales and
support in Minneapolis, Minnesota with a monthly rent of $1,515 a month. This lease expires March 31, 2017. The company leases 2,105
square feet of office space in Phoenix, AZ starting at $1,271 and escalating to $2,894 per month by the end of the term September 30, 2019.
The company leases 1,500 square feet of office space in Seattle, WA with a monthly rent of $3,000 a month. The lease expires September
30, 2018. The company leases 383 square feet of office space in Spartanburg, SC with a monthly rent of $450 a month. The lease expires
June 30, 2016. The company leases 3,422 square feet of office space in Greensboro, NC with a monthly rent of $4,182 a month. The lease
expires February 28, 2017. The company leases 1,745 square feet of office space in Santa Ana, CA with a monthly rent of $3,225 per month
escalating to $3,402 per month by the end of the lease term, April 30, 2018.
Item 3. 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 our subsidiary, threatened against or
affecting our Company, our common stock, our subsidiary or of our Company’s or our Company’s subsidiary’ officers or directors in their
capacities as such, in which an adverse decision could have a material adverse effect.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a) Market Information
Our shares of Common Stock are quoted on the OTCQB under the symbol “SSNT.” Prior to 2011, our Common Stock was listed under the
symbol “TYRIA”. The OTCQB is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter
(“OTC”) equity securities. An OTCQB equity security is not listed or traded on a national securities exchange.
The following table sets forth the high and low bid price for our common stock for each quarter during the past two fiscal years. The prices reflect
inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily reflect actual transactions.
Fiscal 2014:
First Quarter (January 1 – March 31)
Second Quarter (April 1 – June 30)
Third Quarter (July 1 – September 30)
Fourth Quarter (October 1 – December 31)
Fiscal 2015:
First Quarter (January 1 – March 31)
Second Quarter (April 1 – June 30)
Third Quarter (July 1 – September 30)
Fourth Quarter (October 1 – December 31)
High
Low
$
$
$
$
$
$
$
$
4.20 $
6.00 $
6.00 $
9.00 $
8.40 $
5.50 $
4.02 $
3.90 $
2.10
3.60
3.00
1.80
3.00
2.41
2.20
2.45
(b) Holders of Common Equity
As of March 30, 2016, there were 733 stockholders of record. An additional number of stockholders are beneficial holders of our Common Stock
in “street name” through banks, brokers and other financial institutions that are the record holders.
(c) Dividend Information
On January 11, 2016, the Company announced the payment of a $0.06 special cash dividend per share of Common Stock. The dividend
payments announced in January was paid out on January 20, 2016 for an aggregate amount of $265,000, which was applied against additional
paid in capital. The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any,
our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not
to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
(d) Securities Authorized For Issuance Under Equity Compensation Plans
There are 183,576 outstanding options to purchase our securities.
In February 2014, the Company granted 50,000 incentive stock options with an exercise price of $4.50 per option to certain non-executive
employees under the 2004 Stock Incentive Plan. Approximately 25,000 of the options vest immediately with the remaining 50% vesting ratably
over a three-year period.
In May 2014, the Company granted 20,000 incentive stock options with an exercise price of $4.50 per option to Mr. Alan H. Hardy under the
2004 Stock Incentive Plan. The Options shall vest at 20% year over year for five years.
In July 2014, the Company granted 10,000 incentive stock options with an exercise price of $4.50 per option to certain non-executive employees
under the 2004 Stock Incentive Plan. Options vest immediately.
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During 2014, the Company issued 4,176 shares of common stock in a cashless exercise of 8,333 warrants shares at an exercise price of $3.60 per
share.
In March 2015, the Company granted 10,000 incentive stock options with an exercise price of $4.00 per option to Ms. Karen Espinoza
McGarrigle under the 2004 Stock Incentive Plan. The Options shall vest at 20% year over year for five years.
In October 2015, the Company granted 25,000 incentive stock options with an exercise price of $3.66 per option to Ms. Mary Abdian under the
2004 Stock Incentive Plan. The Options shall vest at 20% year over year for five years.
The following table sets forth information as of December 31, 2015 with respect to compensation plans (including individual compensation
arrangements) under which our common shares are authorized for issuance, aggregated as follows:
All compensation plans previously approved by security holders;
and
All compensation plans not previously approved by security
holders
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
Number of
securities
remaining
available for future
issuance
(c)
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders.
Total
0 $
183,576 $
183,576 $
0.00
4.49
4.49
0
19,393
19,393
2004 Stock Incentive Plan
The Company adopted the 2004 Stock Incentive as the amended Plan (the “2004 Plan”) in order to attract and retain qualified employees,
directors, independent contractors or agents of the Company. The 2004 Plan terminated on September 29, 2014; options granted before that
date were not affected by plan termination. At December 31, 2015 and 2014, 183,576 and 163,846 options remained outstanding under the 2004
Plan, respectively.
2004 Directors’ and Officers’ Stock Incentive Plan
The Company adopted the 2004 Directors’ and Officers’ Stock Incentive Plan (the “2004 D&O Plan”) in order to provide long-term incentive
and rewards to officers and directors of the Company and subsidiary and to attract and retain qualified employees, directors, independent
contractors or agents of the Company. The 2004 D&O Plan terminated on September 29, 2014 and as of March 30, 2016, no securities were
issued.
2007 Consultant Stock Incentive Plan
The Company adopted the 2007 Consultant Stock Incentive Plan (the “2007 Plan”) to: (i) provide long-term incentives, payment in stock in lieu
of cash and rewards to consultants, advisors, attorneys, independent contractors or agents (“Eligible Participants”) of the Company; (ii) assist the
Company in attracting and retaining independent contractors or agents with experience and/or ability on a basis competitive with industry
practices; and (iii) associate the interests of such independent contractors or agents with those of the Company’s stockholders. The Company has
reserved 19,393 shares for issuance under this plan. Awards under the 2007 Plan may include, but need not be limited to, stock options (including
non-statutory stock options and incentive stock options qualifying under Section 422 of the Code), stock appreciation rights (including free-
standing, tandem and limited stock appreciation rights), warrants, dividend equivalents, stock awards, restricted stock, phantom stock,
performance shares or other securities or rights that the Board determines to be consistent with the objectives and limitations of the 2007
Plan. The price shall be equal to or greater than 50% of the fair market value of such shares on the date of grant of such award. The Board shall
determine the extent to which awards shall be payable in cash, shares of the Company’s Common Stock or any combination thereof. The 2007
Plan (but not the awards theretofore granted under the 2007 Plan) shall terminate on January 22, 2017 and no awards shall be granted thereafter.
As of March 30, 2016, no securities were issued pursuant to the 2007 Plan.
Transfer Agent
Our transfer agent is Fidelity Transfer Company at 8915 South 700 East, Sandy, Utah 84070.
Item 6. Selected Financial Data.
Not applicable.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This annual report on Form 10-K 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 this Annual Report on Form 10-K, 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
SilverSun Technologies, Inc. is involved in the acquisition and build-out of technology and software companies engaged in providing
transformational business management applications and professional consulting services to small and medium size companies, primarily in the
manufacturing, distribution and service industries. We are executing a business strategy centered on the design and development of our own
proprietary business management solutions, which now includes our MAPADOC® Electronic Data Interchange (EDI) solution and 20 other
proprietary solutions and enhancements; as well as on the acquisition of application resellers and software publishers of unique and proprietary
solutions in the extensive and expanding, but highly fragmented, business solutions marketplace.
Our core strength is rooted in our ability to discover and identify the driving forces of change that are affecting – or will affect – businesses in a
wide range of industries. We invest valuable time and resources to fully understand how technology is transforming the business management
landscape and what current or emerging innovations are deserving of a clients’ attention. By leveraging this knowledge and foresight, our
growing list of clients are empowered with the means to more effectively manage their businesses; to capitalize on real-time insight drawn from
their data resources; and to materially profit from enhanced operational functionality, process flexibility and expedited process execution.
A key tactical strategy for our Company is developing smart, proprietary business management applications that effectively and efficiently
integrate with existing business management systems; and in publishing proprietary solutions for niche markets that address unique
manufacturing and distribution challenges and needs. In this regard, through our wholly-owned subsidiary, SWK Technologies, Inc. (“SWK”),
we publish proprietary EDI software, branded as MAPADOC. MAPADOC is a fully integrated, easy-to use, feature-rich EDI solution for users
of Sage Software, Inc.’s (“Sage”) market leading Sage 100 ERP, Sage 500 ERP and Sage ERP X3 software products. Providing seamless
integration and dramatically decreasing data-entry time and associated costs, it is marketed and distributed worldwide by the Company’s direct
sales force, as well as through its platform partner, SPS Commerce, Inc. and a growing national network of independent software partners and
resellers, to customers largely supplying big-box retailers, including Walmart, Sears, Target and Costco.
We also provide managed IT services to our customers. As Microsoft Certified Systems Engineers and Microsoft Certified Professionals, our
staff offers a host of mission critical services, including remote network monitoring, server implementation, support and assistance, operation and
maintenance of large central systems, technical design of network infrastructure, technical troubleshooting for large scale problems, network and
server security, and back-up, archiving and storage of data from servers. We compete with numerous large and small companies in this market
sector, both nationally and locally.
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Distinguished as one of the largest Sage ERP X3 practices in North America, we resell enterprise resource planning software published by Sage,
which addresses the financial accounting requirements of small- and medium-size businesses focused on manufacturing and distribution. We
also offer services related to these sales, including installation, support and training. These product sales are primarily packaged software
programs installed on a user workstation, on a local area network server, or in a hosted environment. The programs perform and support a wide
variety of functions related to accounting, including financial reporting, accounts payable, accounts receivable and inventory management.
We employ class instructors and host formal, topic-specific, training classes, both on-site at our clients’ facilities and at our corporate offices. Our
instructors must pass annual subject matter examinations required by Sage to retain their product-based teaching certifications. We also provide
end-user technical support services through our support/help desk, which is available during normal business hours, Monday through Friday. Our
team of qualified product and technology consultants assist customers that contact us with questions about product features, functions, usability
issues and configurations. The support/help desk offers services in a variety of ways, including prepaid services, time and materials billed as
utilized and annual support contracts. Our customers can communicate with our support/help desk through email, telephone and fax channels.
Led by specialized project managers, we provide professional services ranging from software customization to data migration to small- and
medium-size business consulting.
We also are resellers of the Warehouse Management System (“WMS”) software published by High Jump, Inc. (“High Jump”), which develops
warehouse management software for middle market distributors. The primary purpose of a WMS is to control the movement and storage of
materials within an operation and process the associated transactions. Directed picking, directed replenishment, and directed put-away are the key
to WMS. The detailed setup and processing within a WMS can vary significantly from one software vendor to another. However, the basic WMS
will use a combination of item, location, quantity, unit of measure and order information to determine where to stock, where to pick, and in what
sequence to perform these operations. The Accellos WMS software improves accuracy and efficiency, streamlines materials handling, meets
retail compliance requirements, and refines inventory control. Accellos also works as part of a complete operational solution by integrating
seamlessly with RF hardware, accounting software, shipping systems and warehouse automation equipment. We market the Accellos solution to
our existing and new medium-sized business clients.
Investing in the acquisition of other companies and proprietary business management solutions has been an important growth strategy for our
Company, allowing us to rapidly offer new products and services, expand into new geographic markets and create new and exciting profit
centers. To date, we have completed a series of strategic ventures that have served to fundamentally strengthen our Company’s operating
platform and materially expand our footprint to nearly every U.S. state. More specifically, over the past ten years, we have outright acquired,
acquired select assets of or entered into revenue sharing agreements with Business Tech Solutions Group, Inc.; Wolen Katz Associates; AMP-
BEST Consulting, Inc.; IncorTech; Micro-Point, Inc.; HighTower, Inc.; Point Solutions, LLC; SGEN, LLC., ESC, Inc., 2000 SOFT, Inc.,
Productive Tech Inc., The Macabe Associates, and Oates & Co.
Additionally, it is our intention to continue to increase our business by seeking additional opportunities through potential acquisitions, revenue
sharing arrangements, partnerships or investments. Such acquisitions, revenue sharing arrangements, 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.
During 2015 the Company continued to expand its customer base and growth trend which we believe will provide a basis for future growth.
Some of the key highlights for 2015 are as follows:
1) Revenues increased 28.8% from the prior year.
2) Income from operations decreased to $357,788 as compared to $470,651 in the prior year.
3) Net income was $374,305 as compared to $192,901 in the prior year.
4) As a result of an increase in sales and marketing expense, we continue to lay the foundation for continued growth.
5) Sales of the Company’s proprietary and cloud-based business management solutions are increasing.
6) Continued to book major orders for Sage ERP X3.
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Revenues
Revenues for the year ended December 31, 2015 increased $6,178,208 (28.8%) to $27,641,982 as compared to $21,463,774 for the year
ended December 31, 2014. Software sales increased by $565,236 to $4,234,968 in 2015 from $3,669,732 in 2014 for an overall increase of
15.4%. This increase was primarily due to an increase in sales of our accounting software products, such as Sage ERP X3, cloud solutions
Netsuite and Acumatica, and Accellos Warehouse Management. Service revenue increased by $5,612,972 to $23,407,014 in 2015 from
$17,794,042 in 2014 for an overall increase of 31.5%. The overall increases are primarily due to the continued marketing efforts and very
competitive pricing, and the Company’s strategy to increase its business by seeking additional opportunities through potential acquisitions,
partnerships or investments. The Company’s organic growth in revenue, which ignores contributions from any acquisition which occurred in
2015 increased $2,924,187 (14.2%) for the year ended December 31, 2015 from the year ended December 31, 2014.
Gross Profit
Gross profit for the year ended December 31, 2015 increased $2,270,470 (26.5%) to $10,843,534 as compared to $8,573,064 for the year
ended December 31, 2014. The increase in overall gross profit for this period is attributed to the increase in revenues from existing business,
including the revenues from the four acquisitions completed during the year. For the year ended December 31, 2015, the overall gross profit
percentage was 39.2% as compared to 39.9 % for the year ended December 31, 2014. In addition, the Company will often enter into
agreements with former resellers to take over their customers in exchange for being paid a commission for a period of time. The Company
currently has 12 of these arrangements in place, which had the result of reducing the Company’s reported gross profit percentage by less than
0.39% for 2015. The organic growth in gross profit, which ignores contributions from any acquisition which occurred in 2015, increased
$877,138 (10.6%) for the year ended December 31, 2015 from the year ended December 31, 2014.
