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: March 31, 2021

 

or

 

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from: _____________ to _____________

 

 

ISSUER DIRECT CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

1-10185

 

26-1331503

(State or Other Jurisdiction

 

(Commission

 

(I.R.S. Employer

of Incorporation)

 

File Number)

 

Identification No.)

 

1 Glenwood Avenue, Suite 1001, Raleigh NC 27603

(Address of Principal Executive Office) (Zip Code)

 

(919) 481-4000

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐ (Do not check if a smaller reporting company)

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes   No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date 3,765,975 shares of common stock were issued and outstanding as of May 6, 2021.

 

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

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements.

3

 

 

Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020

3

 

 

Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020

4

 

 

Unaudited Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020

5

 

 

Unaudited Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020

6

 

 

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020

7

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

14

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

21

 

Item 4.

Controls and Procedures.

21

 

 

PART II - OTHER INFORMATION 

 

 

Item 1.

Legal Proceedings.

22

 

Item 1A.

Risk Factors.

22

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

22

 

Item 3.

Defaults Upon Senior Securities.

22

 

Item 4.

Mine Safety Disclosure.

22

 

Item 5.

Other Information.

22

 

Item 6.

Exhibits.

23

 

 

Signatures

24

 

 

 
2

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PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

ISSUER DIRECT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

(unaudited)

 

 

 

ASSETS

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$20,548

 

 

$19,556

 

Accounts receivable (net of allowance for doubtful accounts of $651 and $657, respectively)

 

 

2,966

 

 

 

2,514

 

Other current assets

 

 

383

 

 

 

298

 

Total current assets

 

 

23,897

 

 

 

22,368

 

Capitalized software (net of accumulated amortization of $2,893 and $2,761, respectively)

 

 

394

 

 

 

526

 

Fixed assets (net of accumulated amortization of $348 and $312, respectively)

 

 

775

 

 

 

795

 

Right-of-use asset - leases

 

 

1,756

 

 

 

1,830

 

Other long-term assets

 

 

93

 

 

 

88

 

Goodwill

 

 

6,376

 

 

 

6,376

 

Intangible assets (net of accumulated amortization of $5,663 and $5,546, respectively)

 

 

2,789

 

 

 

2,906

 

Total assets

 

$36,080

 

 

$34,889

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$589

 

 

$304

 

Accrued expenses

 

 

2,098

 

 

 

1,805

 

Income taxes payable

 

 

358

 

 

 

258

 

Deferred revenue

 

 

2,383

 

 

 

2,212

 

Total current liabilities

 

 

5,428

 

 

 

4,579

 

Deferred income tax liability

 

 

262

 

 

 

197

 

Lease liabilities - long-term

 

 

1,890

 

 

 

1,971

 

Total liabilities

 

 

7,580

 

 

 

6,747

 

Commitments and contingencies

 

 

 -

 

 

 

 -

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.

 

 

-

 

 

 

-

 

Common stock $0.001 par value, 20,000,000 shares authorized, 3,765,975 and 3,770,752 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

22,024

 

 

 

22,214

 

Other accumulated comprehensive loss

 

 

(16 )

 

 

(19 )

Retained earnings

 

 

6,488

 

 

 

5,943

 

Total stockholders' equity

 

 

28,500

 

 

 

28,142

 

Total liabilities and stockholders’ equity

 

$36,080

 

 

$34,889

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
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ISSUER DIRECT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except share and per share amounts)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Revenues

 

$4,980

 

 

$4,016

 

Cost of revenues

 

 

1,394

 

 

 

1,253

 

Gross profit

 

 

3,586

 

 

 

2,763

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

1,404

 

 

 

1,216

 

Sales and marketing expenses

 

 

1,074

 

 

 

896

 

Product development

 

 

249

 

 

 

194

 

Depreciation and amortization

 

 

152

 

 

 

209

 

Total operating costs and expenses

 

 

2,879

 

 

 

2,515

 

Operating income

 

 

707

 

 

 

248

 

Interest income, net

 

 

1

 

 

 

58

 

Net income before income taxes

 

 

708

 

 

 

306

 

Income tax expense

 

 

163

 

 

 

80

 

Net income

 

$545

 

 

$226

 

Income per share - basic

 

$0.15

 

 

$0.06

 

Income per share - fully diluted

 

$0.14

 

 

$0.06

 

Weighted average number of common shares outstanding - basic

 

 

3,769

 

 

 

3,788

 

Weighted average number of common shares outstanding - fully diluted

 

 

3,817

 

 

 

3,824

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
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ISSUER DIRECT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2021

 

 

2020

 

Net income

 

$545

 

 

$226

 

Foreign currency translation adjustment

 

 

3

 

 

 

40

 

Comprehensive income

 

$548

 

 

$266

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
5

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ISSUER DIRECT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except share and per share amounts)

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated Other Comprehensive

Income

 

 

Retained

 

 

Total Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss)

 

 

Earnings

 

 

Equity

 

Balance at December 31, 2019

 

 

3,786,398

 

 

$4

 

 

$22,275

 

 

$(16 )

 

$3,837

 

 

$26,100

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

45

 

 

 

-

 

 

 

-

 

 

 

45

 

Exercise of stock awards, net of tax

 

 

8,002

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock repurchase and retirement

 

 

(21,700 )

 

 

-

 

 

 

(203 )

 

 

-

 

 

 

-

 

 

 

(203 )

Foreign currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

40

 

 

 

-

 

 

 

40

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

226

 

 

 

226

 

Balance at March 31, 2020

 

 

3,772,700

 

