What changed in this filing

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Item 1. Financial Statements

2024-05-09 compared with 2023-11-09 · 92 added, 234 removed, 278 unchanged (54% of the section changed)

FINANCIAL STATEMENTS

I SSUER DIRECT CORPORATION AND SUBSIDIARIES

ISSUER DIRECT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

September 30,

Current assets:

Cash and cash equivalents

Accounts receivable (net of allowance for doubtful accounts of $ 1,018 and $ 745 , respectively)

Accounts receivable (net of allowance for credit losses of $ 1,144 and $ 1,119 , respectively)

Income tax receivable

10 unchanged sentences

Accrued expenses

Income taxes payable

Current portion of long-term debt

4 unchanged sentences

Lease liabilities – long-term

Other long-term liabilities

Total liabilities

1 unchanged sentence

Stockholders' equity:

Preferred stock, $ 0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.

Common stock $ 0.001 par value, 20,000,000 shares authorized, 3,811,649 and 3,791,020 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.

Preferred stock, $ 0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.

Common stock $ 0.001 par value, 20,000,000 shares authorized, 3,817,379 and 3,815,212 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

Additional paid-in capital

8 unchanged sentences

For the Three Months Ended

For the Nine Months Ended

September 30,

Cost of revenues

1 unchanged sentence

General and administrative

Sales and marketing expenses

Sales and marketing

Product development

1 unchanged sentence

Total operating costs and expenses

Operating income

Interest (expense) income, net

Other income, net

Income before taxes

Income tax expense

Income per share – basic

Income per share – fully diluted

Operating (loss) income

Interest expense, net

Other income (expense)

Loss before taxes

Income tax expense (benefit)

Loss per share – basic

Loss per share – fully diluted

Weighted average number of common shares outstanding – basic

2 unchanged sentences

ISSUER DIRECT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

For the Three Months Ended

For the Nine Months Ended

September 30,

Foreign currency translation adjustment

Comprehensive income

Comprehensive loss

The accompanying notes are an integral part of these unaudited financial statements.

ISSUER DIRECT CORPORATION AND SUBSIDIARIES

C ONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share and per share amounts)

Additional Paid-in

Accumulated Other Comprehensive

Total Stockholders’

Income (Loss)

Balance at December 31, 2022

Stock-based compensation expense

Exercise of stock awards, net of tax

Stock repurchase and retirement

Foreign currency translation

Balance at March 31, 2023

Stock-based compensation expense

Exercise of stock awards, net of tax

Stock repurchase and retirement

Foreign currency translation

Balance at June 30, 2022

Stock-based compensation expense

Exercise of stock awards, net of tax

Stock repurchase and retirement

Foreign currency translation

Balance at September 30, 2022

Balance at December 31, 2023

Stock-based compensation expense

Foreign currency translation

Balance at March 31, 2023

Stock-based compensation expense

Exercise of stock awards, net of tax

Foreign currency translation

Balance at June 30, 2023

Stock-based compensation expense

Exercise of stock awards, net of tax

Foreign currency translation

Balance at September 30, 2023

Balance at March 31, 2024

The accompanying notes are an integral part of these unaudited financial statements.

ISSUER DIRECT CORPORATION AND SUBSIDIARIES

C ONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the Nine Months Ended

September 30,

For the Three Months Ended

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Bad debt expense

Provision for credit losses

Deferred income taxes

Change in fair value of interest rate swaps

Stock-based compensation expense

Measurement period adjustments

Amortization of debt issuance costs

Non-cash interest expense

Changes in operating assets and liabilities:

2 unchanged sentences

Increase (decrease) in accounts payable

Increase (decrease) in accrued expenses

Increase (decrease) in accrued expenses and other liabilities

Increase (decrease) in deferred revenue

1 unchanged sentence

Cash flows from investing activities:

