UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended:
or
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
(Address of principal executive offices)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 3, 2024, there were
SILVERSUN TECHNOLOGIES, INC.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION |
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Item 1. |
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Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 |
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31, 2024 |
December 31, 2023 |
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ASSETS |
(unaudited) |
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Current assets: |
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Cash and cash equivalents |
$ | $ | ||||||
| Accounts receivable, net of allowance of $ March 31, 2024 and December 31, 2023, respectively |
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Unbilled services |
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Deferred charges |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Intangible assets, net |
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Goodwill |
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Deferred tax assets |
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Deposits and other assets |
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Total assets |
$ | $ | ||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
$ | $ | ||||||
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Accrued expenses |
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Accrued interest |
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Long-term debt – current portion |
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Finance lease obligations – current portion |
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Operating lease liabilities – current portion |
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Deferred revenue |
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Total current liabilities |
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Long-term debt net of current portion |
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Finance lease obligations net of current portion |
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Operating lease liabilities net of current portion |
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ equity: |
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| Preferred stock, $ Series A Preferred Stock, $ |
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| Common stock, $ and December 31, 2023, respectively |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended |
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March 31, 2024 |
March 31, 2023 |
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Revenues: |
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Software product, net |
$ | $ | ||||||
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Service and other, net |
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Total revenues, net |
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Cost of revenues: |
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Product |
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Service and other |
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Total cost of revenues |
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Gross profit |
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Selling, general and administrative expenses: |
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Selling and marketing expenses |
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General and administrative expenses |
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Share-based compensation expenses |
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Depreciation and amortization expenses |
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Total selling, general and administrative expenses |
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Income from operations |
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Other expense: |
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Interest expense, net |
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Total other expense |
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Income before taxes |
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Provision for income taxes |
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Net income |
$ | $ | ||||||
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Net income per common share – basic and fully diluted |
$ | $ | ||||||
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes to the unaudited condensed consolidated financial statements.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2024
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Series A Preferred Stock |
Series B Preferred Stock |
Common Stock Class A |
Additional Paid in |
Accumulated |
Total Stockholders’ |
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Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Equity |
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Balance at January 1, 2024 |
- | $ | - | - | $ | - | $ | $ | $ | ( |
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Net income |
- | - | - | - | - | - | - | |||||||||||||||||||||||||||||
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Balance at March 31, 2024 |
- | $ | - | - | $ | - | $ | $ | $ | ( |
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FOR THE THREE MONTHS ENDED MARCH 31, 2023
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Series A Preferred Stock |
Series B Preferred Stock |
Common Stock Class A |
Additional Paid in |
Accumulated |
Total Stockholders’ |
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Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Equity |
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Balance at January 1, 2023 |
- | $ | - | - | $ | - | $ | $ | $ | ( |
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Share-based compensation |
- | - | - | - | - | - | - | |||||||||||||||||||||||||||||
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Net income |
- | - | - | - | - | - | - | |||||||||||||||||||||||||||||
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Balance at March 31, 2023 |
- | $ | - | - | $ | - | $ | $ | $ | ( |
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See accompanying notes to the unaudited condensed consolidated financial statements.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended March 31, |
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2024 |
2023 |
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Cash flows from operating activities: |
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Net income |
$ | $ | ||||||
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Deferred income taxes |
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Depreciation and amortization |
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Amortization of intangibles |
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Amortization of right of use assets |
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Provision for bad debts |
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Share-based compensation |
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Changes in assets and liabilities: |
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Accounts receivable |
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Unbilled services |
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Deferred charges |
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Prepaid expenses and other current assets |
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Accounts payable |
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Accrued expenses |
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Accrued interest |
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Deferred revenues |
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Operating lease obligations |
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Net cash provided by (used in) operating activities |
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Cash flows used in investing activities: |
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Purchase of property and equipment |
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Net cash used in investing activities |
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Cash flows used in financing activities: |
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Payment of long-term debt |
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Payment of finance lease obligations |
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Net cash used in financing activities |
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Net increase (decrease) in cash |
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Cash, beginning of period |
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Cash, end of period |
$ | $ | ||||||
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Cash paid during period for: |
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Interest |
$ | $ | ||||||
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Income taxes |
$ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
For the three months ended March 31, 2024:
None.
For the three months ended March 31, 2023:
The Company entered into an operating lease for equipment with Digital Fortress, Inc. Accordingly, operating lease right of use assets and operating lease liabilities were recognized in the amount of $
The Company entered into an operating lease for equipment and space with Cologix USA, Inc. Accordingly, operating lease right of use assets and operating lease liabilities were recognized in the amount of $
See accompanying notes to the unaudited condensed consolidated financial statements.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS
SilverSun Technologies, Inc. (“SilverSun”) through our wholly owned subsidiaries SWK Technologies, Inc. (“SWK”), Secure Cloud Services, Inc. (“SCS”) and Critical Cyber Defense Corp. (“CCD”) (together with SWK, SCS and SilverSun, the “Company”) is 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-premises 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 time and billing, and various ERP enhancements. Our value-added services focus on consulting and professional services, specialized programming, training, and technical support. We have a dedicated network services practice that provides managed services, cybersecurity, application hosting, disaster recovery business continuity, cloud migration 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.
