SilverSun Technologies, Inc. - FORM 10-Q - May 16, 2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q 

 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2012

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________
 
Commission File Number: 000-50302

SILVERSUN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

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

5 Regent Street
Livingston, NJ 07039
(Address of principal executive offices)

(973) 758-9555
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes ý No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.  Yes o  No  x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

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

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

As of May 14, 2012, there were 116,900,633 shares outstanding of the registrant’s common stock. 
 
 
SILVERSUN TECHNOLOGIES, INC.
 
TABLE OF CONTENTS
 
   
Page No.
PART I.    FINANCIAL INFORMATION
  
     
Item 1.
3
 
3
 
4
   5
 
6
 
8
     
Item 2.
10
Item 3.
13
Item 4.
13
     
PART II.   OTHER INFORMATION
  
     
Item 1.
14
Item 1A.
14
Item 2.
 14
Item 3.
14
Item 4.
14
Item 5.
14
Item 6.
14
 
 
PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statement
 
  SILVER SUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
ASSETS
  
March 31, 2012
    
December 31, 2011
  
             
Current assets:
            
Cash and cash equivalents
  
$
99,952
    
$
233,722
  
Accounts receivable, net of allowance of $41,000 and $41,000
    
1,164,352
      
881,217
  
Inventories
    
-
      
11,617
  
Prepaid expenses and other current assets
    
39,700
      
103,407
  
Total current assets
    
1,304,004
      
1,229,963
  
                 
Property and equipment, net of accumulated depreciation of $612,000 and $593,000
    
166,917
      
137,948
  
Intangible assets
    
126,056
      
95,445
  
Deposits and other assets
    
48,011
      
57,921
  
                 
Total assets
  
$
1,644,988
    
$
1,521,277
  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
                
                 
Current liabilities:
                
Accounts payable and accrued expenses
  
$
1,176,966
    
$
1,260,045
  
Accrued interest
    
10,818
      
7,675
  
Due to related parties
    
5,111
      
6,335
  
Capital lease obligations
    
55,253
      
64,367
  
Deferred revenue
    
1,209,409
      
1,015,750
  
Notes payable to related parties
    
20,000
      
20,000
  
Convertible promissory note – related party, net of discount of $-0- and $4,250
    
7,054
      
46,750
  
Total current liabilities
    
2,484,611
      
2,420,922
  
                 
Commitments and contingencies
    
-
      
-
  
                 
Stockholders’ deficit:
                
    Preferred stock, $1.00 par value; authorized 1,000,000 shares;
         No shares issued and outstanding
    
-
      
-
  
   Series A Convertible Preferred Stock, $1.00 par value; authorized 2 shares;  no shares issued and  outstanding
         at March 31, 2012, and 2 shares issued and outstanding at December 31, 2011
    
-
      
22,886
  
    Series B Preferred Stock, 1.00 par value; authorized 1 share;
         1 shares issued and outstanding
    
1
      
1
  
   Common stock:
                
         Class A – par value $.0001; authorized 750,000,000 shares;
              116,800,933 and 4,456,912 shares issued and outstanding
    
11,680
      
446
  
          Class B – par value $.0001: authorized 50,000,000 shares;
              no shares issued and outstanding
    
-
      
-
  
   Additional paid-in capital
    
10,153,643
      
9,326,572
  
   Accumulated deficit
    
(11,004,947
)
    
(10,296,756
)
Total SilverSun stockholders’ deficit
    
(839,623
)
    
(946,851
)
Non-controlling interest in SWK Technologies, Inc.
    
-
      
47,206
  
                 
Total stockholders’ deficit
    
(839,623
)
    
(899,645
)
Total liabilities and stockholders’ deficit
  
$
1,644,988
    
$
1,521,277
  
 
See accompanying notes to condensed consolidated financial statements.
 