Capitalized software

Purchase of fixed assets

Purchase of acquired business, net of cash received

Net cash provided by (used in) investing activities

Purchase of fixed assets

Capitalized software

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Exercise of stock options

Payment for stock repurchase and retirement

Payment of note payable

Payment of long-term debt

Proceeds from issuance of term loan

Payment for capitalized debt issuance costs

Payments for capitalized debt issuance costs

Net cash used in financing activities

4 unchanged sentences

Supplemental disclosures:

Cash paid for income taxes

Cash paid for interest

1 unchanged sentence

ISSUER DIRECT CORPORATION AND SUBSIDIARIES

N OTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation

The unaudited interim consolidated balance sheet as of September 30, 2023 and consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for the three and nine-month periods ended September 30, 2023 and 2022 included herein, have been prepared in accordance with the instructions for Form 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Article 10 of Regulation S-X under the Exchange Act.

The unaudited interim consolidated balance sheet as of March 31, 2024 and consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the three-month periods ended March 31, 2024 and 2023 included herein, have been prepared in accordance with the instructions for Form 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Article 10 of Regulation S-X under the Exchange Act.

In the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the financial statements.

1 unchanged sentence

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.

The interim financial information should be read in conjunction with the 2022 audited financial statements of Issuer Direct Corporation (the “Company”, “We”, or “Our”) filed on Form 10-K.

The interim financial information should be read in conjunction with the 2023 audited financial statements of Issuer Direct Corporation (the “Company”, “We”, or “Our”) filed on Form 10-K for the year ended December 31, 2023.

Summary of Significant Accounting Policies

4 unchanged sentences

Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period.

Shares issuable upon the exercise of stock options totaling 72,750 were excluded in the computation of diluted earnings per common share during the three and nine-month periods ended September 30, 2023, because their impact was anti-dilutive.

There were 50,250 shares issuable upon the exercise of stock options excluded in the computation of diluted earnings per common share during the three and nine-month periods ended September 30, 2022, because their impact was anti-dilutive.

Shares issuable upon the exercise of stock options totaling 65,750 were excluded in the computation of diluted earnings per common share during the three-month period ended March 31, 2024 because their impact was anti-dilutive.

There were 74,250 shares issuable upon the exercise of stock options excluded in the computation of diluted earnings per common share during the three-month period ended March 31, 2023 because their impact was anti-dilutive.

Revenue Recognition

28 unchanged sentences

Deferred revenue for the periods presented was primarily related to press release packages which have been prepaid, however the releases have not yet been disseminated, as well as, subscription and service contracts, which are billed upfront, quarterly, or annually, however the revenue has not yet been recognized.

The associated deferred revenue is generally recognized as releases are disseminated for press release packages and ratably over the billing period for subscriptions.

Deferred revenue as of September 30, 2023 and December 31, 2022, was $ 5,164,000 and $ 5,405,000 , respectively, and is expected to be recognized within one year.

Revenue recognized for the nine months ended September 30, 2023 and 2022, which was included in the deferred revenue balance at the beginning of each reporting period, was approximately $ 3,659,000 and $ 2,763,000 , respectively.

Accounts receivable, net of allowance for doubtful accounts, related to contracts with customers was $ 4,271,000 and $ 2,978,000 as of September 30, 2023 and December 31, 2022, respectively.

The associated deferred revenue is generally recognized as press releases are disseminated for press release packages and ratably over the billing period for subscriptions.

Deferred revenue as of March 31, 2024 and December 31, 2023, was $ 5,584,000 and $ 5,412,000 , respectively, and is expected to be recognized within one year.

Revenue recognized for the three months ended March 31, 2024 and 2023, which was included in the deferred revenue balance at the beginning of each reporting period, was approximately $ 2,793,000 and $ 2,557,000 , respectively.

Accounts receivable, net of allowance for credit losses, related to contracts with customers was $ 4,201,000 and $ 4,368,000 as of March 31, 2024 and December 31, 2023, respectively.