The Company is publicly traded and is listed and is traded on the NASDAQ Capital Market under the symbol “SSNT”.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2024, the results of operations for the three months ended March 31, 2024 and 2023 and cash flows for the three months ended March 31, 2024 and 2023. These results are not necessarily indicative of the results to be expected for the full year.
The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and consequently have been condensed and do not include all of the disclosures normally made in an Annual Report on Form 10-K. The December 31, 2023 consolidated balance sheet included herein was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K. Accordingly, the unaudited condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 14, 2024. The accompanying unaudited condensed consolidated financial statements include the accounts of SilverSun and its wholly owned subsidiaries. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. All significant inter-company transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
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 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.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounts Receivable and Allowance for Credit Losses
Accounts receivable consist primarily of invoices for maintenance and professional services. Full payment for software ordered by customers is primarily 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 for bad debt estimated by considering a number of factors, including the length of time the amounts are past due, the Company’s previous loss history and the customer’s current ability to pay its obligations. Accounts are written off against the allowance when deemed uncollectable. Recoveries of receivables previously written off are recorded as a reduction of bad debt expense when received. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 326-20-30-2, Financial Instruments – Credit Losses, requiring a reporting entity to use a pooled approach to estimate expected credit losses for financial assets with similar risk characteristics. If a financial asset does not share similar risk characteristics with other financial assets held by the reporting entity, the allowance for credit losses should be determined on an individual basis. Similar risk characteristics for trade receivables may include customer credit rating, trade receivable aging category (e.g., 30-90 days past due), industry, geographical location of the customer, product line, and other factors that may influence the likelihood of the customer not being able to pay for the goods or services. The Company utilizes this individual approach for its trade receivables and unbilled services as each customer does not share similar risks.
Trade receivables and unbilled services with customers are financial assets analyzed by the Company under the expected credit loss model. To measure expected credit losses, trade receivables are grouped based on shared risk characteristics (i.e., the relevant industry sector and customer's geographical location) and days past due (i.e., delinquency status), while considering the following, if appropriate:
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Customers in the same geographical location share similar risk characteristics associated with the macroeconomic environment of their region. |
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The expected credit loss rate is likely to increase as receivables move to older aging buckets. The Company used the following aging categories to estimate the risk of delinquency status: (i) 0 days past due; (ii) 1-30 days past due; (iii) 31-60 days past due; (iv) 61-90 days past due; and (v) over 90 days past due. |
Goodwill
Goodwill is the excess of acquisition cost of an acquired entity over the fair value of the identifiable net assets acquired. Goodwill is not amortized but tested for impairment annually or whenever indicators of impairment exist. These indicators may include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. The Company completed its impairment analysis as of March 31, 2024. No impairment losses were identified or recorded for the three months ended March 31, 2024 and 2023.
Capitalization of Proprietary Developed Software
Software development costs are accounted for in accordance with the ASC 985-20, Software — Costs of Software to be Sold, Leased or Marketed. Costs associated with the planning and designing phase of software development are expensed as incurred. Once technological feasibility has been determined, a portion of the costs incurred in development, including coding, testing and quality assurance, are capitalized until available for general release to clients, and subsequently reported at the lower of unamortized cost or net realizable value. Amortization is calculated on a solution-by-solution basis and is over the estimated economic life of the software. Amortization commences when a solution is available for general release to clients.
Business Combinations
We account for business combinations under the acquisition method of accounting. This method requires the recording of acquired assets and assumed liabilities at their acquisition date fair values. The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to business combinations are included prospectively beginning with the date of acquisition and transaction costs related to business combinations are recorded within general and administrative expenses.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Definite Lived Intangible Assets and Long-lived Assets
Purchased intangible assets are recorded at fair value using an independent valuation at the date of acquisition and are amortized over the useful lives of the asset using the straight-line amortization method.
The Company assesses potential impairment of its intangible assets and other long-lived assets when there is evidence that recent events or changes in circumstances have made recovery of an asset’s carrying value unlikely. Factors the Company considers important, which may cause impairment include, among others, significant changes in the manner of use of the acquired asset, negative industry or economic trends, and significant underperformance relative to historical or projected operating results. No impairment losses were identified or recorded for the three months ended March 31, 2024 and 2023, respectively.
Revenue Recognition
The Company has elected the significant financing component practical expedient in accordance with ASC 606, Revenue from Contracts with Customers. In determining the transaction price, the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
The Company determines revenue recognition through the following 5 steps:
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Identify the contract with a customer; |
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Identify the performance obligations in the contract; |
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Determine the transaction price; |
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Allocate the transaction price to the performance obligation in the contract; and |
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Recognize revenue when or as the entity satisfies a performance obligation |
Software product revenue is recognized when the product is delivered to the customer and the Company’s performance obligation is fulfilled.
Service revenue is recognized when professional consulting, maintenance or other ancillary services are provided to the customer. Most of our service revenue is based on time arrangements which require the client to pay based on the number of hours worked at agreed-upon rates. We recognize revenues for these arrangements based on hours incurred and contracted rates utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date. For all performance obligations related to contracts with a duration for less than one year, the Company has elected to apply the optional exemption provided in ASC Topic 606 and, therefore, is not required to disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially satisfied at the end of the reporting period.
With respect to professional, maintenance, and ancillary services revenue that are included in deferred revenue, these revenues are earned and recognized over the contractual or stated period, which generally ranges three to 12 months. Deferred revenue also includes deposits for future consulting, which are recognized when earned and billed to customer.
