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CRMZ > SEC Filings for CRMZ > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for CREDITRISKMONITOR COM INC

Form 10-Q for CREDITRISKMONITOR COM INC


14-Nov-2012

Quarterly Report


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 weakening 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 2012 and beyond are to continue to build on the improvement initiatives underway to achieve sustainable, profitable growth. Global market conditions, however, may affect the level and timing of resources deployed in pursuit of these initiatives in 2012.

Financial Condition, Liquidity and Capital Resources


The following table presents selected financial information and statistics as of
September 30, 2012 and December 31, 2011 (dollars in thousands):

                                                    September 30,      December 31,
                                                        2012               2011
Cash, cash equivalents and marketable securities   $         9,444     $       8,284
Accounts receivable, net                           $         1,244     $       1,551
Working capital                                    $         3,080     $       2,510
Cash ratio                                                    1.20              1.07
Quick ratio                                                   1.36              1.26
Current ratio                                                 1.39              1.32

The Company has invested some of its excess cash in debt instruments of the United States government. 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 September 30, 2012, the Company had $9.44 million in cash, cash equivalents and marketable securities, an increase of approximately $1.16 million from December 31, 2011. The principal component of this net increase for the last nine months was the cash generated by operating activities of approximately $1.24 million.

Additionally, the main component of current liabilities at September 30, 2012 is deferred revenue of $6.62 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 deferred revenue shown. The deferred 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 Company believes that its existing balances of cash, cash equivalents, marketable securities and cash generated from operations will be sufficient to satisfy its currently anticipated cash requirements through at least the next 12 months and the foreseeable future. Moreover, the Company has been cash flow positive for the last 7 fiscal years and has no long-term debt. However, the Company's liquidity could be negatively affected if it were to make an acquisition or license products or technologies, which may necessitate the need to raise additional capital through future debt or equity financing. Additional financing may not be available at all or on terms favorable to the Company.

Off-Balance Sheet Arrangements

The Company is not a party to any off-balance sheet arrangements.


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Results of Operations

                                                                3 Months Ended September 30,
                                                           2012                              2011
                                                                % of Total                        % of Total
                                                                Operating                         Operating
                                                 Amount          Revenues          Amount          Revenues

Operating revenues                             $ 2,822,056           100.00 %    $ 2,580,339           100.00 %

Operating expenses:
Data and product costs                             914,186            32.39 %        816,906            31.66 %
Selling, general and administrative expenses     1,427,830            50.60 %      1,471,631            57.03 %
Depreciation and amortization                       37,880             1.34 %         42,753             1.66 %
Total operating expenses                         2,379,896            84.33 %      2,331,290            90.35 %

Income from operations                             442,160            15.67 %        249,049             9.65 %
Other income, net                                   13,851             0.49 %         52,096             2.02 %

Income before income taxes                         456,011            16.16 %        301,145            11.67 %
Provision for income taxes                        (182,473 )          (6.47 %)       (72,260 )          (2.80 %)

Net income                                     $   273,538             9.69 %    $   228,885             8.87 %

Operating revenues increased $241,717, or 9%, for the three months ended September 30, 2012 compared to the third quarter of fiscal 2011. This overall revenue growth resulted from a $226,855, or 9%, increase in Internet subscription service revenue, attributable to increased sales to new and existing subscribers, as well as a $14,862, or 39%, increase in the Company's third-party international credit report subscription service, attributable to higher usage by subscribers.

Data and product costs increased $97,280, or 12%, for the third quarter of 2012 compared to the same period of fiscal 2011. This increase was due primarily to higher salary and related employee benefits, including additional quality control personnel, the higher cost associated with the outsourcing of certain data entry tasks as more tasks have been outsourced as well as the higher cost of third-party content due to the purchase of additional data elements.

Selling, general and administrative expenses decreased $43,801, or 3%, for the third quarter of fiscal 2012 compared to the same period of fiscal 2011. This decrease was due to lower salary and related employee benefits, as the result of a decrease in commission expense, and lower professional and recruiting fees, offset by higher costs of attending trade shows and exhibitions, the cost of listing the Company's common stock on the OTCQX in July 2012 and the higher cost of complying with the SEC's requirement for tagging the Company's footnotes in XBRL.

Depreciation and amortization decreased $4,873, or 11%, for the third quarter of fiscal 2012 compared to the same period of fiscal 2011. This decrease was due to a lower depreciable asset base reflecting the continued use of certain items that have been fully depreciated.

