Annual report pursuant to section 13 and 15(d)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2011
Significant Accounting Policies [Text Block]
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 
Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company transactions and accounts have been eliminated in consolidation.

Noncontrolling Interest

Noncontrolling interest represents third party ownership in the net assets of our consolidated subsidiaries. For financial reporting purposes, the assets and liabilities of our majority owned subsidiaries are consolidated with those of our own, with any third party investor’s interest shown as noncontrolling interest.

On May 6, 2009, the Company sold twenty-five (25) newly issued shares or 20% of the stock of SWK Technologies, Inc. (“SWK”), a subsidiary of SilverSun Technologies, Inc, for a purchase price of $150,000 to the President of SWK.

On January 12, 2012, SilverSun Technologies, Inc. entered into a share exchange agreement (the “Agreement”) with certain shareholders and the President (the “SWK Shareholders”) of SWK Technologies, Inc.  Pursuant to the terms of the Agreement, the SWK Shareholders exchanged an aggregate of 25 shares of SWK to the Company for a total of 22,664,678 shares (the “Exchange Shares”) of the Company’s common stock (the “Exchange”). These shares had a fair value of approximately $612,000 ($0.027 per share) and will be charged to Additional Paid-in Capital in 2012.  Upon consummation of the Exchange, SWK became a wholly-owned subsidiary of the Company.

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. The most significant estimates include:

1.  Revenue recognition of software sales

2. Allowance for doubtful accounts

3. Fair market value of share based payments and other equity instruments

 
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.

The assessment of collectability is critical in determining whether revenue should be recognized.  As part of the revenue recognition process, we determine whether trade receivables are reasonably assured of collection based on various factors.  Revenue is deferred but costs are recognized when we determine that the collection of the receivable is unlikely.

Software and hardware revenues are recognized when the product is shipped to the customer. The Company separates the software component and the professional services component into two parts for purposes of revenue recognition.  In that 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. Professional service revenue is recognized as the service time is incurred.

With respect to customer support services, upon the completion of one year from the date of sale, considered to be the warranty period, the Company offers customers an optional annual software maintenance and support agreement for subsequent one-year periods. Sales of 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.

Shipping and handling costs charged to customers are classified as revenue, and the shipping and handling costs incurred are included in cost of sales.

 
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’s cash equivalents at December 31, 2010 consisted of certificates of deposit with maturities of 3 months or less. 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.

 
Concentration of Credit Risk

For the years ended December 31, 2011 and 2010, our top ten customers had approximately $3,211,000 and $1,488,000 in sales and these represented 31% and 20%, respectively, of our total sales for the period.  Generally, we do not rely on any one specific customer for any significant portion of our revenue base.

For the years ended December 31, 2011 and 2010, purchases from one supplier were approximately 58% or 23%, respectively, of the Company’s total cost of revenue.

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, 2011 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. Payment for software sales are 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 estimated by considering a number of factors, including the length of time the amounts are past due, the Company’s previous loss history, the client’s current ability to pay its obligations and the condition of the general economy and the industry as a whole.

Inventory

Inventory consists primarily of pre-packaged software programs that are held for resale to customers. Cost is determined by specific identification related to the purchase order from the software supplier.

Property and Equipment

Property and equipment is stated at cost.  Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets, generally five to seven years.  Maintenance and repairs are charged to expense as incurred.

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.

Income Taxes

The Company accounts for income taxes using the assets and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized.

The Company files a U.S. federal income tax return as well as returns for various states. The Company’s income taxes have not been examined by any tax authorities for the periods subject to review by such taxing authorities. Uncertain tax positions taken on our tax returns are accounted for as liabilities for unrecognized tax benefits. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in general and administrative expenses in the Consolidated Statements of Operations. There were no liabilities recorded for uncertain tax positions at December 31, 2011 or 2010.

Fair Value Measurement

The Company adopted the provisions of the accounting pronouncement which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. Under the provisions of the pronouncement, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

The pronouncement establishes 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 described below:

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.

Long-Lived Assets

Long-lived assets are reviewed for impairment when circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows estimated by the Company to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairment losses were identified or recorded in the years ended December 31, 2011 and 2010.

Stock-Based Compensation

The Company’s stock-based compensation is measured at the fair value of the award at its grant based on the estimated number of awards expected to vest and is recorded over the applicable period. For stock options, fair value is determined using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock and the expected dividends on it, and the risk-free interest rate over the expected life of the option.  

Earnings per Share

The Company’s basic income (loss) per common share is based on net income (loss) 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 stock options and warrants to the extent they are dilutive. Diluted loss per share does not include common stock equivalents, as these shares would have an anti-dilutive effect.

For the year ended December 31, 2010, stock warrants to purchase 1,698 shares were excluded from the calculation of diluted net income (loss) per share calculation due to their anti-dilutive effect. For the year ended December 31, 2010, the dilutive effect of convertible debentures exceeded the number of authorized common shares and as a result weighted average shares outstanding, fully diluted, was the maximum authorized number of common shares. These shares were excluded from the calculation of diluted loss per share in 2010 due to their anti-dilutive effect.

Earnings per Share (continued)

The computation of EPS is approximately as follows:

   
Year Ended
December 31, 2011
   
Year Ended
December 31, 2010
 
Basic net income (loss) per share:
           
  Net income (loss) attributable to common
       stockholders
  $ 2,617,000     $ (469,000 )
  Weighted-average common shares outstanding
    4,481,000       3,619,000  
  Basic net income (loss) per share attributable to
     common stockholders
  $ 0.58     $ (0.00 )
Diluted net income (loss) per share:
               
  Net income (loss) attributable to common
        stockholders
  $ 2,617,000     $ (469,000 )
  Weighted-average common shares outstanding
    4,481,000       3,619,000  
  Incremental shares attributable to warrants and
        convertible promissory note
    101,322,000       -  
  Total adjusted weighted-average shares
    105,803,000       3,619,2999  
  Diluted net income (loss) per share attributable to
        common stockholders
  $ 0.02     $ (0.00 )

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications have had no effect on the financial position, operations or cash flows for the year ended December 31, 2010.

Recent Accounting Pronouncements

No recently issued accounting pronoucnements had a material impact on the Company’s consolidated financial statements.