Since substantially all the contracts have terms of one year or less, the Company has elected to use the practical expedient regarding the existence of a significant financing.

Costs to obtain contracts with customers consist primarily of sales commissions.

As of September 30, 2023 and December 31, 2022, the Company has capitalized $ 179,000 and $ 105,000 , respectively, of costs to obtain contracts that are expected to be amortized over more than one year.

As of March 31, 2024 and December 31, 2023, the Company has capitalized $ 142,000 and $ 130,000 , respectively, of costs to obtain contracts that are expected to be amortized over more than one year.

For contract costs expected to be amortized in less than one year, the Company has elected to use the practical expedient allowing the recognition of incremental costs of obtaining a contract as an expense when incurred.

2 unchanged sentences

For purposes of the Company’s financial statements, the Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

The Company 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 allowance for doubtful accounts 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.

Accounts Receivable and Allowance for Credit Losses

The Company adopted Financial Accounting Standards Board 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 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 balance 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 roll forward of the allowance for doubtful accounts for the three and nine-months ended September 30, 2023, was as follows:

Three months ended September 30, 2023

Nine months ended September 30, 2023

The roll forward of the allowance for credit losses for the three-months ended March 31, 2024 and 2023 was as follows:

Beginning balance

Bad debt expense

Provision for credit losses

Ending balance

4 unchanged sentences

To reduce its risk associated with the failure of such financial institutions, each quarter the Company evaluates the rating of each financial institution in which it holds deposits.

As of September 30, 2023, the total amount exceeding such limit was $ 982,000 .

The Company also had cash-on-hand of $ 69,000 in Europe and $ 1,571,000 in Canada as of September 30, 2023.

As of March 31, 2024, the total amount exceeding such limit was $ 62,000 .

The Company also had cash-on-hand of $ 62,000 in Europe and $ 1,095,000 in Canada as of March 31, 2024.

The Company believes it did not have any financial instruments that could have potentially subjected us to significant concentrations of credit risk for any relevant period.

11 unchanged sentences

Costs related to design or maintenance of the software are expensed as incurred.

Capitalized costs and amortization for the three and nine-month periods ended September 30, 2023 and 2022, are as follows (in thousands):

For the Three Months Ended

For the Nine Months Ended

September 30,

Amortization for the three-month periods ended March 31, 2024 and 2023, is as follows (in thousands):

Capitalized software development costs

11 unchanged sentences

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.

As most 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.

1 unchanged sentence

Fair Value Measurements

Accounting Standards Codification (“ASC”) Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Assets and liabilities recorded at fair value in the financial statements are categorized based upon the hierarchy of levels of judgment associated with the inputs used to measure their fair value.

9 unchanged sentences

Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

As of September 30, 2023 and December 31, 2022, the Company believes the fair value of its financial instruments, such as, accounts receivable, long-term debt, the line of credit, and accounts payable approximate their carrying amounts.

As of March 31, 2024 and December 31, 2023, the Company believes the fair value of its financial instruments, such as, accounts receivable, long-term debt, interest rate swap, the line of credit, and accounts payable approximate their carrying amounts.

Translation of Foreign Financial Statements

9 unchanged sentences

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 3), the Company determined the trademarks acquired were considered a definite lived asset which will be amortized over a period of 15 years.

For the Newswire acquisition 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.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income related to changes in the cumulative foreign currency translation adjustment.

Comprehensive Loss

Comprehensive loss consists of net loss and other comprehensive income related to changes in the cumulative foreign currency translation adjustment.

The Company expenses advertising as incurred.

During the three and nine-month periods ended September 30, 2023, advertising expense was $ 409,000 and $ 1,235,000 , respectively.

During the three and nine-month periods ended September 30, 2022, advertising expense was $ 95,000 and $ 304,000 , respectively.

Most of the increase is due to additional advertising expense resulting from Newswire, which was acquired in November 2022.

During the three-month periods ended March 31, 2024 and 2023, advertising expense was $ 439,000 and $ 462,000 , respectively.

