Filing summary
Entity mismatch: The request identifies QXO, Inc., but the supplied Form 10-Q is for SilverSun Technologies, Inc. (OTCQB: SSNT). This summary reflects the filing provided, for the quarter and nine months ended September 30, 2016; it should not be treated as a QXO filing summary.
Business context
SilverSun, through wholly owned SWK Technologies, resells and develops business software and provides ERP consulting, managed network, hosting, and related services. The filing attributes growth partly to increased business activity from four 2015 acquisitions. Financial statements are unaudited.
Financial results
| Metric | Three months ended Sep. 30, 2016 | Nine months ended Sep. 30, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $9.53 million | $25.88 million | $7.20 million quarter; $19.61 million nine months |
| Gross profit / margin | $3.55 million / 37.3% | $9.83 million / 38.0% | $2.91 million / 40.3% quarter; $8.12 million / 41.4% nine months |
| Operating income | $502,247 | $1.13 million | $48,348 quarter; $690,391 nine months |
| Net income | $2.75 million | $3.37 million | $16,464 quarter; $582,232 nine months |
| Operating cash flow | Not separately stated for quarter | $1.52 million | $(106,164) nine months |
Nine-month revenue grew 32.0%; service revenue rose 34.5% and product revenue 18.6%. Gross profit increased, but gross margin narrowed. Nine-month net income included a $2.56 million tax benefit from releasing part of the deferred-tax valuation allowance; excluding that release, management said net income still increased year over year. The filing reports diluted earnings per share of $0.61 for the quarter and $0.75 for nine months.
Liquidity, debt, and balance sheet
- At September 30, cash was $1.71 million, current assets $5.82 million, and current liabilities $5.61 million; working capital was approximately $210,000.
- Long-term debt was $868,775, plus a $200,000 convertible note due January 1, 2017 and capital lease obligations of $194,432. Contingent consideration totaled approximately $276,990.
- A new secured revolving demand facility provides up to $1 million at prime plus 0.95%, subject to a 4% floor; no amount was drawn at quarter-end. The company and CEO personally guaranteed it. The prior credit line was cancelled July 31, 2016.
- Nine-month cash increased $517,106 to $1.71 million. Investing used $309,872 and financing used $689,213; financing included a $264,699 cash dividend.
Outlook, risks, and unusual items
- Management said it believed liquidity was adequate for operating plans for at least 12 months and described plans to pursue acquisitions, investments, and growth in sales and services. No specific financial guidance was provided.
- The tax benefit depended on management’s assessment of future taxable income and use of net operating losses, which are subject to Section 382 limitations. Failure to win profitable contracts could impair realization of deferred tax assets.
- One supplier accounted for 24% of cost of revenues in both nine-month periods and 39% of accounts payable at September 30, 2016. Cash deposits exceeded FDIC insurance limits by approximately $1.17 million.
- Management concluded disclosure controls were ineffective because of limited finance staffing and ineffective review of complex transactions, and said remediation was underway. It could not assure remediation.
- A special dividend was paid in January. After quarter-end, the company signed a lease for a new East Hanover, New Jersey office beginning February 2017, with rent starting at $8,762 per month.
Key facts for investors to verify
- Confirm the intended issuer: the supplied filing is SilverSun Technologies, not QXO, Inc.
- Assess recurring earnings apart from the $2.56 million valuation-allowance release and evaluate assumptions supporting deferred tax assets.
- Review the gross-margin decline, acquisition contribution to growth, and operating cash-flow sustainability.
- Check the January 2017 convertible-note maturity, revolver terms and guarantees, and remaining acquisition-related contingent payments.
- Follow remediation of the disclosed material weakness and monitor supplier concentration and cash above insured limits.