Business context and reporting period
The supplied filing is SilverSun Technologies, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2011—not a filing identified as QXO, Inc. or a 2011 Q3 QXO report. Confirm the issuer and filing before relying on this summary. SilverSun sells and supports Sage business software, its MAPADOC EDI product, and related consulting, programming, and network services.
Financial performance and condition
| Metric | Q3 2011 / September 30, 2011 | Comparable period / change |
|---|---|---|
| Revenue | $2.372 million | Q3 2010: $1.908 million, up 24.3%. Nine-month revenue was $7.825 million, up 41.7% from $5.524 million. |
| Gross profit and margin | $1.011 million; 42.6% | Q3 2010: $0.833 million; 43.7%. Nine-month margin rose to 43.2% from 38.1%. |
| Operating income (loss) | $10,643 | Q3 2010: loss of $107,686. Nine-month 2011 operating income was $329,678 versus a $615,521 loss. |
| Net income attributable to SilverSun | Loss of $24,652 | Q3 2010: income of $733,921. Nine-month 2011 income was $2.706 million versus $405,608. |
| Cash flow, nine months | Operating cash flow $776,160; investing outflow $71,748; financing outflow $221,332; net cash increase $483,080 | Operating cash flow was an outflow of $112,837 in 2010. Cash at period end was $587,424, versus $104,344 at year-end 2010. |
| Liquidity and debt | Current assets $1.888 million; current liabilities $2.898 million; working capital deficit about $1.010 million | Stockholders’ deficit was $783,533. Current liabilities included $450,000 of promissory notes, $1.237 million of deferred revenue, and $73,233 of capital leases. |
Nine-month net income included a $2.229 million gain on extinguishment of debt and derivative liability, plus derivative valuation gains. These non-operating gains materially increased reported profit; operating income better reflects the period’s operating performance. Basic nine-month EPS was $0.60, while diluted EPS was $0.03, reflecting reported incremental common-stock equivalents of about 101.3 million shares.
Material changes and financing
- Revenue growth was attributed to marketing, competitive pricing, and investment in the Sage ERP X3 practice; consulting and software contributed notably. Management attributed the nine-month gross-margin improvement chiefly to a greater contribution from higher-margin consulting.
- In April 2011, the company paid YA Global $530,000 to settle all obligations, after earlier payments, and recorded debt and derivative extinguishment gains. The filing reports a $3.184 million reduction in liabilities during the year-to-date period.
- CEO Mark Meller forgave $1.339 million of amounts owed to him, recorded as contributed capital.
- Two April investor notes originally totaled $550,000, were secured by company assets, and bore 7% interest. Their due date was extended; the $450,000 balance and accrued interest were paid November 4, 2011 using a new bank line and operating cash.
- After quarter-end, the company obtained a three-year, accounts-receivable-based bank line with maximum availability of $750,000, secured by substantially all assets and guaranteed by the CEO. The filing describes fees and an interest rate of Prime plus 2.75% and says the line was used to repay the investor notes.
- The CEO’s $51,000 convertible note could convert into 100.725 million Class A shares under its amended conversion terms. The company also issued preferred shares with voting and conversion provisions; potential dilution and voting control warrant review.
Outlook, risks, and controls
Management described plans to grow through new customers, existing-customer sales, product development, and possible acquisitions or investments; it provided no quantified guidance. Management cautioned that acquisitions and growth initiatives could require additional cash or equity. The filing states recurring operating losses and negative working capital raise substantial doubt about the company’s ability to continue as a going concern, and that continued operations, additional capital, or positive operating cash flow are important to asset recoverability. Management also reported that disclosure controls and procedures were not effective as of quarter-end. The filing reports no material litigation, no material change in previously disclosed risk factors, and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm that SilverSun Technologies—not QXO, Inc.—is the intended issuer and that the reporting period is September 30, 2011.
- Reconcile the quarter’s net-loss figures: the financial statements report a $14,141 consolidated net loss and a $24,652 loss attributable to SilverSun, while MD&A states a $13,753 loss.
- Assess the going-concern warning, the working-capital deficit, and the company’s reliance on the new secured credit line.
- Review the debt-extinguishment and derivative gains underlying reported nine-month profit, and the substantial potential dilution and voting rights attached to convertible and preferred securities.
- Check subsequent-event details, including the November 4 note repayment and actual borrowing, availability, and fees under the bank facility.