CREDITRISKMONITOR COM INC - Quarter Report: 2020 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to______
Commission File Number: 1-8601
CreditRiskMonitor.com, Inc.
(Exact name of registrant as specified in its charter)
|
Nevada
|
36-2972588
|
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
704 Executive Boulevard, Suite A
Valley Cottage, New York 10989
|
| (Address of principal executive offices, including zip code) |
Registrant’s telephone number, including area code: (845) 230-3000
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
|
None
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N/A
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N/A
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer |
☐ |
|
| Non-accelerated filer ☑ | Smaller reporting company |
☑ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common stock $.01 par value – 10,722,401 shares outstanding as of August 13, 2020.
CREDITRISKMONITOR.COM, INC.
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Page
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|||
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PART I. FINANCIAL INFORMATION
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|||
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Item 1.
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Financial Statements | ||
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2
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|||
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3
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|||
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4
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|||
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5
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|||
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6
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|||
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7
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|||
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8
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|||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11
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|
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Item 4.
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Controls and Procedures |
15
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PART II. OTHER INFORMATION
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|||
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Item 6.
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Exhibits |
16
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17
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PART I. FINANCIAL INFORMATION
| Item 1. |
Financial Statements
|
CREDITRISKMONITOR.COM, INC.
JUNE 30, 2020 AND DECEMBER 31, 2019
|
June 30,
2020
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December 31,
2019
|
|||||||
|
(Unaudited)
|
(Note 1)
|
|||||||
|
ASSETS
|
||||||||
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Current assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
9,955,650
|
$
|
8,275,836
|
||||
|
Accounts receivable, net of allowance
|
2,270,026
|
2,287,921
|
||||||
|
Other current assets
|
798,626
|
549,821
|
||||||
|
Total current assets
|
13,024,302
|
11,113,578
|
||||||
|
Property and equipment, net
|
439,299
|
477,973
|
||||||
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Operating lease right-to-use asset
|
2,291,330
|
2,380,974
|
||||||
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Goodwill
|
1,954,460
|
1,954,460
|
||||||
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Other assets
|
33,450
|
35,723
|
||||||
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Total assets
|
$
|
17,742,841
|
$
|
15,962,708
|
||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current liabilities:
|
||||||||
|
Unexpired subscription revenue
|
$
|
9,381,309
|
$
|
8,651,843
|
||||
|
Accounts payable
|
87,369
|
137,500
|
||||||
|
Current portion of operating lease liability
|
154,422
|
147,229
|
||||||
|
Current portion of bank loan
|
907,079
|
--
|
||||||
|
Accrued expenses
|
1,278,216
|
1,344,550
|
||||||
|
Total current liabilities
|
11,808,395
|
10,281,122
|
||||||
|
Deferred taxes on income, net
|
318,108
|
521,765
|
||||||
|
Unexpired subscription revenue, less current portion
|
185,639
|
166,169
|
||||||
|
Bank loan, less current portion
|
654,421
|
--
|
||||||
|
Operating lease liability, less current portion
|
2,221,030
|
2,299,433
|
||||||
|
Total liabilities
|
15,187,593
|
13,268,489
|
||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred stock, $.01 par value; authorized 5,000,000 shares; none issued
|
--
|
--
|
||||||
|
Common stock, $.01 par value; authorized 32,500,000 shares; issued and outstanding 10,722,401 shares
|
107,224
|
107,224
|
||||||
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Additional paid-in capital
|
29,736,129
|
29,705,673
|
||||||
|
Accumulated deficit
|
(27,288,105
|
)
|
(27,118,678
|
)
|
||||
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Total stockholders’ equity
|
2,555,248
|
2,694,219
|
||||||
|
Total liabilities and stockholders’ equity
|
$
|
17,742,841
|
$
|
15,962,708
|
||||
See accompanying notes to condensed financial statements.
CREDITRISKMONITOR.COM, INC.
