UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____________ to _____________
ISSUER DIRECT CORPORATION | ||
(Exact name of registrant as specified in its charter) |
Delaware | 1-10185 | 26-1331503 | ||
(State or Other Jurisdiction | (Commission | (I.R.S. Employer | ||
of Incorporation) | File Number) | Identification No.) |
1 Glenwood Avenue, Suite 1001, Raleigh NC 27603
(Address of Principal Executive Office) (Zip Code)
(919) 481-4000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date 3,741,7523,765,975 shares of common stock were issued and outstanding as of October 29, 2020.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.001 | ISDR | NYSE American |
TABLE OF CONTENTS
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Table of Contents |
PART I –- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCEBALANCE SHEETS
(in thousands, except share and per share amounts)
September 30, | December 31, | |
2020 | 2019 | |
ASSETS | (unaudited) | |
Current assets: | ||
Cash and cash equivalents | $18,429 | $15,766 |
Accounts receivable (net of allowance for doubtful accounts of $617 and $700, respectively) | 2,445 | 2,051 |
Income tax receivable | — | 48 |
Other current assets | 220 | 141 |
Total current assets | 21,094 | 18,006 |
Capitalized software (net of accumulated amortization of $2,616 and $2,153, respectively) | 671 | 1,134 |
Fixed assets (net of accumulated amortization of $278 and $181, respectively) | 817 | 899 |
Right-of-use asset – leases | 1,904 | 2,127 |
Deferred tax asset | 262 | 256 |
Other long-term assets | 76 | 77 |
Goodwill | 6,376 | 6,376 |
Intangible assets (net of accumulated amortization of $5,429 and $4,937, respectively) | 3,023 | 3,515 |
Total assets | $34,223 | $32,390 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||
Current liabilities: | ||
Accounts payable | $355 | $266 |
Accrued expenses | 1,367 | 1,151 |
Note payable – short-term (net of discount of $0 and $19, respectively) | 320 | 301 |
Income taxes payable | 545 | 310 |
Deferred revenue | 2,098 | 1,812 |
Total current liabilities | 4,685 | 3,840 |
Deferred income tax liability | 120 | 141 |
Lease liabilities – long-term | 2,054 | 2,309 |
Total liabilities | 6,859 | 6,290 |
Commitments and contingencies | ||
Stockholders' equity: | ||
Preferred stock, $0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively. | — | — |
Common stock $0.001 par value, 20,000,000 shares authorized, 3,741,752 and 3,786,398 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively. | 4 | 4 |
Additional paid-in capital | 21,757 | 22,275 |
Other accumulated comprehensive loss | (21) | (16) |
Retained earnings | 5,624 | 3,837 |
Total stockholders' equity | 27,364 | 26,100 |
Total liabilities and stockholders’ equity | $34,223 | $32,390 |
|
| March 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
| (unaudited) |
|
|
| ||||
ASSETS | ||||||||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 20,548 |
|
| $ | 19,556 |
|
Accounts receivable (net of allowance for doubtful accounts of $651 and $657, respectively) |
|
| 2,966 |
|
|
| 2,514 |
|
Other current assets |
|
| 383 |
|
|
| 298 |
|
Total current assets |
|
| 23,897 |
|
|
| 22,368 |
|
Capitalized software (net of accumulated amortization of $2,893 and $2,761, respectively) |
|
| 394 |
|
|
| 526 |
|
Fixed assets (net of accumulated amortization of $348 and $312, respectively) |
|
| 775 |
|
|
| 795 |
|
Right-of-use asset - leases |
|
| 1,756 |
|
|
| 1,830 |
|
Other long-term assets |
|
| 93 |
|
|
| 88 |
|
Goodwill |
|
| 6,376 |
|
|
| 6,376 |
|
Intangible assets (net of accumulated amortization of $5,663 and $5,546, respectively) |
|
| 2,789 |
|
|
| 2,906 |
|
Total assets |
| $ | 36,080 |
|
| $ | 34,889 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 589 |
|
| $ | 304 |
|
Accrued expenses |
|
| 2,098 |
|
|
| 1,805 |
|
Income taxes payable |
|
| 358 |
|
|
| 258 |
|
Deferred revenue |
|
| 2,383 |
|
|
| 2,212 |
|
Total current liabilities |
|
| 5,428 |
|
|
| 4,579 |
|
Deferred income tax liability |
|
| 262 |
|
|
| 197 |
|
Lease liabilities - long-term |
|
| 1,890 |
|
|
| 1,971 |
|
Total liabilities |
|
| 7,580 |
|
|
| 6,747 |
|
Commitments and contingencies |
|
| 0 |
|
|
| 0 |
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively. |
|
| 0 |
|
|
| 0 |
|
Common stock $0.001 par value, 20,000,000 shares authorized, 3,765,975 and 3,770,752 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively. |
|
| 4 |
|
|
| 4 |
|
Additional paid-in capital |
|
| 22,024 |
|
|
| 22,214 |
|
Other accumulated comprehensive loss |
|
| (16 | ) |
|
| (19 | ) |
Retained earnings |
|
| 6,488 |
|
|
| 5,943 |
|
Total stockholders' equity |
|
| 28,500 |
|
|
| 28,142 |
|
Total liabilities and stockholders’ equity |
| $ | 36,080 |
|
| $ | 34,889 |
|
The accompanying notes are an integral part of these unaudited financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except share and per share amounts)
For the Three Months Ended | For the Nine Months Ended | |||
September 30, | September 30, | September 30, | September 30, | |
2020 | 2019 | 2020 | 2019 | |
Revenues | $4,882 | $4,019 | $13,782 | $12,336 |
Cost of revenues | 1,387 | 1,222 | 4,002 | 3,774 |
Gross profit | 3,495 | 2,797 | 9,780 | 8,562 |
Operating costs and expenses: | ||||
General and administrative | 1,052 | 1,229 | 3,465 | 3,912 |
Sales and marketing expenses | 973 | 871 | 2,819 | 2,566 |
Product development | 212 | 288 | 571 | 968 |
Depreciation and amortization | 182 | 229 | 600 | 659 |
Total operating costs and expenses | 2,419 | 2,617 | 7,455 | 8,105 |
Operating income | 1,076 | 180 | 2,325 | 457 |
Interest income (expense), net | (4) | 79 | 55 | 265 |
Income before income taxes | 1,072 | 259 | 2,380 | 722 |
Income tax expense | 283 | 59 | 593 | 105 |
Net income | $789 | $200 | $1,787 | $617 |
Income per share – basic | $0.21 | $0.05 | $0.48 | $0.16 |
Income per share – fully diluted | $0.21 | $0.05 | $0.47 | $0.16 |
Weighted average number of common shares outstanding – basic | 3,740 | 3,853 | 3,754 | 3,853 |
Weighted average number of common shares outstanding – fully diluted | 3,768 | 3,868 | 3,778 | 3,874 |
|
| For the Three Months Ended |
| |||||
|
| March 31, |
|
| March 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Revenues |
| $ | 4,980 |
|
| $ | 4,016 |
|
Cost of revenues |
|
| 1,394 |
|
|
| 1,253 |
|
Gross profit |
|
| 3,586 |
|
|
| 2,763 |
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
General and administrative |
|
| 1,404 |
|
|
| 1,216 |
|
Sales and marketing expenses |
|
| 1,074 |
|
|
| 896 |
|
Product development |
|
| 249 |
|
|
| 194 |
|
Depreciation and amortization |
|
| 152 |
|
|
| 209 |
|
Total operating costs and expenses |
|
| 2,879 |
|
|
| 2,515 |
|
Operating income |
|
| 707 |
|
|
| 248 |
|
Interest income, net |
|
| 1 |
|
|
| 58 |
|
Net income before income taxes |
|
| 708 |
|
|
| 306 |
|
Income tax expense |
|
| 163 |
|
|
| 80 |
|
Net income |
| $ | 545 |
|
| $ | 226 |
|
Income per share - basic |
| $ | 0.15 |
|
| $ | 0.06 |
|
Income per share - fully diluted |
| $ | 0.14 |
|
| $ | 0.06 |
|
Weighted average number of common shares outstanding - basic |
|
| 3,769 |
|
|
| 3,788 |
|
Weighted average number of common shares outstanding - fully diluted |
|
| 3,817 |
|
|
| 3,824 |
|
The accompanying notes are an integral part of these unaudited financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVECOMPREHENSIVE INCOME
(UNAUDITED)
(in thousands)
For the Three Months Ended | For the Nine Months Ended | |||
September 30, | September 30, | September 30, | September 30, | |
2020 | 2019 | 2020 | 2019 | |
Net income | $789 | $200 | $1,787 | $617 |
Foreign currency translation adjustment | (42) | (7) | (5) | (20) |
Comprehensive income | $747 | $193 | $1,782 | $597 |
|
| For the Three Months Ended |
| |||||
|
| March 31, |
|
| March 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Net income |
| $ | 545 |
|
| $ | 226 |
|
Foreign currency translation adjustment |
|
| 3 |
|
|
| 40 |
|
Comprehensive income |
| $ | 548 |
|
| $ | 266 |
|
The accompanying notes are an integral part of these unaudited financial statements.
