Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2017 | Aug. 03, 2017 | |
Document And Entity Information | ||
Entity Registrant Name | ISSUER DIRECT CORP | |
Entity Central Index Key | 843,006 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 2,954,092 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,017 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Jun. 30, 2017 | Dec. 31, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 6,125 | $ 5,339 |
Accounts receivable (net of allowance for doubtful accounts of $432 and $429, respectively) | 1,334 | 1,300 |
Other current assets | 358 | 189 |
Total current assets | 7,817 | 6,828 |
Capitalized software (net of accumulated amortization of $353 and $207, respectively) | 2,582 | 2,048 |
Fixed assets (net of accumulated amortization of $355 and $318, respectively) | 173 | 204 |
Deferred income tax asset | 137 | 141 |
Other long-term assets | 20 | 18 |
Goodwill | 2,242 | 2,242 |
Intangible assets (net of accumulated amortization of $3,490 and $3,324, respectively) | 1,214 | 1,380 |
Total assets | 14,185 | 12,861 |
Current liabilities: | ||
Accounts payable | 643 | 344 |
Accrued expenses | 601 | 806 |
Income taxes payable | 84 | 112 |
Deferred revenue | 1,040 | 843 |
Total current liabilities | 2,368 | 2,105 |
Deferred income tax liability | 54 | 66 |
Other long-term liabilities | 95 | 112 |
Total liabilities | 2,517 | 2,283 |
Commitments and contingencies | ||
Stockholders' equity: | ||
Preferred stock, $0.001 par value, 1,000,000 and 30,000,000 shares authorized, no shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively. | 0 | 0 |
Common stock $0.001 par value, 20,000,000 and 100,000,000 shares authorized, 2,954,092 and 2,860,944 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively. | 3 | 3 |
Additional paid-in capital | 9,650 | 9,120 |
Other accumulated comprehensive loss | (2) | (36) |
Retained earnings | 2,017 | 1,491 |
Total stockholders' equity | 11,668 | 10,578 |
Total liabilities and stockholders' equity | $ 14,185 | $ 12,861 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Jun. 30, 2017 | Dec. 31, 2016 |
Assets | ||
Allowance for Accounts Receivables | $ 432 | $ 429 |
Accumulated Amortization - Capitalized Software | 353 | 207 |
Accumulated Depreciation - Fixed Assets | 355 | 318 |
Accumulated Amortization - Intangible Assets | $ 3,490 | $ 3,324 |
Stockholders' Equity | ||
Preferred Stock Shares, Par Value | $ 0.001 | $ 0.001 |
Preferred Stock Shares, Authorized | 1,000,000 | 30,000,000 |
Preferred Stock Shares, Issued | 0 | 0 |
Preferred Stock Shares, Outstanding | 0 | 0 |
Common Stock Shares, Par Value | $ 0.001 | $ 0.001 |
Common Stock Shares, Authorized | 20,000,000 | 100,000,000 |
Common Stock Shares, Issued | 2,954,092 | 2,860,944 |
Common Stock Shares, Outstanding | 2,954,092 | 2,860,944 |
Consolidated Statements of Oper
Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Income Statement [Abstract] | ||||
Revenues | $ 3,443 | $ 3,134 | $ 6,298 | $ 6,411 |
Cost of services | 909 | 824 | 1,655 | 1,594 |
Gross profit | 2,534 | 2,310 | 4,643 | 4,817 |
Operating costs and expenses: | ||||
General and administrative | 855 | 800 | 1,767 | 1,642 |
Sales and marketing expenses | 714 | 672 | 1,307 | 1,296 |
Product development | 129 | 90 | 254 | 159 |
Depreciation and amortization | 103 | 282 | 208 | 564 |
Total operating costs and expenses | 1,801 | 1,844 | 3,536 | 3,661 |
Operating income | 733 | 466 | 1,107 | 1,156 |
Other income (expense) | (16) | 83 | (26) | 84 |
Income before taxes | 717 | 549 | 1,081 | 1,240 |
Income tax expense | 224 | 192 | 264 | 390 |
Net income | $ 493 | $ 357 | $ 817 | $ 850 |
Income per share - basic | $ 0.17 | $ 0.13 | $ 0.28 | $ 0.3 |
Income per share - fully diluted | $ 0.16 | $ 0.12 | $ 0.27 | $ 0.29 |
Weighted average number of common shares outstanding - basic | 2,940,000 | 2,795,000 | 2,920,000 | 2,792,000 |
Weighted average number of common shares outstanding - fully diluted | 3,021,000 | 2,918,000 | 3,002,000 | 2,888,000 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Consolidated Statements Of Comprehensive Income | ||||
Net income | $ 493 | $ 357 | $ 817 | $ 850 |
Foreign currency translation adjustment | 27 | 2 | 34 | 13 |
Comprehensive income | $ 520 | $ 359 | $ 851 | $ 863 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Cash flows from operating activities: | ||
Net income | $ 817 | $ 850 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 350 | 637 |
Bad debt expense | 87 | 88 |
Deferred income taxes | (5) | 75 |
Stock-based compensation expense | 260 | 337 |
Changes in operating assets and liabilities: | ||
Decrease (increase) in accounts receivable | (116) | (133) |