Maintenance and subscription revenue is recognized on a gross basis when the Company primarily acts as the principal in these transactions.
Maintenance and subscription revenue is recognized on a net basis when the Company primarily acts as an agent in a transaction.
Shipping and handling costs charged to customers are classified as revenue, and the shipping and handling costs incurred are included in cost of revenues.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition (Continued)
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For the Three Months Ending March 31, |
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2024 |
2023 |
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Software revenue |
$ | $ | ||||||
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Professional consulting |
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Maintenance revenue |
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Ancillary service revenue |
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Unbilled Services
The Company recognizes revenue on its professional services as those services are performed. Unbilled services (contract assets) represent the revenue recognized but not yet invoiced.
Deferred Revenues
Deferred revenues consist of maintenance on proprietary products (contract liabilities), customer telephone support services (contract liabilities) and deposits for future consulting services that will be earned as such services are performed over the contractual or stated period, which generally ranges from three to twelve months. As of March 31, 2024, there was $
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Deferred Maintenance and Support Services March 31, 2024 |
Deposits for Future Consulting March 31, 2024 |
Deferred Maintenance and Support Services December 31, 2023 |
Deposits for Future Consulting December 31, 2023 |
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Balance at beginning of period |
$ | $ | $ | $ | ||||||||||||
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Cash received |
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Revenue recognized |
( |
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Balance at end of period |
$ | $ | $ | $ | ||||||||||||
Deposits for future consulting increased as a result of our increase in customer deposits as a result of increase in business.
Commissions
Sales commissions relating to service revenues are considered incremental and recoverable costs of obtaining a project with our customer. These commissions are calculated based on estimated revenue to be generated over the life of the project. These costs are deferred and expensed as the service revenue is earned. Commission expense is included in selling and marketing expenses in the accompanying unaudited condensed consolidated statements of operations.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments at March 31, 2024 and December 31, 2023, as defined in ASC 852 “Financial Instruments”, does not differ materially, except for the items discussed below, from the aggregate carrying values of its financial instruments recorded in the accompanying unaudited condensed consolidated balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value.
The carrying amounts reported in the unaudited condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023 for cash, accounts receivable, and accounts payable approximate the fair value because of the immediate or short-term maturity of these financial instruments. For each reporting period we evaluate market conditions including available interest rates, credit spreads relative to our credit rating and liquidity in estimating the fair value of our debt. After considering such market conditions, we estimate that the fair value of debt approximates its carrying value.
Deferred Charges
The Company defers expenses until such time that the expense is consumed and charged to expense at that time. Deferred charges represent expenses related to the transactions contemplated by the A&R Investment Agreement (see Note 13), and these costs will be deferred until, and charged at, such time that the expenses are consumed and charged to expense, which, if the transactions contemplated by the A&R Investment Agreement are consummated, would be at the time such transactions are consummated.
Leases
The Company accounts for its leases in accordance with ASC 842, Leases. The Company leases office space, space for our data centers and equipment. The Company concludes on whether an arrangement is a lease at inception. This determination as to whether an arrangement contains a lease is based on an assessment as to whether a contract conveys the right to the Company to control the use of identified property, plant or equipment for period of time in exchange for consideration. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes these lease expenses on a straight-line basis over the lease term.
The Company has assessed its contracts and concluded that its leases consist of finance and operating leases. Operating leases are included in operating lease right-of-use (ROU) assets, current portion of operating lease liabilities, and operating lease liabilities in the Company’s unaudited condensed consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company determines an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate represents a significant judgment that is based on an analysis of the Company’s credit rating, country risk, treasury and corporate bond yields, as well as comparison to the Company’s borrowing rate on its most recent loan. The Company uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately.
The Company finances purchases of hardware and computer equipment through finance lease agreements. Finance lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations
The Company maintains its cash with various institutions, which exceed federally insured limits throughout the year. At March 31, 2024 and December 31, 2023, the Company had cash on deposit of $
As of March 31, 2024, no one customer represented more than 10% of the total accounts receivable and unbilled services. As of December 31, 2023, no one customer represented more than 10% of the total accounts receivable and unbilled services.
For the three months ended March 31, 2024 and 2023, the Company’s top ten customers accounted for
For the three months ended March 31, 2024 and 2023 purchases from one supplier through a “channel partner” agreement were approximately
As of March 31, 2024, a legal firm represented approximately
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable and cash. As of March 31, 2024, the Company believes it has no significant risk related to its concentration of credit risk related to accounts receivable.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets, generally
When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in the unaudited condensed consolidated statements of operations.
Income Taxes
The Company accounts for income taxes using the asset and liability method described in ASC 740, “Income Taxes”. Deferred tax assets arise from a variety of sources, the most significant being: a) tax losses that can be carried forward to be utilized against profits in future years; b) expenses recognized for financial reporting purposes but disallowed in the tax return until the associated cash flow occurs; and c) valuation changes of assets which need to be tax effected for book purposes but are deductible only when the valuation change is realized.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as net operating loss carryforwards. Based on ASU 2015-17, all deferred tax assets or liabilities are classified as long-term. Valuation allowances are established against deferred tax assets if it is more likely than not that the assets will not be realized. 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 tax rates or laws is recognized in operations in the period that includes the enactment date.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
The Company accounts for uncertainties in income taxes under ASC 740-10-50 which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 requires that the Company determine whether the benefits of its tax positions are more-likely-than-not of being sustained upon audit based on the technical merits of the tax position. The Company recognizes the impact of an uncertain income tax position taken on its income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority.
