This quarterly report on Form 10-Q and other reports filed by SilverSunTechnologies, 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 andExchange Commission (the "SEC") contain or may contain forward-lookingstatements and information that are based upon beliefs of, and informationcurrently available to, the Company's management as well as estimates andassumptions made by Company's management. Readers are cautioned not to placeundue reliance on these forward-looking statements, which are only predictionsand speak only as of the date hereof. When used in the filings, the words"anticipate," "believe," "estimate," "expect," "future," "intend," "plan," orthe negative of these terms and similar expressions as they relate to theCompany or the Company's management identify forward-looking statements. Suchstatements reflect the current view of the Company with respect to future eventsand are subject to risks, uncertainties, assumptions, and other factors,including the risks contained in the "Risk Factors" section of the Company'sAnnual Report on Form 10-K for the fiscal year ended December 31, 2022, relatingto 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 theserisks or uncertainties materialize, or should the underlying assumptions proveincorrect, actual results may differ significantly from those anticipated,believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in theforward-looking statements are reasonable, the Company cannot guarantee futureresults, levels of activity, performance, or achievements. Except as required byapplicable law, including the securities laws of the United States, the Companydoes not intend to update any of the forward-looking statements to conform thesestatements to actual results.
Our unaudited condensed consolidated financial statements are prepared inaccordance 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 andassumptions upon which we rely are reasonable based upon information availableto us at the time that these estimates, judgments and assumptions are made.These estimates, judgments and assumptions can affect the reported amounts ofassets and liabilities as of the date of the unaudited condensed consolidatedfinancial statements as well as the reported amounts of revenues and expensesduring the periods presented. Our unaudited condensed consolidated financialstatements would be affected to the extent there are material differencesbetween these estimates and actual results. In many cases, the accountingtreatment of a particular transaction is specifically dictated by GAAP and doesnot require management's judgment in its application. There are also areas inwhich management's judgment in selecting any available alternative would notproduce a materially different result. The following discussion should be readin conjunction with our unaudited condensed consolidated financial statementsand notes thereto appearing elsewhere in this report.
Overview
The Company is engaged in providing transformational business managementapplications and technologies and professional consulting services to small andmedium size companies, primarily in the manufacturing, distribution and serviceindustries.
We are executing a multi-pronged business strategy centered on recurringrevenue, customer retention and on rapidly increasing the size of our installedcustomer base. The growth of our customer base is accomplished via ourtraditional marketing programs and acquisitions. After a customer is secured,our strategy is to up-sell and cross-sell, providing the customer with advancedtechnologies and third-party add-ons that help them digitally transform theirbusiness. These add-on products could include application hosting,cybersecurity, warehouse management, human capital management, paymentautomation, sales tax compliance or any number of other products or servicesthat we represent. Many of these incremental products and services are billed ona subscription basis, often paying monthly for the service, which increases ourmonthly recurring revenue ("MRR"). This strategy increases the average revenueper customer, which facilitates our continued growth, and reduces our cost ofcustomer acquisition, which enhances our profitability profile.
Our core strength is rooted in our ability to discover and identify the drivingforces of change that are affecting - or will affect - businesses in a widerange of industries. We invest valuable time and resources to fully understandhow technology is transforming the business management landscape and whatcurrent or emerging innovations are deserving of a clients' attention. Byleveraging this knowledge and foresight, our growing list of clients areempowered with the means to more effectively manage their businesses; tocapitalize on real-time insight drawn from their data resources; and tomaterially profit from enhanced operational functionality, process flexibilityand expedited process execution.
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Item 2. Management's Discussion and Analysis of Financial Condition and Resultsof Operations (Continued).