Decrease (increase) in deposits and prepaid assets | (171) | (151) |
Increase (decrease) in accounts payable | 293 | (80) |
Increase (decrease) in accrued expenses | (255) | (343) |
Increase (decrease) in deferred revenue | 197 | 206 |
Net cash provided by operating activities | 1,457 | 1,486 |
Cash flows from investing activities: | ||
Capitalized software | (624) | (518) |
Purchase of fixed assets | (6) | (45) |
Net cash used in investing activities | (630) | (563) |
Cash flows from financing activities: | ||
Proceeds from exercise of stock options, net of income taxes | 214 | 32 |
Payment of dividend | (291) | (167) |
Net cash used in financing activities | (77) | (135) |
Net change in cash | 750 | 788 |
Cash - beginning | 5,339 | 4,215 |
Currency translation adjustment | 36 | (13) |
Cash - ending | 6,125 | 4,990 |
Supplemental disclosures: | ||
Cash paid for income taxes | 437 | 263 |
Non-cash activities: | ||
Stock-based compensation - capitalized software | $ 56 | $ 268 |
Note 1. Basis of Presentation
Note 1. Basis of Presentation | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Basis of Presentation | The unaudited interim consolidated balance sheet as of June 30, 2017 and statements of operations, comprehensive income, and cash flows for the three and six-month periods ended June 30, 2017 and 2016 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 2016 audited financial statements of Issuer Direct Corporation (the “Company”, “We”, or “Our”) filed on Form 10-K and Form 10-K/A. |
Note 2. Summary of Significant
Note 2. Summary of Significant Accounting Policies | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Summary of Significant Accounting Policies | The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Significant intercompany accounts and transactions are eliminated in consolidation. Earnings Per Share (EPS) We calculate earnings per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 260 – EPS, which 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 and restricted stock units totaling 49,500 and 201,250 were excluded in the computation of diluted earnings per common share during the three-month period ended June 30, 2017 and 2016, respectively, because their impact was anti-dilutive. Shares issuable upon the exercise of stock options and restricted stock units totaling 55,167 and 201,250 were excluded in the computation of diluted earnings per common share during the six-month period ended June 30, 2017 and 2016, respectively, because their impact was anti-dilutive. Revenue Recognition We recognize revenue in accordance with US GAAP, including SEC Staff Accounting Bulletin No. 104, “Revenue Recognition,” which requires that: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. We recognize revenue when services are rendered and/or delivered and where collectability is probable. Deferred revenue primarily consists of advance billings for licenses of our cloud-based platforms and annual contracts for our legacy annual report service. Allowance for Doubtful Accounts We provide an allowance for doubtful accounts, which is based upon a review of outstanding receivables as well as historical collection information. Credit is granted on an unsecured basis. In determining the amount of the allowance, management is required to make certain estimates and assumptions. The allowance is made up of specific reserves, as deemed necessary, on client account balances, and a reserve based on our historical experience. 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 capitalized software, goodwill, intangible assets, deferred tax assets, and stock-based compensation. Actual results could differ from those estimates. Income Taxes We comply with the FASB 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. Capitalized Software In accordance with FASB ASC No. 350 – Intangibles – Goodwill and Other, costs incurred to develop our cloud-based platform products and disclosure management system components 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. A majority of the amortization expense is recorded in cost of revenues on the Consolidated Statements of Operations, however, amortization related to back-office supporting systems is included in depreciation and amortization. Costs related to design or maintenance of the software are expensed as incurred. Capitalized costs and amortization for the three and six-month periods ended June 30, 2017 and 2016, are as follows (in thousands): Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2017 2016 2017 2016 Capitalized software development costs $ 314 $ 260 $ 680 $ 786 Capitalized costs related to stock-based compensation (20 ) 88 56 268 Amortization included in cost of revenues 82 48 141 74 Amortization included in depreciation and amortization 2 3 5 6 Fair Value Measurements As of June 30, 2017 and December 31, 2016, we do not have any financial assets or liabilities that are required to be, or that we elected to measure, at fair value. We believe that the fair value of our financial instruments, which consist of cash and cash equivalents, accounts receivable, and accounts payable approximate their carrying amounts. 