ACCESS NEWSWIRE INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
———————
FORM 10-K
———————
☒
ANNUAL REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For The
Year Ended: December 31, 2020
———————
ISSUER DIRECT CORPORATION
(Name of small business issuer in its charter)
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Delaware
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1-10185
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26-1331503
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(State or Other Jurisdiction of Incorporation)
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(Commission File Number)
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(I.R.S. Employer Identification No.)
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One Glenwood Avenue, Suite 1001, Raleigh, NC 27603
(Address of Principal Executive Office) (Zip Code)
(919) 481-4000
(Registrant’s telephone number, including area
code)
———————
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common
Stock, par value $0.001 per share
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NYSE
American.
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Securities registered pursuant to Section 12(g) of the
Act:
None
(Title of Class)
———————
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes
☐
No
☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes
☐
No
☒
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
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
☒
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 definition of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check one):
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Large
accelerated filer
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☐
(Do not check if a smaller reporting
company)
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Smaller
reporting company
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☒
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Emerging
growth company
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☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with 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
☒
The
aggregate market value of the voting stock held by non-affiliates
of the registrant as of June 30, 2020, the last business day of the
registrant's second fiscal quarter, was approximately $38,273,133
based on the closing price reported on the NYSE American as of such
date.
As of
March 4, 2021, the number of outstanding shares of the registrant's
common stock was 3,771,002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions
of the registrant’s definitive proxy statement relating to
its 2021 annual meeting of stockholders (the “2021 Proxy
Statement”) are incorporated by reference into Part III of
this Annual Report on Form 10-K where indicated. The 2021 Proxy
Statement will be filed with the U.S. Securities and Exchange
Commission within 120 days after the end of the year to which this
report relates.
Table of Contents
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32
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EX-21.1
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Subsidiaries
of the Registrant
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EX-23.1
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Consent
of Independent Registered Public Accounting Firm
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EX-31.1
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Chief
Financial Officer Certification Pursuant to Section
302
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EX-31.2
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Chief
Financial Officer Certification Pursuant to Section
302
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EX-32.1
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Chief
Executive Officer Certification Pursuant to Section
906
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EX-32.2
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Chief
Financial Officer Certification Pursuant to Section
906
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EX-101.INS
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XBRL
INSTANCE DOCUMENT
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EX-101.SCH
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XBRL
TAXONOMY EXTENSION SCHEMA
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EX-101.CAL
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XBRL
TAXONOMY EXTENSION CALCULATION LINKBASE
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EX-101.DEF
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XBRL
TAXONOMY EXTENSION DEFINITION LINKBASE
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EX-101.LAB
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XBRL
TAXONOMY EXTENSION LABEL LINKBASE
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EX-101.PRE
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XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
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2
CAUTIONARY STATEMENT
All
statements, other than statements of historical fact, included in
this Form 10-K, including without limitation the statements under
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Description
of Business,” are, or may be deemed to be, forward-looking
statements. Such forward-looking statements involve assumptions,
known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievements of Issuer
Direct Corporation, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements contained in this Form
10-K.
In our
capacity as Company management, we may from time to time make
written or oral forward-looking statements with respect to our
long-term objectives or expectations which may be included in our
filings with the Securities and Exchange Commission (the
“SEC”), reports to stockholders and information
provided in our web site.
The
words or phrases “will likely,” “are expected
to,” “is anticipated,” “is
predicted,” “forecast,” “estimate,”
“project,” “plans to continue,”
“believes,” or similar expressions identify
“forward-looking statements.” Such forward-looking
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical
earnings and those presently anticipated or projected. We wish to
caution you not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. We are calling to
your attention important factors that could affect our financial
performance and could cause actual results for future periods to
differ materially from any opinions or statements expressed with
respect to future periods in any current statements.
The
following list of important risk factors is not all-inclusive, and
we specifically decline to undertake an obligation to publicly
revise any forward-looking statements that have been made to
reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated
events. Among the factors that could have an impact on our ability
to achieve expected operating results and growth plan goals and/or
affect the market price of our stock are
(please see full list of risk
factors in Item 1A):
●
Dependence on key
personnel.
●
Fluctuation in
quarterly operating results related to transaction-based
revenue.
●
Our ability to
successfully integrate and operate acquired assets, businesses,
ventures and/or subsidiaries.
●
Our ability to
successfully develop new products and introduce them to the markets
in which we operate.
●
Changes in laws and
regulations that affect our operations and demand for our products
and services.
Available Information
Our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Financial Data in XBRL, Current Reports on Form 8-K, proxy
statements and amendments to those reports filed or furnished
pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act
of 1934, as amended, are available, free of charge, in the investor
relations section of our website at
www.issuerdirect.com.
The SEC
maintains an Internet site that contains reports, proxy and
information statements and other information regarding issuers that
file electronically with the SEC at www.sec.gov. The public may
read and copy any materials we file with the SEC at the SEC’s
Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.
The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330.
3
P
ART I
Company 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 have begun to report our revenue as
Communications and Compliance revenues rather than Platform &
Technology and Services revenues as we have done in the past.
Communications revenues grew to 64% of total revenue during 2020,
compared to 57% and 45% of our revenue for the years ending
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, which drove both
subscriptions and pay-as-you-go revenues higher than in prior
years.
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.
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.
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:
4
Communications
Our communications platform consists of our
newswire, ACCESSWIRE, 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 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.
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, flat-fee 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.
5
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 space 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.
We have also attempted to differentiate our
offering by investing in developing and integrating systems and
processes within Platform
id.
and creating an application
programming interface (“API”). This API allows
customers, such as financial content sites and investment banks, to
query an industry or a single company’s current and past
earnings calls and present those webcasts on their
platforms.
Initially, this has
been broadly distributed via our Investor Network platform, with
expectations that customers will license this dataset for their
platforms in the future. We believe this offering will further
increase our brand awareness.
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 additional 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.
6
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 what is known as a
“corporate newsroom” in the communications industry,
which we plan to expect to bring to market during the year. This
product offering will be an add-on to any customer’s
ACCESSWIRE account and or their Platform id. subscription. 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.
Compliance 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 compliance 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
compliance 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.
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 considering the constraints caused by
COVID-19. Our solution incorporates shareholder and guest
registration, voting integration, real-time stats on attendance,
audio video and presentation features as well as fully managed
meeting managers and inspector of elections.
By
adding a component of our webcasting and events business, we were
able to offer a complete annual meeting solution, which resulted in
us becoming one of the top technology providers of virtual annual
meetings in 2020, which incorporated real-time voting. In
perspective, during 2019, approximately 300 North American public
companies opted for a virtual component to their annual meeting
compared to an estimated 4,000+ 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.
7
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.
Our overall strategy includes
:
Expansion of Current Customers
We
expect to continue to see demand for our products within our
customer base and in the industries we serve. As we continue to
transition from a services-oriented business, our focus is to
migrate customer contracts over to subscription-based contracts for
our entire Platform
id.
offering. We believe this
will help us move from a transaction-based revenue model to a
recurring subscription-based revenue model, which may give us more
consistent, predictable revenue patterns and hopefully create
longer lasting customer relationships. Additionally, as part of our
customer expansion efforts, we are committed to working beyond the
single point of contact and into the entire C suite (CEO, CFO, IRO,
Corporate Secretary, etc.) of an organization which we believe
will help drive subscription revenues
per customer.
Focus on Organic Growth
Our
primary growth strategy continues to be selling our communications
solutions to new customers under a subscription arrangement,
whereas in the past we were inclined to sell a single point
solution. Selling a subscription to Platform
id.
allows us to provide our
customers with a competitively priced, complete solution for their
communications needs. Our strategy of selling our cloud-based
offerings via Platform
id.
to all customers under a
subscription agreement should benefit us by moving away from
selling individual solutions within highly commoditized markets
that are experiencing pricing pressures.
New Offerings
During
2021 and going forward, we will continue to innovate, improve and
build new applications into and with our platform, with the
objective of developing integrated application solutions that are
not offered by our competitors. As a company focused on technology
offerings, we understand the importance of advancements and fully
appreciate the risks and consequences of losing our market
position. The pursuit of technological innovation is and has been a
part of our overall strategy as an organization over the last
several years.
Each
year we bring to market certain platform upgrades, add-ons, and new
offerings that we believe will complement our overall platform
solutions. We believe our innovation and technological efficiencies
continue to be a competitive advantage and focus for
us.
Part of
our continued strategy from 2020 will be to continue to meet the
virtual event market demands, in both our conference business,
annual meeting business and shareholder communications business. We
benefited during 2020 in each of these businesses and expect this
year’s product advancements to continue to benefit us
throughout the year as a result of the continued public gathering
restrictions which have been caused by COVID-19.
We also
have a slate of product platform enhancements beginning in the
first quarter of 2021 that will help our customers stay connected
with their shareholder and constituent base. Specifically, these
advancements will be centered around the creation process of a
story, whereby we will be adding a real-time collaboration suite
into the ACCESSWIRE process. We also plan to enhance the ability of
users to request, book and hold meetings within our virtual events
products. Additionally, we have other strategic upgrades to
Platform id., such as the corporate newsroom mentioned above, that
we believe will both increase customer retention and annual revenue
per customer.
Acquisition Strategy
We will
continue to evaluate complimentary verticals and businesses that we
can integrate into our communications platform. While we typically
focus on accretive acquisition opportunities, we will also evaluate
technology acquisitions that we believe would be strategic to our
overall business. We will continue to maintain our acquisition
focus in the communications industry. Specifically, we will look
for communications products and businesses that have recurring
revenues, customers and technologies that will further enhance our
overall market position.
8
Sales and Marketing
During
2020, we continued to strengthen our brands in the market by
working aggressively to expand our new customer footprint and
continue to cross sell to increase average revenue per customer.
Since our platform, systems and operations are built to handle
growth, we can leverage them to produce consistently high margins
and increased cash flows without a proportional increase in our
capital or operating expenses.
Our
sales organization is responsible for generating new customer
opportunities and expanding our current customers. We ended 2020
with a multi-tier organization of sales personnel, consisting of
Sales Development Representatives, Business Development Managers
and Strategic Account Managers. During 2020, we created a new
inbound digital sales and marketing group to manage all inbound
leads and focus on e-commerce and digital marketing relating to the
portions of our platform we believe may be attractive for online
purchases. We believe this structured approach is the most
efficient and effective way to reach new customers and grow our
current install base. The total compensation packages for these
teams are heavily weighted with commission compensation to incent
sales and retention. All members of the sales team have quotas. As
of December 31, 2020, we employed 29 full-time equivalent sales and
marketing personnel compared to 25 as of December 31,
2019.
Our
marketing organization has been focused on both new customer
acquisition as well as campaigns to educate current customers on
the advantages of using our entire Platform
id.
offerings. Additionally,
our marketing team has expanded their focus on investor
conferences, strategic partnerships and private company marketing
activities in order to continue to scale our business long
term.
Cybersecurity
In all
our offerings, quality, support, and scalability as well as the
need to preserve the confidential content of our customers are of
utmost importance and part of our core values. We continue to
maintain agreements with security software and hardware providers
and consulting firms to identify, address and create policies and
plans which enable us to mitigate our cybersecurity and information
vulnerabilities on both a short-term and long-term basis. We
believe having a strong cyber and information security policy is
not only necessary to maintain our current business model but also
is important to attract new customers. We plan to continue to work
closely with these firms and others to ensure our security policies
and practices meet our customers’ needs and
requirements.
Industry Overview
According to a 2020
Burton-Taylor Media Intelligence report, the global communications
technology market is almost $5 billion in annual revenue. This
total includes spending on social media solutions, media
monitoring, press release distribution engagement and targeting and
investor relations platforms globally. A key driver of growth in
our industry is the introduction of new innovative technologies and
solutions. We believe our technology and workflow automation
solutions will help us gain market share within the
industry.
The
webcasting and virtual event side of the communications industry
was greatly impacted by the COVID-19 pandemic as demand
significantly increased for virtual events due to cancelled live,
in-person events, meetings and conferences. Toward the end of the
first quarter of 2020, we began enhancing our products by adding
virtual components, as well as focusing our selling efforts on our
webcasting technologies.
Our
industry also benefits from increased regulatory requirements and
the need for platforms and systems to manage these new regulations.
Additionally, the industry, along with cloud-based technologies,
have matured considerably over the past several years, whereby
corporate issuers and communication professionals are seeking
platforms and systems to do some, if not all the work themselves.
We believe we are well positioned in this new environment to
benefit from subscriptions and further advancements of Platform
id.
The
compliance industry is highly fragmented, with hundreds of
independent service companies that provide a range of financial
reporting, document management services. There is also a wide range
of printing and technology software providers. The demands for many
of our services historically have been cyclical and reliant on
capital market activity. Over the past few years, we have been
offering subscriptions which combine both compliance software and
service in one annual contract. We believe this new offering
affords us the ability to reduce our revenue seasonality and
provide a new baseline of recurring annualized
revenue.
Competition
Despite
some significant consolidation in recent years, the communications
and compliance industries remain both highly fragmented and
extremely competitive. The success of our products and services are
generally based on price, quality and the ability to service
customer demands. Management has been focused on offsetting these
risks relating to competition as well as the seasonality by
introducing our cloud-based subscription platforms, with higher
margins, clear competitive advantages, higher customer stickiness
and scalability to withstand market and pricing
pressures.
We also
review our operations on a regular basis to balance growth with
opportunities to maximize efficiencies and support our long-term
strategic goals. We believe by blending our workflow technologies
with our legacy service offerings we can offer a comprehensive set
of products and solutions to each of our customers within one
platform that most competitors cannot offer today.
We
believe we are positioned to be the communications platform of
choice as a cost-effective alternative to both small regional
providers and global providers. We also believe we benefit from our
location in Raleigh, North Carolina, as we can hire and retain
sales, customer service or production personnel in the area at a
reasonable cost. However, there are areas we have strong
competition in hiring, such as research and development and
qualified sales individuals with communications industry
experience.
9
Customers
Our
customers include a wide variety of public and private companies,
mutual funds, law firms, brokerage firms, investment banks,
individuals, and other institutions. For the year ended December
31, 2020, we worked with 2,242 publicly traded customers and 4,426
private customers, compared to 2,169 publicly traded customers and
2,691 private customers for the year ended December 31, 2019. The
increase in private companies is primarily related to additional
agencies we began to partner with during the year as well as direct
sales to private companies in our newswire business. We did not
have any customers during the year ended December 31, 2020 that
accounted for more than 10% of our revenue or more than 10% of our
year end accounts receivable balance as of December 31,
2020.