The Company has federal net operating loss (“NOL”) carryforwards which are subject to limitations under Section 382 of the Internal Revenue Code.
The Company files income tax returns in the U.S. federal and state jurisdictions. Tax years 2020 to 2023 remain open to examination for both the U.S. federal and state jurisdictions.
Despite the Company’s belief that its tax return positions are consistent with applicable tax laws, one or more positions may be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation. Interest and penalties related to income tax matters, if applicable, will be recognized as income tax expense. There were no liabilities for uncertain tax positions at March 31, 2024 and December 31, 2023.
Fair Value Measurement
The accounting standards define fair value and establish 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 as follows:
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.
The Company’s current financial assets and liabilities approximate fair value due to their short-term nature and include cash, accounts receivable, accounts payable, and accrued liabilities. The carrying value of longer-term leases and debt obligations approximate fair value as their stated interest rates approximate the rates currently available. The Company’s goodwill and intangibles are measured at fair-value using Level 3 inputs at acquisition, as discussed in Notes 6 and 11.
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation
Compensation expense related to share-based transactions, including employee stock options, is measured and recognized in the financial statements based on a determination of the fair value. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For employee stock options, the Company recognizes expense over the requisite service period on a straight-line basis (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.
Recent Authoritative Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for the annual period ending December 31, 2025. The Company is currently evaluating the timing and impacts of adoption of this ASU.
No recently issued accounting pronouncements had or are expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.
NOTE 3 – NET INCOME PER COMMON SHARE
The Company’s basic income per common share is based on net income 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 option and warrants to the extent they are dilutive.
|
Three Months Ended |
Three Months Ended |
|||||||
|
March 31, 2024 |
March 31, 2023 |
|||||||
|
Basic net income per share computation: |
||||||||
|
Net income |
$ | $ | ||||||
|
Weighted-average common shares outstanding |
||||||||
|
Basic net income per share |
$ | $ | ||||||
|
Diluted net income per share computation: |
||||||||
|
Net income per above |
$ | $ | ||||||
|
Weighted-average common shares outstanding |
||||||||
|
Total adjusted weighted-average shares |
||||||||
|
Diluted net income per share |
$ | $ | ||||||
|
Three Months Ended March 31, 2024 |
Three Months Ended March 31, 2023 |
|||||||
|
Stock options |
||||||||
|
Total potential dilutive securities not included in income per share |
||||||||
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 – ALLOWANCE FOR EXPECTED CREDIT LOSSES
Roll-forward of Allowance for Doubtful Accounts
|
March 31, 2024 |
December 31, 2023 |
|||||||
|
Balance at beginning of period |
$ | $ | ||||||
|
Current period provision for expected losses |
||||||||
|
Write-offs |
( |
) | ||||||
|
Balance at end of period |
$ | $ | ||||||
NOTE 5 – PROPERTY AND EQUIPMENT
|
March 31, 2024 |
December 31, 2023 |
|||||||
|
Leasehold improvements |
$ | $ | ||||||
|
Equipment, furniture, and fixtures |
||||||||
|
Less: Accumulated depreciation and amortization |
( |
) | ( |
) | ||||
|
Property and equipment, net |
$ | $ | ||||||
Depreciation and amortization expense related to these assets for the three months ended March 31, 2024 and 2023 were $
|
March 31, 2024 |
December 31, 2023 |
|||||||
|
Equipment, furniture, and fixtures |
$ | $ | ||||||
|
Less: Accumulated amortization |
( |
) | ( |
) | ||||
|
Property and equipment, net |
$ | $ | ||||||
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – INTANGIBLE ASSETS
Intangible assets consist of proprietary developed software, intellectual property, customer lists and acquired contracts carried at cost less accumulated amortization and customer lists acquired at fair value less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives.
