Supportsave Solutions (OTC BB:SSVE)

SUPPORTSAVE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2011 AND 2010 (UNAUDITED)

SUPPORTSAVE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED AUGUST 31, 2011 AND 2010 (UNAUDITED)

On June 27, 2011, Mr. Joseph Duryea, our former President, filed a complaint (the “Complaint”) against us in the United States District Court for the District of Nevada (Case No. 2:11-cv-01054-GMN CWH) alleging breach of contract, breach of the covenant of good faith and fair dealing, tortious breach of contract, and fraud (the “Litigation”) in relation to an employment agreement (the “Employment Agreement”) we entered into with him on January 15, 2010.

On September 15, 2011, we entered into a settlement agreement (the “Settlement Agreement”) with Mr. Duryea to resolve the above Litigation. Under the terms of the Settlement Agreement, we agreed to pay Mr. Duryea a total of $85,000 (the “Settlement Funds”). Of this total amount, we agreed to pay $45,000 upon execution of the Settlement Agreement and the remaining $40,000 shall be paid in four equal installments, payable on or before October 15, 2011, November 15, 2011, December 15, 2011 and January 15, 2012.

As demonstrated above and going forward, we will experience higher costs related to the compensation of our new management team and the build out and migration to our new 550 seat operation center in the Cybergate building in Cebu, Philippines. The new management team’s stock-based compensation awards are scheduled to continue through the end of the fiscal year, significantly increasing our salary and compensation expense in the near-term. In addition, our new facility was opened in early December 2010 and we experienced higher costs as we migrate to the facility. We believe the new management team and larger, more modern facility will position us to pursue new business contracts that are much larger than the typical and traditionally smaller BPO contracts we now have. Consequently, we anticipate the increased expense associated with the management team and facility will impair our profitability in the near-term and mid-term, but we also anticipate significant improvement in both overall revenues and profits in the long-term as these new contracts are secured and ramp up.

Added to the GeoSpecial list on October 20, 2009 @ $0.55

Catalyst: We're speculating that above average revenue growth would begin to translate into meaningful EPS numbers; Trend for business outsourcing will intensify. 
Peak performance: Reached a high of $1.35 January 10, 2010
Current Price: $0.69
 
Current road block:  Lack of investor awareness; Shares are quite illiquid; P/E is over 25; EPS has still has not broken out to a meaningful number, as we had hoped. (Quarterly EPS has never exceeded $0.01).

Removing from the GeoSpecial list and placed on the GeoSpecial on the radar list until EPS growth accelerates. 

Risky investors may want to follow this story.  On  February 8, 2010 we reported that Supportsave Solutions President purchased 50 thousand shares. We feel that there is an outside chance that SSVE becomes an acquisition target down the line, a similar route that competitors have taken in the recent past.

Liquidity seems in tact:

"Currently, our primary source of liquidity is cash flows provided by our operations. We will not require additional capital to execute our plan, unless we expand into additional facilities or grow through the acquisition of complementary businesses. Our current cash flows from operations are sufficient to meet our working capital requirements over the next 12 months."

Positive Development:

GeoSpecial Supportsave Solutions President purchases 50K shares.  We view this as a bullish sign, especially since the stock is trading near its 52 week high.

Supportsave Solutions is starting to pique our curiosity. While the company is not producing earth-shattering EPS numbers in an absolute sense, it has remained profitable throughout the global recession.  In fact, SSVE believes that the recession is spurring demand for its management outsourcing business:

"Our services are in great demand as small to mid-sized corporations across the globe look to reduce costs to withstand the economic downturn. Going forward we plan to cater to a wider segment of the market and expand our client base."

Furthermore, it appears that the SSVE is beginning to embark on an aggressive growth strategy:

• The Company understands its position: "To become more profitable and competitive, we have to attract more clients, sell our services and generate more revenues."
• Increase in advertising budget:  Larger cash flows have allowed SSVE to reposition the company to attract larger clients via a more vigorous marketing campaign.
• The company has issued impressive financial guidance which it stresses is still conservative:

^a EPS figures eliminate one time charges/gains as well as any tax benefits. A tax rate of 36% and first quarter pre-tax margins of 32% are applied.

^b SSVE did not provide EPS guidance.  The GeoTeam® used the company's first quarter pre-tax margins and outstanding share count to calculate an implied EPS figure.

Strong Financials Characteristics:

• Current Ratio: 9.93 to 1
• Strong cash position: $766 thousand in Cash representing 63% of total assets
• "GOING CONCERN" warning recently removed from financials
• No long-term debt
• No short-term notes
• 32% pre-tax margins

Shareholder Friendly Management:

• Shareholder letter stressing importance of saving money and enhancing shareholder growth.
• Management Confidence:
  
  • "We have repurchased 266,869 shares on the open market and will continue to do so at our discretion until we reach 500,000 shares. We truly believe the company's shares are very undervalued and will take advantage of buying opportunities."  
    
  • "We finance our operations through significant positive cash flows and not through the sale of stock. Our management team and directors have never sold a single share of stock or exercised a single option since inception and have no plans to do so for the foreseeable future. With our strong liquidity position we will not require additional capital to execute our plans for the future, unless we expand into additional facilities or grow through the acquisition of complementary businesses."

We still would like to interview SupportSave.  The company is tiny and certainly will carry a level of perceived risk with investors.  Furthermore, SSVE has not been able to break out of the $0.01 EPS range, a factor that does not support our implied EPS assumption based on company guidance.

The Company seems to have a conservative management philosophy as evidenced by its balance sheet structure--our view that it is maybe a little too conservative. If we gain confidence that SSVE guidance will lead to more substantial EPS figures, then the SSVE story may have legs.

We are actually excited to track SSVE and are coding it as a low tier GeoSpecial.