 

$4

 

 

$22,117

 

 

$24

 

 

$4,063

 

 

$26,208

 

Balance at December 31, 2020

 

 

3,770,752

 

 

$4

 

 

$22,214

 

 

$(19 )

 

$5,943

 

 

$28,142

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

63

 

 

 

-

 

 

 

-

 

 

 

63

 

Exercise of stock awards, net of tax

 

 

15,000

 

 

 

-

 

 

 

199

 

 

 

-

 

 

 

-

 

 

 

199

 

Stock repurchase and retirement

 

 

(19,777 )

 

 

-

 

 

 

(452 )

 

 

-

 

 

 

-

 

 

 

(452 )

Foreign currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

3

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

545

 

 

 

545

 

Balance at March 31, 2021

 

 

3,765,975

 

 

$4

 

 

$22,024

 

 

$(16 )

 

$6,488

 

 

$28,500

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
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ISSUER DIRECT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$545

 

 

$226

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

285

 

 

 

374

 

Bad debt expense

 

 

28

 

 

 

93

 

Deferred income taxes

 

 

(15)

 

 

(42 )

Non-cash interest expense

 

 

-

 

 

 

6

 

Stock-based compensation expense

 

 

63

 

 

 

45

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Decrease (increase) in accounts receivable

 

 

(484 )

 

 

(219 )

Decrease (increase) in other assets

 

 

(16 )

 

 

32

 

Increase (decrease) in accounts payable

 

 

287

 

 

 

118

 

Increase (decrease) in accrued expenses

 

 

398

 

 

 

(105 )

Increase (decrease) in deferred revenue

 

 

178

 

 

 

74

 

Net cash provided by operating activities

 

 

1,269

 

 

 

602

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of fixed assets

 

 

(16 )

 

 

-

 

Net cash used in investing activities

 

 

(16 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

199

 

 

 

-

 

Payment for stock repurchase and retirement

 

 

(452 )

 

 

(203 )

Net cash used in financing activities

 

 

(253 )

 

 

(203 )

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

1,000

 

 

 

399

 

Cash - beginning

 

 

19,556

 

 

 

15,766

 

Currency translation adjustment

 

 

(8 )

 

 

32

 

Cash and cash equivalents - ending

 

$20,548

 

 

$16,197

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$-

 

 

$10

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
7

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ISSUER DIRECT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1. Basis of Presentation

 

The unaudited interim consolidated balance sheet as of March 31, 2021 and consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the three-month periods ended March 31, 2021 and 2020 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 2020 audited financial statements of Issuer Direct Corporation (the “Company”, “We”, or “Our”) filed on Form 10-K.

 

Note 2. Summary of Significant Accounting Policies

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions are eliminated in consolidation.

 

Earnings Per Share (EPS)

 

Earnings per share accounting guidance requires that basic net income per common share be computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. There were no shares issuable upon the exercise of stock options excluded in the computation of diluted earnings per common share during the three-month period ended March 31, 2021 because their impact was anti-dilutive. Shares issuable upon the exercise of stock options totaling 93,000 were excluded in the computation of diluted earnings per common share during the three-month period ended March 31, 2020 because their impact was anti-dilutive.

 

Revenue Recognition

 

Substantially all the Company’s revenue comes from contracts with customers for subscriptions to its cloud-based products or contracts for Communications and Compliance products and services. Customers consist of public corporate issuers and professional firms, such as investor relations and public relations firms. In the case of our news distribution and webcasting offerings, our customers also include private companies. The Company accounts for a contract with a customer when there is an enforceable contract between the Company and the customer, the rights of the parties are identified, the contract has economic substance, and collectability of the contract consideration is probable. The Company's revenues are measured based on consideration specified in the contract with each customer.

 

The Company's contracts include either a subscription to our entire platform or certain modules within our platform, or an agreement to perform services, or any combination thereof, and often contain multiple subscriptions and services. For these bundled contracts, the Company accounts for individual subscriptions and services as separate performance obligations if they are distinct, which is when a product or service is separately identifiable from other items in the bundled package, and a customer can benefit from it on its own or with other resources that are readily available to the customer. The Company separates revenue from its contracts into two revenue streams: i) Communications and ii) Compliance. Performance obligations of Communications contracts include providing subscriptions to certain modules or the entire Platform id. Communications module, distributing press releases on a per release basis or conducting webcasts, virtual annual meetings or other events on a per event basis. Performance obligations of Compliance contracts include providing subscriptions to our cloud-based Platform id. Compliance module, Whistleblower module or other stand-ready obligations to deliver services and annual report printing and distribution. Additionally, services are provided on a per project basis. Set up fees for disclosure services are considered a separate performance obligation and are satisfied upfront. Set up fees for our transfer agent module and investor relations content management module are immaterial. The Company’s subscription and service contracts are generally for one year, with automatic renewal clauses included in the contract until the contract is cancelled. The contracts do not contain any rights of returns, guarantees or warranties. Since contracts are generally for one year, all the revenue is expected to be recognized within one year from the contract start date. As such, the Company has elected the optional exemption that allows the Company not to disclose the transaction price allocated to performance obligations that are unsatisfied or partially satisfied at the end of each reporting period.

 

The Company recognizes revenue for subscriptions evenly over the contract period, upon distribution for per release contracts and upon event completion for webcasting and virtual annual meeting events. For service contracts that include stand ready obligations, revenue is recognized evenly over the contract period. For all other services delivered on a per project or event basis, the revenue is recognized at the completion of the event. The Company believes recognizing revenue for subscriptions and stand ready obligations using a time-based measure of progress, best reflects the Company’s performance in satisfying the obligations.