 
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
Three Months Ended March 31,
  
   
2012
    
2011
  
    Revenues:
            
    Software product, net
  
$
358,974
    
$
874,999
  
Service, net
    
2,549,885
      
1,886,446
  
Total revenues, net
    
2,908,859
      
2,761,445
  
                 
Cost of revenues:
                
Product
    
169,338
      
431,187
  
Service
    
1,556,347
      
1,128,204
  
Total cost of revenues
    
1,725,685
      
1,559,391
  
                 
Gross profit
    
1,183,174
      
1,202,054
  
                 
Selling, general and Administrative expenses :
                
       Selling and marketing expenses
    
514,350
      
425,158
  
       General and administrative expenses
    
615,946
      
515,821
  
       Share-based compensation expense
    
719,267
      
-
  
       Depreciation and amortization
    
19,202
      
26,188
  
Total selling, general and administrative expenses
    
1,868,765
      
967,167
  
                 
     Income (loss) from operations
    
(685,591
)
    
234,887
  
                 
Other income (expense)
                
     Gain on revaluation of derivatives
    
-
      
262,788
  
      Amortization of debt discount
    
(4,250
)
    
(8,500
 ) 
     Interest expense, net
    
(18,350
)
    
(23,522
)
Total other income (expense)
    
(22,600
)
    
230,766
  
                 
Net (loss) income
    
(708,191
)
    
465,653
  
                 
Net income (loss) attributable to the
  noncontrolling interest  in SWK Technologies, Inc.
    
-
      
26,014
  
                 
Net (loss) income attributable to  SilverSun Technologies, Inc
  
$
(708,191
)
  
$
439,639
  
                 
Net (loss) income per common share – basic
  
$
(0.01
 )   
$
0.10
  
Net (loss) income per common share – fully diluted
  
$
             (0.01
 )   
$
                0.08
  
Weighted Average Shares
                
     Basic
    
110,846,863
      
4,563,600
  
     Diluted
    
110,846,863
      
5,521,811
  

See accompanying footnotes to the condensed consolidated financial statements.
 
 
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIODS ENDED DECEMBER 31, 2011 AND MARCH 31, 2012
 
   
Series A
Preferred
Stock
    
 
Series B
Preferred
Stock
    
 
 
Common Stock
 Class A
    
 
 
Additional
Paid in
    
 
 
 
Accumulated
    
Noncontrolling
Interest in
SWK
Technologies,
    
Total
Stockholders’
  
   
Shares
    
Amount
    
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Deficit
    
Inc.
    
Deficit
  
Balance at January 1, 2012
    
2
    
$
22,886
      
1
    
$
1
      
4,456,912
    
$
446
    
$
9,326,572
    
$
(10,296,756
)
  
$
47,306
    
$
(899,645
)
     
-
      
-
      
-
      
-
                                                  
Exchange of shares of SWK for shares of  SilverSun Technologies, Inc
    
-
      
-
      
-
      
-
      
22,664,678
      
2,266
      
44,940
      
-
      
(47,206
)
    
-
  
Conversion of Series A Preferred Stock to common stock accrued expenses
    
(2
)
   
(22,886
)
    
-
      
-
      
2,385,650
      
239
      
22,647
      
 -
      
-
      
-
  
Converson of convertible promissory note to common stock
    
 -
      
   -
      
 -
      
-
      
86,793,693
      
8,679
      
35,267
      
 -
      
-
      
43,946
  
Share-Based Compensation
    
-
      
-
      
-
      
-
      
-
      
-
      
719,267
      
-
      
-
      
719,267
  
Issuance of common stock for services
    
-
      
-
      
-
      
-
      
500,000
      
50
      
4,950
      
-
      
-
      
5,000
  
Net loss
    
 -
      
 -
      
-
      
-
      
-
      
-
      
 -
      
(708,191
)
    
-
      
(708,191
)
Balance at March  31, 2012
    
-
      
-
      
1
    
$
        
116,800,933
    
$
11,680
    
$
10,153,643
    
$ 
(11,004,947
)
    
-
    
$
(839,623
)
 
See accompanying footnotes to the condensed consolidated financial statements.
 
