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, 2021March 31, 2022
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 of Incorporation) |
| (Commission File Number) |
| (I.R.S. Employer |
|
| Identification No.) |
1One 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“emerging growth company"company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated | ☐ | Smaller reporting company | ☒ |
(Do not check if a 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 3,791,0383,783,112 shares of common stock were issued and outstanding as of November 4, 2021.May 5, 2022.
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
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)
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)
The accompanying notes are an integral part of these unaudited financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (in thousands)
The accompanying notes are an integral part of these unaudited financial statements.
ISSUER DIRECT CORPORATION AND SUBSIDIARIES
(UNAUDITED) (in thousands, except share and per share amounts)
The accompanying notes are an integral part of these unaudited financial statements.
ISSUER DIRECT CORPORATION AND SUBSIDIARIES
(UNAUDITED) (in thousands)
The accompanying notes are an integral part of these unaudited financial statements.
ISSUER DIRECT CORPORATION AND SUBSIDIARIES
(UNAUDITED)
Note 1. Basis of Presentation
The unaudited interim consolidated balance sheet as of
Note 2. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of the Company and its
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. Shares issuable upon the exercise of stock options totaling 50,250 were excluded in the computation of diluted earnings per common share during the three-month period ended March 31, 2022 because their impact was anti-dilutive. There were no shares issuable upon the exercise of stock options excluded in the computation of diluted earnings per common share during the
Revenue Recognition
Substantially all the Company’s revenue comes from contracts with customers for subscriptions to its cloud-based products or contracts for Communications and Compliance products and services. Customers consist of public and private corporate issuers and professional firms, such as investor and public relations firms. In the case of
The
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.
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 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 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 press release packages which have been prepaid, however the releases have not yet been disseminated, as well as, subscription and service contracts, which are billed upfront, quarterly or annually, however the revenue has not yet been
Costs to obtain contracts with customers consist primarily of sales commissions. As of
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
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
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
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.
Impairment of Long-lived Assets
In accordance with the authoritative guidance for accounting for long-lived assets, assets such as property and equipment, trademarks, and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds fair value of the asset group.
Lease Accounting
ROU assets represent
Fair Value Measurements
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| · | Level 2 |
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| · | Level 3 |
As of September 30, 2021March 31, 2022 and December 31, 2020, we believe that2021, the Company believes the fair value of ourits financial instruments, such as, accounts receivable, ourthe line of credit, and accounts payable approximate their carrying amounts.
| 10 |
| Table of Contents |
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 recordThe Company records 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 as incurred. During the three-month periods ended March 31, 2022 and 2021, advertising expense was $95,000 and $80,000, respectively.
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.
Employee Retention Credit
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law providing numerous tax provisions and other stimulus measures, including an employee retention credit (“ERC”), which is a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC.
We are eligible under the CARES Act ERC as an employer that carried on a trade or business during calendar year 2020 and whose business operations were fully or partially suspended during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19.
ASC 105, Generally Accepted Accounting Principles, describes the decision-making framework when no guidance exists in US GAAP for a particular transaction. Specifically, ASC 105-10-05-2 instructs companies to look for guidance for a similar transaction within US GAAP and apply that guidance by analogy. As such, forms of government assistance, such as the ERC, provided to business entities would not be within the scope of ASC 958, but it may be applied by analogy under ASC 105-10-05-2. We accounted for the ERC as a government grant in accordance with Accounting Standards Update 2013-06, Not-for-Profit Entities (Topic 958) by analogy under ASC 105-10-05-2. Under this standard, government grants are recognized when the conditions or conditions on which they depend are substantially met. The conditions for recognition of the ERC include, but are not limited to:
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During the three and nine months ended September 30, 2021, we recorded an ERC benefit of 366,000 in other income, net in our Consolidated statements of operations and in other current assets in our Consolidated balance sheets as of September 30, 2021.
Note 3: Equity
2014 Equity Incentive Plan
On May 23, 2014, the shareholders of the Company approved the 2014 Equity Incentive Plan, as amended (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, 2021,March 31, 2022, there are 223,818153,235 shares which remain eligible to be granted under the 2014 Plan.
The following table summarizes information about stock options outstanding and exercisable at September 30, 2021:March 31, 2022:
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| Options Outstanding |
| Options Exercisable |
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|
| Options Outstanding |
| Options Exercisable |
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| Exercise Price Range |
| Number |
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| Weighted Average Remaining Contractual Life (in Years) |
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| Weighted Average Exercise Price |
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| Number |
| Exercise Price Range |
| Number |
|
| Weighted Average Remaining Contractual Life (in Years) |
|
| Weighted Average Exercise Price |
|
| Number |
| ||||||||
$ | 0.01 - 7.00 |
| 5,000 |
| 4.14 |
| $ | 6.80 |
| 5,000 |
| 0.01 - 7.00 |
| 5,000 |
| 3.64 |
| $ | 6.80 |
| 5,000 |
| ||||||||||||
$ | 7.01 - 8.00 |
| 10,000 |
| 1.99 |
| $ | 7.76 |
| 10,000 |
| 7.01 - 8.00 |
|
| 2,500 |
| 1.49 |
| $ | 7.76 |
| 2,500 |
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$ | 8.01 - 12.00 |
|
| 3,667 |
| 5.70 |
| $ | 10.07 |
| 3,667 |
| 8.01 - 12.00 |
| 3,500 |
| 5.32 |
| $ | 10.11 |
| 3,500 |
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$ | 12.01 - 15.00 |
|
| 23,000 |
| 6.92 |
| $ | 13.14 |
| 23,000 |
| 12.01 - 15.00 |
| 20,500 |
| 6.36 |
| $ | 13.13 |
| 20,500 |
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$ | 15.01 - 17.40 |
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| 8,000 |
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| 6.67 |
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| $ | 17.40 |
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| 8,000 |
| 15.01 - 27.11 |
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| 58,250 |
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| 9.33 |
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| $ | 25.47 |
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| 9,500 |
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| Total |
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| 49,667 |
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| 5.52 |
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| $ | 11.88 |
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|
| 49,667 |
| Total |
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| 89,750 |
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| 7.98 |
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| $ | 20.60 |
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|
| 41,000 |
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| 11 |
| Table of Contents |
As of September 30, 2021,March 31, 2022, the Company did not have anyhad unrecognized stock compensation related to the options.options of $577,000, which will be recognized through 2026.
