QXO, Inc. annual report, FY2015

Filing identity and reporting period

The supplied filing is SilverSun Technologies, Inc.’s Form 10-K for the fiscal year ended December 31, 2015, filed March 30, 2016. It does not identify QXO, Inc.; the company name in the request metadata does not match the filing.

SilverSun provided ERP and accounting software, EDI products including MAPADOC, consulting and support, and managed IT services, primarily to small and midsize businesses.

Financial performance

Revenue grew 28.8%; software revenue rose 15.4% to $4.235 million and service revenue rose 31.5% to $23.407 million. Management reported organic revenue growth of 14.2%, excluding 2015 acquisitions. Gross margin declined 0.7 percentage points as the revenue mix changed. Operating expenses rose, including selling and marketing costs of $4.304 million and general and administrative costs of $5.636 million. Net income increased despite lower operating income, helped by $134,000 in other income from the Beerrun product sale and lower reported income tax expense.

Net cash decreased $115,024. Investing activities used $643,376, primarily for acquisitions and equipment; financing provided $401,693, including $812,023 net proceeds from a stock-and-warrant offering. The current ratio was approximately 0.88, based on current assets of $4.894 million and current liabilities of $5.569 million.

Debt, liquidity, and capital

At year-end, the balance sheet reported $1.093 million of long-term debt including current maturities, a $200,000 convertible note, $182,612 of capital lease obligations, and $400,647 of contingent acquisition consideration. The company had a $750,000 accounts-receivable-based credit line at 5.25% and reported covenant compliance and full availability at December 31, 2015. Management said liquidity was adequate for operating plans for at least 12 months. The bank facility had been renewed for one year after its July 2015 expiry; the filing does not clearly state its subsequent renewal status.

Material changes, outlook, and risks

• SilverSun completed four acquisitions in 2015: ATR, ProductiveTech, Macabe, and Oates. Acquisitions added revenue and expanded its customer base and geographic reach; acquisition-related amortization, costs, and obligations also increased.
• Management cited increasing sales of proprietary and cloud-based solutions and continued major Sage ERP X3 orders. It planned further growth through product development, managed services, partnerships, and acquisitions, but gave no quantified guidance.
• Significant risks include limited capitalization and possible need for additional financing, debt-service and refinancing exposure, intense competition and pricing pressure, reliance on skilled personnel and key executives, and execution and integration risks from acquisitions.
• Management concluded internal control over financial reporting was not effective, citing limited finance staffing, inadequate segregation of duties, and ineffective review of complex transactions. A remediation plan was underway, but completion was not assured. The auditor gave an unqualified opinion on the financial statements and did not opine on internal-control effectiveness.
• The filing reports a $7.385 million federal net operating loss carryforward, subject to Section 382 limitations. It also reports $895,727 of cash deposits above FDIC insurance limits and concentration with one supplier, which represented 33% of accounts payable at year-end.
• The filing’s tax disclosures are not fully consistent: the income statement records a $60,000 tax provision, while parts of the narrative describe a net tax benefit and the tax note reports a $200,000 valuation-allowance release. The filing does not provide a clear reconciliation of these descriptions.
• A $0.06-per-share special dividend, totaling $265,000, was paid in January 2016. A February 2016 CEO agreement extended employment through September 2023, set annual salary at $565,000 with 10% annual increases, and included substantial change-in-control severance provisions.
• The company reported no litigation believed likely to have a material adverse effect and no material off-balance-sheet arrangements.

Key facts for investors to verify

1. Confirm the intended issuer: this document is SilverSun Technologies’ 2015 Form 10-K, not a QXO, Inc. filing.
2. Review the audited statements and tax footnote to reconcile the tax provision, valuation-allowance release, and conflicting tax-benefit descriptions.
3. Check subsequent filings for renewal or replacement of the $750,000 credit line and the company’s liquidity and covenant position after year-end.
4. Assess operating cash-flow conversion, receivable and unbilled-service growth, and the adequacy of the increased bad-debt allowance.
5. Evaluate acquisition performance, contingent consideration, scheduled debt payments, and potential dilution from outstanding options, warrants, and the convertible note.
6. Track remediation of the reported material weaknesses in financial reporting controls.