5 |
Table of Contents |
ISSUER DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(in thousands, except share and per share amounts)
Common Stock | Additional Paid-in | Other Accumulated Comprehensive Income | Retained | Total Stockholders | ||
Shares | Amount | Capital | (Loss) | Earnings | Equity | |
Balance at December 31, 2018 | 3,829,572 | $4 | $22,525 | $(17) | $3,151 | $25,663 |
Stock-based compensation expense | — | — | 137 | — | — | 137 |
Exercise of stock awards, net of tax | 24,996 | — | — | — | — | — |
Foreign currency translation | — | — | — | (3) | — | (3) |
Net income | — | — | — | — | 205 | 205 |
Balance at March 31, 2019 | 3,854,568 | $4 | $22,662 | $(20) | $3,356 | $26,002 |
Stock-based compensation expense | — | — | 131 | — | — | 131 |
Exercise of stock awards, net of tax | 8,000 | — | — | — | — | — |
Foreign currency translation | — | — | — | (10) | — | (10) |
Net income | — | — | — | — | 212 | 212 |
Balance at June 30, 2019 | 3,862,568 | $4 | $22,793 | $(30) | $3,568 | $26,335 |
Stock-based compensation expense | — | — | 127 | — | — | 127 |
Exercise of stock awards, net of tax | — | — | — | — | — | — |
Stock repurchase and retirement | (24,980) | — | (236) | — | — | (236) |
Foreign currency translation | — | — | — | (7) | — | (7) |
Net income | — | — | — | — | 200 | 200 |
Balance at September 30, 2019 | 3,837,588 | $4 | $22,684 | $(37) | $3,768 | $26,419 |
Balance at December 31, 2019 | 3,786,398 | $4 | $22,275 | $(16) | $3,837 | $26,100 |
Stock-based compensation expense | — | — | 45 | — | — | 45 |
Exercise of stock awards, net of tax | 8,002 | — | — | — | — | — |
Stock repurchase and retirement | (21,700) | — | (203) | — | — | (203) |
Foreign currency translation | — | — | — | 40 | — | 40 |
Net income | — | — | — | — | 226 | 226 |
Balance at March 31, 2020 | 3,772,700 | $4 | $22,117 | $24 | $4,063 | $26,208 |
Stock-based compensation expense | — | — | 84 | — | — | 84 |
Exercise of stock awards, net of tax | 24,000 | — | — | — | — | — |
Stock repurchase and retirement | (62,198) | — | (582) | — | — | (582) |
Foreign currency translation | — | — | — | (3) | — | (3) |
Net income | — | — | — | — | 772 | 772 |
Balance at June 30, 2020 | 3,734,502 | $4 | $21,619 | $21 | $4,835 | $26,479 |
Stock-based compensation expense | — | — | 72 | — | — | 72 |
Exercise of stock awards, net of tax | 7,250 | — | 66 | — | — | 66 |
Foreign currency translation | — | — | — | (42) | — | (42) |
Net income | — | — | — | — | 789 | 789 |
Balance at September 30, 2020 | 3,741,752 | $4 | $21,757 | $(21) | $5,624 | $27,364 |
For the Nine Months Ended | ||
September 30, | September 30, | |
2020 | 2019 | |
Cash flows from operating activities: | ||
Net income | $1,787 | $617 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 1,052 | 1,261 |
Bad debt expense | 242 | 700 |
Deferred income taxes | (27) | (46) |
Non-cash interest expense | 19 | 19 |
Stock-based compensation expense | 201 | 396 |
Changes in operating assets and liabilities: | ||
Decrease (increase) in accounts receivable | (634) | (1,166) |
Decrease (increase) in other assets | 191 | (117) |
Increase (decrease) in accounts payable | 89 | 26 |
Increase (decrease) in accrued expenses and other liabilities | 195 | (56) |
Increase (decrease) in deferred revenue | 285 | 321 |
Net cash provided by operating activities | 3,400 | 1,955 |
Cash flows from investing activities: | ||
Purchase of VisualWebcaster Platform | — | (2,788) |
Capitalized software | — | (20) |
Purchase of fixed assets | (15) | (302) |
Net cash used in investing activities | (15) | (3,110) |
Cash flows from financing activities: | ||
Proceeds from exercise of stock options, net of income taxes | 66 | — |
Payment for stock repurchase and retirement | (785) | (236) |
Net cash used in financing activities | (719) | (236) |
Net change in cash | 2,666 | (1,391) |
Cash – beginning | 15,766 | 17,222 |
Currency translation adjustment | (3) | (24) |
Cash – ending | $18,429 | $15,807 |
Supplemental disclosures: | ||
Cash paid for income taxes | $323 | $218 |
Non-cash activities: | ||
Right-of-use assets obtained in exchange for lease liabilities | $— | $260 |
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated Other Comprehensive Income |
|
| Retained |
|
| Total Stockholders’ |
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| (Loss) |
|
| Earnings |
|
| Equity |
| ||||||
Balance at December 31, 2019 |
|
| 3,786,398 |
|
| $ | 4 |
|
| $ | 22,275 |
|
| $ | (16 | ) |
| $ | 3,837 |
|
| $ | 26,100 |
|
Stock-based compensation expense |
|
| - |
|
|
| 0 |
|
|
| 45 |
|
|
| 0 |
|
|
| 0 |
|
|
| 45 |
|
Exercise of stock awards, net of tax |
|
| 8,002 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Stock repurchase and retirement |
|
| (21,700 | ) |
|
| 0 |
|
|
| (203 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (203 | ) |
Foreign currency translation |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 40 |
|
|
| 0 |
|
|
| 40 |
|
Net income |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 226 |
|
|
| 226 |
|
Balance at March 31, 2020 |
|
| 3,772,700 |
|
| $ | 4 |
|
| $ | 22,117 |
|
| $ | 24 |
|
| $ | 4,063 |
|
| $ | 26,208 |
|
Balance at December 31, 2020 |
|
| 3,770,752 |
|
| $ | 4 |
|
| $ | 22,214 |
|
| $ | (19 | ) |
| $ | 5,943 |
|
| $ | 28,142 |
|
Stock-based compensation expense |
|
| - |
|
|
| 0 |
|
|
| 63 |
|
|
| 0 |
|
|
| 0 |
|
|
| 63 |
|
Exercise of stock awards, net of tax |
|
| 15,000 |
|
|
| 0 |
|
|
| 199 |
|
|
| 0 |
|
|
| 0 |
|
|
| 199 |
|
Stock repurchase and retirement |
|
| (19,777 | ) |
|
| 0 |
|
|
| (452 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (452 | ) |
Foreign currency translation |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 3 |
|
|
| 0 |
|
|
| 3 |
|
Net income |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 545 |
|
|
| 545 |
|
Balance at March 31, 2021 |
|
| 3,765,975 |
|
| $ | 4 |
|
| $ | 22,024 |
|
| $ | (16 | ) |
| $ | 6,488 |
|
| $ | 28,500 |
|
The accompanying notes are an integral part of these unaudited financial statements.
6 |
Table of Contents |
ISSUER DIRECT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
|
| For the Three Months Ended |
| |||||
|
| March 31, |
|
| March 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 545 |
|
| $ | 226 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 285 |
|
|
| 374 |
|
Bad debt expense |
|
| 28 |
|
|
| 93 |
|
Deferred income taxes |
|
| (15 | ) |
|
| (42 | ) |
Non-cash interest expense |
|
| 0 |
|
|
| 6 |
|
Stock-based compensation expense |
|
| 63 |
|
|
| 45 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable |
|
| (484 | ) |
|
| (219 | ) |
Decrease (increase) in other assets |
|
| (16 | ) |
|
| 32 |
|
Increase (decrease) in accounts payable |
|
| 287 |
|
|
| 118 |
|
Increase (decrease) in accrued expenses |
|
| 398 |
|
|
| (105 | ) |
Increase (decrease) in deferred revenue |
|
| 178 |
|
|
| 74 |
|
Net cash provided by operating activities |
|
| 1,269 |
|
|
| 602 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of fixed assets |
|
| (16 | ) |
|
| 0 |
|
Net cash used in investing activities |
|
| (16 | ) |
|
| 0 |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Exercise of stock options |
|
| 199 |
|
|
| 0 |
|
Payment for stock repurchase and retirement |
|
| (452 | ) |
|
| (203 | ) |
Net cash used in financing activities |
|
| (253 | ) |
|
| (203 | ) |
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
| 1,000 |
|
|
| 399 |
|
Cash - beginning |
|
| 19,556 |
|
|
| 15,766 |
|
Currency translation adjustment |
|
| (8 | ) |
|
| 32 |
|
Cash and cash equivalents - ending |
| $ | 20,548 |
|
| $ | 16,197 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ | 0 |
|
| $ | 10 |
|
The accompanying notes are an integral part of these unaudited financial statements.
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ISSUER DIRECT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The unaudited interim consolidated balance sheet as of September 30, 2020March 31, 2021 and consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the three and nine-monththree-month periods ended September 30,March 31, 2021 and 2020 and 2019 included herein, have been prepared in accordance with the instructions for Form 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Article 10 of Regulation S-X under the Exchange Act. In the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the financial statements. Results of operations reported for the interim periods are not necessarily indicative of results for the entire year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. The interim financial information should be read in conjunction with the 20192020 audited financial statements of Issuer Direct Corporation (the “Company”, “We”, or “Our”) filed on Form 10-K.
