Filing summary
Entity and period: The request identifies QXO, Inc., but the supplied filing is SilverSun Technologies, Inc. (OTCQB: SSNT), Form 10-Q for the quarter ended September 30, 2014. The figures below summarize the supplied filing, not a QXO filing. Financial statements are unaudited and presented in U.S. dollars.
Business context and financial results
SilverSun provides business-management software, consulting, managed IT services, and related support, principally to small and medium-sized businesses. Its growth strategy includes proprietary software development and acquisitions. In May 2014, its subsidiary SWK acquired certain assets of ESC Software.
| Metric | Three months ended Sept. 30, 2014 | Three months ended Sept. 30, 2013 | Nine months ended Sept. 30, 2014 | Nine months ended Sept. 30, 2013 |
|---|---|---|---|---|
| Revenue | $6.09 million | $4.37 million | $16.27 million | $12.29 million |
| Gross profit | $2.56 million | $1.63 million | $6.91 million | $4.87 million |
| Gross margin | 42.0% | 37.3% | 42.5% | 39.6% |
| Operating income (loss) | $467,506 | $(62,084) | $801,877 | $146,895 |
| Net income (loss) | $248,165 | $(82,219) | $428,796 | $95,496 |
| Net income per share, basic and diluted | $0.00 | $0.00 | $0.00 | $0.00 |
For the first nine months, service revenue was $13.36 million and product revenue was $2.90 million. Management attributed growth to software sales, Sage ERP X3 implementations, managed-services contracts, consulting, and the ESC acquisition. Higher consulting and managed-services revenue contributed to improved gross margins.
Cash flow, liquidity, and debt
- Cash flow, nine months: Operating activities provided $910,824, investing activities used $10,344, and financing activities used $213,599. Cash increased $686,881 to $1.45 million.
- Liquidity: Current assets were $4.03 million and current liabilities were $4.61 million, implying a working-capital deficit of about $572,000. The company reported $750,000 available under its revolving credit line at quarter-end and compliance with required covenants.
- Debt: Balance-sheet current and long-term debt totaled approximately $478,864; capital-lease obligations totaled approximately $71,142. The bank term loan was due July 2015. The $350,000 ESC acquisition note bears 2% interest, is due over 60 months, and had a $327,739 balance at quarter-end. The related-party note was paid in full in September.
- The credit line is secured by substantially all company assets and guaranteed by the CEO. The bank facility carries a $1,000 monthly monitoring fee; the term loan bears 8% interest.
Changes, outlook, and risks
- Nine-month revenue increased 32.4% and gross profit increased 41.8% year over year. Operating income rose to $801,877 from $146,895; net income rose to $428,796 from $95,496. Third-quarter results turned profitable compared with a year-earlier loss.
- Management said it expects adequate liquidity to fund operating plans for at least the next 12 months, citing business growth and available credit. It anticipated no significant liquidity impact from the ESC acquisition. No specific revenue or earnings guidance was provided.
- ESC contributed approximately $429,000 revenue and $9,000 net profit for the reported period since acquisition. Its purchase-price allocation was preliminary, subject to independent valuation; acquired intangible assets are generally amortized over five years.
- Management cited acquisition and investment plans as potential demands on cash or equity. It also identified competitive and operational uncertainties in forward-looking statements. No material litigation or material changes to previously disclosed risk factors were reported.
- Control weakness: Management concluded disclosure controls were not effective due to limited finance staff and ineffective management review of complex transactions. A remediation plan was underway, but the company gave no assurance it would be completed successfully.
- The 2014 income-tax effective rates were 44.3% for the quarter and 43.3% for nine months, higher than statutory rates due to nondeductible share-based compensation. The company was evaluating the impact and transition method for the new revenue standard, with adoption planned for January 1, 2017.
Important facts to verify
- Confirm the issuer: the supplied filing is for SilverSun Technologies, Inc., not QXO, Inc.
- Reconcile debt disclosures: the term-loan balance is stated as $151,125 in a note and $151,259 in MD&A; verify the correct amount and classification.
- Assess the material weakness in disclosure controls, remediation progress, and implications for reporting reliability.
- Review ESC’s final purchase-price allocation, ongoing contribution, and acquisition-related obligations and compensation.
- Consider the working-capital deficit, the July 2015 bank maturities, and whether management’s 12-month liquidity assessment remains supportable.
- Interpret reported $0.00 per-share earnings alongside the large share count and potential options and warrants excluded from diluted EPS.