We are a business application, technology and consulting company providingstrategies and solutions to meet our clients' information, technology andbusiness management needs. Our services and technologies enable customers tomanage, protect and monetize their enterprise assets whether on-premise or inthe cloud. As a value-added reseller of business application software, we offersolutions 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 developmentstaff building software solutions for various ERP enhancements. Our value-addedservices 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, disasterrecovery, business continuity, cloud and other services. Our customers arenationwide, with concentrations in the New York/New Jersey metropolitan area,Arizona, Connecticut, Southern California, North Carolina, Washington, Oregonand 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 GoldDevelopment Partner. We believe we are among the largest Sage partners in NorthAmerica, with a sales and implementation presence complemented by a scalablesoftware development practice for customizations and enhancements. Due to thegrowing demand for cloud-based ERP solutions, we also have in our ERP portfolioAcumatica, a browser-based ERP solution that can be offered on premise, in thepublic cloud, or in a private cloud. We have recently added Sage Intacct, acloud-based solution for core financials to our offerings of cloud-basedsolutions. We develop and resell a variety of add-on solutions to all our ERPand 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 andprofessional services organization that manages the process as we move from thesales stage into implementation, go live, and production. We work inside ourcustomers' organizations to ensure all software and IT solutions are enhancingtheir business needs. A significant portion of our services revenue comes fromcontinuing to work with existing customers as their business needs change,upgrading from one version of software to another, or providing additionalsoftware solutions to help them manage their business and grow their revenue. Wehave a dedicated help desk team that fields hundreds of calls every week. Ourcustom 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, networkmaintenance and service upgrades designed to eliminate the IT concerns of ourcustomers. We are a Microsoft Solutions Provider. Our staff includes engineerswho maintain certifications from Microsoft and Sage Software. They are MicrosoftCertified Systems Engineers and Microsoft Certified Professionals, and theyprovide a host of services for our clients, including remote network monitoring,server implementation, support and assistance, operation and maintenance oflarge central systems, technical design of network infrastructure, technicaltroubleshooting for large scale problems, network and server security, andbackup, archiving, and storage of data from servers. There are numerouscompetitors, both larger and smaller, nationally and locally, with whom wecompete in this market.
Cybersecurity
We provide enterprise level security services to the mid-market. Ourcybersecurity-as-a-service offering includes a security operations center,incident response, cybersecurity assessments, and hacking simulations. Theservice is particularly well-suited for customers in compliance-driven andregulated 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 solutionthat allows applications to be available from a remote cloud infrastructure andto be accessed by users through the internet.
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Item 2. Management's Discussion and Analysis of Financial Condition and Resultsof Operations (Continued).
Investing in the acquisition of other companies and proprietary businessmanagement solutions has been an important growth strategy for our Company,allowing us to rapidly expand into new geographic markets and create new andexciting profit centers. To date, we have completed a series of strategicventures that have served to fundamentally strengthen our Company's operatingplatform and materially expand our footprint to nearly every U.S. state. Morespecifically, over the past fifteen years, we have outright acquired selectassets of or entered into revenue sharing agreements with Business TechSolutions Group, Inc.; Wolen Katz Associates; AMP-BEST Consulting, Inc.;IncorTech; Micro-Point, Inc.; HighTower, Inc.; Point Solutions, LLC; SGEN, LLC.,ESC, Inc., 2000 SOFT, Inc., Productive Tech Inc., The Macabe Associates, Oates &Co; Pinsight Technology, Inc.; Info Sys Management, Inc., Nellnube, Inc.,Partners in Technology Inc., Prairie Technology Solutions Group, Inc., ComputerManagement Services, LLC, Business Software Solutions, PeopleSense, Inc., andmore recently Dynamic Tech Services, Inc. and NEO3, LLC.
Additionally, it is our intention to continue to increase our business byseeking additional opportunities through potential acquisitions, revenue sharingarrangements, partnerships or investments. Such acquisitions, revenue sharingarrangements, partnerships or investments may consume cash reserves or requireadditional cash or equity. Our working capital and additional fundingrequirements will depend upon numerous factors, including: (i) strategicacquisitions 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.
During the first quarter of 2023, the Company continued to expand its customerbase and growth trend which we believe will provide a basis for future growth.
Results of Operations for the Three Months Ended March 31, 2023 and 2022.
Our strategy is to grow our business through organic growth of our softwareapplications, technology solutions and managed services, as well as expansionthrough acquisitions. We have established a national presence via our internalmarketing, sales programs, and acquisitions and now have ERP customersthroughout most of the United States. To remain competitive and continue togrow, we continue to invest resources in our people, product development,marketing, and sales capabilities, and we expect to continue to do so in thefuture. During the three months ended March 31, 2023 the Company continued toexpand its customer base, which we believe provides a basis for future growth.Revenues increased 19.1% to $13.1 million for the three months ended March 31,2023 as compared to $11.0 million for the corresponding period in 2022, despitethe current economic conditions, as we continue to grow our customer base.