Employees
As of
December 31, 2020, we employed eighty-six employees and engaged
five independent contractors, none of which are represented by a
union. Our employees work in our corporate offices in North
Carolina and in other offices throughout North
America.
Facilities
Our
headquarters are located in Raleigh, North Carolina. In October
2019, we began a new lease for 9,766 square feet of office space,
which expires December 31, 2027.
As part
of our acquisition of VWP, we assumed a three-year lease in Ft.
Lauderdale, Florida, and a month-to-month lease in New York City,
New York. Additionally, we have an office in Salt Lake City, Utah,
which is also on a short-term lease. As a result of an increase in
our remote workforce, we are examining the needs for these
satellite locations and have already vacated the New York City
office after year-end. The Company intends to monitor the needs of
its employees both in a remote and on-site basis and will make the
necessary adjustments to its locations on that basis.
Insurance
We
maintain both a general business liability, cyber-security and an
errors and omissions policies specific to our industry and
operations. We believe that our insurance policies provide adequate
coverage for all reasonable risks associated with operating our
business. Additionally, we maintain a Directors and Officers
insurance policy, which is standard for our industry and size. We
also maintain key person life insurance on our C level executives,
and one other key individual.
Regulations
The
securities and financial services industries generally are subject
to regulation in the United States and elsewhere. Regulatory
policies in the United States and the rest of the world are tasked
with safeguarding the integrity of the securities and financial
markets and with protecting the interests of both issuers and
shareholders.
In the
United States, corporate issuers are subject to regulation under
both federal and state laws, which often require public disclosure
and regulatory filings. At the federal level, the SEC regulates the
securities industry, along with the Financial Industry Regulatory
Authority, or FINRA, formally known as NASD, and NYSE market
regulations, various stock exchanges, and other self-regulatory
organizations (“SRO”).
In the
European Union (EU), the securities and reporting authorities tend
to be based on exchanges as well as individual country disclosure
requirements. We currently work with our stock exchange partners to
deliver our solutions. We believe this is the best approach as this
market is highly complex and divided in comparison to our North
American markets.
We
operate our filing agent business and transfer agent business under
the supervision and regulations of the SEC.
Our
transfer agency business, Direct Transfer, LLC, is registered with
the SEC and is subject to SEC regulations relating to, among other
things, annual reporting, examination, internal controls, tax
reporting and escheatment services. Our transfer agency is
currently approved to handle the securities of NYSE, NASDAQ and OTC
Markets.
Our
mission is to assist corporate issuers with these regulations,
communication and compliance of rules imposed by regulatory bodies.
The majority of our business involves the distribution of content,
either electronically or on paper, to governing bodies and
shareholders alike. We are recognized under these regulations to
disseminate, communicate and or solicit on behalf of our customers,
the issuers.
10
I
TEM 1A. RISK FACTORS.
Forward-Looking and Cautionary Statements
Investing in our
common stock involves a high degree of risk. Prospective investors
should carefully consider the following risks and uncertainties and
all other information contained or referred to in this Annual
Report on Form 10-K before investing in our common stock. The risks
and uncertainties described below are not the only ones facing us.
Additional risks and uncertainties that we are unaware of, or that
we currently deem immaterial, also may become important factors
that affect us. If any of the following risks occur, our business,
financial condition or results of operations could be materially
and adversely affected. In that case, the trading price of our
common stock could decline, and you could lose some or all of your
investment.
Risks related to our business
Legislative and regulatory changes can influence demand for our
solutions and could adversely affect our business.
The
market for our solutions depends in part on the requirements of the
SEC and other regulatory bodies. Any legislation or rulemaking
substantially affecting the content or method of delivery of
documents to be filed with these regulatory bodies could have an
adverse effect on our business. In addition, evolving market
practices in light of regulatory developments could adversely
affect the demand for our solutions. Uncertainty caused by
political change in the United States and European Union heightens
regulatory uncertainty in these areas. For example, the SEC has
proposed a rule to require certain over-the-counter
(“OTC”) companies to provide greater transparency to
investors and other market participants by requiring that
information about the issuer be current and publicly available,
which could cause a decrease in the number of publicly traded
companies. New legislation, or a significant change in rules,
regulations, directives or standards could reduce demand for our
products and services. Regulatory changes could also increase
expenses as we modify our products and services to comply with new
requirements and retain relevancy, impose limitations on our
operations, and increase compliance or litigation expense, each of
which could have a material adverse effect on our business,
financial condition and results of operations.
The environment in which we compete is highly competitive, which
creates adverse pricing pressures and may harm our business and
operating results if we cannot compete effectively.
Competition across
all of our businesses is intense. The speed and accuracy with which
we can meet customers’ needs, the price of our services and
the quality of our products and supporting services are factors in
this competition.
Some
of our competitors have longer operating histories, greater name
recognition, more established customer bases and significantly
greater financial, technical, marketing and other resources than we
do. As a result, they may be able to respond more quickly and
effectively than we can to new or changing market demands and
requirements. We could also be negatively impacted if our
competitors reduce prices, add new features, form strategic
alliances with other companies, or are acquired by other companies
with greater available resources.
These
competitive pressures to any aspect of our business could reduce
our revenue and earnings.
Our revenue growth rate in the recent period relating to our
Communications business may not be indicative of this business
segment’s future performance.
We
experienced a revenue growth rate of 28% from 2019 to 2020, 45%
from 2018 to 2019, 22% from 2017 to 2018 and 55% from 2016 to 2017
with respect to our Communications business. In 2020, much of the
growth came from
demand for our events
products that were upgraded to handle virtual needs in the
industry, as well as our ACCESSWIRE news brand, which drove both
subscriptions and pay-as-you-go revenues higher than in prior
years.
In 2019, much of the growth came from the acquisition
of VWP in January 2019 and FSCwire in July 2018, while the previous
years’ growth was due to the success of our ACCESSWIRE
business. Our historical revenue growth rate of the Communications
business is not indicative of future growth, and we may not achieve
similar revenue growth rates in future periods. You should not rely
on our revenue or revenue growth for any prior quarterly or annual
periods as any indication of our future revenue or revenue growth.
If we are unable to maintain consistent revenue or revenue growth,
it may be difficult to achieve and maintain profitability and our
stock price may be negatively impacted.
The success of our cloud-based software largely depends on our
ability to provide reliable solutions to our customers. If a
customer were to experience a product defect, a disruption in its
ability to use our solutions or a security flaw, demand for our
solutions could be diminished, we could be subject to substantial
liability and our business could suffer.
Our
product solutions are complex and we often release new features. As
such, our solutions could have errors, defects, viruses or security
flaws that could result in unanticipated downtime for our customers
and harm our reputation and our business. Internet-based software
may contain undetected errors or security flaws when first
introduced or when new versions or enhancements are released. We
might from time to time find such defects in our solutions, the
detection and correction of which could be time consuming and
costly. Since our customers use our solutions for important aspects
of their business, any errors, defects, disruptions in access,
security flaws, viruses, data corruption or other performance
problems with our solutions could hurt our reputation and may
damage our customers’ businesses. If that occurs, customers
could elect not to renew, could delay or withhold payment to us or
may make claims against us, which could result in an increase in
our provision for doubtful accounts, an increase in collection
cycles for accounts receivable or the expense and risk of
litigation. We could also lose future sales. In addition, a
security breach of our solutions could result in our future
business prospects being materially adversely
impacted.
11
A substantial portion of our business is derived from our
ACCESSWIRE brand, which is dependent on technology and key
partners.
As
noted, our ACCESSWIRE brand has been vital to the increase in
revenue associated with our Communications business. ACCESSWIRE is
dependent upon several key partners for news distribution, some of
which are also partners that we rely on for other shareholder
communications services.
During the
second quarter of 2019, one of our key partners made an
industry-wide decision to no longer accept investor commentary
content. A significant portion of our historical ACCESSWIRE revenue
was generated from this type of content, which has significantly
affected revenue going forward.
Further disruption in any of
these partnership relationships could have a material adverse
impact on our business and financial results and the inability to
procure new key partners could impact the growth of the ACCESSWIRE
brand, particularly with respect to public company news
distribution. Additionally, ACCESSWIRE is highly dependent on
technology and any performance issues with this technology could
have a material impact on our ability to serve our customers and
thus our ability to generate revenue.
Failure to manage our growth may adversely affect our business or
operations.
Since
2013, we have experienced overall growth in our business, customer
base, employee headcount and operations, and we expect to continue
to grow our business over the next several years. This growth
places a significant strain on our executive management team and
employees and on our operating and financial systems. To manage our
future growth, we must continue to scale our business functions,
improve our financial and management controls and our reporting
systems and procedures and expand and train our work force. In
particular, we grew from twenty-four employees and contractors as
of December 31, 2012 to ninety-one (including 5 independent
contractors) as of December 31, 2020. We anticipate that additional
investments in sales personnel, infrastructure and research and
development spending will be required to:
●
scale our
operations and increase productivity;
●
address the needs
of our customers;
●
further develop and
enhance our existing solutions and offerings; and
●
develop new
technology.
We
cannot assure you that our controls, systems and procedures will be
adequate to support our future operations or that we will be able
to manage our growth effectively. We also cannot assure you that we
will be able to continue to expand our market presence in the
United States and other current markets or successfully establish
our presence in other markets. Failure to effectively manage growth
could result in difficulty or delays in deploying customers,
declines in quality or customer satisfaction, increases in costs,
difficulties in introducing new features or other operational
difficulties, and any of these difficulties could adversely impact
our business performance and results of operations.
If we are unable to retain our key employees and attract and retain
other qualified personnel, our business could suffer.
Our
ability to grow and our future success will depend to a significant
extent on the continued contributions of our key executives,
managers and employees. In addition, many of our individual
technical and sales personnel have extensive experience in our
business operations and/or have valuable customer relationships
that would be difficult to replace. Their departure, if unexpected
and unplanned, could cause a disruption to our business. Our
competition for these individuals is intense in certain areas of
our business. We may not succeed in identifying and retaining the
appropriate personnel in key positions. Further, competitors and
other entities have in the past recruited and may in the future
attempt to recruit our employees, particularly our sales personnel.
The loss of the services of our key personnel, the inability to
identify, attract and retain qualified personnel in the future or
delays in hiring qualified personnel, particularly technical and
sales personnel, could make it difficult for us to manage our
business and meet key objectives, such as the timely introduction
of new technology-based products and services, which could harm our
business, financial condition and operating results
The recent COVID-19 outbreak could harm our business and results of
operations.
On
January 30, 2020, the World Health Organization declared the
COVID-19 outbreak a "Public Health Emergency of International
Concern" and on March 11, 2020, declared it to be a pandemic. We
have undertaken measures to protect our employees, partners and
customers by requiring a majority of our employees to work remotely
at certain times. There can be no assurance that these measures
will be effective or that we can adopt them without adversely
affecting our business operations. In addition, the COVID-19
outbreak has created and may continue to create significant
uncertainty in global financial markets, which may materially
decrease spending, demand for our solutions, the viability of our
customers and the value of our assets, which would significantly
harm our business and results of operations
. The ultimate extent of the impact of any
epidemic, pandemic or other health crisis in our business,
financial condition and results of operations will depend on future
developments, which are highly uncertain and cannot be
predicted.
If
we fail to keep our customers’ information
confidential or if we handle their information improperly, our
business and reputation could be significantly and adversely
affected.
If we
fail to keep customers’ proprietary information and
documentation confidential, we may lose existing customers and
potential new customers and may expose them to significant loss of
revenue based on the premature release of confidential information.
While we have security measures in place to protect customer
information and prevent data loss and other security breaches,
these measures may be breached as a result of third-party action,
employee error, malfeasance or otherwise. Because the techniques
used to obtain unauthorized access or sabotage systems change
frequently and generally are not identified until they are launched
against a target, we may be unable to anticipate these techniques
or to implement adequate preventative measures.
12
In
addition, our service providers (including, without limitation,
hosting facilities, disaster recovery providers and software
providers) may have access to our customers’ data and could
suffer security breaches or data losses that affect our
customers’ information.
If an
actual or perceived security breach or premature release occurs,
our reputation could be damaged and we may lose future sales and
customers. We may also become subject to civil claims, including
indemnity or damage claims in certain customer contracts, or
criminal investigations by appropriate authorities, any of which
could harm our business and operating results. Furthermore, while
our errors and omissions insurance policies include liability
coverage for these matters, if we experienced a widespread security
breach that impacted a significant number of our customers for whom
we have these indemnity obligations, we could be subject to
indemnity claims that exceed such coverage.
We must adapt to rapid changes in technology and customer
requirements to remain competitive.
The
market and demand for our products and services, to a varying
extent, have been characterized by:
●
technological
change;
●
frequent product
and service introductions; and
●
evolving customer
requirements.
We
believe that these trends will continue into the foreseeable
future. Our success will depend, in part, upon our ability
to:
●
enhance our
existing products and services;
●
gain market
acceptance.
●
successfully
develop new products and services that meet increasing customer
requirements; and
To
achieve these goals, we will need to continue to make substantial
investments in sales and marketing. We may not:
●
have sufficient
resources to make these investments;
●
be successful in
developing product and service enhancements or new products and
services on a timely basis, if at all; or
●
be able to market
successfully these enhancements and new products once
developed.
Further, our
products and services may be rendered obsolete or uncompetitive by
new industry standards or changing technology.
Our business could be harmed if we do not successfully manage the
integration of any business that we have acquired or may acquire in
the future. These risks include, among other things:
●
the difficulty of
integrating the operations and personnel of the acquired businesses
into our ongoing operations;
●
the potential
disruption of our ongoing business and distraction of
management;
●
the potential for
new cyber security risks to existing operations that weren’t
previously mitigated:
13
●
the difficulty in
incorporating acquired technology and rights into our products and
technology;
●
unanticipated
expenses and delays relating to completing acquired development
projects and technology integration;
●
a potential
increase in our indebtedness and contingent liabilities, which
could restrict our ability to access additional capital when needed
or to pursue other important elements of our business
strategy;
●
the management of
geographically remote units;
●
the establishment
and maintenance of uniform standards, controls, procedures and
policies;
●
the impairment of
relationships with employees and customers as a result of any
integration of new management personnel;
●
risks of entering
markets or types of businesses in which we have either limited or
no direct experience;
●
the potential loss
of key employees or customers of the acquired businesses;
and
●
potential unknown
liabilities, such as liability for hazardous substances, or other
difficulties associated with acquired businesses.