Stock-based Compensation

1 unchanged sentence

The associated cost is recognized over the period during which an employee or director is required to provide service in exchange for the award.

Newly Adopted Accounting Pronouncements

Topic 326 was effective for the Company beginning on January 1, 2023.

This update requires a financial asset (or group of financial assets) measured at amortized cost basis, to be presented at the net amount expected to be collected.

This allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value of the amount expected to be collected on the financial asset.

The Company has evaluated the impact of Topic 326 and has determined it does not have a material financial impact.

Acquisition of iNewswire LLC

On November 1, 2022, the Company entered into a Membership Interest Purchase Agreement with Lead Capital, LLC, a Delaware limited liability company (“Seller”), whereby the Company purchased all the issued and outstanding membership interests of iNewswire.com LLC, a Delaware limited liability company (“Newswire”).

Newswire is a leading media and marketing communications technology company that provides press release distribution, media databases, media monitoring, and newsrooms through its PRO offering, formally Media Advantage Platform.

In connection with the transaction (the “Acquisition”), the Company paid to the Seller aggregate consideration of $ 43.5 million, consisting of the following:

(i) a cash payment of $ 18.0 million subject to a 60-day escrow to secure the payment of any working capital adjustments or any employee bonus obligations of Newswire, (ii) the issuance of a secured promissory note in the principal amount of $ 22.0 million (the “Secured Note”), and (iii) the issuance of 180,181 shares of the Company’s common stock, par value $ 0.001 , valued at $ 3.9 million based on the Company’s closing stock price of $ 21.60 on the Closing Date.

During the three months ended March 31, 2023, the Seller paid a $ 350,000 net working capital adjustment to the Company.

The Secured Note was due and payable on November 8, 2023, with an annual interest rate of 6 %.

The Secured Note allowed for prepayment, however, the 6% interest payment was guaranteed through the Maturity Date even if prepayments were made.

On March 20, 2023, the Company paid $ 370,000 to pay the Secured Note in full, 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 for the nine month-period ended September 30, 2023.

As a result, there is no longer any obligation to the Seller as of September 30, 2023.

The Company has determined that the acquisition of Newswire constitutes a business acquisition as defined by ASC 805, Business Combinations .

Accordingly, the assets acquired, and the liabilities assumed in the transaction were recorded at their acquisition date estimated fair value, while the transaction costs associated with the acquisition, which totaled $ 178,000 , were expensed as incurred pursuant to the purchase method of accounting in accordance with ASC 805.

The Company’s preliminary purchase price allocation was based on an evaluation of the appropriate fair values and represents management’s best estimate based on available data.

Any changes within the measurement period resulting from facts and circumstances that existed as of the acquisition date may result in retrospective adjustments to the provisional amounts recorded at the acquisition date.

The Company employed a third-party valuation firm to assist in determining the purchase price allocation of assets and liabilities acquired from Newswire.

The income approach was used to determine the value of trademarks/tradename and client relationships.

The income approach determines the fair value for the asset based on the present value of cash flows projected to be generated by the asset.

Projected cash flows are discounted at a rate of return that reflects the relative risk of achieving the cash flow and the time value of money.

Projected cash flows for each asset considered multiple factors, including current revenue from existing customers;

analysis of expected revenue and attrition trends;

reasonable contract renewal assumptions from the perspective of a marketplace participant;

expected profit margins giving consideration to marketplace synergies;

and required returns to contributory assets.

The relief from royalty method was used to value the technology.

This approach applies an industry-based royalty rate to future projected cashflows to express the fair value as the expected after-tax royalty savings of the asset.

Fair values are determined based on the requirements of ASC 820, Fair Measurements and Disclosure .

During the three-month period ended September 30, 2023, the Company obtained the necessary information to determine contract assets and deferred revenue acquired and as such, completed its allocation of the fair value of the assets and liabilities acquired.