 
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
 
   
2012
    
2011
  
Cash flows from operating activities:
            
   Net income (loss)
  
$
(708,191
) 
  
$
465,653
  
   Adjustments to reconcile net income to net cash provided by operating activities
                
   Depreciation and amortization
    
19,202
      
26,188
  
   Amortization of debt discount
    
4,250
      
8,500
  
   Share-based compensation
    
719,267
      
-
  
   Common stock issued for services
    
5,000
      
-
  
   Derivative liability in excess of debt discount
    
-
      
54,000
  
   Gain on revaluation of derivative liability
    
-
      
(316,788
)
   Return of shares for services not rendered
    
-
      
(65,000
)
                 
   Changes in assets and liabilities:
                
   Accounts receivable
    
(283,135
)
    
(191,070
)
   Inventory
    
11,617
      
-
  
   Prepaid expenses and other current assets
    
63,707
      
35,231
  
   Deposits and other assets
    
9,910
      
-
  
   Accounts payable and accrued expenses
    
(83,079
)
    
278,927
  
   Accrued interest
    
3,143
      
 22,580
  
   Deferred revenue
    
193,659
      
 418,942
  
   Due to related parties
    
(1,224
)
    
23,902
  
 Net cash provided by (used in) operating activities
    
(45,874
)
    
761,065
  
                 
Cash flows from investing activities:
                
  Acquisition of intangible assets
    
(30,611
)
    
-
  
   Purchase of property and equipment
    
(48,171
)
    
(18,917
)
   Net cash used in investing activities
    
(78,782
)
    
(18,917
)
                 
Cash flows from financing activities:
                
   Proceeds from convertible promissory note – related party
    
-
      
51,000
  
   Repayment of convertible debentures
    
-
      
(205,000
)
   Principal payments under capital leases obligations
    
(9,114
)
    
(5,524
)
Net cash used in financing activities
    
(9,114
)
    
(159,524
)
                 
Net increase (decrease) in cash and cash equivalents
    
(133,770
)
    
582,624
  
                 
Cash and cash equivalents – beginning of period
    
233,722
      
104,344
  
                 
Cash and cash equivalents – end of period
  
$
99,952
    
$
686,968
  
                 
Cash paid during period for:
                
   Interest expense
  
$
-
    
$
-
  
   Income taxes
  
$
-
    
$
-
  
       
See accompanying footnotes to the condensed consolidated financial statements.
 
 
SILVERSUN TECGNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES

For the three months ended March 31, 2012:

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

b) The Company issued 500,000 shares of Class A common stock for services with a fair value of $5,000.

c)  The Company converted 2 shares of Series A Convertible preferred stock for 2,385,650 shares of Class A common stock.

d)  The Company bought back their 20% interest in SWK Technologies, Inc. for 22,664,678 shares of Class A common stock.

For the three months March 31, 2011:

a)  The Company recorded a derivative liability of $105,000 related to a conversion feature embedded in the $51,000 convertible note issued during the period to an executive officer of the Company.  The derivative liability was recorded as debt discount and the excess as an expense on the statement of operations as other income expense.


See accompanying footnotes to the condensed consolidated financial statements.
 
 
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

SilverSun Technologies, Inc. (the “Company”) is an information technology company, and a value added reseller and master developer for Sage Software’s MAS 90/200/500 and ERP X3 financial and accounting software as well as the publisher of its own proprietary Electronic Data Interchange (EDI) software, “MAPADOC.”  The Company focuses on the business software and information technology consulting market, and is looking for other opportunities to grow its business. The Company sells services and products to various end users, manufacturers, wholesalers and distributor industry clients located throughout the United States.

The Company is publicly traded and is currently quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “SSNT.”

Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of SilverSun Technologies, Inc. as of March 31, 2012, the results of operations and cash flows for the three months ended March 31, 2012 and 2011.  These results are not necessarily indicative of the results to be expected for the full year.

The financial statements have been prepared in accordance with the requirements of Form 10-Q and consequently do not include disclosures normally made in an Annual Report on Form 10-K.  The December 31, 2011 balance sheet included herein was derived from the audited financial statements included in the Company’s annual report on Form 10-K as of that date. Accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Summary of Significant Accounting Policies

During 2012, there have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s Form 10-K for the year ended December 31, 2011.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.  A reclassification in the condensed balance sheet of approximately $95,000 from prepaid expenses and other current assets to intangible assets had no impact on the financial position, operations or cash flows as of December 31, 2011.

NOTE 2 – NET INCOME (LOSS) PER COMMON SHARE
 
The Company’s basic income per common share is based on net income for the relevant period, divided by the weighted average number of common shares outstanding during the period.  Diluted income per common share is based on net income, divided by the weighted average number of common shares outstanding during the period, including common share equivalents, such as outstanding warrants and beneficial conversion of related party accounts. The computation of diluted loss per share for the three months ended March  31, 2012 does not include share equivalents in the amount of 14,983,506 as they would have an anti-dilutive effect on the earnings resulting from the Company’s net loss position in that period. 
 