FOR THE THREE MONTHS ENDED JUNE 30, 2020 AND 2019
(Unaudited)
|
2020
|
2019
|
|||||||
|
Operating revenues
|
$
|
3,852,003
|
$
|
3,567,531
|
||||
|
Operating expenses:
|
||||||||
|
Data and product costs
|
1,515,469
|
1,426,497
|
||||||
|
Selling, general and administrative expenses
|
2,394,266
|
2,147,733
|
||||||
|
Depreciation and amortization
|
53,693
|
50,045
|
||||||
|
Total operating expenses
|
3,963,428
|
3,624,275
|
||||||
|
Loss from operations
|
(111,425
|
)
|
(56,744
|
)
|
||||
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Other income, net
|
3,417
|
43,209
|
||||||
|
Loss before income taxes
|
(108,008
|
)
|
(13,535
|
)
|
||||
|
Benefit from income taxes
|
136,929
|
2,005
|
||||||
|
Net income (loss)
|
$
|
28,921
|
$
|
(11,530
|
)
|
|||
|
Net income (loss) per share – Basic and diluted
|
$
|
0.00
|
$
|
(0.00
|
)
|
|||
|
Weighted average number of common shares outstanding – Basic and diluted
|
10,722,401
|
10,722,401
|
||||||
See accompanying notes to condensed financial statements.
CREDITRISKMONITOR.COM, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Unaudited)
|
2020
|
2019
|
|||||||
|
Operating revenues
|
$
|
7,560,754
|
$
|
7,063,340
|
||||
|
Operating expenses:
|
||||||||
|
Data and product costs
|
3,041,797
|
2,895,490
|
||||||
|
Selling, general and administrative expenses
|
4,809,524
|
4,315,144
|
||||||
|
Depreciation and amortization
|
107,805
|
101,034
|
||||||
|
Total operating expenses
|
7,959,126
|
7,311,668
|
||||||
|
Loss from operations
|
(398,372
|
)
|
(248,328
|
)
|
||||
|
Other income, net
|
26,101
|
84,099
|
||||||
|
Loss before income taxes
|
(372,271
|
)
|
(164,229
|
)
|
||||
|
Benefit from income taxes
|
202,844
|
16,231
|
||||||
|
Net loss
|
$
|
(169,427
|
)
|
$
|
(147,998
|
)
|
||
|
Net loss per share – Basic and diluted
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
||
|
Weighted average number of common shares outstanding – Basic and diluted
|
10,722,401
|
10,722,401
|
||||||
See accompanying notes to condensed financial statements.
CREDITRISKMONITOR.COM, INC.
FOR THE THREE MONTHS ENDED JUNE 30, 2020 AND 2019
(Unaudited)
|
Common Stock
|
Additional
Paid-in
|
Accumulated
|
Total
Stockholders’
|
|||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
||||||||||||||||
|
Balance April 1, 2019
|
10,722,401
|
$
|
107,224
|
$
|
29,665,024
|
$
|
(26,936,620
|
)
|
$
|
2,835,628
|
||||||||||
|
Net loss
|
-
|
-
|
-
|
(11,530
|
)
|
(11,530
|
)
|
|||||||||||||
|
Stock-based compensation
|
-
|
-
|
13,793
|
-
|
13,793
|
|||||||||||||||
|
Balance June 30, 2019
|
10,722,401
|
$
|
107,224
|
$
|
29,678,817
|
$
|
(26,948,150
|
)
|
$
|
2,837,891
|
||||||||||
|
Balance April 1, 2020
|
10,722,401
|
$
|
107,224
|
$
|
29,720,901
|
$
|
(27,317,026
|
)
|
$
|
2,511,099
|
||||||||||
|
Net income
|
-
|
-
|
-
|
28,921
|
28,921
|
|||||||||||||||
|
Stock-based compensation
|
-
|
-
|
15,228
|
-
|
15,228
|
|||||||||||||||
|
Balance June 30, 2020
|
10,722,401
|
$
|
107,224
|
$
|
29,736,129
|
$
|
(27,288,105
|
)
|
$
|
2,555,248
|
||||||||||
See accompanying notes to condensed financial statements.
