ACCESS Newswire Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Except for the historical information contained herein, the matters discussed in this Form 10-K include certain forward-looking statements that involve risks and uncertainties, which are intended to be covered by safe harbors. Those statements include, but are not limited to, all statements regarding our and management’s intent, belief and expectations, such as statements concerning our future and our operating and growth strategy. We generally use words such as "believe," "may," "could," "will," "intend," "expect," "anticipate," "plan," and similar expressions to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons including our ability to implement our business plan, our ability to raise additional funds and manage consumer acceptance of our products, our ability to broaden our customer base, our ability to maintain a satisfactory relationship with our suppliers and other risks described in our reports filed with the Securities and Exchange Commission, including Item 1A of this Report on Form 10-K. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made, and our future results, levels of activity, performance or achievements may not meet these expectations. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, the factors set forth under the Risk Factors section of this report. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. All forward-looking statements made in this Form 10-K are based on information presently available to our management. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results or to changes in our expectations, except as required by law. Results of Operations The following table presents certain amounts included in our consolidated statements of income, the relative percentage that those amounts represent to revenue, and the change in those amounts from fiscal year 2023 compared to 2022. This information should be read together with the consolidated financial statements and accompanying notes. The financial results presented below for 2023 have been affected by the acquisition of Newswire in November 2022: Comparison of results of operations for the years ended December 31, 2023 and 2022 (in 000’s): Percentage of Revenue (1) 2023 2022 2023 2022 Revenue: Communications revenue $ 24,224 $ 16,115 73 % 69 % Compliance revenue 9,154 7,399 27 % 31 % Total revenue 33,378 23,514 100 % 100 % Cost of revenue: Communications cost of revenue 5,801 3,735 24 % 23 % Compliance cost of revenue 2,128 1,949 23 % 26 % Total cost of revenue 7,929 5,684 24 % 24 % Gross Margin: Communications gross margin 18,423 12,380 76 % 77 % Compliance gross margin 7,026 5,450 77 % 74 % Total gross margin 25,449 17,830 76 % 76 % Operating Expenses: General and administrative 8,935 6,963 27 % 30 % Sales and marketing 8,251 5,922 25 % 25 % Product development 2,551 1,306 8 % 6 % Depreciation and amortization 2,896 970 9 % 4 % Total operating expenses 22,633 15,161 68 % 64 % Operating income 2,816 2,669 8 % 11 % Interest expense, net (1,116 ) (11 ) (3 )% 0 % Other expense (391 ) — (1 )% 0 % Income before income taxes 1,309 2,658 4 % 11 % Income tax provision 543 724 2 % 3 % Net income $ 766 $ 1,934 2 % 8 % (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. 26 Table of Contents Revenues Total revenue increased by $9,864,000, or 42%, to $33,378,000 during the year ended December 31, 2023, as compared to $23,514,000 in 2022. The increase is primarily related to revenue attributed to the acquisition of Newswire on November 1, 2022 and an increase in Compliance revenue. Communications revenue increased $8,109,000, or 50%, to $24,224,000 for the year ended December 31, 2023, as compared to $16,115,000 during 2022. The increase is primarily related to additional revenue from our acquisition of Newswire as noted above, which is all included in Communications revenue. Revenue from our ACCESSWIRE newswire brand increased 10% from 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, conferences and annual meetings. Communications revenue represented 73% of total revenue during the year compared to 69% in the prior year. Compliance revenue increased $1,755,000, or 24%, to $9,154,000 for the year ended December 31, 2023, as compared to $7,399,000 during 2022. The increase is primarily related to an increase in revenue from our print and proxy fulfillment services due to a few significant transactions which occurred during 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 year. Deferred Revenue As of December 31, 2023, our deferred revenue balance was $5,412,000, 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 products as well as advance billings for subscriptions of our cloud-based products and annual service contracts. Cost of Revenues Communications cost of revenues consists primarily of direct labor costs, newswire distribution costs, teleconferencing costs and third-party licensing costs. Compliance cost of revenues consists primarily of direct labor costs, warehousing, logistics, print production materials, postage, and amortization of capitalized software costs related to our disclosure software. Cost of revenues increased by $2,245,000, or 39%, during the year ended December 31, 2023, as compared to the same period of 2022. Overall gross margin increased $7,619,000, or 43%, during the year ended December 31, 2023, compared to 2022. The increase in cost of revenues and gross margin were primarily the result of the acquisition of