The Company continues to monitor the Covid-19 situation as it pertains to thedisruption of our business, and that of some of our customers, and growth infuture quarters and will take steps, if necessary, to establish mitigationstrategies to try and minimize risk of any potential downturn for shareholdersas well the health, safety and wellbeing of its employees and customers. TheCompany's strategies are focused on assisting our customers in their digitaltransformation in this new environment. We believe the new "work from homeenvironment" (workforce of the future), coupled with the continued rise ofE-Commerce and security and compliance could help drive our future revenues.
For the three months ended March 31, 2023, inflation has impacted the Company'sprofitability, as it has resulted in increased costs necessary to recruit andretain personnel. As the Company returns back to its pre-Covid marketing andtrade show schedules, the higher costs of travel and meals will also have anegative impact on the Company's profitability.
On September 29, 2022, the Company entered into a definitive agreement and planof merger (the "Merger Agreement") with Rhodium Enterprises, Inc. ("Rhodium"),an industrial-scale digital asset technology company utilizing proprietarytechnologies to mine bitcoin (see Note 14 to Notes to Condensed ConsolidatedFinancial Statements).
The proposed business combination is expected to close in the first half of2023, subject to the receipt of any applicable regulatory approvals, theapproval of SilverSun's and Rhodium's respective stockholders, and othercustomary closing conditions.
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Item 2. Management's Discussion and Analysis of Financial Condition and Resultsof Operations (Continued).
Revenues
For the three months ended March 31, 2023, revenues increased $2,103,894 (19.1%)to $13,127,738 as compared to $11,023,844 for the three months ended March 31,2022. This increase is mostly attributed to an increase in professionalconsulting revenues as well as an increase in software revenue.
Software revenues increased $711,367 (27.2%) to $3,322,329 for the three monthsended March 31, 2023 as compared to $2,610,962 for the three months ended March31, 2022, primarily as a result of an increase in our ERP software sales,especially for Acumatica and Sage Intacct.
Service revenue increased $1,392,527 (16.6%) to $9,805,409 for the three monthsended March 31, 2023 as compared to $8,412,882 the three months ended March 31,2022. This increase is mainly attributed to the increase in professionalservices, especially for our Acumatica, Sage 100, Sage Intacct and Customproducts as well as an increase in our hosting services. Our efforts to increaseand train our internal consulting staff as well as system improvements hasyielded a positive result. We have also utilized some outside contractors toassist in projects because of our growth.
Gross profit
Gross profit for the three months ended March 31, 2023 increased $652,693(13.9%) to $5,357,560 as compared to $4,704,867 for the three months ended March31, 2022. For the three months ended March 31, 2023, the overall gross profitpercentage was 40.8% as compared to 42.7% for the three months ended March 31,2022.
The gross profit attributed to software revenues increased $303,671 (28.0%) to$1,390,054 for the three ended March 31, 2023 as compared to $1,086,383 for thethree months ended March 31, 2022, due mostly to the increased volume ofsoftware sold. For the three months ended March 31, 2023, the gross profitpercentage on software revenue was 41.8% as compared to 41.6% for the threemonths ended March 31, 2022.
The gross profit attributed to services increased $349,022 (9.6%) to $3,967,506for the three months ended March 31, 2023 as compared to $3,618,484 for thethree months ended March 31, 2022. This increase is attributed to revenueincreases in professional services and application hosting. This was partiallyoffset by lower gross profit for professional consulting. For the three monthsended March 31, 2023, the gross profit percentage on service revenue was 40.5%as compared to 43.0% for the three months ended March 31, 2022.
Operating expenses
Selling and marketing expenses increased $402,892 (22.7%) to $2,178,703 for thethree months ended March 31, 2023 as compared to $1,775,811 for the three monthsended March 31, 2022. This increase is primarily due to increased salaryincreases, new personnel, higher commissions to employees as a result of theincreased revenues as well as increased travel expenses associated withattendance at trade shows and conferences. This was partially offset by loweradvertising expenses and sponsorship fees received for our conferences that helpoffset the costs.
General and administrative expenses decreased $80,949 (3.1%) to $2,560,028 forthe three months ended March 31, 2023 as compared to $2,640,977 for the threemonths ended March 31, 2022. This decrease is a result of several factors,including a decrease in credit card fees, lower rent and supply expenses as wellas lower state excise taxes offset partially by salary increases and highertravel, bad debt and license expenses.
Share-based compensation decreased $4,448 to $41,497 for the three months endedMarch 31, 2023 as compared to $45,945 for the three months ended March 31, 2022.
Depreciation and amortization expense decreased $54,055 to $207,795 for thethree months ended March 31, 2023 as compared to $261,850 for the three andmonths ended March 31, 2022. This decrease is primarily due to the loweramortization of intangible assets as a result of certain intangible assets beingfully amortized.
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Item 2. Management's Discussion and Analysis of Financial Condition and Resultsof Operations (Continued).
Income (loss) income from operations
As a result of the above, for the three months ended March 31, 2023, the Companyhad net income from operations of $369,537 as compared to a loss from operationsof $19,716 for the three months ended March 31, 2022.
Liquidity and Capital Resources
The uncertainty on the economy continues to create uncertainty for the Companyin the coming months and quarters. While our Company has not been significantlyimpacted because of this uncertainty nor from the impact of Covid-19, thepotential negative impact on our business, in the future, is impossible todetermine at this point, although it is likely that we could suffer negativeconsequences as many companies go out of business or decrease their technologyspending. As such, we need to rely on our own limited resources to weather anyeconomic downturn. Management will continue to monitor developments, explorevarious cost-cutting measures, and explore other sources of funding, but thereis no guarantee we will be successful in doing so.
The Company currently has no line of credit or other credit facility with anylender.
We continue to review and look for additional operating income opportunitiesthrough potential acquisitions or investments. Such acquisitions or investmentsmay consume cash reserves or require additional cash or equity. Our workingcapital and additional funding requirements will depend upon numerous factors,including: (i) strategic acquisitions or investments; (ii) an increase tocurrent company personnel; (iii) the level of resources that we devote to salesand marketing capabilities; (iv) technological advances; and (v) the activitiesof competitors.
In addition to developing new products, obtaining new customers and increasingsales to existing customers, management plans to increase its business andprofitability by entering into collaboration agreements, buying assets, andacquiring companies in the business software and information technologyconsulting and other markets with solid revenue streams and established customerbases that generate positive cash flow.
At March 31, 2023, future payments of long-term and related party debt are asfollows:Remainder of 2023 $ 494,190 2024 360,091 2025 258,736 2026 52,188 Total $ 1,165,205
The Company's working capital was $3,361,829 at March 31, 2023 and cash on handat March 31, 2023 was $6,875,779.
During the three months ended March 31, 2023, the Company had a net decrease incash of $1,132,854. The Company's principal sources and uses of funds were asfollows:
Cash used in operating activities:
Operating activities for the three months ended March 31, 2023 used $783,062 ofcash as compared to using $8,246 of cash for the same period in 2022. Thisincrease in cash used in operating activities is primarily due to the decreasein accounts payable and accrued expenses and the increases in unbilled servicesand deferred charges, offset partially by the improvement in cash fromoperations, excluding the non-cash items, such as depreciation, amortization,share-based compensation and bad debt expense.
Cash used in investing activities:
Investing activities for the three months ended March 31, 2023 used cash of$4,979 as compared to using $180,548 cash for the same period in 2022, primarilyas a result of lower acquisition costs for new businesses and purchases ofproperty and equipment.
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Item 2. Management's Discussion and Analysis of Financial Condition and Resultsof Operations (Continued).
Liquidity and Capital Resources (Continued)
Cash used in financing activities:
Financing activities for the three months ended March 31, 2023 used cash of$344,813 as compared to using cash in the amount of $138,890 for the same periodin 2022. The increase in cash used is is because of the higher payments oflong-term debt associated with prior acquisitions.
The Company believes that as a result of the growth in business, and the fundson hand, it has adequate liquidity to fund its operating plans for at least thenext twelve months, provided, however, that the Company cannot currentlyquantify the uncertainty related to the recent pandemic and its effects on thebusiness in the coming quarters.
For the three months ended March 31, 2023, inflation has impacted the Company'sprofitability, as it has resulted in increased costs necessary to recruit andretain personnel. As the Company returns back to its pre-Covid marketing andtrade show schedules, the higher costs of travel and meals will also have anegative impact on the Company's profitability.
Off Balance Sheet Arrangements
During the three months ended March 31, 2023 or for fiscal 2022, we did notengage in any material off-balance sheet activities or have any relationships orarrangements with unconsolidated entities established for the purpose offacilitating off-balance sheet arrangements or other contractually narrow orlimited purposes. Further, we have not guaranteed any obligations ofunconsolidated entities nor do we have any commitment or intent to provideadditional funding to any such entities.
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