CREDITRISKMONITOR.COM, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Unaudited)
|
Common Stock
|
Additional
Paid-in
|
Accumulated
|
Total
Stockholders’
|
|||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
||||||||||||||||
|
Balance January 1, 2019
|
10,722,401
|
$
|
107,224
|
$
|
29,650,760
|
$
|
(26,800,152
|
)
|
$
|
2,957,832
|
||||||||||
|
Net loss
|
-
|
-
|
-
|
(147,998
|
)
|
(147,998
|
)
|
|||||||||||||
|
Stock-based compensation
|
-
|
-
|
28,057
|
-
|
28,057
|
|||||||||||||||
|
Balance June 30, 2019
|
10,722,401
|
$
|
107,224
|
$
|
29,678,817
|
$
|
(26,948,150
|
)
|
$
|
2,837,891
|
||||||||||
|
Balance January 1, 2020
|
10,722,401
|
$
|
107,224
|
$
|
29,705,673
|
$
|
(27,118,678
|
)
|
$
|
2,694,219
|
||||||||||
|
Net loss
|
-
|
-
|
-
|
(169,427
|
)
|
(169,427
|
)
|
|||||||||||||
|
Stock-based compensation
|
-
|
-
|
30,456
|
-
|
30,456
|
|||||||||||||||
|
Balance June 30, 2020
|
10,722,401
|
$
|
107,224
|
$
|
29,736,129
|
$
|
(27,288,105
|
)
|
$
|
2,555,248
|
||||||||||
See accompanying notes to condensed financial statements.
CREDITRISKMONITOR.COM, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Unaudited)
|
2020
|
2019
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net loss
|
$
|
(169,427
|
)
|
$
|
(147,998
|
)
|
||
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
||||||||
|
Deferred income taxes
|
(203,657
|
)
|
(17,187
|
)
|
||||
|
Depreciation and amortization
|
107,805
|
101,034
|
||||||
|
Operating lease right-to-use asset, net
|
18,434
|
22,106
|
||||||
|
Stock-based compensation
|
30,456
|
28,057
|
||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
17,895
|
525,625
|
||||||
|
Other current assets
|
(248,805
|
)
|
(271,104
|
)
|
||||
|
Other assets
|
2,273
|
4,006
|
||||||
|
Unexpired subscription revenue
|
748,936
|
351,916
|
||||||
|
Accounts payable
|
(50,131
|
)
|
31,786
|
|||||
|
Accrued expenses
|
(66,334
|
)
|
(179,869
|
)
|
||||
|
Net cash provided by operating activities
|
187,445
|
448,372
|
||||||
|
Cash flows from investing activities:
|
||||||||
|
Purchase of property and equipment
|
(69,131
|
)
|
(112,092
|
)
|
||||
|
Net cash used in investing activities
|
(69,131
|
)
|
(112,092
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Proceeds from bank loan
|
1,561,500
|
--
|
||||||
|
Net cash provided from financing activities
|
1,561,500
|
--
|
||||||
|
Net increase in cash and cash equivalents
|
1,679,814
|
336,280
|
||||||
|
Cash and cash equivalents at beginning of period
|
8,275,836
|
8,066,899
|
||||||
|
Cash and cash equivalents at end of period
|
$
|
9,955,650
|
$
|
8,403,179
|
||||
See accompanying notes to condensed financial statements.
CREDITRISKMONITOR.COM, INC.
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed financial statements of CreditRiskMonitor.com, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosure required by generally accepted accounting principles (“GAAP”) in the United States for complete financial
statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying unaudited condensed financial statements reflect all material
adjustments, including normal recurring accruals, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented, and have been prepared in a manner consistent with the audited financial
statements for the fiscal year ended December 31, 2019.
The results of operations for the three and six months ended June 30, 2020 and 2019 are not necessarily indicative of the results for an entire fiscal year.
The December 31, 2019 balance sheet has been derived from the audited financial statements at that date, but does not include all disclosures required by GAAP. These financial statements should be read in conjunction
with the audited financial statements and the footnotes for the fiscal year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K.
(2) Recently Issued Accounting Standards
The Financial Accounting Standards Board (“FASB”) and the SEC have issued certain accounting pronouncements that will become effective in subsequent periods; however, management does not believe that any of those
pronouncements would have significantly affected the Company’s financial accounting measurements or disclosures had they been in effect during the interim periods for which financial statements are included in this quarterly report. Management also
believes those pronouncements will not have a significant effect on the Company’s future financial position or results of operations.
(3) Revenue Recognition
The Company applies FASB Accounting Standards Codification (“ASC”) 606, Revenue from Contract with Customers (“ASC 606”) to recognize revenue. ASC 606
requires an entity to apply the following five-step approach: (1) identify the contract(s) with a customer; (2) identify each performance obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to each
performance obligation; and (5) recognize revenue when or as each performance obligation is satisfied. The Company’s primary source of revenue is subscription income which is recognized ratably over the subscription term.
