Business Context and Reporting Period
This Form 8-K Current Report was filed by SilverSun Technologies, Inc. (SSNT) on January 5, 2022, covering events occurring on January 1, 2022. The filing details a strategic acquisition by SWK Technologies, Inc., a wholly-owned subsidiary of SilverSun, aimed at expanding its Acumatica Cloud Enterprise Resource Planning solutions business.
Key Financial Metrics and Transaction Details
The filing does not provide consolidated revenue, profit, cash flow, or margin data for the company. The financial specifics relate solely to the transaction structure:
- Total Purchase Price: $1,335,000
- Cash Consideration: $500,000
- Debt Instrument: $835,000 four-year promissory note at 3.25% annual interest.
- Consulting Compensation: $150,000 annual base salary plus up to $51,000 in performance-based incentives.
Material Changes and Transaction Mechanics
On January 1, 2022, SWK acquired assets from Dynamic Tech Services, Inc. (DTS) related to Acumatica solutions. A material feature of the deal is a contingent liability adjustment on the promissory note:
- Downward Adjustment Clause: The principal of the $835,000 note may be reduced if SWK loses subscription renewal revenue from DTS customers within one year of the effective date.
- Threshold: Adjustments trigger if renewals fall below 95% of the prior year's revenue from those customers.
- Cap on Reduction: The principal reduction is capped at $150,000, ensuring the note principal does not fall below $685,000.
- Payment Schedule: The first annual payment is due January 1, 2023, following the determination of any principal adjustment, followed by quarterly installments.
Outlook, Risks, and Management Commentary
Management has secured the transition of the acquired business through a one-year Consulting Agreement with DTS, led by Joseph Gress. Key terms and risks include:
- Retention Strategy: Mr. Gress will focus on subscription renewals and new sales, devoting all working time to the company.
- Termination Liability: If SWK terminates the agreement without cause, or the consultant leaves for good reason, SWK must pay the remaining base salary for the term.
- Restrictive Covenants: The agreement includes a four-year non-compete (North America/Caribbean) and a five-year non-solicitation provision.
- Risk: The primary financial risk is the potential loss of subscription revenue, which directly impacts the debt obligation and the success of the acquisition.
Investor Verification Checklist
- Verify the historical subscription renewal revenue of DTS customers to assess the baseline for the 95% retention threshold.
- Confirm the cash liquidity available to fund the $500,000 upfront payment and the $150,000 annual consulting salary.
- Monitor the first-year renewal rates of acquired customers to determine the final principal amount of the promissory note.
- Review the specific definitions of "good reason" for termination in the Consulting Agreement to understand potential severance liabilities.