On November 13, 2023, SWK acquired certain assets of JCS pursuant to an Asset Purchase Agreement for cash of $
|
March 31, 2024 |
December 31, 2023 |
Estimated Useful Lives |
|||||||||
|
Proprietary developed software |
$ | $ | |||||||||
|
Intellectual property, customer list, and acquired contracts |
|||||||||||
|
Total intangible assets |
|||||||||||
|
Less: accumulated amortization |
( |
) | ( |
) | |||||||
| $ | $ | ||||||||||
Amortization expense related to the above intangible assets for the three months ended March 31, 2024 and 2023 was $
|
Amortization |
||||
|
Remainder of 2024 |
$ | |||
|
2025 |
||||
|
2026 |
||||
|
2027 |
||||
|
2028 |
||||
|
Thereafter |
||||
|
Total |
$ | |||
NOTE 7 – LONG-TERM DEBT
On December 1, 2020, SWK acquired certain assets of Business Software Solutions (“BSS”) pursuant to an Asset Purchase Agreement for a promissory note in the aggregate principal amount of $
On April 1, 2021, SWK acquired certain assets of CT-Solution, Inc. (“CTS”) pursuant to an Asset Purchase Agreement for a promissory note in the aggregate principal amount of $
On May 1, 2021, SWK acquired certain assets of PeopleSense, Inc. (“PSI”) pursuant to an Asset Purchase Agreement for cash of $
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 – LONG-TERM DEBT (Continued)
On January 1, 2022, SWK acquired certain assets of DTS pursuant to an Asset Purchase Agreement for $
On January 19, 2022, SWK acquired the customer list of NEO3 pursuant to an Asset Purchase Agreement for the customer list for $
On November 13, 2023, SWK acquired certain assets of JCS pursuant to an Asset Purchase Agreement for cash of $
Total long-term debt balances at March 31, 2024 and December 31, 2023 were $
|
Remainder of 2024 |
$ | |||
|
2025 |
||||
|
2026 |
||||
|
Total |
$ |
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – FINANCE LEASE OBLIGATIONS
|
March 31, 2024 |
December 31, 2023 |
|||||||
|
Weighted average remaining lease term |
||||||||
|
March 31, 2024 |
||||
|
Remainder of 2024 |
$ | |||
|
2025 |
||||
|
2026 |
||||
|
2027 |
||||
|
Total minimum lease payments |
||||
|
Less amounts representing interest |
( |
) | ||
|
Present value of net minimum lease payments |
||||
|
Less current portion |
( |
) | ||
|
Long-term finance lease obligation |
$ | |||
NOTE 9 – OPERATING LEASE LIABILITY
The Company leases space in
On January 3, 2024, the Company extended its lease for its main office for
The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The asset and liability were valued using a weighted average interest rate of
|
March 31, 2024 |
December 31, 2023 |
|||||||
|
Weighted average remaining lease term |
||||||||
|
Remainder 2024 |
$ | |||
|
2025 |
||||
|
2026 |
||||
|
2027 |
||||
|
Total undiscounted future minimum lease payments |
||||
|
Less: Difference between undiscounted lease payments and discounted lease liabilities |
( |
) | ||
|
Total operating lease liabilities |
||||
|
Less current portion |
( |
) | ||
|
Long-term operating lease liabilities |
$ |
Total rent expense under operating leases for the three months ended March 31, 2024 and 2023 was $
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY
Stock Repurchase Program
On October 10, 2019, the Company’s Board of Directors authorized a new stock repurchase program, under which the Company may repurchase up to $
Issuance of Common Stock
In December 2023, the Company issued
Stock Options
The Company adopted the 2019 Equity and Incentive Plan (the “2019 Plan”) to order provide long-term incentives for employees and non-employees to contribute to the growth of the Company and attain specific performance goals.
The fair value of each option awarded is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of Common Stock. The expected life of the options granted represents the period of time from date of grant to expiration. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant.
There were no stock options granted for the three months ended March 31, 2024 and 2023.
|
Number of Options |
Average Exercise Price |
|||||||
|
Outstanding options at January 1, 2023 |
$ | |||||||
|
Options granted |
||||||||
|
Options exercised (1) |
||||||||
|
Options canceled/forfeited |
$ | |||||||
|
Outstanding options at December 31, 2023 |
$ | |||||||
|
Options granted |
||||||||
|
Options canceled/forfeited |
$ | |||||||
|
Outstanding options at March 31, 2024 |
$ | |||||||
|
| (1) | |
For the three months ended March 31, 2024, the Company recorded share-based compensation expense of $-
As of March 31, 2024 and December 31, 2023, there were no outstanding stock options and the unamortized compensation expense for stock options was $-
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 – BUSINESS COMBINATIONS
On November 13, 2023, SWK acquired certain assets of JCS pursuant to an Asset Purchase Agreement for cash of $
The Company expects its acquisitions to create synergies by combining operations and expanding geographic market share and product offerings.
|
2023 Purchase JCS |
||||
|
Cash consideration |
$ | |||
|
Note payable |
||||
|
Total purchase price |
$ | |||
|
Customer list |
$ | |||
|
Goodwill |
||||
|
Total assets acquired |
||||
|
Deferred revenue |
( |
) | ||
|
Net assets acquired |
$ | |||
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 – BUSINESS COMBINATIONS (Continued)
The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisitions of JCS Computer Resource Corporation (“JCS”) acquired November 13, 2023 occurred on January 1, 2023, 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 three months ended March 31, 2023 as if the acquisitions occurred on January 1, 2023.
| Pro Forma | Three Months Ended March 31, 2023 | |||
| Net revenues | $ | |||
| Cost of revenues | ||||
| Operating expenses | ||||
| Income before taxes | ||||
| Net income | $ | |||
| Basic and diluted income per common share | $ | |||
For the three months ended March 31, 2023, there is $
The Company’s unaudited condensed consolidated financial statements for the three months ended March 31, 2024 include the actual results of JCS, and, as such, no pro forma results are required.
NOTE 12 – INCOME TAXES
FASB ASC 740-10, “Accounting for Uncertainty in Income Taxes” (“ASC 740-10”) prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company does not have any unrecognized tax benefits.
