ACCESS Newswire Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS ISSUER DIRECT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) March 31, December 31, 2024 2023 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 5,399 $ 5,714 Accounts receivable (net of allowance for credit losses of $ 1,144 and $ 1,119 , respectively) 4,201 4,368 Income tax receivable 213 232 Other current assets 1,286 1,190 Total current assets 11,099 11,504 Capitalized software (net of accumulated amortization of $ 3,471 and $ 3,424 , respectively) 755 556 Fixed assets (net of accumulated depreciation of $ 804 and $ 765 , respectively) 472 495 Right-of-use asset – leases 958 1,022 Other long-term assets 355 158 Goodwill 21,927 21,927 Intangible assets (net of accumulated amortization of $ 10,247 and $ 9,562 , respectively) 28,805 29,490 Total assets $ 64,371 $ 65,152 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,598 $ 1,308 Accrued expenses 2,033 1,930 Current portion of long-term debt 4,000 4,000 Deferred revenue 5,584 5,412 Total current liabilities 13,215 12,650 Long-term debt (net of debt discount of $ 83 and $ 87 , respectively) 14,917 15,913 Deferred income tax liability 132 139 Lease liabilities – long-term 927 1,009 Other long-term liabilities — 21 Total liabilities 29,191 29,732 Commitments and contingencies Stockholders' equity: Preferred stock, $ 0.001 par value, 1,000,000 shares authorized, no shares issued and outstanding as of March 31, 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 4 4 Additional paid-in capital 23,464 23,531 Other accumulated comprehensive loss ( 83 ) ( 49 ) Retained earnings 11,795 11,934 Total stockholders' equity 35,180 35,420 Total liabilities and stockholders’ equity $ 64,371 $ 65,152 The accompanying notes are an integral part of these unaudited financial statements. 3 Table of Contents ISSUER DIRECT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except share and per share amounts) For the Three Months Ended March 31, March 31, 2024 2023 Revenues $ 6,962 $ 8,619 Cost of revenues 1,721 1,829 Gross profit 5,241 6,790 Operating costs and expenses: General and administrative 1,819 2,332 Sales and marketing 2,096 2,381 Product development 654 774 Depreciation and amortization 724 722 Total operating costs and expenses 5,293 6,209 Operating (loss) income ( 52 ) 581 Interest expense, net ( 276 ) ( 238 ) Other income (expense) 205 ( 535 ) Loss before taxes ( 123 ) ( 192 ) Income tax expense (benefit) 16 ( 48 ) Net loss $ ( 139 ) $ ( 144 ) Loss per share – basic $ ( 0.04 ) $ ( 0.04 ) Loss per share – fully diluted $ ( 0.04 ) $ ( 0.04 ) Weighted average number of common shares outstanding – basic 3,816 3,791 Weighted average number of common shares outstanding – fully diluted 3,821 3,810 The accompanying notes are an integral part of these unaudited financial statements. 4 Table of Contents ISSUER DIRECT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED) (in thousands) For the Three Months Ended March 31, March 31, 2024 2023 Net loss $ ( 139 ) $ ( 144 ) Foreign currency translation adjustment ( 34 ) 1 Comprehensive loss $ ( 173 ) $ ( 143 ) The accompanying notes are an integral part of these unaudited financial statements. 5 Table of Contents ISSUER DIRECT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (in thousands, except share and per share amounts) Common Stock Additional Paid-in Accumulated Other Comprehensive Retained Total Stockholders’ Shares Amount Capital Loss Earnings Equity Balance at December 31, 2022 3,791,020 $ 4 $ 22,147 $ ( 96 ) $ 11,168 $ 33,223 Stock-based compensation expense — — 337 — — 337 Foreign currency translation — — — 1 — 1 Net loss — — — — ( 144 ) ( 144 ) Balance at March 31, 2023 3,791,020 $ 4 $ 22,484 $ ( 95 ) $ 11,024 $ 33,417 Balance at December 31, 2023 3,815,212 $ 4 $ 23,531 $ ( 49 ) $ 11,934 $ 35,420 Stock-based compensation expense — — ( 67 ) — — ( 67 ) Exercise of stock awards, net of tax 2,167 — — — — — Foreign currency translation — — — ( 34 ) — ( 34 ) Net loss — — — — ( 139 ) ( 139 ) Balance at March 31, 2024 3,817,379 $ 4 $ 23,464 $ ( 83 ) $ 11,795 $ 35,180 The accompanying notes are an integral part of these unaudited financial statements. 6 Table of Contents ISSUER DIRECT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) For the Three Months Ended March 31, March 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 139 ) $ ( 144 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 770 736 Provision for credit losses 282 151 Deferred income taxes ( 7 ) 26 Stock-based compensation expense ( 67 ) 337 Non-cash interest expense 4 — Changes in operating assets and liabilities: Decrease (increase) in accounts receivable ( 126 ) ( 719 ) Decrease (increase) in other assets ( 208 ) ( 250 ) Increase (decrease) in accounts payable 290 186 Increase (decrease) in accrued expenses and other liabilities — 187 Increase (decrease) in deferred revenue 187 ( 238 ) Net cash provided by operating activities 986 272 Cash flows from investing activities: Purchase of acquired business, net of cash received — 350 Purchase of fixed assets ( 16 ) ( 5 ) Capitalized software ( 245 ) — Net cash (used in) provided by investing activities ( 261 ) 345 Cash flows from financing activities: Payment of long-term debt ( 1,000 ) ( 22,000 ) Proceeds from issuance of term loan — 19,968 Payments for capitalized debt issuance costs — ( 68 ) Net cash used in financing activities ( 1,000 ) ( 2,100 ) Net change in cash and cash equivalents ( 275 ) ( 1,483 ) Cash and cash equivalents – beginning 5,714 4,832 Currency translation adjustment ( 40 ) — Cash and cash equivalents – ending $ 5,399 $ 3,349 Supplemental disclosures: Cash paid for interest $ 304 $ 510 The accompanying notes are an integral part of these unaudited financial statements. 