ACCESS Newswire Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The discussion of the financial condition and results of operations of the Company set forth below should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Form10-Q. This Form10-Q contains forward-looking statements that involve risks and uncertainties. The statements contained in this Form10-Q that are not purely historical are forward-looking statements within the meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act. When used in this Form10-Q, or in the documents incorporated by reference into this Form 10-Q, the words “anticipate,” “believe,” “estimate,” “intend” and “expect” and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, without limitation, the statements regarding the Company’s strategy, future sales, future expenses, future liquidity, and capital resources. All forward-looking statements in this Form10-Q are based upon information available to the Company on the date of this Form10-Q, and the Company assumes no obligation to update any such forward-looking statements. The Company’s actual results could differ materially from those discussed in this Form10-Q for many reasons. Factors that could cause or contribute to such differences (“Cautionary Statements”) include, but are not limited to, those discussed in Item 1. Business — “Risk Factors” and elsewhere in the Company’s Annual Report on Form10-K for the year ended December 31, 2022, which are incorporated by reference into this Form 10-Q. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on the Company’s behalf, are expressly qualified in their entirety by the Cautionary Statements. Overview Issuer Direct Corporation and its subsidiaries are hereinafter collectively referred to as “Issuer Direct”, the “Company”, “We” or “Our” unless otherwise noted. Our corporate headquarters 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 leading communications and compliance company, providing solutions for both public relations and investor relations professionals. Our comprehensive solutions are used by thousands of customers from emerging startups to multi-billion-dollar global brands, ensuring their most important moments are reaching the right audiences, via our industry leading newswire, IR website solutions, events technology and compliance solutions. Our platform 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. Our platform consists of several related but distinct Communications and Compliance modules that companies and customers utilize every quarter. As such, we disclose our revenue 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: 18 Table of Contents In the future, we expect the Communications portion of our business to continue to increase, both in terms of overall revenue and as compared to the Compliance portion of our business as it has done in the past. Therefore, we plan to continue to invest in offerings we intend to incorporate into and complement our Communications product lineup. Within most of our target markets, customers require several individual services and/or software providers to meet their communications and investor relations needs. We believe our platform 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 our platform and related solutions from document creation all the way to dissemination to regulatory bodies, news outlets, financial platforms, and our customers’ shareholders. Private companies primarily use our news distribution, newsroom and webcasting products and services to disseminate their message globally. 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. Communications Our Communications platform consists of our press release distribution businesses branded as ACCESSWIRE and Newswire, our webcasting and events business, professional conference and events software, as well as our investor relations website technology. Our ACCESSWIRE and Newswire news distribution platforms have been integrated into one dissemination platform that will give our customers all the distribution benefits of our global distribution footprint. These products are sold as the leading part of our Communications subscription, as well as individually to customers around the globe and are further described below. Acquisition of iNewswire.com LLC On November 1, 2022, we acquired iNewswire.com LLC (“Newswire”). Newswire is a media technology company that provides customers press release distribution, media databases, media monitoring, and newsrooms for greater brand awareness through earned media, increased online visibility through greater search engine optimization recognition, and more sales inquiries through targeted digital marketing campaigns. Through its PR Optimizer (”PRO”) offering, formally Media Advantage Platform, Newswire automates media and marketing communications for large and small businesses seeking to deliver the right message to the right audience at the right time for the right purpose. 