 
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 2 – NET INCOME (LOSS) PER COMMON SHARE (continued)

   
Three Months Ended
    
Three Months Ended
  
   
March 31, 2012
    
March 31, 2011
  
Basic net income (loss)  per share attributable to common shareholders computation:
            
  Net income (loss) attributable to common stockholders
  
$
(708,191
 )   
$
439,639
  
  Weighted-average common shares outstanding
    
110,846,863
      
4,563,600
  
  Basic net income (loss) per share attributable to common Stockholders
  
$
(0.01
 )   
$
0.12
  
Diluted net income (loss) per share attributable to common shareholders computation
                
  Net income (loss) attributable to common stockholders
  
$
(708,191
 )   
$
439,639
  
  Weighted-average common shares outstanding
    
110,846,863
      
4,563,600
  
  Incremental shares attributable to the common stock  equivalents
    
-
      
958,211
  
  Total adjusted weighted-average shares
    
110,846,863
      
5,521,811
  
  Diluted net income (loss) per share attributable to common Stockholders
  
$
(0.01
 )   
$
0.08
  

NOTE 3 – CONVERTIBLE PROMISSORY NOTE – RELATED PARTY AND DERIVATIVE LIABILITY

The 7% Convertible Promissory Note (“Convertible Note”), due January 28, 2012 was extended to January 28, 2013.

On January 4, 2012 the holder of the Convertible Note,, Mr. Mark Meller, CEO of the Company, converted $30,458 into 60,154,178 shares of Class A Common Stock.  In addition, the holder had previously sold $13,488 to certain employees of the Company in accordance with the optiobs granted to them by Mr. Meller  in January 2011, which were converted into 26,639,515 shares of Class A common stock. The shares issued to the employees were recorded as share-based compensation valued at approximately $719,000 which was recorded in the statement of operations.

NOTE 4 – NOTES PAYABLE TO RELATED PARTIES

In January 2012, Mr. Meller extended the due date of the Note Payable from January 1, 2012 to January 1, 2013.

NOTE 5 – STOCKHOLDERS’ EQUITY

Series A Convertible Preferred Stock

On January 12, 2012, the Series A Convertible Preferred Stock was converted into 2,385,650 shares of Class A Common Stock.

Series B Preferred Stock

The Series B Preferred Stock has the rights, privileges, preferences and restrictions set for in the Certificate of Designation (the “Certificate of Designation”) filed by the Corporation with the Secretary of State of the State of Delaware (“Delaware Secretary of State”) on September 23, 2011.

The one (1) share of the Series B Preferred shall have voting rights equal to (x) the total issued and outstanding Common Stock and preferred stock eligible to vote at the time of the respective vote divided by (y) forty nine one-hundredths (0.49) minus (z) the total issued and outstanding Common Stock and preferred stock eligible to vote at the time of the respective vote.  For the avoidance of doubt, if the total issued and outstanding Common Stock eligible to vote at the time of the respective vote is 5,000,000, the voting rights of the Series B Preferred Stock shall be equal to 5,204,082 (e.g. (5,000,000 / 0.49) – 5,000,000 = 5,204,082).

NOTE 6 - NONCONTROLLING INTEREST
 
On January 12, 2012, SilverSun Technologies, Inc. entered into a share exchange agreement with certain shareholders and the President (the “SWK Shareholders”) of SWK Technologies, Inc to purchase the remaining 20% interest from the SWK’s non-controlling shareholders.  Pursuant to the terms of the Agreement, the non controlling shareholders exchanged an aggregate of 25 shares of SWK for a total of 22,664,678 shares (the “Exchange Shares”) of the Company’s Class A common stock.
 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q and other reports filed by SilverSun Technologies, Inc. (the “Company”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management.  Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof.  When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements.  Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, , relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire.  Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements.  Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made.  These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.  The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

Overview

In June 2011, the Company changed its name from  Trey Resources, Inc. to SilverSun Technologies, Inc. The Company focuses on the business software and information technology consulting market, and is looking to acquire other companies in this industry.  SWK Technologies, Inc. (“SWK Technologies”), the Company’s subsidiary and the surviving company from the acquisition and merger with SWK, Inc., is a New Jersey-based information technology company, value added reseller, and master developer of licensed accounting and financial software published by Sage Software.  SWK Technologies also publishes its own proprietary supply-chain software, the Electronic Data Interchange (EDI) solution “MAPADOC.”  SWK Technologies sells services and products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States, along with network services provided by the Company.

