This quarterly report on Form 10-Q and other reports filed by SilverSun
Technologies, Inc. and its wholly owned subsidiaries, SWK Technologies, Inc.,
Secure Cloud Services, Inc., and Critical Cyber Defense Corp. (collectively the
"Company", "we", "our", and "us") 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, 2021, 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 unaudited condensed consolidated 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 unaudited condensed consolidated
financial statements as well as the reported amounts of revenues and expenses
during the periods presented. Our unaudited condensed consolidated 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 unaudited condensed consolidated financial statements
and notes thereto appearing elsewhere in this report.
Overview
The Company is engaged in providing transformational business management
applications and technologies and professional consulting services to small and
medium size companies, primarily in the manufacturing, distribution and service
industries.
We are executing a multi-pronged business strategy centered on cloud-based
products, services, recurring revenue, customer retention and on rapidly
increasing the size of our installed customer base. The growth of our customer
base is accomplished via both our traditional marketing programs and
acquisitions. After a customer is secured, our strategy is to up-sell and
cross-sell, providing the customer with advanced technologies and third-party
add-ons that help them digitally transform their business. These add-on products
could include application hosting, cybersecurity, warehouse management, human
capital management, payment automation, sales tax compliance or any number of
other products or services that we represent. Many of these incremental products
and services are billed on a subscription basis, often paying monthly for the
service, which increases our monthly recurring revenue ("MRR"). This strategy
increases the average revenue per customer, which facilitates our continued
growth, and reduces our cost of customer acquisition, which enhances our
profitability profile.
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.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued).
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"), Human Capital Management ("HCM"),
Warehouse Management Systems ("WMS"), Customer Relationship Management ("CRM"),
and Business Intelligence ("BI"). Additionally, we have our own development
staff building software solutions for various ERP enhancements. Our value-added
services focus on consulting and professional services, specialized programming,
training, and technical support. We have a dedicated Information Technology
("IT") network services practice that provides managed services,
Infrastructure-as-a-Service, cybersecurity, application hosting, disaster
recovery, business continuity, cloud and other services. Our customers are
nationwide, with concentrations in the New York/New Jersey metropolitan area,
Arizona, Connecticut, Southern California, North Carolina, Washington, Oregon
and Illinois.
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 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 cloud-based ERP solutions, we also have in our ERP portfolio
Acumatica, a browser-based ERP solution that can be offered on premise, in the
public cloud, or in a private cloud. We have recently added Sage Intacct, a
cloud-based solution for core financials to our offerings of cloud-based
solutions. 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 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 manage their business and 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.
IT Managed Network Services and Business Consulting
We provide comprehensive IT managed services, Infrastructure-as-a-Service,
cybersecurity, business continuity, disaster recovery, data back-up, network
maintenance and service upgrades designed to eliminate the IT concerns of our
customers. 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.
Cybersecurity
We provide enterprise level security services to the mid-market. Our
cybersecurity-as-a-service offering includes a security operations center,
incident response, cybersecurity assessments, and hacking simulations. The
service is particularly well-suited for customers in compliance-driven and
regulated industries, including financial services, pension administration,
insurance, and the land and title sector.
Application Hosting
Application hosting is a type of SaaS (Software-as-a-Service) hosting solution
that allows applications to be available from a remote cloud infrastructure and
to be accessed by users through the internet.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued).
Results of Operations for the Three and Six Months Ended June 30, 2022 and 2021.
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. We have established a national
presence via our internal marketing, sales programs, and acquisitions and now
have ERP customers throughout most of the United States. To remain competitive
and continue to grow, we continue to invest resources in our product
development, marketing, and sales capabilities, and we expect to continue to do
so in the future. During the six months ended June 30, 2022 the Company
continued to expand its customer base, which we believe provides a basis for
future growth. Revenues increased 2.6% to $21.7 million for the six months ended
June 30, 2022 as compared to $21.1 million for the period in 2021, despite the
current economic conditions as we continue to grow our customer base.
The Company continues to monitor the Covid-19 situation as it pertains to the
disruption of our business, and that of some of our customers, and growth in
future quarters and will take steps, if necessary, to establish mitigation
strategies to try and minimize risk of any potential downturn for shareholders
as well the health, safety and wellbeing of its employees and customers. The
Company's strategies are focused on assisting our customers in their digital
transformation in this new environment. We believe the new "work from home
environment" (workforce of the future), coupled with the continued rise of
E-Commerce and security and compliance could help drive our future revenues.
