QXO, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, This quarterly report on Form 10-Q and other reports filed by SilverSun Technologies, Inc. and its wholly owned subsidiaries, SWK Technologies, Inc., Secure Cloud Services, Inc., and Critical Cyber Defense Corp. (collectively the “Company”, “we”, “our”, and “us”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report. Overview We are a business application, technology and consulting company providing strategies and solutions to meet our clients’ information, technology and business management needs. Our services and technologies enable customers to manage, protect and monetize their enterprise assets whether on-premise or in the “Cloud”. As a value-added reseller of business application software, we offer solutions for accounting and business management, financial reporting, Enterprise Resource Planning (“ERP”), Human Capital Management (“HCM”), Warehouse Management Systems (“WMS”), Customer Relationship Management (“CRM”), and Business Intelligence (“BI”). Additionally, we have our own development staff building software solutions for various ERP enhancements. Our value-added services focus on consulting and professional services, specialized programming, training, and technical support. We have a dedicated Information Technology (“IT”) network services practice that provides managed services, cybersecurity, application hosting, disaster recovery, business continuity, cloud and other services. Our customers are nationwide, with concentrations in the New York/New Jersey metropolitan area, Arizona, Southern California, North Carolina, Washington, Oregon and Illinois. Our core business is divided into the following practice areas: ERP (Enterprise Resource Management) and Accounting Software We are a value-added reseller for a number of industry-leading ERP applications. We are a Sage Software Authorized Business Partner and Sage Certified Gold Development Partner. We believe we are among the largest Sage partners in North America, with a sales and implementation presence complemented by a scalable software development practice for customizations and enhancements. Due to the growing demand for cloud-based ERP solutions, we also have in our ERP portfolio Acumatica, a browser-based ERP solution that can be offered on premise, in the public cloud, or in a private cloud. We develop and resell a variety of add-on solutions to all our ERP and accounting packages that help customize the installation to our customers’ needs and streamline their operations. 24 Table of Contents Value-Added Services for ERP We go beyond simply reselling software packages; we have a consulting and professional services organization that manages the process as we move from the sales stage into implementation, go live, and production. We work inside our customers’ organizations to ensure all software and IT solutions are enhancing their business needs. A significant portion of our services revenue comes from continuing to work with existing customers as their business needs change, upgrading from one version of software to another, or providing additional software solutions to help them manage their business and grow their revenue. We have a dedicated help desk team that fields hundreds of calls every week. Our custom programming department builds specialized software packages as well as “off the shelf” enhancements and time and billing software. Network and Managed Services We provide comprehensive IT network and managed services designed to eliminate the IT concerns of our customers. Businesses can focus on their core strengths rather than technology issues. We adapt our solutions for virtually any type of business, from large national and international product and service providers, to small businesses with local customers. Our business continuity services provide automatic on-site and off-site backups, complete encryption, and automatic failure testing. We also provide cybersecurity, application hosting, IT consulting and managed network services. Our focus in the network and managed services practice is to focus on industry verticals in order to demonstrate our ability to better understand our customers’ needs. Results of Operations for the Three and Six Months Ended June 30 , 2020 and 2019. During the six months ended June 30, 2020 the Company continued to expand its customer base, which prior to Covid-19, we believed would provide a basis for future growth, as revenues increased 7% from the same six month period in the prior year. The Company will continue to monitor the Covid 19 situation as it pertains to the disruption of our business and growth in future quarters and will take steps to establish mitigation strategies in order to try and minimize risk of any potential downturn for shareholders as well the health, safety and wellbeing of its employees and customers. Revenues