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 2020 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 2020.
Financial Condition, Liquidity and Capital Resources
The following table presents selected financial information and statistics as of
September 30, December 31,
2020 2019
Cash and cash equivalents $ 10,451 $ 8,276
Accounts receivable, net $ 1,945 $ 2,288
Working capital $ 1,359 $ 832
Cash ratio 0.90 0.80
Quick ratio 1.07 1.03
Current ratio 1.12 1.08
11--------------------------------------------------------------------------------
Index
The Company has invested some of its excess cash in cash equivalents. 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 ofSeptember 30, 2020 , the Company had$10.45 million in cash and cash equivalents, an increase of approximately$2.18 million fromDecember 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$702,000 being greater than cash used to acquire property and equipment of approximately$88,000 . The main component of current liabilities atSeptember 30, 2020 is unexpired subscription revenue of$9.19 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 twelve months.
The Company has no bank lines of credit or other currently available credit sources.
A major component of long 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. 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 Note 8 to our Financial Statements in Item 1 above. 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
3 Months Ended September 30,
2020 2019
% of Total % of Total
Operating Operating
Amount Revenues Amount Revenues
Operating revenues $ 4,037,456 100.00 % $ 3,673,241 100.00 %
Operating expenses:
Data and product costs 1,514,659 37.52 % 1,421,290 38.69 %
Selling, general and
administrative expenses 2,110,280 52.27 % 1,962,150 53.42 %
Depreciation and amortization 52,931 1.31 % 52,667 1.43 %
Total operating expenses 3,677,870 91.10 % 3,436,107 93.54 %
Income from operations 359,586 8.91 % 237,134 6.46 %
Other income, net 916 0.02 % 40,223 1.09 %
Income before income taxes 360,502 8.93 % 277,357 7.55 %
Provision for income taxes (79,420 ) (1.97 %) (73,767 ) (2.01 %)
Net income $ 281,082 6.96 % $ 203,590 5.54 %
12--------------------------------------------------------------------------------
Index
Operating revenues increased approximately$364,000 , or 10%, for the three months endedSeptember 30, 2020 compared to the third quarter of fiscal 2019. 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$93,000 , or 7%, for the third quarter of 2020 compared to the same period of fiscal 2019. This increase was due primarily to: (1) higher salary and related employee benefits due to pay raises to staff, (2) higher costs of third-party content, due to minor inflationary increases instituted by some of the Company's major suppliers. Selling, general and administrative expenses increased approximately$148,000 , or 8%, for the third quarter of fiscal 2020 compared to the same period of fiscal 2019. This increase was due to higher salary and related employee benefits, because of a higher commission expense, a new sales trainee class, and a headcount increment. This increase was offset in part by: (1) lower professional fees, as the Company hired in-house counsel as of the beginning of the third quarter of 2019, and (2) lower marketing expenditures due to COVID related trade show cancelations and travel restrictions. Other income decreased approximately$39,000 for the third quarter of fiscal 2020 compared to the same period last year. This decrease was due to the lower return received on the Company's money market fund holdings compared to the third quarter of fiscal 2019. 9 Months Ended September 30, 2020 2019 % of Total % of Total Operating Operating Amount Revenues Amount Revenues Operating revenues$ 11,598,210 100.00 %$ 10,736,581 100.00 % Operating expenses: Data and product costs 4,556,456 39.29 % 4,316,780 40.20 % Selling, general and administrative expenses 6,919,804 59.66 % 6,277,294 58.47 % Depreciation and amortization 160,736 1.39 % 153,701 1.43 % Total operating expenses 11,636,996 100.34 % 10,747,775 100.10 % Loss from operations (38,786 ) (0.33 %) (11,194 ) (0.10 %) Other income, net 27,017 0.23 % 124,322 1.15 % Income (loss) before income taxes (11,769 ) (0.10 %) 113,128 1.05 % Benefit from (provision for) income taxes 123,424 1.06 % (57,536 ) (0.53 %) Net Income$ 111,655 0.96 %$ 55,592 0.52 % Operating revenues increased approximately$862,000 , or 8%, for the nine months endedSeptember 30, 2020 compared to the same period of fiscal 2019. This overall revenue growth resulted from an increase in internet subscription service revenue, attributable to a price increase and increased sales to new and existing subscribers. Data and product costs increased approximately$240,000 , or 6%, for the first nine months of 2020 compared to the same period of fiscal 2019. This increase was due primarily to: (1) higher salary and related employee benefits due to pay raises to staff, (2) higher costs of third-party content, due to minor inflationary increases instituted by some of the Company's major suppliers. 13
--------------------------------------------------------------------------------
Index
Selling, general and administrative expenses increased approximately$643,000 , or 10%, for the first nine months of fiscal 2020 compared to the same period of fiscal 2019. This increase was due to higher salary and related employee benefits, because of a higher commission expense, a new sales trainee class, and a headcount increment. This increase was offset in part by: (1) lower professional fees, as the Company hired in-house counsel as of the beginning of the third quarter of 2019, and (2) lower marketing expenditures due to COVID related trade show cancelations and travel restrictions. Other income, net decreased approximately$97,000 for first nine months of fiscal 2020 compared to the same period last year. This decrease was due to the lower return received on the Company's money market fund holdings compared to the same period of fiscal 2019. Benefit for income taxes increased approximately$181,000 for the first nine months of fiscal 2020 compared to the same period of fiscal 2019. This increase was due to the Company accruing a greater amount of tax liability compared to the actual tax liabilities on the filed tax returns.
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 during the
remainder of 2020 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 during the remainder of 2020 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.
14--------------------------------------------------------------------------------
Index
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.
Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain forward-looking statements, including statements regarding future prospects, industry trends, competitive conditions and litigation issues. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "expects", "anticipates", "plans" or words of similar meaning are intended to identify forward-looking statements. This notice is intended to take advantage of the "safe harbor" provided by the Private Securities Litigation Reform Act of 1995 with respect to such forward-looking statements. These forward-looking statements involve a number of risks and uncertainties. Among others, factors that could cause actual results to differ materially from the Company's beliefs or expectations are those listed under "Business Environment" and "Results of Operations" and other factors referenced herein or from time to time as "risk factors" or otherwise in the Company's Registration Statements orSecurities and Exchange Commission reports. The Company disclaims any intention or obligation to revise any forward-looking statement, whether as a result of new information, a future event or otherwise.
© Edgar Online, source