Note 2. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of the Company and its wholly ownedwholly-owned subsidiaries. Significant intercompany accounts and transactions are eliminated in consolidation.
Earnings Per Share (EPS)
Earnings per share accounting guidance requires that basic net income per common share be computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. SharesThere were no shares issuable upon the exercise of stock options totaling 25,000 and 75,000 were excluded in the computation of diluted earnings per common share during the three and nine-month periodsthree-month period ended September 30, 2020, respectively,March 31, 2021 because their impact was anti-dilutive. Shares issuable upon the exercise of stock options totaling 93,000 were excluded in the computation of diluted earnings per common share during the three and nine-month periodsthree-month period ended September 30, 2019,March 31, 2020 because their impact was anti-dilutive.
Revenue Recognition
Substantially all the Company’s revenue comes from contracts with customers for subscriptions to its cloud-based products or contracts for communicationsCommunications and complianceCompliance products and services. Customers consist primarily of public corporate issuers and professional firms, such as investor relations and public relations firms. In the case of our news distribution and webcasting offerings, our customers also include private companies. The Company accounts for a contract with a customer when there is an enforceable contract between the Company and the customer, the rights of the parties are identified, the contract has economic substance, and collectability of the contract consideration is probable. The Company's revenues are measured based on consideration specified in the contract with each customer.
The Company's contracts include either a subscription to our entire platform or certain modules within our platform, or an agreement to perform services, or any combination thereof, and often contain multiple subscriptions and services. For these bundled contracts, the Company accounts for individual subscriptions and services as separate performance obligations if they are distinct, which is when a product or service is separately identifiable from other items in the bundled package, and a customer can benefit from it on its own or with other resources that are readily available to the customer. The Company separates revenue from its contracts into two revenue streams: i) Platform and TechnologyCommunications and ii) Services.Compliance. Performance obligations of Platform and TechnologyCommunications contracts include providing subscriptions to certain modules or the entire Platform id. system, Communications module, distributing press releases on a per release basis or conducting webcasts, or virtual annual meetings or other events on a per event basis. Performance obligations of ServicesCompliance contracts include providing subscriptions to our cloud-based Platform id. Compliance module, Whistleblower module or other stand-ready obligations to deliver compliance services and annual report printing and distribution on either a stand ready obligation ordistribution. Additionally, services are provided on a per project or event basis. Set up fees for compliancedisclosure services are considered a separate performance obligation and are satisfied upfront. Set up fees for our transfer agent module and investor relations content management module are immaterial. The Company’s subscription and service contracts are generally for one year, with automatic renewal clauses included in the contract until the contract is cancelled. The contracts do not contain any rights of returns, guarantees or warranties. Since contracts are generally for one year, all the revenue is expected to be recognized within one year from the contract start date. As such, the Company has elected the optional exemption that allows the Company not to disclose the transaction price allocated to performance obligations that are unsatisfied or partially satisfied at the end of each reporting period.
The Company recognizes revenue for subscriptions evenly over the contract period, upon distribution for per release contracts and upon event completion for webcasting and virtual annual meeting events. For service contracts that include stand ready obligations, revenue is recognized evenly over the contract period. For all other services delivered on a per project or event basis, the revenue is recognized at the completion of the event. The Company believes recognizing revenue for subscriptions and stand ready obligations using a time-based measure of progress, best reflects the Company’s performance in satisfying the obligations.
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For bundled contracts, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the subscription or services.service. If a standalone selling price is not directly observable, the Company uses the residual method to allocate any remaining price to that subscription or service. The Company regularly reviews standalone selling prices, at least annually, and updates these estimates if necessary.
The Company invoices its customers based on the billing schedules designated in its contracts, typically upfront on either a monthly, quarterly or annual basis or per transaction at the completion of the performance obligation. Deferred revenue for the periods presented was primarily related to subscription and service contracts, which are billed upfront, quarterly or annually, however the revenue has not yet been recognized.recognized and press release packages which have been prepaid, however the releases have not been disseminated. The associated deferred revenue is generally recognized ratably over the billing period. Additionally, deferred revenue is related to pre-paid packages ofperiod for subscriptions and as releases are disseminated for press releases for which the releases have not yet been disseminated.release packages. Deferred revenue as of September 30, 2020March 31, 2021 and December 31, 20192020 was $2,098,000$2,383,000 and $1,812,000,$2,212,000, respectively, and is expected to be recognized within one year. Revenue recognized for the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, that was included in the deferred revenue balance at the beginning of each reporting period, was approximately $1,663,000$1,075,000 and $873,000,$877,000, respectively. Accounts receivable, net of allowance for doubtful accounts, related to contracts with customers was $2,445,000$2,966,000 and $2,051,000$2,514,000 as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. Since substantially all the contracts have terms of one year or less, the Company has elected to use the practical expedient regarding the existence of a significant financing.
Costs to obtain contracts with customers consist primarily of sales commissions. As of September 30, 2020March 31, 2021, and December 31, 2019,2020, the Company has capitalized $34,000$53,000 and $21,000,$44,000, respectively, of costs to obtain contracts that are expected to be amortized over more than one year. For contract costs expected to be amortized in less than one year, the Company has elected to use the practical expedient allowing the recognition of incremental costs of obtaining a contract as an expense when incurred. The Company has considered historical renewal rates, expectations of future renewals and economic factors in making these determinations.
Cash Equivalents
For purposes of the Company’s financial statements, the Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
The Company monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. Credit is granted on an unsecured basis. The allowance for doubtful accounts is estimated based on an assessment of the Company’s ability to collect on customer accounts receivable. There is judgment involved with estimating the allowance for doubtful accounts and if the financial condition of the Company’s customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against revenues. Given the current environment of the COVID-19 pandemic additional attention has been paid to the financial viability of our customers. The Company generally writes-offwrites off accounts receivable against the allowance when it determines a balance is uncollectible and no longer actively pursues its collection.
Concentration of Credit Risk
Financial instruments and related items which potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivables. The Company places its cash and temporary cash investments with credit quality institutions. Such cash balances are typicallycurrently in excess of the FDIC insurance limit of $250,000. To reduce its risk associated with the failure of such financial institutions, each quarter the Company evaluates at least annually the rating of the financial institution in which it holds deposits. As of September 30, 2020,March 31, 2021, the total amount exceeding such limit was $17,365,000.$19,123,000. The Company also had cash-on-hand of $32,000$108,000 in Europe and $333,000$886,000 in Canada as of September 30, 2020.
The Company believes it did not have any financial instruments that could have potentially subjected us to significant concentrations of credit risk for any relevant period.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the allowance for doubtful accounts and the valuation of goodwill, intangible assets, deferred tax assets, and stock-based compensation. Actual results could differ from those estimates.
Income Taxes
We comply with Financial Accounting Standards Board (“FASB”) ASCAccounting Standards Codification (“ASC”) No. 740 –- Income Taxes which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amounts expected to be realized. For any uncertain tax positions, we recognize the impact of a tax position, only if it is more likely than not of being sustained upon examination, based on the technical merits of the position. Our policy regarding the classification of interest and penalties is to classify them as income tax expense in our financial statements, if applicable. At the end of each interim period, we estimate the effective tax rate we expect to be applicable for the full year and this rate is applied to our results for the interim year-to-date period and then adjusted for any discrete period items.
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Capitalized Software
Costs incurred to develop our cloud-based platform products are capitalized when the preliminary project phase is complete, management commits to fund the project and it is probable the project will be completed and used for its intended purposes. Once the software is substantially complete and ready for its intended use, the software is amortized over its estimated useful life, which is typically four years. Costs related to design or maintenance of the software are expensed as incurred. CapitalizedThe Company did not capitalize any costs for software development during the three-month periods ended March 31, 2021 and 2020. The Company recorded amortization expense of $132,000 and $170,000 during the three-month periods ended March 31, 2021 and 2020, respectively, all of which was recorded in Cost of revenues on the Consolidated Statements of Income, except for $5,000 during the three months ended March 31, 2020, which is included in Depreciation and nine-month periods ended September 30, 2020amortization.
Impairment of Long-lived Assets
In accordance with the authoritative guidance for accounting for long-lived assets, assets such as property and 2019,equipment, trademarks, and intangible assets subject to amortization, are as follows (in thousands):
For the Three Months Ended | For the Nine Months Ended | |||
September 30, | September 30, | September 30, | September 30, | |
2020 | 2019 | 2020 | 2019 | |
Capitalized software development costs | $— | $— | $— | $20 |
Amortization included in cost of revenues | 143 | 201 | 454 | 602 |
Amortization included in depreciation and amortization | 1 | 5 | 9 | 14 |
Lease Accounting
We determine if an arrangement is a lease at inception. Our operating lease agreements are primarily for office space and are included within lease right-of-use (“ROU”) assets and lease liabilities on the consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Our variable lease payments consist of non-lease services related to the lease and payments under operating leases classified as short-term. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets include any lease payments made and exclude lease incentives. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.