Revenues for the three months ended June 30, 2020 increased $553,527 (6.07%) to $9,672,945 as compared to $9,119,418 for the three months ended June 30, 2019. Revenues for the six months ended June 30, 2020 increased $1,325,736 (7.19%) to $19,752,468 as compared to $18,426,732 for the six months ended June 30, 2019.The increase can be attributed to both the increase in software sales and consulting revenue, as well as an increase in subscription revenue. Software sales increased $502,058 (35.24%) to $1,926,697 for the three months ended June 30, 2020 as compared to $1,424,639 for the three months ended June 30, 2019. For the six months ended June 30, 2019 software sales increased $664,952 (21.94%) to $3,695,867 from $3,030,915 for the same period in 2019. The increase is attributable to increased sales of third party solutions which add functionality to customer’s existing systems. Service revenue increased by $51,469 to $7,746,248 for the three months ended June 30, 2020 from $7,694,779 for the same period in 2019, which represents an overall increase of 0.67%. Service revenue increased by $660,784 to $16,056,601 for the six months ended June 30, 2020 from $15,395,817 for the same period in 2019, representing an overall increase of 4.29%. This increase is attributed to the increase in both consulting and subscription revenue. Gross Profit Gross profit for the three months ended June 30, 2020 increased $461,707 (13.28%) to $3,938,605 as compared to $3,476,898 for the three months ended June 30, 2019. For the three month period ended June 30, 2020, the overall gross profit percentage was 40.72% as compared to 38.13% for the period ended June 30, 2019. Gross profit for the six months ended June 30, 2020 increased $551,293 (7.62%) to $7,790,814 as compared to $7,239,521 for the six months ended June 30, 2019. For the six month period ended June 30, 2020, the overall gross profit percentage was 39.44% as compared to 39.29% for the period ended June 30, 2019. 25 Table of Contents The gross profit attributed to software sales increased $179,832, or 35%, to $693,532 for the three months ending June 30, 2020 versus $513,700 in the three months ending June 30, 2019, Gross profit attributed to software sales increased $109,784, or 8.97%, to $1,333,310 for the six months ending June 30, 2020 versus $1,223,526 in the six months ending June 30, 2019. This increase is attributed to the increase in software sales for the period. The gross profit attributed to services increased $281,875, or 9.51%, to $3,245,073 for the three months ending June 30, 2020 versus $2,963,198 for the three months ending June 30, 2019, while gross profit attributed to services increased $441,509, or 7.33%, to $6,457,504 for the six months ending June 30, 2020 versus $ 6,015,995 for the six months ending June 30, 2019. This increase is attributed to the increase in subscription revenue for the period. Operating Expenses Selling and marketing expenses increased $167,506 (10.70%) to $1,733,472 for the three months ending June 30, 2020 from $1,565,966 in the three months ending June 30, 2019. Selling and marketing expenses increased $366,379 (11.07%) to $3,674,795 for the six months ended June 30, 2020 compared to $3,308,416 for the six months ended June 30, 2019. This is due to increased variable compensation as a result of increased sales. General and administrative expenses decreased $96,347 (4.64%) to $1,981,248 for the three months ending June 30, 2020 from $2,077,595 in the three months ending June 30, 2019. General and administrative expenses decreased $24,982 (0.60%) to $4,107,389 for the six months ended June 30, 2020 as compared to $4,132,371 for the six months ended June 30, 2019. This is primarily as a result of decreases in travel expenses as a result of less employees traveling during the pandemic. Depreciation and amortization expense decreased $13,526 for the three months ended June 30, 2020 to $173,044 as compared to $186,570 for the three months ended June 30, 2019. Depreciation and amortization expense decreased $11,219 for the six months ended June 30, 2020 to $349,579 as compared to $360,798 for the six months ended June 30, 2019. This decrease is due to some equipment being fully depreciated in 2020. Income (l oss ) from Continuing operations For the three months ended June 30, 2020, the Company had income from continuing operations of $33,514 as compared to loss from continuing operations of $300,802 for the three months ended June 30, 2019. The increase is primarily due to increased revenue as well as less general and administrative expenses. For the six months ended June 30, 2020, the Company had a loss from continuing operations of $258,601 as compared to loss from continuing operations of $484,101 for the six months ended June 30, 2019. The decrease in loss is primarily due to increased revenue as well as less general