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 loss 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, software, technology 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, customer lists, software and technology 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, except for direct-response advertising, which is capitalized and amortized over its expected period of future benefits. Stock-based compensation We account for stock-based compensation under FASB ASC No. 718 – Compensation – Stock 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 is required to provide service in exchange for the award. Newly Adopted Pronouncements The FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment award transactions including (a) income tax consequences; (b) classification of awards as either debt or equity liabilities; and (c) classification on the statement of cash flows. The amendments are effective for public business entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has adopted this ASU as of January 1, 2017. The primary amendment impacting the Company's financial statements is the requirement for excess tax benefits or shortfalls on the exercise of stock-based compensation awards to be presented in income tax expense in the Consolidated Statements of Operations during the period the award is exercised as opposed to being recorded in Additional paid-in capital on the Consolidated Balance Sheets. The excess tax benefit or shortfall is calculated as the difference between the fair value of the award on the date of exercise and the fair value of the award used to measure the expense to be recognized over the service period. Changes are required to be applied prospectively to all excess tax benefits and deficiencies resulting from the exercise of awards after the date of adoption. The ASU requires a "modified retrospective" approach application for excess tax benefits that were not previously recognized in situations where the tax deduction did not reduce current taxes payable. For the three and six-month periods ended June 30, 2017, the Company recorded an income tax benefit of $45,000 and $122,000 related to the excess tax benefit of exercised awards during the period, that would have been recorded in Additional paid-in capital during prior years. As the end result is dependent on the future value of the Company's stock as well as the timing of employee exercises, the amount of future impact cannot be quantified at this time. Recent Accounting Pronouncements The FASB issued ASU 2017-09, Compensation Stock Compensation (Topic 718): Scope of Modification Accounting on May 10, 2017. The amendments of this ASU provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. This amendment may impact the Company if a modification is made to one of its share-based payments awards, however, the impact cannot be determined at this time until such modification is known. The FASB's new leases standard ASU 2016-02 Leases (Topic 842) was issued on February 25, 2016. ASU 2016-02 is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as “Lessees” to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current US GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current US GAAP which requires only capital leases to be recognized on the balance sheet, the new ASU will require both types of leases (i.e. operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing US GAAP. The operating lease will be accounted for in a manner similar to operating leases under existing US GAAP, except that lessees will recognize a lease liability and a lease asset for all of those leases. Public companies will be required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective application to previously issued annual and interim financial statements for 2018, however, early adoption is permitted. Lessees with a large portfolio of leases are likely to see a significant increase in balance sheet assets and liabilities. The Company currently has one lease on its corporate facilities which ends October 31, 2019. Absent any renewal of the lease or new leases entered into before January 1, 2019, the Company will be required to record a right-to-use asset and corresponding lease liability associated with the remaining lease payments beginning with the first interim period of 2019. This will increase both balance sheet assets and liabilities by insignificant amounts but will not have a significant impact on the statement of operations or affect any covenant calculations. The FASB has issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and several updates to the ASU. ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 sets forth a new revenue recognition model that requires identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of performance obligations. The amendments in the ASU can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of the initial application along with additional disclosures. The Company is currently evaluating the impact of ASU 2014-09 as well as the additional updates, however, does not believe it will have a significant impact on the Company's financial statements as the Company believes the current manner in which revenue is recognized will result in the same or similar timing and amount of revenue recognition as required by ASU 2014-09 and the additional amendments. These ASU's are currently effective for the Company in our year beginning on January 1, 2018. |
Note 3. Stock Options and Restr
Note 3. Stock Options and Restricted Stock Units | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Stock Options and Restricted Stock Units | 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, the shareholders of the Company approved an additional 200,000 awards to be issued under the 2014 Plan, bringing the total number of shares to be awarded to 400,000. 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 June 30, 2017, 258,000 awards had been granted under the 2014 Plan. The following table summarizes information about stock options outstanding and exercisable at June 30, 2017: Options Outstanding Options Exercisable Exercise Price Range Number Weighted Average Remaining Contractual Life (in Years) Weighted Average Exercise Price Number $ 0.01 - $1.00 7,850 4.55 $ 0.01 7,850 $ 1.01 - $7.00 10,000 8.39 $ 6.80 4,167 $ 7.01 - $8.00 62,188 3.04 $ 7.76 57,189 $ 8.01 - $10.00 5,667 7.49 $ 9.26 4,167 $ 10.01 - $13.49 40,000 1.69 $ 13.49 32,500 Total 125,705 3.33 $ 9.09 105,873 As On January 24, 2017, the Company granted 9,500 restricted stock units with an intrinsic value of $8.85 to certain employees of the Company. The restricted stock units vest one-third annually over three years. For the three and six-month periods ended June 30, 2017, 5,000 and 43,170 restricted stock units with an intrinsic value of $8.48 and $6.16 vested, respectively. As of June 30, 2017, there was $284,000 of unrecognized compensation cost related to our unvested restricted stock units, which will be recognized through 2020. |
Note 4. Income Taxes
Note 4. Income Taxes | 6 Months Ended |
Jun. 30, 2017 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | We recognized income tax expense of $224,000 and $264,000 for the three and six-month periods ended June 30, 2017, respectively, compared to income tax expense of $192,000 and $390,000 during the same periods of 2016. 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 six-month periods ended June 30, 2017, the variance between the Company’s effective tax rate and the U.S. statutory rate of 34% is primarily attributable to the excess stock-based compensation tax benefit of $45,000 and $122,000, respectively, recognized in income tax expense during the period, in connection with the Company’s adoption of ASU 2016-09, as well as, foreign statutory tax rate differentials and tax credits. During the six-month period ended June 30, 2016, the Company released $78,000 of its valuation allowance related to federal and state net operating losses, which resulted in a net benefit of $59,000. No valuation allowance was released during the three-month period ended June 30, 2016. The tax benefits from US net operating losses that were previously reserved were acquired as part of the acquisition of PrecisionIR (PIR). At the date of acquisition, management believed it was more likely than not that the benefits would not be used due to the uncertainty of future profitability and also due to statutory limitations on the amount of net operating losses that can be carried forward in an acquisition. The remaining valuation allowance on the federal and state net operating losses related to PIR was released during the fourth quarter of 2016, as such no valuation allowance remains on those federal and state net operating losses as June 30, 2017, which is consistent with projections of future taxable domestic income. |