Fair Value Measurements
ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the hierarchy of levels of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
· | Level 1 - Quoted prices are available in active markets for identical assets or liabilities at the reporting date. Generally, this includes debt and equity securities that are traded in an active market. Our cash and cash equivalents are quoted at Level 1. | |
· | Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Generally, this includes debt and equity securities that are not traded in an active market. | |
· | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
As of September 30, 2020March 31, 2021 and December 31, 2019,2020, we believe that the fair value of our financial instruments other than cash and cash equivalents, such as, accounts receivable, our line of credit, notes payable, and accounts payable approximate their carrying amounts.
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Translation of Foreign Financial Statements
The financial statements of the foreign subsidiaries of the Company have been translated into U.S. dollars. All assets and liabilities have been translated at current rates of exchange in effect at the end of the period. Income and expense items have been translated at the average exchange rates for the year or the applicable interim period. The gains or losses that result from this process are recorded as a separate component of other accumulated comprehensive income until the entity is sold or substantially liquidated.
Business Combinations, Goodwill and Intangible Assets
We account for business combinations under FASB ASC No. 805 –- Business Combinations and the related acquired intangible assets and goodwill under FASB ASC No. 350 –- Intangibles –- Goodwill and Other. The authoritative guidance for business combinations specifies the criteria for recognizing and reporting intangible assets apart from goodwill. We record the assets acquired and liabilities assumed in business combinations at their respective fair values at the date of acquisition, with any excess purchase price recorded as goodwill. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Intangible assets consist of client relationships, customer lists, distribution partner relationships, software, technology, non-compete agreements and trademarks that are initially measured at fair value. At the time of the business combination, trademarks are considered an indefinite-lived asset and, as such, are not amortized as there is no foreseeable limit to cash flows generated from them. The goodwill and intangible assets are assessed annually for impairment, or whenever conditions indicate the asset may be impaired, and any such impairment will be recognized in the period identified. The client relationships (7-10 years), customer lists (3 years), distribution partner relationships (10 years), non-compete agreements (5 years) and software and technology (3-6 years) are amortized over their estimated useful lives.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income related to changes in the cumulative foreign currency translation adjustment.
Advertising
The Company expenses advertising costs as incurred.
Stock-based compensation
The authoritative guidance for stock compensation requires that companies estimate the fair value of share-based payment awards on the date of the grant using an option-pricing model. The associated cost is recognized over the period during which an employee or director is required to provide service in exchange for the award.
Note 3: Recent Acquisitions
2014 Equity Incentive Plan
On May 23, 2014, the shareholders of the Company approved the 2014 Equity Incentive Plan (the “2014 Plan”). Under the terms of the 2014 Plan, the Company is authorized to issue incentive awards for common stock up to 200,000 shares to employees and other personnel. On June 10, 2016 and June 17, 2020, the shareholders of the Company approved an additional 200,000 and 200,000 awards, respectively, to be issued under the 2014 Plan, bringing the total number of shares to be awarded to 600,000. The awards may be in the form of incentive stock options, nonqualified stock options, restricted stock, restricted stock units and performance awards. The 2014 Plan is effective through March 31, 2024. As of September 30, 2020,March 31, 2021, there are 236,583 shares which remain to be granted under the 2014 Plan.
The following table summarizes information about stock options outstanding and exercisable at September 30, 2020:
Options Outstanding | Options Exercisable | |||
Exercise Price Range | Number | Weighted Average Remaining Contractual Life (in Years) | Weighted Average Exercise Price | Number |
$0.01 - 7.00 | 10,000 | 5.14 | $6.80 | 10,000 |
$7.01 - 8.00 | 15,313 | 2.99 | $7.76 | 15,313 |
$8.01 - 12.00 | 7,167 | 6.13 | $9.88 | 5,167 |
$12.01 - 15.00 | 47,750 | 7.70 | $13.10 | 35,250 |
$15.01 - 17.40 | 24,000 | 7.67 | $17.40 | 24,000 |
Total | 104,230 | 6.65 | $12.48 | 89,730 |
|
|
| Options Outstanding |
|
| Options Exercisable |
| |||||||||||
Exercise Price Range |
|
| Number |
|
| Weighted Average Remaining Contractual Life (in Years) |
|
| Weighted Average Exercise Price |
|
| Number |
| |||||
$ | 0.01 - 7.00 |
|
|
| 5,000 |
|
|
| 4.64 |
|
| $ | 6.80 |
|
|
| 5,000 |
|
$ | 7.01 - 8.00 |
|
|
| 10,313 |
|
|
| 2.49 |
|
| $ | 7.76 |
|
|
| 10,313 |
|
$ | 8.01 - 12.00 |
|
|
| 6,917 |
|
|
| 5.53 |
|
| $ | 9.85 |
|
|
| 4,917 |
|
$ | 12.01 - 15.00 |
|
|
| 30,000 |
|
|
| 7.54 |
|
| $ | 13.15 |
|
|
| 30,000 |
|
$ | 15.01 - 17.40 |
|
|
| 8,000 |
|
|
| 7.17 |
|
| $ | 17.40 |
|
|
| 8,000 |
|
Total |
|
|
| 60,230 |
|
|
| 6.15 |
|
| $ | 11.89 |
|
|
| 58,230 |
|
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As of September 30, 2020,March 31, 2021, the Company had unrecognized stock compensation related to the options of $35,000,$2,000, which will be recognized throughin the second quarter of 2021.
During the ninethree months ended September 30,March 31, 2021 and 2020, the Company granted 18,000did not grant any restricted stock units with an intrinsic value of $10.67, to certain members of the Board of Directors of the Company. The vesting period for the restricted stock units is the earlier of the 2021 annual meeting of shareholders or one year depending on whether a director stands for re-election at the 2021 annual meeting. During the nine months ended September 30, 2020, 32,000 restricted stock units with an intrinsic value of $11.61 vested.units. As of September 30, 2020,March 31, 2021, there was $142,000$41,000 of unrecognized compensation cost related to our unvested restricted stock units, which will be recognized throughin the second quarter of 2021.
Stock repurchase and retirement
On August 7, 2019, the Company publicly announced a share repurchase program under which the Company is authorized to repurchase up to $1,000,000 of its common shares. On March 16, 2020, the Company publicly announced that the Company increased the share repurchase program to repurchase up to $2,000,000 of its common shares. As of September 30, 2020,March 31, 2021, the Company repurchased a total of 160,068completed the repurchase program by purchasing 179,845 shares at an aggregate cost of $1,552,000 (not including commissions of $7,000) as shown in the table below ($ in 000’s, except share or per share amounts):
Shares Repurchased | ||||
Period | Total Number of Shares Repurchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program |
August 7 -31, 2019 | 22,150 | $9.34 | 22,150 | $793 |
September 1-30, 2019 | 2,830 | $10.00 | 2,830 | $765 |
October 1-31, 2019 | 39,363 | $10.44 | 39,363 | $354 |
November 1-30, 2019 | 11,827 | $10.43 | 11,827 | $231 |
December 1-31, 2019 | — | — | — | $231 |
January 1-31, 2020 | — | — | — | $231 |
February 1-29, 2020 | — | — | — | $231 |
March 1-31, 2020 | 21,700 | $9.33 | 21,700 | $1,028 |
April 1-30, 2020 | 22,698 | $9.02 | 22,698 | $823 |
May 1-31, 2020 | 39,500 | $9.51 | 39,500 | $448 |
June 1-30, 2020 | — | — | — | $448 |
July 1-31, 2020 | — | — | — | $448 |
August 1-31, 2020 | — | — | — | $448 |
September 1-30, 2020 | — | — | — | $448 |
Total | 160,068 | $9.70 | 160,068 | $448 |
|
| Shares Repurchased |
| |||||||||||||
Period |
| Total Number of Shares Repurchased |
|
| Average Price Paid Per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Program |
|
| Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program |
| ||||
August 7-31, 2019 |
|
| 22,150 |
|
| $ | 9.34 |
|
|
| 22,150 |
|
| $ | 793 |
|
September 1-30, 2019 |
|
| 2,830 |
|
| $ | 10.00 |
|
|
| 2,830 |
|
| $ | 765 |
|
October 1-31, 2019 |
|
| 39,363 |
|
| $ | 10.44 |
|
|
| 39,363 |
|
| $ | 354 |
|
November 1-30, 2019 |
|
| 11,827 |
|
| $ | 10.43 |
|
|
| 11,827 |
|
| $ | 231 |
|
December 1-31, 2019 |
|
| - |
|
|
| 0 |
|
|
| - |
|
| $ | 231 |
|
January 1-31, 2020 |
|
| - |
|
|
| 0 |
|
|
| - |
|
| $ | 231 |
|
February 1-29, 2020 |
|
| - |
|
|
| 0 |
|
|
| - |
|
| $ | 231 |
|
March 1-31, 2020 |
|
| 21,700 |
|
| $ | 9.33 |
|
|
| 21,700 |
|
| $ | 1,028 |
|
April 1-30, 2020 |
|
| 22,698 |
|
| $ | 9.02 |
|
|
| 22,698 |
|
| $ | 823 |
|
May 1-31, 2020 |
|
| 39,500 |
|
| $ | 9.51 |
|
|
| 39,500 |
|
| $ | 448 |
|
No shares repurchased between June 2020 and February 2021 | ||||||||||||||||
March 1-31, 2021 |
|
| 19,777 |
|
| $ | 22.89 |
|
|
| 19,777 |
|
| $ | 0 |
|
Total |
|
| 179,845 |
|
| $ | 11.15 |
|
|
| 179,845 |
|
| $ | 0 |
|
Note 5:4: Income taxes
We recognized income tax expense of $283,000 and $593,000 during$163,000 for the three and nine-month periodsthree-month period ended September 30, 2020, respectively,March 31, 2021, compared to $59,000 and $105,000income tax expense of $80,000 during the same periodsperiod of 2019.2020. At the end of each interim period, we estimate the effective tax rate we expect to be applicable for the full fiscal year and this rate is applied to our results for the year-to-date period, and then adjusted for any discrete period items. For the three and nine-monththree-month periods ended September 30,March 31, 2021 and 2020, the variance between the Company’s effective tax rate and the U.S. statutory rate of 21% is primarily attributable to state income taxes. For the three and nine-month periods ended September 30, 2019, the variance between the Company’s effective tax, rate and the U.S. statutory rate is primarily attributablepartially offset by a benefit related to the excess stock-based compensation tax benefit recognized in income tax expense during the periods,Foreign Derived Intangible Income (“FDII”) deduction as well as foreign statutory tax rate differentials and tax credits.