The recognized deferred tax asset is based upon the expected utilization of its benefit from future taxable income. The Company has federal net operating loss (“NOL”) carryforwards of approximately $
The tax effect of temporary differences, primarily net operating loss carryforwards, asset reserves and depreciation, gave rise to the Company’s deferred tax asset. Deferred income taxes are recognized for the tax consequence of such temporary differences at the enacted tax rate expected to be in effect when the differences reverse. The Company had approximately $
For the three months ended March 31, 2024, the Company’s Federal and State provision requirements were calculated based on the estimated tax rate. For the three months ended March 31, 2024, the Company recorded a tax provision of $
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 – SUBSEQUENT EVENTS
Jacobs Private Equity II, LLC (“JPE”)
As previously disclosed on a Current Report on Form 8-K filed on December 4, 2023, on December 3, 2023, the Company entered into an Investment Agreement (the “Original Investment Agreement”), with JPE, a Delaware limited liability company, and the other investors party thereto (collectively with JPE, the “Investors”), providing for, among other things, an aggregate investment by the Investors of $
As previously disclosed on a Current Report on Form 8-K filed on April 15, 2024, on April 14, 2024, the Company entered into an Amended and Restated Investment Agreement (the “A&R Investment Agreement”) with JPE (on behalf of itself and on behalf of each of the other Investors) amending and restating the Original Investment Agreement.
Pursuant to the A&R Investment Agreement, among other amendments to the Original Investment Agreement, the Spin-Off will not occur, and the Company’s existing business will continue to be owned by the Company. The Company’s stockholders as of the date that is one day prior to the closing of the Equity Investment will be entitled to receive an aggregate cash dividend of $
As previously disclosed, prior to the closing of the Equity Investment, the Company will amend and restate its certificate of incorporation to, among other things, effect an
The descriptions of the A&R Investment Agreement and the related Exhibits contained herein are qualified in their entirety by reference to the A&R Investment Agreement and the Exhibits thereto, copies of which are filed as Exhibit 2.5 to this Quarterly Report on Form 10-Q and incorporated by reference herein.
April Voting and Support Agreement
On April 14, 2024, concurrently with the execution and delivery of the A&R Investment Agreement, Mark Meller, the Company’s chief executive officer, and certain of his affiliates, in their capacities as stockholders of the Company, entered into a voting and support agreement (the “April Voting and Support Agreement”) pursuant to which such stockholders have agreed, among other things, to vote in favor of the approval of the Equity Investment and the other transactions contemplated by the A&R Investment Agreement, the amendment to the Company’s certificate of incorporation contemplated by the A&R Investment Agreement, and any equity incentive plan proposed by JPE pursuant to the A&R Investment Agreement, and to take, and refrain from taking, certain other actions in connection with the transactions, in each case, on the terms set forth in the April Voting and Support Agreement.
Concurrently with the execution and delivery of the A&R Investment Agreement on April 14, 2024, Mr. Meller entered into an amended and restated letter agreement with the Company (the “A&R Meller Letter Agreement”) and an offer letter with the Company (the “Meller Offer Letter”). Pursuant to the A&R Meller Letter Agreement, the Amended and Restated Employment Agreement, dated as of February 4, 2016 by and between Mark Meller and the Company (the “Meller Employment Agreement”) will be terminated and liquidated as of immediately prior to the closing of the Equity Investment. Subject to certain conditions, upon termination of the Meller Employment Agreement the Company will pay a lump sum cash severance payment to Mark Meller in an amount up to $
SILVERSUN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 – SUBSEQUENT EVENT- JACOBS PRIVATE EQUITY II, LLC (“JPE”) (Continued)
the term. If Mr. Meller’s employment is terminated without “cause” (as defined in the Meller Offer Letter), then Mr. Meller will receive a lump sum cash payment, subject to the execution and non-revocation of a release of claims by Mr. Meller, equal to three times his average annual base salary over the prior five-year period, minus $100. The Meller Offer Letter also provides that Mr. Meller will be subject to restrictive covenants consisting of perpetual confidentiality and non-disparagement, as well as noncompetition and non-solicitation of employees and customers during employment and for the two years thereafter.
The descriptions of the April Voting and Support Agreement, the Meller Employment Agreement and the Meller Offer Letter and the related Exhibits contained herein are qualified in their entirety by reference to the April Voting and Support Agreement, the Meller Employment Agreement and the Meller Offer Letter and the Exhibits thereto, copies of which are filed as Exhibit 2.6, 10.1 and 10.2 to this Quarterly Report on Form 10-Q and incorporated by reference herein.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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, 2023, 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 recurring revenue, customer retention and on rapidly increasing the size of our installed customer base. The growth of our customer base is accomplished via our traditional sales and 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.
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:
Enterprise Resource Planning Software
Substantially all our initial sales of ERP financial accounting solutions consist of pre-packaged software and associated services to customers in the United States.
The Company resells ERP software published by Sage Software, including Sage Intacct, Acumatica and other providers for the financial accounting requirements of small- and medium-sized businesses focused on manufacturing, distribution, and professional services, and the delivery of related services from the sales of these products, including installation, implementation, support and training. The programs perform and support a wide variety of functions related to accounting, including financial reporting, accounts payable and accounts receivable, and inventory management.
We provide end-user technical support services through our support/help desk. Our product and technology consultants assist customers calling with questions about product features, functions, usability issues, and configurations. The support/help desk offers services in a variety of ways, including prepaid services, time and materials billed as utilized and annual support contracts. Customers can communicate with the support/help desk through e-mail, telephone, and fax channels. Standard support/help desk services are offered during normal business hours five (5) days per week.
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. The support/help desk offers services in a variety of ways, including prepaid services, time and materials billed as utilized and annual support contracts. Customers can communicate with the support/help desk through e-mail, telephone, and fax channels. Standard support/help desk services are offered during normal business hours five (5) days per week.
