A21 Revenue Continues Decline

Posted on 11/13/2007 by Jim Pickerell | Printable Version | Comments (0)

a21, Inc. has reported $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, "During the third quarter, we announced important new strategic initiatives, including reorganization across our businesses and the development and planned launch of our new MediaMagnet platform. 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."

Thomas Costanza, CFO of a21, said, "We are making good progress with our consolidation and restructuring plan to improve the overall efficiency of our entire organization. Our goal is to enter 2008 in better financial health and with adequate resources to grow the business and build shareholder value."

Copyright © 2007 Jim Pickerell. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-461-7627, e-mail: wvz@fpcubgbf.pbz

Jim Pickerell is founder of www.selling-stock.com, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to: http://www.jimpickerell.com/Curriculum-Vitae.aspx.  


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