19 Table of Contents We believe this transaction strengthens our entire communications portfolio and combined with our ACCESSWIRE business, grows our press release distribution business to now be one of North America’s largest press release distribution platforms. The acquisition almost doubles our press release customer base and combines what we believe are qualified people and strong distribution, technology and brands. Newswire customers will benefit from the global footprint ACCESSWIRE has built over the last eight years, whereas Issuer Direct’s customers will have access to Newswire’s media database platform, pitching and monitoring capabilities, as well as its PRO offering. Lastly, we believe the acquisition will also result in meaningful operational synergies in the combined company. Through the PRO offering, we provide content and media communications services that provide customers the opportunity to optimize their content and increase their media visibility, therefore building their brand awareness and engaging a larger audience. With the flexibility of these offerings, customers have the ability to choose between support with content optimization, increased media visibility, or both for optimal results. We believe the Total PRO product offering provides the most effective and efficient integrated media and content communication program available in the market today. ACCESSWIRE Our existing press release offering, which is marketed under the brand ACCESSWIRE , is a 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 in the newswire industry 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 continue to expand our distribution points, improve our targeting and enhance our analytics reporting. We also offer an e-commerce element to our ACCESSWIRE product, whereby customers can self-select their distribution, register, and then upload their press release for editorial review in minutes. We believe these enhancements have helped increase ACCESSWIRE revenues each year compared to the prior year, a trend we expect to continue over the next several years. We have also been able to maintain high gross margins while providing our customer flexible pricing, with options to pay per release or enter longer-term agreements for a designated package of releases. Like other newswires globally, ACCESSWIRE and Newswire are dependent upon several key partners for its news distribution. Disruption in any of our partnerships could have a materially adverse impact on our overall business. Newsroom A natural addition to our ACCESSWIRE and investor relations website business is our corporate Newsroom. This product offering can be an add-on to any customer’s ACCESSWIRE or Communications subscription account. The Newsroom suite includes a custom newsroom page builder, a brand asset manager and contact manager. Our Newsroom suite addresses the needs of our customers looking to build connections with media, journalists, customers and if applicable the investment community. According to a survey from TekGroup, a majority of journalists and media professionals indicated the importance of newsrooms that include digital media, press kits and video. We believe our Newsroom suite accomplishes this by including the following three components: Newsroom page – a custom URL, self-publishing system for customers that automatically adds ACCESSWIRE news to their newsroom and allows them the ability to add any other mention, article or post from the web to their newsroom. Customers can self-manage this platform to customize colors, font, logo, images, social integration, and contact and customer URLs. Brand Asset Manager – a customizable library of images, video and press kits, which can be shared both privately and publicly, as well as integrated into the ACCESSWIRE editor for easy access of customers’ high- resolution images. All assets are tagged to give our customers analytics for both views and downloads. Subsequent versions of this feature will allow for greater analytics as engagement occurs with our customers’ assets. Contact Manager – a technology that allows our customers to provide their audiences the ability to quickly subscribe to alerts or notifications of a particular brand. Customers have the ability to deliver their stories automatically or time based. Engagement and delivery reports are also available to customers directly from their dashboard. 20 Table of Contents 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 demand for these products with a virtual component was at an all-time high for us in 2020, largely due to the COVID-19 pandemic. Since the end of the pandemic, the industry overall has seen a reduction in the number of virtual events, specifically annual meetings and deal/non-deal roadshows, as customers are relying on internal enterprise solutions or are returning to pre-pandemic travel and in-person meetings, reducing the need for a virtual component. This has contributed to a decline in demand for our virtual components since 2020 and 2021. Traditional earnings calls and webcasts are a highly competitive market with the majority of the business being driven from practitioners in investor relations and communications firms. We estimate there are approximately 5,000 companies in North America conducting earnings events each quarter that include a teleconference, webcast or both as part of their events. Our platform 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. Additionally, as a commitment to broadening the reach of our webcast platform, we broadcast live additional companies’ 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. Our VisualWebcaster Platform (“VWP”) is a 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 has significantly strengthened our webcasting product and Communications offering. The VWP technology gives us the ability to host thousands of webcasts each year, expanding and diversifying our webcast business from our historical earnings-based events to include any type of virtual event. As we expand our platform, it is vital for us to have solutions that service both our core public companies but also a growing segment of private customers. Professional Conference and Events Software Our professional conference and events software is a subscription offering we currently license to investor conference organizers. This software, which is also available as a native 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 our Communications subscription offerings of newswire, newsrooms, webcasting and shareholder targeting. We believe this integration gives us a unique offering for professional conference organizers that is not available elsewhere in the market. Investor Relations Websites Our investor relations content network is another component of our Communications offering, 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 with our other Communications offerings. 