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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued).
Investing in the acquisition of other companies and proprietary business management solutions has been an important growth strategy for our Company, allowing us to rapidly expand into new geographic markets and create new and exciting profit centers. To date, we have completed a series of strategic ventures that have served to fundamentally strengthen our Company’s operating platform and materially expand our footprint to nearly every U.S. state. More specifically, over the past fifteen years, we have outright acquired select assets of or entered into revenue sharing agreements with Business Tech Solutions 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; Info Sys Management, Inc., Nellnube, Inc., Partners in Technology Inc., Prairie Technology Solutions Group, Inc., Computer Management Services, LLC, Business Software Solutions, PeopleSense, Inc., Dynamic Tech Services, Inc., NEO3, LLC, and more recently JCS Computer Resource Corporation.
Additionally, it is our intention to continue to increase our business by seeking additional opportunities through potential acquisitions, revenue sharing arrangements, partnerships or investments. Such acquisitions, revenue sharing arrangements, partnerships 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.
During the first three months of 2024, the Company continued to expand its customer base and growth trend which we believe will provide a basis for future growth.
Results of Operations for the Three Months Ended March 31, 2024 and 2023.
Our strategy is to grow our business through organic 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 people, product development, marketing, and sales capabilities, and we expect to continue to do so in the future. During the three months ended March 31, 2024 the Company continued to expand its customer base, which we believe provides a basis for future growth. Revenues increased 10% to $14.4 million for the three months ended March 31, 2024 as compared to $13.1 million for the corresponding period in 2023. Our Acumatica and Sage product revenue continues to grow, and we are excited about the opportunity for growth with our Sage Intacct product.
As previously disclosed on a Current Report on Form 8-K filed on December 4, 2023, on December 3, 2023, the Company entered into an Investment Agreement (the “Original Investment Agreement”), with JPE, a Delaware limited liability company, and the other investors party thereto (collectively with JPE, the “Investors”), providing for, among other things, an aggregate investment by the Investors of $1,000,000,000 in cash in the Company (collectively, the “Equity Investment”) and a spin-off of the Company’s existing business to its legacy stockholders (the “Spin-Off”).
On April 14, 2024, the Company entered into an Amended and Restated Investment Agreement (the “A&R Investment Agreement”) with JPE (on behalf of itself and on behalf of each of the other Investors) amending and restating the Original Investment Agreement.
Pursuant to the A&R Investment Agreement, among other amendments to the Original Investment Agreement, the Spin-Off will not occur, and the Company’s existing business will continue to be owned by the Company. The Company’s stockholders as of the date that is one day prior to the closing of the Equity Investment will be entitled to receive an aggregate cash dividend of $17,400,000 (amended from the aggregate cash dividend of $2,500,000 contemplated by the Original Investment Agreement), to be paid from proceeds received by the Company from the Equity Investment, and SilverSun’s existing operations will be retained. The other material terms of the other transactions contemplated by the Original Investment Agreement, including the Equity Investment, are not affected by the amendments contained in the A&R Investment Agreement. The transactions contemplated by the A&R Investment Agreement, which have been approved by the Company’s board of directors, are subject to approval by the Company’s stockholders and other customary closing conditions.
As previously disclosed, prior to the closing of the Equity Investment, the Company will amend and restate its certificate of incorporation to, among other things, effect an 8:1 reverse stock split with respect to the Company’s common stock. In addition, certain board designation rights of JPE that were contemplated to be included in the Original Investment Agreement will instead be included in amendments to the Company’s certificate of incorporation.
The descriptions of the A&R Investment Agreement and the related Exhibits contained herein are qualified in their entirety by reference to the A&R Investment Agreement and the Exhibits thereto, copies of which are filed as Exhibit 2.5 to this Quarterly Report on Form 10-Q and incorporated by reference herein.
On April 18, 2024, the Company filed its Preliminary Proxy Statement with the SEC for the Special Meeting of shareholders.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued).
Results of Operations for the Three Months Ended March 31, 2024 and 2023 (Continued).
Revenues
For the three months ended March 31, 2024, revenues increased $1,307,817 (10.0%) to $14,435,555 as compared to $13,127,738 for the three months ended March 31, 2023. This increase is mostly attributed to an increase in professional consulting revenues as well as increases in software revenue and subscription income.
Software revenues increased $157,672 (4.7%) to $3,480,001 for the three months ended March 31, 2024 as compared to $3,322,329 for the three months ended March 31, 2023, primarily because of an increase in our ERP software sales, especially for Sage Intacct and Acumatica.
Service and other revenue increased $1,150,145 (11.7%) to $10,955,554 for the three months ended March 31, 2024 as compared to $9,805,409 for the three months ended March 31, 2023. This increase is mainly attributed to the increase in professional services, especially for our Acumatica, Sage 100, and Sage Intacct products, as well as an increase in revenue in our hosting services and increase in subscription income. Recruiting continues to be a difficult challenge, but our efforts to increase our consulting staff with additional resources, as well as system improvements, have yielded a positive result in our financial performance. We have also utilized some outside contractors to assist in projects because of our growth.
Gross profit
Gross profit for the three months ended March 31, 2024 increased $299,927 (5.6%) to $5,657,487 as compared to $5,357,560 for the three months ended March 31, 2023. For the three months ended March 31, 2024, the overall gross profit percentage was 39.2% as compared to 40.8% for the three months ended March 31, 2023.