and administrative expenses. Liquidity and Capital Resources The negative impact of Covid-19 on the economy creates tremendous uncertainty for the Company in the coming months and quarters. Recent government reports indicate that there are currently about 17 million people unemployed in the U.S., many of whom work at our customer’s businesses or businesses similar to our customers. The negative impact on our business is impossible to determine at this point, although it is likely that we will suffer negative consequences as many of these companies go out of business or decrease their technology spending. The current confusion in SBA guidance as to whether the Company, as a publicly-traded entity, was eligible to retain its PPP Loan, as well as the unavailability of other alternative sources of funding, means that we may need to rely on our own limited resources to weather the anticipated economic downturn., Our competitors, almost all of whom are privately-held, and able to avail themselves of the PPP program, will make it more difficult for the Company to compete in the marketplace. Management will continue to monitor developments, explore various cost-cutting measures, and explore other sources of funding, but there is no guarantee we will be successful in doing so. On July 31, 2020, the Company acquired certain assets of Prairie Technology Solutions Group, LLC (“PT”) pursuant to an Asset Purchase Agreement. In consideration for the acquired assets, the Company paid $185,000 in cash and three promissory notes, each in the principal of $103,333 (“PT Notes”) with an interest rate of 4% per annum. The notes mature July 2021, July 2022 and July 2023 respectively. The Company currently has no line of credit or other credit facility with any lender. 26 Table of Contents As of June 30, 2020, the Company has $960,483 notes outstanding from acquisitions occurring between 2014 and 2019. Future payments on these notes are as follows: Remainder of 2020 $ 178,962 2021 341,763 2022 293,380 2023 146,378 Total $ 960,483 During the six months ended June 30, 2020, the Company had a net decrease in cash of $1,799,371. The Company’s principal sources and uses of funds were as follows: Cash provided by (used in) operating activities of continuing operations Operating activities for the six months ended June 30, 2020 provided cash of $270,375 as compared to using cash of $1,364,291 for the same period in 2019. This increase in cash is primarily due an increase in collections of accounts receivable as well as a decrease in accounts payable. Cash provided by ( used in ) investing activities of continuing operations Investing activities for the six months ended June 30, 2020 provided cash of $496,142 as compared to using cash of $164,227 for the same period in 2019. This increase in cash is due to a decrease in software development costs as well as a decrease in acquisition of business costs as well as partial payment of the Escrow from the EDI sale in August 2019. Cash used in financing activities of continuing operations Financing activities for the six months ended June 30, 2020 used cash of $2,565,888 as compared to $557,042 for the same period in 2019. The use was due primarily to the payment of the cash dividend in January 2020. Cash flows from discontinued operations Operating activities for discontinued operations for the six months ended June 30, 2020 provided cash of $0 as compared to $806,189 for the same period in 2019. This is due to the fact that the EDI practice was sold in August 2019, providing six months of operating activities in 2019. Investing activities of discontinued operations for the six months ended June 30, 2020 used cash of $0 as compared to $93,826 for the same period in 2019. This was due to having no software being put into production in 2020 as a result of the EDI practice being sold in 2019. The Company believes that as a result of the growth in business, and the funds available from the sale of its Mapadoc division, it has adequate liquidity to fund its operating plans for at least the next twelve months, provided however, that the Company cannot currently quantify the uncertainty related to the recent pandemic and its effects on the business in the coming quarters. The belief that the Company has sufficient liquidity may be incorrect as the impact of Covid-19 becomes clearer over the coming months and quarters. There was no significant impact on the Company’s operations as a result of inflation for the six months ended June 30, 2020. Off Balance Sheet Arrangements During the six months ended June 30, 2020 or for fiscal 2019, we did not engage in any material off-balance sheet activities or have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities. 27 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk We do not hold any derivative instruments and do not engage in any hedging activities.