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. Compliance Our Compliance offerings consist of our disclosure software for financial reporting, stock transfer services, whistleblower hotline and related annual meeting, print and shareholder distribution services. Some of these products are sold as part of a Compliance subscription as well as individually to customers around the globe. Disclosure Software and Services Our disclosure reporting module is a document conversion, editing and filing offering which is designed for reporting companies and professionals seeking to insource the document drafting, editing and filing processes to the SEC’s EDGAR system. Our disclosure business also offers companies the ability to use our in-house staff to assist in the conversion, tagging and filing of their documents. We generate revenues in disclosure both from software and services and, in most cases, customers have both components within their annual agreements, while others pay for services as they are completed. 21 Table of Contents Whistleblower Hotline Our whistleblower hotline is an add-on product within our platform. This system delivers secure notifications and basic incident workflow management processes that align with a company’s corporate governance whistleblower policy. As a supported and subsidized bundle product of the New York Stock Exchange (“NYSE”) offerings, we are introduced to new IPO customers and other larger cap customers listed on the NYSE. Since 2014, we have been a named NYSE subsidy provider of this Whistleblower solution. In 2020, NYSE renewed and extended the initial subsidy term to four years from two years, whereby the first two years are provided under subsidy and the added two years are at our standard subscription rates. Recently, we have been working on upgrading the incident response and management component of the workflow, which is expected to be completed this year. Stock Transfer Module A valued subscription add-on in our Compliance 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 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. This module has been incorporated within our webcasting offering to enable our customers the ability to conduct their annual meetings in-person or fully virtual. Our solution incorporates shareholder and guest registration, voting integration, real-time statistics on attendance, audio video and presentation features as well as fully managed meeting managers and inspector of elections. Although we believe a virtual component to an annual meeting is both a benefit to all shareholders and a corporate governance advantage, there can be no assurances this product has longevity in the market. 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 our Compliance offerings. 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 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. 22 Table of Contents Results of Operations Comparison of results of operations for the three and nine-months ended September 30, 2023 and 2022 (in 000’s): Three Months Ended September 30, Percentage of Revenue (1) 2023 2022 2023 2022 Revenue: Communications revenue $ 6,078 $ 3,487 80 % 66 % Compliance revenue 1,491 1,793 20 % 34 % Total revenue 7,569 5,280 100 % 100 % Cost of revenue: Communications cost of revenue 1,497 807 25 % 23 % Compliance cost of revenue 300 405 20 % 23 % Total cost of revenue 1,797 1,212 24 % 23 % Gross Margin: Communications gross margin 4,581 2,680 75 % 77 % Compliance gross margin 1,191 1,388 80 % 77 % Total gross margin 5,772 4,068 76 % 77 % Operating Expenses: General and administrative 2,033 1,657 27 % 31 % Sales and marketing 1,838 1,231 24 % 23 % Product development 581 245 8 % 5 % Depreciation and amortization 727 146 10 % 3 % Total expenses 5,179 3,279 68 % 62 % Operating income 593 789 8 % 15 % Interest (expense) income, net (298 ) 77 (4 )% 1 % Other income 165 — 2 % 0 % Income before income taxes 460 866 6 % 16 % Income tax provision 187 180 2 % 3 % Net income $ 273 $ 686 4 % 13 % Nine Months Ended September 30, Percentage of Revenue (1) 2023 2022 2023 2022 Revenue: Communications revenue $ 18,580 $ 10,561 72 % 65 % Compliance revenue 7,259 5,814 28 % 35 % Total revenue 25,839 16,375 100 % 100 % Cost of revenue: Communications cost of revenue 4,315 2,315 23 % 22 % Compliance cost of revenue 1,647 1,493 23 % 26 % Total cost of revenue 5,962 3,808 23 % 23 % Gross Margin: Communications gross margin 14,265 8,246 77 % 78 % Compliance gross margin 5,612 4,321 77 % 74 % Total gross margin 19,877 12,567 77 % 77 % Operating Expenses: General and administrative 6,639 4,903 26 % 30 % Sales and marketing 6,258 3,866 24 % 24 % Product development 1,887 734 7 % 4 % Depreciation and amortization 2,172 439 8 % 3 % Total expenses 16,956 9,942 66 % 61 % Operating income 2,921 2,625 11 % 16 % Interest (expense) income, net (817 ) 99 (3 )% 1 % Other expense, net 9 — — % — % Income before income taxes 2,113 2,724 8 % 17 % Income tax provision 621 681 2 % 4 % Net income $ 1,492 $ 2,043 6 % 12 % (1) Percentage of revenue is calculated as the relevant revenue, expense, income amount divided by total revenue, except for communications and compliance cost of revenue and communications and compliance gross margin, which are divided by the related component of revenue. 