Newswire in November 2022. Overall gross margin percentage remained flat at 76% during the year ended December 31, 2023, as compared to the prior year. Cost of revenues associated with Communications revenues increased $2,066,000, or 55%, as compared to the prior year primarily due to an increase in costs associated with operating the Newswire business 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 revenues was 76% for the year ended December 31, 2023, compared to 77% for 2022. Cost of revenues associated with our Compliance revenues increased $179,000, or 9%, as compared to the prior year. The increase in Compliance cost of revenues is primarily the result of an increase in print and postage costs associated with the increase in revenues from print and proxy fulfillment services. Gross margin percentage from our Compliance business was 77% for the year ended December 31, 2023, compared to 74% for 2022. 27 Table of Contents General and Administrative Expenses General and administrative expenses consist primarily of salaries, stock-based compensation, insurance, fees for professional services, general corporate expenses (including bad debt expense) and facility and equipment expenses. General and administrative expenses were $8,935,000 for the year ended December 31, 2023, an increase of $1,972,000 or 28%, as compared to the prior year. The increase is primarily driven by additional expenses associated with costs to operate Newswire, employee-related costs, stock compensation expense, one-time transaction costs and bad debt expense, partially offset by a reduction in executive recruiting fees. As a percentage of revenue, General and administrative expenses were 27% for the year ended December 31, 2023, as compared to 30% for 2022. Sales and Marketing Expenses Sales and marketing expenses consist primarily of salaries, stock-based compensation, sales commissions, advertising expenses and other marketing expenses. Sales and marketing expenses were $8,251,000 for the year ended December 31, 2022, an increase of $2,329,000, or 39%, as compared to $5,922,000 in the prior year. This increase is primarily due to incremental costs associated with operating the Newswire business. As a percentage of revenue, sales and marketing expenses were 25% for both the year ended December 31, 2023 and 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 tour platform . Product development expenses increased $1,245,000, or 95%, to $2,551,000 during the year ended December 31, 2023, as compared to $1,306,000 in 2022. This increase is directly attributed to incremental costs associated with operating the Newswire business as well as hiring our new Chief Technology Officer. During the year ended December 31, 2023, we capitalized $478,000 of costs related to the development of our new artificial intelligence and media database products. No costs were capitalized during the year ended December 31, 2022. As a percentage of revenue, product development expenses increased to 8% for the year ended December 31, 2023, as compared to 6% for 2022. Depreciation and Amortization Expenses During the year ended December 31, 2023, depreciation and amortization expenses increased by $1,926,000 or 199%, to $2,896,000, as compared to $970,000 during 2022. The increase is due to additional amortization of intangible assets related to the Newswire acquisition. Interest Expense, net We recognized interest expense of $1,284,000 during the year ended December 31, 2023, related to our new, long-term credit agreement, interest rate swap agreement, as well as our settled $22,000,000 note payable associated with the acquisition of Newswire “Seller Note”. Interest expense, net was partially offset by interest income of $168,000 for the year ended December 31, 2023, from deposit and money market accounts. Interest expense, net for the year ended December 31, 2022, represents accrued interest associated with the Seller note offset by interest income associated with deposit and money market accounts. 28 Table of Contents Other expense Other expense represents $370,000 paid to extinguish the Seller Note as well as a loss on the change in fair value of our interest rate swap agreement. There was no other expense during the year ended December 31, 2022. Income Taxes We recorded income tax expense of $543,000 during the year ended December 31, 2023, compared to $724,000 during the year ended December 31, 2022. The difference in our effective tax rate of 41.5% and the statutory rate of 21% is primarily attributable to state income taxes, the impact of stock-based compensation as well as additional tax expense associated with the purchase accounting related to the acquisition of Newswire. For the year ended December 31, 2022, the difference between our effective tax rate of 27% and the federal statutory rate of 21% was primarily attributable to state income taxes, foreign taxes and the impact of stock-based compensation. Liquidity and Capital Resources As of December 31, 2023, we had $5,714,000 in cash and cash equivalents and $4,368,000 in net accounts receivable. Current liabilities as of December 31, 2023, totaled $12,650,000 including the current portion of our long-term debt, accounts payable, deferred revenue, accrued payroll liabilities, income taxes payable, current portion of lease liabilities and other accrued expenses. As of December 31, 2023, our current liabilities exceeded our current assets by $1,146,000. 