Note 6:5: Leases
Generally, our leasing activity consists of office leases. In March 2019, we signed a new lease to move our corporate headquarters to Raleigh, North Carolina. As we continue our transition from a services-based company to a cloud-based platform company, the new lease affords us the ability to separate our warehouse from our corporate office. The new lease, which had a lease commencement date of October 2, 2019, is for 9,766 square feet and expires December 31, 2027. Minimum lease payments are $2,997,000, not including a tenant improvement allowance of $488,000, which is included in fixed assets as of September 30, 2020.March 31, 2021. We recognized a ROU asset and corresponding lease liability of $2,596,000, which represents the present value of minimum lease payments discounted at 3.77%, the Company’s incremental borrowing rate at lease inception.
Additionally, we have an office in Salt Lake City, Utah, which is on a short-term lease that is less than twelve months. As a result, we have elected the short-term lease recognition exemption for our Utah office lease, which means, for those leases we do not expect to extend beyond twelve months, we will not recognize ROU assets or lease liabilities.
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Lease liabilities totaled $2,445,000$2,275,000 as of September 30, 2020.March 31, 2021. The current portion of this liability of $391,000$385,000 is included in Accrued expenses on the Consolidated balance sheets and the long-term portion of $2,054,000$1,890,000 is included in Lease liabilities on the Consolidated Balance Sheets. Rent expense consists of both operating lease expense from amortization of our ROU assets as well as variable lease expense which consists of non-lease components of office leases (i.e. common area maintenance) or rent expense associated with short- termshort-term leases. The components of lease expense were as follows (in 000’s):
For the Three Months Ended | For the Nine Months Ended | |||
September 30, | September 30, | September 30, | September 30, | |
2020 | 2019 | 2020 | 2019 | |
Lease expense | ||||
Operating lease expense | $87 | $41 | $261 | $124 |
Variable lease expense | 33 | 52 | 99 | 136 |
Total lease expense | $120 | $93 | $360 | $260 |
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Lease expense |
|
|
|
|
|
| ||
Operating lease expense |
| $ | 87 |
|
| $ | 87 |
|
Variable lease expense |
|
| 27 |
|
|
| 32 |
|
Rent expense |
| $ | 114 |
|
| $ | 119 |
|
The weighted-average remaining non-cancelable lease term for our operating leases was 7.16.7 years as of September 30, 2020.March 31, 2021. As of September 30, 2020,March 31, 2021, the weighted-average discount rate used to determine the lease liability was 3.8%. The future minimum lease payments to be made under non-cancelable operating leases at September 30, 2020,on March 31, 2021, are as follows (in 000’s):
Year Ended December 31: | |
2020 | $97 |
2021 | 394 |
2022 | 359 |
2023 | 369 |
2024 | 379 |
Thereafter | 1,201 |
Total lease payments | $2,799 |
Present value adjustment | (354) |
Lease liability | 2,445 |
Year Ended December 31: |
|
|
| |
2021 |
| $ | 295 |
|
2022 |
|
| 359 |
|
2023 |
|
| 369 |
|
2024 |
|
| 379 |
|
2025 |
|
| 389 |
|
Thereafter |
|
| 812 |
|
Total lease payments |
| $ | 2,603 |
|
Present value adjustment |
|
| (328 | ) |
Lease liability |
|
| 2,275 |
|
We have performed an evaluation of our other contracts with customers and suppliers in accordance with Topic 842 and have determined that, except for the leases described above, none of our contracts contain a lease.
Note 7:6: Revenue
We consider ourselves to be in a single reportable segment under the authoritative guidance for segment reporting, specifically a shareholder communications and compliance company for publicly traded and private companies. The following tables present revenue disaggregated by revenue stream in (000’s):
Three months ended September 30, | ||||
Revenue Streams | 2020 | 2019 | ||
Platform and Technology | $3,613 | 74.0% | $2,712 | 67.5% |
Services | 1,269 | 26.0% | 1,307 | 32.5% |
Total | $4,882 | 100.0% | $4,019 | 100.0% |
Nine months ended September 30, | ||||
Revenue Streams | 2020 | 2019 | ||
Platform and Technology | $9,599 | 69.6% | $8,038 | 65.2% |
Services | 4,183 | 30.4% | 4,298 | 34.8% |
Total | $13,782 | 100.0% | $12,336 | 100.0% |
|
| Three months ended March 31, |
| |||||||||||||
Revenue Streams |
| 2021 |
|
| 2020 |
| ||||||||||
Communications |
| $ | 3,187 |
|
|
| 64.0 | % |
| $ | 2,408 |
|
|
| 60.0 | % |
Compliance |
|
| 1,793 |
|
|
| 36.0 | % |
|
| 1,608 |
|
|
| 40.0 | % |
Total |
| $ | 4,980 |
|
|
| 100.0 | % |
| $ | 4,016 |
|
|
| 100.0 | % |
We did not have any customers during the three-month periods ended March 31, 2021 or 2020 that accounted for more than 10% of the operating revenues during the three and nine-month periods ended September 30, 2020 or 2019.
Note 8:7: Line of Credit
Effective October 3, 2019, the Company renewed its unsecured Line of Credit, which increased the term to two years, with all other provisions remaining the same. The amount of funds available for borrowing are $3,000,000 and the interest rate is LIBOR plus 1.75%. As of September 30, 2020,March 31, 2021, the interest rate was 1.90%1.86% and the Company did not owe any amounts on the Line of Credit.
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ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The discussion of the financial condition and results of operations of the Company set forth below should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Form10-Q. This Form10-Q contains forward-looking statements that involve risks and uncertainties. The statements contained in this Form10-Q that are not purely historical are forward-looking statements within the meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act. When used in this Form10-Q, or in the documents incorporated by reference into this Form 10-Q, the words “anticipate,” “believe,” “estimate,” “intend” and “expect” and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, without limitation, the statements regarding the Company’s strategy, future sales, future expenses, future liquidity and capital resources. All forward-looking statements in this Form10-Q are based upon information available to the Company on the date of this Form10-Q, and the Company assumes no obligation to update any such forward-looking statements. The Company’s actual results could differ materially from those discussed in this Form10-Q for many reasons, including the impact of the COVID-19 pandemic. Factors that could cause or contribute to such differences (“Cautionary Statements”) include, but are not limited to, those discussed in Item 1. Business —- “Risk Factors” and elsewhere in the Company’s Annual Report on Form10-K for the year ended December 31, 2019,2020, which are incorporated by reference into this Form 10-Q. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on the Company’s behalf, are expressly qualified in their entirety by the Cautionary Statements.
Overview
Issuer Direct Corporation and its subsidiaries are hereinafter collectively referred to as “Issuer Direct”, the “Company”, “We” or “Our” unless otherwise noted. Our corporate offices are located at One Glenwood Ave., Suite 1001, Raleigh, North Carolina, 27603.
We announce material financial information to our investors using our investor relations website, SEC filings, investor events, news and earnings releases, public conference calls, webcasts and social media. We use these channels to communicate with our investors and the public about our company, our products and services and other related matters. It is possible that information we post on some of these channels could be deemed to be material information. Therefore, we encourage investors, the media and others interested in our companyIssuer Direct to review the information we post to all our channels, including our social media accounts.
We are a premier provider of communications and compliance technology solutions that are designed to help organizations tell their stories globally. Issuer Direct'sOur principal platform, Platform
As our cloud-based subscription business continues to mature, we expect the Communications portion of our business to continue to increase over the next several years, both in terms of overall revenue and as compared to the Compliance portion of our business. Therefore, as noted below, we began reporting our revenue as Communications and Compliance revenues rather than Platform & Technology and Services revenues as we have done in the past. Communications revenues were 64% of total revenue during the first quarter of 2021 as compared to 60% in the first quarter of 2020. For the full year of 2020 Communications revenues were also 64% of total revenue, which is a higher percentage of our total revenue as compared to 57% and 45% of revenues for the years ended December 31, 2019 and 2018, respectively. In 2020, growth from our Communications business was led by the market demands for our events products that were upgraded to handle virtual needs in the industry, as well as our ACCESSWIRE news brand.