23 Table of Contents Revenues Total revenue increased $2,289,000, or 43%, to $7,569,000 during the three months ended September 30, 2023, as compared to $5,280,000 for the same period of 2022. Total revenue increased by $9,464,000 or 58%, to $25,839,000 during the nine months ended September 30, 2023, as compared to $16,375,000 during the same period of 2022. The increases in both periods are primarily attributable to the acquisition of Newswire on November 1, 2022. An increase in revenue from our Compliance revenue stream also contributed to the increase in revenue for the nine months ended September 30, 2023. Communications revenue increased $2,591,000, or 74% and $8,019,000, or 76%, to $6,078,000 and $18,580,000 for the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022. The increase in revenue is primarily related to the acquisition of Newswire, which is all included in Communications revenue. For the three and nine months ended September 30, 2023, we also generated increased revenue from our ACCESSWIRE business, which increased 9% and 10%, respectively, compared to the same periods of the prior year. These increases were partially offset by a decrease in revenue from our events and webcasting business, primarily due to less virtual events and annual meetings during the three and nine months ended September 30, 2023, as compared to the prior year. Communications revenue represented 80% and 72% of total revenue during the three and nine months ended September 30, 2023, respectively, as compared to 66% and 65% for the same periods of 2022. Compliance revenue decreased $302,000, or 17%, and increased $1,445,000, or 25%, during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022. The decrease during the three months ended September 30, 2023, is primarily attributed to a decrease in revenue from our transfer agent and print and proxy fulfillment services due to a decrease in corporate activity and projects during the quarter. The increase for the nine months ended September 30, 2023, was primarily related to an increase in revenue from our print and proxy fulfillment services due to a few significant transactions which occurred during the first half of the year, as well as, an increase in revenue from our transfer agent services due to an increase in corporate actions and directives during the first half of 2023. Revenue Backlog As of September 30, 2023, our deferred revenue balance was $5,164,000, which we expect to recognize over the next twelve months, compared to $5,405,000 as of December 31, 2022. Deferred revenue primarily consists of advance billings for packages of our news distribution product as well as advance billings for subscriptions of our cloud-based products and annual service contracts. Cost of Revenues Communications cost of revenues consist primarily of direct labor costs, newswire distribution costs, teleconferencing costs, and third-party licensing costs. Compliance cost of revenues consist primarily of direct labor costs, warehousing, logistics, print production materials and postage. Cost of revenues increased $585,000, or 48%, and $2,154,000, or 57%, during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022. Overall gross margin increased $1,704,000, or 42% and $7,310,000, or 58%, during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022. As a result, overall gross margin percentage decreased to 76% for the three months ended September 30, 2023, as compared to 77% during the same period of 2022, however, overall gross margin remained flat during the nine months ended September 30, 2023, as compared to the same period of 2022. Cost of revenues associated with our Communications revenue increased $690,000, or 86% and $2,000,000, also 86%, during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022. These increases are primarily due to an increase in costs associated with operations of Newswire as well as an increase in distribution costs associated with ACCESSWIRE as we continue to expand our distribution. Gross margin percentage associated with our Communications revenue was 75% and 77% for the three and nine-months ended September 30, 2023, respectively, as compared to 77% and 78% during the same periods of 2022. Cost of revenues associated with our Compliance revenue decreased $105,000, or 26% and increased $154,000, or 10%, during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022. The change in cost of revenues is primarily the result of timing of print and proxy fulfillment projects during the respective periods. Gross margin percentage associated with our Compliance revenue increased to 80% and 77% for the three and nine-months ended September 30, 2023, respectively, as compared to 77% and 74% for the same periods of 2022. 