Annual report pursuant to Section 13 and 15(d)

NOTE 9 - BUSINESS COMBINATION

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NOTE 9 - BUSINESS COMBINATION
12 Months Ended
Dec. 31, 2015
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]
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
 
$
294,000
 
Goodwill
   
56,000
 
Fair value of net assets acquired
 
$
350,000
 
         
Note to shareholders for acquisition
 
350,000
 
Total purchase price
 
$
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.

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:

   
ATR
   
PTI
   
Macabe
   
Oates
 
                         
Cash consideration
 
$
80,000
   
$
483,471
   
$
21,423
   
$
125,000
 
Stock
   
-
     
259,226
     
-
     
-
 
Working capital adjustment
   
-
     
-
     
-
     
(92,127
Convertible note
   
-
     
     
     
200,000
 
Contingent consideration
   
21,656
             
428,971
     
-
 
Note payable
   
175,000
     
600,000
             
175,000
 
Total purchase price
 
$
276,656
   
$
1,342,697
   
$
450,394
   
$
407,873
 
                                 
Accounts receivable
 
$
-
   
$
129,709
   
$
-
   
$
230,480
 
Unbilled services
   
     
10,369
     
     
-
 
Prepaid expenses and other current assets
   
     
14,039
     
     
10,182
 
Property and equipment
   
     
93,300
     
6,377
     
17,000
 
Goodwill
   
18,000
     
311,000
     
7,000
     
9,000
 
Proprietary software applications
   
-
     
-
      57,000      
-
 
Customer List
   
258,656
     
933,301
     
408,594
     
424,000
 
Total assets acquired
   
276,656
     
1,491,718
     
478,971
     
690,662
 
                                 
Current liabilities
   
-
     
(124,300
)
   
(28,577
)
   
(282,789
)
Capital lease obligations
   
-
     
(24,721
)
   
-
     
-
 
Liabilities acquired
   
-
     
(149,021
)
   
(28,577
)
   
(282,789
)
Net assets acquired
 
$
276,656
   
$
1,342,697
   
$
450,394
   
$
407,873
 

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
 
Year Ended
December 31, 2015
   
Year Ended 
December 31, 2014
 
Net sales
 
$
31,663,312
   
$
28,795,190
 
Operating expenses
 
$
12,245,402
   
11,271,317
 
Income  before taxes
 
583,074
   
$
693,467
 
Net income
 
$
472,493
   
$
370,918
 
Basic and diluted income per common share
 
$
0.11
   
$
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.