Filing summary
Entity and period: The supplied filing is SilverSun Technologies, Inc.’s Form 10-K for the fiscal year ended December 31, 2013, filed March 31, 2014. It is not identified in the filing as QXO, Inc. or as a quarterly filing; the requested company and period metadata do not match the document.
Business context and financial performance
SilverSun provides business software, IT consulting and managed services to small and midsize businesses, especially in manufacturing and distribution. It resells Sage software and develops proprietary products including MAPADOC EDI and cloud-based craft brewery solutions. Growth strategy includes acquisitions, partnerships and expansion of proprietary offerings.
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $17.40 million | $13.18 million |
| Gross profit / margin | $6.75 million / 38.8% | $5.33 million / 40.5% |
| Operating income (loss) | $258,604 | $(1.18) million |
| Net income (loss) | $322,548 | $(1.24) million |
| Cash from operations | $740,996 | $392,803 |
| Cash and equivalents at year-end | $762,892 | $4,483 |
| Total assets | $3.57 million | $2.80 million |
| Total liabilities | $3.97 million | $3.62 million |
Revenue rose 32.0%, driven by growth in maintenance agreements, software sales and Sage ERP X3 implementations. Service revenue was $13.98 million and software product revenue was $3.42 million in 2013. Gross profit increased 26.5%, but gross margin declined 1.7 percentage points, primarily because software sales, which carry lower margins, represented a larger share of sales. Selling and marketing expense rose 40.9% to $3.24 million as the company invested in sales staff, travel and trade shows.
Profitability improved substantially from 2012, when share-based compensation expense was $1.14 million, versus $17,616 in 2013. The 2013 net result also included a $120,000 deferred tax benefit from releasing part of the valuation allowance; the company reported no current income tax paid. Basic and diluted earnings per share were reported as $0.00, reflecting rounding.
Cash, debt and liquidity
Cash increased by $758,409 during 2013. Operating cash flow of $740,996 was supported in part by a $357,755 increase in deferred revenue. Investing activities used $30,364, and financing activities provided $47,777. Current liabilities of $3.82 million exceeded current assets of $2.54 million, a roughly $1.28 million working-capital deficit. Stockholders’ deficit was $399,839.
The company had a $750,000 accounts-receivable-based credit line, with no borrowings outstanding and $750,000 availability at year-end; the facility expires July 31, 2015, bears interest at prime plus 1.75% (reported as 5% at year-end), and is secured by substantially all company assets and guaranteed by the CEO. A separate two-year term loan had a $279,517 year-end balance, bears 8% interest, and requires monthly payments of $15,776. Capital lease obligations totaled $102,350. Management stated that cash, business growth and credit availability were sufficient for operating plans for at least the next 12 months.
Material changes, outlook and risks
- The 2012 HighTower asset acquisition contributed customers, products and geographic reach; the 2013 filing reports no new business acquisition cash outlay. Management continued to pursue acquisitions, partnerships and investments, which may require cash or equity.
- Management reported increasing craft brewery solution sales and new prospects, continued major Sage ERP X3 orders, and increased marketing investment. The filing gives no quantified earnings or revenue guidance.
- Key risks include fluctuating revenue and project timing, intense competition and price pressure, technology and product obsolescence or defects, dependence on Sage and other suppliers, and the ability to fund growth and retain key personnel. One supplier represented 31% of 2013 cost of revenue and 52% of year-end accounts payable.
- Top ten customers represented 19% of revenue in 2013; no single customer accounted for 10% or more. The company disclosed no litigation it believed could materially affect its financial position or results, and no material off-balance-sheet arrangements.
- Ownership and governance are highly concentrated: CEO Mark Meller held one Series B preferred share carrying voting rights described as 122.5 million votes, and the filing reports his beneficial ownership at 76.06% of total voting stock. The board held no meetings in 2013, the audit committee did not meet, and it had no member identified as a financial expert.
- The independent auditor gave an unqualified opinion on the financial statements, but was not engaged to audit internal control over financial reporting. Management stated that disclosure controls and internal controls were effective.
Important facts for investors to verify
- Confirm the issuer and reporting period: the document is SilverSun Technologies’ 2013 annual report, not a QXO, Inc. quarterly filing.
- Assess the quality and durability of the return to profitability, including the effect of the $120,000 tax benefit, 2012 share-based compensation and cash flow’s reliance on higher deferred revenue.
- Review the working-capital deficit, scheduled debt and lease payments, credit-line terms and collateral, and the CEO’s personal guarantee.
- Verify the voting-power and beneficial-ownership disclosures, including the Series B preferred voting formula and reported ownership percentages.
- Check supplier concentration, margin trends, acquisition-related performance and whether management’s stated growth and liquidity expectations were achieved after year-end.