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: (i) term loan facility in an aggregate principal amount of $20 million (the “Term Loan”), and (ii) 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 “Secured 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 expense, net on the Consolidated statements of operations. 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 December 31, 2023, there was no outstanding balance under the Revolving LOC and the interest rate was 7.39%. 29 Table of Contents The Credit Agreement contains the following financial covenants, which commenced 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 after June 30, 2023 through 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 as of December 31, 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. 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. 30 Table of Contents 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 years ended December 31, 2023 and 2022, free cash flow and adjusted free cash flow were as follows: Year Ended December 31, 2023 2022 Net cash provided by operating activities (US GAAP) $ 3,060 $ 4,019 Payments for purchase of fixed assets and capitalized software (503 ) (66 ) Free cash flow (Non-GAAP) 2,557 3,953 Cash paid for acquisition and integration related items (1) 373 1,060 Cash paid for other unusual items (2) 395 109 Adjusted free cash flow (Non-GAAP) $ 3,325 $ 5,122 (1) For the year ended December 31, 2023, this adjustment gives effect to one-time corporate projects, including acquisition and/or integration related expenses, paid during the period. For the year ended December 31, 2022, this adjustment relates to payments for representation and warranty insurance of $500,000, payments of $325,000 related to Newswire opening balance sheet costs that were not recouped until Q1 2023 and payments for one-time corporate projects, including acquisition and integration expenses, of $235,000. (2) For the year ended December 31, 2023, this adjustment gives effect to a one-time payment of $370,000 related to the early payment of the Seller Note. For the year ended December 31, 2022, this adjustment relates to $49,000 of termination benefits and $60,000 paid for executive recruiting expenses during the period. 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. 31 Table of Contents A reconciliation of net income to adjusted EBITDA for the years ended December 31, 2023 and 2022 is presented in the following table (in 000’s): Year Ended December 31, 2023 2022 Amount Amount Net income: $ 766 $ 1,934 Adjustments: Depreciation and amortization 2,956 1,033 Interest expense, net 1,116 11 Income tax expense 543 724 EBITDA 5,381 3,702 Acquisition and/or integration costs (1) 546 263 Other non-recurring expenses (2) 436 139 Stock-based compensation expense (3) 1,365 763 Adjusted EBITDA: $ 7,728 $ 4,867 (1) This adjustment gives effect to one-time corporate projects, including acquisition and integration related expenses, incurred during the periods. (2) For the year ended December 31, 2023, this adjustment gives effect to a $370,000 payment related to the early extinguishment of our Seller Note, one-time non-recurring expenses of $45,000 and a loss on the change in fair value of our interest rate swap of $21,000. For the year ended December 31, 2022, this adjustment gives effect to a one-time executive recruiting fee of $90,000 and termination benefits of $49,000. (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. A reconciliation of net income to adjusted net income for the years ended December 31, 2023 and 2022 is presented in the following table (in 000’s): Year Ended December 31, 2023 2022 Amount Per diluted share Amount Per diluted share Net income: $ 766 $ 0.20 $ 1,934 $ 0.52 Adjustments: Amortization of intangible assets (1) 2,741 0.72 816 0.22 Stock-based compensation expense (2) 1,365 0.35 763 0.20 Other unusual items (3) 982 0.26 402 0.11 Tax impact of adjustments (4) (1,068 ) (0.28 ) (416 ) (0.11 ) Impact of discrete items impacting income tax expense (5) 103 0.03 49 0.01 Non-GAAP net income: $ 4,889 $ 1.28 $ 3,548 $ 0.95 Weighted average number of common shares outstanding – diluted 3,816 3,740 32 Table of Contents (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 year ended December 31, 2023, this adjustment gives effect to one-time corporate projects, including acquisition and/or integration related expenses incurred during the period of $546,000 and a $370,000 payment related to the early extinguishment of our Seller Note, $45,000 of one-time, non-recurring expenses as well as a loss on the change in fair value of our interest rate swap of $21,000. For the year ended December 31, 2022, this adjustment gives effect to one-time corporate projects, including acquisition and integration related expenses, incurred during the period of $263,000, one-time executive recruiting fee of $90,000 and termination benefits paid of $49,000. (4) This adjustment gives effect to the tax impact of all non-GAAP adjustments at the current Federal tax rate of 21%. (5) This adjustment eliminates discrete items impacting income tax expense. For the year ended December 31, 2022, the discrete items relate to a return to provision adjustment as well as additional tax expense resulting from stock-based compensation recorded in income tax for the period. Outlook The following 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. 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 2024 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 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. 