The gross profit attributed to software sales increased $352,291 to $2,150,722 for 2015 from $1,798,431 in 2014 which resulted in an increase in
the gross profit percentage from 49% to 51%. 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 gross profit attributed to services increased $1,918,179 from 2014 to 2015 primarily due to the implementations of larger scale accounting
systems. The gross profit percentage attributed to services decreased to 37% in 2015 from 38% in 2014.
Operating Expenses
Selling and marketing expenses increased $977,727 (29.4%) to $4,304,224 for the year ended December 31, 2015 compared to $3,326,497 for
the year ended December 31, 2014 due to increased sales personnel and travel expenses as a result of the increase in sales activity to provide for
future growth.
General and administrative expenses increased $1,354,481 (24.3%) to $5,635,571 for the year ended December 31, 2015 as compared to
$4,281,090 for the year ended December 31, 2014 primarily as a result of increases in payroll and related expenses associated with the addition
of management personnel and incremental costs associated with the acquisitions of ATR/PTI/Macabe/Oates.
During the year ended December 31, 2015, the Company recognized $60,860 of share-based compensation expense as a result of the granting
of stock options to some of its non-executive employees as compared to $130,253 for 2014.
Depreciation and amortization expense for the year ended December 31, 2015 was $485,091 as compared to $364,573 for the year ended
December 31, 2014. This increase is primarily attributed to the increase in amortization associated with the intangible assets acquired with ESC
acquisition in 2014 and the intangible assets acquired with the ATR/PTI/Macabe/Oates acquisitions in 2015.
Income (Loss) from Operations
For the year ended December 31, 2015, the Company had income from operations of $357,788 as compared to income from operations of
$470,651 for the year ended December 31, 2014.
Other Income (Expense)
For the year ended December 31, 2015, the Company had other expense of $57,483 as compared to $59,750 for the year ended December 31,
2014. For the year ended December 31, 2015, the Company had other income of $134,000 relating to the sale of its Beerrun product.
Income Taxes
For the year ended December 31, 2015, the Company’s Federal and State provision requirements were calculated based on the estimated tax
rate. The Federal effective rate is higher than the statutory rate primarily due to Incentive Stock Options (ISO) and 50% of general meal and
entertainment expense which are generally never tax deductible for the Company.
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For the year ended December 31, 2015, the Company’s Federal and State provision requirements were offset by the reversal of a portion of the
valuation allowance no longer deemed necessary, and recorded a net tax benefit of $120,000, which represents a reduction in its valuation
allowance on tax attributes that are expected to be utilized based on management’s assessment and evaluation of historical and projected
income.
Net Income
For year ended December 31, 2015, the Company had net income of $374,305 as compared to a net income of $192,901 for the year ended
December 31, 2014 for the reasons mentioned 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 increase its
business and profitability by entering into collaboration agreements, buying assets, and acquiring companies in the business software and
information technology consulting market with solid revenue streams and established customer bases that generate positive cash flow.
In October 2011, the Company obtained 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. On August 1, 2013, the Company negotiated a new line of credit and term loan from the
bank. The term of the line is for two years and expired on July 31, 2015 and was subsequently renewed for one year. The agreement included a
borrowing base calculation tied to accounts receivable with a maximum availability of $750,000 at prime plus 1.75% interest (currently
5.25%). The line is collateralized by substantially all of the assets of the Company and is guaranteed by the Company’s Chief Executive
Officer, Mr. Meller. The credit facility requires the Company to pay a monitoring fee of $1,000 monthly. At December 31, 2015, the Company
was in compliance with the required financial covenants, the fixed charge ratio and debt to net worth. As of December 31, 2015, the availability
under this line was $750,000.
Under the term loan, the Company borrowed $350,000 in July 2013 from a bank. The term of the loan was for two years and expired on July
31, 2015 and was fully paid.
On May 6, 2014, SWK acquired certain assets of ESC, Inc. pursuant to an Asset Purchase Agreement for a promissory note in the aggregate
principal amount of $350,000 (the “ESC Note”). The ESC Note matures on April 1, 2019. Monthly payments are $6,135 including interest at
2% per year. At December 31, 2015 the outstanding balance was $242,926.
On March 11, 2015 SWK entered into an Asset Purchase Agreement with 2000 SOFT, Inc. d/b/a ATR, a California corporation, and Karen
Espinoza McGarrigle in her individual capacity as Shareholder. SWK acquired certain assets of ATR (as defined in the Purchase Agreement).
In consideration for the acquired assets, the Company issued a promissory note in the aggregate principal amount of $175,000 and paid cash of
$80,000. As additional consideration, the Company will pay 10% of the net margin on maintenance renewals for former ATR customers for
the first twelve months and 5% of the net margin on maintenance renewals for the following twelve months.
On July 6, 2015, SWK acquired certain assets of ProductiveTech Inc. (PTI) pursuant to an Asset Purchase Agreement cash of $500,000 and a
promissory note for $600,000 (the “PTI Note”). The note is due in 60 months from the closing date and bears interest at a rate of two and one
half (2.5%) percent. The monthly payments including interest are $10,645. At December 31, 2015 the outstanding balance was $552,645.
On October 19, 2015, SWK acquired certain assets of Oates & Company, LLC (Oates) pursuant to an Asset Purchase Agreement cash of
$125,000 and a promissory note for $175,000 (the “Oates Note”). The note is due in three years from the closing date and bears interest at a
rate of two (2%) percent. The monthly payments including interest are $5,012. At December 31, 2015 the outstanding balance was
$165,383. Additionally in connection with the purchase agreement, the Company issued a Convertible Note for $200,000. The Convertible
Note is due January 1, 2017 and bears interest at a rate of one (1%) percent. The quarterly interest payments are computed on the basis of 365-
day year from the date of this note until paid.
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During the year ended December 31, 2015, the Company had a net decrease in cash of $115,024. The Company’s principal sources and uses of
funds were as follows:
Cash provided by operating activities
The Company generated $126,659 in cash from operating activities for the year ended December 31, 2015 as compared to generating $992,949
of cash for operating activities for the year ended December 31, 2014. This increase in cash provided by operating activities is primarily
attributed to an increase in deferred revenues and an increase in accounts receivable offset partially by an increase in accounts payable and
accrued expenses.
Cash used in investing activities
Investing activities for the year ended December 31, 2015 used cash of $643,376 as compared to using $152,991 of cash for the year ended
December 31, 2014. This decrease in cash is attributed to acquisitions and purchases of property and equipment offset by proceeds from the
sale of Beerrun.
Cash provided by financing activities
Financing activities for the year ended December 31, 2015 generated cash of $401,693 as compared to a use of $294,513 of cash for the year
ended December 31, 2014. This increase in cash provided from financing activities is mostly attributed to the proceeds from the issuance of
common stock and warrants offset by the repayments of the bank term loan, repayment of the ESC/ATR/PTI/Macabe/Oates acquisition term
loans and capital lease payments.
The Company believes that as a result of the growth in business, 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 year ended December 31, 2015.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these
consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those
related to bad debts, inventory obsolescence, intangible assets, and litigation. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of certain assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
We have identified below the accounting policies, related to what we believe are most critical to our business operations and are discussed
throughout Management’s Discussion and Analysis of Financial Condition or Plan of Operation where such policies affect our reported and
expected financial results.
Revenue Recognition
Revenue is recognized when products are shipped, or services are rendered, evidence of a contract exists, the price is fixed or reasonably
determinable, and collectability is reasonably assured.
Product Revenue
Software product revenue is recognized when the product is shipped to the customer. The Company treats the software component and the
professional services consulting component as two separate arrangements that represent separate units of accounting. The arrangement
consideration is allocated to each unit of accounting based upon that unit’s proportion of the fair value. In a situation where both components are
present, software sales revenue is recognized when collectability is reasonably assured and the product is delivered and has stand-alone value
based upon vendor specific objective evidence.
Service Revenue
Service revenue is comprised of primarily professional service consulting revenue, maintenance revenue and other ancillary services provided as
described below. Professional service revenue is recognized as service is incurred.
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With respect to maintenance services, upon the completion of one year from the date of sale, the Company offers customers an optional annual
software maintenance and support agreement for subsequent one-year periods. Maintenance and support agreements are recorded as deferred
revenue and recognized over the respective terms of the agreements, which typically range from three months to one year and are included in
service revenue in the Consolidated Statement of Income.
Shipping and handling costs charged to customers are classified as revenue, and the shipping and handling costs incurred are included in cost of
sales.
Accounts Receivable
The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on customer payment and current credit
worthiness, as determined by review of their current credit information. The Company continuously monitors credits and payments from its
customers and maintains provision for estimated credit losses based on its historical experience and any specific customer issues that have been
identified. While such credit losses have historically been within our expectation and the provision established, the Company cannot guarantee
that it will continue to receive positive results.
Unbilled Services
The Company recognizes revenue on its professional services as those services are performed or certain obligations are met.
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.
Intangible Assets
The values assigned to intangible assets were based on an independent valuation. Purchased intangible assets are amortized over the useful lives
based on the estimate of the use of economic benefit of the asset using the straight-line amortization method.
The Company assesses potential impairment of its intangible 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.
Income taxes
Deferred income taxes reflects 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 operating loss carryforwards. Deferred tax assets and liabilities are
classified as current or non-current based on the classification of the related assets or liabilities for financial reporting, or according to the
expected reversal dates of the specific temporary differences, if not related to an asset or liability for financial reporting. 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.
Off Balance Sheet Arrangements
During fiscal 2015, we did not engage in any material off-balance sheet activities or have any relationships or arrangements with unconsolidated
entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we
have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any
such entities.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We do not hold any derivative instruments and do not engage in any hedging activities.
Item 8. Financial Statements.
Our consolidated financial statements are contained in pages F-1 through F-23 which appear at the end of this Annual Report.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There are no reportable events under this item for the year ended December 31, 2015.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure and Control Procedures
The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as
defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Generally Accepted
Accounting Principles (“GAAP”). Management’s assessment of internal control over financial reporting used the criteria set forth in SEC Release
33-8810 based on the 2013 framework established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
in Internal Control over Financial Reporting – Guidance for Smaller Public Companies.
(b) Management’s Report on Internal Control over Financial Reporting
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) and 15d-15 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 internal control over financial
reporting was not effective due to our limited finance staff and the corresponding impact on the segregation of duties, as well as the ineffective
management review of complex transactions in the consolidated financial statements, and because such information was not accumulated and
communicated to the Company’s management to enable timely decisions regarding required disclosure.
Notwithstanding the material weakness, management believes that the consolidated financial statements which are included in this Annual
Quarterly Report on Form 10-K fairly present, in all material respects, the financial position of the Company at December 31, 2015 and their
consolidated results of operations and cash flows for each of the twelve months ended December 31, 2015 in conformity with U.S. generally
accepted accounting principles.
Remediation
Through the efforts of management, we are currently in the process of executing a plan of action to remediate the material weaknesses identified
above. However, we cannot be assured that these weaknesses will be remediated or that other material weaknesses will not be discovered.
As we expand our business operations it will become necessary to expand our financial accounting department and we expect at such time the
funding will become available to permit us to expand our resources in this area.
(c) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act,
during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Item 9B. Other Information.
Not applicable.
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Item 10. Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers
PART III
The following table and biographical summaries set forth information, including principal occupation and business experience, about our
directors and executive officers at March 30, 2016:
Name
Age Position
Officer and/or Director Since
Mark Meller
56 Chairman, President, Chief Executive Officer and Director
Crandall Melvin III
59 Chief Financial Officer
Stanley Wunderlich
64 Director
Joseph Macaluso
64 Director
Mark Meller, Chief Executive Officer, President, Director
2003
2015
2011
2015
Mr. Mark Meller has been the President and Director of the Company since September 15, 2003, and was further appointed Chief Executive
Officer on September 1, 2004. He became Chairman of the Board on May 10, 2009. Mr. Meller is currently the President, Chief Executive
Officer and Chairman of the Board of Directors. From September 2003 through January 2015, he was Chief Financial Officer of the Company.
From October 2004 until February 2007, Mr. Meller was the President, Chief Executive Officer, Chief Financial Officer and Director of Deep
Field Technologies, Inc. From December 15, 2004 until September 2009, Mr. Meller was the President, Chief Executive Officer, Chief Financial
Officer and Director of MM2 Group, Inc. From August 29, 2005 until August 2006, Mr. Meller was the President, Chief Executive Officer and
Chief Financial Officer of iVoice Technology, Inc. From 1988 until 2003, Mr. Meller was Chief Executive Officer of Bristol Townsend and Co.,
Inc., a New Jersey based consulting firm providing merger and acquisition advisory services to middle market companies. From 1986 to 1988,
Mr. Meller was Vice President of Corporate Finance and General Counsel of Crown Capital Group, Inc, a New Jersey based consulting firm
providing advisory services for middle market leveraged buy-outs (LBO’s). Prior to 1986, Mr. Meller was a financial consultant and practiced
law in New York City. He is a member of the New York State Bar.
Mr. Meller has a B.A. from the State University of New York at Binghamton and a J.D. from the Boston University School of Law.
In evaluating Mr. Meller’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into
account his experience in the industry and his knowledge of running and managing the Company.
Crandall Melvin III, Chief Financial Officer
Crandall Melvin III combines over 30 years of experience in public accounting and industry, holding a number of senior management positions
following a 5 year career in retail, commercial banking and equipment leasing. Mr. Melvin is also currently the CFO of SWK, the Company’s
operating subsidiary, and has been so since 2007.
From 2002 to 2006, he was Co-Founder and Chief Operating Officer of AMP-Best Consulting, Inc. (“AMP-Best”) a company involved in
software sales and implementation. AMP-Best was acquired by SWK Technologies in 2006. From 1993 to 2002, he worked in public accounting
in Alaska and New York, and is currently a Certified Public Accountant licensed in the State of New York and also holds the designation of
Certified Global Management Accountant. Mr. Melvin is also currently a director of Community Baseball of Central New York, Inc. the Minor
League AAA affiliate of The Washington Nationals. Mr. Melvin has also served on boards of directors of various not-for-profit organizations
located in the Syracuse Area.