Revenue from Platform
id.
subscriptions and many of
our service contracts is recognized ratably over the term of the
contract or subscription period. As a result, downturns or upturns
in sales may not be immediately reflected in our operating
results.
We
generally recognize subscription and support revenue from customers
ratably over the terms of their subscription agreements, which are
typically on a quarterly or annual cycle and automatically renew
for additional periods. As a result, a substantial portion of the
revenue we report in each quarter will be derived from the
recognition of deferred revenue relating to subscription agreements
entered into during previous quarters. Consequently, a decline in
new or renewed subscriptions in any one quarter may not be
immediately reflected in our revenue results for that quarter. This
decline, however, will negatively affect our revenue in future
quarters. Accordingly, the effect of significant downturns in sales
and market acceptance of our solutions and potential changes in our
rate of renewals may not be fully reflected in our results of
operations until future periods. Our subscription model also makes
it difficult for us to rapidly increase our subscription revenue
through additional sales in any period, as revenue from new
customers must be recognized over the applicable subscription term.
In addition, we may be unable to adjust our cost structure to
reflect the changes in revenue, which could adversely affect our
operating results.
We cannot accurately predict subscription renewal or upgrade rates
and the impact these rates may have on our future revenue and
operating results.
Our
business depends substantially on customers renewing their
subscriptions with us, specifically Platform
id.
, and expanding their use of
our products. Our customers have no obligation to renew their
subscriptions for our products after the expiration of their
initial subscription period. Given our limited operating history
with respect to our subscription business, we may be unable to
accurately predict our revenue retention rate. In addition, our
customers may renew for shorter contract lengths, lower prices or
fewer users. We cannot accurately predict new subscription or
expansion rates and the impact these rates may have on our future
revenue and operating results. Our renewal rates may decline or
fluctuate as a result of a number of factors, including customer
dissatisfaction with our service, customers’ ability to
continue their operations and spending levels and deteriorating
general economic conditions. If our customers do not renew their
subscriptions for our products, purchase fewer solutions at the
time of renewal, or negotiate a lower price upon renewal, our
revenue will decline and our business will suffer. Our future
success also depends in part on our ability to sell additional
solutions and products, more subscriptions or enhanced editions of
our products to our current customers. If our efforts to sell
additional solutions and products to our customers are not
successful, our growth and operations may be impeded. In addition,
any decline in our customer renewals or failure to convince our
customers to broaden their use of our products would harm our
future operating results.
We continue to transition our business from a services company to a
cloud-based platform company, which makes it difficult to predict
our future operating results.
In
2015, we began our transition from a services company to a
cloud-based platform company. As a result of this transition, our
ability to forecast our future operating results is limited and
subject to a number of uncertainties, including our ability to plan
for and model future growth. We have encountered and will encounter
risks and uncertainties frequently experienced by growing companies
in rapidly changing industries, such as the risks and uncertainties
described herein. If our assumptions regarding these risks and
uncertainties (which we use to plan our business) are incorrect or
change due to changes in our markets, or if we do not address these
risks successfully, our operating and financial results could
differ materially from our expectations and our business could
suffer.
14
We are subject to general litigation and regulatory requirements
that may materially adversely affect us.
From
time to time, we may be involved in disputes or regulatory
inquiries that arise in the ordinary course of business. We expect
that the number and significance of these potential disputes may
increase as our business expands and we grow larger. While most of
our agreements with customers limit our liability for damages
arising from our solutions, we cannot assure you that these
contractual provisions will protect us from liability for damages
in the event we are sued. Although we carry general liability
insurance coverage, our insurance may not cover all potential
claims to which we are exposed or may not be adequate to indemnify
us for all liability that may be imposed. Any claims against us,
whether meritorious or not, could be time consuming, result in
costly litigation, require significant amounts of management time,
and result in the diversion of significant operational resources.
Because litigation is inherently unpredictable, we cannot assure
you that the results of any of these actions will not have a
material adverse effect on our business, financial condition,
results of operations and prospects.
New and existing laws make determining our sales and use taxes and
income tax rate complex and subject to uncertainty.
The
computation of sales and use taxes and our provision for income tax
is complex, as it is based on the laws of multiple taxing
jurisdictions and requires significant judgment on the application
of complicated rules governing accounting for such tax provisions
under U.S. generally accepted accounting principles. Additionally,
provisions for income tax for interim quarters are based on
forecasts of our U.S. and non-U.S. effective tax rates for the year
and contain numerous assumptions. Various items cannot be
accurately forecasted and future events may be treated as discrete
to the period in which they occur. Our provision for income tax can
be materially impacted by things such as changes in our business,
internal restructuring and acquisitions, changes in tax laws and
accounting guidance and other regulatory, legislative developments,
tax audit determinations, changes in uncertain tax positions, tax
deductions attributed to equity compensation and changes in our
determination for a valuation allowance for deferred tax assets.
For all of these reasons, our actual income taxes may be materially
different than our provision for income tax.
We are subject to U.S. and foreign data privacy and protection laws
and regulations as well as contractual privacy obligations, and our
failure to comply could subject us to fines and damages and would
harm our reputation and business.
We
manage private and confidential information and documentation
related to our customers’ finances and transactions, often
prior to public dissemination. The use of insider information is
highly regulated in the United States and abroad, and violations of
securities laws and regulations may result in civil and criminal
penalties. In addition, we are subject to the data privacy and
protection laws and regulations adopted by federal, state and
foreign legislatures and governmental agencies. Data privacy and
protection is highly regulated and may become the subject of
additional regulation in the future. Privacy laws restrict our
storage, use, processing, disclosure, transfer and protection of
non-public personal information by our customers or collected from
visitors of our website. We strive to comply with all applicable
laws, regulations, policies and legal obligations relating to
privacy and data protection. However, it is possible that these
requirements may be interpreted and applied in a manner that is
inconsistent from one jurisdiction to another and may conflict with
other rules or our practices. Any failure, or perceived failure, by
us to comply with federal, state or international laws, including
laws and regulations regulating privacy, payment card information,
personal health information, data or consumer protection, could
result in proceedings or actions against us by governmental
entities or others.
The
regulatory framework for privacy and data protection issues
worldwide is evolving, and various government and consumer agencies
and public advocacy groups have called for new regulation and
changes in industry practices, including some directed at providers
of mobile and online resources in particular. Our obligations with
respect to privacy and data protection may become broader or more
stringent. If we are required to change our business activities or
revise or eliminate services, or to implement costly compliance
measures, our business and results of operations could be
harmed.
Our business may be affected by factors outside of our
control.
Our
ability to increase sales and deliver and sell our service
offerings profitably is subject to a number of risks, including
changes to corporate disclosure requirements, regulatory filings
and distribution of proxy materials, competitive risks such as the
entrance of additional competitors into our market, pricing and
competition and risks associated with the marketing of new services
in order to remain competitive.
If potential customers take a long time to evaluate the use of our
products, we could incur additional selling expenses and decrease
our profitability.
The
acceptance of our services depends on a number of factors,
including the nature and size of the potential customer base, the
effectiveness of our system, and the extent of the commitment being
made by the potential customer, and is difficult to predict.
Currently, our sales and marketing expenses per customer are fairly
low. If potential customers take longer than we expect to decide
whether to use our services and require that we travel to their
sites, present more marketing material, or spend more time in
completing the sales process, our selling expenses could increase,
and decrease our profitability.
The seasonality of business makes it difficult to predict future
results based on specific quarters.
A
greater portion of our printing, distribution and solicitation of
proxy materials business will be processed during the second
quarter of our fiscal year. Therefore, the seasonality of our
revenue makes it difficult to estimate future operating results
based on the results of any specific quarter and could affect an
investor’s ability to compare our financial condition and
results of operations on a quarter-by-quarter basis. To balance the
seasonal activity of print, distribution and solicitation of proxy
materials, we will attempt to continue to grow other revenues
linked to predictable periodic activity that is not cyclical in
nature.
15
If we are unable to successfully develop and timely introduce new
technology-based products or enhance existing technology-based
products, our business may be adversely affected.
In the
past few years, we have expended significant resources to develop
and introduce new technology-based products and improve and enhance
our existing technology-based products in an attempt to maintain or
increase our sales. The long-term success of new or enhanced
technology-based products may depend on a number of factors
including, but not limited to, the following: anticipating and
effectively addressing customer preferences and demand, the success
of our sales and marketing efforts, timely and successful
development, changes in governmental regulations and the quality of
or defects in our products.
The
development of our technology-based products is complex and costly,
and we typically have multiple technology-based products in
development at the same time. Given the complexity, we occasionally
have experienced, and could experience in the future, delays in
completing the development and introduction of new and enhanced
technology-based products. Problems in the design or quality of our
products or services may also have an adverse effect on our brand,
business, financial condition, and operating results. Unanticipated
problems in developing technology-based products could also divert
substantial development resources, which may impair our ability to
develop new technology-based products and enhancements of such
products, and could substantially increase our costs. If new or
enhanced product and service introductions are delayed or not
successful, we may not be able to achieve an acceptable return, if
any, on our development efforts, and our business may be adversely
affected.
Risks Related to Our Common Stock; Liquidity Risks
The price of our common stock may fluctuate significantly, which
could lead to losses for stockholders.
The
stock prices of smaller public companies can experience extreme
price and volume fluctuations. These fluctuations often have been
unrelated or out of proportion to the operating performance of such
companies. We expect our stock price to be similarly volatile.
These broad market fluctuations may continue and could harm our
stock price. Any negative change in the public’s perception
of our prospects or companies in our market could also depress our
stock price, regardless of our actual results. Factors affecting
the trading price of our common stock may include:
●
variations in
operating results;
●
announcements of
strategic alliances or significant agreements by the Company or by
competitors;
●
recruitment or
departure of key personnel;
●
litigation,
legislation, regulation of all or part of our business;
and
●
changes in the
estimates of operating results or changes in recommendations by any
securities analyst that elect to follow our common
stock.
If securities or industry analysts issue an adverse opinion
regarding our stock, our stock price and trading volume could
decline.
The
trading market for our common stock is influenced by the research
and reports that securities or industry analysts may publish about
us, our business, our market or our competitors. If any of the
analysts who may cover us adversely change their recommendation
regarding our common stock, or provide more favorable relative
recommendations about our competitors, the trading price of our
common stock could decline. If any analyst who may cover us were to
cease coverage of our company or fail to regularly publish reports
on us, we could lose visibility in the financial markets, which in
turn could cause the trading price of our common stock or trading
volume to decline.
The market price of our common stock may be adversely affected by
market conditions affecting the stock markets in general, including
price and trading fluctuations on the NYSE American.
Market
conditions may result in volatility in the level of, and
fluctuations in, market prices of stocks generally and, in turn,
our common stock and sales of substantial amounts of our common
stock in the market, in each case being unrelated or
disproportionate to changes in our operating performance. A weak
global economy could also contribute to extreme volatility of the
markets, which may have an effect on the market price of our common
stock.
We do not intend to pay dividends for the foreseeable
future.
We paid
dividends in 2012, part of 2013 and from the fourth quarter of 2015
through the third quarter of 2018. In the fourth quarter of 2018,
we announced that we would no longer be declaring quarterly
dividends for the foreseeable future in order to invest such money
in our business. There can be no assurances that dividends will be
paid in the future in the form of either cash or
stock.
16
Our Board of Directors has the ability without stockholder approval
to issue shares of preferred stock with terms detrimental to the
holders of our common stock.
We
currently have authorized but unissued “blank check”
preferred stock. Without the vote of our shareholders, the Board of
Directors may issue such preferred stock with both economic and
voting rights and preferences senior to those of the holders of our
common stock. Any such issuances may negatively impact the ultimate
benefits to the holders of our common stock in the event of a
liquidation event and may have the effect of preventing a change of
control and could dilute the voting power of our common stock and
reduce the market price of our common stock.
Future sales and issuances of our capital stock or rights to
purchase capital stock could result in additional dilution of the
percentage ownership of our stockholders and could cause our stock
price to decline.
Our
certificate of incorporation authorizes us to issue up to
20,000,000 shares of common stock. Future sales and issuances of
our capital stock or rights to purchase our capital stock could
result in substantial dilution to our existing stockholders. We may
sell common stock, convertible securities and other equity
securities in one or more transactions at prices and in a manner as
we may determine from time to time. If we sell any such securities
in subsequent transactions, investors may be materially diluted,
which could result in downward pressure on the price of our common
stock. New investors in subsequent transactions could gain rights,
preferences and privileges senior to those of holders of our common
stock. In addition, if outstanding stock options are exercised or
when outstanding restricted stock units are settled in shares,
current shareholders will experience dilution.
We will continue to incur significantly increased costs and devote
substantial management time as a result of operating as a public
company.
As a
public company, we incur significant legal, accounting and other
expenses that would not be incurred as a private company. For
example, we are subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (Exchange Act), and are
required to comply with the applicable requirements of the
Sarbanes-Oxley Act and the Dodd-Frank Act, as well as rules and
regulations subsequently implemented by the SEC and the New York
Stock Exchange, including the establishment and maintenance of
effective disclosure and financial controls and changes in
corporate governance practices. Compliance with these requirements
has increased our legal and financial compliance costs and made
some activities more time consuming and costly. Many of these costs
recur annually. As a result, management’s attention may be
diverted from other business concerns, which could adversely affect
our business and operating results.
A failure to maintain adequate internal controls over our financial
and management systems could cause errors in our financial
reporting, which could cause a loss of investor confidence and
result in a decline in the price of our common stock.
The
Sarbanes-Oxley Act requires, among other things, that we maintain
effective disclosure controls and procedures and internal control
over financial reporting. In order to maintain and, if required,
improve our disclosure controls and procedures and internal control
over financial reporting to meet this standard, significant
resources and management oversight may be required. If we have a
material weaknesses or significant deficiency in our internal
control over financial reporting, we may not detect errors on a
timely basis and our financial statements may be materially
misstated. Effective internal controls are necessary for us to
produce reliable financial reports and are important to prevent
fraud. As a result, our failure to satisfy the requirements of
Section 404 of the Sarbanes-Oxley Act on a timely basis could
result in us being subject to regulatory action and a loss of
investor confidence in the reliability of our financial statements,
both of which in turn could cause the market value of our common
stock to decline and affect our ability to raise
capital.
Because
we are a smaller reporting company, our independent registered
public accounting firm was not required to and did not perform an
audit of our internal control over financial reporting for the
fiscal year ended December 31, 2020.
