ACCESS Newswire Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS I SSUER DIRECT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) March 31, December 31, 2021 2020 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 20,548 $ 19,556 Accounts receivable (net of allowance for doubtful accounts of $ 651 and $ 657 , respectively) 2,966 2,514 Other current assets 383 298 Total current assets 23,897 22,368 Capitalized software (net of accumulated amortization of $ 2,893 and $ 2,761 , respectively) 394 526 Fixed assets (net of accumulated amortization of $ 348 and $ 312 , respectively) 775 795 Right-of-use asset - leases 1,756 1,830 Other long-term assets 93 88 Goodwill 6,376 6,376 Intangible assets (net of accumulated amortization of $ 5,663 and $ 5,546 , respectively) 2,789 2,906 Total assets $ 36,080 $ 34,889 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 589 $ 304 Accrued expenses 2,098 1,805 Income taxes payable 358 258 Deferred revenue 2,383 2,212 Total current liabilities 5,428 4,579 Deferred income tax liability 262 197 Lease liabilities - long-term 1,890 1,971 Total liabilities 7,580 6,747 Commitments and contingencies - - Stockholders' equity: Preferred stock, $ 0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively. - - Common stock $ 0.001 par value, 20,000,000 shares authorized, 3,765,975 and 3,770,752 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively. 4 4 Additional paid-in capital 22,024 22,214 Other accumulated comprehensive loss ( 16 ) ( 19 ) Retained earnings 6,488 5,943 Total stockholders' equity 28,500 28,142 Total liabilities and stockholders’ equity $ 36,080 $ 34,889 The accompanying notes are an integral part of these unaudited financial statements. 3 Table of Contents I SSUER DIRECT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except share and per share amounts) For the Three Months Ended March 31, March 31, 2021 2020 Revenues $ 4,980 $ 4,016 Cost of revenues 1,394 1,253 Gross profit 3,586 2,763 Operating costs and expenses: General and administrative 1,404 1,216 Sales and marketing expenses 1,074 896 Product development 249 194 Depreciation and amortization 152 209 Total operating costs and expenses 2,879 2,515 Operating income 707 248 Interest income, net 1 58 Net income before income taxes 708 306 Income tax expense 163 80 Net income $ 545 $ 226 Income per share - basic $ 0.15 $ 0.06 Income per share - fully diluted $ 0.14 $ 0.06 Weighted average number of common shares outstanding - basic 3,769 3,788 Weighted average number of common shares outstanding - fully diluted 3,817 3,824 The accompanying notes are an integral part of these unaudited financial statements. 4 Table of Contents I SSUER DIRECT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (in thousands) For the Three Months Ended March 31, March 31, 2021 2020 Net income $ 545 $ 226 Foreign currency translation adjustment 3 40 Comprehensive income $ 548 $ 266 The accompanying notes are an integral part of these unaudited financial statements. 5 Table of Contents ISSUER DIRECT CORPORATION AND SUBSIDIARIES C ONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (in thousands, except share and per share amounts) Common Stock Additional Paid-in Accumulated Other Comprehensive Income Retained Total Stockholders’ Shares Amount Capital (Loss) Earnings Equity Balance at December 31, 2019 3,786,398 $ 4 $ 22,275 $ ( 16 ) $ 3,837 $ 26,100 Stock-based compensation expense - - 45 - - 45 Exercise of stock awards, net of tax 8,002 - - - - - Stock repurchase and retirement ( 21,700 ) - ( 203 ) - - ( 203 ) Foreign currency translation - - - 40 - 40 Net income - - - - 226 226 Balance at March 31, 2020 3,772,700 $ 4 $ 22,117 $ 24 $ 4,063 $ 26,208 Balance at December 31, 2020 3,770,752 $ 4 $ 22,214 $ ( 19 ) $ 5,943 $ 28,142 Stock-based compensation expense - - 63 - - 63 Exercise of stock awards, net of tax 15,000 - 199 - - 199 Stock repurchase and retirement ( 19,777 ) - ( 452 ) - - ( 452 ) Foreign currency translation - - - 3 - 3 Net income - - - - 545 545 Balance at March 31, 2021 3,765,975 $ 4 $ 22,024 $ ( 16 ) $ 6,488 $ 28,500 The accompanying notes are an integral part of these unaudited financial statements. 