Filing summary
Entity and period: The supplied filing is SilverSun Technologies, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2017, not a filing for QXO, Inc. SilverSun provides ERP/accounting software, consulting, proprietary software, and managed network services. It began trading on Nasdaq under SSNT in April 2017.
Financial performance and position
| Metric | Three months ended June 30, 2017 | Six months ended June 30, 2017 |
|---|---|---|
| Revenue | $8.51 million, down 0.6% year over year | $16.51 million, up 1.0% |
| Gross profit / margin | $3.40 million / 40.0%, versus $3.35 million / 39.1% | $6.79 million / 41.1%, versus $6.28 million / 38.4% |
| Operating income | $192,112, versus $485,400 | $480,305, versus $629,770 |
| Net income | $120,493, versus $547,120; diluted EPS $0.03 versus $0.12 | $274,347, versus $621,397; diluted EPS $0.06 versus $0.14 |
For the six-month period, product revenue increased 14.5% to $2.34 million, while service revenue declined 0.9% to $14.17 million. Management attributed service timing weakness to implementation work not yet performed; deferred revenue rose to $2.12 million from $1.69 million at year-end. Selling and marketing and general and administrative expenses increased, primarily with greater sales activity and added management payroll.
Six-month operating cash flow was $788,214, versus $245,156 in the prior-year period. Investing used $449,913, including $294,617 of software development costs; financing used $420,299, including dividends and debt repayments. Cash declined $81,998 to $1.54 million. At June 30, current assets were $5.01 million and current liabilities $5.14 million (working capital deficit of approximately $127,000). No line-of-credit borrowings were outstanding; the facility provides up to $1 million. Long-term debt was $640,651, capital lease obligations $151,559, and contingent consideration $175,558.
Management stated it believed liquidity, including the available credit line, was adequate for operating plans for at least the next 12 months. No quantitative revenue or earnings guidance was provided.
Material changes, outlook, and risks
- Revenue growth was modest, while operating and net income declined year over year in both the quarter and half year. Management cited increased payroll and related costs; gross margin improved over the six-month period.
- Management plans to pursue new products, customers, collaborations, asset purchases, and acquisitions. These plans may require cash or equity and could affect funding needs.
- Disclosure controls and procedures were deemed ineffective because of material weaknesses involving limited accounting resources, insufficient segregation of duties, and ineffective review of complex transactions. Management said it intended to add personnel and assess controls.
- Risks disclosed include the ability to win profitable contracts and realize deferred tax assets, a supplier/channel partner accounting for 22% of cost of revenues, and cash deposits exceeding FDIC-insured limits by approximately $1.23 million. Federal NOL carryforwards were approximately $6.30 million and are subject to Section 382 limitations.
- The company reported no material litigation, no material change to previously disclosed risk factors, and no material off-balance-sheet arrangements. It recorded no goodwill or intangible-asset impairment in the period.
Important facts for investors to verify
- Confirm the intended issuer: the request names QXO, Inc., but the filing identifies SilverSun Technologies, Inc. (SSNT).
- Review whether deferred service revenue converts to recognized revenue as implementation work is completed, and whether service revenue stabilizes.
- Track expense growth against revenue and gross-profit trends, particularly management payroll and sales and marketing costs.
- Assess liquidity, planned investment or acquisition spending, debt and contingent-consideration payments, and the availability and terms of the secured credit facility.
- Monitor remediation of the disclosed material weaknesses and the reliability of financial reporting controls.