I
TEM 1B. UNRESOLVED STAFF
COMMENTS.
None.
I
TEM 2. PROPERTY.
Our
headquarters are located in Raleigh, North Carolina. In October
2019, we began a new lease for 9,766 square feet of office space,
which expires December 31, 2027.
As part
of our acquisition of VWP, we assumed a three-year lease in Ft.
Lauderdale, Florida, and a month-to-month lease in New York City,
New York. Additionally, we have an office in Salt Lake City, Utah,
which is also on a short-term lease. As a result of an increase in
our remote workforce, we are examining the needs for these
satellite locations and have already vacated the New York City
office after year-end. The Company intends to monitor the needs of
its employees both in a remote and on-site basis and will make the
necessary adjustments to its locations on that basis.
17
I
TEM 3. 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.
I
TEM 4. MINE SAFETY
DISCOLSURES.
Not
applicable.
18
P
ART II
I
TEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Market for common stock
Our
common stock is listed on the NYSE American under the symbol
"ISDR". The following table sets forth for the periods indicated
the high and low closing prices of our common stock for the
following periods.
|
|
High
|
Low
|
|
Year ended December 31, 2020
|
|
|
|
Quarter Ended March
31, 2020
|
$
12.38
|
$
8.88
|
|
Quarter Ended June
30, 2020
|
11.91
|
8.65
|
|
Quarter Ended
September 30, 2020
|
19.88
|
10.05
|
|
Quarter Ended
December 31, 2020
|
$
23.50
|
$
17.51
|
|
Year ended December 31, 2019
|
|
|
|
Quarter Ended March
31, 2019
|
$
13.85
|
$
11.35
|
|
Quarter Ended June
30, 2019
|
13.27
|
10.25
|
|
Quarter Ended
September 30, 2019
|
11.39
|
8.90
|
|
Quarter Ended
December 31, 2019
|
$
12.75
|
$
10.10
|
Holders of Record
As of
December 31, 2020, there were approximately 150 registered holders
of record of our common stock and 3,770,752 shares
outstanding.
Issuer Purchases of Equity Securities
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 an increase to the share repurchase program to
repurchase up to $2,000,000 of its common shares. As of December
31, 2020, the Company repurchased a total of 160,068 shares at an
aggregate cost of $1,552,000 (not including commissions of $7,000)
as shown in the table below ($ in 000’s, except share or per
share amounts):
|
|
Shares
Repurchased
|
|||
|
Period
|
Total Number of
Shares Repurchased
|
Average Price Paid
Per Share
|
Total Number of
Shares Purchased as Part of Publicly Announced
Program
|
Maximum Dollar
Value of Shares that May Yet Be Purchased Under the
Program
|
|
August 7 -31,
2019
|
22,150
|
$
9.34
|
22,150
|
$
793
|
|
September 1-30,
2019
|
2,830
|
$
10.00
|
2,830
|
$
765
|
|
October 1-31,
2019
|
39,363
|
$
10.44
|
39,363
|
$
354
|
|
November 1-30,
2019
|
11,827
|
$
10.43
|
11,827
|
$
231
|
|
December 1-31,
2019
|
—
|
—
|
—
|
$
231
|
|
January 1-31,
2020
|
—
|
—
|
—
|
$
231
|
|
February 1-29,
2020
|
—
|
—
|
—
|
$
231
|
|
March 1-31,
2020
|
21,700
|
$
9.33
|
21,700
|
$
1,028
|
|
April 1-30,
2020
|
22,698
|
$
9.02
|
22,698
|
$
823
|
|
May 1-31,
2020
|
39,500
|
$
9.51
|
39,500
|
$
448
|
|
Total
|
160,068
|
$
9.70
|
160,068
|
$
448
|
There
were no shares repurchased during the period of June 1, 2020
through December 31, 2020.
Dividends
We did
not pay any dividends during the year ended December 31, 2020 and
2019. There can be no assurances that dividends will be paid in the
future. The declaration and payment of dividends in the future will
be determined by our Board of Directors in light of conditions then
existing, including our earnings, financial condition, capital
requirements and other factors.
19
COMPARISON OF CUMULATIVE TOTAL RETURN
Performance Comparison Graph
This
chart compares the five-year cumulative total return on our common
stock with that of the Russell MicroCap index and a custom peer
group, which was selected by the Company. The chart assumes $100
was invested on December 31, 2015, in our common stock, the Russell
MicroCap index and the peer group, and that any dividends were
reinvested. The Peer Group is composed of: Broadridge Financial
Solutions Inc., Donnelley Financial Solutions, Inc., and Workiva,
Inc. The peer group index utilizes the same method of presentation
and assumptions for the total return calculation as does Issuer
Direct Corporation (ISDR) and the Russell MicroCap index. All
companies in the peer group index are weighted in accordance with
their market capitalizations.
|
|
12/15
|
12/16
|
12/17
|
12/18
|
12/19
|
12/20
|
|
|
|
|
|
|
|
|
|
Issuer Direct Corporation
|
100.00
|
159.14
|
329.98
|
205.85
|
212.02
|
317.58
|
|
Russell MicroCap
|
100.00
|
120.37
|
136.22
|
118.40
|
144.96
|
175.34
|
|
Peer Group
|
100.00
|
122.36
|
165.63
|
180.99
|
230.31
|
313.53
|
The stock price performance included in this graph is not
necessarily indicative of future stock price
performance.
20
I
TEM 6. SELECT FINANCIAL
DATA.
Our
selected consolidated financial data shown below should be read
together with Item7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and our consolidated financial statements and respective notes
included in Item 8. “Financial Statements and Supplementary
Data.” The data shown below are not necessarily indicative of
results to be expected for any future period.
Summary of Operations for the periods ended December 31, 2020 and
2019 (in 000’s).
|
|
Year Ended December
31,
|
|
|
|
2020
|
2019
|
|
Statement of Operations
|
|
|
|
Revenue
|
$
18,526
|
$
16,295
|
|
Cost of
revenues
|
5,415
|
5,080
|
|
Gross
profit
|
13,111
|
11,215
|
|
Operating
costs
|
10,417
|
10,741
|
|
Operating
income
|
2,694
|
474
|
|
Other income,
net
|
136
|
321
|
|
Income before
taxes
|
2,830
|
795
|
|
Income tax
expense
|
724
|
109
|
|
Net
income
|
$
2,106
|
$
686
|
Concentrations:
For the
years ended December 31, 2020 and 2019, we generated revenues from
the following revenue streams as a percentage of total
revenue:
|
|
2020
|
2019
|
|
Revenue
|
|
|
|
Communications
|
64.1
%
|
56.7
%
|
|
Compliance
|
35.9
%
|
43.3
%
|
|
Total
|
100.0
%
|
100.0
%
|
Percentages:
Change
expressed as a percentage increase for the years ended December 31,
2020 and 2019 ($ in 000’s):
|
|
2020
|
2019
|
%
change
|
|
Revenue
|
|
|
|
|
Communications
|
$
11,870
|
$
9,247
|
28.4
%
|
|
Compliance
|
6,656
|
7,048
|
(5.6
)%
|
|
Total
|
$
18,526
|
$
16,295
|
13.7
%
|
21
The
following presents Communications and Compliance revenue by the
previously reported revenue streams of Platform and Technology, and
Services ($ in 000’s):
|
Revenue
|
2020
|
2019
|
|
Communications
|
|
|
|
Platform and
Technology
|
$
10,696
|
$
8,265
|
|
Services
|
1,174
|
982
|
|
Total
Communications
|
11,870
|
9,247
|
|
|
|
|
|
Compliance
|
|
|
|
Platform and
Technology
|
2,231
|
2,431
|
|
Services
|
4,425
|
4,617
|
|
Total
Compliance
|
6,656
|
7,048
|
|
|
|
|
|
Total
|
|
|
|
Platform and
Technology
|
12,927
|
$
10,696
|
|
Services
|
5,599
|
5,599
|
|
Total
revenue
|
$
18,526
|
$
16,295
|
22
I
TEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Except
for the historical information contained herein, the matters
discussed in this Form 10-K include certain forward-looking
statements that involve risks and uncertainties, which are intended
to be covered by safe harbors. Those statements include, but are
not limited to, all statements regarding our and management’s
intent, belief and expectations, such as statements concerning our
future and our operating and growth strategy. We generally use
words such as "believe," "may," "could," "will," "intend,"
"expect," "anticipate," "plan," and similar expressions to identify
forward-looking statements. You should not place undue reliance on
these forward-looking statements. Our actual results could differ
materially from those anticipated in the forward-looking statements
for many reasons including our ability to implement our business
plan, our ability to raise additional funds and manage consumer
acceptance of our products, our ability to broaden our customer
base, our ability to maintain a satisfactory relationship with our
suppliers and other risks described in our reports filed with the
Securities and Exchange Commission, including Item 1A of this
Report on Form 10-K. Although we believe the expectations reflected
in the forward-looking statements are reasonable, they relate only
to events as of the date on which the statements are made, and our
future results, levels of activity, performance or achievements may
not meet these expectations. Investors are cautioned that all
forward-looking statements involve risks and uncertainties
including, without limitation, the factors set forth under the Risk
Factors section of this report. In light of the significant
uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as
a representation by us or any other person that our objectives and
plans will be achieved. All forward-looking statements made in this
Form 10-K are based on information presently available to our
management. We do not intend to update any of the forward-looking
statements after the date of this document to conform these
statements to actual results or to changes in our expectations,
except as required by law.
Results of Operations
Comparison of results of operations for the years ended December
31, 2020 and 2019 (in 000’s):
|
Revenue
|
2020
|
2019
|
|
Communications
|
|
|
|
Revenue
|
$
11,870
|
$
9,247
|
|
Gross
margin
|
$
8,718
|
$
6,653
|
|
Gross margin
%
|
73
%
|
72
%
|
|
|
|
|
|
Compliance
|
|
|
|
Revenue
|
6,656
|
7,048
|
|
Gross
margin
|
4,393
|
4,562
|
|
Gross margin
%
|
66
%
|
65
%
|
|
|
|
|
|
Total
|
|
|
|
Revenue
|
$
18,526
|
$
16,295
|
|
Gross
margin
|
$
13,111
|
$
11,215
|
|
Gross margin
%
|
71
%
|
69
%
|
Revenues
Total
revenue increased by $2,231,000, or 14%, to $18,526,000 during the
year ended December 31, 2020, as compared to $16,295,000 in 2019.
The increase is attributable to an increase in revenue in our
Communications business.
Communications
revenue increased $2,623,000, or 28%, to $11,870,000 for the year
ended December 31, 2020, as compared to $9,247,000 during 2019. The
increase in revenue is due to a combination of increased revenue
from our webcasting, conference software and newswire products, as
well as increased licenses of Platform
id.
During the year ended
December 31, 2020, we benefited from our ability to pivot and
enhance our products with virtual components, including virtual
annual meetings, virtual conferences and enhanced webcasting
features to allow banks to conduct virtual roadshows, analyst days
and other types of events. Additionally, ACCESSWIRE revenue for the
year increased 17% compared to the same period of the prior year
due to an increase in customers and the implementation of our new
e-commerce platform. Revenue from licenses of Platform
id.
increased as a result of
the additional licenses signed during the year as we entered into
139 new licenses of Platform
id.
with annual contract value
of $1,007,000. This brings our total subscriptions of Platform
id.
to 341 with
annual contract value of $2,677,000 as of December 31, 2020,
compared to 255 subscriptions with annual contract value of
$2,033,000 as of December 31, 2019. Communications revenue
increased to 64% of total revenue during the year, as compared to
57% during the same period of the prior year.
Compliance revenue
decreased $392,000, or 6%, during the year ended December 31, 2020,
as compared to 2019. The decrease in revenue is due to continued
customer attrition of our legacy ARS services as well as a decline
in transfer agent services due to a combination of less corporate
transactions and directives, as well as an increased shift from
paper-based processing of transactions to electronic processing.
These decreases were partially offset by increases in print and
proxy fulfillment, due to increased projects associated with annual
meetings, as a result of the increased demand for our virtual
annual meeting product.
23
2020 Revenue Backlog
As of
December 31, 2020, our deferred revenue balance was $2,212,000, a
majority of which we expect to recognize over the next twelve
months, compared to $1,812,000 at December 31, 2019, an increase of
22%.
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 contracts for legacy ARS
services
.
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 compliance software. Cost of revenues
increased by $335,000, or 7%, during the year ended December 31,
2020, as compared to the same period of 2019. Overall gross margin
increased $1,896,000, or 17%, during the year ended December 31,
2020, compared to 2019. As a result, overall gross margin
percentage increased to 71% during the year ended December 31,
2020, as compared to 69% during the prior year. The increase in
cost of sales is due partially to an increase labor costs
associated with delivering our newswire and webcasting revenue,
increase in distribution costs as we continue to expand our
distribution capabilities as well as 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 year ended December 31, 2020, compared to 72% for 2019.
The increase in gross margin percentage is primarily attributable
to the addition of revenue associated with our virtual products,
newswire and subscriptions of Platform
id
.
Gross
margin percentage associated with our Compliance revenue was 66%
for the year ended December 31, 2020 compared to 65% for
2019.
General and Administrative Expense
General
and administrative expenses consist primarily of salaries,
stock-based compensation, insurance, fees for professional
services, general corporate expenses and facility and equipment
expenses. General and administrative expenses were $5,029,000 for
the year ended December 31, 2020, a decrease of $57,000 or 1%, as
compared to the prior year. This decrease is primarily due to a
decrease in our bad debt provision of $449,000 offset by a one-time
accrual of $350,000 recorded in 2020 regarding sales and use tax
compliance. As a result of our growing customer base, transition
from a service-based company to a cloud-based platform company and
the complex economic nexus provisions of various states, we
completed an assessment of our sales and use tax position during
the year. As a result, we recorded a one-time estimate of our
current and historical state sales and use tax liabilities of
approximately $350,000 for the year ended December 31, 2020. The
high bad debt provision in the prior year was primarily related to
reserves on accounts receivable balances of two significant
investment commentary newswire customers which were written off in
2019.
As a
percentage of revenue, General and Administrative expenses were 27%
for the year ended December 31, 2020, as compared to 31% for
2019.
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 $3,812,000 for the year ended December 31, 2020, an increase
of $261,000, or 7%, as compared to the prior year. This increase is
directly related to our investment in our sales and marketing
initiatives with an increase in headcount and digital
marketing.
