Business context and reporting period
This is SilverSun Technologies, Inc.’s Form 10-K for the fiscal year ended December 31, 2011—not a QXO, Inc. filing or a standalone fourth-quarter report. The company resells Sage accounting software, sells its proprietary MAPADOC EDI software, and provides consulting, support, and network services, principally to small and mid-sized businesses. It changed its name from Trey Resources in June 2011 and completed a 1-for-1,811 reverse stock split.
Financial results and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $10.52 million | $7.49 million |
| Gross profit | $4.50 million | $2.87 million |
| Gross margin | 42.7% | 38.4% |
| Operating income (loss) | $260,067 | ($937,117) |
| Net income (loss), consolidated | $2.71 million | ($568,505) |
| Net income (loss) attributable to SilverSun | $2.62 million | ($468,921) |
| Cash from operating activities | $905,906 | ($38,177) |
Revenue rose 40.5%, driven mainly by consulting services and software sales. Operating expenses increased to $4.24 million from $3.81 million. Net income included $2.23 million in reported gains on extinguishment of debt and derivative liability; it therefore substantially exceeded operating income and should not be treated as a measure of recurring earnings. The filing reports no income tax provision.
Cash and cash equivalents were $233,722 at year-end, versus $104,344 a year earlier. Investing activities used $40,653, financing activities used $735,875, and cash increased by $129,378. Current assets were $1.33 million against current liabilities of $2.42 million, implying negative working capital of approximately $1.10 million. Stockholders’ deficit was $899,645. The company had repaid its YA Global debentures and its $550,000 investor notes; year-end obligations included a $46,750 net related-party convertible note, $20,000 due on a related-party note, and $64,367 in capital leases.
A bank line of credit had a $750,000 maximum, with approximately $533,000 reported available at year-end, and no amount drawn. Its borrowing base depends on eligible receivables; substantially all company assets secure the facility, and the CEO personally guarantees it.
Material changes, outlook, and risks
- The company reduced reported liabilities by $3.71 million, including repayment of YA Global and forgiveness by CEO Mark Meller of $1.34 million owed to him. The forgiveness was recorded as a capital contribution, not operating income.
- Management said it was uncertain it could generate sufficient cash to sustain operations over the next 12 months and gave no assurance of profitability, adequate funding, or continued operation as a going concern. No quantified earnings or revenue guidance is provided.
- Management planned to pursue acquisitions and investments, which could require additional cash or equity. On March 26, 2012, the company signed a letter of intent to acquire HighTower, Inc. assets; definitive terms and closing remained pending.
- Key risks include limited liquidity and financing access, dependence on key personnel and vendor relationships, intense competition, changing product demand, customer concentration, and thinly traded penny-stock volatility. One supplier represented 58% of cost of revenue in 2011, compared with 23% in 2010; the top ten customers represented 31% of sales, versus 20%.
- The filing reports no material litigation or material off-balance-sheet arrangements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not audit or express an opinion on internal control effectiveness.
Important facts for investors to verify
- Confirm the filing identity and period: the document is SilverSun Technologies’ FY2011 10-K, despite the request metadata identifying QXO and “2011 Q4.”
- Reconcile financial figures: MD&A gives gross profit of $4,500,116 and operating income of $260,057, while the audited statements report $4,497,620 and $260,067. The filing also gives differing descriptions and amounts for the debt-extinguishment gain; the audited income statement reports a combined $2,228,939 gain.
- Assess recurring cash generation and near-term obligations in light of negative working capital, management’s going-concern uncertainty, and the receivables-based credit facility.
- Review dilution and voting control, including the convertible note, preferred-stock conversion and voting terms, warrants, and the stated share ownership. The filing contains differing ownership and preferred-voting figures that warrant reconciliation.
- Check subsequent events: Series A preferred shares converted into approximately 2.39 million Class A shares in January 2012, and the HighTower acquisition was only at letter-of-intent stage when the filing was signed.