During the ninethree months ended September 30, 2021,March 31, 2022, the Company granted 17,76520,000 restricted stock units, which do not vest until the third anniversary of the grant date, to an employee with an intrinsica grant date fair value of $25.92$26.00 per share. No restricted stock units were granted duringDuring the three months ended September 30, 2021. Non-employee directors were granted 12,765March 31, 2021, the Company did not grant any restricted stock units, which vest on the earlier of the 2022 annual meeting of the shareholders or one year. The other 5,000 restricted stock units were granted to an employee and vest 50% during each of the first and second anniversary dates of the date of grant, which was May 17, 2021. No restricted stock units vested during the three months ended September 30, 2021. During the nine months ended September 30, 2021, 19,000 restricted stock units with an intrinsic value of $10.78 vested.units. As of September 30, 2021,March 31, 2022, there was $334,000$624,000 of unrecognized compensation cost related to our unvested restricted stock units, which will be recognized through 2023.2025.
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 $2,000,000 of its common shares. As of March 31, 2021, the Company completed the repurchase program by purchasing 179,845 shares as shown in the table below ($ in 000’s, except share or per share amounts):
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| Shares Repurchased |
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| Shares Repurchased |
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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 |
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| Total Number of Shares Repurchased |
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| Average Price Paid Per Share |
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| Total Number of Shares Purchased as Part of Publicly Announced Program |
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| Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program |
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August 7-31, 2019 |
| 22,150 |
| $ | 9.34 |
| 22,150 |
| $ | 793 |
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| 22,150 |
| $ | 9.34 |
| 22,150 |
| $ | 793 |
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September 1-30, 2019 |
| 2,830 |
| $ | 10.00 |
| 2,830 |
| $ | 765 |
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| 2,830 |
| $ | 10.00 |
| 2,830 |
| $ | 765 |
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October 1-31, 2019 |
| 39,363 |
| $ | 10.44 |
| 39,363 |
| $ | 354 |
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| 39,363 |
| $ | 10.44 |
| 39,363 |
| $ | 354 |
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November 1-30, 2019 |
| 11,827 |
| $ | 10.43 |
| 11,827 |
| $ | 231 |
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| 11,827 |
| $ | 10.43 |
| 11,827 |
| $ | 231 |
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December 1-31, 2019 |
| — |
| 0 |
| — |
| $ | 231 |
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| 0 |
| 0 |
| 0 |
| $ | 231 |
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January 1-31, 2020 |
| — |
| 0 |
| — |
| $ | 231 |
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| 0 |
| 0 |
| 0 |
| $ | 231 |
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February 1-29, 2020 |
| — |
| 0 |
| — |
| $ | 231 |
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| 0 |
| 0 |
| 0 |
| $ | 231 |
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March 1-31, 2020 |
| 21,700 |
| $ | 9.33 |
| 21,700 |
| $ | 1,028 |
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| 21,700 |
| $ | 9.33 |
| 21,700 |
| $ | 1,028 |
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April 1-30, 2020 |
| 22,698 |
| $ | 9.02 |
| 22,698 |
| $ | 823 |
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| 22,698 |
| $ | 9.02 |
| 22,698 |
| $ | 823 |
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May 1-31, 2020 |
| 39,500 |
| $ | 9.51 |
| 39,500 |
| $ | 448 |
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| 39,500 |
| $ | 9.51 |
| 39,500 |
| $ | 448 |
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No shares repurchased between June 2020 and February 2021 | No shares repurchased between June 2020 and February 2021 |
| No shares repurchased between June 2020 and February 2021 | |||||||||||||||||||||||||||||
March 1-31, 2021 |
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| 19,777 |
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| $ | 22.89 |
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| 19,777 |
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| $ | 0 |
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| 19,777 |
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| $ | 22.89 |
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| 19,777 |
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| $ | 0 |
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Total |
| 179,845 |
| $ | 11.15 |
| 179,845 |
| $ | 0 |
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| 179,845 |
| $ | 11.15 |
| 179,845 |
| $ | 0 |
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On March 1, 2022, the Company’s board of directors authorized a stock repurchase program under which the Company may repurchase up to $5,000,000 of its common shares. The repurchase program does not have a specific expiration date, however, the board of directors may terminate it at any time. During the three-month period ended March 31, 2022, the Company repurchased 6,200 shares as shown in the table below ($ in 000’s, except share or per share amounts):
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| Shares Repurchased |
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Period |
| Total Number of Shares Repurchased |
|
| Average Price Paid Per Share |
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| Total Number of Shares Purchased as Part of Publicly Announced Program |
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| Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program |
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March 1-31, 2022 |
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| 6,200 |
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| $ | 29.35 |
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| 6,200 |
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| $ | 4,818 |
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Note 4: Income taxes
WeThe Company recognized income tax expense of $319,000 and $738,000$174,000 for the three and nine-month periodsthree-month period ended September 30, 2021, respectively,March 31, 2022, compared to $283,000 and $593,000income tax expense of $163,000 during the same periodsperiod of 2020.2021. At the end of each interim period, we estimatethe Company estimates the effective tax rate we expectexpected to be applicable for the full fiscal year and this rate is applied to ourthe 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, 2022 and 2021, the variance between the Company’s effective tax rate and the U.S. statutory rate of 21% is primarily attributable to state income tax, partially offset by an excess stock-based compensationa benefit related to the Foreign Derived Intangible Income (“FDII”) deduction as well as foreign statutory tax rate differentials.