6 Table of Contents ISSUER DIRECT CORPORATION AND SUBSIDIARIES C ONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) For the Three Months Ended March 31, March 31, 2021 2020 Cash flows from operating activities: Net income $ 545 $ 226 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 285 374 Bad debt expense 28 93 Deferred income taxes ( 15 ) ( 42 ) Non-cash interest expense - 6 Stock-based compensation expense 63 45 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable ( 484 ) ( 219 ) Decrease (increase) in other assets ( 16 ) 32 Increase (decrease) in accounts payable 287 118 Increase (decrease) in accrued expenses 398 ( 105 ) Increase (decrease) in deferred revenue 178 74 Net cash provided by operating activities 1,269 602 Cash flows from investing activities: Purchase of fixed assets ( 16 ) - Net cash used in investing activities ( 16 ) - Cash flows from financing activities: Exercise of stock options 199 - Payment for stock repurchase and retirement ( 452 ) ( 203 ) Net cash used in financing activities ( 253 ) ( 203 ) Net change in cash and cash equivalents 1,000 399 Cash - beginning 19,556 15,766 Currency translation adjustment ( 8 ) 32 Cash and cash equivalents - ending $ 20,548 $ 16,197 Supplemental disclosures: Cash paid for income taxes $ - $ 10 The accompanying notes are an integral part of these unaudited financial statements. 7 Table of Contents ISSUER DIRECT CORPORATION AND SUBSIDIARIES N OTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Basis of Presentation The unaudited interim consolidated balance sheet as of March 31, 2021 and consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the three-month periods ended March 31, 2021 and 2020 included herein, have been prepared in accordance with the instructions for Form 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Article 10 of Regulation S-X under the Exchange Act. In the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the financial statements. Results of operations reported for the interim periods are not necessarily indicative of results for the entire year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. The interim financial information should be read in conjunction with the 2020 audited financial statements of Issuer Direct Corporation (the “Company”, “We”, or “Our”) filed on Form 10-K. Note 2. Summary of Significant Accounting Policies The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions are eliminated in consolidation. Earnings Per Share (EPS) Earnings per share accounting guidance requires that basic net income per common share be computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. There were no shares issuable upon the exercise of stock options excluded in the computation of diluted earnings per common share during the three-month period ended March 31, 2021 because their impact was anti-dilutive. Shares issuable upon the exercise of stock options totaling 93,000 were excluded in the computation of diluted earnings per common share during the three-month period ended March 31, 2020 because their impact was anti-dilutive. Revenue Recognition Substantially all the Company’s revenue comes from contracts with customers for subscriptions to its cloud-based products or contracts for Communications and Compliance products and services. Customers consist of public corporate issuers and professional firms, such as investor relations and public relations firms. In the case of our news distribution and webcasting offerings, our customers also include private companies. The Company accounts for a contract with a customer when there is an enforceable contract between the Company and the customer, the rights of the parties are identified, the contract has economic substance, and collectability of the contract consideration is probable. The Company's revenues are measured based on consideration specified in the contract with each customer. The Company's contracts include either a subscription to our entire platform or certain modules within our platform, or an agreement to perform services, or any combination thereof, and often contain multiple subscriptions and services. For these bundled contracts, the Company accounts for individual subscriptions and services as separate performance obligations if they are distinct, which is when a product or service is separately identifiable from other items in the bundled package, and a customer can benefit from it on its own or with other resources that are readily available to the customer. The Company separates revenue from its contracts into two revenue streams: i) Communications and ii) Compliance. Performance obligations of Communications contracts include providing subscriptions to certain modules or the entire Platform id. Communications module, distributing press releases on a per release basis or conducting webcasts, virtual annual meetings or other events on a per event basis. Performance obligations of Compliance contracts include providing subscriptions to our cloud-based Platform id. Compliance module, Whistleblower module or other stand-ready obligations to deliver services and annual report printing and distribution. Additionally, services are provided on a per project basis. Set up fees for disclosure services are considered a separate performance obligation and are satisfied upfront. Set up fees for our transfer agent module and investor relations content management module are immaterial. The Company’s subscription and service contracts are generally for one year, with automatic renewal