Business context and reporting period
The supplied filing is SilverSun Technologies, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2016—not a filing identified as QXO, Inc. SilverSun, through SWK Technologies, resells and develops business software and provides consulting, IT, and managed-network services. Its results include the effects of four acquisitions completed in 2015.
Financial performance and position
| Metric | Q2 2016 | Six months 2016 | Comparison |
|---|---|---|---|
| Revenue | $8.56 million | $16.35 million | Up 44.4% and 31.7%, respectively |
| Gross profit / margin | $3.35 million / 39.1% | $6.28 million / 38.4% | Prior-year margins were 40.6% and 42.0% |
| Operating income | $485,400 | $629,770 | Prior year: $84,076 and $642,043 |
| Net income | $547,120 | $621,397 | Prior year: $44,601 and $565,768 |
| Basic and diluted EPS | $0.12 | $0.14 | Prior year: $0.01 and $0.13 |
| Operating cash flow | Not separately reported for quarter | $245,156 | Prior-year six-month amount: $232,917 |
Service revenue drove growth: it rose 47.2% in Q2 and 41.4% for the half year, while first-half product revenue fell 11.1%. Cash was $671,429 at June 30, down $521,884 from year-end. Current assets of $4.42 million were below current liabilities of $5.41 million. Total liabilities were $6.39 million; the balance sheet included $943,988 of long-term debt, $200,000 of convertible notes, and $198,901 of capital-lease obligations. No amount was drawn on the bank line at June 30.
Material changes and unusual items
- Revenue growth was attributed mainly to expanded sales activity and the 2015 acquisitions. Higher service revenue and implementation work supported gross-profit growth, but gross margin declined.
- First-half operating income decreased slightly despite higher revenue. Selling, G&A, and depreciation and amortization costs rose, including acquisition-related and personnel expenses.
- First-half net income included a $370,000 deferred-tax valuation-allowance release; the company reported a net tax benefit of $20,343. Management said first-half net income excluding the valuation-allowance benefit was down from the prior year.
- The company paid a $264,699 cash dividend during the first half, contributing to cash used in financing activities.
- After quarter-end, a July 21 revolving demand facility of up to $1 million was arranged at prime plus 0.95%, subject to a 4% floor, secured by SWK’s assets and personally guaranteed by CEO Mark Meller. The prior credit line was cancelled July 31.
- On July 28, CEO Mark Meller received the sole authorized Series B preferred share for $100 and as partial consideration for his guarantee. Its voting rights are structured to provide votes equivalent to the amount needed for 51% of total voting power, based on the stated formula.
Outlook, risks, and controls
Management provided no quantified revenue or earnings guidance. It said it intends to pursue acquisitions, investments, and collaboration opportunities, which may use cash or require additional financing or equity. Management believed available liquidity, including the then-existing credit line, was adequate for at least 12 months; the subsequent facility replaced that line. Key risks include acquisition integration and costs, competition and the need for profitable sales, realization of deferred tax assets, and customer and supplier concentration. One supplier accounted for 41% of accounts payable at June 30; one customer represented 11% of accounts receivable and unbilled services for the half year. The company reported disclosure controls were ineffective because of limited finance staff and ineffective management review of complex transactions; remediation was in process, with no assurance of success. No material litigation or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Confirm the issuer: the supplied filing names SilverSun Technologies, Inc. (OTCQB: SSNT), not QXO, Inc.
- Assess recurring operating performance separately from the $370,000 valuation-allowance release and other tax effects.
- Review the negative working-capital position, cash decline, debt and lease maturities, and terms and availability of the post-quarter $1 million demand facility.
- Evaluate the Series B share’s voting control implications and the CEO’s personal guarantee arrangements.
- Monitor remediation of the disclosed material weakness in disclosure controls and financial reporting.