Filing identity and period
The supplied filing is SilverSun Technologies, Inc. (OTCBB: SSNT), not QXO, Inc. It is a Form 10-Q for the quarter ended March 31, 2012. The filing describes a business software and IT consulting company that sells and supports Sage products and its MAPADOC EDI software. Financial statements are unaudited.
Financial results
Amounts are in U.S. dollars. Comparisons are with the three months ended March 31, 2011 unless otherwise noted.
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $2.909 million | $2.761 million |
| Gross profit / margin | $1.183 million / 40.7% | $1.202 million / 43.5% |
| Operating income (loss) | $(685,591) | $234,887 |
| Net income (loss) | $(708,191) | $465,653 |
| Operating cash flow | $(45,874) | $761,065 |
| Investing cash flow | $(78,782) | $(18,917) |
| Financing cash flow | $(9,114) | $(159,524) |
| Cash at quarter end | $99,952 | $686,968 |
Service revenue rose to $2.550 million from $1.886 million, while software product revenue fell to $359,000 from $875,000. Selling, general and administrative expense totaled $1.869 million, including $719,267 of share-based compensation, versus $967,167 a year earlier. Basic and diluted loss per share was $0.01; weighted-average shares were 110.8 million, compared with 4.6 million basic shares in Q1 2011.
Liquidity, liabilities, and capital changes
At March 31, 2012, current assets were $1.304 million and current liabilities were $2.485 million, indicating negative working capital of approximately $1.181 million. Total assets were $1.645 million; stockholders’ deficit was $840,000. Current liabilities included $1.177 million of accounts payable and accrued expenses, $1.209 million of deferred revenue, and a $20,000 related-party note. The related-party convertible note balance was $7,054 net of discount; capital lease obligations were $55,253.
The company reported no balance drawn on its asset-secured bank line, with $696,521 available under a facility capped at $750,000; the stated interest rate was 6% at quarter-end. Management said the company was in covenant compliance and believed liquidity was adequate for operating plans for at least 12 months. Cash declined $133,770 during the quarter.
Major equity transactions included conversion of the Series A preferred stock and convertible note into common shares, and acquisition of the remaining 20% interest in SWK Technologies in exchange for 22.7 million SilverSun shares. The filing reports 116.8 million Class A shares outstanding at March 31, versus 4.46 million at December 31, 2011; 116.9 million were outstanding as of May 14, 2012. Employee options relating to the CEO’s note conversion generated $719,267 of share-based compensation expense.
Changes, outlook, and risks
- Revenue increased 5.3%, but gross profit declined 1.6% and gross margin fell 2.8 percentage points. Management attributed revenue growth to consulting, network hardware sales, and service agreements, partly offset by lower software sales; some expected first-quarter sales were postponed to the second quarter or later.
- The company moved from operating and net income to losses, primarily reflecting the share-based compensation charge and the absence of the prior-year derivative revaluation gain. Operating cash flow also turned negative.
- Management described plans to grow through sales and marketing, new products and customers, and potential acquisitions, partnerships, or investments. It gave no quantified revenue or earnings guidance. Acquisitions and growth initiatives may require additional cash or equity.
- The filing identifies liquidity and funding needs as dependent on acquisitions, staffing, sales and marketing, technology, and competitive conditions. It reports no material off-balance-sheet arrangements, no material litigation, no material change to previously disclosed risk factors, and no default on indebtedness. Management reported effective disclosure controls and no material change in internal control over financial reporting.
- The company said it held no derivatives and conducted no hedging activities. Its bank facility is secured by substantially all company assets and personally guaranteed by the CEO.
Key facts for investors to verify
- Confirm the issuer: this filing is for SilverSun Technologies, Inc., not QXO, Inc.
- Review the substantial share-count increase and the terms, pricing, voting impact, and dilution associated with the note conversion, preferred conversion, employee options, and SWK share exchange. The Series B preferred share has special voting rights described in the filing.
- Assess liquidity in light of $99,952 of cash, negative working capital, cash use from operations, deferred revenue obligations, and dependence on the undrawn secured credit facility.
- Reconcile apparent filing inconsistencies: G&A is $615,946 in the statements but $615,996 in MD&A; the employee note conversion/share count differs between the note and MD&A; and the 2011 net-income figures vary between statements, per-share disclosures, and MD&A. The filing text does not provide a clear reconciliation.
- Consider that reported quarterly results may not indicate full-year performance, as the company cautions; verify subsequent results and whether postponed sales materialized.