Mr. Melvin has an undergraduate degree from the University of Southern California and an MBA from Syracuse University with additional
graduate studies from the University of Alaska at Anchorage.
Stanley Wunderlich, Director
Mr. Stanley Wunderlich has over 40 years of experience on Wall Street as a business owner and consultant. Mr. Wunderlich is a founding partner
and has been Chairman and Chief Executive Officer of Consulting for Strategic Growth 1, specializing in investor and media relations and the
formation of capital for early-growth stage companies both domestic and international, from 2000 through the present. Since 1987, he has been
the Chief Executive Officer of Consulting For Strategic Growth 1, Ltd.
Mr. Wunderlich has a Bachelor’s degree from Brooklyn College.
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In evaluating Mr. Wunderlich’s experience, qualifications, attributes and skills in connection with his appointment to our Board, we took into
account his experience in finance and investor relations.
Joseph Macaluso, Director
Joseph Macaluso has over 30 years of experience in financial management. Mr. Macaluso has been the Principal Accounting Officer of Tel-
Instrument Electronics Corp., a developer and manufacturer of avionics test equipment for both the commercial and military markets since 2002.
Previously, he had been involved in companies in the medical device and technology industries holding positions including Chief Financial
Officer, Treasurer and Controller. He has a B.S. in Accounting from Fairfield University.
In evaluating Mr. Macaluso’s specific experience, qualifications, attributes and skills in connection with his appointment to Board, we took into
account his expertise in general management, finance, corporate governance and strategic planning, as well as his experience in operations and
mergers and acquisitions.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Board Composition and Director Independence
Our board of directors consists of three members: Mr. Mark Meller, Mr. Stanley Wunderlich, and Mr. Joseph Macaluso. The directors will
serve until our next annual meeting and until their successors are duly elected and qualified. The Company defines “independent” as that
term is defined in Rule 5605(a)(2) of the NASDAQ listing standards.
In making the determination of whether a member of the board is independent, our board considers, among other things, transactions and
relationships between each director and his immediate family and the Company, including those reported under the caption “Certain
Relationships and Related-Party Transactions”. The purpose of this review is to determine whether any such relationships or transactions are
material and, therefore, inconsistent with a determination that the directors are independent. On the basis of such review and its
understanding of such relationships and transactions, our board affirmatively determined that Mr. Wunderlich and Mr. Macaluso have
qualified as independent and that they have no material relationship with us that might interfere with his or her exercise of independent
judgment.
Board Committees
Currently, the Audit Committee consists of Mr. Mark Meller, the Company’s Chief Executive Officer and President, Mr. Stanley Wunderlich and
Joseph Macaluso. The Audit Committee has two (2) independent members and Mr. Macaluso may be deemed a financial expert as defined in
§228.401(e) of the regulations promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended.
The Company does not currently have a standing nominating committee or compensation committee.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class
of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the
SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the
Company with copies of all reports filed by them in compliance with Section 16(a).
Based solely on our review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities
Exchange Act of 1934, as amended, the reports required to be filed with respect to transactions in our common stock during the fiscal year ended
December 31, 2015, were timely.
Code of Ethics
The Company has adopted a Code of Ethics for adherence by its Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and
Controller to ensure honest and ethical conduct; full, fair and proper disclosure of financial information in the Company's periodic reports filed
pursuant to the Securities Exchange Act of 1934; and compliance with applicable laws, rules, and regulations. Any person may obtain a copy of
our Code of Ethics by mailing a request to the Company at the address appearing on the front page of this Annual Report on Form 10-K.
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Legal Proceedings
There are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse to our
Company our subsidiary or has a material interest adverse to our Company or our subsidiary. No director or executive officer has been a director
or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years.
No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten
years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten years. No
director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.
Item 11. Executive Compensation.
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us
during the years ended December 31, 2015 and 2014.
Year Salary($) Bonus($)
0 $
546,317 $
2015 $
16,859 $
480,491 $
2014 $
Stock
Awards($)
0 $
0 $
Option
Awards($)
0 $
0 $
Non-Equity
Incentive Plan
Compensation($)
0 $
0 $
Nonqualified
Deferred
Compensation
Earnings($)
0 $
0 $
All Other
Compensation($)
0 $
0 $
Total
Compensation($)
546,317
497,350
2015 $
183,653 $
15,500 $
2014 $
181,730 $
17,000 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
199,153
198,730
Name and
Position(s)
Mark Meller
President,
Chief Executive
Officer,
Chief Financial
Officer
President
and Director
Crandall
Melvin III(1)
Chief Financial
Officer
(1) On January 29, 2015, Crandall Melvin III was appointed Chief Financial Officer of the Company. The compensation listed in the
above table for Mr. Melvin was earned by him as the Chief Financial Officer of the Company’s wholly-owned subsidiary, SWK
Technologies, Inc.
Mark Meller, Chief Executive Officer
The Company’s Chief Executive Officer and President has had an Employment Agreement with the Company since September 15, 2003. On
February 4, 2016 (the “Effective Date”), the Company entered into an amended and restated employment agreement (the “Meller
Employment Agreement”) with Mark Meller, pursuant to which Mr. Meller will continue to serve as the Company’s President and Chief
Executive Officer.
The Meller Employment Agreement was entered into by the Company and Mr. Meller primarily to extend the term of Mr. Meller’s
employment. The term of the Meller Employment Agreement is for an additional 7 years through September of 2023 (the “Term”) and shall
automatically renew for additional periods of one year unless otherwise terminated in accordance with the therein. The Company will pay
Mr. Meller an annual salary of $565,000 per annum, with a ten percent (10%) increase on September 1 and every anniversary of such date
for the duration of the Term.
Potential Payments upon Termination or Change in Control
The Meller Employment Agreement provides for a severance payment to Mr. Meller of three hundred percent (300%), less $100,000 of his
gross income for services rendered to the Company in each of the five prior calendar years should his employment be terminated following a
change in control (as defined in the Meller Employment Agreement).
Outstanding Equity Awards at Fiscal Year-End 2015
The Company had no outstanding equity awards to the executives named above at the end of the most recent completed fiscal year.
Director Compensation
We pay only our independent directors for their service on our board of directors. Mr. Wunderlich will be paid $1,000 per month, payable at the
end of each fiscal quarter for his service as a member of the board. Mr. Macaluso will be paid $1,500 per month, payable at the end of each fiscal
quarter for his service as a member of the board and as Chairman of the Audit Committee.
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The following Director Compensation Table sets forth the compensation of our directors for the fiscal year ending on December 31, 2015.
Director Compensation for Fiscal 2015
Fees
Earned
or Paid in
Cash
($)
12,000
Name
Stanley Wunderlich
Joseph Macaluso(1)
16,500
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Non-Qualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
—
—
—
—
—
—
—
—
—
12,000
—
16,500
(1) Joseph Macaluso was appointed as a director on January 29, 2015.
Director Agreements
On July 26, 2011, we entered into a director agreement with Stanley Wunderlich, pursuant to which Mr. Wunderlich was appointed to the Board
effective July 26, 2011. On August 3, 2011 the Company entered into an amended and restated director agreement (the “Amended Agreement”).
The term of the Amended Agreement is one year from August 3, 2011. The Amended Agreement may, at the option of the Board, be
automatically renewed on such date that Mr. Wunderlich is re-elected to the Board. In connection with a recapitalization of the Company in 2012,
Mr. Wunderlich and the Company agreed to amend the Amended Director Agreement to (i) change the Stipend to $1,000 per month, payable
quarterly; (ii) to forego the issuance of any warrants due to Wunderlich under the Amended Agreement; and (iii) to cancel the future issuance of
any warrants due to Mr. Wunderlich under the Amended Agreement. To date no warrants have been issued pursuant to this agreement.
On January 29, 2015, we entered into a director agreement (“Macaluso Director Agreement”) with Joseph Macaluso, pursuant to which Mr.
Macaluso was appointed to the Board effective January 29, 2015 (the “Effective Date”). The Macaluso Director Agreement may, at the option
of the Board, be automatically renewed on such date that Mr. Macaluso is re-elected to the Board. Under the Macaluso Director Agreement,
Mr. Macaluso is to be paid a stipend of one thousand five hundred dollars ($1,500) (the “Stipend”) per month, payable at the end of each fiscal
quarter. Additionally, Mr. Macaluso shall receive warrants (the “Warrants”) to purchase such number of shares of the Company’s Common
Stock, as shall equal (the “Formula”) (A) $20,000 divided by (B) the closing price of the Common Stock on the OTC Markets on the date of
grant of the Warrant. The exercise price of the Warrant shall be the closing price on the date of the grant of such Warrant (the “Grant Date”)
plus $0.01. The Warrant shall be fully vested upon receipt thereof (the “Vesting Date”).
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding the beneficial ownership of our Common Stock as of March 30, 2016 by (a) each
stockholder who is known to us to own beneficially 5% or more of our outstanding Common Stock; (b) all directors; (c) our executive officers,
and (d) all executive officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and
investment power with respect to their shares of Common Stock, except to the extent that authority is shared by spouses under applicable law, and
(ii) record and beneficial ownership with respect to their shares of Common Stock.
For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of Common Stock that such
person has the right to acquire within 60 days of March 30, 2016. For purposes of computing the percentage of outstanding shares of our
Common Stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60
days of March 30, 2016 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial
ownership. Unless otherwise identified, the address of our directors and officers is c/o SilverSun Technologies, Inc. at 5 Regent Street
Livingston, NJ 07039.
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Name and Address of Beneficial
5% Beneficial Shareholders
Jeffrey Roth(2)
Officers and Directors
Mark Meller
Chief Executive Officer, President and Chairman
Crandall Melvin III
Chief Financial Officer
Joseph P. Macaluso
Director
Stanley Wunderlich
Director
Number of
Shares of
Common
Stock
Beneficially
Owned
Percentage of
Ownership
of Common
Stock(1)
Outstanding
Preferred
Stock
Percentage
Ownership
of Preferred
Stock(2)
1,069,483
24.25%
-
2,006,534
45.49%
74,589
1.69%
3,333
23,334
*
*
-
-
-
-
-
-
-
-
-
-
-
Officers and Directors as a Group (4 persons)
2,107,790
47.18%
* denotes less than 1%
(1) Based on 4,410,736 shares of Common Stock outstanding as of March 30, 2016. Shares of Common Stock subject to options or
warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the
person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
(2) Mr. Roth is Chief Executive Officer of SWK, Technologies, Inc., a wholly-owned subsidiary of SilverSun Technologies, Inc.
DESCRIPTION OF SECURITIES
In the discussion that follows, we have summarized selected provisions of our certificate of incorporation, bylaws and the Delaware General
Corporation Law relating to our capital stock. This summary is not complete. This discussion is subject to the relevant provisions of Delaware
law and is qualified by reference to our certificate of incorporation and our bylaws. You should read the provisions of our certificate of
incorporation and our bylaws as currently in effect for provisions that may be important to you.
On February 4, 2015 the Company effected the Reverse Stock Split and every thirty (30) shares of outstanding Common Stock decreased to one
(1) share of Common Stock. Similarly, the number of shares of Common Stock into which each outstanding option and warrant to purchase
Common Stock is to be exercisable decreased on 1-for-30 basis and the exercise price of each outstanding option and warrant to purchase
Common Stock increased proportionately.
On January 29, 2015 the Company filed an amendment to its fourth amended and restated certificate of incorporation (the “Amendment”) with
the Secretary of State of Delaware. The Amendment (i) reflected the Reverse Stock Split; (ii) combined the Company’s Class A Common Stock,
par value $0.00001 per share (the “Class A Common Stock”) and the Company’s Class B Common Stock, par value $0.00001 per share (the
“Class B Common Stock”) into one class of general common stock, par value $0.00001 (the “Common Stock”); and (iii) reduced the number of
authorized shares of Common Stock from 750,000,000 to 75,000,000.
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Authorized Capital Stock
We are authorized to issue up to 76,000,000 shares of capital stock consisting of: 75,000,000 shares of Common Stock, par value $0.00001 per
share and 1,000,000 shares of preferred stock, par value of $0.001 per share. As of March 30, 2016, 4,410,736 shares of Common Stock were
issued and outstanding, no shares of preferred stock were issued and outstanding and 183,576 and 203,253 shares of Common Stock were
reserved for issuance under our outstanding options and warrants, respectively as described below.
Common Stock
Each holder of our Common Stock is entitled to one vote for each share held of record. Holders of our Common Stock have no preemptive,
subscription, conversion, or redemption rights. Upon liquidation, dissolution or winding-up, the holders of Common Stock are entitled to receive
our net assets pro rata. Each holder of Common Stock is entitled to receive ratably any dividends declared by our board of directors out of funds
legally available for the payment of dividends. We have not paid any dividends on our Common Stock and do not contemplate doing so in the
foreseeable future. We anticipate that any earnings generated from operations will be used to finance our growth.
Preferred Stock
The Company’s certificate of incorporation authorizes the issuance of 1,000,000 shares of Preferred Stock, par value $0.001 per share from time
to time.
Our board of directors is authorized (by resolution and by filing an amendment to our certificate of incorporation and subject to limitations
prescribed by the General Corporation Law of the State of Delaware) to issue, from to time, shares of Preferred Stock in one or more series, to
establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and other rights of
the shares of each such series and to fix the qualifications, limitations and restrictions thereon, including, but without limiting the generality of the
foregoing, the following:
·
·
the number of shares constituting that series and the distinctive designation of that series;
the dividend rate on the shares of that series, whether dividends are cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
· whether that series has voting rights, in addition to voting rights provided by law, and, if so, the terms of those voting rights;
· whether that series has conversion privileges, and, if so, the terms and conditions of conversion, including provisions for adjusting the
conversion rate in such events as our board of directors determines;
· whether or not the shares of that series are redeemable, and, if so, the terms and conditions of redemption, including the dates upon or
after which they are redeemable, and the amount per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
· whether that series has a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of that
sinking fund;
·
·
the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company,
and the relative rights of priority, if any, of payment of shares of that series; and
any other relative powers, preferences and rights of that series, and qualifications, limitations or restrictions on that series.