clauses included in the contract until the contract is cancelled. The contracts do not contain any rights of returns, guarantees or warranties. Since contracts are generally for one year, all the revenue is expected to be recognized within one year from the contract start date. As such, the Company has elected the optional exemption that allows the Company not to disclose the transaction price allocated to performance obligations that are unsatisfied or partially satisfied at the end of each reporting period. The Company recognizes revenue for subscriptions evenly over the contract period, upon distribution for per release contracts and upon event completion for webcasting and virtual annual meeting events. For service contracts that include stand ready obligations, revenue is recognized evenly over the contract period. For all other services delivered on a per project or event basis, the revenue is recognized at the completion of the event. The Company believes recognizing revenue for subscriptions and stand ready obligations using a time-based measure of progress, best reflects the Company’s performance in satisfying the obligations. 8 Table of Contents For bundled contracts, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the subscription or service. If a standalone selling price is not directly observable, the Company uses the residual method to allocate any remaining price to that subscription or service. The Company reviews standalone selling prices, at least annually, and updates these estimates if necessary. The Company invoices its customers based on the billing schedules designated in its contracts, typically upfront on either a monthly, quarterly or annual basis or per transaction at the completion of the performance obligation. Deferred revenue for the periods presented was primarily related to subscription and service contracts, which are billed upfront, quarterly or annually, however the revenue has not yet been recognized and press release packages which have been prepaid, however the releases have not been disseminated. The associated deferred revenue is generally recognized ratably over the billing period for subscriptions and as releases are disseminated for press release packages. Deferred revenue as of March 31, 2021 and December 31, 2020 was $ 2,383,000 and $ 2,212,000 , respectively, and is expected to be recognized within one year. Revenue recognized for the three months ended March 31, 2021 and 2020, that was included in the deferred revenue balance at the beginning of each reporting period, was approximately $ 1,075,000 and $ 877,000 , respectively. Accounts receivable, net of allowance for doubtful accounts, related to contracts with customers was $ 2,966,000 and $ 2,514,000 as of March 31, 2021 and December 31, 2020, respectively. Since substantially all the contracts have terms of one year or less, the Company has elected to use the practical expedient regarding the existence of a significant financing. Costs to obtain contracts with customers consist primarily of sales commissions. As of March 31, 2021, and December 31, 2020, the Company has capitalized $ 53,000 and $ 44,000 , respectively, of costs to obtain contracts that are expected to be amortized over more than one year. For contract costs expected to be amortized in less than one year, the Company has elected to use the practical expedient allowing the recognition of incremental costs of obtaining a contract as an expense when incurred. The Company has considered historical renewal rates, expectations of future renewals and economic factors in making these determinations. Cash Equivalents For purposes of the Company’s financial statements, the Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents. Accounts Receivable and Allowance for Doubtful Accounts The Company monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. Credit is granted on an unsecured basis. The allowance for doubtful accounts is estimated based on an assessment of the Company’s ability to collect on customer accounts receivable. There is judgment involved with estimating the allowance for doubtful accounts and if the financial condition of the Company’s customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against revenues. Given the current environment of the COVID-19 pandemic additional attention has been paid to the financial viability of our customers. The Company generally writes off accounts receivable against the allowance when it determines a balance is uncollectible and no longer actively pursues its collection. Concentration of Credit Risk Financial instruments and related items which potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivables. The Company places its cash and temporary cash investments with credit quality institutions. Such cash balances are currently in excess of the FDIC insurance limit of $ 250,000 . To reduce its risk associated with the failure of such financial institutions, each quarter the Company evaluates the rating of the financial institution in which it holds deposits. As of March 31, 2021, the total amount exceeding such limit was $ 19,123,000 . The Company also had cash-on-hand of $ 108,000 in Europe and $ 886,000 in Canada as of March 31, 2021. The Company believes it did not have any financial instruments that could have potentially subjected us to significant concentrations of credit risk for any relevant period. Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the allowance for doubtful accounts and the valuation of goodwill, intangible assets, deferred tax assets, and stock-based compensation. Actual results could differ from those estimates. Income Taxes We comply with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 740 - Income Taxes which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amounts expected to be realized. For any uncertain tax positions, we recognize the impact of a tax position, only if it is more likely than not of being sustained upon examination, based on the technical merits of the position. Our policy regarding the classification of interest and penalties is to classify them as income tax expense in our financial statements, if applicable. 9 Table of Contents Capitalized Software Costs incurred to develop our cloud-based platform products are capitalized when the preliminary project phase is complete, management commits to fund the project and it is probable the project will be completed and used for its intended purposes. Once the software is substantially complete and ready for its intended use, the software is amortized over its estimated useful life, which is typically four years. Costs related to design or maintenance of the software are expensed as incurred. The Company did not capitalize any costs for software development during the three-month periods ended March 31, 2021 and 2020. The Company recorded amortization expense of $ 132,000 and $ 170,000 during the three-month periods ended March 31, 2021 and 2020, respectively, all of which was recorded in Cost of revenues on the Consolidated Statements of Income, except for $ 5,000 during the three months ended March 31, 2020, which is included in Depreciation and amortization. Impairment of Long-lived Assets In accordance with the authoritative guidance for accounting for long-lived assets, assets such as property and equipment, trademarks, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds fair value of the asset group. Lease Accounting We determine if an arrangement is a lease at inception. Our operating lease agreements are primarily for office space and are included within lease right-of-use (“ROU”) assets and lease liabilities on the consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Our variable lease payments consist of non-lease services related to the lease and payments under operating leases classified as short-term. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets include any lease payments made and exclude lease incentives. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term. Fair Value Measurements ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the hierarchy of levels of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows: · Level 1 - Quoted prices are available in active markets for identical assets or liabilities at the reporting date. Generally, this includes debt and equity securities that are traded in an active market. Our cash and cash equivalents are quoted at Level 1. · Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Generally, this includes debt and equity securities that are not traded in an active market. · Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. As of March 31, 2021 and December 31, 2020, we believe that the fair value of our financial instruments other than cash and cash equivalents, such as, accounts receivable, our line of credit, and accounts payable approximate their carrying amounts. 10 Table of Contents Translation of Foreign Financial Statements The financial statements of the foreign subsidiaries of the Company have been translated into U.S. dollars. All assets and liabilities have been translated at current rates of exchange in effect at the end of the period. Income and expense items have been translated at the average exchange rates for the year or the applicable interim period. The gains or losses that result from this process are recorded as a separate component of other accumulated comprehensive income until the entity is sold or substantially liquidated. Business Combinations, Goodwill and Intangible Assets We account for business combinations under FASB ASC No. 805 - Business Combinations and the related acquired intangible assets and goodwill under FASB ASC No. 350 - Intangibles - Goodwill and Other. The authoritative guidance for business combinations specifies the criteria for recognizing and reporting intangible assets apart from goodwill. We record the assets acquired and liabilities assumed in business combinations at their respective fair values at the date of acquisition, with any excess purchase price recorded as goodwill. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Intangible assets consist of client relationships, customer lists, distribution partner relationships, software, technology, non-compete agreements and trademarks that are initially measured at fair value. At the time of the business combination, trademarks are considered an indefinite-lived asset and, as such, are not amortized as there is no foreseeable limit to cash flows generated from them. The goodwill and intangible assets are assessed annually for impairment, or whenever conditions indicate the asset may be impaired, and any such impairment will be recognized in the period identified. The client relationships ( 7 - 10 years), customer lists ( 3 years), distribution partner relationships ( 10 years), non-compete agreements ( 5 years) and software and technology ( 3 - 6 years) are amortized over their estimated useful lives. Comprehensive Income Comprehensive income consists of net income and other comprehensive income related to changes in the cumulative foreign currency translation adjustment. Advertising The Company expenses advertising as incurred. Stock-based Compensation The authoritative guidance for stock compensation requires that companies estimate the fair value of share-based payment awards on the date of the grant using an option-pricing model. The associated cost is recognized over the period during which an employee or director is required to provide service in exchange for the award. Note 3: Equity 2014 Equity Incentive Plan On May 23, 2014, the shareholders of the Company approved the 2014 Equity Incentive Plan (the “2014 Plan”). Under the terms of the 2014 Plan, the Company is authorized to issue incentive awards for common stock up to 200,000 shares to employees and other personnel. On June 10, 2016 and June 17, 2020, the shareholders of the Company approved an additional 200,000 and 200,000 awards, respectively, to be issued under the 2014 Plan, bringing the total number of shares to be awarded to 600,000 . The awards may be in the form of incentive stock options, nonqualified stock options, restricted stock, restricted stock units and performance awards. The 2014 Plan is effective through March 31, 2024. As of March 31, 2021, there are 236,583 shares which remain to be granted under the 2014 Plan. The following table summarizes information about stock options outstanding and exercisable at March 31, 2021: Options Outstanding Options Exercisable Exercise Price Range Number Weighted Average Remaining Contractual Life (in Years) Weighted Average Exercise Price Number $ 0.01 - 7.00 5,000 4.64 $ 6.80 5,000 $ 7.01 - 8.00 10,313 2.49 $ 7.76 10,313 $ 8.01 - 12.00 6,917 5.53 $ 9.85 4,917 $ 12.01 - 15.00 30,000 7.54 $ 13.15 30,000 $ 15.01 - 17.40 8,000 7.17 $ 17.40 8,000 Total 60,230 6.15 $ 11.89 58,230 11 Table of Contents As of March 31, 2021, the Company had unrecognized stock compensation related to the options of $ 2,000 , which will be recognized in the second quarter of 2021. During the three months ended March 31, 2021 and 2020, the Company did not grant any restricted stock units. As of March 31, 2021, there was $ 41,000 of unrecognized compensation cost related to our unvested restricted stock units, which will be recognized in the second quarter of 2021. Stock repurchase and retirement On August 7, 2019, the Company publicly announced a share repurchase program under which the Company is authorized to repurchase up to $ 1,000,000 of its common shares. On March 16, 2020, the Company publicly announced that the Company increased the share repurchase program to repurchase up to $ 2,000,000 of its common shares. As of March 31, 2021, the Company completed the repurchase program by purchasing 179,845 shares as shown in the table below ($ in 000’s, except share or per share amounts): Shares Repurchased Period Total Number of Shares Repurchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program August 7-31, 2019 22,150 $ 9.34 22,150 $ 793 September 1-30, 2019 2,830 $ 10.00 2,830 $ 765 October 1-31, 2019 39,363 $ 10.44 39,363 $ 354 November 1-30, 2019 11,827 $ 10.43 11,827 $ 231 December 1-31, 2019 - - - $ 231 January 1-31, 2020 - - - $ 231 February 1-29, 2020 - - - $ 231 March 1-31, 2020 21,700 $ 9.33 21,700 $ 1,028 April 1-30, 2020 22,698 $ 9.02 22,698 $ 823 May 1-31, 2020 39,500 $ 9.51 39,500 $ 448 No shares repurchased between June 2020 and February 2021 March 1-31, 2021 19,777 $ 22.89 19,777 $ - Total 179,845 $ 11.15 179,845 $ - Note 4: Income taxes We recognized income tax expense of $ 163,000 for the three-month period ended March 31, 2021, compared to income tax expense of $ 80,000 during the same period of 2020. At the end of each interim period, we estimate the effective tax rate we expect to be applicable for the full fiscal year and this rate is applied to our results for the year-to-date period, and then adjusted for any discrete period items. For the three-month periods ended March 31, 2021 and 2020, the variance between the Company’s effective tax rate and the U.S. statutory rate of 21 % is primarily attributable to state income tax, partially offset by a benefit related to the Foreign Derived Intangible Income (“FDII”) deduction as well as foreign rate differentials. Note 5: Leases Generally, our leasing activity consists of office leases. In March 2019, we signed a new lease to move our corporate headquarters to Raleigh, North Carolina. As we continue our transition from a services-based company to a cloud-based platform company, the new lease affords us the ability to separate our warehouse from our corporate office. The new lease, which had a lease commencement date of October 2, 2019, is for 9,766 square feet and expires December 31, 2027. Minimum lease payments are $ 2,997,000 , not including a tenant improvement allowance of $ 488,000 , which is included in fixed assets as of March 31, 2021. We recognized a ROU asset and corresponding lease liability of $ 2,596,000 , which represents the present value of minimum lease payments discounted at 3.77 %, the Company’s incremental borrowing rate at lease inception. Additionally, we have a three-year office lease in Florida, which was signed on January 4, 2019, at which time we recognized a ROU asset and corresponding lease liability of $ 125,000 , which represents the present value of minimum lease payments discounted at 4.25 %, the Company’s incremental borrowing rate at lease inception. We also have facilities in Salt Lake City, Utah, and New York, which are on short-term leases that are less than twelve months. As a result, we have elected the short-term lease recognition exemption for these leases, which means, for those leases we do not expect to extend beyond twelve months, we will not recognize ROU assets or lease liabilities. 12 Table of Contents Lease liabilities totaled $ 2,275,000 as of March 31, 2021. The current portion of this liability of $ 385,000 is included in Accrued expenses on the Consolidated balance sheets and the long-term portion of $ 1,890,000 is included in Lease liabilities on the Consolidated Balance Sheets. Rent expense consists of both operating lease expense from amortization of our ROU assets as well as variable lease expense which consists of non-lease components of office leases (i.e. common area maintenance) or rent expense associated with short-term leases. The components of lease expense were as follows (in 000’s): Three months ended March 31, 2021 2020 Lease expense Operating lease expense $ 87 $ 87 Variable lease expense 27 32 Rent expense $ 114 $ 119 The weighted-average remaining non-cancelable lease term for our operating leases was 6.7 years as of March 31, 2021. As of March 31, 2021, the weighted-average discount rate used to determine the lease liability was 3.8 %. The future minimum lease payments to be made under non-cancelable operating leases on March 31, 2021, are as follows (in 000’s): Year Ended December 31: 2021 $ 295 2022 359 2023 369 2024 379 2025 389 Thereafter 812 Total lease payments $ 2,603 Present value adjustment ( 328 ) Lease liability 2,275 We have performed an evaluation of our other contracts with customers and suppliers in accordance with Topic 842 and have determined that, except for the leases described above, none of our contracts contain a lease. Note 6: Revenue We consider ourselves to be in a single reportable segment under the authoritative guidance for segment reporting, specifically a communications and compliance company for publicly traded and private companies. The following tables present revenue disaggregated by revenue stream in (000’s): Three months ended March 31, Revenue Streams 2021 2020 Communications $ 3,187 64.0 % $ 2,408 60.0 % Compliance 1,793 36.0 % 1,608 40.0 % Total $ 4,980 100.0 % $ 4,016 100.0 % We did not have any customers during the three-month periods ended March 31, 2021 or 2020 that accounted for more than 10% of our revenue. Note 7: Line of Credit Effective October 3, 2019, the Company renewed its unsecured Line of Credit, which increased the term to two years, with all other provisions remaining the same. The amount of funds available for borrowing are $ 3,000,000 and the interest rate is LIBOR plus 1.75 %. As of March 31, 2021, the interest rate was 1.86 % and the Company did not owe any amounts on the Line of Credit. 13 Table of Contents