For the six months ended June 30, 2022, inflation has impacted the Company's
profitability, as it has resulted in increased costs necessary to recruit and
retain personnel. As the Company returns back to its pre-Covid marketing and
trade show schedules, the higher costs of travel and meals will also have a
negative impact on the Company's profitability.
Revenues
For the three months ended June 30, 2022, revenues increased $408,864 (4.0)% to
$10,638,073 as compared to $10,229,209 for the three ended June 30, 2021. This
increase is mostly attributed to an increase in software sales, offset partially
by a decrease in service revenues.
For the six months ended June 30, 2022, revenues increased $553,240 (2.6%) to
$21,661,917 as compared to $21,108,677 for the six months ended June 30, 2021,
respectively. This increase is mostly attributed to an increase in software
sales, offset partially by a decrease in service revenues.
Software sales increased $1,020,596 (57.9%) and $1,627,547 (43.2%) to $2,782,081
and $5,393,043 for the three and six months ended June 30, 2022, respectively,
as compared to $1,761,485 and $3,765,496 for the three and six months ended June
30, 2021, respectively, due to the timing of orders, primarily as a result of an
increase in our ERP software sales
Service revenue decreased $611,732 (7.2%) and $1,074,307 (6.2%) to $7,855,992
and $16,268,874 for the three and six months ended June 30, 2022, respectively,
as compared to $8,467,724 and $17,343,181 for the three and six months ended
June 30, 2021, respectively. These decreases are mainly attributed to lower
maintenance revenues and lower consulting revenues, primarily because of project
delays and postponements on the part of our customers as a result of challenges
within their own businesses, including employee retention and general economic
conditions impacting their organizations.
Gross profit
Gross profit for the three and six months ended June 30, 2022 decreased $143,412
(3.4%) and $185,082 (2.1%) to $4,127,268 and $8,832,135, respectively, as
compared to $4,270,680 and $9,017,217 for the three and six months ended June
30, 2021, respectively. For the three months ended June 30, 2022, the overall
gross profit percentage was 38.8% as compared to 41.7% for the three months
ended June 30, 2021. For the six months ended June 30, 2022, the overall gross
profit percentage was 40.8% as compared to 42.7% for the six months ended June
30, 2021.
The gross profit attributed to software sales increased $319,841 (41.2%) and
$552,267 (33.9%) to $1,095,808 and $2,182,191 for the three and six ended June
30, 2022 as compared to $775,967 and $1,629,924 for the three and six months
ended June 30, 2021, due mostly to the increased volume of software sold.
The gross profit attributed to services decreased $463,253 (13.3%) and $737,349
(10.0%) to $3,031,460 and $6,649,944 for the three and six months ended June 30,
2022 as compared to $3,494,713 and $7,387,293 for the three and six months ended
June 30, 2021. This decrease is mostly due to higher costs associated with
increasing pay and benefits to employees to retain and recruit their services
and to address inflationary pressures in the overall economy, plus the training
of new employees, who were hired to accommodate our growth, and who are not as
yet as billable as our more experienced team.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued).
Results of Operations for the Three and Six Months Ended June 30, 2022 and 2021
(continued).
Operating expenses
Selling and marketing expenses increased $238,797 (14.8%) and $295,300 (8.9%) to
$1,852,903 and $3,628,714 for the three and six months ended June 30, 2022 as
compared to $1,614,106 and $3,333,414 for the three and six months ended June
30, 2021. This increase is primarily due to increased attendance at trade shows
and associated travel and entertainment expense, plus outside sales expenses
offset partially by lower advertising expenses.
General and administrative expenses decreased $122,132 (5.6%) to $2,071,145 for
the three months ended June 30, 2022 as compared to $2,193,277 for the three
months ended June 30, 2021. This decrease is a result of payroll and
payroll-related expenses and departmental changes for various employees which
involved moving their compensation between cost of revenues and administrative
expenses as well as a lower rent. These decreases were partially offset by
higher excise taxes and dues and subscriptions costs.
General and administrative expenses increased $183,927 (4.1%) to $4,712,122 for
the six months ended June 30, 2022 as compared to $4,528,195 for the six months
ended June 30, 2021. This increase is a result of several factors, including an
increase in state excise and local taxes, dues and subscriptions, such increases
partially offset by lower rent expenses.