As a
percentage of revenue, sales and marketing expenses were 21% for
the year ended December 31, 2020 compared to 22% for
2019.
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 decreased
$394,000, or 32%, to $825,000 during the year ended December 31,
2020, as compared to 2019.
The decrease is due to a decrease
in headcount within the development team and use of more
specialized consultants. We anticipate product development expenses
to begin to increase toward previous levels in future
periods.
As a
percentage of revenue, Product Development expenses were 4% for the
year ended December 31, 2020, as compared to 7% for
2019.
Depreciation and Amortization
During
the year ended December 31, 2020, depreciation and amortization
expenses decreased by $134,000, or 15%, to $751,000, as compared to
$885,000 during 2019. The decrease is primarily related to
intangible assets associated with the acquisition of PIR that
became fully amortized during the year.
24
Other income, net
Other
income, net, primarily relates to an $80,000 gain on extinguishment
of debt associated with the final anniversary payment related to
the acquisition of Interwest Transfer Company
(“Interwest”) in 2017 as well as interest income on
deposit and money market accounts. These items are partially offset
by the non-cash interest associated with the present value of the
anniversary payments of the Interwest acquisition.
Income Taxes
We
recorded income tax expense of $724,000 during the year ended
December 31, 2020, compared to $109,000 during the year ended
December 31, 2019. The increase in income tax expense is
attributable to higher pre-tax income for the year ended December
31, 2020. The difference between the Company’s effective tax
rate of 26% and the federal statutory rate of 21% is primarily due
to state taxes for 2020.
During
the year ended December 31, 2019, the Company’s effective tax
rate was favorably impacted by the research and development tax
credit, foreign tax credits as well as a benefit related to the
exercise of stock-based compensation. The aforementioned reasons,
as well as state taxes, foreign statutory tax rate differentials
are the reasons for the variance between the Company’s
effective tax rate and the statutory rate during 2019.
Net Income
Net income for the year ended December 31, 2020
was $2,106,000 as compared to $686,000 in 2019.
The increase
in net income is primarily due to the growth of our Communications
revenue and higher gross margin percentages. Additionally, we
experienced lower operating expenses which were partially offset by
a decline in interest income and higher income taxes.
Liquidity and Capital Resources
As of
December 31, 2020, we had $19,556,000 in cash and cash equivalents
and $2,514,000 in net accounts receivable. Current liabilities as
of December 31, 2020, totaled $4,494,000 including our accounts
payable, deferred revenue, accrued payroll liabilities, income
taxes payable, current portion of lease liabilities and other
accrued expenses. At December 31, 2020, our current assets exceeded
our current liabilities by $17,789,000.
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 December 31, 2020,
the interest rate was 1.89% 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.
On
January 30, 2020, the World Health Organization declared the
COVID-19 outbreak a "Public Health Emergency of International
Concern" and on March 11, 2020, declared it to be a pandemic.
Actions taken around the world to help mitigate the spread of
COVID-19 include restrictions on travel, quarantines or
“stay-at-home” restrictions in certain areas and forced
closures for certain types of public places and businesses.
COVID-19 and actions taken to mitigate it have had and are expected
to continue to have an adverse impact on the economies and
financial markets globally, including the geographical areas in
which we operate. Although our offices were initially ordered
temporarily closed for the safety of our employees, their families
and our community, on June 1, 2020 we began slowly re-opening our
offices, which are now open for all employees who voluntarily elect
to return to the office.
While
it is unknown how long these conditions will last, including
whether a worldwide resurgence will occur, variants of the virus
will become more impactful or vaccines will be effective, and what
the complete financial impact will be to the Company, 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. Several in-person
conferences scheduled to occur in the first half of the year were
either cancelled or delayed and we also experienced 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 last three quarters of the
year. Despite the short-term increase in revenue, the
concentrations of our customer base within middle, small and
micro-cap public customers make it reasonably possible that we are
vulnerable to the risk of a near-term negative impact related to
the COVID-19 outbreak 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.
25
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 in
delivering best of breed 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.
Critical Accounting Policies and Estimates
The
consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Significant intercompany
accounts and transactions are eliminated in
consolidation.
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 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.
26
The
Company's contracts include either a subscription to our entire
platform or certain modules within our platform, or an agreement to
perform services, or any combination thereof, and often contain
multiple subscriptions and services. For these bundled contracts,
the Company accounts for individual subscriptions and services as
separate performance obligations if they are distinct, which is
when a product or service is separately identifiable from other
items in the bundled package, and a customer can benefit from it on
its own or with other resources that are readily available to the
customer. The Company separates revenue from its contracts into two
revenue streams: i) Platform and Technology and ii) Services.
Performance obligations of Platform and Technology contracts
include providing subscriptions to certain modules or the entire
Platform id. system, distributing press releases on a per release
basis or conducting webcasts or virtual annual meetings on a per
event basis. Performance obligations of Services contracts include
obligations to deliver compliance services and annual report
printing and distribution on either a stand ready obligation or on
a per project or event basis. Set up fees for compliance 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.
For
bundled contracts, revenue is allocated to each performance
obligation based on its relative standalone selling price.
Standalone selling prices are based on observable prices at which
the Company separately sells the subscription or services. 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.
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.
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.
Capitalized Software
Costs
incurred to develop our cloud-based platform products are
capitalized when the preliminary project phase is complete,
management commits to fund the project and it is probable the
project will be completed and used for its intended purposes. Once
the software is substantially complete and ready for its intended
use, the software is amortized over its estimated useful life,
which is typically four years. Costs related to design or
maintenance of the software are expensed as incurred.
Impairment of Long-lived Assets
In
accordance with the authoritative guidance for accounting for
long-lived assets, assets such as property and equipment,
trademarks, and intangible assets subject to amortization, are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset group may not be
recoverable. Recoverability of asset groups to be held and used is
measured by a comparison of the carrying amount of an asset group
to estimated undiscounted future cash flows expected to be
generated by the asset group. If the carrying amount of an asset
group exceeds its estimated future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of an
asset group exceeds fair value of the asset group.
27
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.
I
TEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
We do
not believe that we face material market risk with respect to our
cash or cash equivalents, which totaled $19,556,000 and $15,766,000
at December 31, 2020 and 2019, respectively. We did not hold any
marketable securities as of December 31, 2020 or 2019.
I
TEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.
The
financial statements required by this Item 8 are set forth in Item
15 of this Annual Report. All information which has been omitted is
either inapplicable or not required.
Our
balance sheets as of December 31, 2020 and 2019, and the related
statements of income, comprehensive income, stockholders’
equity and cash flows for the two years ended December 31, 2020 and
2019, together with the independent registered public
accountants’ reports thereon appear beginning on Page
F-1.
I
TEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
I
TEM 9A. CONTROLS AND
PROCEDURES.
Management’s Annual Report Regarding Internal Disclosure
Controls and Procedures
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over
financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation and fair presentation of financial statements for
external purposes, in accordance with generally accepted accounting
principles. The effectiveness of any system of internal control
over financial reporting is subject to inherent limitations and
therefore, may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness of future periods
are subject to the risk that the controls may become inadequate due
to change in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
This
annual report does not include an attestation report of the
Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s
registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the Company to
provide only management’s report in this annual
report.
Evaluation of Disclosure Controls and Procedures
Based
on an evaluation under the supervision and with the participation
of our management, our principal executive officer and principal
financial officer have concluded that our disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended ("Exchange Act") were
effective as of December 31, 2020, to ensure that information
required to be disclosed in reports that are filed or submitted
under the Exchange Act is (i) recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commission rules and forms and (ii) accumulated and
communicated to our management, including our principal executive
officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
28
Inherent Limitations over Internal Controls
Our
internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes
those policies and procedures that: (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and disposition of our assets; (ii)
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with
authorizations of management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of assets that could
have a material effect on the financial statements.
Management,
including our Chief Executive Officer and Chief Financial Officer,
do not expect that our internal controls will prevent or detect all
errors and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of internal
controls can provide absolute assurance that all control issues and
instances of fraud, if any, have been detected. Also, any
evaluation of the effectiveness of controls in future periods are
subject to the risk that those internal controls may become
inadequate because of changes in business conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Report of Management's Annual Report on Internal Control over
Financial Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule
13a-15(f) under the Securities Exchange Act of 1934, as amended).
Management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the criteria set
forth by the Committee of Sponsoring Organizations ("COSO") updated
Internal Control—Integrated Framework (2013). Based on this
evaluation, management has concluded that our internal control over
financial reporting was effective as of December 31,
2020.
There
were no changes in our internal controls that could materially
affect the disclosure controls and procedures subsequent to the
date of their evaluation, nor were there any material deficiencies
or material weaknesses in our internal controls. As a result, no
corrective actions were required or undertaken.
I
TEM 9B. OTHER INFORMATION.
None.
29
P
ART III
I
TEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE.
The
information required by this Item is set forth under the headings
“Directors, Executive Officers and Corporate
Governance” and “Section 16(a) Beneficial Ownership
Reporting Compliance” in the Company’s 2021 Proxy
Statement to be filed with the U.S. Securities and Exchange
Commission ("SEC") within 120 days after December 31, 2020 in
connection with the solicitation of proxies for the Company’s
2021 annual meeting of shareholders and is incorporated herein by
reference.
I
TEM 11. EXECUTIVE
COMPENSATION.
The
information required by this Item is set forth under the heading
“Executive Compensation” and under the subheadings
“Board Oversight of Risk Management,”
“Compensation of Directors,” “Director
Compensation-2020” and “Compensation Committee
Interlocks and Insider Participation” under the heading
“Directors, Executive Officers and Corporate
Governance” in the Company’s 2021 Proxy Statement to be
filed with the SEC within 120 days after December 31, 2020 and is
incorporated herein by reference.
I
TEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The
information required by this Item is set forth under the headings
“Security Ownership of Certain Beneficial Owners and
Management” and “Equity Compensation Plan
Information” in the Company’s 2021 Proxy Statement to
be filed with the SEC within 120 days after December 31, 2020 and
is incorporated herein by reference.
I
TEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The
information required by this Item is set forth under the heading
“Review, Approval or Ratification of Transactions with
Related Persons” and under the subheading “Board
Committees” under the heading “Directors, Executive
Officers and Corporate Governance” in the Company’s
2021 Proxy Statement to be filed with the SEC within 120 days after
December 31, 2020 and is incorporated herein by
reference.
I
TEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES.
The
information required by this Item is set forth under the
subheadings “Fees Paid to Auditors” and “Policy
on Audit Committee Pre-Approval of Audit and Non-Audit Services
Performed by the Independent Registered Public Accounting
Firm” under the proposal “Ratification of Appointment
of Independent Registered Public Accounting Firm” in the
Company’s 2021 Proxy Statement to be filed with the SEC
within 120 days after December 31, 2020 and is incorporated herein
by reference.
30
P
ART IV
I
TEM 15. EXHIBITS.
(a)
Financial Statements
The
financial statements listed in the accompanying index (page F-1) to
the financial statements are filed as part of this Annual Report on
Form 10-K.
(b)
Exhibits
|
Exhibit Number
|
|
Exhibit Description
|
|
|
|
|
|
|
Certificate of Incorporation, as amended (incorporated by reference
to Exhibit 3.1 to the Form S-3 filed on May 10, 2017)
|
|
|
|
Amended and Restated Bylaws (incorporated by reference to Exhibit
3.1 to the Form 8-K filed on February 12, 2014)
|
|
|
|
2014 Equity Incentive Plan (incorporated by reference to Annex A to
the Schedule 14A filed on April 2, 2014)
|
|
|
|
Executive Employment Agreement dated April 30, 2015 with Brian R.
Balbirnie (incorporated by reference to Exhibit 10.1 to the Form
8-K filed on May 5, 2014)
|
|
|
|
Executive Employment Agreement dated November 19, 2015 with Steven
Knerr (incorporated by reference to Exhibit 10.1 to the Form 8-K
filed on November 19, 2015)
|
|
|
|
Incentive Stock Option Grant and Agreement dated November 19, 2015
with Steven Knerr (incorporated by reference to Exhibit 10.2 to the
Form 8-K filed on November 19, 2015)
|
|
|
|
Indemnification Agreement dated November 19, 2015 with Steven Knerr
(incorporated by reference to Exhibit 10.3 to the Form 8-K filed on
November 19, 2015)
|
|
|
|
First Amendment to 2014 Equity Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Form 8-K filed on June 13,
2016
|
|
|
|
Second
Amendment to 2014 Equity Incentive Plan (incorporated by reference
to Exhibit A to the Definitive Proxy Statement filed on April 28,
2020)
|
|
|
|
First Amendment to Executive Employment Agreement dated May 4, 2017
with Brian R. Balbirnie (incorporated by reference to Exhibit 10.1
to the Form 8-K filed on May 5, 2017)
|
|
|
|
First Amendment to Executive Employment Agreement dated May 4, 2017
with Steven Knerr (incorporated by reference to Exhibit 10.1 to the
Form 8-K filed on May 5, 2017)
|
|
|
|
Stock Purchase Agreement dated October 2, 2017 with Kurtis D.
Hughes (incorporated by reference to Exhibit 10.1 to the Form 8-K
filed on October 3, 2017)
|
|
|
|
Stock Purchase Agreement dated July 3, 2018 with ACCESSWIRE Canada
Ltd. and Fred Gautreau (incorporated by reference to Exhibit 10.1
to the Form 8-K filed on July 5, 2018)
|
|
|
|
Stock Repurchase Agreement dated November 28, 2018 with EQS Group
AG (incorporated by reference to Exhibit 10.1 to the Form 8-K filed
on December 4, 2018)
|
|
|
|
Asset Purchase Agreement dated January 3, 2019 with Onstream Media
Corporation (incorporated by reference to Exhibit 10.1 to the Form
8-K filed on January 3, 2019)
|
|
|
|
Subsidiaries of the Registrant.*
|
|
|
|
Consent of Independent Registered Public Accounting
Firm.*
|
|
|
|
Rule 13a-14(a) Certification of Principal Executive
Officer.*
|
|
|
|
Rule 13a-14(a) Certification of Principal Financial
Officer.*
|
|
|
|
Section 1350 Certification of Principal Executive
Officer.*
|
|
|
|
Section 1350 Certification of Principal Financial
Officer.*
|
————
———
* Filed
herewith
(c)
Financial Statement Schedules omitted
None.
31
S
IGNATURES
Pursuant to the
requirements of Section 13 or 15(d) 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.
|
|
ISSUER DIRECT CORPORATION
|
|
|
|
|
|
|
|
|
Date:
March 4, 2021
|
By:
|
/s/
Brian R.
