Business Context and Reporting Period
Issuer Direct Corporation, the registrant identified in the filing, provides financial reporting and compliance services, financial printing and fulfillment, software-enabled proxy services, transfer-agent services, and shareholder communications. This unaudited Form 10-Q covers the three and six months ended June 30, 2011, filed August 2, 2011. The filing does not identify the registrant as ACCESS Newswire Inc.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2011 | Three Months Ended June 30, 2010 | Six Months Ended June 30, 2011 | Six Months Ended June 30, 2010 |
|---|---|---|---|---|
| Revenue | $1.104 million | $2.360 million | $1.617 million | $2.965 million |
| Gross profit | $666,756 | $446,549 | $948,216 | $852,375 |
| Gross margin | 60% | 19% | 59% | 29% |
| Net operating income | $310,844 | $127,371 | $282,200 | $297,305 |
| Net income | $300,218 | $128,843 | $274,436 | $263,507 |
| Diluted EPS | $0.02 | $0.01 | $0.02 | $0.02 |
| Operating cash flow | Not separately provided | Not separately provided | $217,489 | $1.485 million |
At June 30, 2011, cash and cash equivalents were $616,430, net accounts receivable were $369,452, and total current assets were $1.206 million. Current liabilities were $219,314, total liabilities were $264,022, and stockholders’ equity was $1.190 million. The company reported $200,000 available under a working capital line of credit with no outstanding balance. The filing reports no material off-balance-sheet arrangements.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue declined 53% year over year, while first-half revenue declined 45%.
- Printing and financial communication revenue fell $1.030 million in the quarter and $1.096 million year to date. Fulfillment and distribution revenue fell $578,000 in the quarter and $577,000 year to date.
- Compliance and reporting revenue increased 196% in the quarter and 112% year to date, primarily from XBRL tagging services associated with the SEC mandate applicable to smaller reporting companies for periods ending after June 15, 2011.
- Gross profit increased $220,207 in the quarter and $95,841 year to date despite lower revenue. Management attributed the improvement to the absence of a large, low-margin print and fulfillment project completed in the second quarter of 2010.
- General and administrative expense increased $50,751 in the quarter and $124,186 year to date, driven primarily by higher facilities, personnel, and bad-debt costs. The company moved into a larger headquarters in September 2010.
- Net income increased $171,375 in the quarter and $10,929 year to date. The 2011 results included $12,624 of income-tax expense, compared with none in the comparable 2010 periods.
- Operating cash flow declined to $217,489 from $1.485 million, principally reflecting the prior-year increase in accounts payable and continued investment in accounts receivable.
- The company repurchased and retired 161,015 common shares for $35,338 during the quarter and six-month period.
- In June 2011, the company acquired customer-list rights from Edgar Tech Filing Services for $40,000, to be amortized over five years.
Outlook, Risks, Contingencies, and Unusual Items
Management intends to pursue profitable growth through organic expansion, productivity initiatives, complementary acquisitions, and continued investment in compliance technology. It expects to expand its XBRL customer base and perform work for hundreds of companies during 2011, but noted that pricing has declined faster than expected, creating margin pressure.
Revenue from large print, fulfillment, software-licensing, and corporate-action projects can fluctuate significantly because such engagements are project-based and difficult to forecast. Management stated that it is emphasizing longer-term, higher-margin engagements rather than large one-time projects.
The company reported a lawsuit filed June 24, 2011 by Kinder Investment, LP, a former holder of Series A preferred stock. Kinder claims that the company improperly forced redemption of its shares without paying accumulated dividends and other amounts totaling $1.075 million. The company believes the claims are without merit and intends to contest them; related resolution costs cannot presently be reasonably estimated.
Management cautioned that operating cash flow may not be sufficient to fund future obligations and that additional equity financing may be required. There can be no assurance that debt or equity financing will be available on acceptable terms. The filing states that there were no material changes to the risk factors in the company’s most recent Form 10-K. Management assessed disclosure controls and procedures as effective.
Important Facts for Investors to Verify
- Confirm the issuer identity and ticker because the supplied metadata names ACCESS Newswire Inc., while the filing names Issuer Direct Corporation.
- Assess the sustainability of the improved gross margins after the non-recurring 2010 print and fulfillment project.
- Evaluate the concentration and pricing risks associated with the new XBRL revenue stream.
- Review accounts-receivable collectability, including the $118,673 allowance for doubtful accounts at June 30, 2011.
- Monitor operating cash flow, liquidity, the unused $200,000 credit line, and any need for additional financing.
- Review the Kinder Investment litigation and potential exposure beyond the claimed $1.075 million, including legal costs.
- Verify the effects of the share repurchase, option issuances, and dilution from outstanding options.