 

 
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For bundled contracts, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the subscription or 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 subscription and service contracts, which are billed upfront, quarterly or annually, however the revenue has not yet been recognized and press release packages which have been prepaid, however the releases have not been disseminated. The associated deferred revenue is generally recognized ratably over the billing period for subscriptions and as releases are disseminated for press release packages. Deferred revenue as of March 31, 2021 and December 31, 2020 was $2,383,000 and $2,212,000, respectively, and is expected to be recognized within one year. Revenue recognized for the three months ended March 31, 2021 and 2020, that was included in the deferred revenue balance at the beginning of each reporting period, was approximately $1,075,000 and $877,000, respectively. Accounts receivable, net of allowance for doubtful accounts, related to contracts with customers was $2,966,000 and $2,514,000 as of March 31, 2021 and December 31, 2020, respectively. Since substantially all the contracts have terms of one year or less, the Company has elected to use the practical expedient regarding the existence of a significant financing.

 

Costs to obtain contracts with customers consist primarily of sales commissions. As of March 31, 2021, and December 31, 2020, the Company has capitalized $53,000 and $44,000, respectively, of costs to obtain contracts that are expected to be amortized over more than one year. For contract costs expected to be amortized in less than one year, the Company has elected to use the practical expedient allowing the recognition of incremental costs of obtaining a contract as an expense when incurred. The Company has considered historical renewal rates, expectations of future renewals and economic factors in making these determinations.

 

Cash Equivalents

 

For purposes of the Company’s financial statements, the Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

The Company monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. Credit is granted on an unsecured basis. The allowance for doubtful accounts is estimated based on an assessment of the Company’s ability to collect on customer accounts receivable. There is judgment involved with estimating the allowance for doubtful accounts and if the financial condition of the Company’s customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against revenues. Given the current environment of the COVID-19 pandemic additional attention has been paid to the financial viability of our customers. The Company generally writes off accounts receivable against the allowance when it determines a balance is uncollectible and no longer actively pursues its collection.

 

Concentration of Credit Risk

 

Financial instruments and related items which potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivables. The Company places its cash and temporary cash investments with credit quality institutions. Such cash balances are currently in excess of the FDIC insurance limit of $250,000. To reduce its risk associated with the failure of such financial institutions, each quarter the Company evaluates the rating of the financial institution in which it holds deposits. As of March 31, 2021, the total amount exceeding such limit was $19,123,000. The Company also had cash-on-hand of $108,000 in Europe and $886,000 in Canada as of March 31, 2021.

 

The Company believes it did not have any financial instruments that could have potentially subjected us to significant concentrations of credit risk for any relevant period.

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the allowance for doubtful accounts and the valuation of goodwill, intangible assets, deferred tax assets, and stock-based compensation. Actual results could differ from those estimates.

 

Income Taxes

 

We comply with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 740 - Income Taxes which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amounts expected to be realized. For any uncertain tax positions, we recognize the impact of a tax position, only if it is more likely than not of being sustained upon examination, based on the technical merits of the position. Our policy regarding the classification of interest and penalties is to classify them as income tax expense in our financial statements, if applicable.

 

 
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Capitalized Software

 

Costs incurred to develop our cloud-based platform products are capitalized when the preliminary project phase is complete, management commits to fund the project and it is probable the project will be completed and used for its intended purposes. Once the software is substantially complete and ready for its intended use, the software is amortized over its estimated useful life, which is typically four years. Costs related to design or maintenance of the software are expensed as incurred. The Company did not capitalize any costs for software development during the three-month periods ended March 31, 2021 and 2020. The Company recorded amortization expense of $132,000 and $170,000 during the three-month periods ended March 31, 2021 and 2020, respectively, all of which was recorded in Cost of revenues on the Consolidated Statements of Income, except for $5,000 during the three months ended March 31, 2020, which is included in Depreciation and amortization.

 

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

 

We determine if an arrangement is a lease at inception. Our operating lease agreements are primarily for office space and are included within lease right-of-use (“ROU”) assets and lease liabilities on the consolidated balance sheets.

 

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Our variable lease payments consist of non-lease services related to the lease and payments under operating leases classified as short-term. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets include any lease payments made and exclude lease incentives. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.

 

Fair Value Measurements

 

ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the hierarchy of levels of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

 

 

·

Level 1 - Quoted prices are available in active markets for identical assets or liabilities at the reporting date. Generally, this includes debt and equity securities that are traded in an active market. Our cash and cash equivalents are quoted at Level 1.

 

 

 

 

·

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Generally, this includes debt and equity securities that are not traded in an active market.

 

 

 

 

·

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

   

As of March 31, 2021 and December 31, 2020, we believe that the fair value of our financial instruments other than cash and cash equivalents, such as, accounts receivable, our line of credit, and accounts payable approximate their carrying amounts. 

 

 
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Translation of Foreign Financial Statements

 

The financial statements of the foreign subsidiaries of the Company have been translated into U.S. dollars. All assets and liabilities have been translated at current rates of exchange in effect at the end of the period. Income and expense items have been translated at the average exchange rates for the year or the applicable interim period. The gains or losses that result from this process are recorded as a separate component of other accumulated comprehensive income until the entity is sold or substantially liquidated.