If we liquidate, dissolve or wind up our affairs, whether voluntarily or involuntarily, the holders of Preferred Stock of each series will be entitled
to receive only that amount or those amounts as are fixed by the certificate of designations or by resolution of the board of directors providing for
the issuance of that series.
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Series A Preferred Stock
The Series A Convertible Preferred Stock (“Series A”), has 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. 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, all Series A Convertible Preferred Stock was converted into 2,385,650 shares of Common Stock. As of March 30, 2015,
the Company has authorized 2 shares of Series A Preferred Stock, of which none are issued or outstanding.
Series B Preferred Stock
The Series B Preferred Stock has the rights, privileges, preferences and restrictions set forth 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.
In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the Series B Preferred
holders shall be entitled to receive, on parity with the Common Stock holders, assets of the Company available for distribution to the holders of
capital stock of the Company. The holders of Series B preferred shall not have any priority of preference with respect to any assets of the
Company.
So long as any shares of Series B Preferred are outstanding, the Company shall not, without first obtaining the unanimous written consent of the
holders of Series B Preferred, alter or change the rights, preferences or privileges of the Series B Preferred so as to affect adversely the holders of
Series B Preferred.
Each 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. Meller, pursuant to which Mr. Meller was issued one authorized share of Series B Preferred Stock (“Series
B”), par value $0.001 per share. Mr. Meller was issued one share of Series B as partial consideration for personally guaranteeing repayment of
the Notes. The Company had authorized 1 share of Series B Preferred Stock, of which 1 share was issued and outstanding. On March 29, 2015,
Mr. Meller returned his share of Series B Preferred Stock to the treasury, and, subject to shareholder approval, the Board approved the
cancellation of the Series B Preferred Stock Certificate of Designation.
Dividends
On January 11, 2016, the Company announced the payment of a $0.06 special cash dividend per share of Common Stock. The dividend
payments announced in January was paid out on January 20, 2016 for an aggregate amount of $265,000, which was applied against additional
paid in capital. The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any,
our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not
to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
Warrants
As of March 30, 2016 there are 203,253 outstanding warrants to purchase shares of our Common Stock.
Exercisability. The warrants are exercisable upon vesting schedule at any time up to the date that is five (5) years from the date of issuance. The
warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice accompanied by
payment in full for the number of shares of our common stock purchased upon such exercise (except in the case of a cashless exercise as
discussed below). Each warrant will be exercisable to purchase one share of common stock, subject to certain adjustments. Unless otherwise
specified in the warrant, the holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would
beneficially own in excess of 4.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise, as
such percentage ownership is determined in accordance with the terms of the warrants.
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Cashless Exercise. The holder may, in its sole discretion, exercise the warrant in whole or in part and, in lieu of making the cash payment
otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, elect instead to receive upon such
exercise the net number of shares of common stock determined according to the formula set forth in the warrant. In no event shall we be required
to make any cash payments or net cash settlement to the registered holder in lieu of issuance of common stock underlying the warrants.
Exercise Price. The initial exercise price per share of common stock purchasable upon exercise of the warrants are between $5.09 and $6.00 per
share. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock
combinations, reclassifications or similar events affecting our common stock and also upon any distributions of assets, including cash, stock or
other property to our stockholders.
Certain Adjustments. The exercise price and the number of shares of common stock purchasable upon the exercise of the warrants are subject to
adjustment upon the occurrence of specific events, including stock dividends, stock splits, combinations and reclassifications of our common
stock.
Transferability. Subject to applicable laws, the warrants may be transferred at the option of the holders upon surrender of the warrants to us
together with the appropriate instruments of transfer.
Fundamental Transaction. If, at any time while the warrants are outstanding, (1) we consolidate or merge with or into another corporation and we
are not the surviving corporation, (2) we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets,
(3) any purchase offer, tender offer or exchange offer (whether by us or another individual or entity) is completed pursuant to which holders of
our shares of common stock are permitted to sell, tender or exchange their shares of common stock for other securities, cash or property and has
been accepted by the holders of 50% or more of our outstanding shares of common stock, (4) we effect any reclassification or recapitalization of
our shares of common stock or any compulsory share exchange pursuant to which our shares of common stock are converted into or exchanged
for other securities, cash or property, or (5) we consummate a stock or share purchase agreement or other business combination with another
person or entity whereby such other person or entity acquires more than 50% of our outstanding shares of common stock (each, a "Fundamental
Transaction"), then upon any subsequent exercise of the warrants, the holders thereof will have the right to receive the same amount and kind of
securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of the number of warrant shares then issuable upon exercise of the warrant, and
any additional consideration payable as part of the Fundamental Transaction.
Rights as a Stockholder. Except as otherwise provided in the warrants or by virtue of such holder's ownership of shares of our common stock, the
holder of a warrant does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises
the warrant.
Options and Stock Awards
There are 183,576 outstanding options to purchase our securities.
In February 2014, the Company granted 50,000 incentive stock options with an exercise price of $4.50 per option to certain non-executive
employees under the 2004 Stock Incentive Plan. Approximately 25,000 of the options vest immediately with the remaining 50% vesting ratably
over a three-year period.
In May 2014, the Company granted 20,000 incentive stock options with an exercise price of $4.50 per option to Mr. Alan H. Hardy under the
2004 Stock Incentive Plan. The Options shall vest at 20% year over year for five years.
In July 2014, the Company granted 10,000 incentive stock options with an exercise price of $4.50 per option to certain non-executive employees
under the 2004 Stock Incentive Plan. Options vest immediately.
In March 2015, the Company granted 10,000 incentive stock options with an exercise price of $4.00 per option to Ms. Karen Espinoza
McGarrigle under the 2004 Stock Incentive Plan. The Options shall vest at 20% year over year for five years.
In October 2015, the Company granted 25,000 incentive stock options with an exercise price of $3.66 per option to Ms. Mary Abdian under the
2004 Stock Incentive Plan. The Options shall vest at 20% year over year for five years.
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2004 Stock Incentive Plan
The Company adopted the 2004 Stock Incentive as the amended Plan (the “2004 Plan”) order to attract and retain qualified employees,
directors, independent contractors or agents of the Company. The 2004 Plan terminated on September 29, 2014; options granted before that
date were not affected by plan termination. At December 31, 2015 and 2014, 183,576 and 163,846 options remained outstanding under the 2004
Plan respectively.
2004 Directors’ and Officers’ Stock Incentive Plan
The Company adopted the 2004 Directors’ and Officers’ Stock Incentive Plan (the “2004 D&O Plan”) in order to provide long-term incentive
and rewards to officers and directors of the Company and subsidiary and to attract and retain qualified employees, directors, independent
contractors or agents of the Company. The 2004 D&O Plan was terminated on September 29, 2014 and no awards shall be granted thereafter. As
of March 30, 2016, no securities were issued pursuant to the 2004 D&O Plan.
2007 Consultant Stock Incentive Plan
The Company adopted the 2007 Consultant Stock Incentive Plan (the “2007 Plan”) to: (i) provide long-term incentives, payment in stock in lieu
of cash and rewards to consultants, advisors, attorneys, independent contractors or agents (“Eligible Participants”) of the Company; (ii) assist the
Company in attracting and retaining independent contractors or agents with experience and/or ability on a basis competitive with industry
practices; and (iii) associate the interests of such independent contractors or agents with those of the Company’s stockholders. The Company has
reserved 19,393 shares for issuance under this plan. Awards under the 2007 Plan may include, but need not be limited to, stock options (including
non-statutory stock options and incentive stock options qualifying under Section 422 of the Code), stock appreciation rights (including free-
standing, tandem and limited stock appreciation rights), warrants, dividend equivalents, stock awards, restricted stock, phantom stock,
performance shares or other securities or rights that the Board determines to be consistent with the objectives and limitations of the 2007
Plan. The price shall be equal to or greater than 50% of the fair market value of such shares on the date of grant of such award. The Board shall
determine the extent to which awards shall be payable in cash, shares of the Company’s Common Stock or any combination thereof. The Board
may determine that all or a portion of a payment to a participant under the Plan, whether it is to be made in cash, shares of the Company’s
Common Stock or a combination thereof shall be deferred. Deferrals shall be for such periods and upon such terms as the Board may determine
in its sole discretion. The 2007 Plan (but not the awards theretofore granted under the 2007 Plan) shall terminate on January 22, 2017 and no
awards shall be granted thereafter. As of March 3, 2016, no securities were issued pursuant to the 2007 Plan.
Anti-Takeover Provisions
Provisions of the Delaware General Corporation Law (“DGCL”) and our certificate of incorporation and bylaws could make it more difficult to
acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions,
summarized below, are expected to discourage certain types of coercive takeover practices and takeover bids that our board of directors may
consider inadequate and to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the
benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure
us outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals
could result in improved terms for our stockholders.
Delaware Anti-Takeover Statute. We were subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 of the DGCL
prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three
years following the time the person became an interested stockholder, unless the business combination or the acquisition of shares that resulted in
a stockholder becoming an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a
person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status did
own) 15% or more of a corporation’s voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect
to transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market
price for the shares of Common Stock held by stockholders.
As of March 30, 2016, we are not subject to Section 203 of the DGCL because we do not have a class of voting stock that is listed on a national
securities exchange or held of record by more than 2,000 stockholders and we have not elected by a provision in our original certificate of
incorporation to be governed by Section 203. Unless we adopt an amendment of our certificate of incorporation by action of our stockholders
expressly electing not to be governed by Section 203, we would generally become subject to Section 203 of the DGCL at such time that we
have a class of voting stock that is either listed on a national securities exchange or held of record by more than 2,000 stockholders, except that
the restrictions contained in Section 203 would not apply if the business combination is with an interested stockholder who became an
interested stockholder before the time that we have a class of voting stock that is either listed on a national securities exchange or held of record
by more than 2,000 stockholders.
35
Table of Contents
Amendments to Our Certificate of Incorporation. Under the DGCL, the affirmative vote of a majority of the outstanding shares entitled to vote
thereon and a majority of the outstanding stock of each class entitled to vote thereon is required to amend a corporation’s certificate of
incorporation. Under the DGCL, the holders of the outstanding shares of a class of our capital stock shall be entitled to vote as a class upon a
proposed amendment, whether or not entitled to vote thereon by the certificate of incorporation, if the amendment would:
•
•
•
increase or decrease the aggregate number of authorized shares of such class;
increase or decrease the par value of the shares of such class; or
alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely.
If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class of our capital stock
so as to affect them adversely, but shall not so affect the entire class, then only the shares of the series so affected by the amendment shall be
considered a separate class for the purposes of this provision.
Vacancies in the Board of Directors. Our bylaws provide that, subject to limitations, any vacancy occurring in our board of directors for any
reason may be filled by a majority of the remaining members of our board of directors then in office, even if such majority is less than a quorum.
Each director so elected shall hold office until the expiration of the term of the other directors. Each such directors shall hold office until his or
her successor is elected and qualified, or until the earlier of his or her death, resignation or removal.
Special Meetings of Stockholders. Under our bylaws, special meetings of stockholders may be called by the directors or by any officer
instructed by the directors to call the meeting. Under the DGCL, written notice of any special meeting must be given not less than 10 nor more
than 60 days before the date of the special meeting to each stockholder entitled to vote at such meeting.
No Cumulative Voting. The DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless our
certificate of incorporation provides otherwise. Our certificate of incorporation does not provide for cumulative voting.
Item 13. Certain Relationships and Related Transactions.
The Company leases its North Syracuse office space from its current CFO, Crandall Melvin III. The monthly rent for this office space is $2,100.
The Company leases its Seattle office space from a current employee, Mary Abdian. The monthly rent for this office space is $3,000.
Director Independence
The common stock of the Company is currently quoted on the OTCBB and OTCQB, quotation systems which currently do not have director
independence requirements. On an annual basis, each director and executive officer will be obligated to disclose any transactions with the
Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest in
accordance with Item 407(a) of Regulation S-K. Following completion of these disclosures, the Board will make an annual determination as to
the independence of each director using the current standards for “independence” that satisfy the criteria for the Nasdaq and the American Stock
Exchange.
As of December 31, 2015, the Board determined that Mr. Wunderlich and Mr. Macaluso were independent.
36
Table of Contents
Item 14. Principal Accountant Fees and Services.
The following table sets forth fees billed to the Company by the Company’s independent auditors for (i) services rendered for the audit of the
Company’s annual financial statements and the review of the Company’s quarterly financial statements, (ii) services rendered that are reasonably
related to the performance of the audit or review of the Company’s financial statements that are not reported as Audit Fees, and (iii) services
rendered in connection with tax preparation, compliance, advice and assistance.
Services
Audit Fees
Audit - Related Fees
Tax fees
All Other Fees (a)
Total
2015
2014
$
94,100 $
65,500
36,900
14,500
18,700
21,250
36,700
32,400
$
186,400 $
133,650
(a)
All other fees include fees primarily for review and other services related to securities registration documents, assistance with other
document reviews and assistance with revenue agent examination.
Prior to engaging our accountants to perform a particular service, our Audit Committee obtains an estimate for the service to be performed. All of
the services described above were approved by the Audit Committee in accordance with its procedures.
37
Table of Contents
Item 15. Exhibits.
PART IV
(a)
Exhibit No.
2.1
2.2
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Description
Asset Purchase Agreement, dated March 11, 2015, by and among SWK Technologies, Inc., 2000Soft, Inc. d/b/a Accounting
Technology Resources and Karen Espinoza McGarrigle. (incorporated by reference to Exhibit 2.1 on the Company’s current
report on Form 8-K filed with the SEC on March 17, 2015).
Form of Asset Purchase Agreement, dated July 6, 2015, by and among SWK Technologies, Inc., ProductiveTech, Inc. a New
Jersey corporation John McPoyle and Kevin Snyder (incorporated herein by reference to Exhibit 2.1 on Form 8-K, filed with
the SEC on July 10, 2015)
Second Amended Certificate of incorporation of SilverSun Technologies, Inc., filed September 5, 2003 (incorporated herein
by reference to Exhibit 3.1 of the registration statement on Form SB-2, filed with the SEC on November 25, 2003).