24 Table of Contents General and Administrative Expenses General and administrative expenses consist primarily of salaries, bonuses, stock-based compensation, insurance, fees for professional services, general corporate expenses and facility and equipment expenses. General and administrative expenses were $2,033,000 during the three months ended September 30, 2023, an increase of $376,000, or 23%, as compared to the same period of 2022. General and administrative expenses were $6,639,000 for the nine months ended September 30, 2023, an increase of $1,736,000, or 35%, as compared to the same periods of 2022. The increase is primarily driven by additional expenses associated with costs to operate Newswire, employee-related costs and stock compensation expense. For the nine months ended September 30, 2023, the increase is also related to one-time transactions costs, partially offset by a reduction in executive recruiting fees. As a percentage of revenue, general and administrative expenses were 27% and 26% for the three and nine-months ended September 30, 2023, respectively, as compared to 31% and 30% for the same periods of 2022. Sales and Marketing Expenses Sales and marketing expenses consist primarily of salaries, stock-based compensation, sales commissions, advertising expenses, tradeshow expenses and other marketing expenses. Sales and marketing expenses were $1,838,000 for the three months ended September 30, 2023, an increase of $607,000, or 49%, as compared to the same period of 2022. Sales and marketing expenses were $6,258,000 for the nine months ended September 30, 2023, an increase of $2,392,000, or 62%, as compared to the same period of 2022. These increases are primarily due to the addition of the Newswire sales team. As a percentage of revenue, sales and marketing expenses were 24% for the three and nine months ended September 30, 2023, as compared to 23% and 24% for the same periods of 2022. Product Development Expenses Product development expenses consist primarily of salaries, stock-based compensation, bonuses, and licenses to develop new products and technology to complement and/or enhance our platform. Product development expenses increased $336,000, or 137% and $1,153,000, or 157% to $581,000 and $1,887,000 during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022. These increases are directly attributed to additional costs associated with Newswire as well as hiring our new Chief Technology Officer. During the three and nine months ended September 30, 2023, we capitalized $152,000 and $319,000, respectively, of costs related to develop our new artificial intelligence and media database products. As a percentage of revenue, product development expenses were 8% and 7% for the three and nine months ended September 30, 2023, respectively, as compared to 5% and 4% for the same periods of 2022. Depreciation and Amortization Expenses Depreciation and amortization expenses increased $581,000, or 398%, and $1,733,000, or 395%, during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022. The increase is attributed to increased amortization associated with intangible assets acquired in the Newswire acquisition. Interest (expense) income, net We recognized interest expense of $368,000 and $1,080,000 for the three and nine months ended September 30, 2023. Interest expense primarily represents interest attributed to our new, long-term credit agreement as well as interest on our settled $22,000,000 note payable associated with the acquisition of Newswire. There was no interest expense during the three and nine months ended September 30, 2022. Interest expense is partially offset by interest income of $70,000 and $263,000 for the three and nine months ended September 30, 2023, respectively, from deposit and money market accounts and interest income from our interest rate swap agreement. During the three and nine months ended September 30, 2022, interest income amounted to $77,000 and $99,000, respectively. Other income, net During the three months ended September 30, 2023, other income represents the change in fair value of our interest rate swap agreement. During the nine months ended September 30, 2023, other income, net represents the change in fair value of our interest rate swap agreement, partially offset by $370,000 paid to extinguish the Seller Note associated with the Newswire transaction. There was no other income, net during the three and nine months ended September 30, 2022. 25 Table of Contents Income Taxes We recognized income tax expense of $187,000 and $621,000 for the three and nine months ended September 30, 2023, compared to $180,000 and $681,000 during the same periods of 2022, respectively. For the three and nine-month periods ended September 30, 2023 and 2022, the variance between our effective tax rate and the U.S. statutory rate of 21% is primarily attributable to state income tax and additional expense related to Global Intangible Low-Taxed Income inclusion. Liquidity and Capital Resources As of September 30, 2023, we had $5,050,000 in cash and cash equivalents and $4,271,000 in net accounts receivable. Current liabilities as of September 30, 2023, totaled $11,658,000 including our, accounts payable, deferred revenue, accrued payroll liabilities, income taxes payable, current portion of long-term debt, current portion of lease liabilities and other accrued expenses. On September 30, 2023, our current liabilities exceeded our current assets by $866,000. On March 20, 2023 (the “Closing Date”), the Company entered into a $25 million credit agreement (the “Credit Agreement”) with Pinnacle Bank (“Pinnacle”). The Credit Agreement provides for the following: term loan facility in an aggregate