Note 5. Operations and Concentr
Note 5. Operations and Concentrations | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Operations and Concentrations | For the three and six-month periods ended June 30, 2017 and 2016, we earned revenues (as a percentage of total revenues) in the following categories: Three months ended Six months ended June 30, June 30, Revenue Streams 2017 2016 2017 2016 Platform and Technology 49.50 % 35.96 % 49.50 % 32.32 % Services 50.50 % 64.04 % 50.50 % 67.68 % Total 100.00 % 100.00 % 100.00 % 100.00 % No customers accounted for more than 10% of the operating revenues during the three and six-month periods ended June 30, 2017 or 2016. We did not have any customers that comprised more than 10% of our total accounts receivable balance at June 30, 2017 or December 31, 2016. We believe we did not have any financial instruments that could have potentially subjected us to significant concentrations of credit risk. Since a portion of the revenues are paid at the beginning of the month via credit card or advance by check, the remaining accounts receivable amounts are generally due within 30 days, none of which is collateralized. |
Note 6. Line of Credit
Note 6. Line of Credit | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Line of Credit | Effective September 2, 2016, the Company renewed its Line of Credit, which reduced the interest rate to LIBOR plus 2.50% from LIBOR plus 3.00%. The amount of funds available for future borrowings remained at $2,000,000. As of June 30, 2017, the interest rate was 3.72% and the Company did not owe any amounts on the Line of Credit. |
Note 7. Geographical Informatio
Note 7. Geographical Information | 6 Months Ended |
Jun. 30, 2017 | |
Segment Reporting [Abstract] | |
Geographical Information | 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 companies. Revenue is attributed to a particular geographic region based on where the services are performed. The following tables set forth revenues by domestic and international regions (in thousands): Three months ended Six months ended June 30, June 30, 2017 2016 2017 2016 Geographic region North America $ 3,127 $ 2,713 $ 5,666 $ 5,548 Europe 316 421 632 863 Total revenues $ 3,443 $ 3,134 $ 6,298 $ 6,411 |
Note 8. Authorized Shares
Note 8. Authorized Shares | 6 Months Ended |
Jun. 30, 2017 | |
Note 8. Authorized Shares | |
Authorized Shares | On March 21, 2017, the Company filed a Certificate of Amendment to its Certificate of Incorporation reducing the number of authorized shares of preferred stock from 30,000,000 to 1,000,000 shares and the number of common stock from 100,000,000 to 20,000,000 shares. |
Note 9. Subsequent Events
Note 9. Subsequent Events | 6 Months Ended |
Jun. 30, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events | On July 7, 2017, the Company's Board of Directors approved and declared a quarterly cash dividend of $0.05 per share. The dividend is payable on August 11, 2017, to stockholders of record as of the close of business on July 24, 2017. |
Note 2. Summary of Significan16
Note 2. Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Earnings per Share (EPS) | We calculate earnings per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 260 – EPS, which 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 and restricted stock units totaling 49,500 and 201,250 were excluded in the computation of diluted earnings per common share during the three-month period ended June 30, 2017 and 2016, respectively, because their impact was anti-dilutive. Shares issuable upon the exercise of stock options and restricted stock units totaling 55,167 and 201,250 were excluded in the computation of diluted earnings per common share during the six-month period ended June 30, 2017 and 2016, respectively, because their impact was anti-dilutive. |
Revenue Recognition | We recognize revenue in accordance with US GAAP, including SEC Staff Accounting Bulletin No. 104, “Revenue Recognition,” which requires that: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. We recognize revenue when services are rendered and/or delivered and where collectability is probable. Deferred revenue primarily consists of advance billings for licenses of our cloud-based platforms and annual contracts for our legacy annual report service. |
Allowance for Doubtful Accounts | We provide an allowance for doubtful accounts, which is based upon a review of outstanding receivables as well as historical collection information. Credit is granted on an unsecured basis. In determining the amount of the allowance, management is required to make certain estimates and assumptions. The allowance is made up of specific reserves, as deemed necessary, on client account balances, and a reserve based on our historical experience. |