7 Table of Contents ISSUER DIRECT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Basis of Presentation 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. Results of operations reported for the interim periods are not necessarily indicative of results for the entire year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. The interim financial information should be read in conjunction with the 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. Note 2. Summary of Significant Accounting Policies The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Significant intercompany accounts and transactions are eliminated in consolidation. Earnings Per Share (EPS) Earnings per share accounting guidance requires that basic net income per common share be computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. 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 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. 8 Table of Contents 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. For bundled contracts, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the subscription or service. If a standalone selling price is not directly observable, the Company uses the residual method to allocate any remaining price to that subscription or service. The Company reviews standalone selling prices, at least annually, and updates these estimates if necessary. The Company invoices its customers based on the billing schedules designated in its contracts, typically upfront on either a monthly, quarterly or annual basis or per transaction at the completion of the performance obligation. Deferred revenue for the periods presented was primarily related to 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 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 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. The Company has considered historical renewal rates, expectations of future renewals and economic factors in making these determinations. Cash Equivalents For purposes of the Company’s financial statements, the Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents. Accounts Receivable and Allowance for 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 credit losses for the three-months ended March 31, 2024 and 2023 was as follows: Three months ended March 31, 2024 Three months ended March 31, 2023 Beginning balance $ 1,119 $ 745 Provision for credit losses 282 151 Write-offs ( 257 ) ( 38 ) Ending balance $ 1,144 $ 858 Concentration of Credit Risk Financial instruments and related items which potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivables. The Company places its cash and temporary cash investments with credit quality institutions. Such cash balances are currently in excess of the FDIC insurance limit of $ 250,000 . To reduce its risk associated with the failure of such financial institutions, each quarter the Company evaluates the rating of each financial institution in which it holds deposits. 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. 9 Table of Contents The Company believes it did not have any financial instruments that could have potentially subjected us to significant concentrations of credit risk for any relevant period. Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the allowance for doubtful accounts and the valuation of goodwill, intangible assets, deferred tax assets, and stock-based compensation. Actual results could differ from those estimates. Income Taxes 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. Amortization for the three-month periods ended March 31, 2024 and 2023, is as follows (in thousands): March 31, 2024 2023 Capitalized software development costs $ 245 $ — Amortization included in cost of revenues 46 15 Impairment of Long-lived Assets In accordance with the authoritative guidance for accounting for long-lived assets, assets such as property and equipment, trademarks, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds fair value of the asset group. Lease Accounting 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 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. 10 Table of Contents Fair Value Measurements ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the hierarchy of levels of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows: · Level 1 - Quoted prices are available in active markets for identical assets or liabilities at the reporting date. Generally, this includes debt and equity securities that are traded in an active market. Cash and cash equivalents are quoted at Level 1. · Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The fair value of the Company’s long-term debt and interest rate swap are quoted at Level 2. · Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. As of March 31, 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 The financial statements of the foreign subsidiaries of the Company have been translated into U.S. dollars. All assets and liabilities have been translated at current rates of exchange in effect at the end of the period. Income and expense items have been translated at the average exchange rates for the year or the applicable interim period. The gains or losses that result from this process are recorded as a separate component of other accumulated comprehensive income until the entity is sold or substantially liquidated. Business Combinations, Goodwill, and Intangible Assets 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 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 Loss Comprehensive loss consists of net loss and other comprehensive income related to changes in the cumulative foreign currency translation adjustment. Advertising The Company expenses advertising as incurred. During the three-month periods ended March 31, 2024 and 2023, advertising expense was $ 439,000 and $ 462,000 , respectively. Stock-based Compensation The authoritative guidance for stock compensation requires that companies estimate the fair value of share-based payment awards on the date of the grant using an option-pricing model. The associated cost is recognized over the period during which an employee or director is required to provide service in exchange for the award. 