Balbirnie
|
|
|
|
|
Brian
R. Balbirnie
|
|
|
|
|
Chief
Executive Officer, Director
|
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of the dates set
forth below.
|
Signature
|
|
Date
|
|
Title
|
|
|
|
|
|
|
|
/s/
Brian R. Balbirnie
|
|
March
4, 2021
|
|
Director,
Chief Executive Officer
|
|
Brian
R. Balbirnie
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Steven Knerr
|
|
March
4, 2021
|
|
Chief
Financial Officer
|
|
Steven
Knerr
|
|
|
|
(Principal
Accounting Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
William Everett
|
|
March
4, 2021
|
|
Director,
Chairman of the Board and Member of the
|
|
William
Everett
|
|
|
|
Audit
Committee and Strategic Advisory Committee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ J.
Patrick Galleher
|
|
March
4, 2021
|
|
Director,
Chairman of the Compensation Committee
|
|
J.
Patrick Galleher
|
|
|
|
and
Strategic Advisory Committee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Michael Nowlan
|
|
March
4, 2021
|
|
Director,
Chairman of the Audit Committee
|
|
Michael
Nowlan
|
|
|
|
|
32
INDEX
TO FINANCIAL STATEMENTS
|
|
|
Page
|
|
|
|
|
|
|
F-2
|
|
|
|
F-4
|
|
|
|
F-5
|
|
|
|
F-6
|
|
|
|
F-7
|
|
|
|
F-8
|
|
|
|
F-9
|
F-1
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders Issuer Direct
Corporation
Raleigh, North
Carolina
Opinion
on the Consolidated Financial Statements
We have
audited the accompanying consolidated balance sheets of Issuer
Direct Corporation and subsidiaries (the “Company”) as
of December 31, 2020 and 2019, and the related consolidated
statements of income, comprehensive income, stockholders’
equity, and cash flows for each of the years in the two-year period
ended December 31, 2020, and the related notes. In our opinion, the
consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31,
2020 and 2019, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31,
2020, in conformity with accounting principles generally accepted
in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe our audits
provide a reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from
the current period audit of the consolidated financial statements
that were communicated or required to be communicated to the audit
committee and that:
(1) relate to
accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are
not, by communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the accounts
or disclosures to which they relate.
F-2
Revenue
from Contracts with Customers
The
Company had $18,525,717 in revenues for the year ended December 31,
2020. As disclosed in Note 2 to the consolidated financial
statements, the Company’s contracts include subscriptions to
its cloud-based products or contracts for communications and
compliance products and services. The Company’s contracts
include either a subscription to the entire platform or certain
modules within the platform or an agreement to perform services, or
any combination thereof, and often contain multiple subscriptions
and services.
Due to
the nature of the Company’s contracts including multiple
performance obligations, management exercises significant judgment
in the following areas in determining appropriate revenue
recognition:
●
Determination of
which products and services are considered distinct performance
obligations that should be accounted for separately or
combined.
●
Determination of
stand-alone selling prices for each performance
obligation.
●
Estimation of
contract transaction price and allocation of the transaction price
to the performance obligations.
●
The pattern of
delivery for each distinct performance obligation.
●
Determination of
which products and services are recognized over time or point in
time.
As a
result, a high degree of auditor judgment was required in
performing audit procedures to evaluate the reasonableness of
management’s judgments. Changes in these judgments can have a
material effect on the amount of revenue recognized on these
contracts.
Based
on our knowledge of the Company, we determined the nature and
extent of procedures to be performed over revenue, including the
determination of the revenue streams over which those procedures
were performed. Our audit procedures included the following for
each revenue stream where procedures were performed:
●
Obtained an
understanding of the internal controls and processes in place over
the Company’s revenue recognition processes.
●
Analyzed the
significant assumptions and estimates made by management as
discussed above.
●
Selected a sample
of revenue transactions and assessed the recorded revenue, analyzed
the related contract, tested management’s identification of
distinct performance obligations, compared the amounts recognized
for consistency with underlying documentation, and tested certain
controls identified for each revenue stream.
/s/ Cherry Bekaert LLP
We have
served as the Company’s auditor since 2010.
Raleigh, North
Carolina
March
4, 2021
F-3
ISSUER DIRECT CORPORATION AND SUBSIDIARIES
C
ONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2020 AND 2019
(in
thousands, except share and per share amounts)
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
19,556
|
$
15,766
|
|
Accounts receivable
(net of allowance for doubtful accounts of $657 and $700,
respectively)
|
2,514
|
2,051
|
|
Income tax
receivable
|
—
|
48
|
|
Other current
assets
|
298
|
141
|
|
Total current
assets
|
22,368
|
18,006
|
|
Capitalized
software (net of accumulated amortization of $2,761 and $2,153,
respectively)
|
526
|
1,134
|
|
Fixed assets (net
of accumulated depreciation of $312 and $181,
respectively)
|
795
|
899
|
|
Right-of-use asset
– leases (See Note 9)
|
1,830
|
2,127
|
|
Deferred tax
asset
|
—
|
256
|
|
Other long-term
assets
|
88
|
77
|
|
Goodwill
|
6,376
|
6,376
|
|
Intangible assets
(net of accumulated amortization of $5,546 and $4,937,
respectively)
|
2,906
|
3,515
|
|
Total
assets
|
$
34,889
|
$
32,390
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
304
|
$
266
|
|
Accrued
expenses
|
1,805
|
1,151
|
|
Note payable
– short-term (net of discount of $0 and $19, respectively)
(See Note 4)
|
—
|
301
|
|
Income taxes
payable
|
258
|
310
|
|
Deferred
revenue
|
2,212
|
1,812
|
|
Total current
liabilities
|
4,579
|
3,840
|
|
Deferred income tax
liability
|
197
|
141
|
|
Lease liabilities
– long-term (See Note 9)
|
1,971
|
2,309
|
|
Total
liabilities
|
6,747
|
6,290
|
|
Commitments and
contingencies (see Note 10)
|
|
|
|
Stockholders'
equity:
|
|
|
|
Preferred stock,
$0.001 par value, 1,000,000 shares authorized, no shares issued and
outstanding as of December 31, 2020 and 2019,
respectively.
|
—
|
—
|
|
Common stock $0.001
par value, 20,000,000 shares authorized, 3,770,752 and 3,786,398
shares issued and outstanding as of December 31, 2020 and 2019,
respectively.
|
4
|
4
|
|
Additional paid-in
capital
|
22,214
|
22,275
|
|
Other accumulated
comprehensive loss
|
(19
)
|
(16
)
|
|
Retained
earnings
|
5,943
|
3,837
|
|
Total stockholders'
equity
|
28,142
|
26,100
|
|
Total
liabilities and stockholders’ equity
|
$
34,889
|
$
32,390
|
The
accompanying notes are an integral part of these consolidated
financial statements.
F-4
ISSUER DIRECT CORPORATION AND SUBSIDIARIES
C
ONSOLIDATED STATEMENTS
OF INCOME
(in
thousands, except per share amounts)
|
|
Years Ended
December 31,
|
|
|
|
2020
|
2019
|
|
Revenues
|
$
18,526
|
$
16,295
|
|
Cost of
revenues
|
5,415
|
5,080
|
|
Gross
profit
|
13,111
|
11,215
|
|
Operating costs and
expenses:
|
|
|
|
General and
administrative
|
5,029
|
5,086
|
|
Sales and
marketing
|
3,812
|
3,551
|
|
Product
development
|
825
|
1,219
|
|
Depreciation and
amortization
|
751
|
885
|
|
Total operating
costs and expenses
|
10,417
|
10,741
|
|
Operating
income
|
2,694
|
474
|
|
Other
income
|
|
|
|
Gain on
extinguishment of debt (See Note 2)
|
80
|
—
|
|
Interest income,
net
|
56
|
321
|
|
Net income before
income taxes
|
2,830
|
795
|
|
Income tax
expense
|
724
|
109
|
|
Net
income
|
$
2,106
|
$
686
|
|
Income per share
– basic
|
$
0.56
|
$
0.18
|
|
Income per share
– diluted
|
$
0.56
|
$
0.18
|
|
Weighted average
number of common shares outstanding – basic
|
3,755
|
3,839
|
|
Weighted average
number of common shares outstanding – diluted
|
3,784
|
3,861
|
The
accompanying notes are an integral part of these consolidated
financial statements.
F-5
ISSUER DIRECT CORPORATION
C
ONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(in
thousands)
|
|
Years Ended
December 31,
|
|
|
|
2020
|
2019
|
|
Net
income
|
$
2,106
|
$
686
|
|
Foreign currency
translation adjustment
|
(3
)
|
1
|
|
Comprehensive
income
|
$
2,103
|
$
687
|
The
accompanying notes are an integral part of these consolidated
financial statements.
F-6
ISSUER DIRECT CORPORATION AND SUBSIDIARIES
C
ONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2020 AND 2019
(in
thousands, except share and per share amounts)
|
|
Common
Stock
|
Additional
|
Accumulated
Other
|
|
Total
|
|
|
|
Shares
|
Amount
|
Paid-in
Capital
|
Comprehensive
Loss
|
Retained
Earnings
|
Stockholders’
Equity
|
|
Balance
on December 31, 2018
|
3,829,572
|
$
4
|
$
22,525
|
$
(17
)
|
$
3,151
|
$
25,663
|
|
Stock-based
compensation expense
|
—
|
—
|
523
|
—
|
—
|
523
|
|
Exercise of stock
awards, net of tax
|
32,996
|
—
|
—
|
—
|
—
|
—
|
|
Stock repurchase
and retirement (see Note 7)
|
(76,170
)
|
—
|
(773
)
|
—
|
—
|
(773
)
|
|
Foreign currency
translation
|
—
|
—
|
—
|
1
|
—
|
1
|
|
Net
income
|
—
|
—
|
—
|
—
|
686
|
686
|
|
Balance
on December 31, 2019
|
3,786,398
|
$
4
|
$
22,275
|
$
(16
)
|
$
3,837
|
$
26,100
|
|
Stock-based
compensation expense
|
—
|
—
|
273
|
—
|
—
|
273
|
|
Exercise of stock
awards, net of tax
|
68,252
|
—
|
451
|
—
|
—
|
451
|
|
Stock repurchase
and retirement (see Note 7)
|
(83,898
)
|
—
|
(785
)
|
—
|
—
|
(785
)
|
|
Foreign currency
translation
|
—
|
—
|
—
|
(3
)
|
—
|
(3
)
|
|
Net
income
|
—
|
—
|
—
|
—
|
2,106
|
2,106
|
|
Balance
on December 31, 2020
|
3,770,752
|
$
4
|
$
22,214
|
$
(19
)
|
$
5,943
|
$
28,142
|
The
accompanying notes are an integral part of these consolidated
financial statements.
F-7
ISSUER DIRECT CORPORATION AND SUBSIDIARIES
C
ONSOLIDATED STATEMENTS OF CASH
FLOWS
(in
thousands, except share and per share amounts)
|
|
Years Ended
December 31,
|
|
|
|
2020
|
2019
|
|
Cash
flows from operating activities
|
|
|
|
Net
income
|
$
2,106
|
$
686
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Bad debt
expense
|
304
|
753
|
|
Depreciation and
amortization
|
1,348
|
1,667
|
|
Deferred income
taxes
|
312
|
(528
)
|
|
Non-cash interest
expense
|
19
|
25
|
|
Stock-based
compensation expense
|
273
|
523
|
|
Gain on
extinguishment of debt
|
(80
)
|
—
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Decrease (increase)
in accounts receivable
|
(761
)
|
(1,210
)
|
|
Decrease (increase)
in other assets
|
177
|
362
|
|
Increase (decrease)
in accounts payable
|
37
|
(117
)
|
|
Increase (decrease)
in deferred revenue
|
391
|
559
|
|
Increase (decrease)
in accrued expenses and other liabilities
|
260
|
144
|
|
Net cash provided
by operating activities
|
4,386
|
2,864
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
Purchase of fixed
assets
|
(27
)
|
(420
)
|
|
Purchase of
acquired businesses (See Note 4)
|
—
|
(2,788
)
|
|
Capitalized
software
|
—
|
(20
)
|
|
Net cash used in
investing activities
|
(27
)
|
(3,228
)
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
Payment for stock
repurchase and retirement (see Note 7)
|
(785
)
|
(773
)
|
|
Payment on notes
payable
|
(240
)
|
(320
)
|
|
Proceeds from
exercise of stock options, net of income taxes
|
451
|
—
|
|
Net cash used in
financing activities
|
(574
)
|
(1,093
)
|
|
|
|
|
|
Net change in
cash
|
3,785
|
(1,457
)
|
|
Cash-
beginning
|
15,766
|
17,222
|
|
Currency
translation adjustment
|
5
|
1
|
|
Cash-
ending
|
$
19,556
|
$
15,766
|
|
|
|
|
|
Supplemental disclosures
:
|
|
|
|
Cash paid for
income taxes
|
$
458
|
$
340
|
|
Non-cash
activities:
|
|
|
|
Right-of-use assets
obtained in exchange for lease liabilities
|
$
—
|
$
2,856
|
The
accompanying notes are an integral part of these consolidated
financial statements.
F-8
N
ote 1: Description, Background and
Basis of Operations
Nature of Operations
Issuer
Direct Corporation (the “Company” or “Issuer
Direct”) was incorporated in the State of Delaware in October
1988 under the name Docucon Inc. Subsequent to the December 13,
2007 merger with My EDGAR, Inc., the Company changed its name to
Issuer Direct Corporation. Today,
Issuer Direct is an industry-leading global
communications and compliance company focusing on the needs of
corporate issuers. Issuer Direct's 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.
The Company operates under several brands in
the market, including Direct Transfer, PrecisionIR (PIR), Investor
Network, Interwest and ACCESSWIRE. The Company leverages its
securities compliance and regulatory expertise to provide a
comprehensive set of services that enhance a customer’s
ability to communicate effectively with its shareholder base while
meeting all reporting regulations required.
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.
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.
The
following is a summary of our allowance for doubtful accounts
during the years ended December 31, 2020 and 2019 (in
000’s):
|
|
Year
Ended
December
31,
2020
|
Year
Ended
December
31,
2019
|
|
Beginning
balance
|
$
700
|
$
534
|
|
Bad debt
expense
|
304
|
753
|
|
Write-offs
|
(347
)
|
(587
)
|
|
Ending
balance
|
$
657
|
$
700
|
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 December 31, 2020, the total amount exceeding such limit was
$18,397,000. The Company also had cash-on-hand of $45,000 in Europe
and $441,000 in Canada as of December 31, 2020.