 

Business Combinations, Goodwill and Intangible Assets

 

We account for business combinations under FASB ASC No. 805 - Business Combinations and the related acquired intangible assets and goodwill under FASB ASC No. 350 - Intangibles - Goodwill and Other. The authoritative guidance for business combinations specifies the criteria for recognizing and reporting intangible assets apart from goodwill. We record the assets acquired and liabilities assumed in business combinations at their respective fair values at the date of acquisition, with any excess purchase price recorded as goodwill. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Intangible assets consist of client relationships, customer lists, distribution partner relationships, software, technology, non-compete agreements and trademarks that are initially measured at fair value. At the time of the business combination, trademarks are considered an indefinite-lived asset and, as such, are not amortized as there is no foreseeable limit to cash flows generated from them. The goodwill and intangible assets are assessed annually for impairment, or whenever conditions indicate the asset may be impaired, and any such impairment will be recognized in the period identified. The client relationships (7-10 years), customer lists (3 years), distribution partner relationships (10 years), non-compete agreements (5 years) and software and technology (3-6 years) are amortized over their estimated useful lives.

 

Comprehensive Income

 

Comprehensive income consists of net income and other comprehensive income related to changes in the cumulative foreign currency translation adjustment.

 

Advertising

 

The Company expenses advertising as incurred.

 

Stock-based Compensation

 

The authoritative guidance for stock compensation requires that companies estimate the fair value of share-based payment awards on the date of the grant using an option-pricing model. The associated cost is recognized over the period during which an employee or director is required to provide service in exchange for the award. 

 

Note 3: Equity

 

2014 Equity Incentive Plan

 

On May 23, 2014, the shareholders of the Company approved the 2014 Equity Incentive Plan (the “2014 Plan”). Under the terms of the 2014 Plan, the Company is authorized to issue incentive awards for common stock up to 200,000 shares to employees and other personnel. On June 10, 2016 and June 17, 2020, the shareholders of the Company approved an additional 200,000 and 200,000 awards, respectively, to be issued under the 2014 Plan, bringing the total number of shares to be awarded to 600,000. The awards may be in the form of incentive stock options, nonqualified stock options, restricted stock, restricted stock units and performance awards. The 2014 Plan is effective through March 31, 2024. As of March 31, 2021, there are 236,583 shares which remain to be granted under the 2014 Plan.

 

The following table summarizes information about stock options outstanding and exercisable at March 31, 2021:

 

 

 

 

Options Outstanding

 

 

Options Exercisable

 

Exercise Price Range

 

 

Number

 

 

Weighted Average

Remaining Contractual

Life (in Years)

 

 

Weighted Average

Exercise Price

 

 

Number

 

$

0.01 - 7.00

 

 

 

5,000

 

 

 

4.64

 

 

$6.80

 

 

 

5,000

 

$

7.01 - 8.00

 

 

 

10,313

 

 

 

2.49

 

 

$7.76

 

 

 

10,313

 

$

8.01 - 12.00

 

 

 

6,917

 

 

 

5.53

 

 

$9.85

 

 

 

4,917

 

$

12.01 - 15.00

 

 

 

30,000

 

 

 

7.54

 

 

$13.15

 

 

 

30,000

 

$

15.01 - 17.40

 

 

 

8,000

 

 

 

7.17

 

 

$17.40

 

 

 

8,000

 

Total

 

 

 

60,230

 

 

 

6.15

 

 

$11.89

 

 

 

58,230

 

 

 
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As of March 31, 2021, the Company had unrecognized stock compensation related to the options of $2,000, which will be recognized in the second quarter of 2021.

 

During the three months ended March 31, 2021 and 2020, the Company did not grant any restricted stock units. As of March 31, 2021, there was $41,000 of unrecognized compensation cost related to our unvested restricted stock units, which will be recognized in the second quarter of 2021.

 

Stock repurchase and retirement

 

On August 7, 2019, the Company publicly announced a share repurchase program under which the Company is authorized to repurchase up to $1,000,000 of its common shares. On March 16, 2020, the Company publicly announced that the Company increased the share repurchase program to repurchase up to $2,000,000 of its common shares. As of March 31, 2021, the Company completed the repurchase program by purchasing 179,845 shares as shown in the table below ($ in 000’s, except share or per share amounts):

 

 

 

Shares Repurchased

 

Period

 

Total

Number of Shares Repurchased

 

 

Average

Price Paid Per

Share

 

 

Total Number of Shares Purchased as Part of Publicly Announced Program

 

 

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program

 

August 7-31, 2019

 

 

22,150

 

 

$9.34

 

 

 

22,150

 

 

$793

 

September 1-30, 2019

 

 

2,830

 

 

$10.00

 

 

 

2,830

 

 

$765

 

October 1-31, 2019

 

 

39,363

 

 

$10.44

 

 

 

39,363

 

 

$354

 

November 1-30, 2019

 

 

11,827

 

 

$10.43

 

 

 

11,827

 

 

$231

 

December 1-31, 2019

 

 

-

 

 

 

-

 

 

 

-

 

 

$231

 

January 1-31, 2020

 

 

-

 

 

 

-

 

 

 

-

 

 

$231

 

February 1-29, 2020

 

 

-

 

 

 

-

 

 

 

-

 

 

$231

 

March 1-31, 2020

 

 

21,700

 

 

$9.33

 

 

 

21,700

 

 

$1,028

 

April 1-30, 2020

 

 

22,698

 

 

$9.02

 

 

 

22,698

 

 

$823

 

May 1-31, 2020

 

 

39,500

 

 

$9.51

 

 

 

39,500

 

 

$448

 

No shares repurchased between June 2020 and February 2021

March 1-31, 2021

 

 

19,777

 

 

$22.89

 

 

 

19,777

 

 

$-

 

Total

 

 

179,845

 

 

$11.15

 

 

 

179,845

 

 

$-

 

  

Note 4: Income taxes

 

We recognized income tax expense of $163,000 for the three-month period ended March 31, 2021, compared to income tax expense of $80,000 during the same period 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. For the three-month periods ended March 31, 2021 and 2020, the variance between the Company’s effective tax rate and the U.S. statutory rate of 21% is primarily attributable to state income tax, partially offset by a benefit related to the Foreign Derived Intangible Income (“FDII”) deduction as well as foreign rate differentials.