33 Table of Contents 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. Critical Accounting Policies and Estimates The consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries. Significant intercompany accounts and transactions are eliminated in consolidation. Revenue Recognition Substantially all the Company’s revenue comes from contracts with customers for subscriptions to its cloud-based products or contracts for Communications and Compliance products and services. Customers consist of public corporate issuers and professional firms, such as investor and public relations firms. In the case of news distribution and webcasting offerings, 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 its entire platform, certain modules within the platform or to its Press Release Optimizer Plan (“PRO”), 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 our entire Communications platform, distributing press releases on a per release basis or conducting webcasts, virtual annual meetings, or other events on a per event basis. PRO subscription contracts contain two performance obligations of which the first is a series of distinct services that include, but are not limited to, developing specific media plans, and creating content to be distributed and the second performance obligation being access to the PRO platform along with distribution of press releases, ongoing support, and assessment of performance as a stand-ready obligation. Performance obligations of Compliance contracts include providing subscriptions to certain Compliance modules 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 the 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. 34 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. Accounts Receivable and Allowance for Credit Losses The Company adopted Financial Accounting Standards Codification (“ASC”) Topic 326, Financial Statements – Credit Losses (“Topic 326”) with an adoption date of January 1, 2023. As a result, the Company changed its accounting policy for its allowance for credit losses using an expected losses model rather than using incurred losses. The new model is based on the credit losses expected to arise over the life of the asset based on the Company’s expectations as of the balances sheet date through analyzing historical customer data as well as taking into consideration current economic trends. The Company adopted Topic 326 and determined it did not have a material financial impact. The Company generally writes-off accounts receivable against the allowance when it determines a balance is uncollectible and no longer actively pursues its collection. Income Taxes Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amounts expected to be realized. For any uncertain tax positions, the Company recognizes 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. The Company’s policy regarding the classification of interest and penalties is to classify them as income tax expense in the financial statements, if applicable. Capitalized Software Costs incurred to develop the Company’s cloud-based platform products are capitalized when the preliminary project phase is complete, management commits to fund the project and it is probable the project will be completed and used for its intended purposes. Once the software is substantially complete and ready for its intended use, the software is amortized over its estimated useful life, which is typically four years. Costs related to design or maintenance of the software are expensed as incurred. Impairment of Long-lived Assets In accordance with the authoritative guidance for accounting for long-lived assets, assets such as property and equipment, trademarks, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds fair value of the asset group. 35 Table of Contents Business Combinations, Goodwill, and Intangible Assets The authoritative guidance for business combinations specifies the criteria for recognizing and reporting intangible assets apart from goodwill. The Company records 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 may be considered an indefinite-lived asset and, as such, are not amortized as there may be no foreseeable limit to cash flows generated from them. For the Newswire acquisition (see Note 4), the Company determined the trademarks acquired were considered a definite lived asset which will be amortized over a period of 15 years. 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 (5-10 years), customer lists (3 years), distribution partner relationships (10 years), non-compete agreements (5 years) and software and technology (3-7 years) are amortized over their estimated useful lives. Lease Accounting The Company determines if an arrangement is a lease at inception. 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 sheet. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the 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. 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 the leases do not provide an implicit rate, the Company uses its 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 due and exclude lease incentives. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We do not believe that we face material market risk with respect to our cash or cash equivalents, which totaled $5,714,000 and $4,832,000 at December 31, 2023 and 2022, respectively. We did not hold any marketable securities as of December 31, 2023 or 2022.