Business context and reporting period
Important identity discrepancy: The supplied filing is SilverSun Technologies, Inc. (Nasdaq: SSNT), not QXO, Inc. It is a Form 10-Q for the quarter and six months ended June 30, 2018; the financial statements are unaudited. SilverSun sells and develops business software and provides consulting, hosting, and managed IT services. It acquired selected assets of Info Sys Management and Nellnube on May 31, 2018.
Financial performance and position
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 |
|---|---|---|
| Revenue | $9.68 million, up 13.8% | $18.99 million, up 15.0% |
| Gross profit / margin | $4.03 million / 41.6%, versus 40.0% | $7.97 million / 41.9%, versus 41.1% |
| Operating income | $32,327, versus $192,112 | $120,649, versus $480,305 |
| Net income | $17,218, versus $120,493 | $75,605, versus $274,347 |
| Operating cash flow | Not presented separately for the quarter | $(209,893), versus $788,214 generated |
For the six-month period, service revenue rose 12.9% to $15.99 million and software revenue rose 28.2% to $3.00 million. Gross margin improved, but operating expenses increased 24.3% to $7.85 million, including higher sales and marketing costs and payroll, reducing operating income. Basic and diluted earnings per share were $0.00 for the quarter and $0.02 for the six months.
Cash was $1.15 million at June 30, down from $2.24 million at year-end. Current assets were $4.96 million and current liabilities $6.03 million, implying negative working capital of approximately $1.07 million. The company reported no bank-line borrowings and had a $1.0 million revolving facility available, secured by company assets and guaranteed by the CEO. Long-term debt, including current maturities, was $1.73 million; capital lease obligations totaled $268,752. The two acquisition notes added $1.40 million of debt and are convertible into common shares at $4.03 per share.
Material changes, outlook, and risks
- Operating cash flow swung from positive $788,214 in the prior-year half to a use of $209,893, largely reflecting lower accounts payable and higher receivables. Cash also funded investing outflows of $662,729, including acquisition and software-development costs.
- Management attributed weaker operating and net income mainly to increased payroll and related expenses from added management and sales personnel. It said quarterly software sales were lower because certain expected transactions shifted into the following quarter; service growth reflected project timing and managed-services expansion.
- The May acquisitions had a combined stated purchase price of $1.70 million: $300,000 cash and $1.40 million in notes. Purchase-price allocations were preliminary, with independent valuation still pending. The filing’s pro forma results are not a forecast of future performance.
- Management said available liquidity, business growth, and the credit line were adequate to fund operations for at least twelve months. No numerical earnings or revenue guidance was provided. Management’s stated growth strategy includes acquisitions, investments, new products, and expansion of sales and marketing; these plans may require cash or equity.
- Risks include continued operating cash use, acquisition integration and valuation, possible dilution from convertible notes, and dependence on successful profitable contracts to realize deferred tax assets. Federal NOL carryforwards were approximately $6.85 million and are subject to Section 382 limitations. One supplier accounted for about 21% of cost of revenues in the first half.
- The company reported no material litigation, no material change to previously disclosed risk factors, and effective disclosure controls; it reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for SilverSun Technologies, Inc., not QXO, Inc.
- Review subsequent cash generation, working-capital needs, and access to the secured revolving credit facility.
- Verify final acquisition valuations, acquired-business contribution, integration progress, and performance versus pro forma information.
- Assess the conversion terms and potential dilution from the $1.0 million and $400,000 acquisition notes.
- Track whether expense growth moderates and whether reported revenue growth converts into operating profit and positive cash flow.