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| Table of Contents |
Note 5: Leases
Generally, our leasingLeasing activity generally consists of office leases. In March 2019, we signed a new lease was signed to move ourthe 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, 2021. WeMarch 31, 2022. The Company 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 a three-year The Company also has an office lease in Florida, which was signed on January 4, 2019, at which time we recognized a ROU asset and corresponding lease liability of $125,000, which represents the present value of minimum lease payments discounted at 4.25%, the Company’s incremental borrowing rate at lease inception. We also have facilities in Salt Lake City, Utah, and New York, which areis on a short-term leaseslease that are less than twelve months.is month-to-month. As a result, we have elected the short-term lease recognition exemption has been elected for these leases,this lease, which means, for those leases we do not expectexpected to extend beyond twelve months, wea ROU asset or lease liability will not recognize ROU assets or lease liabilities.be recognized.
Lease liabilities totaled $2,105,000$1,941,000 as of September 30, 2021.March 31, 2022. The current portion of this liability of $367,000$361,000 is included in Accrued expenses on the Consolidated balance sheets and the long-term portion of $1,738,000$1,580,000 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-term leases. The components of lease expense were as follows (in 000’s):
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| For the Three Months Ended |
| For the Nine Months Ended |
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| Three months ended |
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| September 30, |
| September 30, |
| September 30, |
| September 30, |
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| March 31, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| 2022 |
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| 2021 |
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Lease expense |
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Operating lease expense |
| $ | 87 |
| $ | 87 |
| $ | 261 |
| $ | 261 |
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| $ | 89 |
| $ | 87 |
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Variable lease expense |
|
| 29 |
|
|
| 33 |
|
|
| 86 |
|
|
| 99 |
|
|
| 18 |
|
|
| 27 |
|
Total lease expense |
| $ | 116 |
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| $ | 120 |
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| $ | 347 |
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| $ | 360 |
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Rent expense |
| $ | 107 |
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| $ | 114 |
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The weighted-average remaining non-cancelable lease term for our operating leases was 6.25.8 years as of September 30, 2021.March 31, 2022. As of September 30, 2021,March 31, 2022, the weighted-average discount rate used to determine the lease liability was 3.8%3.77%. The future minimum lease payments to be made under non-cancelable operating leases on September 30, 2021,March 31, 2022, are as follows (in 000’s):
Year Ended December 31: |
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| |
2021 |
| $ | 100 |
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2022 |
|
| 359 |
|
2023 |
|
| 369 |
|
2024 |
|
| 379 |
|
2025 |
|
| 389 |
|
Thereafter |
|
| 813 |
|
Total lease payments |
|
| 2,409 |
|
Present value adjustment |
|
| (304 | ) |
Lease liability |
| $ | 2,105 |
|
Year Ended December 31: |
|
|
| |
2022 |
| $ | 269 |
|
2023 |
|
| 369 |
|
2024 |
|
| 379 |
|
2025 |
|
| 389 |
|
2026 |
|
| 399 |
|
Thereafter |
|
| 415 |
|
Total lease payments |
| $ | 2,220 |
|
Present value adjustment |
|
| (279 | ) |
Lease liability |
|
| 1,941 |
|
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.
| 13 |
| Table of Contents |
Note 6: Revenue
We consider ourselvesThe Company considers itself to be in a single reportable segment under the authoritative guidance for segment reporting, specifically a 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 |
| 2021 |
|
| 2020 |
| ||||||||||
Communications |
| $ | 3,686 |
|
|
| 67.4 | % |
| $ | 3,356 |
|
|
| 68.7 | % |
Compliance |
|
| 1,779 |
|
|
| 32.6 | % |
|
| 1,526 |
|
|
| 31.3 | % |
Total |
| $ | 5,465 |
|
|
| 100.0 | % |
| $ | 4,882 |
|
|
| 100.0 | % |
|
| Nine months ended September 30, |
|
| Three months ended March 31, |
| ||||||||||||||||||||||||||
Revenue Streams |
| 2021 |
| 2020 |
|
| 2022 |
| 2021 |
| ||||||||||||||||||||||
Communications |
| $ | 10,383 |
| 64.2 | % |
| $ | 8,777 |
| 63.7 | % |
| $ | 3,383 |
| 64.0 | % |
| $ | 3,187 |
| 64.0 | % | ||||||||
Compliance |
|
| 5,782 |
|
|
| 35.8 | % |
|
| 5,005 |
|
|
| 36.3 | % |
|
| 1,905 |
|
|
| 36.0 | % |
|
| 1,793 |
|
|
| 36.0 | % |
Total |
| $ | 16,165 |
|
|
| 100.0 | % |
| $ | 13,782 |
|
|
| 100.0 | % |
| $ | 5,288 |
|
|
| 100.0 | % |
| $ | 4,980 |
|
|
| 100.0 | % |
WeThe Company did not have any customers during the three and nine-monththree-month periods ended September 30,March 31, 2022 or 2021 or 2020 that accounted for more than 10% of our revenue.
Note 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, 2021, the interest rate was 1.84% and the Company did not owe any amounts on the Line of Credit.