principal amount of $20 million (the “Term Loan”), and revolving letter of credit in an up to aggregate principal amount of $5 million (the “Revolving LOC”), subject to an 85% limit based on the current eligible accounts receivable (as defined in the Credit Agreement). Pursuant to the terms of the Credit Agreement, the per annum interest rate of the Term Loan is variable based on the one-month secured overnight financing rate (“SOFR”) plus 2.35%, subject to a minimum SOFR of 2.00%. However, the Term Loan issued on the Closing Date has a per annum interest rate of 6.217%, which was fixed with respect to the entire principal amount as a result of an interest rate swap agreement entered into between the Company and Pinnacle on the Closing Date in accordance with the terms of the Credit Agreement. The Company began making monthly interest-only payments on the Term Loan on April 1, 2023. Beginning on January 1, 2024, the Company will make monthly principal payments of $333,333 plus interest payments on the Term Loan until the maturity date of December 28, 2028. The proceeds of the Term Loan along with certain cash on hand of the Company were used to repay in its entirety the one-year Secured Promissory Note (the “Newswire Note”) issued to Lead Capital, LLC in connection with the Company’s November 1, 2022 acquisition of iNewswire.com LLC for a lump sum payment of $22,880,000. In order to settle the Secured Note on March 20, 2023, the Company paid $370,000 to the Seller, with the Seller agreeing to forgive $440,000 of interest which would have otherwise been due. The $370,000 payment is recorded in Other income, net on the Consolidated statements of operations. As a result, there is no longer any obligation to the Seller as of September 30, 2023. The Company currently has no plans to utilize the Revolving LOC but may do so in the future. If the Company does utilize any funds under the Revolving LOC, the funds will bear interest at a per annum rate equal to the then current SOFR plus 2.05%. Pinnacle’s commitment to fund under the Revolving LOC terminates on September 1, 2024, unless terminated earlier pursuant to the terms of the Credit Agreement. The Company terminated its $3,000,000 unsecured line of credit with Fifth Third Bank immediately prior to the Closing Date. As of September 30, 2023, there was no outstanding balance under the Revolving LOC and the interest rate was 7.37%. The Credit Agreement contains the following financial covenants, which commence with fiscal quarter ended June 30, 2023: a fixed charge coverage ratio of no less than 1.20:1.00 and a leverage ratio requiring that, for each fiscal quarter of the Company ending on September 30, 2023, the leverage ratio shall not exceed 2.75:1.00 and for each fiscal quarter of the Company ending after December 31, 2023, the leverage ratio shall not exceed 2.50:1.00. All covenants were successfully achieved during the three month-period ended September 30, 2023. The Credit Agreement also contains customary affirmative covenants for a transaction of this nature, including among other things, covenants relating to: maintenance of adequate financial and accounting books and records, delivery of financial statements and other information, preservation of existence of the Company and subsidiaries, payment of taxes and claims, compliance with laws, maintenance of insurance, foreign qualification, use of proceeds, cash management system, maintenance of properties, and conduct of business. The Credit Agreement also contains customary negative covenants for a transaction of this nature, including, among other things, covenants relating to debt, liens, investments, negative pledges, dividends and other debt payments, restriction on fundamental changes, sale of assets, transactions with affiliates, restrictive agreements, and changes in fiscal year. 26 Table of Contents The Credit Agreement also contains various Events of Default (subject to certain grace periods, to the extent applicable), including among other things, Events of Default for the nonpayment of principal, interest or fees; breach of certain covenants; inaccuracy of the representations or warranties in any material respect; bankruptcy or insolvency; dissolution or change of control; certain unsatisfied judgments; defaults under material agreements; certain unfunded liabilities under employee benefit plans; certain unsatisfied judgments; certain ERISA violations; and the invalidity or unenforceability of the Credit Agreement. If an Event of Default occurs, the Company may be required to repay all amounts outstanding under the Credit Agreement. The Term Loan and any advances under the Revolving LOC are secured by a first priority lien and security interest to the benefit of Pinnacle in the Event of Default on all of the Company’s current or future assets and each of the Guarantor’s current or future assets. Disclosure about Off-Balance Sheet Arrangements We do not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements. Non-GAAP Measures Management believes that certain non-GAAP measures, such as non-GAAP free cash flow, non-GAAP adjusted free cash flow, non-GAAP adjusted EBITDA (“adjusted EBITDA”), and non-GAAP adjusted net income (“adjusted net income”) provide useful information about our operating results and enhance the overall ability to assess our financial performance. We use these measures, together with other measures of performance prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), to compare the relative performance