11 Table of Contents Note 3: Equity Dividends 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-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”). Under the terms of the 2014 Plan, the Company is authorized to issue incentive awards for common stock up to 200,000 shares to employees and other personnel. On June 10, 2016 and June 17, 2020, the shareholders of the Company approved an additional 200,000 and 200,000 awards, respectively, to be issued under the 2014 Plan, bringing the total number of shares to be awarded to 600,000 . The awards may be in the form of incentive stock options, nonqualified stock options, restricted stock, restricted stock units and performance awards. The 2014 Plan is effective through March 31, 2024. As of March 31, 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. On June 7, 2023, the shareholders of the Company approved the 2023 Equity Incentive Plan (the “2023 Plan”). Under the terms of the 2023 Plan, the Company is authorized to issue incentive awards for common stock up to 300,000 shares to employees and other personnel. The awards may be in the form of incentive stock options, nonqualified stock options, restricted stock, restricted stock units and performance awards. The 2023 Plan is effective through April 1, 2033. 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 Options Exercisable Exercise Price Range Number Weighted Average Remaining Contractual Life (in Years) Weighted Average Exercise Price Number $ 0.01 - 8.00 5,000 1.64 $ 6.80 5,000 $ 8.01 - 11.00 3,000 3.75 $ 10.25 3,000 $ 11.01 - 16.00 18,000 4.28 $ 13.12 18,000 $ 16.01 - 27.00 53,000 7.80 $ 25.26 30,500 $ 27.01 - 27.71 12,750 7.80 $ 27.71 — Total 91,750 6.64 $ 21.72 56,500 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. Note 4: Income Taxes 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-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. 12 Table of Contents Note 5: Leases Leasing activity generally consists of office leases. In March 2019, a new lease was signed to move the corporate headquarters to Raleigh, North Carolina. 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 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 $ 1,306 ,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. Rent expense consists of both operating lease expense from amortization of our ROU assets as well as variable lease expense which consists of non-lease components of office leases (i.e. common area maintenance) or rent expense associated with short-term leases. The components of lease expense were as follows (in 000’s): Three months ended March 31, 2024 2023 Lease expense Operating lease expense $ 76 $ 76 Variable lease expense 14 6 Rent expense $ 90 $ 82 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: 2024 $ 285 2025 390 2026 401 2027 412 Total lease payments $ 1,488 Present value adjustment ( 182 ) Lease liability 1,306 We have performed an evaluation of our other contracts with customers and suppliers in accordance with Topic 842 and have determined that, except for the leases described above, none of our contracts contain a lease. Note 6: Revenue The Company considers itself to be a single reportable segment under the authoritative guidance for segment reporting, specifically a communications and compliance company for publicly traded and private companies. The following tables present revenue disaggregated by revenue stream in (000’s): Three months ended March 31, Revenue Streams 2024 2023 Communications $ 5,459 78.4 % $ 6,566 76.2 % Compliance 1,503 21.6 % 2,053 23.8 % Total $ 6,962 100 .0 % $ 8,619 100 .0 % 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. 13 Table of Contents Note 7: Credit Agreement 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 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 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. 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 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: 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. 14 Table of Contents Note 8: Interest Rate Swap The Company entered into an interest rate swap agreement to convert its interest rate exposure from variable rate to fixed rate to control cash outflows related to interest on its variable rate debt. The Company has $ 20,000,000 of notional amount interest rate swap agreement, which amortizes in-line with its long-term credit agreement. 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 . 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. The Company’s derivative is not exchange listed and therefore the fair value is estimated under a mark-to-market approach using an analytics model that is a readily observable market input. This model reflects the contractual terms of the derivative, such as notional value and expiration date, as well as market-based observables including interest rates, yield curves, and the credit quality of the counterparty. The model also incorporates the Company’s creditworthiness in order to appropriately reflect non-performance risk. Inputs to the derivative pricing model are generally observable and do not contain a high level of subjectivity, and accordingly, the Company’s derivative is classified within Level 2 of the fair value hierarchy. While the Company believes its estimate results in a reasonable reflection of the fair value of the instrument, the estimated value may not be representative of actual value that could have been realized or that will be realized in the near future. 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 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. 15 Table of Contents