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 capitalized software, goodwill, intangible assets, deferred tax assets, and stock-based compensation. Actual results could differ from those estimates. |
Income Taxes | We comply with the FASB 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. |
Capitalized Software | In accordance with FASB ASC No. 350 – Intangibles – Goodwill and Other, costs incurred to develop our cloud-based platform products and disclosure management system components 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. A majority of the amortization expense is recorded in cost of revenues on the Consolidated Statements of Operations, however, amortization related to back-office supporting systems is included in depreciation and amortization. Costs related to design or maintenance of the software are expensed as incurred. Capitalized costs and amortization for the three and six-month periods ended June 30, 2017 and 2016, are as follows (in thousands): Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2017 2016 2017 2016 Capitalized software development costs $ 314 $ 260 $ 680 $ 786 Capitalized costs related to stock-based compensation (20 ) 88 56 268 Amortization included in cost of revenues 82 48 141 74 Amortization included in depreciation and amortization 2 3 5 6 |
Fair Value Measurements | As of June 30, 2017 and December 31, 2016, we do not have any financial assets or liabilities that are required to be, or that we elected to measure, at fair value. We believe that the fair value of our financial instruments, which consist of cash and cash equivalents, accounts receivable, and accounts payable approximate their carrying amounts. |
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 loss 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, software, technology 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, customer lists, software and technology 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, except for direct-response advertising, which is capitalized and amortized over its expected period of future benefits. |
Stock-based compensation | We account for stock-based compensation under FASB ASC No. 718 – Compensation – Stock 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 is required to provide service in exchange for the award. |
Newly Adopted Pronouncements | The FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment award transactions including (a) income tax consequences; (b) classification of awards as either debt or equity liabilities; and (c) classification on the statement of cash flows. The amendments are effective for public business entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has adopted this ASU as of January 1, 2017. The primary amendment impacting the Company's financial statements is the requirement for excess tax benefits or shortfalls on the exercise of stock-based compensation awards to be presented in income tax expense in the Consolidated Statements of Operations during the period the award is exercised as opposed to being recorded in Additional paid-in capital on the Consolidated Balance Sheets. The excess tax benefit or shortfall is calculated as the difference between the fair value of the award on the date of exercise and the fair value of the award used to measure the expense to be recognized over the service period. Changes are required to be applied prospectively to all excess tax benefits and deficiencies resulting from the exercise of awards after the date of adoption. The ASU requires a "modified retrospective" approach application for excess tax benefits that were not previously recognized in situations where the tax deduction did not reduce current taxes payable. For the three and six-month periods ended June 30, 2017, the Company recorded an income tax benefit of $45,000 and $122,000 related to the excess tax benefit of exercised awards during the period, that would have been recorded in Additional paid-in capital during prior years. As the end result is dependent on the future value of the Company's stock as well as the timing of employee exercises, the amount of future impact cannot be quantified at this time. |