The
Company believes it did not have any financial instruments that
could have potentially subjected us to significant concentrations
of credit risk for any relevant period.
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 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.
F-9
The
Company's contracts include either a subscription to our entire
platform or certain modules within our platform, or an agreement to
perform services, or any combination thereof, and often contain
multiple subscriptions and services. For these bundled contracts,
the Company accounts for individual subscriptions and services as
separate performance obligations if they are distinct, which is
when a product or service is separately identifiable from other
items in the bundled package, and a customer can benefit from it on
its own or with other resources that are readily available to the
customer. The Company separates revenue from its contracts into two
revenue streams: i) Platform and Technology and ii) Services.
Performance obligations of Platform and Technology contracts
include providing subscriptions to certain modules or the entire
Platform id. system, distributing press releases on a per release
basis or conducting webcasts or virtual annual meetings on a per
event basis. Performance obligations of Services contracts include
obligations to deliver compliance services and annual report
printing and distribution on either a stand ready obligation or on
a per project or event basis. Set up fees for compliance 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.
For
bundled contracts, revenue is allocated to each performance
obligation based on its relative standalone selling price.
Standalone selling prices are based on observable prices at which
the Company separately sells the subscription or services. 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. The associated deferred
revenue is generally recognized ratably over the billing period.
Additionally, deferred revenue is related to pre-paid packages of
press releases for which the releases have not yet been
disseminated. Deferred revenue as of December 31, 2020 and December
31, 2019 was $2,212,000 and $1,812,000, respectively, and is
expected to be recognized within one year. Revenue recognized for
the year ended December 31, 2020 and 2019, that was included in the
deferred revenue balance at the beginning of each reporting period,
was approximately $1,812,000 and $1,249,000, respectively. Accounts
receivable, net of allowance for doubtful accounts, related to
contracts with customers was $2,514,000 and $2,051,000 as of
December 31, 2020 and December 31, 2019, 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 December 31, 2020 and 2019, the Company has
capitalized $44,000 and $21,000, 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.
F-10
Fixed Assets
Fixed
assets are recorded at cost and depreciated over the estimated
useful lives of the assets using principally the straight-line
method. When items are retired or otherwise disposed of, income is
charged or credited for the difference between net book value and
proceeds realized thereon. Ordinary maintenance and repairs are
charged to expense as incurred, and replacements and betterments
are capitalized. The range of estimated useful lives used to
calculate depreciation for principal items of property and
equipment are as follow:
|
Asset Category
|
Depreciation / Amortization Period
|
|
Computer
equipment
|
3
years
|
|
Furniture
& equipment
|
3 to 7
years
|
|
Leasehold
improvements
|
8 years
or lesser of the lease term
|
Earnings per Share
Earnings per share
accounting guidance requires that basic net income per common share
be computed by dividing net income for the period by the weighted
average number of common shares outstanding during the period.
Diluted net income per share is computed by dividing the net income
for the period by the weighted average number of common and
dilutive common equivalent shares outstanding during the period.
Shares issuable upon the exercise of stock options totaling 40,000
and 93,000 were excluded in the computation of diluted earnings per
common share during the years ended December 31, 2020 and 2019,
respectively, because their impact was anti-dilutive.
Use of Estimates
The
preparation of financial statements in conformity with United
States Generally Accepted Accounting Principles
(“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.
Gain on Extinguishment of Debt
On
October 2, 2017, the Company entered into a Stock Purchase
Agreement (the “Interwest Purchase Agreement’) to
purchase all of the outstanding equity securities of Interwest
Transfer Company, Inc., a Utah corporation
(“Interwest”) a transfer agent business located in Salt
Lake City, Utah. Under the terms of the Interwest Purchase
Agreement the Company paid $1,935,000 at closing, $288,000 on the
first anniversary of the closing, $320,000 on the second
anniversary of the closing and called for another $320,000 to be
paid upon the third anniversary date of the closing. The Company
also issued 25,235 shares of restricted common stock of the Company
at closing. Upon final negotiation and settlement of the third
anniversary payment, the Company paid $240,000 to the seller. The
difference of $80,000 that was not paid is recorded as Gain on
Extinguishment of Debt on the Consolidated Statements of Income for
the year ended December 31, 2020.
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.
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
year ended December 31, 2020 and capitalized $20,000 during the
year ended December 31, 2019. The Company recorded amortization
expense of $608,000 and $843,000 during the years ended December
31, 2020 and 2019, respectively, $599,000 and $783,000 of which is
included in Cost of revenues on the Consolidated Statements of
Income. The remaining amount of $9,000 and $60,000 for the years
ended December 31, 2020 and 2019, respectively, is included in
Depreciation and amortization.
F-11
The
Company reviews capitalized software for impairment whenever events
or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. One part of the Company’s suite
of products was directed toward private companies seeking to raise
capital under Regulation A+ and Regulation D. Market acceptance
under these regulations is behind what was initially anticipated,
resulting in lower-than-expected revenue from this product. As a
result, the Company wrote-off the remaining carrying value of this
product in the amount of $44,000 as of December 31, 2019. This
amount is included in Depreciation and amortization expense on the
Consolidated Statements of Income for the year ended December 31,
2019.
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
December 31, 2020 and 2019, we believe that the fair value of our
financial instruments other than cash and cash equivalents, such
as, accounts receivable, our line of credit, notes payable, and
accounts payable approximate their carrying amounts.
F-12
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.
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.
Comprehensive Income
Comprehensive income consists of net income and
other comprehensive income related to changes in the cumulative
foreign currency translation adjustment
.
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 (See Note
4).
Advertising
The
Company expenses advertising as incurred. Advertising expense
totaled $245,000 and $163,000, during the years ended December 31,
2020 and 2019, respectively.
Recently adopted accounting pronouncements
On
January 1, 2020, the Company adopted Accounting Standard Update
(“ASU”) 2017-04 Intangibles – Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment. These
amendments eliminate Step 2 from the goodwill impairment test. The
annual, or interim, goodwill impairment test is performed by
comparing the fair value of a reporting unit with its carrying
amount. An impairment charge should be recognized for the amount by
which the carrying amount exceeds the reporting unit’s fair
value; however, the loss recognized should not exceed the total
amount of goodwill allocated to that reporting unit. In addition,
income tax effects from any tax-deductible goodwill on the carrying
amount of the reporting unit should be considered when measuring
the goodwill impairment loss, if applicable. The amendments also
eliminate the requirements for any reporting unit with a zero or
negative carrying amount to perform a qualitative assessment and,
if it fails that qualitative test, to perform Step 2 of the
goodwill impairment test. An entity still has the option to perform
the qualitative assessment for a reporting unit to determine if the
quantitative impairment test is necessary. The Company adopted this
amendment as of January 1, 2020 and it has not, nor is it expected
to have a significant impact to the financial
statements.
F-13
Note 3: Fixed Assets
|
in
$000’s
|
December
31,
|
|
|
|
2020
|
2019
|
|
Computers
equipment
|
$
122
|
$
108
|
|
Furniture &
equipment
|
280
|
267
|
|
Leasehold
improvements
|
705
|
705
|
|
Total fixed assets,
gross
|
1,107
|
1,080
|
|
Less: Accumulated
depreciation
|
(312
)
|
(181
)
|
|
Total fixed assets,
net
|
$
795
|
$
899
|
Included in
leasehold improvements is $488,000 of tenant improvements allowance
associated with a lease signed in March 2019 related to the
Company’s new corporate headquarters. Depreciation expense on
fixed assets for the years ended December 31, 2020 and 2019 totaled
$131,000 and $106,000, respectively. No disposals were made during
the year ended December 31, 2020. During the year ended December
31, 2019, the Company disposed of fixed assets totaling
$377,000.
Note 4:
Recent Acquisitions
Acquisition of the VisualWebcaster Platform
(“VWP”)
On
January 3, 2019 (the “Closing Date”), the Company
entered into an Asset Purchase Agreement (the “VWP
Agreement”) with Onstream Media Corporation, a Florida
corporation (the “Seller”), whereby the Company
purchased certain assets related primarily to customer accounts,
intellectual property, lease deposits and assumed certain existing
contractual obligations related primarily to data processing and
storage, bandwidth and facility leases relating to the
Seller’s VisualWebcaster Platform. The accounts receivable
and the accounts payable related to VWP and existing as of the
Closing Date were not included as part of the VWP
Agreement.
The
acquisition was accounted for under the acquisition method of
accounting for business combinations in accordance with FASB ASC
805, Business Combinations, which requires, among other things,
that the assets acquired and liabilities assumed be recognized at
their fair values as of the acquisition date. Acquisition-related
costs, which totaled approximately $155,000, are not included as a
component of the acquisition accounting, but are recognized as
expenses in the periods in which the costs are incurred. The
Company employed a third-party valuation firm to assist in
determining the purchase price allocation of assets and liabilities
acquired from Seller. The valuation resulted in the tangible and
intangible assets and liabilities disclosed below. The income
approach was used to determine the value of the customer
relationships and non-compete agreement. The income approach
determines the fair value for the asset based on the present value
of cash flows projected to be generated by the asset. Projected
cash flows are discounted at a rate of return that reflects the
relative risk of achieving the cash flow and the time value of
money. Projected cash flows considered multiple factors, including
current revenue from existing customers; analysis of expected
revenue and attrition trends; reasonable contract renewal
assumptions from the perspective of a marketplace participant;
probability of executives competing, expected profit margins giving
consideration to marketplace synergies; and required returns to
contributory assets. The relief from royalty method was used to
value the technology. The relief from royalty method determines the
fair value by calculating what a typical license fee would be in
order to obtain the same or similar license of the technology from
market participants. Projected cash flows consider revenue
assumptions allocated to the technology.
The
transaction consisted of a single cash payment to the Seller in the
amount of $2,788,000. In connection with the acquisition, the
Company assumed two short-term leases associated with an office and
co-location for certain computer equipment in New York City, New
York as well as entered into a three-year office lease in Florida.
In addition to the intangible assets listed below, the purchase
price included lease deposits of $13,000 and a right of use asset
and corresponding lease liability for the office lease in Florida
in the amount of $125,000.
The
identified intangible assets as a result of the acquisition are as
follows (in 000’s):
|
Customer
relationships
|
$
865
|
|
Technology
|
497
|
|
Non-compete
agreement
|
69
|
|
Goodwill
|
1,344
|
|
|
$
2,775
|
F-14
Note 5:
Goodwill and Other Intangible
Assets
The
components of intangible assets are as follows (in
000’s):
|
|
December 31,
2020
|
||
|
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|
Customer
lists
|
$
1,770
|
$
(1,770
)
|
$
—
|
|
Customer
relationships
|
4,600
|
(2,589
)
|
2,011
|
|
Proprietary
software
|
1,279
|
(948
)
|
331
|
|
Distribution
partner relationships
|
153
|
(38
)
|
115
|
|
Non-compete
agreement
|
69
|
(28
)
|
41
|
|
Trademarks –
definite-lived
|
173
|
(173
)
|
—
|
|
Trademarks –
indefinite-lived
|
408
|
—
|
408
|
|
Total intangible
assets
|
$
8,452
|
$
(5,546
)
|
$
2,906
|
|
|
December 31,
2019
|
||
|
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|
Customer
lists
|
$
1,770
|
$
(1,770
)
|
$
—
|
|
Customer
relationships
|
4,600
|
(2,100
)
|
2,500
|
|
Proprietary
software
|
1,279
|
(865
)
|
414
|
|
Distribution
partner relationships
|
153
|
(23
)
|
130
|
|
Non-compete
agreement
|
69
|
(14
)
|
55
|
|
Trademarks –
definite-lived
|
173
|
(165
)
|
8
|
|
Trademarks –
indefinite-lived
|
408
|
—
|
408
|
|
Total intangible
assets
|
$
8,452
|
$
(4,937
)
|
$
3,515
|
The
Company performed its annual assessment for impairment of goodwill
and intangible assets and determined there was no impairment as of
and for the years ended December 31, 2020 and 2019.
The
amortization of intangible assets is a charge to operating expenses
and totaled $609,000 and $718,000 in the years ended 2020 and 2019,
respectively.
The
future amortization of the identifiable intangible assets is as
follows (in 000’s):
|
Years
Ending December 31:
|
|
|
2021
|
$
459
|
|
2022
|
431
|
|
2023
|
431
|
|
2024
|
418
|
|
2025
|
319
|
|
Thereafter
|
440
|
|
Total
|
$
2,498
|
Our
goodwill balance of $6,376,000 on December 31, 2020, was related to
our acquisition of Basset Press in July 2007, PIR in 2013,
ACCESSWIRE in 2014, Interwest in 2017, FSCwire in 2018 and VWP in
2019. We conducted our annual impairment analyses as of October 1,
of 2020 and 2019 and determined that no goodwill was
impaired.
F-15
Note 6: 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
December 31, 2020, the interest rate was 1.89% and the Company did
not owe any amounts on the Line of Credit.
Note 7: Equity
Dividends
We did
not pay any dividends during the years ended December 31, 2020 and
2019.
Preferred stock and common stock
There
were no issuances of preferred stock or common stock during the
years ended December 31, 2020 and 2019 other than stock awarded to
employees and the Board of Directors.
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
December 31, 2020, the Company repurchased a total of 160,068
shares at an aggregate cost of $1,552,000 (not including
commissions of $6,000) as shown in the table below ($ in
000’s, except share or per share amounts):
|
|
Shares
Repurchased
|
|||
|
Period
|
Total Number of
Shares Repurchased
|
Average Price Paid
Per Share
|
Total Number of
Shares Purchased as Part of Publicly Announced
Program
|
Maximum Dollar
Value of Shares that May Yet Be Purchased Under the
Program
|
|
August 7 -31,
2019
|
22,150
|
$
9.34
|
22,150
|
$
793
|
|
September 1-30,
2019
|
2,830
|
$
10.00
|
2,830
|
$
765
|
|
October 1-31,
2019
|
39,363
|
$
10.44
|
39,363
|
$
354
|
|
November 1-30,
2019
|
11,827
|
$
10.43
|
11,827
|
$
231
|
|
December 1-31,
2019
|
—
|
—
|
—
|
$
231
|
|
January 1-31,
2020
|
—
|
—
|
—
|
$
231
|
|
February 1-29,
2020
|
—
|
—
|
—
|
$
231
|
|
March 1-31,
2020
|
21,700
|
$
9.33
|
21,700
|
$
1,028
|
|
April 1-30,
2020
|
22,698
|
$
9.02
|
22,698
|
$
823
|
|
May 1-31,
2020
|
39,500
|
$
9.51
|
39,500
|
$
448
|
|
Total
|
160,068
|
$
9.70
|
160,068
|
$
448
|
There
were no shares repurchased during the period of June 1, 2020
through December 31, 2020.