(4) Stock-Based Compensation
The Company applies ASC 718, Compensation-Stock Compensation (“ASC 718”) to account for stock-based compensation.
The following table summarizes the stock-based compensation expense for stock options that was recorded in the Company’s results of operations in accordance with ASC 718 for six months ended June 30:
|
2020
|
2019
|
|||||||
|
Data and product costs
|
$
|
11,166
|
$
|
12,409
|
||||
|
Selling, general and administrative expenses
|
19,290
|
15,648
|
||||||
|
$
|
30,456
|
$
|
28,057
|
|||||
(5) Fair Value Measurements
The Company records its financial instruments at fair value in accordance with accounting guidance. The determination of fair value assumes that the transaction to sell an asset or transfer a liability occurs in the
principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The fair value hierarchy is broken down into three levels based on
the source of inputs as follows: (a) Level 1 – valuations based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; (b) Level 2 – valuations based on quoted
prices in markets that are not active, or financial instruments for which all significant inputs are observable, either directly or indirectly; and (c) Level 3 – valuations based on prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable, thus, reflecting assumptions about the market participants.
The Company’s cash and cash equivalents are stated at fair value. The carrying value of accounts receivable, other current assets, bank loan, accounts payable and other current liabilities approximates fair market
value because of the short maturity of these financial instruments.
The Company’s cash equivalents are generally classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.
The table below sets forth the Company’s cash and cash equivalents as of June 30, 2020 and December 31, 2019, respectively, which are measured at fair value on a recurring basis by level within the fair value
hierarchy.
|
June 30, 2020
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total | |||||||||||||
|
Cash and cash equivalents
|
$
|
9,955,650
|
$
|
-
|
$
|
-
|
$
|
9,955,650
|
||||||||
|
December 31, 2019
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Cash and cash equivalents
|
$
|
8,275,836
|
$
|
-
|
$
|
-
|
$
|
8,275,836
|
||||||||
The Company did not hold financial assets and liabilities which were recorded at fair value in the Level 2 or 3 categories as of either June 30, 2020 or December 31, 2019.
(6) Net Income (Loss) per Share
Basic net income (loss) per share is based on the weighted average number of common shares outstanding. Diluted net income (loss) per share is based on the weighted average number of common shares outstanding and the
dilutive effect of outstanding stock options.
For the three months ended June 30, 2020, the computation of diluted net income per share excludes the effects of the assumed exercise of 451,750 options since their inclusion would be anti-dilutive
as their exercise prices were above market value.
Because the Company has reported a net loss for the six months ended June 30, 2020, and three and six months ended June 30, 2019, diluted net loss per share is the same as basic net loss per share, as
the effect of utilizing the fully diluted share count would have reduced the net loss per share. Therefore, all outstanding stock options were excluded from the computation of diluted net loss per share because their effect was anti‐dilutive for
each of the periods presented.
(7) Related Party Transaction
On October 24, 2019, the Company’s Board of Directors appointed Michael Flum to serve as Senior Vice President and Chief Operating Officer effective immediately. Mr. Flum had served as Vice President of Operations
& Alternative Data since June 4, 2018. Mr. Flum is the son of Jerome Flum, the Company’s Chief Executive Officer and Chairman of the Board of Directors, and the brother of Joshua Flum, a director of the Company.
(8) COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of Coronavirus Disease 2019 (“COVID-19” or “virus”) as a global pandemic. The full impact of COVID-19 is unknown
and rapidly evolving. The outbreak and any preventative or protective actions that the Company or its customers may take in respect of this virus may result in a period of disruption, including the Company’s financial reporting capabilities, its
operations generally and could potentially impact the Company’s customers, data providers and other third parties. Any resulting financial impact cannot be reasonably estimated at this time, but may materially affect the business and the
Company’s financial condition and results of operations. The extent to which the COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may
emerge concerning the severity of COVID-19 and the actions to contain the virus or treat its impact, among others. The Company has been operating remotely without any significant disruption of operations. To date, the Company’s data providers have provided an uninterrupted stream of information thus enabling the Company to deliver its product. The Company is currently evaluating the impact, if any, on its financial statements and has not yet
quantified what material impacts to the financial statements may result from the actions taken by the Company and its customers in respect of this virus.
In response to COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020.