Share-based compensation decreased $2,995 to $45,945 for the three months ended
June 30, 2022 as compared to $48,940 for the three months ended June 30, 2021.
Share-based compensation increased $41,958 to $91,890 for the six months ended
June 30, 2022 as compared to $49,932 for the six months ended June 30, 2021. The
increase is due to the issuance of stock options at the end of March 2021.
Depreciation and amortization expense increased $26,068 and $89,872 to $236,521
and $498,371 for the three and six months ended June 30, 2022 as compared to
$210,453 and $408,499 for the three and months ended June 30, 2021. This
increase is primarily due to the additional amortization of intangible assets
related to the new acquisitions and increased depreciation related to equipment
purchases over the last 12 months.
(Loss) income from operations
As a result of the above, for the three months ended June 30, 2022, the Company
had a loss from operations of $79,246 as compared to income from operations of
$203,904 for the three months ended June 30, 2021. As a result of the above, for
the six months ended June 30, 2022, the Company had a loss from operations of
$98,962 as compared to income from operations of $697,177 for the six months
ended June 30, 2021.
Liquidity and Capital Resources
The negative impact of Covid-19 on the economy creates uncertainty for the
Company in the coming months and quarters. While our Company has not been
significantly impacted as a result of this uncertainty, the potential negative
impact on our business, in the future, is impossible to determine at this point,
although it is likely that we could suffer negative consequences as many
companies go out of business, suffer from supply-chain issues or employee churn
or decrease their technology spending. As such, we need to rely on our own
limited resources to weather any economic downturn. Our competitors, almost all
of whom are privately held, were able to avail themselves of the PPP program,
which may make it more difficult for the Company to compete in the marketplace.
Management will continue to monitor developments, explore various cost-cutting
measures, and explore other sources of funding, but there is no guarantee we
will be successful in doing so.
The Company currently has no line of credit or other credit facility with any
lender.
We continue to review and look for 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 and other markets with solid revenue streams and established customer
bases that generate positive cash flow.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued).
Liquidity and Capital Resources (continued)
At June 30, 2022, future payments of long-term debt are as follows:
Remainder of 2022 $ 263,207
2023 783,474
2024 360,093
2025 258,738
2026 52,188
Total $ 1,717,700
The Company's working capital was $2,749,833 at June 30, 2022 and cash on hand
at June 30, 2022 was $5,873,674.
During the six months ended June 30, 2022, the Company had a net decrease in
cash of $940,443. The Company's principal sources and uses of funds were as
follows:
Cash used in operating activities:
Operating activities for the six months ended June 30, 2022 used cash of
$485,308 as compared to using cash of $838,824 for the same period in 2021. This
decrease in cash used in operating activities is primarily due to the increase
in prepaid expenses and other current assets, decrease in deferred revenue, and
increase in accounts receivable offset partially by the decrease in operating
income and increase in accounts payable.
Cash used in investing activities:
Investing activities for the six months ended June 30, 2022 used cash of
$180,549 as compared to using $217,824 cash for the same period in 2021,
primarily as a result of lower purchases of property and equipment.
Cash (used in) provided by financing activities:
Financing activities for the six months ended June 30, 2022 used cash of
$274,586 as compared to providing cash in the amount of $3,888,592 for the same
period in 2021. The decrease in cash provided is attributed to the received net
proceeds from the sale of common stock under its Registration Statement on Form
S-3 and the previously disclosed At Market Issuance Sales Agreement with a sales
agent during the six months ended June 30, 2021.
The Company believes that as a result of the growth in business, and the funds
on hand, it has adequate liquidity to fund its operating plans for at least the
next twelve months, provided, however, that the Company cannot currently
quantify the uncertainty related to the recent pandemic and its effects on the
business in the coming quarters. The belief that the Company has sufficient
liquidity may be incorrect as the impact of Covid-19 becomes clearer over the
coming months and quarters.
For the six months ended June 30, 2022, inflation has impacted the Company's
profitability, as it has resulted in increased costs necessary to recruit and
retain personnel. As the Company returns back to its pre-Covid marketing and
trade show schedules, the higher costs of travel and meals will also have a
negative impact on the Company's profitability.
Off Balance Sheet Arrangements
During the six months ended June 30, 2022 or for fiscal 2021, 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.
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