The measurement period adjustments below did not have a material impact to the Company’s Consolidated statement of operations from November 1, 2022, to September 30, 2023.

A summary of the fair value consideration transferred for the Acquisition and the allocation to the fair value of the assets and liabilities of Newswire are as follows (in 000's):

Consideration transferred:

Secured promissory note

Shares of Issuer Direct common stock based on closing market price prior to the Acquisition

Net working capital adjustment and other costs paid on behalf of Seller, net of cash

Total consideration transferred

As Originally Reported

Measurement Period Adjustment

Final allocation of tangible and intangible assets and liabilities:

Trademarks/Tradenames

Customer relationships

Net liabilities assumed

Total amount allocated

Net liabilities assumed:

Accounts Receivable

Other Current Assets

Accounts Payable

Accrued Expenses

Deferred Revenue

Deferred tax liability

Supplemental pro forma information

The following unaudited supplemental pro forma information summarizes the Company’s results of operations for the current reporting period, as if the Company completed the acquisition as of the beginning of the annual reporting period.

Supplemental pro forma information is as follows:

in $000’s, except per share amounts

Three months ended September 30, 2022

Nine months ended September 30, 2022

Basic earnings per share

Diluted earnings per share

The unaudited pro forma combined financial information is presented for information purposes only and is not intended to represent or be indicative of the combined results of operations or financial position that we would have reported had the acquisition been completed as of the date and for the periods presented and should not be taken as representative of our consolidated results of operations or financial condition following the acquisition.

In addition, the unaudited pro forma combined financial information is not intended to project the future financial position or results of operations of the combined company.

The unaudited pro forma financial information was prepared using the acquisition method of accounting for the acquisition under existing US GAAP.

Issuer Direct has been treated as the acquirer.

The Company did not pay any dividends during the three and nine-month periods ended September 30, 2023 and 2022.

The Company did not pay any dividends during the three-month periods ended March 31, 2024 and 2023.

Preferred stock and common stock

There were no issuances of preferred stock or common stock during the three and nine-month periods ended September 30, 2023 and 2022, other than stock awarded to employees and the Board of Directors.

Stock repurchase and retirement

On March 1, 2022, the Company’s board of directors authorized a stock repurchase program under which the Company was authorized to repurchase up to $ 5,000,000 of its common shares.

As of August 31, 2022, the Company completed the repurchase program by purchasing a total of 207,964 shares as shown in the table below ($ in 000’s, except share or per share amounts):

Shares Repurchased

Total Number of Shares Repurchased

Average Price Paid Per Share

Total Number of Shares Purchased as Part of Publicly Announced Program

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program

March 1-31, 2022

April 1-30, 2022

May 1-31, 2022

June 1-30, 2022

July 1-31, 2022

August 1-31, 2022

No shares repurchased between September 2022 and September 2023

2014 Equity Incentive Plan

There were no issuances of preferred stock or common stock during the three-month periods ended March 31, 2024 and 2023, other than stock awarded to employees and the Board of Directors.

2014 and 2023 Equity Incentive Plan

On May 23, 2014, the shareholders of the Company approved the 2014 Equity Incentive Plan, as amended (the “2014 Plan”).

3 unchanged sentences

The 2014 Plan is effective through March 31, 2024.

As of September 30, 2023, there were 45,995 shares which remained to be granted under the 2014 Plan.

As of March 31, 2024, there are 90,076 shares which remain to be granted under the 2014 Plan.

These shares were assumed by the 2023 Plan described below.

3 unchanged sentences

The 2023 Plan is effective through April 1, 2033.

As of September 30, 2023, there are 331,663 shares which remain to be granted under the 2023 Plan, including 45,995 shares assumed under the 2014 Plan described above.

The following table summarizes information about stock options outstanding and exercisable at September 30, 2023:

As of March 31, 2024, there are 349,244 shares which remain to be granted under the 2023 Plan, including 90,076 shares assumed under the 2014 Plan described above.