By-laws of iVoice, Inc., a New Jersey corporation, incorporated herein by reference to Exhibit 3.2 of the Registrant’s Form
10-QSB for the period ended March 31, 2003.
Fourth Amended and Restated Certificate of incorporation of SilverSun Technologies, Inc.,( incorporated herein by reference
to Exhibit 3.1 on Form 8-K, dated June 27, 2011, filed with the SEC on June 30, 2011).
Amendment to the Bylaws of the Company ( incorporated herein by reference to Exhibit 3.2 on Form 8-K, dated June 27,
2011, filed with the SEC on June 30, 2011)
iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20, 2005 issued to Elma S. Foin (incorporated herein by
reference to Exhibit 4.2 of the registration statement on Form SB-2, filed with the SEC on December 22, 2003).
iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20, 2005 issued to Darryl A. Moy (incorporated herein by
reference to Exhibit 4.2 of the registration statement on Form SB-2, filed with the SEC on December 22, 2003).
iVoice Acquisition 1, Inc. 5% Convertible Debenture due March 20, 2005 issued to Henry Tyler (incorporated herein by
reference to Exhibit 4.2 of the registration statement on Form SB-2, filed with the SEC on December 22, 2003).
SilverSun Technologies, Inc. 7.5% Secured Convertible Debenture, for a value of $600,000, due December 30, 2007 to YA
Global (f/k/a/ Cornell Capital Partners, LP).
SilverSun Technologies, Inc. 7.5% Secured Convertible Debenture, for a value of $1,159,047, due December 30, 2007 to YA
Global (f/k/a/ Cornell Capital Partners, LP).
Certificate of Designation of Series A Convertible Preferred Stock, incorporated herein by reference to Exhibit 4.1 on Form 8-
K, dated May 4, 2011, filed with the SEC on May 12, 2011.
Certificate of Designation of Series B Preferred Stock, incorporated herein by reference to Exhibit 4.1 on Form 8-K, dated
September 23, 2011, filed with the SEC on September 27, 2011.
Employment Agreement, dated January 1, 2003, between iVoice Acquisition 1, Inc. and Jerome Mahoney. (incorporated
herein by reference to Exhibit 10.8 of the Registration Statement on Form SB-2 filed on November 25, 2003).
Employment Agreement, dated September 15, 2003, between SilverSun Technologies, Inc. and Mark Meller. (incorporated
herein by reference to Exhibit 10.8 of the Registration Statement on Form SB-2 filed on November 25, 2003).
Equity Line of Credit Agreement dated January 24, 2003 between Cornell Capital Partners, LP, and iVoice Acquisition 1, Inc.
(incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2003, filed with the SEC on May 12, 2003)
Registration Rights Agreement dated January 24, 2003 between Cornell Capital Partners, LP, and iVoice Acquisition 1, Inc.
(incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2003, filed with the SEC on May 12, 2003).
Stock Purchase Agreement dated January 24, 2003 between iVoice Acquisition 1, Inc. and listed Buyers (incorporated herein
by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, filed with
the SEC on May 12, 2003).
Placement Agreement dated January 24, 2003 between iVoice Acquisition 1, Inc. and Cornell Capital Partners LP.
(incorporated herein by reference to Exhibit 10.5 of the Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2003, filed with the SEC on May 12, 2003).
Termination Agreement dated December 30, 2005 between YA Global (f/k/a/ Cornell Capital Partners, LP). and SilverSun
Technologies, Inc.
Escrow Agreement dated December 30, 2005 between David Gonzalez, Esq. And SilverSun Technologies, Inc.
Securities Purchase Agreement dated December 30, 2005 between YA Global (f/k/a/ Cornell Capital Partners, LP). and
SilverSun Technologies, Inc.
Investor Rights Agreement dated December 30, 2005 between YA Global (f/k/a/ Cornell Capital Partners, LP). and SilverSun
Technologies, Inc.
Amended and Restated Security Agreement dated December 30, 2005 between YA Global (f/k/a/ Cornell Capital Partners,
LP). and SilverSun Technologies, Inc.
38
Table of Contents
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
14.1
Securities Purchase Agreement dated May 6, 2009 by and among SilverSun Technologies, SWK Technologies, Inc., Jeffrey
D. Roth and Jerome R. Mahoney. (incorporated herein by reference to Exhibit 10.1 on Form 10-K, dated May 9, 2009, filed
with the SEC on May 26, 2009).
Termination Settlement Agreement dated May 6, 2009 by and among SilverSun Technologies, SWK Technologies, Inc.,
Jeffrey D. Roth and Jerome R. Mahoney. (incorporated herein by reference to Exhibit 10.1 on Form 10-K, dated May 9, 2009,
filed with the SEC on May 26, 2009).
Promissory notes, dated April 11, 2011 among SilverSun Technologies, Inc and accredited investors (incorporated herein by
reference to Exhibit 10.1 on Form 8-K, dated April 11, 2011, filed with the SEC on April 15, 2011).
Form of Preferred Stock Purchase Agreement (incorporated by reference to Exhibit 10.2 on the Company’s current report on
Form 8-K filed with the SEC on May 12, 2011).
Amended Agreement by and between the Company and Mr. Stanley Wunderlich (incorporated by reference to Exhibit 10.1 to
the Company’s current report on Form 8-K filed with the SEC on August 3, 2011).
Form of Warrant (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the SEC
on August 3, 2011).
Loan and Security Agreement by and between the Company, its subsidiary SWK Technologies, Inc and a commercial lender
(incorporated herein by reference to Exhibit 10.18 of the Annual Report on Form 10-K for the period ended December 31,
2011, filed with the SEC on March 29, 2012).
Audit Committee Charter(incorporated herein by reference to Exhibit 10.19 of the Annual Report on Form 10-K for
the period ended December 31, 2011, filed with the SEC on March 29, 2012).
Form of Purchase Agreement, dated June 14, 2012, by and among SWK Technologies, the Company’s wholly-owned
subsidiary, Neil Wolf, Esq., not individually, but solely in his capacity as Trustee-Assignee of the Trust Agreement and
Assignment for the Benefit of the Creditors of Hightower, Inc., Hightower, Inc., and the Stockholders of Hightower, Inc.
(incorporated by reference to Exhibit 2.1 on the Company’s current report on Form 8-K filed with the SEC on June 20, 2012).
Promissory Note, dated March 11, 2015, issued in favor of 2000Soft, Inc. d/b/a Accounting Technology Resources, a
California corporation (incorporated by reference to Exhibit 10.1 on the Company’s current report on Form 8-K files with the
SEC on March 17, 2015).
Form of Promissory Note, dated July 6, 2015, issued in favor of ProductiveTech, Inc., a New Jersey corporation (incorporated
herein by reference to Exhibit 10.1 on Form 8-K, filed with the SEC on July 10, 2015)
Amended and Restated Employment Agreement, dated February 4, 2016, between Mark Meller and Silversun Technologies,
Inc. (incorporated herein by reference to Exhibit 10.1 on Form 8-K, filed with the SEC on February 5, 2016.
Code of Ethics (incorporated by reference to Exhibit 14.1 filed with the Registrant’s Form 10-KSB for the fiscal year ended
December 31, 2003).
31.1 *
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 filed herein.
31.2 *
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 filed herein.
32.1 *
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 filed herein.
32.2 *
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant t to Section 906 of the
Sarbanes-Oxley Act of 2002 filed herein.
XBRL Instance Document
101.INS *
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
39
Table of Contents
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: March 30, 2016
Date: March 30, 2016
SILVERSUN TECHNOLOGIES, INC.
/s/ Mark Meller
By:
Mark Meller
Principal Executive Officer
By:
/s/ Crandall Melvin III
Crandall Melvin III
Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name
/s/ Mark Meller
Mark Meller
/s/ Stanley Wunderlich
Stanley Wunderlich
/s/ Joseph Macaluso
Joseph Macaluso
/s/ Crandall Melvin III
Crandall Melvin III
Position
Principal Executive Officer
Director
Director
Principal Financial Officer
40
Date
March 30, 2016
March 30, 2016
March 30, 2016
March 30, 2016
Table of Contents
PART F/S
INDEX TO FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets
Statements of Income
Statements of Stockholders' Equity (Deficit)
Statements of Cash Flows
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Page (s)
F-2
F-3
F-4
F-5
F-6
F-8
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders’ of
SilverSun Technologies, Inc.
We have audited the accompanying consolidated balance sheets of SilverSun Technologies, Inc. and Subsidiary (the “Company”) as of December
31, 2015 and 2014, and the related consolidated statements of income, stockholders' equity (deficit), and cash flows for each of the two years in
the period ended December 31, 2015. The Company’s management is responsible for these consolidated financial statements. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with standards established by the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position
of the Company as of December 31, 2015 and 2014, and the consolidated results of income and cash flows for each of the two years in the period
ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.
/s/Friedman LLP
East Hanover, NJ
March 30, 2016
F-2
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
Table of Contents
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance of $375,000 and $125,000
Unbilled services
Prepaid expenses and other current assets
Deferred tax assets - current
Total current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill
Deferred tax assets
Deposits and other assets
Total assets
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Accrued interest
Income taxes payable
Contingent consideration – current portion
Long term debt – current portion
Capital lease obligations – current portion
Deferred revenue
Total current liabilities
Contingent consideration net of current portion
Long term debt net of current portion
Capital lease obligations net of current portion
Convertible note payable
Total liabilities
Commitments and Contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value; authorized 1,000,000 shares
Series A Preferred Stock, $0.001 par value; authorized 2 shares
No shares issued and outstanding
Series B Preferred Stock, $0.001 par value; authorized 1 share;
0 and 1 share issued and outstanding
Common stock:
Par value $0.00001; authorized 75,000,000 shares
4,410,736 and 3,995,064 shares issued and outstanding
Additional paid-in capital
Accumulated deficit
Total stockholders' equity
$
2015
2014
1,193,313 $
2,477,301
741,543
443,619
38,000
1,308,337
2,097,454
230,000
195,779
38,000
4,893,776
3,869,570
425,347
2,571,537
401,000
162,000
29,889
295,054
809,481
56,000
-
26,725
$
8,483,549 $
5,056,830
$
1,594,100 $
821,586
14,817
250,284
128,434
300,033
90,167
2,369,999
1,393,541
794,157
14,716
76,000
-
174,578
65,269
2,215,114
5,569,420
4,733,375
272,213
793,150
92,445
200,000
-
242,926
66,922
-
6,927,228
5,043,223
-
-
-
-
-
1
45
12,198,448
(10,642,172 )
40
11,030,043
(11,016,477 )
1,556,321
13,607
Total liabilities and stockholders' equity
$
8,483,549 $
5,056,830
The accompanying notes are an integral part of these consolidated financial statements.
F-3
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Table of Contents
Revenues:
Software product, net
Service, net
Total revenues, net
Cost of revenues:
Product
Service
Total cost of revenues
Gross profit
Operating expenses:
Selling and marketing expenses
General and administrative expenses
Share-based compensation
Depreciation and amortization
Total operating expenses
Income from operations
Other income (expense):
Interest expense, net
Other income
Total other income (expense)
Income before income taxes
Income tax provision
Net income
Basic and diluted net income per common share
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
For the Years Ended
December 31,
2015
December 31,
2014
$
4,234,968 $
23,407,014
27,641,982
3,669,732
17,794,042
21,463,774
2,084,246
14,714,202
16,798,448
1,871,301
11,019,409
12,890,710
10,843,534
8,573,064
4,304,224
5,635,571
60,860
485,091
10,485,746
3,326,497
4,281,090
130,253
364,573
8,102,413
357,788
470,651
(57,483 )
134,000
76,517
(59,750 )
-
(59,750 )
434,305
410,901
60,000
218,000
374,305 $
192,901
0.09 $
0.09 $
0.05
0.05
4,301,782
4,318,449
3,942,836
3,942,836
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
Balance at January
1, 2014
Common stock
issued in a cashless
exercise of
warrants
Issuance of
common stock for
repayment of
accrued liabilities
Share-Based
Compensation
Issuance of
common stock for
services
Net loss
Balance at
December 31,
2014
Cancellation of
preferred share
Issuance of
common stock, net
of fees
Roundup of
fractional shares
Issuance of
common stock for
services
Issuance of
common stock for
acquisition
Stock warrants in
exchange for
services
Share-Based
Compensation
Net income
Balance at
December 31,
2015
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
Series A
Preferred
Stock
Series B
Preferred
Stock
Common Stock
Class A
Shares Amount Shares Amount
Shares
Amount
Additional
Paid in
Capital
Accumulated
Equity
(Deficit)
Total
Stockholders’
Equity
(Deficit)
- $
-
1 $
1 3,922,566 $
39 $ 10,809,499 $ (11,209,378 ) $
(399,839 )
-
-
-
-
4,167
-
(1 )
-
(1 )
-
-
-
-
5,331
-
20,792
20,792
-
-
-
-
-
-
130,253
-
130,253
-
-
-
-
-
-
-
-
27,000
-
1
-
69,500
-
-
192,901
69,501
192,901
- $
-
1 $
1 3,959,064 $
40 $ 11,030,043 $ (11,016,477 ) $
13,607
-
-
(1 )
(1 )
-
-
1
-
-
-
-
-
-
-
-
-
363,490
4
812,019
-
812,023
-
8,698
-
-
-
-
-
-
-
-
15,000
-
36,300
-
36,300
-
-
-
-
64,484
1
259,225
-
259,226
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,000
-
20,000
-
-
40,860
-
-
374,305
40,860
374,305
- $
-
- $
- 4,410,736 $
45 $ 12,198,448 $ (10,642,172) $ 1,556,321
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
Provided by operating activities:
Gain on sale of Beerrun
Deferred income taxes
Depreciation and amortization
Amortization of intangibles
Provision for bad debts
Share-based compensation
Common stock issued in exchange for services
Stock warrants in exchange for services
Changes in certain assets and liabilities:
Accounts receivable
Unbilled services
Prepaid expenses and other current assets
Deposits and other assets
Accounts payable
Accrued expenses
Income tax payable
Accrued interest
Due to related parties
Deferred revenues
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from sale of Beerrun
Software development costs
Acquisition of business
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Repayment of notes payable to related parties
Proceeds from issuance of common stock and warrants, net of fees
Repayment of contingent consideration
Repayments of long term debt
Principal payment under capital lease obligations
Net cash provided by (used by) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
2015
2014
$
374,305 $
192,901
(134,000 )
(162,000 )
165,597
319,495
250,000
40,860
36,300
20,000
(269,658 )
(501,174 )
(135,518 )
836
(175,295 )
27,429
174,284
102
-
95,096
126,659
-
82,000
120,299
244,274
45,000
130,253
69,503
-
(567,458 )
(140,000 )
(126,503 )
(3,889 )
233,822
138,436
76,000
1,424
(2,672 )
499,559
992,949
134,000
-
(709,893 ) -
(67,483 )
(643,376 )
-
(71,875 )
(81,116 )
(152,991 )
-
812,023
(49,980 )
(274,321 )
(86,029 )
401,693
(20,000 )
-
-
(212,013 )
(62,500 )
(294,513 )
(115,024 )
1,308,337
545,445
762,892
Cash and cash equivalents, end of year
$
1,193,313 $
1,308,337
Supplemental Schedule of Cash Flow Information:
During the year, cash was paid for the following:
Income taxes
Interest
$
$
87,732 $
60,579 $
70,688
59,780
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS (Continued)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the Year Ended December 31, 2015:
The Company acquired certain assets and assumed certain liabilities of ProductiveTech, Inc. (“PTI”) for a $600,000 promissory note in
addition to a cash payment of $483,471 and issuance of 64,484 shares of common stock at $4.032 per share for a value of approximately
$260,000.