Other income, net decreased $38,245 for third quarter of fiscal 2012 compared to the same period last year. This decrease was due to a smaller mark-to-market adjustment recorded in this year's second quarter.

Provision for income taxes increased $110,213 for the third quarter of fiscal 2012 compared to the same period of fiscal 2011. This increase was due to higher pre-tax income as well as higher payments made this year in connection with the filing of the Company's 2011 tax returns versus payments last year in connection with the filing of the Company's 2010 tax returns.


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                                                                9 Months Ended September 30,
                                                           2012                              2011
                                                                % of Total                        % of Total
                                                                Operating                         Operating
                                                 Amount          Revenues          Amount          Revenues

Operating revenues                             $ 8,207,538           100.00 %    $ 7,559,650           100.00 %

Operating expenses:
Data and product costs                           2,777,343            33.84 %      2,470,323            32.68 %
Selling, general and administrative expenses     4,591,402            55.94 %      4,228,203            55.93 %
Depreciation and amortization                      114,436             1.39 %        125,482             1.66 %
Total operating expenses                         7,483,181            91.17 %      6,824,008            90.27 %

Income from operations                             724,357             8.83 %        735,642             9.73 %
Other income, net                                   26,468             0.32 %         87,015             1.15 %

Income before income taxes                         750,825             9.15 %        822,657            10.88 %
Provision for income taxes                        (312,352 )          (3.81 %)      (254,711 )          (3.37 %)

Net income                                     $   438,473             5.34 %    $   567,946             7.51 %

Operating revenues increased $647,888, or 9%, for the nine months ended September 30, 2012 compared to the first nine months of fiscal 2011. This overall revenue growth resulted from a $670,124, or 9%, increase in Internet subscription service revenue, attributable to increased sales to new and existing subscribers, partially offset by a $22,236, or 12%, decrease in the Company's third-party international credit report subscription service, attributable to lower usage by subscribers.

Data and product costs increased $307,020, or 12%, for the first nine months of 2012 compared to the same period of fiscal 2011. This increase was due primarily to higher salary and related employee benefits, including additional quality control personnel, the higher cost associated with the outsourcing of certain data entry tasks as more tasks have been outsourced as well as the higher cost of third-party content due to the purchase of additional data elements.

Selling, general and administrative expenses increased $363,199, or 9%, for the first nine months of fiscal 2012 compared to the same period of fiscal 2011. This increase was primarily due to higher salary and related employee benefits.

Depreciation and amortization decreased $11,046, or 9%, for the first nine months of fiscal 2012 compared to the same period of fiscal 2011. This decrease was due to a lower depreciable asset base reflecting the continued use of certain items that have been fully depreciated.

Other income, net decreased $60,547 for the first nine months of fiscal 2012 compared to the same period last year. This decrease was due to the Company recording a negative mark-to-market adjustment in 2012 versus a positive a mark-to-market adjustment recorded in 2011.

Provision for income taxes increased $57,641 for the first nine months of fiscal 2012 compared to the same period of fiscal 2011. This increase was the result of higher payments made this year in connection with the filing of the Company's 2011 tax returns versus payments last year in connection with the filing of the Company's 2010 tax returns, partially offset by the lower pre-tax income 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.


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As a result of the evolving nature of the markets in which it competes, the Company's ability to accurately forecast its revenues, gross profits and operating expenses as a percentage of net sales is limited. 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 2012 and future periods as the Company continues to expand its business on a worldwide basis. Further, the Company expects that product development expenses and data costs will also continue to increase in dollar amount and may increase as a percentage of revenues during the remainder of 2012 and future periods because it expects to employ more development personnel on average compared to prior periods, obtain additional data and build the infrastructure required to support the development of new and improved products and services. However, as these expenditures are largely 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 significant 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 Company's ability to retain existing customers, attract new customers at a steady rate and maintain customer satisfaction, (ii) the Company's ability to maintain gross margins in its existing business and in future product lines and markets, (iii) the development of new services and products by the Company and its competitors,
(iv) price competition, (v) the level of use of the Internet and online services and increasing acceptance of the Internet and other online services for the purchase of products such as those offered by the Company, (vi) the Company's ability to upgrade and develop its systems and infrastructure, (vii) the Company's ability to attract new personnel in a timely and effective manner,
(viii) the level of traffic on the Company's website, (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 to expansion of 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.


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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 "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.

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