CREDITRISKMONITOR.COM, INC. Business Environment
The continuing uncertainty in the worldwide financial system has negatively impacted general business conditions. It is possible that a weakened economy could adversely affect our clients' need for credit information, or even their solvency, but we cannot predict whether or to what extent this will occur. Our strategic priorities and plans for 2021 are to continue to build on the improvement initiatives underway to achieve sustainable, profitable growth. However, the COVID-19 pandemic has spread throughout the world, including theU.S. While the Company believes it meets the criteria of an essential business under the guidelines issued byNew York State , the Company has elected to voluntarily close in-office personnel functions for the safety of our employees. Only a limited number of IT and other personnel are periodically visiting our office to ensure the integrity of our computer network, retrieve physical files, and any other function that cannot be done remotely. This has allowed our employee base to work remotely and the Company's operations to continue normally. Nevertheless, the impact the pandemic will have on the Company's operations is unknown at this time. The Company may face supply chain disruptions, loss of contracts and/or customers, loss of human capital or personnel at the Company, customer credit risk, and general economic calamities. Accordingly, these global market conditions will affect the level and timing of resources deployed in pursuit of these initiatives in 2021.
Financial Condition, Liquidity and Capital Resources
The following table presents selected financial information and statistics as of
2020 2019
Cash and cash equivalents $ 10,303 $ 8,276
Accounts receivable, net $ 2,557 $ 2,288
Working capital $ 848 $ 832
Cash ratio 0.79 0.80
Quick ratio 0.98 1.03
Current ratio 1.06 1.08
The Company has invested some of its excess cash in cash equivalents and
available for sale securities. All highly liquid investments with an original
maturity of three months or less when purchased are considered cash equivalents,
while those with maturities in excess of three months when purchased are
reflected as marketable securities.
As of December 31, 2020 , the Company had $10.76 million in available for sale
securities & cash and cash equivalents, an increase of approximately $2.49
million from December 31, 2019 . This increase was primarily the result of cash
provided by financing activities through the SBA's PPP loan program of
approximately $1.56 million . In addition, cash provided by operating activities
of approximately $1.21 million was greater than cash used to acquire property
and equipment and available for sale securities totaling approximately $746,000 .
The main component of current liabilities at December 31, 2020 is unexpired
subscription revenue of $9.65 million , which should not require significant
future cash outlay, as this is annual reoccurring revenue, other than the cost
of preparation and delivery of the applicable commercial credit reports, which
cost much less than the unexpired subscription revenue shown. Unexpired
subscription revenue is recognized as income over the subscription term, which
approximates 12 months.
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The Company has no bank lines of credit or other currently available credit sources.
A major component of short-term liabilities is the Company's bank loan from the SBA for the PPP program of$1.56 million . The loan and accrued interest is forgivable after eight weeks so long as the Company uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its employment levels. In accordance with the requirements of the CARES Act, the Company has used the entire proceeds from the PPP Loan for eligible payroll, benefits, rent, utility costs, and maintained its employment levels. If the Company does not apply for forgiveness, the current portion of this loan, including interest that is due within the next 12 months is$1,314,848 . The lender of this loan started accepting applications for forgiveness at the beginning of 2021. Given the current COVID-19 pandemic, there is no guarantee that our current business levels can be sustained or that our subscriber base will renew their service(s) at similar spend levels in the future. To ensure we have the financial resources to meet our commitments to our employees and service providers in the upcoming months, and to avoid lay-offs or other cost cutting measures, the Company applied for and received a loan under the Paycheck Protection Program. See Item 9C below. With the proceeds of this loan, along with its existing balance of cash and cash equivalents and cash generated from operations, the Company expects to have sufficient liquidity to continue for the next 12 months.
Off-Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangements.
Results of Operations
2020 vs. 2019
Year Ended December 31,
2020 2019
% of Total % of Total
Amount Revenue Amount Revenue
Operating revenues $ 15,732,366 100.00 % $ 14,501,173 100.00 %
Operating expenses:
Data and product costs 6,026,464 38.31 % 5,759,660 39.72 %
Selling, general and administrative expenses 9,724,182 61.81 % 8,347,083 57.56 %
Depreciation and amortization 219,847 1.40 % 207,224 1.43 %
Total operating expenses 15,970,493 101.51 % 14,313,967 98.71 %
(Loss) income from operations (238,127 ) (1.51 %) 187,206 1.29 %
Other income, net 26,774 0.17 % 155,852 1.08 %
(Loss) income before income taxes (211,353 ) (1.34 %) 343,058 2.37 %
Benefit from (provision for) income taxes 163,925 1.04 % (125,354 ) (0.87 %)
Net (loss) income $ (47,428 ) (0.30 %) $ 217,704 1.50 %
13-------------------------------------------------------------------------------- Operating revenues increased approximately$1.2 million , or 8%, for fiscal 2020 over the prior year. This overall revenue growth resulted from an increase in internet subscription service revenue, attributable to increased sales to new and existing subscribers. Data and product costs increased approximately$267,000 , or 5%, for fiscal 2020 compared to fiscal 2019. This increase was due primarily to (1) higher salary and related employee benefits due to pay raises to staff, and (2) higher costs of third-party content, due to price increases instituted by some of the Company's major suppliers. Selling, general and administrative expenses increased approximately$1.38 million , or 16%, for fiscal 2020 compared to fiscal 2019. This increase was due to higher salary and related employee benefits, because of a higher commission expense due to increased sales, revised methodology of accruing commissions, a new sales trainee class, maintaining employee head count, and even adding new ones. This increase was offset in part by lower marketing expenditures due to COVID related trade show cancellations and travel restrictions. Other income decreased approximately$129,000 for fiscal 2020 compared to fiscal 2019. This decrease was due to the lower return received on the Company's money market fund holdings compared to fiscal 2019.
