Filing summary
Identity note: The supplied filing is SilverSun Technologies, Inc.’s Form 10-Q, not a QXO, Inc. filing. It covers the quarter ended March 31, 2016; the financial statements are unaudited.
Business context and reporting period
SilverSun and its wholly owned subsidiary SWK Technologies resell and develop business software and provide consulting, professional, and managed network services. The company reported that 2015 acquisitions contributed to current-quarter activity. Its shares traded on OTCQB under SSNT.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $7.784 million | $6.483 million |
| Gross profit / margin | $2.931 million / 37.7% | $2.800 million / 43.2% |
| Operating income | $144,371 | $557,967 |
| Net income | $74,277 | $521,167 |
| Diluted earnings per share | $0.02 | $0.13 |
| Operating cash flow | $68,807 | $450,758 |
- Revenue increased 20.1%. Service revenue rose 35.8% to $6.924 million, while software product revenue fell 37.8% to $860,442.
- Gross profit rose 4.7%, but gross margin declined to 37.7% from 43.2%. Operating expenses increased to $2.787 million from $2.242 million, contributing to lower operating income and net income.
- Cash and cash equivalents were $673,536 at March 31, down from $1.193 million at year-end 2015. Cash decreased $519,777 during the quarter. Investing used $191,734 and financing used $396,850, including a $264,699 cash dividend.
- Current assets were $4.273 million and current liabilities $5.266 million, implying negative working capital of approximately $993,000 and a current ratio of about 0.81.
- Long-term debt, including current maturities, totaled approximately $1.019 million; a $200,000 convertible note was also outstanding. Capital lease obligations totaled $158,110. The company reported no balance drawn on its $750,000 revolving credit line and said it was in covenant compliance.
Material changes, outlook, and risks
- Management attributed revenue growth primarily to the 2015 acquisitions and sales and marketing efforts. It said anticipated software orders were delayed into future quarters. Service gross margin fell to 36.3% from 40.3%; management cited project mix and larger implementations.
- Management said available credit and business growth should provide adequate liquidity for at least the next 12 months. It is pursuing potential acquisitions and investments, which could require cash or equity. No specific earnings or revenue guidance was provided.
- The company reported a material weakness in disclosure controls due to limited finance staff and ineffective management review of complex transactions. A remediation plan was underway, but management could not assure remediation.
- Risks include acquisition-related obligations and integration, customer and supplier concentration, and reliance on future taxable income to realize deferred tax assets. Approximately $6.835 million of $7.385 million in federal NOL carryforwards was reserved and subject to Section 382 limitations. Cash deposits exceeded FDIC insurance limits by approximately $376,721.
- Management reported no material litigation, no defaults on indebtedness, and no material changes to previously disclosed risk factors. It reported no material off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the issuer: this filing identifies SilverSun Technologies, Inc. (SSNT), not QXO, Inc.
- Assess whether service growth and acquisition contributions can offset declining software sales and lower gross margins.
- Review near-term cash needs, negative working capital, debt and acquisition-related contingent payments, and the credit line’s renewal terms and availability.
- Track remediation of the disclosed material weakness in disclosure controls.
- Evaluate the assumptions supporting deferred tax asset realization and the impact of NOL limitations.