The following table summarizes information about stock options outstanding and exercisable at March 31, 2024:

Options Outstanding

9 unchanged sentences

27.01 - 27.71

As of September 30, 2023, the Company had unrecognized stock compensation related to the options of $ 619,000 , which will be recognized through 2027.

During the nine-months ended September 30, 2023, the Company granted 74,832 shares of restricted stock units to employees and the Board of Directors, which vest at various intervals over the next 3 years.

No restricted stock units were granted during the three months ended September 30, 2023.

The average grant date fair value of these grants was $ 26.08 per share during the nine-month period ended September 30, 2023.

During the nine months ended September 30, 2022, the Company granted 32,240 restricted stock units, with an average grant date fair value of $ 26.35 per share.

No restricted stock units were granted during the three months ended September 30, 2022.

During the nine-month period ended September 30, 2023, 18,129 restricted stock units with an average intrinsic value of $ 25.85 per share, vested.

No restricted stock units vested during the three-month period ended September 30, 2023.

As of September 30, 2023, there was $ 1,821,000 of unrecognized compensation cost related to our unvested restricted stock units, which will be recognized through 2026.

The Company recognized an income tax expense of $ 187,000 and $ 621,000 for the three and nine-month periods ended September 30, 2023, compared to income tax expense of $ 180,000 and $ 681,000 during the same periods of 2022.

As of March 31, 2024, the Company had unrecognized stock compensation related to the options of $ 331,000 , which will be recognized through 2027.

During the three months ended March 31, 2024, the Company granted 26,500 restricted stock units to employees, which vest at various intervals over the next 3 years.

The average grant date fair value of these grants was $ 14.86 per share.

During the three months ended March 31, 2023, the Company granted 60,500 restricted stock units to employees, which vest at various intervals over the next three years.

The average grant date fair value of these grants was $ 27.82 per share.

During the three months ended March 31, 2024, 2,167 restricted stock units with an average intrinsic value of $ 28.24 , vested.

As of March 31, 2024, there was $ 1,326,000 of unrecognized compensation cost related to our unvested restricted stock units, which will be recognized through 2026.

The Company recognized income tax expense of $ 16,000 for the three-month period ended March 31, 2024, compared to an income tax benefit of $ 48,000 during the same period of 2023.

At the end of each interim period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year and this rate is applied to the results for the year-to-date period, and then adjusted for any discrete period items.

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.

For the three-month periods ended March 31, 2024 and 2023, the variance between the Company’s effective tax rate and the U.S.

statutory rate of 21 % is primarily attributable to state income tax.

For the three months ended March 31, 2024, the effective tax rate was also impacted by additional expense associated with vesting of stock-based compensation.

Leasing activity generally consists of office leases.

1 unchanged sentence

The new lease, which had a lease commencement date of October 2, 2019, expires December 31, 2027 .

Minimum lease payments are $ 2,997,000 , not including a tenant improvement allowance of $ 488,000 , which is included in fixed assets as of September 30, 2023.

Minimum lease payments are $ 2,997,000 , not including a tenant improvement allowance of $ 488,000 , which is included in fixed assets as of March 31, 2024.

The Company recognized a ROU asset and corresponding lease liability of $ 2,596,000 , which represents the present value of minimum lease payments discounted at 3.77 %, the Company’s incremental borrowing rate at lease inception.

Lease liabilities totaled $ 1,469 ,000 as of September 30, 2023.

Lease liabilities totaled $ 1,306 ,000 as of March 31, 2024.

The current portion of this liability of $ 379,000 is included in Accrued expenses on the Consolidated balance sheets and the long-term portion of $ 927 , 000 is included in Lease liabilities on the Consolidated balance sheets.

2 unchanged sentences

The components of lease expense were as follows (in 000’s):

For the Three Months Ended

For the Nine Months Ended

September 30,

Three months ended

Lease expense

1 unchanged sentence

Variable lease expense

Total lease expense

The weighted-average remaining non-cancelable lease term for our operating leases was 4.25 years as of September 30, 2023.