Effective October 3, 2021, the Company renewed its unsecured Line of Credit, which changed the interest rate from LIBOR plus 1.75% to SOFR (Secured Overnight Financing Rate) plus 1.75%. All other provisionsThe amount of funds available for borrowing remained $3,000,000 and the same.term remained two years. As of March 31, 2022, the interest rate was 1.91% and the Company did not owe any amounts on the Line of Credit.
| 14 |
| Table of Contents |
ITEM 2. MANAGEMENT’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, 2020,2021, 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 headquarters 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 Issuer 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. Our principal platform, Platform id.™, empowers users by thoughtfully integrating the most relevant tools, technologies and products, thus eliminating the complexity associated with producing and distributing their business communications and financial information. Platform id. efficiently and effectively helps our customers manage their events when seeking to distribute their messaging to key constituents, investors, markets and regulatory systems around the globe. Platform id. consists of several related but distinct Communications and Compliance modules that companies utilize every quarter.
We disclose our revenues in the following two main categories: (i) Communications and (ii) Compliance. Set forth below is an infographic depicting the products included in each of these two main categories we provide today:
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| Table of Contents |
Over the next several years, we expect the Communications portion of our business to continue to increase, both in terms of overall revenue and as compared to the Compliance portion of our business. Therefore, as noted below, for the year ended December 31, 2020, 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 nine months of 2021 and 2020. For the full year of 2020, Communications revenues were 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 2021, the growth from our Communications business was led by increased demands for our ACCESSWIRE news brand as well as increased subscriptions of Platform id.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 and communications 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. Our customers and their service providers utilize Platform id. and related solutions from document creation all the way to dissemination to regulatory bodies, news outlets, financial platforms, and our customers’ shareholders. Private companies primarily use our news distribution and webcasting products and services to disseminate their message globally. Platform id.’s intelligent subscription platform guides thousands of customers through the process of communicating their message to a large audience.
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 past we have disclosed revenues in two main categories: (i) Platform and Technology and (ii) Services. However, to be more reflective of our strategy of primarily being a communications company, we have decided to re-categorize and disclose our revenues in the following two main categories: (i) Communications and (ii) Compliance. Set forth below is an infographic depicting the products included in each of these two main categories we provide today:
Communications
Our Communications platform consists of our ACCESSWIRE branded newswire, our webcasting and events business, professional conference and events software, as well as our investor relations website technology. These products are sold as the leading part of our Platform id. subscription, as well as individually to customers around the globe and are further described below.
ACCESSWIRE
Our press release offering, which is marketed under the brand ACCESSWIRE, is a news dissemination and media outreach service. The ACCESSWIRE product offering focuses on press release distribution for both private and public companies globally. We believe ACCESSWIRE is becoming a competitive alternative in the newswire industry because we have been able to use our technological advancements to allow customers to self-edit releases or use our editorial staff as desired to edit releases. We also continue to expand our distribution points, improve our targeting and enhance our analytics reporting. During 2020 we released a newWe also offer an e-commerce element to our ACCESSWIRE product, whereby customers can self-select their distribution, register, and then register, upload their press release and tell their storyfor editorial review in minutes without contacting a sales or operational employee.
minutes. We believe these enhancements have helped lead to an increase in ACCESSWIRE revenues and customers each year compared to the above strategy will enable usprior year, a trend we expect to continue to add new customers duringover the remainder of 2021 and beyond.next several years. 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 for a designated package of releases. Currently, ACCESSWIRE is available within our Platform id. subscription, or as a stand-alone offering. Since the beginning of 2021, we have been removing unlimited newswire subscriptions to preserve the per unit pricing of our newswire products. This strategic change has decreased and may continue to decrease the number of net Platform id. subscriptions; however, the majority of these customers remain active, buying packages of releases, resulting in similar or greater average revenue.
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 prior year, a trend we expect to continue over the next several years. A significant portion of the growth has been due to increased private company customers, through either direct-sales, e-commerce or through partner and reseller relationships.
Newsroom
A natural expansion to our ACCESSWIRE and investor relations website business is a corporate Newsroom, which we began developing thislast year and recently brought to market during the middle of the third quarter of this year.2021. This product offering can be an add-on to any customer’s ACCESSWIRE or Platform id. account. The Newsroom suite includes a custom newsroom page builder, a brand asset manager and contact manager.
Our Newsroom suite addresses the needs of our customers looking to build connections with media, journalists, its customers and if applicable the investment community. According to a recent survey from TekGroup, a majority of journalists and media professionals indicated the importance of newsrooms that includesinclude digital media, press kits and video. We believe our Newsroom suite accomplishes this by including the following three components:
Newsroom page –- a custom URL, self-publishing system for customers that automatically addadds ACCESSWIRE news to their newsroom and allows them the ability to add any other mention, article or post from the webinternet to their newsroom. Customers can self-manage this platform andto customize things like colors, font, logo, images, social integration, and contact and customer URLs from our platform.URLs.
Brand Asset Manager –- a customizable library of images, video and press kits, which can be shared both privately and publicly, as well as integrated into the ACCESSWIRE editor for easy access of customers’ high- resolution images. Brand Asset Manager is one of the first media file managers built into the press release creation process. All assets are tagged to give our customers analytics for both views and downloads. Subsequent versions of this feature will allow for greater analytics as engagement occurs with our customers’ assets.
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| Table of Contents |
Contact Manager –- a technology that allows our customers to provide their audiences the ability to quickly subscribe to alerts or notifications of a particular brand. Customers will have the ability to deliver their stories automatically or time based. Engagement and delivery reports will also be available to customers directly from their dashboard.
