Filing summary
Entity discrepancy: The request identifies QXO, Inc., but the supplied Form 10-Q is for SilverSun Technologies, Inc. (OTCBB: SSNT). This summary reflects the filing, not QXO. The reporting period ended June 30, 2012; the filing was signed August 14, 2012. Financial statements are unaudited.
Business context and results
SilverSun provides business software, IT consulting, implementation, programming, training, support, and network services. It resells and develops Sage software and publishes MAPADOC EDI software. In June 2012, its subsidiary acquired selected assets and obligations of HighTower, a Sage software reseller.
| Metric | Three months ended June 30, 2012 | Three months ended June 30, 2011 | Six months ended June 30, 2012 | Six months ended June 30, 2011 |
|---|---|---|---|---|
| Revenue | $3.071 million | $2.692 million | $5.980 million | $5.454 million |
| Gross profit | $1.297 million | $1.165 million | $2.481 million | $2.367 million |
| Gross margin | 42.2% | 43.3% | 41.5% | 43.4% |
| Operating income (loss) | $(0.320) million | $0.084 million | $(1.005) million | $0.319 million |
| Net income (loss) attributable to SilverSun | $(0.334) million | $2.291 million | $(1.042) million | $2.731 million |
Second-quarter revenue rose 14.1%; six-month revenue rose 9.7%. Management attributed growth principally to HighTower and higher consulting and service-agreement revenue, partially offset by lower software revenue and, in the quarter, a decline among existing customers. Gross profit increased, but margins contracted due to sales mix. Selling expense increased 32.0% for the quarter and 26.5% for the half year.
Cash flow, debt, and liquidity
- For the six months, operating cash flow was $(58,158), investing cash flow was $(558,359), and financing cash flow was $559,791. Cash declined $56,726 to $176,996.
- At June 30, cash was $176,996 and current assets were $1.532 million, versus current liabilities of $3.383 million, implying a working-capital deficit of approximately $1.851 million.
- The company had $579,824 outstanding on a receivables-based bank line, with $160,249 of availability under a $750,000 maximum. The rate was 6%; the facility matures in October 2014, is secured by substantially all company assets, and is guaranteed by the CEO. The company reported compliance with its covenants.
- Other reported current obligations included $63,790 of capital lease obligations, $20,000 of related-party notes, and $7,054 on a related-party convertible note. The convertible note was extended to January 2013; the related-party note was extended to January 2013.
Material changes, outlook, and risks
- HighTower consideration was $741,598: $441,964 cash and assumption of $299,634 in deferred-revenue obligations. Its preliminary purchase allocation was primarily to intangible assets; valuation remained subject to an independent valuation. The acquired operation contributed approximately $400,000 revenue and $190,000 net income in the quarter, with management cautioning that the result reflected combined HighTower and SWK personnel.
- Class A shares outstanding increased from 4,456,912 at year-end to 116,800,933 at June 30. Transactions included 86,793,693 shares issued on conversion of a related-party note, 2,385,650 shares on conversion of Series A preferred stock, and 22,664,678 shares to acquire the remaining 20% of SWK.
- Share-based compensation was $1.127 million for the first half, including approximately $719,000 related to employee conversions of note amounts and approximately $408,000 from employee options. These noncash charges materially affected reported earnings.
- Prior-year earnings included large gains on extinguishment of debt and derivative liabilities; therefore, year-over-year net-income comparisons are not indicative of underlying operating performance. No formal earnings guidance is provided. Management said it believed liquidity, business growth, acquisitions, and credit-line availability would fund operating plans for at least 12 months, while noting acquisitions and growth may require additional cash or equity.
- The filing reported no material litigation, no material change to previously disclosed risk factors, and no material off-balance-sheet arrangements. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is SilverSun Technologies, not QXO, Inc.
- Assess whether the working-capital deficit, low cash balance, and reliance on the secured credit line are consistent with the stated 12-month liquidity outlook.
- Review dilution and control implications of the substantial increase in common shares, the Series B preferred share’s voting rights, and the CEO’s guarantee of the credit facility.
- Track HighTower’s final purchase-price allocation, integration results, and whether its contribution is sustainable without relying on combined personnel.
- Reconcile cash-flow figures: the financial statements report operating, investing, and financing cash flows of $(58,158), $(558,359), and $559,791, respectively, while portions of MD&A cite different amounts.
- Consider the effect of noncash share-based compensation and prior-year debt-extinguishment gains when evaluating earnings trends and per-share results.