The Company acquired certain assets of 2000 Soft d/b/a/ Accounting Technologies Resources (“ATR”) for a $175,000 promissory note
in addition to a cash payment of $80,000.
On March 29, 2015, Mr. Meller returned his one share of Series B Preferred Stock (the “Series B Preferred”) to the Company and with
the approval of the majority of the Company’s stockholders and the Board of Directors the Series B Preferred Stock was canceled in its
entirety.
The Company incurred approximately $111,730 in capital lease obligations.
The Company acquired certain assets and assumed certain liabilities of The Macabe Associates, Inc. (“Macabe”) for a cash payment of
$21,423 in addition to four-year revenue share agreement valued at $428,971.
The Company acquired certain assets and assumed certain liabilities of Oates & Company, LLC. (“Oates”) for a $175,000 promissory
note in addition to a cash payment of $125,000 and $200,000 convertible note.
For the Year Ended December 31, 2014:
a)
b)
c)
The company acquired the customer list of ESC for a $350,000 promissory note to the shareholders
The company incurred approximately $92,341 in capital lease obligations.
The company issued 5,331 shares of common stock with a fair value of $20,792 for repayment of accrued liabilities.
The accompanying notes are an integral part of these consolidated financial statements.
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SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
SilverSun Technologies, Inc. (the “Company”) and wholly owned subsidiary SWK Technologies, Inc. (“SWK”) is a value added reseller and
master developer for Sage Software’s Sage100/500 and ERP X3 financial and accounting software as well as the publisher of proprietary
software solutions, including its own proprietary Electronic Data Interchange (EDI) software, “MAPADOC.” The Company is also a managed
network service provider, providing remote network monitoring services, business continuity, disaster recovery, data backup, and application
hosting. 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 is currently quoted on the Over-the-Counter Bulletin Board
(“OTCQB”) under the symbol “SSNT.”
In May of 2014, the Company completed the purchase of selected assets of ESC Software, Inc. (“ESC”), a leading Arizona-based reseller of
Sage Software and Acumatica applications. ESC’s customers and business products and services have been integrated into the infrastructure of
SWK Technologies, Inc.
In March of 2015, the Company completed the purchase of selected assets of 2000 SOFT, d/b/a Accounting Technology Resources (“ATR”), a
Southern California based reseller of Sage Software applications. ATR’s customers and business products and services have been integrated into
the infrastructure of SWK.
In July of 2015, the Company completed the purchase of selected assets of ProductiveTech, Inc. (“PTI”) located in Southern New Jersey. PTI’s
selected assets and liabilities, customers and business products and services have been integrated into the infrastructure of SWK.
In October of 2015, the Company completed the purchase of selected assets of The Macabe Associates, Inc., (“Macabe”) a Washington based
reseller of Sage Software and Acumatica applications. Macabe’s customers and business products and services have been integrated into the
infrastructure of SWK.
In October of 2015, the Company completed the purchase of selected assets of Oates & Company, (“Oates”) a North Carolina reseller of Sage
Software applications. Oates selected assets and liabilities, customers and business products and services have been integrated into the
infrastructure of SWK.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the “Company” and its wholly-owned subsidiary, SWK
Technologies, Inc. (“SWK”). These consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States. All significant inter-company transactions and accounts have been eliminated in consolidation.
On February 4, 2015 the Company effected a 1-for-30 reverse stock split of the outstanding common stock (the “Reverse Stock Split”) whereby
every thirty (30) shares of outstanding common stock decreased to one (1) share of common stock. Similarly, the number of shares of common
stock, par value $0.00001 (“Common Stock”) into which each outstanding option and warrant to purchase common stock is to be exercisable
decreased on a 1-for-30 basis and the exercise price of each outstanding option and warrant to purchase common stock increased proportionately.
The impact of this reverse stock split has been retroactively applied to the financial statements and the related notes.
Principal of Consolidation
The consolidated financial statements include the accounts of SilverSun and its subsidiary SWK, which is wholly owned. All significant
intercompany transactions and balances have been eliminated in consolidation.
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SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
Definite Lived Intangible Assets and Long-lived Assets
Purchased intangible assets are recorded at fair value using an independent valuation at the date of acquisition and are amortized over the useful
lives of the asset using the straight-line amortization method.
The Company assesses potential impairment of its intangible assets and other long-lived assets when there is evidence that recent events or
changes in circumstances have made recovery of an asset’s carrying value unlikely. Factors the Company considers important, which may cause
impairment include, among others, significant changes in the manner of use of the acquired asset, negative industry or economic trends, and
significant underperformance relative to historical or projected operating results. No impairment losses were identified or recorded in the years
ended December 31, 2015 and 2014.
Revenue Recognition
Revenue is recognized when products are shipped, or services are rendered, evidence of a contract exists, the price is fixed or reasonably
determinable, and collectability is reasonably assured.
Product Revenue
Software product revenue is recognized when the product is shipped to the customer. The Company treats the software component and the
professional services consulting component as two separate arrangements that represent separate units of accounting. The arrangement
consideration is allocated to each unit of accounting based upon that unit’s proportion of the fair value. In a situation where both components are
present, software sales revenue is recognized when collectability is reasonably assured and the product is delivered and has stand-alone value
based upon vendor specific objective evidence.
Service Revenue
Service revenue is comprised of primarily professional service consulting revenue, maintenance revenue and other ancillary services provided.
Professional service revenue is recognized as service time is incurred.
With respect to maintenance services, upon the completion of one year from the date of sale, the Company offers customers an optional annual
software maintenance and support agreement for subsequent periods not exceeding one year. Maintenance and support agreements are recorded
as deferred revenue and recognized over the respective terms of the agreements, which typically range from three months to one year and are
included in services revenue in the Consolidated Statements of Income.
Shipping and handling costs charged to customers are classified as revenue, and the shipping and handling costs incurred are included in cost of
sales.
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SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
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 represents the revenue recognized but not yet invoiced.
Deferred Revenues
Deferred revenues consist of maintenance service, customer support services, including telephone support 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.
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 and cash equivalents with various institutions, which exceed federally insured limits throughout the year. At
December 31, 2015, the Company had cash on deposit of approximately $895,727 in excess of the federally insured limits of $250,000.
For the years ended December 31, 2015 and 2014, our top ten customers accounted for 19% ($5,179,085) and 16% ($3,381,090), respectively, of
our total revenues. The Company does not rely on any one specific customer for any significant portion of our revenue base.
For the years ended December 31 2015 and 2014, purchases from one supplier through a “channel partner” agreement were approximately 24%
and 26% 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.
For the years ended December 31, 2015 and 2014, one supplier represented approximately 33% and 37% of total accounts payable, respectively.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable and cash
and cash equivalents. As of December 31, 2015 the Company believes it has no significant risk related to its concentration of accounts
receivable.
Accounts Receivable
Accounts receivable consist primarily of invoices for maintenance and professional services. Full payment for software ordered by customers is
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, the customer’s current ability to pay its obligations.
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SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method based upon
the estimated useful lives of the assets, generally three to seven years. Maintenance and repairs that do not materially add to the value of the
equipment nor appreciably prolong its life are charged to expense as incurred.
When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting
gain or loss is included in the Consolidated Statements of Income.
Income Taxes
Deferred income taxes reflects 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. Deferred tax assets and liabilities
are classified as current or non-current based on the classification of the related assets or liabilities for financial reporting, or according to the
expected reversal dates of the specific temporary differences, if not related to an asset or liability for financial reporting. Valuation allowances are
established against deferred tax assets if it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in operations in the period that
includes the enactment date.
The Company has federal net operating loss (“NOL”) carryforwards which are subject to limitations under Section 382 of the Internal Revenue
Code.
The Company files income tax returns in the U.S. federal and state jurisdictions. Tax years 2012 to 2015 remain open to examination for both the
U.S. federal and state jurisdictions.
There were no liabilities for uncertain tax positions at December 31, 2015 and 2014.
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.
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SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company’s current financial assets and liabilities approximate fair value due to their short term nature and include cash, accounts
receivable, accounts payable, and accrued liabilities. The carrying value of longer term lease and debt obligations approximate fair value as
their stated interest rates approximate the rates currently available. The Company’s goodwill and intangibles are measured on a non-recurring
basis using Level 3 inputs, as discussed in Note 5 and Note 9.
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, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-
based compensation expense.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) . The ASU provides for a single
comprehensive model for use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition
guidance. The accounting standard is effective for interim and annual periods beginning after December 15, 2016 with no early adoption
permitted. In July 2015, the FASB deferred the effective date of this accounting update to annual periods beginning after December 15, 2017,
along with an option to permit early adoption as of the original effective date. The Company is required to adopt the amendments in the ASU
using one of two acceptable methods. The Company is currently in the process of determining which adoption method it will apply and
evaluating the impact of the guidance on its consolidated financial statements.
In August 2014, the FASB issued Accounting Standard Update 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern. Management of public and private companies will be required to evaluate whether there are conditions and events that raise
substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to
be issued when applicable) and, if so, disclose that fact. Management will be required to make this evaluation for both annual and interim
reporting periods, if applicable. The standard is effective for annual periods ending after December 15, 2016 and interim periods ending after
December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously
been issued. We do not expect the adoption of this ASU to impact the consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to put most leases on their balance sheets by
recognizing a lessee’s rights and obligations, while expenses will continue to be recognized in a similar manner to today’s legacy lease accounting
guidance. This ASU could also significantly affect the financial ratios used for external reporting and other purposes, such as debt covenant
compliance. This ASU will be effective for us on January 1, 2019, with early adoption permitted. We are currently in the process of assessing
the impact of this ASU on our consolidated financial statements.
No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s consolidated financial
statements.
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SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 3 – NET 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 year ended December 31, 2015 and December 31, 2014 does not
include share equivalents as all warrants and options exceeded the average market price of the common stock. Convertible debt is included
below, based on if-converted method.
Basic net income per share:
Net income
Weighted-average common shares outstanding
Basic net income per shares
Diluted net income per share:
Net income
Weighted-average common shares outstanding
Incremental shares for convertible promissory note
Total adjusted weighted-average shares
Diluted net income per share
Year Ended
December 31,
2015
Year Ended
December 31,
2014
$
$
$
$
374,305 $
4,301,782
0.09 $
374,305 $
4,301,782
16,667
4,318,449
0.09 $
192,901
3,942,836
0.05
192,901
3,942,836
-
3,942,836
0.05
The following table summarizes securities that, if exercised, would have an anti-dilutive effect on earnings per share.
Stock options
Warrants
Year Ended
December 31,
2015
Year Ended
December 31,
2014
183,576
203,253
163,846
-
Total potential dilutive securities not included in loss per share
368,829
163,846
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
Leasehold improvements
Equipment, furniture and fixtures
Less: Accumulated depreciation
December 31,
2015
December 31,
2014
$
30,557 $
1,471,268
1,501,825
(1,076,478 )
30,557
1,175,378
1,205,935
(910,881 )
Property and equipment, net
$
425,347 $
295,054
Depreciation and amortization expense related to these assets for the years ended December 31, 2015 and 2014 was $165,597 and $120,299.
Property and equipment under capital leases are summarized as follows:
Equipment, furniture and fixtures
Less: Accumulated depreciation
December 31,
2015
December 31,
2014
433,536
(232,228 )
297,080
(143,376 )
Property and equipment, net
$
201,308 $
153,704
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NOTE 5 – INTANGIBLE ASSETS
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Intangible assets consist of developed intellectual property 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:
Proprietary developed software
Intellectual property, customer list, and acquired contracts
Total intangible assets
Less: accumulated amortization
December 31,
2015
December 31,
2014
Estimated Useful Lives
$
$
$
365,911 $
3,069,551
3,435,462 $
(863,925 )
2,571,537 $
365,911
988,000
1,353,911
(544,430 )
809,481
5
5 - 15
Amortization expense related to the above intangible assets was $319,495 and $244,274, respectively, the years ended December 31, 2015 and
2014.
The Company expects future amortization expense to be the following:
Amortization
2016
2017
2018
2019
2020
thereafter
Total
$
$
452,345
349,795
254,738
254,738
237,512
1,022,409
2,571,537
NOTE 6 – LINE OF CREDIT, TERM LOAN AND PROMISSORY NOTE
On August 1, 2013, the Company obtained a line of credit and term loan from the bank. The line of credit expired on July 31, 2015 and was
automatically renewed for an additional year. The agreement includes a borrowing base calculation tied to accounts receivable with a maximum
availability of $750,000 at prime plus 1.75% interest (5.25% at December 31, 2015). The line is collateralized by substantially all of the assets of
the Company and guaranteed by the Company’s Chief Executive Officer, Mr. Meller. The credit facility requires the Company to pay a
monitoring fee of $1,000 monthly. The Company was in compliance with all loan covenants at December 31, 2015.