Recent Accounting Pronouncements | The FASB issued ASU 2017-09, Compensation Stock Compensation (Topic 718): Scope of Modification Accounting on May 10, 2017. The amendments of this ASU provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. This amendment may impact the Company if a modification is made to one of its share-based payments awards, however, the impact cannot be determined at this time until such modification is known. The FASB's new leases standard ASU 2016-02 Leases (Topic 842) was issued on February 25, 2016. ASU 2016-02 is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as “Lessees” to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current US GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current US GAAP which requires only capital leases to be recognized on the balance sheet, the new ASU will require both types of leases (i.e. operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing US GAAP. The operating lease will be accounted for in a manner similar to operating leases under existing US GAAP, except that lessees will recognize a lease liability and a lease asset for all of those leases. Public companies will be required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective application to previously issued annual and interim financial statements for 2018, however, early adoption is permitted. Lessees with a large portfolio of leases are likely to see a significant increase in balance sheet assets and liabilities. The Company currently has one lease on its corporate facilities which ends October 31, 2019. Absent any renewal of the lease or new leases entered into before January 1, 2019, the Company will be required to record a right-to-use asset and corresponding lease liability associated with the remaining lease payments beginning with the first interim period of 2019. This will increase both balance sheet assets and liabilities by insignificant amounts but will not have a significant impact on the statement of operations or affect any covenant calculations. The FASB has issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and several updates to the ASU. ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 sets forth a new revenue recognition model that requires identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of performance obligations. The amendments in the ASU can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of the initial application along with additional disclosures. The Company is currently evaluating the impact of ASU 2014-09 as well as the additional updates, however, does not believe it will have a significant impact on the Company's financial statements as the Company believes the current manner in which revenue is recognized will result in the same or similar timing and amount of revenue recognition as required by ASU 2014-09 and the additional amendments. These ASU's are currently effective for the Company in our year beginning on January 1, 2018. |
Note 2. Summary of Significan17
Note 2. Summary of Significant Accounting Policies (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Note 2. Summary Of Significant Accounting Policies Tables | |
Capitalized costs and amortization | Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2017 2016 2017 2016 Capitalized software development costs $ 314 $ 260 $ 680 $ 786 Capitalized costs related to stock-based compensation (20 ) 88 56 268 Amortization included in cost of revenues 82 48 141 74 Amortization included in depreciation and amortization 2 3 5 6 |
Note 3. Stock Options and Res18
Note 3. Stock Options and Restricted Stock Units (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Schedule of stock options | Options Outstanding Options Exercisable Exercise Price Range Number Weighted Average Remaining Contractual Life (in Years) Weighted Average Exercise Price Number $ 0.01 - $1.00 7,850 4.55 $ 0.01 7,850 $ 1.01 - $7.00 10,000 8.39 $ 6.80 4,167 $ 7.01 - $8.00 62,188 3.04 $ 7.76 57,189 $ 8.01 - $10.00 5,667 7.49 $ 9.26 4,167 $ 10.01 - $13.49 40,000 1.69 $ 13.49 32,500 Total 125,705 3.33 $ 9.09 105,873 |
Note 5. Operations and Concen19
Note 5. Operations and Concentrations (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Concentration of revenue as a percentage of total revenue | Three months ended Six months ended June 30, June 30, Revenue Streams 2017 2016 2017 2016 Platform and Technology 49.50 % 35.96 % 49.50 % 32.32 % Services 50.50 % 64.04 % 50.50 % 67.68 % Total 100.00 % 100.00 % 100.00 % 100.00 % |
Note 7. Geographical Informat20
Note 7. Geographical Information (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Segment Reporting [Abstract] | |
Revenue based on geographic region | Three months ended Six months ended June 30, June 30, 2017 2016 2017 2016 Geographic region North America $ 3,127 $ 2,713 $ 5,666 $ 5,548 Europe 316 421 632 863 Total revenues $ 3,443 $ 3,134 $ 6,298 $ 6,411 |
Note 2. Summary of Significan21
Note 2. Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Note 2. Summary Of Significant Accounting Policies Details | ||||