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 demand for these products with a virtual component was at an all-time high for us in 2020 in large part due to the COVID-19 pandemic. The industry overall has begun to see a reduction in the number of virtual events, specifically annual meetings and deal/non-deal roadshows, as customers are relying on internal enterprise solutions or are returning to pre-pandemic travel and in-person meetings, reducing the need for a virtual component. However, for the nine months ended September 30, 2021, our events business has increased compared to pre-pandemic results from 2019 but has declined compared to 2020. We expect this heightened demand for virtual offerings will continue for the remainder of 2021, although, there can be no assurances it will continue in the future and may return to pre-pandemic levels.
Traditional earnings calls and webcasts are a highly competitive market with the majority of the business being driven from practitioners in investor relations and communications firms. We estimate there are approximately 5,000 companies in North America conducting earnings events each quarter that include a teleconference, webcast or both as part of their events. Platform id. also incorporates other elements of the earnings event, including earnings date/call announcement, earnings press release and SEC Form 8-K filings. There are a handful of our competitors that can offer this integrated full-service solution today. However,today, however, we believe our real-time event setup and integrated approach offers a more effective way to manage the process, as well, as attract an audience of investors.process.
Additionally, as a commitment to broadening the reach of our webcast platform, we broadcast live alladditional companies’ earnings events, whether they are conducted on our platform or not, within our shareholder outreach module, which helps drive new audiences and give companies the ability to view their analytics and engagement of each event. InDuring the first half of 2021, we released the first version of this real-time engagement and analytics dashboard to our customers usingsubscribing to Platform id.
Our VisualWebcaster Platform (“VWP”) is a leading cloud-based webcast, webinar and virtual 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 has significantly strengthened our webcasting product and Platform id. offering. The VWP technology gives us the ability to host thousands of webcasts each year, expanding and diversifying our webcast business from our historical earnings-based events to include 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 and as noted above, most companies have been holding meetings virtually over the past 18 months, which has increased demand for this product. There can be no assurance that this demand will continue after the end of the pandemic.
Professional Conference and Events Software
At the end of 2018, we released a new module to Platform id., centered around theOur professional conference organizer (“PCO”). Thisand events software is a subscription offering is being licensedwe currently license 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 numberslevels in the near future and possibly long-term as a result of COVID-19. Our professional conference and eventsThis software, which is also available as a native 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 PCOsprofessional conference organizers that is not available elsewhere in the market. We believe entering this business expands our current Communications revenue base and assists in makingsoftware helps make Platform id. a platform of choice for investment banks, issuers and investors.
Investor Relations Websites
Our investor relations content network is another component of Platform id., which is used to create the investor relations’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 from most of the major exchanges and news distribution outlets around the world. Customers can subscribe to one or more of these data feeds or as a component of a fully designed and hosted website for pre-IPO companies, SEC reporting companies and partners seeking to display our content on their corporate sites. The clear benefit to our investor relations content network is its integration into Platform id. As such, companies can produce content for public distribution and it is automatically linked to their corporate website, distributed to targeted groups and placed into our data feed partners.
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| Table of Contents |
Compliance
Our Compliance offerings consist of our disclosure software for financial reporting, stock transfer services, and related annual meeting, print and shareholder distribution services. Some of these products are sold as part of a Platform id. subscription as well as individually to customers around the globe.
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 processes to the SEC’s EDGAR system. Our 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 from both from software and services and, in most cases, customers have both components within their annual agreements, while others pay for services as they are completed.
Our Inline XBRL (Inline Extensible Business Reporting Language or “iXBRL”) product now includes upgrades that meet newly mandated SEC disclosure requirements. .requirements which became effective last year. These requirements began impacting most of our customers on June 15, 2021, however, we had a number of customers previously file using our iXBRL upgrades.
Whistleblower Hotline
Our whistleblowerWhistleblower hotline is an add-on product within Platform id. This system delivers secure notifications and basic incident workflow management processes that align with a company’s corporate governance whistleblower policy. As a supported and subsidized bundle product of the New York Stock Exchange (“NYSE”) offerings, we are introduced to new IPOinitial public offering (“IPO”) customers and other larger cap customers listed on the NYSE. Since 2014, we have been a named NYSE subsidy provider of this Whistleblower solution. In 2020, NYSE renewed and extended the initial subsidy term to four years from two years, whereby the first two years are provided under subsidy and the added two years are at our standard subscription rates.
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.
By adding a component of our webcasting and events business, we were able to offer a complete annual meeting solution, 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. In 2021, it is estimated the market decreased its virtual component needs to an estimated 3,000 public companies. We experienced a proportionate decrease in the demand for our virtual annual meetings similar to that of the market in general. Although we believe a virtual component to an annual meeting is both a benefit to all shareholders and a corporate governance advantage, there can be no assurances this product has longevity in the market.
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.
This module has been incorporated within our webcasting offering to enable our customers the ability to conduct their annual meetings in-person or fully virtual, which has often been required since 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. Although we believe a virtual component to an annual meeting is both a benefit to all shareholders and a corporate governance advantage, there can be no assurances this product has longevity in the market.
Shareholder Distribution
Over the past few years, we have worked on refining the model of digital distribution of our customers’ message to the investment community and beyond. This was accomplished by integrating our shareholder outreach module, Investor Network, into and with Platform id. Most of the customers subscribing to this module today are historical PrecisionIR (“PIR”) –- Annual Report Service (“ARS”) users, as well as new customers purchasing the entire Platform id. subscription. We migrated some of the customers from the traditional ARS business into this new digital subscription business, however, we continue to operate a portion of this legacy physical hard copy delivery of annual reports and prospectuses for customers who opt to take advantage of it. We continue to see customer attrition for customers who subscribe to both the electronic and physical distribution of reports as a stand-alone product.