Future Operations
The Company over time intends to expand its operations by expanding the breadth
and depth of its product and service offerings and introducing new and
complementary products. Gross margins attributable to new business areas may be
lower than those associated with the Company's existing business activities.
As a result of the evolving nature of the markets in which it competes and the
uncertainties caused by the COVID-19 pandemic, the Company's ability to
accurately forecast its revenues, gross profits and operating expenses as a
percentage of net sales is limited, as the Company cannot utilize its historical
subscription and renewal rates of its clients for guidance. The Company's
current and future expense levels are based largely on its investment plans and
estimates of future revenues. To a large extent these costs do not vary with
revenue. Sales and operating results generally depend on the Company's ability
to attract and retain customers and the volume of and timing of customer
subscriptions for the Company's services, which are difficult to forecast. The
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall. Accordingly, any significant shortfall in
revenues in relation to the Company's planned expenditures would have an
immediate adverse effect on the Company's business, prospects, financial
condition and results of operations. Further, as a strategic response to changes
in the competitive environment, the Company may from time to time make certain
pricing, service, marketing or acquisition decisions that could have a material
adverse effect on its business, prospects, financial condition and results of
operations.
Achieving greater profitability depends on the Company's ability to generate and
sustain increased revenue levels. The Company believes that its success will
depend in large part on its ability to (i) increase its brand awareness, (ii)
provide its customers with outstanding value, thus encouraging customer
renewals, and (iii) achieve sufficient sales volume to realize economies of
scale. Accordingly, the Company intends to continue to increase the size of its
sales force and service staff, and to invest in product development, operating
infrastructure, marketing and promotion. The Company believes that these
expenditures will help it to sustain the revenue growth it has experienced over
the last several years. We anticipate that sales and marketing expenses will
continue to increase in dollar amount and as a percentage of revenues into 2021
and future periods as the Company continues to expand its business on a
worldwide basis. Further, the Company expects that product development expenses
will also continue to increase in dollar amount and may increase as a percentage
of revenues into 2021 and future periods because it expects to employ more
development personnel on average compared to prior periods and build the
infrastructure required to support the development of new and improved products
and services. However, as some these expenditures are discretionary in nature,
the Company expects that the actual amounts incurred will be in line with its
projections of future cash flows in order not to negatively impact its future
liquidity and capital needs. There can be no assurance that the Company will be
able to achieve these objectives within a meaningful time frame.
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The Company expects to experience fluctuations in its future quarterly operating
results due to a variety of factors, some of which are outside the Company's
control. Factors that may adversely affect the Company's quarterly operating
results include, among others, (i) the short-term and long-term effects the
COVID-19 outbreak and related developments will have on our customers and their
ongoing businesses and how those effects may impact our sales to them, (ii) the
Company's ability to retain existing customers, attract new customers at a
steady rate and maintain customer satisfaction, (iii) the Company's ability to
maintain gross margins in its existing business and in future product lines and
markets, (iv) the development of new services and products by the Company and
its competitors, (v) price competition, (vi) the Company's ability to obtain
products and services from its vendors, including information suppliers, on
commercially reasonable terms, (vii) the Company's ability to upgrade and
develop its systems and infrastructure, and adapt to technological change,
(viii) the Company's ability to attract and retain personnel in a timely and
effective manner, (ix) the Company's ability to manage effectively its
development of new business segments and markets, (x) the Company's ability to
successfully manage the integration of operations and technology of acquisitions
or other business combinations, (xi) technical difficulties, system downtime or
Internet brownouts, (xii) the amount and timing of operating costs and capital
expenditures relating the Company's business, operations and infrastructure,
(xiii) governmental regulation and taxation policies, (xiv) disruptions in
service by common carriers due to strikes or otherwise, (xv) risks of fire or
other casualty, (xvi) litigation costs or other unanticipated expenses, (xvii)
interest rate risks and inflationary pressures, and (xviii) general economic
conditions and economic conditions specific to the Internet and online commerce.
Due to the foregoing factors, the Company believes that period-to-period comparisons of its revenues and operating results are not necessarily meaningful and should not be relied on as an indication of future performance.
Critical Accounting Policies, Estimates and Judgments
The Company's financial statements are prepared in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). The preparation of these financial statements requires management to make estimates and judgments 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. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Management continually evaluates its estimates and judgments, the most critical of which are those related to: 15 -------------------------------------------------------------------------------- Valuation of goodwill --Goodwill is reviewed for impairment annually, or more frequently if events or changes in circumstances warrant. If the carrying value of this asset exceeds its estimated fair value, the Company will record an impairment loss to write the asset down to its estimated fair value. Income taxes -- The Company provides for deferred income taxes resulting from temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred tax liabilities are recognized for temporary differences that will be taxable in future years' tax returns. Deferred tax assets are recognized for temporary differences that will be deductible in future years' tax returns and for operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized.
Recently Issued Accounting Standards
The information set forth under Note 2 to the financial statements under the caption "Recently Issued Accounting Standards" is incorporated herein by reference.
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