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. Due
to COVID-19, 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 long-term impact
the pandemic will have on the Company's subscriber base is unknown at this time.
The Company may face loss of contracts and/or customers, 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.
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Financial Condition, Liquidity and Capital Resources
The following table presents selected financial information and statistics as of
September 30, December 31,
2021 2020
Cash and cash equivalents $ 11,694 $ 10,303
Accounts receivable, net $ 2,273 $ 2,557
Working capital $ 1,593 $ 848
Cash ratio 0.91 0.79
Quick ratio 1.09 0.98
Current ratio 1.12 1.06
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 available-for-sale securities
(municipal bonds).
As of September 30, 2021 , the Company had $11.69 million in cash and cash
equivalents, an increase of approximately $1.4 million from December 31, 2020 .
This increase was primarily the result of cash provided by investing activities
from the sale of our municipal bond investments of approximately $458,000 and
cash provided from operating activities of approximately $1.2 million being
greater than the purchase of equipment totaling approximately $272,000 .
The main component of current liabilities at September 30, 2021 was unexpired
subscription revenue of $9.3 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
generally approximates 12 months.
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 in the amount 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. The Company has applied for forgiveness by the deadline set forth by the lender, and the current portion of this loan, including interest that is due within the next 12 months is$1,561,500 . The Company is waiting on the review process to be completed by the SBA. Given the ongoing 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. 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 operations for the next 12 months. 13
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Off-Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangements.
Results of Operations
3 Months Ended September 30,
2021 2020
% of Total % of Total
Operating Operating
Amount Revenues Amount Revenues
Operating revenues $ 4,323,676 100 % $ 4,037,456 100 %
Operating expenses:
Data and product costs 1,519,860 35 % 1,514,659 38 %
Selling, general and administrative expenses 2,024,562 47 % 2,110,280 52 %
Depreciation and amortization 75,067 2 % 52,931 1 %
Total operating expenses 3,619,489 84 % 3,677,870 91 %
Income from operations 704,187 16 % 359,586 9 %
Other income, net 263 0 % 916 0 %
Income before income taxes 704,450 16 % 360,502 9 %
Provision for income taxes (209,098 ) (5 %) (79,420 ) (2 %)
Net income $ 495,352 11 % $ 281,082 7 %
Operating revenues increased approximately
Selling, general and administrative expenses decreased approximately$86,000 , or 4%, for the third quarter of fiscal 2021 compared to the same period of fiscal 2020. This decrease was due to a revised methodology of accruing commissions implemented inDecember 2020 and lower commission expense for the third quarter of 2021. This decrease was partially offset by higher salary and related employee benefits. 14
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9 Months Ended September 30,
2021 2020
% of Total % of Total
Operating Operating
Amount Revenues Amount Revenues
Operating revenues $ 12,704,756 100 % $ 11,598,210 100 %
Operating expenses:
Data and product costs 4,721,331 37 % 4,556,456 39 %
Selling, general and administrative expenses 6,415,736 50 % 6,919,804 60 %
Depreciation and amortization 206,083 2 % 160,736 1 %
Total operating expenses 11,343,150 89 % 11,636,996 100 %
Income (loss) from operations 1,361,606 11 % (38,786 ) (0 %)
Other income, net 3,756 0 % 27,017 0 %
Income (loss) before income taxes 1,365,362 11 % (11,769 ) (0 %)
(Provision for) benefit from income taxes (359,588 ) (3 %) 123,424 1 %
Net income $ 1,005,774 8 % $ 111,655 1 %
Operating revenues increased approximately $1.1 million , or 10%, for the nine
months ended September 30, 2021 compared to the same period of fiscal 2020. 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 $165,000 , or 4%, for the nine
months ended September 30, 2021 compared to the same period of fiscal 2020. 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 decreased approximately $504,000 ,
or 7%, for the nine months ended September 30, 2021 compared to the same period
of fiscal 2020. This decrease was due to a revised methodology of accruing
commissions implemented in December 2020 and lower commission expense in 2021.
This decrease was partially offset by higher salary and related employee
benefits.
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 somewhat limited, as the Company cannot fully 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.
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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. The Company anticipates that sales and marketing expenses will continue to increase in dollar amount and as a percentage of revenues during the remainder of 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 during the remainder of 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. 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. 16
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