| Table of Contents |
Results of Operations
Comparison of results of operations for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020:(in 000’s):
|
| Three months ended |
| Nine months ended |
| |||||||||||||||||||
|
| September 30, |
| September 30, |
| |||||||||||||||||||
Revenue Streams |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Revenue |
| 2022 |
|
| 2021 |
| ||||||||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Revenue |
| $ | 3,686 |
| $ | 3,356 |
| $ | 10,383 |
| $ | 8,777 |
|
| $ | 3,383 |
| $ | 3,187 |
| ||||
Gross margin |
| $ | 2,882 |
|
| $ | 2,476 |
|
| $ | 7,839 |
|
| $ | 6,451 |
|
| $ | 2,622 |
|
| $ | 2,314 |
|
Gross margin % |
| 78 | % |
| 74 | % |
| 75 | % |
| 73 | % |
| 78 | % |
| 73 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Compliance |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Revenue |
| $ | 1,779 |
| $ | 1,526 |
| $ | 5,782 |
| $ | 5,005 |
|
| 1,905 |
| 1,793 |
| ||||||
Gross margin |
| $ | 1,228 |
|
| $ | 1,019 |
|
| $ | 4,097 |
|
| $ | 3,329 |
|
|
| 1,434 |
|
|
| 1,272 |
|
Gross margin % |
| 69 | % |
| 67 | % |
| 71 | % |
| 67 | % |
| 75 | % |
| 71 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Revenue |
| $ | 5,465 |
| $ | 4,882 |
| $ | 16,165 |
| $ | 13,782 |
|
| $ | 5,288 |
| $ | 4,980 |
| ||||
Gross margin |
| $ | 4,110 |
|
| $ | 3,495 |
|
| $ | 11,936 |
|
| $ | 9,780 |
|
| $ | 4,056 |
|
| $ | 3,586 |
|
Gross margin % |
| 75 | % |
| 72 | % |
| 74 | % |
| 71 | % |
| 77 | % |
| 72 | % | ||||||
Revenues
Total revenue increased by $583,000,$308,000, or 12%6%, to $5,465,000$5,288,000 during the three-month periodthree months ended September 30, 2021,March 31, 2022, as compared to $4,882,000 during$4,980,000 for the same period of 2020. Total revenue increased by $2,383,000, or 17%, to $16,165,000 during the nine-month period ended September 30, 2021, compared to $13,782,000 during the same period of 2020.in 2021. The increase was dueis attributable to increasesan increase in revenue in both theour Communications business and Compliance revenue streams.businesses.
Communications revenue increased $330,000,$196,000, or 10%6%, and $1,606,000, or 18%, duringto $3,383,000 for the three and nine-month periodsmonths ended September 30, 2021, respectively,March 31, 2022, as compared to $3,187,000 for the same periodsperiod of 2020.2021. The increase in revenue is primarily due primarily to an increase in revenue from our ACCESSWIRE news brand,product, which increased 16% during the first quarter of 2022 compared to the first quarter of 2021, primarily as a result of both an increase in average price per release and an increase inhigher volume. ACCESSWIRE revenue for the three and nine months ended September 30, 2021, increased approximately 31% and 37%, respectively, compared to the same periods of the prior year. We also benefitedgenerated increased revenue from an increase in subscriptions of Platform id. During the threeour investor relations websites and nine months ended September 30, 2021, we signed 40 and 126 new licenses of Platform id. with annual contract value of $306,000 and $1,029,000, respectively. This brings our total subscriptions of Platform id. to 418 with annual contract value of $3,499,000, as of September 30, 2021, compared to 341 subscriptions with annual contract value of $2,677,000 as of December 31, 2020.news feeds. These increases were partially offset by a decrease in revenue from our events and webcasting business due to a lower demand for events virtual annual meetings and virtual conferences. While revenue of this product decreased compared to the prior year, a year in which we experienced higher demand as a resultfirst quarter of 2021, the COVID-19 pandemic, it still remains abovetiming of some events being pushed to the pre-pandemic levels of 2019.second quarter and lower teleconference revenue. Communications revenue was 67% andremained 64% of total revenue during the three and nine months ended September 30, 2021, respectively,March 31, 2022, as compared to 69% and 64% during the same periodsperiod of the prior year.2021.
Compliance revenue increased $253,000,$112,000, or 17%, and $777,000, or 16%6%, during the three and nine-month periodsmonths ended September 30, 2021,March 31, 2022, as compared to the same periodsperiod of 2020.2021. The increase in revenue during these periods iswas due primarily related to an increase in revenue from print and proxy fulfillmentfulfilment services due to increased projects associated with annual meetings and special transactions. Revenuetransactions, partially offset by a decrease in revenue from our transfer agent services also increased during the periods due to an increase inless corporate transactionsactions and directives. Revenuea decline from these two services tendsour legacy ARS business due to fluctuate from period to period depending on corporate transactions and market activity.
No customers accounted for more than 10% of the revenues during the three and nine-month periods ended September 30, 2021, or 2020.customer attrition.
Revenue Backlog2022 Deferred revenue
At September 30, 2021,As of March 31, 2022, our deferred revenue balance was $2,696,000,$3,422,000, which we expect to recognize primarily over the next twelve months, compared to $2,212,000$3,086,000 at December 31, 2020,2021, an increase of 22%11%. Deferred revenue primarily consists of advance billings for subscriptions of our cloud-based products and pre-paid packages of our news distribution product as well as advance billings for annual service contracts.
Cost of Revenues and Gross Marginrevenues
Communications cost of revenues consists primarily of direct labor costs, newswire distribution costs, teleconferencing costs and third-party licensing costs. Compliance costand other costs of revenue consists primarily of direct labor costs, warehousing, logistics, print production materials, postage, and amortization of capitalized software costs related to our disclosure software. Cost of revenues decreased by $32,000,$162,000, or 2%, and increased $227,000, or 6%12%, during the three and nine-month periodsmonths ended September 30, 2021, respectively,March 31, 2022, as compared to the same periodsperiod of 2020.2021. Overall gross margin increased $615,000,$470,000, or 18%, and $2,156,000, or 22%13%, during the three and nine-month periodsmonths ended September 30, 2021, respectively,March 31, 2022, compared to the same period of 2021. As a result, overall gross margin percentage increased to 77% during the three months ended March 31, 2022, as compared to 72% during the same period of 2021.