As of September 30, 2023, the weighted-average discount rate used to determine the lease liability was 3.77%.

The future minimum lease payments to be made under non-cancelable operating leases on September 30, 2023, are as follows (in 000’s):

The weighted-average remaining non-cancelable lease term for our operating leases was 3.75 years as of March 31, 2024.

As of March 31, 2024, the weighted-average discount rate used to determine the lease liability was 3.77 %.

The future minimum lease payments to be made under non-cancelable operating leases on March 31, 2024, are as follows (in 000’s):

Year Ended December 31:

5 unchanged sentences

The following tables present revenue disaggregated by revenue stream in (000’s):

Three months ended September 30,

Revenue Streams

Communications

Nine months ended September 30,

Three months ended March 31,

Revenue Streams

Communications

The Company did not have any customers during the three and nine-month periods ended September 30, 2023 or 2022 that accounted for more than 10 % of our revenue.

The Company did not have any customers during the three-month periods ended March 31, 2024 or 2023 that accounted for more than 10 % of our revenue.

Credit Agreement

1 unchanged sentence

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) .

(i) term loan facility in an aggregate principal amount of $20 million (the “Term Loan”), and (ii) revolving line 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 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 began making monthly interest only payments on the Term Loan beginning on April 1, 2023.

On January 1, 2024, the Company began making monthly principal payments of $ 333,333 plus interest payments on the Term Loan until the maturity date of December 20, 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 “Seller Note”) issued to Lead Capital, LLC (“the Seller”) in connection with the Company’s November 1, 2022 acquisition of iNewswire.com LLC (“Newswire”) for a lump sum payment of $ 22,880,000 .

In order to settle the Seller Note on March 20, 2023, the Company paid $ 370,000 to 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 on the Consolidated statements of operations.

The Company currently has no plans to utilize the Revolving LOC but may do so in the future.

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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 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 during the three month-period ended September 30, 2023.

The Company terminated its existing $ 3,000,000 unsecured line of credit with Fifth Third Bank immediately prior to the Closing Date.

As of March 31, 2024, 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 commenced with fiscal quarter ending 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 or 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.

The Credit Agreement also contains customary affirmative covenants for a transaction of this nature, including among other things, covenants relating to:

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Under the swap agreement, the Company pays a fixed rate of interest at 6.217% and receives an average variable rate of SOFR + 2.35% adjusted monthly .

At September 30, 2023, the weighted average rate was 7.67 %.

As of March 31, 2024, the variable rate was 7.67 %

The carrying amount for the Company’s derivative financial instrument is the estimated fair value of the financial instrument.

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In accounting for the interest rate swap, the Company has determined it does not qualify for hedge accounting.

The fair value of the swap agreement as of September 30, 2023 was a net asset of $ 379,000 and is included in Other long-term assets, in the Consolidated balance sheets.

The fair value of the interest rate swap agreement excludes accrued interest and takes into consideration current interest rates and current likelihood of the swap counterparty’s compliance with its contractual obligations.

As a result of the interest rate swap, we have also recognized a net unrealized gain of $ 165,000 and $ 379,000 , which is included in Other income, net in the Consolidated statements of operations during the three and nine-month periods ended September 30, 2023, respectively.

The fair value of the swap agreement as of March 31, 2024 and December 31, 2023 was a net asset of $ 184,000 and net liability of $ 21,000 , respectively, and is included in Other long-term assets and Other long-term liabilities, in the Consolidated Balance Sheets.

The fair value of the swap agreement excludes accrued interest and takes into consideration current interest rates and current likelihood of the swap counterparty’s compliance with its contractual obligations.

During the three months ended March 31, 2024 and 2023, we recognized a gain of $ 205,000 and loss of $ 165,000 , respectively, in Other income (expense) in the Consolidated statements of operations, as a result of the interest rate swap.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements