Business context and reporting period
Important entity discrepancy: The supplied filing is SilverSun Technologies, Inc.’s Form 10-Q, not a filing identified as QXO, Inc. It covers the unaudited quarter ended March 31, 2015, with comparisons to the quarter ended March 31, 2014.
SilverSun resells and develops business software and provides consulting, implementation, support, and managed IT services. During the quarter, it acquired selected assets of Accounting Technology Resources (ATR); its earlier acquisition of ESC was completed in May 2014.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $6.483 million | $4.925 million |
| Gross profit / margin | $2.800 million / 43.2% | $2.105 million / 42.7% |
| Operating income | $557,967 | $201,642 |
| Net income | $521,167 | $120,741 |
| Operating cash flow | $450,758 | $400,627 |
Software product revenue rose 126.7% to $1.383 million; service revenue rose 18.2% to $5.100 million. Reported basic and diluted earnings per share were $0.13, versus $0.03.
Cash and equivalents were $2.384 million at March 31, 2015. Current assets were $5.452 million and current liabilities $5.225 million, leaving working capital of approximately $227,000. Long-term debt, including its current portion, totaled $530,144; capital lease obligations totaled $112,683. The company reported $750,000 available under its revolving credit line, which was secured by substantially all company assets and guaranteed by the CEO. The line and a bank term loan were due to expire or mature July 31, 2015.
Cash increased $1.076 million during the quarter, including $812,023 of net proceeds from an equity offering. Investing cash use was $104,869, including $80,000 paid for ATR assets. Management said liquidity, including the credit line, was adequate for operating plans for at least the next 12 months.
Material changes, outlook, and risks
- Revenue increased 31.6% and gross profit increased 33% year over year. Management attributed growth to software sales, services, sales and marketing efforts, and acquired operations. Software gross margin improved to 54% from 46%; service gross margin declined to 40% from 42%.
- Net income included a $200,000 deferred tax benefit from reducing a valuation allowance. The company reported approximately $7.442 million in federal NOL carryforwards, subject to Section 382 limits. ATR consideration included $80,000 cash, a $175,000 note, and additional maintenance-renewal payments based on net margin.
- No quantified forward guidance was provided. Management cited continued growth opportunities, including proprietary cloud-based craft brewery solutions and Sage ERP X3 orders, and said it would pursue acquisitions, investments, and partnerships. Such plans may require cash or equity.
- Disclosure controls and procedures were deemed ineffective because of limited finance staff and ineffective management review of complex transactions. Management said remediation was underway but could not assure it would succeed.
- Concentration risks include the top ten customers representing 33% of quarterly revenue and one channel-partner supplier representing 42% of cost of revenues. Cash deposits exceeded FDIC-insured limits by approximately $1.877 million.
- The filing reported no material litigation, no defaults on indebtedness, and no material off-balance-sheet arrangements. It noted that results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Confirm that SilverSun Technologies, rather than QXO, is the intended issuer and filing.
- Resolve the MD&A discrepancy in operating income: it states $577,967 in one passage, while the income statement and other discussion report $557,967.
- Review the tax footnote: it describes a $200,000 valuation-allowance release in the tax table but also refers to a $560,000 reversal elsewhere.
- Check the status and refinancing or renewal of the credit line and bank term loan due July 31, 2015.
- Assess the impact of the equity offering, warrant issuance, acquisition earnout, and share dilution; reported shares outstanding were 4,331,252 as of May 5, 2015.