  

Note 5: Leases

 

Generally, our leasing activity consists of office leases. In March 2019, we signed a new lease to move our corporate headquarters to Raleigh, North Carolina. As we continue our transition from a services-based company to a cloud-based platform company, the new lease affords us the ability to separate our warehouse from our corporate office. The new lease, which had a lease commencement date of October 2, 2019, is for 9,766 square feet and expires December 31, 2027. Minimum lease payments are $2,997,000, not including a tenant improvement allowance of $488,000, which is included in fixed assets as of March 31, 2021. We recognized a ROU asset and corresponding lease liability of $2,596,000, which represents the present value of minimum lease payments discounted at 3.77%, the Company’s incremental borrowing rate at lease inception.

 

Additionally, we have a three-year 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 are on short-term leases that are less than twelve months. As a result, we have elected the short-term lease recognition exemption for these leases, which means, for those leases we do not expect to extend beyond twelve months, we will not recognize ROU assets or lease liabilities.

 

 
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Lease liabilities totaled $2,275,000 as of March 31, 2021. The current portion of this liability of $385,000 is included in Accrued expenses on the Consolidated balance sheets and the long-term portion of $1,890,000 is included in Lease liabilities on the Consolidated Balance Sheets. Rent expense consists of both operating lease expense from amortization of our ROU assets as well as variable lease expense which consists of non-lease components of office leases (i.e. common area maintenance) or rent expense associated with short-term leases. The components of lease expense were as follows (in 000’s):

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Lease expense

 

 

 

 

 

 

Operating lease expense

 

$87

 

 

$87

 

Variable lease expense

 

 

27

 

 

 

32

 

Rent expense

 

$114

 

 

$119

 

 

The weighted-average remaining non-cancelable lease term for our operating leases was 6.7 years as of March 31, 2021. As of March 31, 2021, the weighted-average discount rate used to determine the lease liability was 3.8%. The future minimum lease payments to be made under non-cancelable operating leases on March 31, 2021, are as follows (in 000’s):

 

Year Ended December 31:

 

 

 

2021

 

$295

 

2022

 

 

359

 

2023

 

 

369

 

2024

 

 

379

 

2025

 

 

389

 

Thereafter

 

 

812

 

Total lease payments

 

$2,603

 

Present value adjustment

 

 

(328 )

Lease liability

 

 

2,275

 

 

We have performed an evaluation of our other contracts with customers and suppliers in accordance with Topic 842 and have determined that, except for the leases described above, none of our contracts contain a lease.

 

Note 6: Revenue

 

We consider ourselves 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 March 31,

 

Revenue Streams

 

2021

 

 

2020

 

Communications

 

$3,187

 

 

 

64.0%

 

$2,408

 

 

 

60.0%

Compliance

 

 

1,793

 

 

 

36.0%

 

 

1,608

 

 

 

40.0%

Total

 

$4,980

 

 

 

100.0%

 

$4,016

 

 

 

100.0%

 

We did not have any customers during the three-month periods ended March 31, 2021 or 2020 that accounted for more than 10% of 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 March 31, 2021, the interest rate was 1.86% and the Company did not owe any amounts on the Line of Credit.

 

 
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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, which are incorporated by reference into this Form 10-Q. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on the Company’s behalf, are expressly qualified in their entirety by the Cautionary Statements.

 

Overview

 

Issuer Direct Corporation and its subsidiaries are hereinafter collectively referred to as “Issuer Direct”, the “Company”, “We” or “Our” unless otherwise noted. Our corporate offices are located at One Glenwood Ave., Suite 1001, Raleigh, North Carolina, 27603.

 

We announce material financial information to our investors using our investor relations website, SEC filings, investor events, news and earnings releases, public conference calls, webcasts and social media. We use these channels to communicate with our investors and the public about our company, our products and services and other related matters. It is possible that information we post on some of these channels could be deemed to be material information. Therefore, we encourage investors, the media and others interested in 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.

 

As our cloud-based subscription business continues to mature, we expect the Communications portion of our business to continue to increase over the next several years, both in terms of overall revenue and as compared to the Compliance portion of our business. Therefore, as noted below, we began reporting our revenue as Communications and Compliance revenues rather than Platform & Technology and Services revenues as we have done in the past. Communications revenues were 64% of total revenue during the first quarter of 2021 as compared to 60% in the first quarter of 2020. For the full year of 2020 Communications revenues were also 64% of total revenue, which is a higher percentage of our total revenue as compared to 57% and 45% of revenues for the years ended December 31, 2019 and 2018, respectively. In 2020, growth from our Communications business was led by the market demands for our events products that were upgraded to handle virtual needs in the industry, as well as our ACCESSWIRE news brand.

 

We plan to continue to invest in our Platform id. communications offerings as well as additional offerings that we intend to incorporate into our Communications product lineup. Within most of our target markets, customers require several individual services and/or software providers to meet their investor relations, communications and compliance needs. We believe Platform id. can address all these needs in a single, secure, cloud-based platform - one that offers a customer control, increases efficiencies, demonstrates clear value and, most importantly, delivers consistent and compliant messaging from one centralized platform.