of operations in planning, budgeting, and reviewing the performance of our business. Adjusted EBITDA and adjusted net income allow investors to make a more meaningful comparison between our core business operating results over different periods of time. We believe that adjusted EBITDA and adjusted net income, when viewed with our results under US GAAP and the accompanying reconciliations, provide useful information about our business without regard to potential distortions. By eliminating potential differences in results of operations between periods caused by factors such as acquisition-related expenses and other items as described below, we believe adjusted EBITDA and adjusted net income can provide a useful additional basis for comparing the current performance of the underlying operations being evaluated. Management uses free cash flow, which is defined as net cash flows provided by operating activities less payments for purchases of fixed assets and capitalized software, in reviewing the financial performance and cash generation by our various business groups and evaluating cash levels. We believe free cash flow is a useful measure for investors because it portrays our ability to grow organically and generate cash from our businesses for purposes such as paying interest on our indebtedness, repaying debt, funding business acquisitions, investing in product development, re-purchasing our common stock, and paying dividends, if it is determined we do so in the future. In addition, securities analysts, investors, and others frequently use free cash flow in their evaluation of companies. Adjusted free cash flow represents a further non-GAAP adjustment to free cash flow to exclude the effect of cash paid for acquisition and integration related activities and unusual or non-recurring transactions. Management believes that by excluding these infrequent or unusual items from free cash flow, it better portrays our ability to generate cash, as such items are not indicative of the Company’s operating performance for the period. The uses of these non-GAAP financial measures are not intended to be considered in isolation of, or as substitute for, the financial information prepared and presented in accordance with US GAAP. Free cash flow and adjusted free cash flow do not necessarily represent funds available for discretionary use and are not necessarily a measure of our ability to fund our cash needs. Our calculation of free cash flow and adjusted free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as a comparative measure. Free cash flow and adjusted free cash flow are non-GAAP financial measures. For the three and nine months ended September 30, 2023 and 2022, free cash flow and adjusted free cash flow were as follows: Three Months Ended September 30, 2023 2022 Net cash provided by operating activities (US GAAP) $ 287 $ 1,381 Payments for purchase of fixed assets and capitalized software (177 ) (14 ) Free cash flow (Non-GAAP) 110 1,367 Cash paid for acquisition and/or integration related items (1) 17 74 Adjusted free cash flow (Non-GAAP) $ 127 $ 1,441 27 Table of Contents Nine Months Ended September 30, 2023 2022 Net cash provided by operating activities (US GAAP) $ 2,290 $ 3,025 Payments for purchase of fixed assets and capitalized software (345 ) (52 ) Free cash flow (Non-GAAP) 1,945 2,973 Cash paid for acquisition and/or integration related items (1) 298 90 Cash paid for other unusual items (2) 395 60 Adjusted free cash flow (Non-GAAP) $ 2,638 $ 3,123 (1) This adjustment gives effect to one-time corporate projects, including acquisition and/or integration related expenses, paid during the periods. (2) For the nine months ended September 30, 2023, this adjustment gives effect to a one-time payment of approximately $370,000 related to the early termination of the note payable associated with the Newswire acquisition. For the nine months ended September 30, 2022, this adjustment gives effect to payment of a one-time executive recruiting fee payment of $60,000. Adjusted EBITDA and adjusted net income are non-GAAP financial measures and should not be considered as a substitute for analysis of our results as reported under US GAAP. These measures are defined differently by different companies, and accordingly, such measures may not be comparable to similarly titled measures of other companies and have important limitations as an analytical tool. A reconciliation of net income to adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022, is presented in the following table (in 000’s): Three Months Ended September 30, 2023 2022 Amount Amount Net income: $ 273 $ 686 Adjustments: Depreciation and amortization 745 163 Interest expense (income), net 298 (77 ) Income tax expense 187 180 EBITDA 1,503 952 Acquisition and/or integration costs (1) 59 74 Other non-recurring expenses (2) (165 ) — Stock-based compensation expense (3) 359 187 Adjusted EBITDA: $ 1,756 $ 1,213 Nine Months Ended September 30, 2023 2022 Amount Amount Net income: $ 1,492 $ 2,043 Adjustments: Depreciation and amortization 2,217 487 Interest expense (income), net 817 (99 ) Income tax expense 621 681 EBITDA 5,147 3,112 Acquisition and/or integration costs (1) 430 90 Other non-recurring expenses (2) 36 90 Stock-based compensation expense (3) 1,050 559 Adjusted EBITDA: $ 6,663 $ 3,851 (1) This adjustment gives effect to one-time corporate projects, including acquisition and/or integration related expenses, incurred during the periods. (2) For the three months ended September 30, 