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 Nine Months Ended September 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 nine months ended September 30, 2022 the Company
continued to expand its customer base, which we believe provides a basis for
future growth. Revenues increased 4.4% to $32.6 million for the nine months
ended September 30, 2022 as compared to $31.2 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 nine months ended September 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.
On September 29, 2022, the Company entered into a definitive agreement and plan
of merger (the "Merger Agreement") with Rhodium Enterprises, Inc. ("Rhodium"),
an industrial-scale digital asset technology company utilizing proprietary
technologies to mine bitcoin (see above). For further information please read
the Form 8-K filed with the SEC on October 3, 2022 and the Form S-4, the
Registration Statement, which provides information regarding the merger.
Revenues
For the three months ended September 30, 2022, revenues increased $807,505
(8.0)% to $10,917,159 as compared to $10,109,654 for the three months ended
September 30, 2021. This increase is mostly attributed to an increase in
software sales, offset partially by a decrease in service revenues.
For the nine months ended September 30, 2022, revenues increased $1,360,745
(4.4%) to $32,579,076 as compared to $31,218,331 for the nine months ended
September 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 $928,921 (59.8%) and $2,556,468 (48.1%) to $2,482,488
and $7,875,531 for the three and nine months ended September 30, 2022,
respectively, as compared to $1,553,567 and $5,319,063 for the three and nine
months ended September 30, 2021, respectively, primarily as a result of an
increase in our ERP software sales.
Service revenue decreased $121,416 (1.4%) and $1,195,723 (4.6%) to $8,434,671
and $24,703,545 for the three and nine months ended September 30, 2022,
respectively, as compared to $8,556,087 and $25,899,268 for the three and nine
months ended September 30, 2021, respectively. These decreases are mainly
attributed to lower maintenance revenues and lower consulting revenues,
primarily because of project delays as a result of staffing and training, 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.
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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 Nine Months Ended September 30, 2022 and
2021 (Continued).
Gross profit
Gross profit for the three and nine months ended September 30, 2022 increased
$489,261 (12.4%) and $304,179 (2.3%) to $4,428,569 and $13,260,704,
respectively, as compared to $3,939,308 and $12,956,525 for the three and nine
months ended September 30, 2021, respectively. For the three months ended
September 30, 2022, the overall gross profit percentage was 40.6% as compared to
39.0% for the three months ended September 30, 2021. For the nine months ended
September 30, 2022, the overall gross profit percentage was 40.7% as compared to
41.5% for the nine months ended September 30, 2021.
The gross profit attributed to software sales increased $219,959 (33.1%) and
$772,226 (33.6%) to $885,268 and $3,067,459 for the three and nine ended
September 30, 2022 as compared to $665,309 and $2,295,233 for the three and nine
months ended September 30, 2021, due mostly to the increased volume of software
sold.
The gross profit attributed to services increased $269,302 (8.2%) to $3,543,301
for the three months ended September as compared to $3,273,999 for the three
months ended September 30, 2021. This increase is attributed to revenue
increases in managed services and application hosting and an increase in
commission revenue for the period. This was partially offset by lower gross
profit for professional consulting, which is a result of lower revenue and costs
associated with project delays caused by staffing and training issues, and the
learning curve of new employees, who were hired to accommodate our growth. In
addition, we have experienced project delays and postponements on the part of
our customers because of challenges within their own businesses, including
employee retention and general economic conditions impacting their
organizations.
The gross profit attributed to services decreased $468,047 (4.4%) to $10,193,245
for the nine months ended September 30, 2022 as compared to $10,661,292 for the
nine months ended September 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.
Operating expenses
Selling and marketing expenses increased $314,354 (18.5%) and $609,654 (12.1%)
to $2,016,850 and $5,645,564 for the three and nine months ended September 30,
2022 as compared to $1,702,496 and $5,035,910 for the three and nine months
ended September 30, 2021. This increase is primarily due to increased travel and
entertainment expenses associated with attendance with trade shows and
conferences, increased commission expenses as a result of increased software
sales, which should benefit our professional consulting area in future months
plus outside sales expenses. This was partially offset by lower advertising
expenses and sponsorship fees received for our conferences that help offset the
costs.
General and administrative expenses decreased $6,845 (0.3%) to $2,244,622 for
the three months ended September 30, 2022 as compared to $2,251,467 for the
three months ended September 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, professional fees, license fees and credit
card charges, mostly offset by higher recruitment costs, outside services fees,
bad debt expense and excise taxes.
General and administrative expenses increased $177,082 (2.6%) to $6,956,744 for
the nine months ended September 30, 2022 as compared to $6,779,662 for the nine
months ended September 30, 2021. This increase is a result of several factors,
including an increase in state excise taxes, bad debt expense and dues and
subscriptions, such increases partially offset by lower rent expenses.
Share-based compensation decreased $4,693 to $44,185 for the three months ended
September 30, 2022 as compared to $48,878 for the three months ended September
30, 2021. Share-based compensation increased $37,265 to $136,075 for the nine
months ended September 30, 2022 as compared to $98,810 for the nine months ended
September 30, 2021. The increase is due to the issuance of stock options at the
end of March 2021.
Depreciation and amortization expense increased $13,757 and $103,629 to $240,522
and $738,893 for the three and nine months ended September 30, 2022 as compared
to $226,765 and $635,264 for the three and months ended September 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.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued).
(Loss) income from operations
As a result of the above, for the three months ended September 30, 2022, the
Company had a loss from operations of $117,610 as compared to a loss from
operations of $290,298 for the three months ended September 30, 2021. As a
result of the above, for the nine months ended September 30, 2022, the Company
had a loss from operations of $216,572 as compared to income from operations of
$406,879 for the nine months ended September 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.
At September 30, 2022, future payments of long-term debt are as follows:
Remainder of 2022 $ 80,136
2023 783,474
2024 360,093
2025 258,738
2026 52,190
Total $ 1,534,631
The Company's working capital was $2,930,651 at September 30, 2022 and cash on
hand at September 30, 2022 was $7,232,158.
During the nine months ended September 30, 2022, the Company had a net increase
in cash of $418,041. The Company's principal sources and uses of funds were as
follows:
Cash provided by operating activities:
Operating activities for the nine months ended September 30, 2022 provided cash
of $1,127,302 as compared to providing cash of $276,644 for the same period in
2021. This increase in cash provided by operating activities is primarily due to
the increase in deferred revenue, accounts payable and improvement from cash
from operations, excluding the non-cash items, such as depreciation,
amortization, share-based compensation and bad debt expense, offset partially by
the increases in accounts payable and deferred charges.
Cash used in investing activities:
Investing activities for the nine months ended September 30, 2022 used cash of
$188,741 as compared to using $264,832 cash for the same period in 2021,
primarily as a result of lower purchases of property and equipment.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued).
Liquidity and Capital Resources (continued)
Cash (used in) provided by financing activities:
Financing activities for the nine months ended September 30, 2022 used cash of
$520,520 as compared to providing cash in the amount of $645,008 for the same
period in 2021. The decrease in cash provided is attributed to the fact that the
Company received no proceeds from the sale of common stock for the nine months
ended September 30, 2022, whereas it 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 nine
months ended September 30, 2021. The cash received from the sale of stock was
offset mostly by the payment of a cash dividend in 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 nine months ended September 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 nine months ended September 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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