Business Context and Reporting Period
The filing is Issuer Direct Corporation’s Form 10-K for the fiscal year ended December 31, 2010; the source does not identify ACCESS Newswire Inc. as the registrant. Issuer Direct provides regulatory reporting, financial printing and communications, fulfillment and distribution, software licensing, proxy, shareholder communications, and transfer-agent services.
The company serves public issuers, mutual funds, financial institutions, law firms, and other capital-markets participants. Its business is competitive, seasonal, and partly dependent on capital-markets activity. One customer generated 47.7% of 2010 revenue.
Key Financial Metrics
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Revenue | $3,860,513 | $1,885,232 | +104.8% |
| Gross profit | $1,351,097 | $1,098,599 | +23.0% |
| Gross margin | 35% | 58% | Down 23 percentage points |
| Operating income | $227,904 | $274,862 | Down 17.1% |
| Income before taxes | $208,606 | $274,174 | Down 23.9% |
| Net income | $429,406 | $274,174 | +56.6% |
| Basic and diluted earnings per share | $0.02 | $0.02 | No change reported |
| Cash flow from operations | $446,297 | $186,601 | +139.1% |
- Revenue mix: Printing and financial communications represented 38.9% of revenue, fulfillment and distribution 30.9%, compliance and reporting 15.4%, transfer-agent services 11.6%, and software licensing 3.2%.
- Liquidity: Cash and cash equivalents were $504,713 at year-end, compared with $146,043 in 2009. Net accounts receivable were $175,336.
- Liabilities and equity: Current liabilities were $151,870; total liabilities were $171,680; stockholders’ equity was $907,730. Related-party notes payable of $73,525 outstanding at year-end 2009 were converted into equity during 2010.
- Capital expenditures: The company purchased $48,127 of equipment in 2010, compared with $16,014 in 2009.
- Debt and liquidity: No notes payable were outstanding at December 31, 2010. A $200,000 working-capital line of credit was obtained on February 11, 2011 at 30-day LIBOR plus 4%; no amount was outstanding as of March 1, 2011.
- Accumulated deficit: The company reported an accumulated deficit of $771,167 at year-end, down from $1,200,573 in 2009.
Material Changes Versus 2009
- Revenue more than doubled, primarily from a large mutual-fund printing and fulfillment project, higher transfer-agent revenue, and increased news-wire distribution.
- Printing and financial communications revenue increased 293.4% to $1,500,237; fulfillment and distribution increased 168.1% to $1,192,916; and transfer-agent revenue increased 75.3% to $447,322.
- Compliance and reporting revenue decreased 16.5% to $595,737 because of pricing pressure, fewer filings, and reduced transactional activity.
- Gross margin declined substantially because the large second-quarter printing and fulfillment project carried margins below the company’s normal requirements.
- Operating costs increased to $1,123,193 from $823,737, driven principally by higher general and administrative expenses, sales and marketing expenses, stock-based compensation, professional fees, and infrastructure investment.
- Net income benefited from a $220,800 deferred income-tax benefit resulting from reducing the valuation allowance on deferred tax assets. Pre-tax income actually declined from $274,174 to $208,606.
- The company repurchased 50,000 common shares for $8,500 during December 2010 under a plan authorizing repurchases of up to 1,000,000 shares, subject to quarterly cash limits.
Guidance, Outlook, Risks, and Unusual Items
- Management expected 2011 revenue to increase at a percentage similar to 2010’s growth rate, with anticipated growth in transfer-agent services, XBRL services, proxy services, and licensing.
- Management expected XBRL adoption and higher-margin technology-enabled services to support growth and margins, while electronic delivery, notice-and-access programs, and print-on-demand could reduce traditional print volumes.
- At December 31, 2010, the company estimated approximately $475,000 of revenue backlog, primarily from XBRL and regulatory compliance contracts, with recognition expected to begin in the first quarter of 2011. The filing cautions that timing and realization are not assured. Deferred revenue included $51,382 of customer prepayments.
- A large 2010 project was difficult to forecast, carried below-normal margins, and accounted for substantially all of the increase in printing and financial communications revenue. Future projects of similar size are not assured.
- Key risks include customer concentration, lack of long-term service agreements, seasonality, dependence on capital-markets activity, intense competition and pricing pressure, regulatory and technology changes, dependence on key personnel, confidentiality and data-security risks, raw-material costs, and the need to obtain additional capital if operating cash flow is insufficient.
- The company had no material legal proceedings and reported no off-balance-sheet arrangements. It disclosed a six-year-plus office lease with remaining minimum payments totaling $691,218.
- The company’s common stock trades on the OTC Bulletin Board as a penny stock, with little or no trading activity historically, creating significant liquidity and volatility risk. No cash dividends are expected.
- Management concluded that disclosure controls and internal control over financial reporting were effective at December 31, 2010. The external auditor was not engaged to provide an internal-control attestation.
Important Facts for Investors to Verify
- Verify the registrant identity because the supplied filing is for Issuer Direct Corporation, not ACCESS Newswire Inc.
- Assess the sustainability of revenue growth apart from the unusually large 2010 printing and fulfillment project.
- Reconcile reported net income with pre-tax performance, particularly the $220,800 deferred tax benefit and the remaining deferred-tax valuation allowance.
- Evaluate customer concentration, since one customer represented 47.7% of 2010 revenue.
- Confirm the timing, collectability, and margin profile of the estimated $475,000 backlog and the $51,382 deferred-revenue balance.
- Review liquidity relative to operating needs, lease commitments, seasonal working-capital requirements, and the terms and availability of the subsequent $200,000 credit line.
- Consider dilution from the 1,000,000 outstanding stock options, equity issued for services, and the company’s authorized but unissued preferred stock.