Filing summary
Filing identity: The supplied filing is SilverSun Technologies, Inc. (10-Q, quarter ended March 31, 2017), not QXO, Inc. The summary below reflects the filing text; verify the issuer and filing before relying on it.
Business context and reporting period
SilverSun and its wholly owned subsidiary SWK Technologies resell and develop business and accounting software, provide consulting and professional services, and offer managed network and hosting services. The unaudited quarter is compared with the three months ended March 31, 2016. The company began trading on Nasdaq under SSNT on April 19, 2017, after previously trading on OTCQB.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Revenue | $8.003 million | $7.784 million; up 2.8% |
| Gross profit / margin | $3.387 million / 42.3% | $2.931 million / 37.7% |
| Operating income | $288,192 | $144,371 |
| Net income | $153,853 | $74,277 |
| Basic and diluted EPS | $0.03 | $0.02 |
| Operating cash flow | $133,517 | $68,807 |
| Cash, March 31 | $1.361 million | $1.621 million, December 31, 2016 |
| Total assets | $10.328 million | $10.659 million, December 31, 2016 |
| Total liabilities | $5.216 million | $5.689 million, December 31, 2016 |
Service revenue was $7.096 million, up 2.5%; software revenue was $907,000, up 5.4%. The filing attributes service growth to project consulting. Gross margin improvement primarily reflected higher service gross profit and service margin. SG&A totaled $3.099 million, versus $2.787 million; increases included sales and marketing, management payroll, and employee and director equity compensation.
Investing used $193,599, including $128,671 of software development costs and $64,928 of property and equipment purchases. Financing used $200,038, including dividends, debt repayments, lease payments, and contingent consideration. Cash declined by $260,120. Operating cash flow less reported investing outflows was negative $60,082.
At quarter-end, current assets were $4.670 million and current liabilities $4.743 million, implying negative working capital of approximately $73,000. Long-term debt was $717,109, capital lease obligations were $128,233, and contingent consideration was $203,891. The $1 million revolving credit facility had no borrowings. The company reported a $2.295 million deferred tax asset and approximately $6.296 million in federal net operating loss carryforwards, subject to Section 382 limitations.
Changes, outlook, and risks
- Revenue increased modestly, while gross profit, operating income, and net income rose substantially versus Q1 2016. Management cited improved service margins and project consulting activity.
- Management said it believed available cash, business growth, and the unused credit line would provide adequate liquidity for operating plans for at least 12 months. It is pursuing acquisitions, investments, and collaborations, which could consume cash or require additional funding. No quantified earnings or revenue guidance was provided.
- The company paid a $0.02-per-share special dividend in January, totaling $89,566. A further $0.02-per-share dividend, totaling approximately $89,816, was announced after quarter-end and scheduled for payment May 10, 2017.
- Disclosure controls and procedures were deemed ineffective due to material weaknesses: insufficient accounting resources and segregation of duties, and ineffective management review of complex transactions. Management intended to strengthen controls and pursue an independent assessment.
- Other items to monitor include customer and supplier concentration (one supplier accounted for about 23% of cost of revenues and 39% of accounts payable), cash balances exceeding FDIC insurance limits, acquisition-related contingent consideration, and realization of deferred tax assets. The filing reported no material litigation, no material off-balance-sheet arrangements, and no material change in previously disclosed risk factors.
Most important facts to verify
- Confirm the issuer: the supplied 10-Q names SilverSun Technologies, Inc., not QXO, Inc.
- Check the reported margin expansion, particularly service gross margin (41.1% versus 36.3%), and whether it is sustainable.
- Assess liquidity and cash conversion given negative working capital, declining cash, and negative operating cash flow after investing outlays.
- Review debt, lease, contingent-consideration obligations, and the terms and guarantees supporting the unused credit facility.
- Evaluate remediation of the disclosed material weaknesses and the assumptions supporting deferred tax asset realization.