SilverSun Technologies, Inc. — FY 2012 Form 10-K
Filing identity note: The supplied filing is for SilverSun Technologies, Inc. (ticker SSNT), not QXO, Inc. It covers the fiscal year ended December 31, 2012, rather than a standalone 2012 fourth quarter.
Business context and reporting period
SilverSun resells and develops business software and provides IT consulting and support services, primarily to small and midsize companies. Its wholly owned operating subsidiary, SWK Technologies, sells Sage accounting and ERP products, the company’s MAPADOC EDI software, and related implementation, maintenance, and consulting services. In June 2012, SWK acquired selected HighTower assets and obligations; SilverSun also acquired Sage customer accounts from MicroPoint. In January 2012, SilverSun acquired the remaining 20% of SWK, making it wholly owned.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $13.179 million | $10.522 million |
| Gross profit / gross margin | $5.334 million / 40.5% | $4.498 million / 42.7% |
| Operating income (loss) | $(1.176) million | $0.260 million |
| Net income (loss) | $(1.235) million | $2.709 million |
| Cash provided by operating activities | $0.393 million | $0.906 million |
| Cash used in investing activities | $0.744 million | $0.041 million |
| Cash provided by (used in) financing activities | $0.122 million | $(0.736) million |
| Cash at year end | $4,483 | $233,722 |
- Revenue grew 25.3%, including approximately $1.145 million attributed to HighTower. Maintenance support revenue increased 89.2% to $3.641 million.
- Gross profit rose 18.6%, slower than revenue growth; management attributed the lower margin mainly to a greater proportion of lower-margin software sales and revenue-sharing arrangements with sellers of acquired customer accounts.
- The 2012 operating loss included $1.136 million of noncash share-based compensation. General and administrative expense also increased, including payroll and acquisition-related costs.
- FY 2011 net income included $2.229 million of gains from debt and derivative-liability extinguishment and a $0.362 million derivative revaluation gain. Their absence in 2012 contributed to the year-over-year net-income decline.
- Working capital was approximately negative $1.971 million at year end: current assets were $1.646 million versus current liabilities of $3.617 million. Current liabilities included $1.358 million of deferred revenue.
- The company had $178,633 outstanding on a receivables-based credit line, with reported availability of $571,367; the facility matures in October 2014, is secured by substantially all company assets, and is guaranteed by the CEO. Capital lease obligations were $88,829, and a related-party note payable was $20,000. The filing states the company was in compliance with its credit covenants.
Material changes, outlook, and risks
- HighTower added customers, products, and Midwest market access. The filing reports approximately $1.145 million of 2012 revenue from its operations; a note separately reports approximately $461,647 of net income contribution, while cautioning that the revenue was generated jointly with SWK personnel.
- Management said available credit and business growth were expected to provide adequate liquidity for operating plans for at least the next 12 months. It gave no quantified revenue or earnings guidance and described acquisitions, partnerships, and investments as continuing growth priorities.
- Operating cash generation fell year over year, receivables increased, and cash on hand was very low. The company said the operating-cash-flow decline reflected higher accounts receivable and lower deferred revenue, partly offset by higher payables and accrued liabilities.
- Risks include acquisition execution and funding needs, competition and pricing pressure, dependence on Sage and other suppliers, product defects or obsolescence, and reliance on key personnel. One supplier represented 47% of cost of revenue in 2012, versus 22% in 2011.
- Equity dilution and governance concentration merit attention: common shares outstanding rose from 4.46 million at year end 2011 to 116.95 million at year end 2012, including shares issued in debt conversion and the SWK share exchange. The CEO’s beneficial ownership calculation includes voting rights attached to one Series B preferred share. The filing reports 2.875 million stock options granted and 750,000 warrants issued during 2012.
- The company reported no material litigation and no material off-balance-sheet arrangements. Management concluded disclosure controls and internal control over financial reporting were effective; the independent auditor’s report did not express an opinion on internal controls. The audit committee did not meet in 2012 and had no member identified as a financial expert.
Key facts for investors to verify
- Confirm the issuer and period: this is SilverSun’s FY 2012 10-K, not a QXO filing or a Q4-only report.
- Review the full financial statements and notes for cash conversion, receivables and allowance adequacy, deferred-revenue obligations, and the company’s ability to manage its working-capital deficit.
- Reconcile the reported HighTower contribution figures and assess acquisition performance, integration costs, and any further acquisition funding needs.
- Examine share issuance, options, warrants, and the Series B preferred voting formula to assess dilution and effective voting control.
- Assess supplier concentration, credit-line collateral and guarantee terms, and related-party arrangements, including the CEO’s employment and change-of-control severance provisions.