We plan to continue to invest in our Platform id. communications offerings as well as additional offerings that we intend to incorporate into our Communications product lineup. Within most of our target markets, customers require several individual services and/or software providers to meet their investor relations, communications and compliance needs. We believe Platform id. can address all these needs in a single, secure, cloud-based platform - one that offers a customer control, increases efficiencies, demonstrates clear value and, most importantly, delivers consistent and compliant messaging from one centralized platform.
We work with a diverse customer base, which includes not only corporate issuers and private companies, but also investment banks, professional firms, such as investor relations and public relations firms, as well as the accounting and legal communities. We also sell products and services to others in the financial services industry, including brokerage firms and mutual funds. Our customers and their service providers utilize Platform
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We also work with several select stock exchanges by making available certain parts of our platform under agreements to integrate our offerings within their products. We believe such partnerships will continue to yield increased exposure to a targeted customer base that could impact our revenue and overall brand in the market.
As noted above, in the World Health Organization declared the COVID-19 outbreak a "Public Health Emergency of International Concern" and on March 11, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of COVID-19 include restrictions on travel, quarantines or “stay-at-home” restrictions in certain areas and forced closures for certain types of public places and businesses. COVID-19 and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets globally, including the geographical areas in which we operate. Although our offices were initially ordered temporarily closed for the safety of our employees, their families and our community, on June 1, 2020 we began slowly re-opening our offices, which are now open to all employees who elect to return to the office.
Communications
Our Communications platform consists of our ACCESSWIRE branded newswire, our webcasting and events business, to continue to increase in the future, both in terms of overall revenueprofessional conference and as compared to the Services portion of our business. Platform and Technology revenue grew to 74% of total revenue during the third quarter of 2020 compared to 67% during the third quarter of 2019. In 2020, the growth was due to a combination of
ACCESSWIRE
Our press release offering, which is marketed under the brand ACCESSWIRE
,is a cost-effective,15 |
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We believe thisthe above strategy combined with technology innovation and continually adding distribution will enable us to continue to add new customers in 20202021 and beyond, resulting in an increase in market share.beyond. We have also been able to maintain high gross margins while providing our customers flexible pricing, with options to pay per release or enter longer-term subscriptions. Currently, ACCESSWIRE is available within our Platform id. as part of a subscription, or as a stand-alone module.
Like other newswires globally, ACCESSWIRE is dependent upon several key partners for its news distribution. Disruption in any of our partnerships could have a materially adverse impact on ACCESSWIRE and our overall business.
ACCESSWIRE revenues and customers have increased each year compared to the endprior year, a trend we expect to continue over the next several years. A significant portion of 2018,the growth has been due to increased private company customers, through either direct sales, e-commerce or through partner and reseller relationships.
Webcasting & Events
Our webcasting and events business is comprised of our earnings call webcasting solutions and our virtual meeting and events software (such as annual meetings, deal/non-deal road shows, analyst days and shareholder days). The demands for these products with a virtual component were at an all-time high for us in 2020 in large part due to the COVID-19 pandemic, something we released a new module to Platform
Traditional earnings calls and is expected to be reduced significantly in the near future and possibly long-term as a result of COVID-19. This cloud-based product is integrated within Platform id. and enhances our communications module subscription offerings of newswire, newsrooms, webcasting and shareholder targeting.
Additionally, as a commitment to broadening the reach of our webcast platform, we broadcast live all earnings events, whether they are streamedconducted on our platform or not, within our shareholder outreach module, which helps drive new audiences and givesgive companies the ability to view their analytics and engagement of each event. We believe these analytics, which will be a component of our Insight and Analytics module, will increase the demand for our webcasting platform among the corporate issuer community and beyond.
Our VWP productVisualWebcaster Platform (“VWP”) is a leading cloud-based webcast, webinar and trainingvirtual meeting platform that delivers live and on-demand streaming of events to audiences of all sizes. VWP allows customers to create, produce and deliver events, which we feel integrates well into Platform id. We believe by acquiring VWP enableswe have significantly strengthened our webcasting product and Platform id. offering as well as acquired over 120 customers, ranging from small private companies to Fortune 500 companies. The VWP technology gives us the ability to host thousands of additional webcasts each year, expanding and diversifying our webcast business from our historical earnings-based events to include corporate meetings, training sessions, town hall-type events, annual meetings and deal and non-deal roadshows.any type of virtual event. As we expand our platform, it is vital for us to have solutions that service both our core public companies but also a growing segment of private customers. As a result of COVID-19, most companies have been holding meetings virtually over the past 12 months, which has increased demand for this product.
Professional Conference and Events Software
At the end of 2018, we released a new module to Platform id., centered around the professional conference organizer (“PCO”). This subscription offering is being licensed to investor conference organizers, which in the aggregate we believe held an estimated 1,000 plus events a year prior to 2020. This number significantly decreased in 2020 and is expected to remain at significantly decreased numbers in the near future and possibly long-term as a result of COVID-19. Our professional conference and events software, which is available as a mobile app, offers organizers, issuers and investors the ability to register, request and approve one-on-one meetings, manage schedules, perform event promotion and sponsorship, print attendee badges and manage lodging. This cloud-based product can be used in a virtual or in person conference setting and is integrated within Platform id. to enhance our Communications module subscription offerings of newswire, newsrooms, webcasting and shareholder targeting. We believe this integration gives us a unique offering for PCOs that is not available elsewhere in the market.
We believe entering this business expands our current Communications revenue base, and as an adjacency, should assist in making Platform id. a platform of choice for investment banks, issuers and investors.
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Investor Relations Content
Our investor relations content network is another component of Platform
id., which is used to create the investor relations’ tab of a company’s website. This investor relations content network is a robust series of data feeds including news feeds, stock feeds, fundamentals, regulatory filings, corporate governance and many other components which are aggregated fromAs what we believe to be a natural expansion to our investor relations website business, we are developing a “corporate newsroom” offering, which we plan to bring to market later this year. This product offering can be an add-on to any customer’s ACCESSWIRE or Platform i.d. account. Our intent is to leverage the technology we have in our investor relations content business and focus a module toward all companies, to assist in making their corporate news, media kits and alerts available from our ecosystem to their corporate website.
Compliance
Our Compliance Modules
Disclosure Software and Services
Platform id.’s disclosure reporting module is a document conversion, editing and filing offering which is designed for reporting companies and professionals seeking to insource the document drafting, editing and filing processprocesses to the SEC’s EDGAR system. This module is availableOur disclosure business also offers companies the ability to use our in-house staff to assist in the conversion, tagging and filing of their documents. We generate revenues in disclosure both a secure public cloudfrom software and services and, in most cases, customers have both components within their annual agreements, while others pay for services as they are completed.
Toward the end of 2017, we completed upgrades to our Platform
Whistleblower Hotline
Our whistleblower modulehotline is an add-on product within Platform
Stock Transfer Module
A valued subscription add-on in our Platform
id.offering is the ability for our customers to gain access to real-time information about their shareholders, stock ledgers and reports and to issue new shares from our cloud-based stock transfer module. Managing the capitalization table of a public company or pre-IPO company is a cornerstone of corporate governance and transparency, and as such companies and community banks have chosen us to assist with their stock transfer needs, including bond offerings and dividend management. This is an industry which has experienced declining overall revenues as it was affected by the replacement of paper certificates with digital certificates. However, we have been focused on selling subscriptions of the stock transfer component of our platform, allowing customers to gain access to our cloud-based system in order to move shares or query shareholders, which we believe has resulted in a more efficient process for both our customers and us.Annual Meeting / Proxy Voting Platform
During early 2020, we upgraded our webcasting and annual meeting platform to bring to market a virtual annual meeting solution. This solution provides our customers the ability to conduct their annual meetings in a fully virtual manner as was often required during the COVID-19 pandemic. Our solution incorporates shareholder and guest registration, voting integration, real-time statistics on attendance, audio video and presentation features as well as fully managed meeting managers and inspector of elections.
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By adding a component of our webcasting and events business, we were able to offer a complete annual meeting solution, which resulted in us becoming one of the top technology providers of virtual annual meetings in 2020, which incorporated real-time voting. For perspective, during 2019, approximately 300 North American public companies opted for a virtual component to their annual meeting compared to an estimated 4,000+ public companies in 2020.
Our proxy module is marketed as a fully integrated, real-time voting platform for our customers and their shareholders of record. This module is utilized for every annual meeting or special meeting we manage for our customers and offers both full-set mailing and notice of internet availability options. We
Shareholder Distribution
Over the past few years, we have also upgraded this offering to now offerworked on refining the ability for our customers to hold their annual general meeting virtually. This product will utilize our webcasting technology to allow all shareholdersmodel of digital distribution of our customers to participate in the meeting regardless of location. Shareholders can utilize our voting platform priorcustomers’ message to the meeting or vote in person atinvestment community and beyond. This was accomplished by integrating our shareholder outreach module, Investor Network, into and with Platform id. Most of the virtual meeting by goingcustomers subscribing to this module today are historical PrecisionIR (“PIR”) - Annual Report Service (“ARS”) users, as well as new customers purchasing the meeting’s dedicated URL and entering their specific unique identifying number supplied to them on either their proxy card or electronically.