Cost of revenues associated with our Communications revenue decreased $112,000, or 13%, during the three months ended March 31, 2022 as compared to the same periodsperiod of the prior year. Gross margin percentages increased2021. This decrease is primarily due to 75%lower teleconferencing costs as well as variable costs associated with our events and 74% during the three and nine months ended September 30, 2021, respectively, compared to 72% and 71% during the same periods of 2020.
webcasting business. Gross margin percentage fromassociated with our Communications revenue increased towas 78% and 75% duringfor the three and nine-month periodsmonths ended September 30, 2021, respectively, asMarch 31, 2022 compared to 74% and 73% duringfor the same periodsperiod of 2020.2021. The increase in gross margin percentage is primarily due to product mix,associated with an increase in press release revenue as a higher percentage of total Communications revenue, during 2021 is from our newswire business compared to our events and webcasting business which generates acombined with the impact of lower gross margin. Distributionteleconferencing costs were also lower during the period due to the mix of foreign and domestic news dissemination.noted above.
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Gross margins from
Cost of revenues associated with our Compliance revenue increased to 69% and 71% fordecreased $50,000, or 10%, during the three and nine-month periodsmonths ended September 30, 2021, respectively,March 31, 2022 as compared to 67% for both periodsthe same period of 2020.2021. The increase in gross margin percentage wasdecrease is due to an increase in revenue from our transfer agent services as well as a decrease inlower amortization of capitalized software associated with our disclosure software.software, which became fully amortized in 2021. This decrease was partially offset by higher print, postage and fulfillment costs associated with increased print and proxy fulfillment revenue. As a result, gross margin percentage associated with our Compliance revenue increased to 75% for the three months ended March 31, 2022, compared to 71% for the same period of 2021.
Operating Expenses
General and Administrative Expenseadministrative
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 were $1,258,000 and $3,923,000 during$1,683,000 for the three and nine months ended September 30, 2021,March 31, 2022, an increase of $206,000,$279,000 or 20%, and $458,000, or 13%,as compared to the same periodsperiod of the prior year.2021. The increase is primarily due to higher personnel expenses, insuranceone-time executive recruiting fees of approximately $90,000, an increase in stock compensation expense of $86,000 and professional fees during the three and nine months ended September 30, 2021.an increase in bad debt expense.
As a percentage of revenue, generalGeneral and administrative expenses were 23% and 24%32% for the three and nine-month periodsmonths ended September 30, 2021, respectively,March 31, 2022, as compared to 22% and 25%28% for the same periodsperiod of 2020.2021.
Sales and Marketing Expensesmarketing
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 $1,349,000 and $3,633,000$1,264,000 for the three and nine-month periodsmonths ended September 30, 2021, respectively,March 31, 2022, an increase of $376,000,$190,000, or 39%18%, and $814,000, or 29%,as compared to the same periods ended September 30, 2020. These increases areperiod of 2021. This increase is directly related to our investment in our sales and marketing initiatives with an increase in headcount commissions and costs associated with our digital marketing.marketing strategy.
As a percentage of revenue, salesSales and marketing expenses were 25% and 22% during24% for the three and nine-month periodsmonths ended September 30, 2021, respectively,March 31, 2022, as compared to 20%22% for both periodsthe same period of the prior year.2021.
Product Development Expensesdevelopment
Product development expenses consist primarily of salaries, stock-based compensation, bonuses and licenses to develop new products and technology to complement and/or enhance Platform idid.. Product development expensescosts increased $161,000,$26,000, or 76%10%, and $307,000, or 54%,to $275,000 during the three and nine-month periodsmonths ended September 30, 2021,March 31, 2022, as compared to the same periods in 2020.2021. The increase is due to an increase in headcount within the development team and use of more specialized consultants. We anticipate product development expenses to continue to increase relative to previous periods for the foreseeable future as we continue to update current products and develop new add-ons to Platform id. During the three and nine-month periods ended September 30, 2021, we capitalized $54,000 and $161,000, respectively, of costs related to the development of our newsroom product, which launched at the end of July 2021. No costs were capitalized during the three and nine months ended September 30, 2020.team.
As a percentage of revenue, productProduct development expenses were 7% and 5% for the three months ended March 31, 2022 and nine-month periods ended September 30, 2021, respectively, compared to 4% during both of the same periods of 2020.
Depreciation and Amortization2021.
Depreciation and amortization expenses decreased $29,000, or 16%, and $143,000, or 24%, during the three and nine-month periods ended September 30, 2021, respectively, as compared to the same periods of 2020. The decrease is primarily related to intangible assets associated with the PIR acquisition that became fully amortized in the prior year.
Other income, net
Other income, net, for the three and nine months ended September 30, 2021, primarily represents a benefit of $366,000 related to the employee retention credit enacted under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). Also included in this line is interest income on deposit and money market accounts. For the prior year, other income, net also included the non-cash interest associated with the present value of the remaining anniversary payments of the Interwest acquisition.