Note 8: Stock Options and Restricted Stock Units
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 December
31, 2020, there are 236,583 shares which remain to be granted under
the 2014 Plan.
F-16
The
following is a summary of stock options issued during the year
ended December 31, 2020 and 2019:
|
|
Number of
Options
Outstanding
|
Range
of
Exercise
Price
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
|
Balance on December
31, 2018
|
98,563
|
$
6.80 –
17.40
|
$
12.56
|
$
127,306
|
|
Options
granted
|
31,500
|
10.75 –
13.21
|
12.90
|
—
|
|
Options
exercised
|
—
|
—
|
—
|
—
|
|
Options
forfeited/cancelled
|
(2,500
)
|
13.21
|
13.21
|
—
|
|
Balance on December
31, 2019
|
127,563
|
$
6.80 –
17.40
|
$
12.63
|
$
142,818
|
|
Options
granted
|
—
|
—
|
—
|
—
|
|
Options
exercised
|
(36,250
)
|
7.76 –
17.40
|
12.47
|
295,921
|
|
Options
forfeited/cancelled
|
(16,083
)
|
9.26 –
17.40
|
15.17
|
22,682
|
|
Balance on December
31, 2020
|
75,230
|
$
6.80 –
17.40
|
$
12.16
|
$
402,275
|
The
aggregate intrinsic value in the table above represents the total
pretax intrinsic value (i.e. the aggregate difference between the
closing price of our common stock on December 31, 2020 and 2019 of
$17.51 and $11.69, respectively, and the exercise price for
in-the-money options) that would have been received by the holders
if all instruments had been exercised on December 31, 2020 and
2019. As of December 31, 2020, there was $15,000 of unrecognized
compensation cost related to our unvested stock options, which will
be recognized through 2021.
The
following is a summary of unvested stock options during the year
ended December 31, 2020 and 2019:
|
|
Number of
Options
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted Average
Grant Date Fair Value
|
|
Balance on December
31, 2018
|
29,000
|
$
12.87
|
$
5.47
|
|
Options
vested
|
—
|
—
|
—
|
|
Options
forfeited/cancelled
|
—
|
—
|
—
|
|
Balance on December
31, 2019
|
29,000
|
$
12.87
|
$
5.47
|
|
Options
vested
|
(14,500
)
|
12.87
|
5.47
|
|
Options
forfeited/cancelled
|
—
|
—
|
—
|
|
Balance on December
31, 2020
|
14,500
|
$
12.87
|
$
5.47
|
The
following table summarizes information about stock options
outstanding and exercisable on December 31, 2020:
|
|
Options
Outstanding
|
Options
Exercisable
|
||
|
Exercise Price
Range
|
Number
|
Weighted Average
Remaining Contractual Life (in Years)
|
Weighted Average
Exercise Price
|
Number
|
|
$
0.01 - 7.00
|
10,000
|
4.88
|
$
6.80
|
10,000
|
|
$
7.01 - 8.00
|
10,313
|
2.74
|
$
7.76
|
10,313
|
|
$
8.01 - 12.00
|
7,167
|
5.87
|
$
9.88
|
5,167
|
|
$
12.01 - 15.00
|
31,750
|
7.80
|
$
13.16
|
19,250
|
|
$
15.01 - 17.40
|
16,000
|
7.42
|
$
17.40
|
16,000
|
|
Total
|
75,230
|
6.46
|
$
12.16
|
60,730
|
Of the
75,230 stock options outstanding, 29,000 are non-qualified stock
options. All options have been registered with the
SEC.
F-17
There
were no common stock options issued during the year ended December
31, 2020. The fair value of common stock options issued during the
year ended December 31, 2019 were estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions used:
|
|
Year
ended
December
31,
2019
|
|
Expected dividend
yield
|
1.56
%
|
|
Expected stock
price volatility
|
50
%
|
|
Weighted-average
risk-free interest rate
|
2.45
%
|
|
Weighted-average
expected life of options (in years)
|
5.75
|
The
following is a summary of restricted stock units issued during the
year ended December 31, 2020 and 2019:
|
|
Number of RSUs
Outstanding
|
Weighted
Average
Fair
Value
|
Aggregate Intrinsic
Value
|
|
Balance on December
31, 2018
|
36,669
|
$
8.76
|
$
257,987
|
|
Units
granted
|
46,000
|
11.57
|
532,220
|
|
Units
vested/issued
|
(33,000
)
|
8.62
|
400,700
|
|
Units
forfeited
|
(1,667
)
|
8.85
|
14,753
|
|
Balance on December
31, 2019
|
48,002
|
$
11.55
|
$
554,388
|
|
Units
granted
|
18,000
|
10.67
|
192,060
|
|
Units
vested/issued
|
(32,002
)
|
11.61
|
353,948
|
|
Units
forfeited
|
(15,000
)
|
11.35
|
156,665
|
|
Balance on December
31, 2020
|
19,000
|
$
10.78
|
$
332,690
|
During
the year ended December 31, 2020, the Company granted 18,000
restricted stock units with an intrinsic value of $10.67, to
certain members of the Board of Directors of the Company. The
vesting period for the restricted stock units is the earlier of the
2021 annual meeting of shareholders or one year depending on
whether a director stands for re-election at the 2021 annual
meeting. During the year ended December 31, 2020, 32,000 restricted
stock units with an intrinsic value of $11.61 vested. As of
December 31, 2020, there was $91,000 of unrecognized compensation
cost related to our unvested restricted stock units, which will be
recognized through 2021. All restricted stock units have been
registered with the SEC.
During
the year ended December 31, 2020 and 2019, we recorded compensation
expense of $273,000 and $523,000, respectively, related to stock
options and restricted stock units.
Note 9: 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 December 31, 2020. We recognized a ROU asset and
corresponding lease liability of $2,596,000, which represents the
present value of minimum lease payments discounted at 3.77%, the
Company’s incremental borrowing rate at lease
inception.
Additionally, we
have an office in Salt Lake City, Utah, which is on a short-term
lease that is less than twelve months. As a result, we have elected
the short-term lease recognition exemption for our Utah office
lease, which means, for those leases we do not expect to extend
beyond twelve months, we will not recognize ROU assets or lease
liabilities.
In
connection with the Company’s acquisition of VWP (See Note
4), the Company assumed two short-term leases in New York City, NY
and entered into a three-year office lease in Florida. We have
elected the short-term lease exemption for the two New York leases
because we do not expect them to extend beyond twelve months. For
the Florida lease, which was signed on January 4, 2019, 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. After year-end, the Company
vacated one of the leases in New York.
F-18
Lease
liabilities totaled $2,361,000 as of December 31, 2020. The current
portion of this liability of $390,000 is included in Accrued
expenses on the Consolidated balance sheets and the long-term
portion of $1,971,000 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):
|
|
Year
ended
December
31,
2020
|
Year
ended
December
31,
2019
|
|
Lease expense
|
|
|
|
Operating lease
expense
|
$
347
|
$
241
|
|
Variable lease
expense
|
132
|
133
|
|
Rent
expense
|
$
479
|
$
374
|
The
weighted-average remaining non-cancelable lease term for our
operating leases was 6.9 years as of December 31, 2020. As of
December 31, 2020, 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
December 31, 2020, are as follows (in 000’s):
|
Year
Ended December 31:
|
|
|
2021
|
$
394
|
|
2022
|
359
|
|
2023
|
369
|
|
2024
|
379
|
|
2025
|
389
|
|
Thereafter
|
812
|
|
Total lease
payments
|
$
2,702
|
|
Present value
adjustment
|
(341
)
|
|
Lease
liability
|
2,361
|
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 10: Commitments and Contingencies
From
time to time, the Company may be involved in litigation that arises
through the normal course of business. The Company is 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.
Note 11: Revenues
We
consider ourselves to be in a single reportable segment under the
authoritative guidance for segment reporting, specifically a
shareholder communications and compliance company for publicly
traded and private companies. The following tables present revenue
disaggregated by revenue stream in (000’s):
For the
years ended December 31, 2020 and 2019, we generated revenues from
the following revenue streams as a percentage of total revenue (in
000’s):
|
|
Year
Ended
December 31,
2020
|
Year
Ended
December 31,
2019
|
||
|
|
Amount
|
Percentage
|
Amount
|
Percentage
|
|
Revenue
|
|
|
|
|
|
Platform and
Technology
|
$
12,927
|
69.8
%
|
$
10,696
|
65.6
%
|
|
Services
|
5,599
|
30.2
%
|
5,599
|
34.4
%
|
|
Total
|
$
18,526
|
100.0
%
|
$
16,295
|
100.0
%
|
We did
not have any customers during the years ended December 31, 2020 or
2019 that accounted for more than 10% of our revenue.
F-19
Note 12: Income Taxes
The
provision for income taxes consisted of the following components
for the years ended December 31 (in 000’s):
|
|
2020
|
2019
|
|
Current:
|
|
|
|
Federal
|
$
307
|
$
522
|
|
State
|
84
|
94
|
|
Foreign
|
21
|
21
|
|
Total
Current
|
412
|
637
|
|
Deferred:
|
|
|
|
Federal
|
283
|
(434
)
|
|
State
|
50
|
(55
)
|
|
Foreign
|
(21
)
|
(39
)
|
|
Total
Deferred
|
312
|
(528
)
|
|
Total expense for
income taxes
|
$
724
|
$
109
|
Reconciliation
between the statutory rate and the effective tax rate is as follows
on December 31 (in 000's, except percentages):
|
|
2020
|
2019
|
||
|
|
Amount
|
Percentage
|
Amount
|
Percentage
|
|
Federal statutory
tax rate
|
$
594
|
21.0
%
|
$
165
|
21.0
%
|
|
State tax
rate
|
117
|
4.1
%
|
12
|
1.5
%
|
|
Permanent
difference – stock-based compensation
|
29
|
1.1
%
|
(13
)
|
(1.6
)%
|
|
Permanent
difference – other
|
12
|
0.3
%
|
8
|
0.9
%
|
|
Provision to
return
|
4
|
0.2
%
|
(37
)
|
(4.5
)%
|
|
Foreign tax credit
generated
|
(15
)
|
(0.5
)%
|
—
|
0.0
%
|
|
Tax on foreign
earnings – tax reform
|
17
|
0.6
%
|
24
|
2.9
%
|
|
Foreign rate
differential
|
(2
)
|
(0.1
)%
|
(11
)
|
(1.3
)%
|
|
FDII
Deduction
|
(32
)
|
(1.1
)%
|
—
|
0.0
%
|
|
Research and
development credit
|
—
|
0.0
%
|
(39
)
|
(4.7
)%
|
|
Total
|
$
724
|
25.6
%
|
$
109
|
14.2
%
|
Components of net
deferred income tax assets are as follows on December 31 (in
000's):
|
|
2020
|
2019
|
Change
|
|
Assets:
|
|
|
|
|
Deferred
revenue
|
$
24
|
$
379
|
$
(355
)
|
|
Allowance for
doubtful accounts
|
149
|
149
|
—
|
|
Stock
options
|
108
|
156
|
(48
)
|
|
Transaction
costs
|
46
|
49
|
(3
)
|
|
Other
|
138
|
39
|
99
|
|
Total deferred tax
asset
|
465
|
772
|
(307
)
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Prepaid
expenses
|
(15
)
|
(23
)
|
8
|
|
Basis difference in
fixed assets
|
(188
)
|
(14
)
|
(174
)
|
|
Capitalized
software
|
—
|
(94
)
|
94
|
|
Purchase of
intangibles
|
(459
)
|
(522
)
|
63
|
|
Other
|
—
|
(4
)
|
4
|
|
Total deferred tax
liability
|
(662
)
|
(657
)
|
(5
)
|
|
|
|
|
|
|
Total net deferred
tax asset / (liability)
|
$
(197
)
|
$
115
|
$
(312
)
|
F-20
As of
each reporting date, the Company’s management considers new
evidence, both positive and negative, that could impact
management’s view with regard to future realization of
deferred tax assets. In assessing the recovery of the deferred tax
assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income in the
periods in which those temporary differences become deductible.
Management considers the scheduled reversals of future deferred tax
assets, projected future taxable income, and tax planning
strategies in making this assessment. It has been determined that
is more likely than not that the Company's deferred tax assets are
able to be realized based on future positive earnings and reversal
of existing temporary differences.
The
Company had no unrecognized tax benefits as of December 31, 2020 or
December 31, 2019. Interest and, if applicable, penalties are
recognized related to unrecognized tax benefits in income tax
expense. There are no accruals for interest and penalties on
December 31, 2020.
Undistributed
earnings of the Company are insignificant as of December 31, 2020.
With the enactment of the 2017 Act, the Company does not consider
any of its foreign earnings as indefinitely
reinvested.
The
Company is subject to income taxation by both federal and state
taxing authorities. Income tax returns for the years ended December
31, 2019, 2018 and 2017 are open to audit by federal and state
taxing authorities.
Note 13: Employee Benefit Plans
The
Company sponsors a defined contribution 401(k) Profit Sharing Plan
and allows all employees in the United States to participate.
Matching and profit-sharing contributions to the plan are at the
discretion of management, but are limited to the amount deductible
for federal income tax purposes. The Company made contributions to
the plan of $24,000 and $27,000 during the years ended December 31,
2020 and 2019, respectively.
F-21
TABLE OF CONTENTS
Part IItem 1. Description Of BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertyItem 3. Legal ProceedingsItem 4. Mine Safety DiscolsuresPart IIItem 5. Market For Common Equity and Related Stockholder MattersItem 6. Select Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. ExhibitsNote 1: Description, Background and Basis Of OperationsNote 2: Summary Of Significant Accounting PoliciesNote 3: Fixed AssetsNote 4: Recent AcquisitionsNote 5: Goodwill and Other Intangible AssetsNote 6: Line Of CreditNote 7: EquityNote 8: Stock Options and Restricted Stock UnitsNote 9: LeasesNote 10: Commitments and ContingenciesNote 11: RevenuesNote 12: Income TaxesNote 13: Employee Benefit Plans