 

We work with a diverse customer base, which includes not only corporate issuers and private companies, but also investment banks, professional firms, such as investor relations and public relations firms, as well as the accounting and legal communities. 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 customer’s 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.

 

 
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We also work with several select stock exchanges by making available certain parts of our platform under agreements to integrate our offerings within their products. We believe such partnerships will continue to yield increased exposure to a targeted customer base that could impact our revenue and overall brand in the market.

 

As noted above, in the 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 cost-effective, 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 to the traditional newswires 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 new e-commerce element to our ACCESSWIRE product, whereby customers can self-select their distribution and then register, upload their press release and tell their story in minutes without contacting a sales or operational employee.

 

 
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We believe the above strategy will enable us to continue to add new customers in 2021 and beyond. We have also been able to maintain high gross margins while providing our customers flexible pricing, with options to pay per release or enter longer-term subscriptions. Currently, ACCESSWIRE is available within our Platform id. subscription, or as a stand-alone offering.

 

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.

 

Webcasting & Events

 

Our webcasting and events business is comprised of our earnings call webcasting solutions and our virtual meeting and events software (such as annual meetings, deal/non-deal road shows, analyst days and shareholder days). The demands for these products with a virtual component were at an all-time high for us in 2020 in large part due to the COVID-19 pandemic, something we expect will continue for the majority of 2021, although, there can be no assurances this high demand will continue in the future.

 

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, 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.

 

Additionally, as a commitment to broadening the reach of our webcast platform, we broadcast live all 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. We believe these analytics, which will be a component of our Insight and Analytics module, will increase the demand for our webcasting platform among the corporate issuer community.

 

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 integrates well into Platform id. We believe by acquiring VWP we have significantly strengthened our webcasting product and Platform id. offering as well as acquired over 120 customers, ranging from small private companies to Fortune 500 companies. The VWP technology gives us the ability to host thousands of 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, most companies have been holding meetings virtually over the past 12 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 the professional conference organizer (“PCO”). This subscription offering is being licensed to investor conference organizers, which in the aggregate we believe held an estimated 1,000 plus events a year prior to 2020. This number significantly decreased in 2020 and is expected to remain at significantly decreased numbers in the near future and possibly long-term as a result of COVID-19. Our professional conference and events software, which is available as a mobile app, offers organizers, issuers and investors the ability to register, request and approve one-on-one meetings, manage schedules, perform event promotion and sponsorship, print attendee badges and manage lodging. This cloud-based product can be used in a virtual or in person conference setting and is integrated within Platform id. to enhance our Communications module subscription offerings of newswire, newsrooms, webcasting and shareholder targeting. We believe this integration gives us a unique offering for PCOs that is not available elsewhere in the market.

 

We believe entering this business expands our current Communications revenue base, and as an adjacency, should assist in making Platform id. a platform of choice for investment banks, issuers and investors.

 

 
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Investor Relations Websites

 

Our investor relations content network is another component of Platform id., which is used to create the investor relations’ tab of a company’s website. This investor relations content network is a robust series of data feeds including news feeds, stock feeds, fundamentals, regulatory filings, corporate governance and many other components which are aggregated 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.

 

As what we believe to be a natural expansion to our investor relations website business, we are developing a “corporate newsroom” offering, which we plan to bring to market later this year. This product offering can be an add-on to any customer’s ACCESSWIRE or Platform i.d. account. Our intent is to leverage the technology we have in our investor relations content business and focus a module toward all companies, to assist in making their corporate news, media kits and alerts available from our ecosystem to their corporate website.

 

Compliance

 

Our Compliance offerings consist of our disclosure software for financial reporting as well as our stock transfer agency, 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 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.

 

Toward the end of 2017, we completed upgrades to our disclosure reporting product to include tagging functionality that meets newly mandated SEC disclosure requirements under Inline XBRL (Inline Extensible Business Reporting Language or “iXBRL”). These requirements will impact most of our customers for the fiscal periods ending on or after June 15, 2021, however, we have had a number of customers already file using our iXBRL upgrades.

 

Whistleblower Hotline

 

Our whistleblower 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 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.

 

 
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By adding a component of our webcasting and events business, we were able to offer a complete annual meeting solution, which resulted in us becoming one of the top technology providers of virtual annual meetings in 2020, which incorporated real-time voting. For perspective, during 2019, approximately 300 North American public companies opted for a virtual component to their annual meeting compared to an estimated 4,000+ public companies in 2020.

 

Our proxy module is marketed as a fully integrated, real-time voting platform for our customers and their shareholders of record. This module is utilized for every annual meeting or special meeting we manage for our customers and offers both full-set mailing and notice of internet availability options.

 

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.

 

Results of Operations

 

Comparison of results of operations for the three months ended March 31, 2021 and 2020 (in 000’s):

 

Revenue

 

2021

 

 

2020

 

Communications

 

 

 

 

 

 

Revenue

 

$3,187

 

 

$2,408

 

Gross margin

 

$2,314

 

 

$1,729

 

Gross margin %

 

 

73%

 

 

72%

 

 

 

 

 

 

 

 

 

Compliance

 

 

 

 

 

 

 

 

Revenue

 

 

1,793

 

 

 

1,608

 

Gross margin

 

 

1,272

 

 

 

1,034

 

Gross margin %

 

 

71%

 

 

64%

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

Revenue

 

$4,980

 

 

$4,016

 

Gross margin

 

$3,586

 

 

$2,763

 

Gross margin %

 

 

72%

 

 

69%

 

Revenues

 

Total revenue increased by $964,000, or 24%, to $4,980,000 during the three months ended March 31, 2021, as compared to $4,016,000 for the same period in 2020. The increase is primarily attributable to an increase in revenue in our Communications business, but also in our Compliance business.