We continue to develop and increase our existing business by aggressively seeking new business and offering solutions to our customers, including our own proprietary EDI software.   We specialize in ERP software sales and implementation, programming, and training and technical support, aimed at improving the financial reporting and operational efficiencies of small and medium sized companies. The sale of our financial accounting software is concentrated in the northeastern United States, while our EDI software and programming services are sold to corporations nationwide.
 
Additionally, it is our intention to increase our business by seeking additional opportunities through potential acquisitions, partnerships or investments.  Such acquisitions, partnerships or investments may consume cash reserves or require additional cash or equity.  Our working capital and additional funding requirements will depend upon numerous factors, including: (i) strategic acquisitions or investments; (ii) an increase to current company personnel; (iii) the level of resources that we devote to sales and marketing capabilities; (iv) technological advances; and (v) the activities of competitors.
 
 
Revenues

All revenues reported by the Company are derived from the sales and service of Sage Software, MAPADOC, and other third-part software products to various end users, manufacturers, wholesalers and distribution industry clients located throughout the United States, along with consulting and customer support and network services provided by the Company.

Revenues for the three months ended March 31, 2012, increased $147,414 (5.3%) to $2,908,859, as compared to $2,761,445 for the three months March 31, 2011.  These sales were all generated by the Company’s operating subsidiary, SWK Technologies.  Increases in sales from consulting services, network hardware sales, and service agreements were partially offset by a decrease in software sales. This increase is primarily due to the continued marketing efforts and very competitive pricing.  Certain sales the Company anticipated to close in the first quarter have been postponed to the second quarter and beyond.

Gross Profit

Gross profit for the three months ended March 31, 2012, decreased $18,880 (1.6%) to $1,183,174, as compared to $1,202,054, for the three months ended March 31, 2011.  For the three months ended March 31, 2012, the gross profit percentage was 40.7%, as compared to 43.5% for the three months ended March 31, 2011.  The mix of products being sold by the Company changes from time to time and sometimes causes the overall gross margin percentage to vary.  The change in sales mix for the three ended March 31, 2011, resulted in gross profit being lower as a percent of sales as compared to the three months ended March 31, 2012.  

Operating Expenses

Selling and marketing expenses increased $89,192 (21%) to $514,350 for the three months ended March 31, 2012 as compared to $425,158 for the three months ended March 31, 2011 as a result of the continued increase in sales activity.

General and administrative expenses increased $100,175 (19.4%) to $615,996 for the three months ended March 31, 2012 as compared to $515,821 for the three months ended March 31, 2011 primarily as a result of increases in professional fees and investor relations expenses.

On January 4, 2012 in accordance with options granted in January 2011, Mr. Meller sold portions of his Convertible Note payable to certain employees of SWK Technologies, Inc. in the amount of $13,235. On January 4, 2012, Mr. Meller converted $30,458 of the Convertible Note into 60,154,178 shares of Class A Common Stock, and those certain employees converted the $13,238 into 23,139,523 shares of Class A Common Stock. As a consequence the Company recognized $719,267 expense in 2012.

Other Income

Total other expense for the three months ended March 31, 2012 was $22,600, as compared to other income of $230,766 for the three months ended March 31, 2011.  This change is primarily attributed to the gain on the revaluation of derivative for the three months ended March 31, 2011.

Net Income (Loss)

For three months ended March 31, 2012, the Company had a net loss of $708,191, as compared to net income of $465,639for the three months ended March 31, 2011.  This change is primarily attributed share-based compensation expense for the three months ended March 31, 2012 and the other factors as described above.


Liquidity and Capital Resources

We are currently seeking additional operating income opportunities through potential acquisitions or investments.  Such acquisitions or investments may consume cash reserves or require additional cash or equity.  Our working capital and additional funding requirements will depend upon numerous factors, including: (i) strategic acquisitions or investments; (ii) an increase to current company personnel; (iii) the level of resources that we devote to sales and marketing capabilities; (iv) technological advances; and (v) the activities of competitors.