The two year term loan for $350,000 matured on July 31, 2015. Monthly payments were $15,776 including interest at 8%. The term loan was
collateralized by substantially all of the assets of the Company and was guaranteed by the Company’s Chief Executive Officer, Mr. Meller. The
term loan was paid off in full on July 3, 2015.
On May 6, 2014, SWK acquired certain assets of ESC, Inc. pursuant to an Asset Purchase Agreement for a promissory note in the aggregate
principal amount of $350,000 (the “ESC Note”). The ESC Note matures on April 1, 2019. Monthly payments are $6,135 including interest at 2%
per year. At December 31, 2015 the outstanding balance was $242,926.
On March 11, 2015, SWK acquired certain assets of 2000 SOFT, Inc. d/b/a Accounting Technology Resource (ATR) pursuant to an Asset
Purchase Agreement for cash of $80,000 and a promissory note for $175,000 (the “ATR Note”). The note matures on February 1, 2018. Monthly
payments are $5,012 including interest at 2% per year. At December 31, 2015 the outstanding balance was $132,229.
On July 6, 2015, SWK acquired certain assets of ProductiveTech Inc. (PTI) pursuant to an Asset Purchase Agreement cash of $500,000 and a
promissory note for $600,000 (the “PTI Note”). The note is due in 60 months from the closing date and bears interest at a rate of two and one
half (2.5%) percent. The monthly payments including interest are $10,645. At December 31, 2015 the outstanding balance was $552,645.
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SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 6 – LINE OF CREDIT, TERM LOAN AND PROMISSORY NOTE (Continued)
On October 19, 2015, SWK acquired certain assets of Oates & Company, LLC (Oates) pursuant to an Asset Purchase Agreement cash of
$125,000 and a promissory note for $175,000 (the “Oates Note”). The note is due in three years from the closing date and bears interest at a
rate of two (2%) percent. The monthly payments including interest are $5,012. At December 31, 2015 the outstanding balance was $165,383.
Additionally in connection with the purchase agreement, the Company issued a Convertible Note for $200,000. The Convertible Note is due
January 1, 2017 and bears interest at a rate of one (1%) percent. The quarterly interest payments are computed on the basis of 365-day year from
the date of this note until paid. The Company’s may, at its sole and exclusive option, convert, at any time until payment in full of this Note, all
or any part of the principal amount of the Note plus accrued interest, into shares of the Company’s Common Stock, at the price per share equal
to $3.00 per share.
At December 31, 2015, future payments of convertible note and promissory notes are as follows over each of the next five fiscal years:
2016
2017
2018
2019
2020
Total
$
$
300,033
506,677
257,846
154,727
73,900
1,293,183
NOTE 7 – 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 property and equipment, net in the accompanying balance sheets. The related obligations are based upon the present
value of the future minimum lease payments with interest rates ranging from 8.5% to 12.5%.
At December 31, 2015, future payments under capital leases are as follows:
2016
2017
2018
Total minimum lease payments
Less amounts representing interest
Present value of net minimum lease payments
Less current portion
Long-term capital lease obligation
$
$
102,464
74,200
23,695
200,359
(17,747 )
182,612
(90,167 )
92,445
NOTE 8 – EQUITY
Equity
On March 10, 2015, March 23, 2015 and March 24, 2015, the Company entered into subscription agreements (the “Subscription Agreements”)
with certain investors (the “Investors”) providing for the issuance and sale by the Company (the “Offering”) of an aggregate of 363,490 shares
(the “Shares”) of Common Stock and warrants (the “Investor Warrants”) to purchase an aggregate of 181,745 shares of Common Stock (the
“Warrant Shares”). Each Warrant to purchase one share of Common Stock was sold at a price of $0.01 and has an exercise price of $5.30 per
share. The gross proceeds raised was $1,543,015 less expenses relating to the offering of $730,992, resulting in net proceeds to the Company of
$812,023.
On March 29, 2015, Mr. Meller returned his one share of Series B Preferred Stock (the “Series B Preferred”) to the Company and with the
approval of the majority of the Company’s stockholders and the Board of Directors the Series B Preferred Stock was canceled in its entirety.
On April 29, 2015 the Board approved entering into a consulting agreement with Christopher IR for investor relation services. In addition to cash
payments for services, the Company issued 15,000 shares of Common Stock at $2.42 per share or $36,300.
On July 6, 2015 the Company in relation to the acquisition of certain assets of PTI had issued 64,484 shares of Common Stock at $4.032 per
share for a value of $260,000. The stock price was based on the average close price of SSNT stock for the five trading days immediately
preceding the closing date.
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NOTE 8 – EQUITY (Continued)
Options
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
In February 2014, the Company granted 50,000 incentive stock options with an exercise price of $4.50 per option to certain non-executive
employees under the 2004 Stock Incentive Plan. Approximately 25,000 of the options vest immediately with the remaining 50% vesting ratably
over a three-year period. The Company estimated the fair value of each option using the Black Scholes option-pricing model with the following
weighted-average assumptions: expected dividend yield of 0.0%, risk-free interest rate of 0.71%, volatility at 353.95% and an expected life of 5
years. The Company estimates the forfeiture rate based on historical data. Based on an analysis of historical information, the Company has
applied a forfeiture rate of 15%. As a result, the Company estimated the value of these options at $115,488.
In May 2014, the Company granted 20,000 incentive stock options with an exercise price of $4.50 per option to a non – executive employee
under the 2004 Stock Incentive Plan. The Company recognizes compensation cost on awards on a straight-line basis over the vesting period,
approximately five years. The Company estimated the fair value of each option using the Black Scholes option-pricing model with the following
weighted-average assumptions: expected dividend yield of 0.0%, risk-free interest rate of 1.68%, volatility at 328.76% and an expected life of 5
years. The Company estimates the forfeiture rate based on historical data. Based on an analysis of historical information, the Company has
applied a forfeiture rate of 15%. As a result, the Company estimated the value of these options at $77,981.
In July 2014, the Company granted 10,000 incentive stock options with an exercise price of $4.50 per option to a certain non-executive employee
under the 2004 Stock Incentive Plan. Options vest immediately. The Company estimated the fair value of each option using the Black Scholes
option-pricing model with the following weighted-average assumptions: expected dividend yield of 0.0%, risk-free interest rate of 1.0%,
volatility at 323.81% and an expected life of 5 years. As a result, the Company estimated the value of these options at $44,987.
In March 2015, the Company granted 10,000 incentive stock options with an exercise price of $4.00 per option to a certain non-executive
employee under the 2004 Stock Incentive Plan. The Company recognizes compensation cost on awards on a straight-line basis over the vesting
period, approximately five years. The Company estimated the fair value of each option using the Black Scholes option-pricing model with the
following weighted-average assumptions: expected dividend yield of 0.0%, risk-free interest rate of 1.6%, volatility at 263.18% and an expected
life of 5 years. As a result, the Company estimated the value of these options at $39,875.
In October 2015, the Company issued to the shareholders of Macabe 25,000 incentive stock options with an exercise price of $3.66. Options will
vest over five years at the rate of 20% per annum. The Company estimated the fair value of each option using the Black Scholes option-pricing
model with the following weighted-average assumptions: expected dividend yield of 0.0%, risk-free interest rate of 1.37%, volatility at 332.76%
and an expected life of 5 years. As a result, the Company estimated the value of these options at $91,482.
The Company uses judgment in estimating the amount of stock-based awards that are expected to be forfeited. If actual forfeitures differ
significantly from the original estimate, stock-based compensation expense and the results of operations could be impacted.
Total stock compensation recognized for the year ended December 31, 2015 and 2014 was $40,860 and $130,253, respectively.
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NOTE 8 – EQUITY (Continued)
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
A summary of the status of the Company’s stock option plans for the fiscal years ended December 31, 2015 and 2014 and changes during the
years are presented below (in number of options):
Outstanding options at January 1, 2014
Options granted
Options canceled/forfeited
Outstanding options at December 31, 2014
Options granted
Options canceled/forfeited
Outstanding options at December 31, 2015
Vested Options:
December 31, 2015;
December 31, 2014:
Number
of Options
Average
Exercise Price
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
89,116 $
80,000
(5,270 ) $
163,846 $
35,000 $
(15,270 ) $
183,576 $
4.80
4.50
4.80
4.65
3.76
4.61
3.4 years
4.3 years
2.5 years
4.2 years
4.49
2.7 years
119,243 $
115,653 $
4.70
4.65
2.0 years
1.8 years
$
$
$
$
$
-0-
-0-
-0-
-0-
-0-
For the year ended December 31, 2015 the unamortized compensation expense for stock options was $161,000. Unamortized compensation
expense is expected to be recognized over a weighted-average period of three years.
Warrants
On January 29, 2015 the Company granted 3,333 warrants with a fair value of approximately $19,969, which immediately vested, to Joseph
Macaluso as part of his compensation for agreeing to join the Board of Directors. The estimated fair value of the warrant has been calculated
based on a Black-Scholes pricing model using the following assumptions: a) fair market value of stock of $6.00; b) exercise price of $6.00; c)
Dividend yield of 0%; d) Risk free interest rate of 1.42%; e) expected volatility of 284.28%; f) Expected life of 5 years.
On March 9, 2015 the Company granted 18,175 warrants with a fair value of approximately $73,356, which immediately vested, to Alexander
Capital, LP as partial compensation for acting as placement agent. The estimated fair value of the warrant has been calculated based on a Black-
Scholes pricing model using the following assumptions: a) fair market value of stock of $4.05; b) exercise price of $5.088; c) Dividend yield of
0%; d) Risk free interest rate of 1.66%; e) expected volatility of 263.67%; f) Expected life of 5 years.
On March 23, 2015 the Company granted 181,745 warrants with a fair value of approximately $638,630, which immediately vested, to those that
purchased common stock as part of the offering. The estimated fair value of the warrant has been calculated based on a Black-Scholes pricing
model using the following assumptions: a) fair market value of stock of $3.53; b) exercise price of $5.30; c) Dividend yield of 0%; d) Risk free
interest rate of 1.41%; e) expected volatility of 258.39%; f) Expected life of 5 years.
F-17
Table of Contents
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 8 – EQUITY (Continued)
The following table summarizes the warrants transactions:
Balance, January 1, 2014
Granted
Exercised
Canceled
Outstanding and Exercisable December 31, 2014
Granted
Exercised
Canceled
Outstanding and Exercisable December 31, 2015
Warrants
Weighted
Average
Outstanding
Exercise Price
25,001 $
- $
8,333 $
16,668 $
- $
203,253 $
- $
- $
203,253 $
5.20
-
3.60
4.20
-
5.29
-
-
5.29
NOTE 9 – BUSINESS COMBINATION
On May 6, 2014 SWK entered into an Asset Purchase Agreement with ESC, Inc. d/b/a ESC Software, an Arizona corporation, and Alan H.
Hardy and Michael Dobberpuhl in their individual capacity as Shareholders. SWK acquired certain assets of ESC (as defined in the Purchase
Agreement). In full consideration for the acquired assets, the Company issued a promissory note in the aggregate principal amount of
$350,000. The purchase was initially allocated, based on the Company’s estimate of fair value, to intangible assets, which are expected to
consist primarily of customers lists with an estimated life of seven years. Upon completion of an independent valuation, the allocation of the
purchase price to customer lists was modified from $350,000 to $294,000, with the excess purchase consideration being allocated to goodwill.
The following summarizes the purchase price allocation:
Customer List
Goodwill
Fair value of net assets acquired
Note to shareholders for acquisition
Total purchase price
$
$
$
$
294,000
56,000
350,000
350,000
350,000
On March 11, 2015 SWK entered into an Asset Purchase Agreement with 2000 SOFT, Inc. d/b/a ATR, a California corporation, and Karen
Espinoza McGarrigle in her individual capacity as Shareholder. SWK acquired certain assets of ATR (as defined in the Purchase Agreement).
In consideration for the acquired assets, the Company issued a promissory note in the aggregate principal amount of $175,000 and paid cash
of $80,000. As additional consideration, the Company will pay 10% of the net margin on maintenance renewals for former ATR customers
for the first twelve months and 5% of the net margin on maintenance renewals for the following twelve months. The initial contingent
consideration was estimated at approximately $22,000 and included in the purchase price (see table below). Certain payments were made
during 2015, resulting in a remaining balance of $9,625 at December 31, 2015. The purchase was allocated, based on the Company’s estimate
of fair value, to intangible assets, which consists of a customer list with an estimated life of seven years.
On July 6, 2015 SWK entered into an Asset Purchase Agreement with ProductiveTech (“PTI”), a south New Jersey corporation and John
McPoyle and Kevin Snyder in their individual capacity as Shareholders. SWK acquired certain assets and liabilities of PTI (as defined in the
Purchase Agreement). In consideration for the acquired assets, the Company paid $483,471 in cash and issued a promissory note for $600,000
(the “Note”). The note is due in 60 months from the closing date and bears interest at a rate of two and one half (2.5%) percent. The monthly
payments including interest are $10,645. Additionally in connection with the purchase agreement, SilverSun Technologies, Inc. (“SSNT”)
issued 64,484 shares of common stock at $4.032 per share for a value of $260,000. The purchase was allocated, based on the Company’s
estimate of fair value, to accounts receivable, unbilled services, prepaid expenses and other assets, property and equipment, liabilities, capital
lease obligations, goodwill and customer list with an estimated life of fifteen years. The acquisition costs and allocation of the purchase price
to customer lists and goodwill has been based of an independent valuation. As of December 31, 2015, the prior owners of PTI owed the
Company $41,079 related to amounts collected by the prior owners subsequent to acquisition but owed to the Company. This amount is
included in prepaid expenses and other current assets.