 

Communications revenue increased $779,000, or 32%, to $3,187,000 for the three months ended March 31, 2021, as compared to $2,408,000 for the same period of 2020. The increase in revenue is primarily due to an increase in revenue from our ACCESSWIRE product, which increased 38% during the first quarter of 2021 compared to the first quarter of 2020. The increase is due to both an increase in the number of customers as well as an increase in revenue per release. Revenue from subscriptions of Platform id. increased as a result of additional licenses signed throughout 2020 and the first quarter of 2021. During the quarter we signed 50 new licenses of Platform id. with annual contract value of $383,000. This brings our total subscriptions of Platform id. to 386 with annual contract value of $3,046,000 as of March 31, 2021, compared to 341 subscriptions with annual contract value of $2,677,000 as of December 31, 2020. Additionally, revenue from our webcasting products increased as we continue to benefit from increased demand of our virtual conference and events products enhanced during 2020. Communications revenue increased to 64% of total revenue during the three months ended March 31, 2021, as compared to 60% during the same period of the prior year.

 

 
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Compliance revenue increased $185,000, or 12%, during the three months ended March 31, 2021, as compared to 2020. The increase was due to an increase in revenue from transfer agent services and print and proxy fulfillment services. Revenue from these two services tends to fluctuate from quarter to quarter depending on corporate transactions and market activity.

 

2021 Revenue Backlog

 

As of March 31, 2021, our deferred revenue balance was $2,383,000, which we expect to recognize over the next twelve months, compared to $2,212,000 at December 31, 2020, an increase of 8%. 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

 

Communications cost of revenues consists primarily of direct labor costs, newswire distribution costs, teleconferencing costs and third-party licensing costs. Compliance and 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 increased by $141,000, or 11%, during the three months ended March 31, 2021, as compared to the same period of 2020. Overall gross margin increased $823,000, or 30%, during the three months ended March 31, 2021, compared to the same period of 2020. As a result, overall gross margin percentage increased to 72% during the three months ended March 31, 2021, as compared to 69% during the prior year. The increase in cost of sales is due partially to an increase in labor costs associated with delivering our newswire and webcasting revenue, an increase in distribution costs as we continue to expand our distribution capabilities as well as an increase in teleconferencing costs. These increases were offset by decreases in amortization of capitalized software as well as decreases in postage and fulfillment costs associated with our legacy ARS business.

 

Gross margin percentage associated with our Communications revenue was 73% for the three months ended March 31, 2021 compared to 72% for the same period of 2020.

 

Gross margin percentage associated with our Compliance revenue was 71% for the three months ended March 31, 2021 compared to 64% for the same period of 2020. The increase in gross margin percentage was due to an increase in revenue from our transfer agent services as well as a decrease in amortization of capitalized software associated with our disclosure software as well as a decrease in postage and fulfillment costs associated with our legacy ARS business.

 

General and Administrative Expense

 

General and administrative expenses consist primarily of salaries, bonuses, stock-based compensation, insurance, fees for professional services, general corporate expenses (including bad debt expense) and facility and equipment expenses. General and administrative expenses were $1,404,000 for the three months ended March 31, 2021, an increase of $188,000 or 15%, as compared to the same period of the prior year. The increase is due to higher personnel expenses and professional fees offset by a decrease in bad debt expense.

 

As a percentage of revenue, General and Administrative expenses were 28% for the three months ended March 31, 2021, as compared to 30% for the same period of 2020.

 

Sales and Marketing Expenses

 

Sales and marketing expenses consist primarily of salaries, stock-based compensation, sales commissions, advertising expenses, tradeshow expenses and other marketing expenses. Sales and marketing expenses were $1,074,000 for the three months ended March 31, 2021, an increase of $178,000, or 20%, as compared to the same period of 2020. This increase is directly related to our investment in our sales and marketing initiatives with an increase in headcount, commissions and digital marketing offset by a decrease in sales consulting costs.

 

As a percentage of revenue, Sales and marketing expenses were 22% for the three months ended March 31, 2021 and 2020.

 

Product Development

 

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 id. Product development costs increased $55,000, or 28%, to $249,000 during the three months ended March 31, 2021, as compared to 2020. The increase is due to an increase in headcount within the development team.

 

 
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As a percentage of revenue, Product development expenses were 5% for the three months ended March 31, 2021 and 2020.

 

Depreciation and Amortization

 

During the three months ended March 31, 2021, Depreciation and amortization expenses decreased by $57,000, or 27%, to $152,000, as compared to $209,000 during the same period of the prior year. The decrease is primarily related to intangible assets associated with the acquisition of PIR that became fully amortized during the prior year.

 

Interest income, net

 

Interest income, net, represents interest income on deposit and money market accounts, as well as for the prior year, the non-cash interest expense associated with the present value of the remaining anniversary payments of the Interwest acquisition. The decrease in interest income during the three months ended March 31, 2021, as compared to the same period of the prior year, is due to a decrease in interest rates associated with deposit and money market accounts.

 

Income Taxes

 

We recorded income tax expense of $163,000 during the three months ended March 31, 2021, compared to $80,000 during the same period of 2020. The increase in income tax expense is attributable to higher pre-tax income for the three months ended March 31, 2021. The difference between the Company’s effective tax rate of 23% and the federal statutory rate of 21% is primarily due to state taxes, partially offset by a benefit related to the Foreign Derived Intangible Income (“FDII”) deduction as well as foreign rate differentials.