In addition to developing new products, obtaining new customers and increasing sales to existing customers, management plans to achieve profitability through acquisitions of companies in the business software and information technology consulting market with solid revenue streams, established customer bases, and positive cash flow.

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

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

In October the Company negotiated a line of credit from a bank. The agreement included a borrowing base calculation tied to accounts receivable with a maximum availability of $750,000. Interest on outstanding balances is payable daily at an interest rate that is two and three quarter percentage points (2.75%) above the Prime Rate. The Company’s interest rate was 6% at March 31, 2012. The line was collateralized by substantially all of the assets of the Company and is personally guaranteed by the Company’s Chief Executive Office, Mr. Mark Meller.  The credit facility required the Company to pay a monitoring fee of 0.315% of eligible collateral to be paid monthly. An annual facility fee equal to one percent (1%) of the Maximum Credit is assessed upon the initial funding, annually thereafter. The term of the agreement is for three years and expires in October 2014. As of March 31, 2012, the Company was in compliance with of the loan covenants. As of March 31, 2012, the Company has no outstanding balance against this line. The available line at March 31, 2012 was $696,521.

During the three months ended March 31, 2012, the Company had a net decrease in cash of $133,770. The Company's principal sources and uses of funds were as follows:

Cash provided by (used in) operating activities

The Company used $45,874 in cash for operating activities for the three months ended March 31, 2012, as compared to providing $761,065 of cash for operating activities for the three months ended March 31, 2011. This decrease in cash used in operating activities is primarily attributed to a decrease in cash from deferred revenues and a reduction accounts payable and accrued expenses.
 
Cash used in investing activities

Investing activities for the three months ended March 31, 2012 used cash of $78,782, as compared to using $18,917 of cash for the three months ended March 31, 2011. This increase in cash used is attributed to the increase in purchases of property, and equipment and intangible assets.
 
 
Cash provided by (used in) financing activities

Financing activities for the three months ended March 31, 2012 used cash of $9,114, as compared to using $159,524 of cash for the three months ended March 31, 2011. This decrease in cash used is the repayment of convertible debentures during the three months ended March 31, 2011.

The Company believes that 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 three months ended March 31, 2012.  These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K to the SEC for the fiscal year ended December 31, 2011.

Off Balance Sheet Arrangements

During the three months ended March 31, 2012, we did not engage in any material off-balance sheet activities nor have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We do not hold any derivative instruments and do not engage in any hedging activities.

Item 4.  Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide a reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Management designed the disclosure controls and procedures to provide reasonable assurance of achieving the desired control objectives.

We carried out an evaluation, under the supervision and with the participation of our management, including our PEO and PFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report.  Based upon that evaluation, the PEO and PFO concluded that the Company’s disclosure controls and procedures were effective.

(b) Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended March 31, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A.  Risk Factors

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 29, 2012.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Other than disclosed above, there were no unregistered sales of equity securities during the period ended March 31, 2012, that were not otherwise required to be disclosed in a current report on Form 8-K.

Item 3.  Defaults Upon Senior Securities

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

Item 4.  Mine Safety Disclosures

Not  Applicable.
 
Item 5.  Other Information
 
There is no other information required to be disclosed under this item which has not been previously reported.

Item 6.  Exhibits

10.1
  
Share Exchange Agreement, dated January 12, 2012, by and among SilverSun Technologies, Inc. and certain signatories thereto (incorporated by reference to exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 20, 2012)
31.1
  
31.2
  
32.1
  
32.2
  
101.INS
  
XBRL Instance Document
101.SCH
  
XBRL Taxonomy Extension Schema
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase
101.LAB
  
XBRL Taxonomy Extension Label Linkbase
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase
 
* Filed herewith
 
 
SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.


   
SILVERSUN TECHNOLOGIES, INC.
           
           
Dated: May 16, 2012
  
By:
/s/ Mark Meller
    
     
Mark Meller
    
     
Chief Executive Officer (Principal Executive Officer)
     
Chief Financial Officer (Principal Accounting Officer)
 

SilverSun Technologies, Inc. Reports