The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest
deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation
of certain refundable employee retention credits. Additionally, the CARES Act contains relief for small businesses through several new temporary programs, one of which is the Paycheck Protection Program (“PPP”). The PPP is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. The Small Business Administration (“SBA”) will forgive loans
if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent or utilities. The Company applied for a loan under this program and has received $1.56 million. The SBA provides a “safe harbor” for borrowers and
has deemed certifications regarding the necessity of the loan to have been made in good faith for borrowers of less than $2 million. The PPP
loan is scheduled to mature on April 15, 2022, has a 1.00% interest rate, may be prepaid at any time without penalty and is subject to the terms and conditions applicable to all loans made pursuant to the PPP as administered by the SBA under
the CARES Act. 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 payroll levels. No payments are
due on this loan for six months from the date of first disbursement of this loan. In accordance with the requirements for forgiveness 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 $920,934.
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
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 the U.S. While the Company believes it meets the criteria of an essential business under the guidelines issued by New 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 June 30, 2020 and December 31, 2019 (dollars in thousands):
|
June 30,
2020
|
December 31,
2019
|
|||||||
|
Cash and cash equivalents
|
$
|
9,956
|
$
|
8,276
|
||||
|
Accounts receivable, net
|
$
|
2,270
|
$
|
2,288
|
||||
|
Working capital
|
$
|
1,216
|
$
|
832
|
||||
|
Cash ratio
|
0.84
|
0.80
|
||||||
|
Quick ratio
|
1.04
|
1.03
|
||||||
|
Current ratio
|
1.10
|
1.08
|
||||||
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 of June 30, 2020, the Company had $9.96 million in cash and cash equivalents, an increase of approximately $1.68 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 $187,000 being greater than cash used to acquire property and equipment of approximately
$70,000.
The main component of current liabilities at June 30, 2020 is unexpired subscription revenue of $9.38 million, which should not require significant future cash outlay 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.
The main 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.
Under normal circumstances, the Company believes its existing balances of cash and cash equivalents and cash generated from operations would be sufficient to satisfy
its currently anticipated cash requirements. However, 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.
Off-Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangements.
Results of Operations
|
3 Months Ended June 30,
|
||||||||||||||||
|
2020
|
2019
|
|||||||||||||||
|
Amount
|
% of Total
Operating
Revenues
|
Amount
|
% of Total
Operating
Revenues
|
|||||||||||||
|
Operating revenues
|
$
|
3,852,003
|
100.00
|
%
|
$
|
3,567,531
|
100.00
|
%
|
||||||||
|
Operating expenses:
|
||||||||||||||||
|
Data and product costs
|
1,515,469
|
39.34
|
%
|
1,426,497
|
39.99
|
%
|
||||||||||
|
Selling, general and administrative expenses
|
2,394,266
|
62.16
|
%
|
2,147,733
|
60.20
|
%
|
||||||||||
|
Depreciation and amortization
|
53,693
|
1.39
|
%
|
50,045
|
1.40
|
%
|
||||||||||
|
Total operating expenses
|
3,963,428
|
102.89
|
%
|
3,624,275
|
101.59
|
%
|
||||||||||
|
Loss from operations
|
(111,425
|
)
|
(2.89
|
%)
|
(56,744
|
)
|
(1.59
|
%)
|
||||||||
|
Other income, net
|
3,417
|
0.09
|
%
|
43,209
|
1.21
|
%
|
||||||||||
|
Loss before income taxes
|
(108,008
|
)
|
(2.80
|
%)
|
(13,535
|
)
|
(0.38
|
%)
|
||||||||
|
Benefit from income taxes
|
136,929
|
3.55
|
%
|
2,005
|
0.06
|
%
|
||||||||||
|
Net loss
|
$
|
28,921
|
(0.75
|
%)
|
$
|
(11,530
|
)
|
(0.32
|
%)
|
|||||||
Operating revenues increased approximately $284,000, or 8%, for the three months ended June 30, 2020 compared to the second 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 $89,000, or 6%, for the second 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. These higher expenditures were offset in part by: (1) lower consulting fees, and
(2) lower costs associated with the outsourcing of certain data entry tasks.
Selling, general and administrative expenses increased approximately $247,000, or 11%, for the second 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.