Results of Operations
Comparison of results of operations for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019:
Three months ended | Nine months ended | |||
September 30, | September 30, | |||
Revenue Streams | 2020 | 2019 | 2020 | 2019 |
Platform and Technology | ||||
Revenue | $3,613 | $2,712 | $9,599 | $8,038 |
Gross margin | $2,769 | $2,014 | $7,329 | $5,960 |
Gross margin % | 77% | 74% | 76% | 74% |
Services | ||||
Revenue | $1,269 | $1,307 | $4,183 | $4,298 |
Gross margin | $726 | $783 | $2,451 | $2,602 |
Gross margin % | 57% | 60% | 59% | 61% |
Total | ||||
Revenue | $4,882 | $4,019 | $13,782 | $12,336 |
Gross margin | $3,495 | $2,797 | $9,780 | $8,562 |
Gross margin % | 72% | 70% | 71% | 69% |
Revenue |
| 2021 |
|
| 2020 |
| ||
Communications |
|
|
|
|
|
| ||
Revenue |
| $ | 3,187 |
|
| $ | 2,408 |
|
Gross margin |
| $ | 2,314 |
|
| $ | 1,729 |
|
Gross margin % |
|
| 73 | % |
|
| 72 | % |
|
|
|
|
|
|
|
|
|
Compliance |
|
|
|
|
|
|
|
|
Revenue |
|
| 1,793 |
|
|
| 1,608 |
|
Gross margin |
|
| 1,272 |
|
|
| 1,034 |
|
Gross margin % |
|
| 71 | % |
|
| 64 | % |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
Revenue |
| $ | 4,980 |
|
| $ | 4,016 |
|
Gross margin |
| $ | 3,586 |
|
| $ | 2,763 |
|
Gross margin % |
|
| 72 | % |
|
| 69 | % |
Revenues
Total revenue increased by $863,000,$964,000, or 21%24%, to $4,882,000$4,980,000 during the three-month periodthree months ended September 30, 2020,March 31, 2021, as compared to $4,019,000 during$4,016,000 for the same period in 2020. The increase is primarily attributable to an increase in revenue in our Communications business, but also in our Compliance business.
Communications revenue increased $779,000, or 32%, to $3,187,000 for the three months ended March 31, 2021, as compared to $2,408,000 for the same period of 2019. Total revenue increased by $1,446,000, or 12%, to $13,782,000 during the nine-month period ended September 30, 2020, compared to $12,336,000 during the same period of 2019. The increase in total revenue is attributable to our Platform and Technology revenue stream.
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Compliance revenue decreased $38,000,increased $185,000, or 3%, and $115,000, also 3%12%, during the three and nine-month periodsmonths ended September 30, 2020,March 31, 2021, as compared to the same periods of 2019.2020. The decreaseincrease was due to an increase in revenue is due to continued customer attrition of our ARS services as well as a decline infrom transfer agent services due to a combination of less corporate transactions and directives, as well as, an increased shift from paper-based processing of transactions to electronic processing. These decreases were partially offset by increases in print and proxy fulfillment dueservices. Revenue from these two services tends to increased projects associated with annual meetings,fluctuate from quarter to quarter depending on corporate transactions and teleconferencing and other webcasting services, as a resultmarket activity.
2021 Revenue Backlog
As of accompanying the increased demand for virtual webcasting products.
Cost of Revenues and Gross Margin
Communications cost of revenues consists primarily of direct labor costs, newswire distribution costs, third partyteleconferencing costs and third-party licensing costs. Compliance and amortization of capitalized software costs related to platforms licensed to customers. Servicesother costs of revenue consists primarily of direct labor costs, warehousing, logistics, print production materials, postage, and outside services directlyamortization of capitalized software costs related to the delivery of services to our customers.disclosure software. Cost of revenues increased by $165,000,$141,000, or 14%11%, and $228,000, or 6% during the three and nine-month periodsmonths ended September 30, 2020, respectively,March 31, 2021, as compared to the same periodsperiod of 2019.2020. Overall gross margin increased $698,000,$823,000, or 25%, and $1,218,000, or 14%30%, during the three and nine-month periodsmonths ended September 30, 2020, respectively, asMarch 31, 2021, compared to the same periodsperiod of 2020. As a result, overall gross margin percentage increased to 72% during the three months ended March 31, 2021, as compared to 69% during the prior year. Gross margin percentages increasedThe increase in cost of sales is due partially to 72%an increase in labor costs associated with delivering our newswire and 71% during the threewebcasting revenue, an increase in distribution costs as we continue to expand our distribution capabilities as well as an increase in teleconferencing costs. These increases were offset by decreases in amortization of capitalized software as well as decreases in postage and nine months ended September 30, 2020, respectively, compared to 70% and 69% during the same periods of 2019.
Gross margin percentage from Platform and Technologyassociated with our Communications revenue was 77% and 76% during73% for the three and nine-month periodsmonths ended September 30, 2020, respectively, asMarch 31, 2021 compared to 74% during72% for the same periodsperiod of 2019.2020.
Gross margin percentage associated with our Compliance revenue was 71% for the three months ended March 31, 2021 compared to 64% for the same period of 2020. The increase in gross margin percentage is primarily attributablewas due to the additional webcastingan increase in revenue associated with the virtual events completed during the year with a relatively fixed cost structure.
General and Administrative Expense
General and administrative expenses consist primarily of salaries, bonuses, stock-based compensation, insurance, fees for professional services, general corporate expenses (including bad debt expense) and facility and equipment expenses. General and administrative expenses decreased $177,000, or 14%, and $447,000 or 11%, duringwere $1,404,000 for the three and nine-month periodsmonths ended September 30, 2020, respectively,March 31, 2021, an increase of $188,000 or 15%, as compared to the same periodsperiod of 2019. This decrease is primarily due to a decrease in our bad debt provision of $85,000 and $458,000 during the three and nine months ended September 30, 2020, respectively, compared to the prior year. The high bad debt provision in the prior year was primarily relatedincrease is due to reserves on accounts receivable balances of two significant investment commentary newswire customers which were written off in 2019. Also contributing to the decrease in generalhigher personnel expenses and administrative expenses wasprofessional fees offset by a decrease in stock compensation expenses. These decreases were partially offset by an increase in rent expense and for the nine months ended September 30, 2020 an increase in employee expenses.
As a percentage of revenue, generalGeneral and administrativeAdministrative expenses were 22% and 25%28% for the three and nine-month periodsmonths ended September 30, 2020, respectively,March 31, 2021, as compared to 31% and 32%30% for the same periodsperiod of the prior year.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of salaries, stock-based compensation, sales commissions, advertising expenses, tradeshow expenses and other marketing expenses. Sales and marketing expenses were $1,074,000 for the three and nine-month periodsmonths ended September 30, 2020, increased $102,000,March 31, 2021, an increase of $178,000, or 12%20%, and $253,000, or 10%, respectively,as compared to the same periodsperiod of 2019.2020. This increase is directly related to our investment in our sales and marketing initiatives with an increase in personnel costsheadcount, commissions and digital marketing.
As a percentage of revenue, salesSales and marketing expenseexpenses were 20%22% for both the three months ended March 31, 2021 and nine-month periods ended September 30, 2020, respectively, compared to 22% and 21% for the same periods of the prior year.
Product Development Expenses
Product Developmentdevelopment expenses consist primarily of salaries, stock-based compensation, bonuses and licenses to develop new products and technology to complement and/or enhance Platform id.id. Product development expenses decreased $76,000,costs increased $55,000, or 26%28%, and $397,000, or 41%,to $249,000 during the three and nine-month periodsmonths ended September 30, 2020,March 31, 2021, as compared to the same periods in 2019.2020. The decreaseincrease is due to a decreasean increase in headcount within the development team and use of more specialized consultants. We anticipate product development expenses to begin to increase toward previous levels in future periods.
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As a percentage of revenue, productProduct development expenses were 4%5% for both the three months ended March 31, 2021 and nine-month periods ended September 30, 2020, respectively, compared to 7% and 8% during the same periods of 2019, respectively.
Depreciation and Amortization
During the three months ended March 31, 2021, Depreciation and amortization expenses decreased $47,000,by $57,000, or 21%27%, and $59,000, or 9%, during the three and nine-month periods ended September 30, 2020, respectively,to $152,000, as compared to $209,000 during the same periodsperiod of 2019.the prior year. The decrease is primarily related to intangible assets associated with the acquisition of PIR that became fully amortized during the prior year.
Interest income, net
Interest income, (expense), net, represents interest income on deposit and money market accounts, as well as for the prior year, the non-cash interest expense associated with the present value of the remaining anniversary payments of the Interwest acquisition. The decrease in interest income and corresponding increase in interest expense during the three and nine months ended September 30, 2020,March 31, 2021, as compared to the same periodsperiod of the prior year, is due to a decrease in interest rates associated with deposit and money market accounts.