F-18
Table of Contents
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 9 – BUSINESS COMBINATION (Continued)
On October 1, 2015 SWK entered into an Asset Purchase Agreement with The Macabe Associates, Inc., (“Macabe”), a Washington
corporation and Mary Abdian and John Nicholson in their individual capacity as Shareholders. SWK acquired certain assets and liabilities of
Macabe (as defined in the Purchase Agreement). In consideration for the acquired assets, the Company paid $21,423 in cash. As additional
consideration, the Company will pay $5,500 cash twelve months from closing and $5,500 cash twenty four months from closing on the net-to-
SWK revenues for Software and Maintenance sales if certain estimates are met for a total of $11,000 and was recorded as part of the
contingent consideration included in the purchase price. 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 years period after the acquisition. The Company estimated this
contingent consideration to be approximately $417,971 at acquisition and which is included in the purchase price. Certain payments were
made in each of these contingent consideration components, resulting in a remaining balance of $391,021 as of December 31, 2015. The
purchase was allocated, based on the Company’s estimate of fair value, to proprietary software solutions with an estimated useful life of five
years, goodwill and customer list with an estimated life of fifteen years. The acquisition costs and allocation of the purchase price to customer
lists and goodwill has been based on an independent valuation.
On October 19, 2015 SWK entered into an Asset Purchase Agreement with Oates & Company, (“Oates”) a North Carolina reseller and Chris
Oates in his individual capacity as Shareholder. SWK acquired certain assets of Oates (as defined in the Purchase Agreement). In
consideration for the acquired assets, the Company issued a promissory note in the aggregate principal amount of $175,000 and paid cash of
$125,000. The purchase price was reduced by $92,127 related to a working capital adjustment.The note is due in three years from the closing
date and bears interest at a rate of two (2%) percent. The monthly payments including interest are $5,012. Additionally in connection with
the purchase agreement, the Company issued a Convertible Note for $200,000 (see note 6 for terms). The Convertible Note is due January 1,
2017 and bears interest at a rate of one (1%) percent. The quarterly interest payments are computed on the basis of 365-day year from the
date of this note until paid. The purchase was allocated, based on the Company’s estimate of fair value, to accounts receivable, prepaid
expenses and other assets, property and equipment, liabilities, goodwill and customer list with an estimated life of seven years. The
acquisition costs and allocation of the purchase price to customer lists and goodwill has been based of an independent valuation. As of
December 31, 2015, the prior owners of Oates owed the Company $40,118 related to amounts collected by the prior owner subsequent to
acquisition but owed to the Company. This amount is included in prepaid expenses and other current assets.
The following summarizes the purchase price allocation for all current year’s acquisitions:
Cash consideration
Stock
Working capital adjustment
Convertible note
Contingent consideration
Note payable
Total purchase price
Accounts receivable
Unbilled services
Prepaid expenses and other current assets
Property and equipment
Goodwill
Proprietary software applications
Customer List
Total assets acquired
Current liabilities
Capital lease obligations
Liabilities acquired
Net assets acquired
ATR
PTI
Macabe
Oates
80,000 $
-
-
-
21,656
175,000
276,656 $
- $
-
-
-
18,000
-
258,656
276,656
-
-
-
276,656 $
483,471 $
259,226
-
-
600,000
1,342,697 $
129,709 $
10,369
14,039
93,300
311,000
-
933,301
1,491,718
(124,300 )
(24,721 )
(149,021 )
1,342,697 $
21,423 $
-
-
-
428,971
450,394 $
- $
-
-
6,377
7,000
57,000
408,594
478,971
(28,577 )
-
(28,577 )
450,394 $
125,000
-
(92,127 )
200,000
-
175,000
407,873
230,480
-
10,182
17,000
9,000
-
424,000
690,662
(282,789 )
-
(282,789 )
407,873
$
$
$
$
F-19
Table of Contents
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 9 – BUSINESS COMBINATION (Continued)
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, 2014, 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 year ended December 31, 2015 and 2014 as if the acquisitions had
occurred on January 1, 2014. Operating expenses have been increased for the amortization expense associated with the estimated fair value
adjustment as of December 31, 2015 of expected definite lived intangible assets.
Pro Forma
Net sales
Operating expenses
Income before taxes
Net income
Basic and diluted income per common share
Year Ended
December 31,
2015
31,663,312 $
12,245,402 $
583,074 $
472,493 $
0.11 $
Year Ended
December 31,
2014
28,795,190
11,271,317
693,467
370,918
0.09
$
$
$
$
$
The Company’s consolidated financial statements for the year ending December 31, 2015 include the actual results of ESC since the date of
acquisition, May 6, 2014, the actual results of ATR since the date of acquisition, March 11, 2015, the actual results of PTI since the date of
acquisition, July 6, 2015, the actual results of Macabe since the date of acquisition, October 1, 2015, and the actual results of Oates since the
date of acquisition, October 19, 2015. The year ended December 31, 2015 pro-forma results above include two months of results of ATR, six
months of pro-forma results for PTI, nine months of pro-forma results for Macabe, and nine and a half months of pro-forma results for Oates.
For the year ended December 31, 2014 pro-forma results above include full year of pro-forma results for ATR, four months of pro-forma
results for ESC, full year pro-forma results for PTI, full year pro-forma results for Macabe, and full year pro-forma results for Oates.
For the year ended December 31, 2015 the ESC operations had a net income before taxes of $158,285 that was included in the Company’s
Consolidated Statement of Income, which consisted of approximately $1,344,878 in revenues and $1,186,593 in expenses. For the year ended
December 31, 2015 the ATR operations had a net income before taxes of $65,911 that was included in the Company’s Consolidated Statement
of Income, which consisted of approximately $945,523 in revenues and $879,612 in expenses. For the year ended December 31, 2015 the PTI
operations had a net income before taxes of $42,477 that was included in the Company’s Consolidated Statement of Income, which consisted
of approximately $911,038 in revenues and $868,561 in expenses. For the year ended December 31, 2015 the Macabe operations had a net
income before taxes of $33,835 that was included in the Company’s Consolidated Statement of Income, which consisted of approximately
$432,564 in revenues and $398,729 in expenses. For the year ended December 31, 2015 the Oates operations had a net income before taxes of
$8,819 that was included in the Company’s Consolidated Statement of Income, which consisted of approximately $523,668 in revenues and
$514,849 in expenses.
NOTE 10 – 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 $7,385,000 as of December 31, 2015, 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 2026 to
2030.
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.
F-20
Table of Contents
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 10 – INCOME TAXES (Continued)
Significant components of the Company's deferred tax assets and liabilities are summarized as follows:
Deferred tax assets:
Net operating loss carry forwards
Long lived assets
Share based payments
Allowance for doubtful accounts
Other
Deferred tax asset
Deferred tax liabilities:
Long lived assets
Deferred tax liabilities
Net deferred tax asset
Less: Valuation allowance
Net deferred tax asset
December 31,
2015
December 31,
2014
$
$
2,785,000 $
320,000
8,000
150,000
7,000
3,270,000
2,810,000
262,000
-
50,000
8,000
3,130,000
(155,000 )
(155,000 )
3,115,000
(2,915,000 )
200,000 $
(89,000 )
(89,000 )
3,041,000
(3,003,000 )
38,000
For the year ended December 31, 2015, the Company’s Federal and State provision requirements were calculated based on the estimated tax
rate. The Federal effective rate is higher than the statutory rate primarily due to Incentive Stock Options (ISO) and 50% of general meal and
entertainment expense which are generally never tax deductible for the Company. The provision for the year ended December 31, 2015 was
$60,000. The effective tax rate consists primarily of the 34% federal statutory tax rate and a blended 5% state and local tax rate as listed
below.
For the year ended December 31, 2015, the Company’s Federal and State provision requirements were offset by the reversal of a portion of the
valuation allowance, totaling $560,000, no longer deemed necessary, and recorded a net tax benefit of $200,000, which represents a reduction
in its valuation allowance on tax attributes that are expected to be utilized based on management’s assessment and evaluation of historical and
projected income.
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.
A reconciliation of the statutory income tax rate to the effective rate is as follows for the period December 31, 2015 and 2014:
Federal income tax rate
State income tax, net of federal benefit
Permanent differences
Prior year adjustments
Change in valuation allowance
Effective income tax rate
F-21
December 31,
2015
December 31,
2014
34 %
5 %
6 %
(5 %)
40 %
(26 %)
14 %
34 %
5 %
13 %
5 %
57 %
(4 %)
53 %
Table of Contents
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 10 – INCOME TAXES (Continued)
Income tax provision (benefit):
Current:
Federal
State and local
Year Ended
December 31,
December 31,
2015
2014
$
182,000 $
40,000
76,000
26,000
Total current tax provision
222,000
102,000
Deferred:
Federal
State and local
Release of valuation allowance
34,200
3,800
(200,000 )
116,000
-
-
Total deferred tax provision (benefit)
(162,000 )
116,000
Total provision
$
60,000
218,000
NOTE 11 – RELATED PARTY TRANSACTIONS
The Company leases its North Syracuse office space from its current CFO, Crandall Melvin III which expires on May 31, 2018. The monthly
rent for this office space is $2,100. Total rent expense for 2015 and 2014 was $25,200 and $25,200 respectively under this lease.
The Company leases its Seattle office space from Mary Abdian, an employee of SWK, which expires September 30, 2018. The monthly rent
for this office space is $3,000 and increases 3% each year. Total rent expense for 2015 under this lease was $9,000.00.
As of December 31, 2015, long term debt, convertible note payable and contingent consideration are considered related party liabilities as
holders are current employees of the company, see Note 6 and Note 9.
NOTE 12 - COMMITMENTS
Operating Leases
Our main offices are located at 5 Regent Street, Livingston, NJ 07039 where we have 6,986 square feet of office space at a monthly rent of
$7,400. The lease expires December 31, 2016. The Company has a lease, with a one-year extension, for office space at 6834 Buckley Road,
North Syracuse, New York, at a monthly rent of $2,100. The lease expired on May 31, 2015 and was subsequently extended for a three year
term commencing June 1, 2015 and ending May 31, 2018. The Company also leases 2,700 square feet of office space for sales and support in
Skokie, Illinois with a monthly rent of $3,000. This lease expires April 30, 2018. The Company also leases 702 square feet for sales and
support in Minneapolis, Minnesota with a monthly rent of $1,515 a month. This lease expires March 31, 2017. The company leases 2,105
square feet of office space in Phoenix, AZ starting at $1,271 and escalating to $2,894 per month by the end of the term September 30, 2019.
The company leases 1,500 square feet of office space in Seattle, WA with a monthly rent of $3,000 a month. The lease expires September 30,
2018. The company leases 383 square feet of office space in Spartanburg, SC with a monthly rent of $450 a month. The lease expires June
30, 2016. The company leases 3,422 square feet of office space in Greensboro, NC with a monthly rent of $4,182 a month. The lease expires
February 28, 2017. The company leases 1,745 square feet of office space in Santa Ana, CA with a monthly rent of $3,225 per month
escalating to $3,402 per month by the end of the lease term, April 30, 2018.
Total rent expense under these operating leases for the year ended December 31, 2015 and 2014 was $247,527 and $197,100, respectively.
F-22
Table of Contents
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 12 - COMMITMENTS (Continued)
The following is a schedule of approximate future minimum rental payments for operating leases subsequent to the year ended December 31,
2015.
$
2016
2017
2018
2019
325,248
178,916
98,704
26,046
Employment agreements
The Company’s Chief Executive Officer and President has had an Employment Agreement with the Company since September 15, 2003. On
February 4, 2016 (the “Effective Date”), the Company entered into an amended and restated employment agreement (the “Meller Employment
Agreement”) with Mark Meller, pursuant to which Mr. Meller will continue to serve as the Company’s President and Chief Executive Officer.
The Meller Employment Agreement was entered into by the Company and Mr. Meller primarily to extend the term of Mr. Meller’s
employment. The term of the Meller Employment Agreement is for an additional 7 years through September of 2023 (the “Term”) and shall
automatically renew for additional periods of one year unless otherwise terminated in accordance with the therein. As of the renewal date, the
Company agreed to pay Mr. Meller and annual salary of $565,000 with a ten percent (10%) increase every year. The Meller Employment
Agreement provides for a severance payment to Mr. Meller of three hundred percent (300%), less $100,000 of his gross income for services
rendered to the Company in each of the five prior calendar years should his employment be terminated following a change in control (as defined
in the Meller Employment Agreement).
NOTE 13 – SUBSEQUENT EVENTS
On January 11, 2016, the Company announced the payment of a $0.06 special cash dividend per share of Common Stock. The dividend
payments announced in January was paid out on January 20, 2016 for an aggregate amount of $265,000, which was applied against additional
paid in capital.
In March 2016, the Company incurred approximately $20,000 in capital lease obligations.
F-23
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Mark Meller, certify that:
1.
2.
3.
4.
I have reviewed this Form 10-K of SilverSun Technologies, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in
this report;
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the
registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 30, 2016
By:
/s/ Mark Meller
Mark Meller
Principal Executive Officer
SilverSun Technologies, Inc.
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Crandall Melvin III, certify that:
1.
2.
3.
4.
I have reviewed this Form 10-K of SilverSun Technologies, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in
this report;
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the
registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 30, 2016
By:
/s/ Crandall Melvin III
Crandall Melvin III
Principal Financial Officer
SilverSun Technologies, Inc.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with this Annual Report of SilverSun Technologies, Inc. (the “Company”), on Form 10-K for the period ended December 31,
2015, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Mark Meller, Principal Executive Officer of the
Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of
2002, that:
(1)
(2)
Such Annual Report on Form 10-K for the period ended December 31, 2015, fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
The information contained in such Annual Report on Form 10-K for the period ended December 31, 2015, fairly presents, in all
material respects, the financial condition and results of operations of the Company.
Date: March 30, 2016
By:
/s/ Mark Meller
Mark Meller
Principal Executive Officer
SilverSun Technologies, Inc.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with this Annual Report of SilverSun Technologies, Inc. (the “Company”), on Form 10-K for the period ended December 31,
2015, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Crandall Melvin III, Principal Financial Officer of the
Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of
2002, that:
(1)
(2)
Such Annual Report on Form 10-K for the period ended December 31, 2015, fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
The information contained in such Annual Report on Form 10-K for the period ended December 31, 2015, fairly presents, in all
material respects, the financial condition and results of operations of the Company.
Date: March 30, 2016
By:
/s/ Crandall Melvin III
Crandall Melvin III
Principal Financial Officer
SilverSun Technologies, Inc.