Depreciation and amortization increased approximately $3,600, or 7%, for the second quarter of fiscal 2020 compared to the same period of fiscal 2019. This increase was due to the capitalization of a new accounting
system installed in 2019 that the Company started depreciating in last year’s fourth quarter.
Other income, net decreased approximately $40,000 for second 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 second quarter of fiscal 2019.
Benefit for income taxes increased approximately $135,000 for the second quarter of fiscal 2020 compared to the same period of fiscal 2019. This increase was due to the Company reporting a higher pre-tax loss in 2020
versus 2019, because of the reasons enumerated above.
|
6 Months Ended June 30,
|
||||||||||||||||
|
2020
|
2019
|
|||||||||||||||
|
Amount
|
% of Total
Operating
Revenues
|
Amount
|
% of Total
Operating
Revenues
|
|||||||||||||
|
Operating revenues
|
$
|
7,560,754
|
100.00
|
%
|
$
|
7,063,340
|
100.00
|
%
|
||||||||
|
Operating expenses:
|
||||||||||||||||
|
Data and product costs
|
3,041,797
|
40.23
|
%
|
2,895,490
|
40.99
|
%
|
||||||||||
|
Selling, general and administrative expenses
|
4,809,524
|
63.61
|
%
|
4,315,144
|
61.09
|
%
|
||||||||||
|
Depreciation and amortization
|
107,805
|
1.43
|
%
|
101,034
|
1.43
|
%
|
||||||||||
|
Total operating expenses
|
7,959,126
|
105.27
|
%
|
7,311,668
|
103.52
|
%
|
||||||||||
|
Loss from operations
|
(398,372
|
)
|
(5.27
|
%)
|
(248,328
|
)
|
(3.52
|
%)
|
||||||||
|
Other income, net
|
26,101
|
0.35
|
%
|
84,099
|
1.19
|
%
|
||||||||||
|
Loss before income taxes
|
(372,271
|
)
|
(4.92
|
%)
|
(164,229
|
)
|
(2.33
|
%)
|
||||||||
|
Benefit from income taxes
|
202,844
|
2.68
|
%
|
16,231
|
0.23
|
%
|
||||||||||
|
Net loss
|
$
|
(169,427
|
)
|
(2.24
|
%)
|
$
|
(147,998
|
)
|
(2.10
|
%)
|
||||||
Operating revenues increased approximately $497,000, or 7%, for the six months ended June 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 $146,000, or 5%, for the first half 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. These higher expenditures were offset in part by: (1) lower consulting fees, and
(2) lower costs associated with the outsourcing of certain data entry tasks.
Selling, general and administrative expenses increased approximately $494,000, or 11%, for the first half 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.
Depreciation and amortization increased approximately $6,800, or 7%, for the second half of fiscal 2020 compared to the same period of fiscal 2019. This increase was due to the capitalization of a new accounting
system installed in 2019 that the Company started depreciating in last year’s fourth quarter.
Other income, net decreased approximately $58,000 for second half 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 $187,000 for the second half of fiscal 2020 compared to the same period of fiscal 2019. This increase was due to the Company reporting a higher pre-tax loss in 2020
versus 2019, because of the reasons enumerated above.
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 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 or Securities 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.
| Item 4. |
Controls and Procedures
|
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective to ensure that all material information required to be disclosed by us in reports that we file or submit under the Exchange Act is
accumulated and communicated to them as appropriate to allow timely decisions regarding required disclosure and that all such information is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and
forms.
Changes in Internal Control over Financial Reporting
As a result of governmental imposed limitations on the use our facilities due to the COVID-19 pandemic, we have had to make changes to the operating methods of some of our internal controls. For example, moving from
manual sign-offs / in-person meetings to electronic sign-offs and electronic communications such as email and telephonic/ or video conference due to out-of-office working arrangements. However, the design of our internal control
framework/objectives over financial reporting is unchanged and the Company does not believe that these changes have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any
internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
PART II. OTHER INFORMATION
| Item 6. |
Exhibits
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
||
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
||
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
||
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
||
|
101.INS
|
XBRL Instance Document
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
CREDITRISKMONITOR.COM, INC.
|
||
|
(REGISTRANT)
|
||
|
Date: August 13, 2020
|
By: /s/ Steven Gargano
|
|
|
Steven Gargano
|
||
|
Senior Vice President & Chief Financial Officer
|
||
|
(Principal Accounting Officer)
|
||
17