Income tax (benefit) expensetaxes
We recognized income tax expense of $319,000 and $738,000$174,000 for the three and nine-month periodsthree-month period ended September 30, 2021, respectively,March 31, 2022, compared to $283,000 and $593,000income tax expense of $163,000 during the same periodsperiod of 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.2021. For the three and nine-monththree-month periods ended September 30,March 31, 2022 and 2021, the variance between the Company’sour effective tax rate and the U.S. statutory rate of 21% is primarily attributable to state income tax, partially offset by an excess stock-based compensationa benefit related to the Foreign Derived Intangible Income (“FDII”) deduction as well as foreign statutory tax rate differentials.differentials for the three-month period ended March 31, 2021.
Liquidity and Capital Resourcescapital resources
As of September 30, 2021,March 31, 2022, we had $22,415,000$24,271,000 in cash and cash equivalents and $3,037,000$3,950,000 in net accounts receivable. Current liabilities at September 30, 2021,as of March 31, 2022, totaled $5,078,000$6,324,000 including our accounts payable, deferred revenue, accrued payroll liabilities, income taxes payable, current portion of lease liabilities and other accrued expenses. At September 30, 2021,On March 31, 2022, our current assets exceeded our current liabilities by $21,163,000.
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, 2021, the interest rate was 1.84% and the Company did not owe any amounts on the Line of Credit.$22,776,000.
Effective October 3, 2021, the Companywe renewed itsour unsecured Line of Credit, which changed the interest rate from LIBOR plus 1.75% to SOFR (Secured Overnight Financing Rate) plus 1.75%. AllThe amount of funds available for borrowing remained $3,000,000 and the term remained two years. As of March 31, 2022, the interest rate was 1.91% and we 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 provisions remained the same.contractual arrangements that constitute off-balance sheet arrangements.
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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 current conditions resulting from the COVID-19 pandemic will last, including whether a worldwide resurgence will occur, variants of the virus will become more impactful or vaccines will be 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. Physical, in-person conferences have been delayed and in the prior yearpast there was a delayhave been delays 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 over the past 18 months.two years. Despite the short-term increase in revenue, the concentrations of our customer base within middle, small and micro-cap customers make it reasonably possible that we are vulnerable to the risk of a near-term negative impact related to the COVID-19 pandemic 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.
Overall, the demand for our platforms and services continues to be stable in a majority of the segments we serve. The success of our Communications offering has been led by our ACCESSWIRE branded newswire, for which we believe we will continue to see increased demand throughout 2022 and beyond. Although we experienced a decline in demand for our webcasting and events business since 2020, we believe we are seeing increased demand from the pre-pandemic period forwell-positioned in this market with our ability to hold both in-person and 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 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 entirely virtual and hold one-on-one meetings with audio, video and sharing features.
products. We believe these developments will assistthis allows us to not only in deliveringdeliver attractive solutions to the market but may also lead us into new opportunities during this changing and challenging environment. The extent to how long theseCOVID-19 pandemic has caused shifts in demands will occur isfor these products, and we are uncertain at this time if these shifts will continue and could be longer than just 2020 and 2021. However, we cannot make any assurances at this time that our product upgradesproducts will be accepted by customers and revenue will be significant enough to offset losses in other aspects of our business in the long-term.
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 the remainder of 2021:2022:
| · | Expanding our Communications products and |
| · | Evaluating and completing acquisitions in areas of strategic focus, |
| · | Expanding our Communications sales and marketing teams and digital marketing strategy, |
| · | Expanding customer base, |
| · | Expanding our newswire distribution, |
| · | Investing in technology advancements and upgrades, |
| · | Generating profitable sustainable growth |
| · | Generating cash flows from operations. |
We believe there is significant demand for our products around the world, led by our ACCESSWIRE newswire brand, as companies seek to find better platforms and tools to disseminate and communicate their messages in a more efficient and collaborative way.
We have invested and will continue to invest in our product sets, platforms and intellectual property development via internal development and acquisitions. Acquisitions remain a core part of our strategy and we believe acquisitions are key to enhancing our overall offerings in the market and are necessary to keep our competitive advantages and facilitate the next round of growth that management believes it can 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.
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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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
ITEM 4. CONTROLS AND PROCEDURES.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. During the nine monthsthree-month period ended September 30, 2021,March 31, 2022, the Company continuedappointed Timothy Pitoniak as Chief Financial Officer. Steven Knerr, the implementation ofCompany’s previous Chief Financial Officer, assumed a new accounting system. While existing controls over financial reporting remained similar, such as segregationrole of duties, account reconciliation, reviewsVice President of Finance 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 implementation to ensure 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 environment is effective with the new system.Controller.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL 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. RISK FACTORS.
There have been no material changes to our risk factors as previously disclosed in our most recent Form 10-K filing.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
There were no unregistered salesOn March 1, 2022, the Company’s board of our equity securities and we diddirectors authorized a stock repurchase program under which the Company may repurchase up to $5,000,000 of its common shares. The repurchase program does not repurchasehave a specific expiration date, however, the board of directors may terminate it at any time. During the three-month period ended March 31, 2022, the Company repurchased 6,200 shares of our equity securities duringas shown in the period covered by this Form 10-Q.table below ($ in 000’s, except share or per share amounts):
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| Shares Repurchased |
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Period |
| Total Number of Shares Repurchased |
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| Average Price Paid Per Share |
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| Total Number of Shares Purchased as Part of Publicly Announced Program |
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| Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program |
| ||||
March 1-31, 2022 |
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| 6,200 |
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| $ | 29.35 |
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| 6,200 |
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| $ | 4,818 |
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURE.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS.
(a) Exhibits.
Exhibit |
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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.* | |
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|
|
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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SSIGNATURESIGNATURES
Pursuant 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: November 4, 2021May 5, 2022
| ISSUER DIRECT CORPORATION |
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| By: | /s/ Brian R. Balbirnie |
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| Brian R. Balbirnie |
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| Chief Executive Officer |
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| By: | /s/ |
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| Chief Financial Officer |
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