Capitalized software development costs | $ 314 | $ 260 | $ 680 | $ 786 |
Capitalized costs related to stock-based compensation | (20) | 88 | 56 | 268 |
Amortization included in cost of revenues | 82 | 48 | 141 | 74 |
Amortization included in depreciation and amortization | $ 2 | $ 3 | $ 5 | $ 6 |
Note 2. Summary of Significan22
Note 2. Summary of Significant Accounting Policies (Details Narrative) - shares | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Stock Options and Restricted Stock Units | ||||
Antidilutive securities excluded from computation of earnings per share | 49,500 | 201,250 | 55,167 | 201,250 |
Note 3. Stock Options and Res23
Note 3. Stock Options and Restricted Stock Units (Details) | 6 Months Ended |
Jun. 30, 2017$ / sharesshares | |
Option 1 | |
Exercise Price Range | $0.01 - $1.00 |
Number of Options Outstanding | 7,850 |
Weighted Average Remaining Contractual Life (in Years) | 4 years 6 months 18 days |
Weighted Average Exercise Price | $ / shares | $ 0.01 |
Number of Options Exercisable | 7,850 |
Option 2 | |
Exercise Price Range | $1.01 - $7.00 |
Number of Options Outstanding | 10,000 |
Weighted Average Remaining Contractual Life (in Years) | 8 years 4 months 20 days |
Weighted Average Exercise Price | $ / shares | $ 6.80 |
Number of Options Exercisable | 4,167 |
Option 3 | |
Exercise Price Range | $7.01 - $8.00 |
Number of Options Outstanding | 62,188 |
Weighted Average Remaining Contractual Life (in Years) | 3 years 14 days |
Weighted Average Exercise Price | $ / shares | $ 7.76 |
Number of Options Exercisable | 57,189 |
Option 4 | |
Exercise Price Range | $8.01 - $10.00 |
Number of Options Outstanding | 5,667 |
Weighted Average Remaining Contractual Life (in Years) | 7 years 5 months 26 days |
Weighted Average Exercise Price | $ / shares | $ 9.26 |
Number of Options Exercisable | 4,167 |
Option 5 | |
Exercise Price Range | $10.01 - $13.49 |
Number of Options Outstanding | 40,000 |
Weighted Average Remaining Contractual Life (in Years) | 1 year 8 months 8 days |
Weighted Average Exercise Price | $ / shares | $ 13.49 |
Number of Options Exercisable | 32,500 |
Total | |
Number of Options Outstanding | 125,705 |
Weighted Average Remaining Contractual Life (in Years) | 3 years 3 months 29 days |
Weighted Average Exercise Price | $ / shares | $ 9.09 |
Number of Options Exercisable | 105,873 |
Note 3. Stock Options and Res24
Note 3. Stock Options and Restricted Stock Units (Details Narrative) $ / shares in Units, $ in Thousands | 3 Months Ended | 6 Months Ended |
Jun. 30, 2017USD ($)$ / sharesshares | Jun. 30, 2017USD ($)$ / sharesshares | |
Note 3. Stock Options And Restricted Stock Units Details Narrative | ||
Unrecognized compensation expense, options | $ 145 | $ 145 |
Unrecognized compensation expense, restricted stock units | $ 284 | $ 284 |
Restricted stock units, vested | shares | 5,000 | 43,170 |
Intrinsic value | $ / shares | $ 8.48 | $ 6.16 |
Note 4. Income Taxes (Details N
Note 4. Income Taxes (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Note 4. Income Taxes Details Narrative | ||||
Income tax expense | $ (224) | $ (192) | $ (264) | $ (390) |
Excess stock-based compensation tax benefit | $ 45 | $ 122 | ||
Business Combination, valuation allowance, available to reduce income tax expense | During the six-month period ended June 30, 2016, the Company released $78,000 of its valuation allowance related to federal and state net operating losses. | |||
Deferred tax asset related to the federal and state net operating losses | $ 59 |
Note 5. Operations and Concen26
Note 5. Operations and Concentrations (Details) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Percentage of revenue from various revenue streams | 100.00% | 100.00% | 100.00% | 100.00% |
Platform and Technology | ||||
Percentage of revenue from various revenue streams | 49.50% | 35.96% | 49.50% | 32.32% |
Services | ||||
Percentage of revenue from various revenue streams | 50.50% | 64.04% | 50.50% | 67.68% |
Note 6. Line of Credit (Details
Note 6. Line of Credit (Details Narrative) $ in Thousands | Jun. 30, 2017USD ($) |
Notes to Financial Statements | |
Line Of Credit, Maximum Borrowing Capacity | $ 2,000 |
Line of Credit, Interest Rate at Period End | 3.72% |
Line of Credit, Amount Outstanding | $ 0 |
Line Of Credit, Remaining Borrowing Capacity | $ 2,000 |
Note 7. Geographical Informat28
Note 7. Geographical Information (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Revenues | $ 3,443 | $ 3,134 | $ 6,298 | $ 6,411 |
North America | ||||
Revenues | 3,127 | 2,713 | 5,666 | 5,548 |
Europe | ||||
Revenues | $ 316 | $ 421 | $ 632 | $ 863 |