Business context and reporting period
The supplied filing is SilverSun Technologies, Inc. (formerly Trey Resources, Inc.) Form 10-Q for the quarter ended June 30, 2011—not a QXO, Inc. filing. SilverSun provides Sage ERP software and related consulting, support, network services, and its MAPADOC EDI software. The financial statements are unaudited.
Financial performance and liquidity
- Revenue: Second-quarter revenue was $2.69 million, up 50.6% from $1.79 million; first-half revenue was $5.45 million, up 50.8% from $3.62 million. Management attributed growth chiefly to consulting and software sales, marketing, competitive pricing, and modestly improved economic conditions.
- Margins and operations: Second-quarter gross profit was $1.16 million, with a 43.3% gross margin versus 36.8%. First-half gross profit was $2.37 million and margin was 43.4% versus 35.2%. Operating income was $84,148 for Q2 and $319,035 for the first half, compared with operating losses of $312,550 and $507,835, respectively, in 2010.
- Net income: Q2 net income was $2.35 million ($2.29 million attributable to SilverSun); first-half net income was $2.82 million ($2.73 million attributable to SilverSun). The results included a $2.23 million gain from extinguishing debt and its derivative liability, plus derivative revaluation gains. Basic EPS was $0.52 for Q2 and $0.61 for the first half; diluted EPS was $0.02 and $0.03, respectively, reflecting substantial common-share equivalents.
- Cash flow: First-half operating cash flow was $596,625, versus an $18,545 use in 2010; investing used $29,562 and financing used $195,216. Cash increased $371,847 to $476,191. The filing reports no cash interest or income taxes paid during the period.
- Balance sheet and debt: At June 30, cash was $476,191 and current assets were $1.48 million, against current liabilities of $2.47 million—a working-capital deficit of about $989,000. Total assets were $1.68 million and stockholders’ deficit was $790,392. Current obligations included $500,000 of investor promissory notes, $15,000 of convertible debentures, $45,000 of related-party notes, and $21,250 carrying value on the CEO’s convertible note. The investor notes bear 7%, are secured by all company assets, and mature September 15, 2011.
Material changes and unusual items
- SilverSun paid YA Global $530,000 in April 2011 to settle its obligations, recording a $1.46 million debt-extinguishment gain and a $767,279 gain on extinguishing the related derivative liability. Management said liabilities declined $3.66 million during the first half.
- CEO Mark Meller forgave $1,338,967 of amounts owed to him, recorded as a capital contribution. He also held a $51,000 convertible note; following a conversion-ratio change, it could convert into 100,725,000 Class A shares.
- The company changed its name to SilverSun, completed a 1-for-1,811 reverse stock split, and amended its capital structure. Two Series A preferred shares carried approximately 55.4% of total voting power as described in the filing.
Outlook, risks, and controls
Management gave no quantified financial guidance. It plans to grow sales and pursue acquisitions, partnerships, or investments, but said it expects to need financing on an ongoing basis and is uncertain it can generate sufficient cash to sustain operations. The filing states that recurring operating losses and negative working capital raise substantial doubt about the company’s ability to continue as a going concern. Management also concluded disclosure controls and procedures were not effective; it reported no material change in internal control during the quarter. The company reported no material litigation and no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Confirm the issuer and filing identity: the supplied text is for SilverSun Technologies, not QXO, Inc.
- Review the September 15, 2011 maturity and repayment capacity for the secured $500,000 investor notes, along with the company’s working-capital shortfall and going-concern disclosure.
- Separate recurring operating performance from the debt and derivative gains that drove reported net income.
- Assess potential dilution and voting control, including the CEO note’s stated conversion into 100,725,000 shares and the Series A preferred voting rights.
- Consider the disclosed ineffective disclosure controls and the substantial difference between basic and diluted EPS.