 

Liquidity and Capital Resources

 

As of March 31, 2021, we had $20,548,000 in cash and cash equivalents and $2,966,000 in net accounts receivable. Current liabilities as of March 31, 2021, totaled $5,428,000 including our accounts payable, deferred revenue, accrued payroll liabilities, income taxes payable, current portion of lease liabilities and other accrued expenses. On March 31, 2021, our current assets exceeded our current liabilities by $18,469,000.

 

Effective October 3, 2019, the Company renewed its 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 March 31, 2021, the interest rate was 1.86% and the Company did not owe any amounts on the Line of Credit.

 

Disclosure about Off-Balance Sheet Arrangements

 

We do not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.

 

Outlook

 

The following statements and certain statements made elsewhere in this document are based upon current expectations. These statements are forward looking and are subject to factors that could cause actual results to differ materially from those suggested here, including, without limitation, demand for and acceptance of our services, new developments, competition and general economic or market conditions, particularly in the domestic and international capital markets. Refer also to the Cautionary Statement Concerning Forward Looking Statements included in this report.

 

While it is unknown how long 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 year there was a delay in transactions processed by the Depository Trust Company and banks and brokers in our transfer agent business. However, our ability to pivot and enhance our product offering with our virtual products generated increased revenue during the past year. 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.

 

 
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Overall, the demand for our platforms and services continues to be stable in a majority of the segments we serve. We are seeing increased demand for virtual events using both our conference software and webcasting products, as customers are opting to hold virtual meetings. During the first and second quarter of 2020, we were able to pivot portions of our platform to specifically address COVID-19 business limitations. This resulted in a new virtual annual 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.

 

We believe these developments will assist us not only in delivering attractive solutions to the market, but also lead us into new opportunities during this changing and challenging environment. The extent to how long these shifts in demands will occur is uncertain at this time and could be longer than just 2020 and the early part of 2021. However, we cannot make any assurances at this time that our product upgrades 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 2021:

 

 

·

Continue to expand our Communications products and adapt to this changing environment,

 

·

Continue to grow through acquisitions in areas of strategic focus,

 

·

Continue to expand our Communications sales and marketing teams and digital marketing strategy,

 

·

Continue to expand customer base,

 

·

Continue to expand our newswire distribution,

 

·

Invest in technology advancements and upgrades,

 

·

Generate profitable sustainable growth

 

·

Generate cash flows from operations.

 

We believe there is significant demand for our products around the world among the middle, small and micro-cap markets, as well as private companies, as they seek to find better platforms and tools to disseminate and communicate their messages. Although this demand may decrease or shift in the near term as a result of COVID-19, we believe we have the product sets, platforms, capacity and ability to adapt during these changing times to meet their requirements.

 

We have invested and will continue to invest in our product sets, platforms and intellectual property development via internal development and acquisitions. Acquisitions remain a core part of our strategy and we believe acquisitions are key to enhancing our overall offerings in the market and necessary to keep our competitive advantages and facilitate the next round of growth that management believes it can achieve. If we are successful in this effort, we believe we can further increase our market share and revenues per user as we move forward.

 

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.

 

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 three months ended March 31, 2021, the Company implemented a new accounting system. While existing controls over financial reporting remained similar, such as segregation of duties, account reconciliation, reviews and approvals, among others, there is a heightened risk of misstatement upon conversion to a new system. The Company believes proper procedures were conducted during and after the 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.

 

 
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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 sales of our equity securities during the period covered by this Form 10-Q.

 

On August 7, 2019, the Company publicly announced a share repurchase program under which the Company is authorized to repurchase up to $1,000,000 of its common shares. On March 16, 2020, the Company publicly announced that the Company increased the share repurchase program to repurchase up to $2,000,000 of its common shares. As of March 31, 2021, the Company completed the repurchase program by purchasing 179,845 shares. Please see footnote 3 to the financial statements above for additional information. During the period covered by this Form 10-Q, the Company repurchased 19,777 shares as shown in the table below:

 

 

 

Shares Repurchased

 

Period

 

Total Number

of Shares

Repurchased

 

 

Average

Price Paid Per

Share

 

 

Total Number of Shares Purchased as Part of Publicly Announced Program

 

 

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program

 

No shares repurchased between January 1, 2021 and February 28, 2021

 

March 1-31, 2021

 

 

19,777

 

 

$22.89

 

 

 

19,777

 

 

$-

 

 

ITEM 3. 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

 

 

Number

 

Description

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

 

 

 

101.INS

 

XBRL Instance Document.**

101.SCH

 

XBRL Taxonomy Extension Schema Document.**

101.CAL

 

XBRL Taxonomy Calculation Linkbase Document.**

101.LAB

 

XBRL Taxonomy Label Linkbase Document.**

101.PRE

 

XBRL Taxonomy Presentation Linkbase Document.**

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document. **

__________________

*

filed or furnished herewith

**

submitted electronically herewith

 

 
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SIGNATURES

 

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: May 6, 2021

 

 

ISSUER DIRECT CORPORATION

 

 

 

 

 

 

By:

/s/ Brian R. Balbirnie

 

 

 

Brian R. Balbirnie

 

 

 

Chief Executive Officer

 

 

 

By:

/s/ Steven Knerr

 

 

 

Steven Knerr

 

 

 

Chief Financial Officer

 

 

 
24