On the last day of Q1 2008, a21, Inc. reported its 2007 results of $23,306,000 up from $19,633,000 in 2006. However, this growth is somewhat misleading as about 50% of the company's business comes from Art Select, which provides wall art for homes and businesses. The Art Select division was acquired in the middle of Q2 2006. Thus, a full year's sales are not reflected in a21's 2006 revenue.
For 2007, the stock photo side of the business under the brand name SuperStock had gross revenue of $11,907,000, as compared with the Art Select division with revenues of $11,399,000.
SuperStock revenue for Q4 was $2,936,000, up 6% from $2,765,000 in Q3, but down from $3,032,000 in Q4 2006. For a breakdown in SuperStock revenue quarter-by-quarter, see the chart below.
Q1 2006 | Q3 2006 | Q3 2006 | Q4 2006 |
$2,935,000 | $3,023,000 | $2,986,000 | $3,032,000 |
| | | | |
Q1 2007 | Q2 2007 | Q3 2007 | Q4 2007 |
$3,168,000 | $3,038,000 | $2,765,000 | $2,936,000 |
The cost of licensing revenue was 32% or $3,768,000 for 2007 and $3,835,000 for 2006. These costs will vary in any period, depending on the relative mix of stock photography distributed that is either licensed from third parties or owned by a21.
Total operating expenses in 2007 were $26,311,000 for an operating loss of $3,005,000 down from $7,480,000 in 2006.
As of December 31, 2007, the company had a total of 150 employees with the majority being full-time.
The price of a21 stock on the OTC Bulletin Board ranged from a high of $0.09 to a low or $0.02 in the fourth quarter of 2007. There were 87,061,076 shares outstanding at December 31, 2007.
Q1 2006 | Q3 2006 | Q3 2006 | Q4 2006 |
$2,935,000 | $3,023,000 | $2,986,000 | $3,032,000 |
| | | | |
Q1 2007 | Q2 2007 | Q3 2007 | Q4 2007 |
$3,168,000 | $3,038,000 | $2,765,000 | $2,936,000 |
| | | |
There were $5,387,000 in revenues for Q3 2007, down 9% from the same period in 2006 and down 5.5% from the previous quarter. The SuperStock/Purestock portion of revenues were $2,765,000, down 7.4% from the previous quarter. In Q2, SuperStock revenues were down 4%, compared to Q1 2007.
The last time SuperStock revenues were lower than this was Q3 2005, and that was before it added Ingram Publishing Limited to its offering. Stock photo revenues in the previous four quarters were: $2,986,000 in Q3 2006; $3,032,000 in Q4 2006; $3,168,000 in Q1 2007 and $3,038,000 in Q2 2007. For the most part, stock-photo revenue had been climbing slowly until Q1 2007. Since then, it has been on a steadily downward slope.
While revenues dropped, the cost of licensing did not change significantly. In Q3 2006, the cost of licensing was $902,000 and in Q3 2007 it was $890,000.
However, SuperStock is the bright spot in a21's operation. Revenue for its ArtSelect division was down to $2,622,000, a 10% drop compared to $2,918,000 in Q3 2006.
Despite the fact that a21 had distributors in more than 100 countries, 88% of revenue came from the U.S. and 7% from the U.K. for the three months ended Sept. 30, 2007. The comparatives revenues for all of 2006 were 85% for the U.S. and 11% for the UK.
In the quarter, a21 launched a consolidation and restructuring effort to improve profitability. They moved ArtSelect from its Iowa base and consolidated all operations in their Jacksonville, Fla., headquarters. They also began to reduce staff by approximately 20 people. This reduction is expected to be completed in Q1 2008 when the total staff will be down to approximately 125.
The third-quarter 2007 operating loss was $1.0 million, including restructuring expense of $315,000, compared to a loss of $614,000 for the same prior year period. The net loss for the third quarter of 2007 was $1.4 million, or $0.02 per fully diluted share, essentially unchanged from a net loss of $1.4 million, or $0.02 per fully diluted share, for the same prior year period. Net income for the quarter reflects lower revenues and margins along with the extraordinary restructuring charge. Third-quarter 2006 net income included a one-time deemed dividend of $336,000.
The company's cash and cash equivalents available as of September 30, 2007, was $2.8 and their working capital was $2.6 million. This was down from $5.5 million in cash and cash equivalents and $4.3 million in working capital at December 31, 2006. The decrease in cash is primarily due to overall cash used in operating and investing activities during the nine months ended Sept. 30, 2007.
In their 10-QSB filing with the SEC, the officers stated under Liquidity and Capital Resources: "We have sustained significant recurring losses and an accumulated deficit of $26.9 million at September 30, 2007, that raise substantial doubt about our ability to continue as a going concern, and may need to raise cash from equity and debt financings to fund our operations. If we are unable to secure the required funding, we may not be able to implement our business plan and may not be able to conduct business as a going concern."
Despite this gloomy picture John Ferguson, CEO of a21, said, "Part of our strategy is to streamline and create more efficient operations. During the third quarter, we undertook a company-wide consolidation and restructuring to achieve this objective. At ArtSelect, we initiated focus and marketing around our direct-to-consumer online channels and also introduced our new print-only product offering. Both initiatives are gaining traction and contributing incremental revenue to help offset the current market challenges of our legacy, core markets."
The price of a21 stock on the OTC Bulletin Board ranged from a high of $0.09 to a lowor $0.02 in the fourth quarter of 2007. There were 87,061,076 sharesoutstanding at December 31, 2007.