The gross profit attributed to software revenues decreased $108,876 (7.8%) to $1,281,178 for the three months ended March 31, 2024 as compared to $1,390,054 for the three months ended March 31, 2023, due lower software revenues in Human Capital Management practice and lower margins on third party software that are incorporated into the vendors’ price list for which we get a lower margin. For the three months ended March 31, 2024, the gross profit percentage on software revenue was 36.8% as compared to 41.8% for the three months ended March 31, 2023.
The gross profit attributed to services and other increased $408,803 (10.3%) to $4,376,309 for the three months ended March 31, 2024 as compared to $3,967,506 for the three months ended March 31, 2023. This increase is attributed to revenue increases in managed services and application hosting as well as a n increase in subscription income. For the three months ended March 31, 2024, the gross profit percentage on service revenue was 39.9% as compared to 40.5% for the three months ended March 31, 2023.
Operating expenses
Selling and marketing expenses increased $166,713 (7.7%) to $2,345,416 for the three months ended March 31, 2024 as compared to $2,178,703 for the three months ended March 31, 2023. This increase is primarily due to increased salary increases, new personnel, as well as increased travel expenses associated with attendance at trade shows and conferences.
General and administrative expenses increased $283,878 (11.1%) to $2,843,906 for the three months ended March 31, 2024 as compared to $2,560,028 for the three months ended March 31, 2023. This increase in expenses for the three months ended March 31, 2024 is a result of salary increases and increases in employee benefits, such as medical and 401k match, as well as an increase in license fees.
Share-based compensation decreased to $-0- for the three months ended March 31, 2024 as compared to $41,497 for the three months ended March 31, 2023 as share-based compensation has been fully amortized.
Depreciation and amortization expense increased $32,684 (15.7%) to $240,479 for the three months ended March 31, 2024 as compared to $207,795 for the three months ended March 31, 2023. Higher amortization as a result of the JCS asset purchase was partially offset by lower depreciation as a result of certain assets being fully depreciated.
Income (loss) from operations
As a result of the above, for the three months ended March 31, 2024, the Company had net income from operations of $227,686 as compared to net income from operations of $369,537 for the three months ended March 31, 2023.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued).
Liquidity and Capital Resources
The uncertainty on the economy continues to create uncertainty for the Company in the coming months and quarters. While our Company has not been significantly impacted because 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 or decrease their technology spending. As such, we need to rely on our own limited resources to weather any economic downturn. 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, product additions 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 exploring potential acquisitions, product additions and investments, we continue to add new customers and increase sales to existing customers. Management also explores opportunities 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 March 31, 2024, future payments of promissory notes are as follows over each of the next four fiscal years:
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$ | 582,079 | ||
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2025 |
600,411 | |||
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2026 |
393,854 | |||
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Total |
$ | 1,576,344 |
The Company’s working capital was $555,974 at March 31, 2024 as compared to $273,762 at December 31, 2023 mostly due to an increase in deferred charges and unbilled services offset partially by an increase in deferred revenues.
During the three months ended March 31, 2024, the Company had a net increase in cash of $136,271. The Company’s principal sources and uses of funds were as follows:
Cash provided by (used) in operating activities:
Operating activities for the three months ended March 31, 2024 provided $365,512 of cash as compared to using $783,062 of cash for the same period in 2023. The increase in cash provided by operating activities is primarily due to the decrease in accounts receivable as well as increases in accounts payable and deferred revenues.
Cash used in investing activities:
Investing activities for the three months ended March 31, 2024 used cash of $60,524 as compared to using $4,979 of cash for the same period in 2023, primarily as a result of increase in the purchases of equipment.
Cash used in financing activities:
Financing activities for the three months ended March 31, 2024 used cash of $168,717 as compared to using cash in the amount of $344,813 for the same period in 2023. The decrease in cash used is a result of the lower payments of long-term debt.
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 recent economic uncertainty and its effects on the business in the coming quarters.
For the three months ended March 31, 2024, inflation has impacted the Company’s profitability, as it has resulted in increased costs necessary to recruit and retain personnel. The Company has returned marketing and trade show schedules, and the higher costs of travel and meals will also have a negative impact on the Company’s profitability.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued).
Off Balance Sheet Arrangements
During the three months ended March 31, 2024 and for fiscal 2023, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not hold any derivative instruments and do not engage in any hedging activities.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure and Control Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act. Based on the controls evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the date of their evaluation, our disclosure controls and procedures were effective to provide reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (b) such information is accumulated and communicated to our management, including our Chief Executive Officer and President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. To our knowledge, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company our subsidiaries, threatened against or affecting our Company, our common stock, our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors
We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 14, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of the Company’s equity securities during the quarter ended March 31, 2024.
Item 3. Defaults upon Senior Securities
There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Item 6. Exhibits
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2.1 |
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10.1 |
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10.2 |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
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Inline XBRL Instance Document |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
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SILVERSUN TECHNOLOGIES, INC. |
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Dated: May 7, 2024 |
By: |
/s/ Mark Meller |
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Mark Meller |
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Principal Executive Officer |
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Dated: May 7, 2024 |
By: |
/s/ Joseph P. Macaluso |
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Joseph P. Macaluso |
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Principal Financial Officer and Principal Accounting Officer |
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