Income tax expense
We recognizedrecorded income tax expense of $283,000 and $593,000$163,000 during the three and nine-month periodsmonths ended September 30, 2020, respectively,March 31, 2021, compared to $59,000 and $105,000$80,000 during the same periodsperiod of 2019. At the end of each interim period, we estimate the effective2020. The increase in income tax rate we expectexpense is attributable to be applicablehigher pre-tax income for the full fiscal year and this rate is applied to our results for the year-to-date period, and then adjusted for any discrete period items. For the three and nine-month periodsmonths ended September 30, 2020, the varianceMarch 31, 2021. The difference between the Company’s effective tax rate of 23% and the U.S.federal statutory rate of 21% is primarily attributabledue to state income taxes. For the three and nine-month periods ended September 30, 2019, the variance between the Company’s effective tax rate and the U.S. statutory rate is primarily attributabletaxes, partially offset by a benefit related to the excess stock-based compensation tax benefit recognized in income tax expense during the periods,Foreign Derived Intangible Income (“FDII”) deduction as well as foreign statutory tax rate differentials and tax credits.
Liquidity and Capital Resources
As of September 30, 2020,March 31, 2021, we had $18,429,000$20,548,000 in cash and cash equivalents and $2,445,000$2,966,000 in net accounts receivable. Current liabilities at September 30, 2020,as of March 31, 2021, totaled $4,685,000$5,428,000 including our accounts payable, deferred revenue, accrued payroll liabilities, income taxes payable, current portion of remaining payments for Interwest, lease liabilities and other accrued expenses. At September 30, 2020,On March 31, 2021, our current assets exceeded our current liabilities by $16,409,000.
Effective October 3, 2019, the Company renewed its unsecured Line of Credit, which increased the term to two years, with all other provisions remaining the same. The amount of funds available for borrowing are $3,000,000 and the interest rate is LIBOR plus 1.75%. As of September 30, 2020,March 31, 2021, the interest rate was 1.90%1.86% and the Company did not owe any amounts on the Line of Credit.
Disclosure about Off-Balance Sheet Arrangements
We do not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.
Outlook
The following statements and certain statements made elsewhere in this document are based upon current expectations. These statements are forward looking and are subject to factors that could cause actual results to differ materially from those suggested here, including, without limitation, demand for and acceptance of our services, new developments, competition and general economic or market conditions, particularly in the domestic and international capital markets. Refer also to the Cautionary Statement Concerning Forward Looking Statements included in this report.
While it is unknown how long thesecurrent conditions resulting from the COVID-19 pandemic will last, including whether a worldwide resurgence will occur, and whatvariants of the complete financial impactvirus will become more impactful or vaccines will be to the Company,completely effective, we could experience a material disruption of our employees and operations, a decline in revenue, a decline in value of our assets, deterioration of our customer base and the inability of our customers to pay for subscriptions or services provided. To date, we have seen both positive and negative impacts to our business. SeveralPhysical, in-person conferences scheduled to occurhave been delayed and in the first half of theprior year were either cancelled or delayed and we also experiencedthere was a delay in transactions processed by the Depository Trust Company and banks and brokers in our transfer agent business. However, our ability to pivot and enhance our product offering with our virtual products generated increased revenue during the second and third quarters.past year. Despite the short-term increase in revenue, the concentrations of our customer base within middle, small and micro-cap public customers make it reasonably possible that we are vulnerable to the risk of a near-term negative impact related to the COVID-19 outbreakpandemic if a substantial portion of these customers are forced to scale back or cease operations. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and are unable at this time to predict the continued impact that COVID-19 will have on our business, financial position, and operating results in future periods due to numerous uncertainties.
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Overall, the demand for our platforms and services continues to be stable in a majority of the segments we serve. We are seeing increased demand for virtual events using both our conference software and webcasting products, as customers are opting to hold virtual meetings. During the first and second quarter of 2020, we were able to pivot portions of our platform to specifically address COVID-19 business limitations. This resulted in a new Virtual Annual Meetingvirtual annual meeting product, which combines our webcasting and proxy voting technology together. Additionally, we also upgraded technology of our conference software product to allow conferences to go fullyentirely virtual and hold
We believe these developments will assist us not only in delivering best of breedattractive solutions to the market, but also lead us into new opportunities
The transition to a platform subscription model has been and will continue to be key for our long-term sustainable growth. We will also continue to focus on the following key strategic initiatives during 2020:
· | Continue to expand our Communications products and adapt to this changing environment, | |
· | Continue to grow through acquisitions in areas of strategic focus, | |
· | Continue to expand our Communications sales and marketing teams and digital marketing strategy, | |
· | Continue to expand customer base, | |
· | Continue to expand our newswire distribution, | |
· | Invest in technology advancements and upgrades, | |
· | Generate profitable sustainable growth | |
· | Generate cash flows from operations. |
We believe there is significant demand for our products around the world among the middle, small and micro-cap markets, as well as private companies, as they seek to find better platforms and tools to disseminate and communicate their messages. Although this demand may decrease or shift in the near term as a result of COVID-19, we believe we have the product sets, platforms, capacity and ability to adapt during these changing times to meet their requirements.
We have invested and will continue to invest in our product sets, platforms and intellectual property development via internal development and acquisitions. Currently, the acquisition environment is very difficult due to COVID-19, however, acquisitionsAcquisitions remain a core part of our strategy. This investment strategy isand we believe acquisitions are key to enhancing our overall offerings in the market and necessary to keep our competitive advantages and facilitate the next round of growth that management believes it can achieve when the pandemic has passed.achieve. If we are successful in this effort, we believe we can further increase our market share and revenues per user as we move forward, once we return to a more traditional business environment.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
ITEM 3. QUANTITATIVEQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
ITEM 4. CONTROLSCONTROLS AND PROCEDURES.
As of the end of the period covered by this quarterly report on Form10-Q, the Company’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934). Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective and have not materially changed since its most recent annual report.
Changes in Internal Control over Financial Reporting
We regularly review our system of internal control over financial reporting to ensure we maintain an effective internal control environment. There were no changes in our internal controlDuring the three months ended March 31, 2021, the Company implemented a new accounting system. While existing controls over financial reporting that occurredremained similar, such as segregation of duties, account reconciliation, reviews and approvals, among others, there is a heightened risk of misstatement upon conversion to a new system. The Company believes proper procedures were conducted during and after the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likelyimplementation to materially affect, ourensure the associated risk was mitigated, however there can be no absolute assurance. The Company did not incur any significant issues throughout the implementation and continues to believe the internal control over financial reporting.
ITEM 1. LEGALLEGAL PROCEEDINGS.
From time to time, we may be involved in litigation that arises through the normal course of business. As of the date of this filing, we are neither a party to any litigation nor are we aware of any such threatened or pending litigation that might result in a material adverse effect to our business.
ITEM 1A. RISKRISK FACTORS.
There have been no material changes to our risk factors as previously disclosed in our most recent Form 10-K filing, except as set forth below.
ITEM 2. UNREGISTEREDUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
There were no unregistered sales of our equity securities during the period covered by this Form 10-Q.
On August 7, 2019, the Company publicly announced a share repurchase program under which the Company is authorized to repurchase up to $1,000,000 of its common shares. On March 16, 2020, the Company publicly announced that the Company increased the share repurchase program to repurchase up to $2,000,000 of its common shares. As of March 31, 2021, the Company completed the repurchase program by purchasing 179,845 shares. Please see footnote 3 to the financial statements above for additional information. During the period covered by this Form 10-Q, the Company repurchased 19,777 shares as shown in the table below:
|
| Shares Repurchased |
| |||||||||||||
Period |
| Total Number of Shares Repurchased |
|
| Average Price Paid Per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Program |
|
| Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program |
| ||||
No shares repurchased between January 1, 2021 and February 28, 2021 |
| |||||||||||||||
March 1-31, 2021 |
|
| 19,777 |
|
| $ | 22.89 |
|
|
| 19,777 |
|
| $ | - |
|
ITEM 3. DEFAULTSDEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINEMINE SAFETY DISCLOSURE.
Not applicable.
None.
Table of Contents |
ITEM 6.EXHIBITS.
(a) Exhibits.
Exhibit | ||
Number | Description | |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | ||
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | ||
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | ||
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | ||
101.INS | XBRL Instance Document.** | |
101.SCH | XBRL Taxonomy Extension Schema Document.** | |
101.CAL | XBRL Taxonomy Calculation Linkbase Document.** | |
101.LAB | XBRL Taxonomy Label Linkbase Document.** | |
101.PRE | XBRL Taxonomy Presentation Linkbase Document.** | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. ** |
__________________
* | filed or furnished herewith |
** | submitted electronically herewith |
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Table of Contents |
S
IGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: October 29, 2020
ISSUER DIRECT CORPORATION | |||
By: | |||
/s/ Brian R. Balbirnie | |||
Brian R. Balbirnie | |||
Chief Executive Officer |
By: | /s/ Steven Knerr | ||
Steven Knerr | |||
Chief Financial Officer |
24 | |||