2023, this adjustment gives effect to a gain recorded on the change in fair value of our interest rate swap of $165,000. For the nine months ended September 30, 2023, this adjustment gives effect to a $370,000 payment related to early extinguishment of our Seller Note and one-time non-recurring expenses of $45,000, partially offset by a gain recorded on the change in fair value of our interest rate swap of $379,000. For the nine months ended September 30, 2022, this adjustment gives effect to a one-time executive recruiting fee of $90,000. (3) The adjustments represent stock-based compensation expense related to awards of stock options, restricted stock units, or common stock in exchange for services. Although we expect to continue to award stock in exchange for services, the amount of stock-based compensation is excluded as it is subject to change as a result of one-time or non-recurring projects. 28 Table of Contents A reconciliation of net income to adjusted net income for the three and nine months ended September 30, 2023 and 2022 is presented in the following table (in 000’s): Three Months Ended September 30, 2023 2022 Amount Per diluted share Amount Per diluted share Net income: $ 273 $ 0.07 $ 686 $ 0.19 Adjustments: Amortization of intangible assets (1) 686 0.18 108 0.03 Stock-based compensation expense (2) 359 0.09 187 0.05 Other unusual items (3) (106 ) (0.02 ) 74 0.02 Tax impact of adjustments (4) (197 ) (0.05 ) (77 ) (0.02 ) Non-GAAP net income: $ 1,015 $ 0.27 $ 978 $ 0.27 Weighted average number of common shares outstanding – diluted 3,823 3,636 Nine Months Ended September 30, 2023 2022 Amount Per diluted share Amount Per diluted share Net income: $ 1,492 $ 0.39 $ 2,043 $ 0.55 Adjustments: Amortization of intangible assets (1) 2,056 0.54 324 0.09 Stock-based compensation expense (2) 1,050 0.28 559 0.15 Other unusual items (3) 466 0.12 180 0.04 Tax impact of adjustments (4) (750 ) (0.20 ) (223 ) (0.06 ) Non-GAAP net income: $ 4,314 $ 1.13 $ 2,883 $ 0.77 Weighted average number of common shares outstanding – diluted 3,814 3,738 (1) The adjustments represent the amortization of intangible assets related to acquired assets and companies. (2) The adjustments represent stock-based compensation expense related to awards of stock options, restricted stock units, or common stock in exchange for services. Although we expect to continue to award stock in exchange for services, the amount of stock-based compensation is excluded as it is subject to change as a result of one-time or non-recurring projects. (3) For the three months ended September 30, 2023, this adjustment gives effect to a gain recorded on the change in fair value of our interest rate swap of $165,000, partially offset by one-time corporate projects, including acquisition and/or integration related expenses incurred during the period of $59,000. For the nine months ended September 30, 2023, this adjustment gives effect to one-time corporate projects, including acquisition and/or integration related expenses incurred during the period of $430,000 and a $370,000 payment related to early extinguishment of our Seller Note and $45,000 of one-time, non-recurring expenses, partially offset by a gain recorded on the change in fair value of our interest rate swap of $379,000. For the nine months ended September 30, 2022, this adjustment gives effect to one-time corporate projects, including acquisition and/or integration related expenses incurred during the period of $90,000 and a one-time executive recruiting fee of $90,000. (4) This adjustment gives effect to the tax impact of all non-GAAP adjustments at the current Federal tax rate of 21%. 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. 29 Table of Contents Market factors like the current military conflicts in Ukraine and Israel, instability in global energy markets, global inflation and the increase of interest rates have contributed to significant global economic uncertainty, disrupted global trade and supply chains, adversely impacted many industries, and contributed to significant volatility in financial markets. Overall, despite many uncertainties in the market regarding the economic outlook, the demand for our platforms and services continues to be stable in a majority of the markets we serve. The success of our Communications offering has been led by our ACCESSWIRE branded newswire, which is now complemented by the Newswire business, and we believe we will continue to see stable to increased demand for our combined newswire business throughout 2023 and beyond. We believe 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 the remainder of the year into 2024: ● Expanding our Communications products and adapting to this changing industry, ● Evaluating and completing acquisitions in areas of strategic focus, ● Expanding our Communications sales and marketing teams and digital marketing strategy, ● Expanding customer base, ● Expanding our newswire distribution, ● Investing in technology advancements and upgrades, ● Generating profitable sustainable growth ● Generating cash flows from operations. We believe there is demand for our products around the world, led by our ACCESSWIRE and Newswire brands, as companies seek to find better platforms and tools to disseminate and communicate their messages in a more efficient and collaborative way. 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 are 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 as we move forward. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.