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CRMZ > SEC Filings for CRMZ > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for CREDITRISKMONITOR COM INC

Form 10-Q for CREDITRISKMONITOR COM INC


14-Aug-2013

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 2013 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 2013.

Financial Condition, Liquidity and Capital Resources

The following table presents selected financial information and statistics as of
June 30, 2013 and December 31, 2012 (dollars in thousands):

                                                    June 30,      December 31,
                                                      2013            2012
Cash, cash equivalents and marketable securities   $    8,957     $       8,148
Accounts receivable, net                           $    1,077     $       1,776
Working capital                                    $    2,400     $       2,289
Cash ratio                                               1.07              1.00
Quick ratio                                              1.20              1.21
Current ratio                                            1.29              1.28

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 June 30, 2013, the Company had $8.96 million in cash, cash equivalents and marketable securities, an increase of approximately $809,000 from December 31, 2012. The principal component of this net increase for the last six months was the cash generated by operating activities of approximately $971,000.

Additionally, the main component of current liabilities at June 30, 2013 is deferred revenue of $7.20 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 8 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 June 30,
                                                2013                              2012
                                                     % of Total                        % of Total
                                                     Operating                         Operating
                                      Amount          Revenues          Amount          Revenues

Operating revenues                  $ 2,933,752           100.00 %    $ 2,740,227           100.00 %

Operating expenses:
Data and product costs                1,136,238            38.73 %        936,411            34.17 %
Selling, general and                  1,652,682            56.33 %      1,566,213            57.16 %
administrative expenses
Depreciation and amortization            35,117             1.20 %         38,415             1.40 %
Total operating expenses              2,824,037            96.26 %      2,541,039            92.73 %

Income from operations                  109,715             3.74 %        199,188             7.27 %
Other income (expense), net             (36,069 )          (1.23 %)        15,428             0.56 %

Income before income taxes               73,646             2.51 %        214,616             7.83 %
Provision for income taxes              (29,293 )          (1.00 %)       (97,735 )          (3.57 %)

Net income                          $    44,353             1.51 %    $   116,881             4.26 %

Operating revenues increased $193,525, or 7%, for the three months ended June 30, 2013 compared to the second quarter of fiscal 2012. 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 $199,827, or 21%, for the second quarter of 2013 compared to the same period of fiscal 2012. This increase was due primarily to higher salary and related employee benefits, including additional quality control personnel, the higher cost of third-party content due to the purchase of additional data elements, as well as the higher cost associated with the outsourcing of certain data entry tasks, as more tasks have been outsourced.

Selling, general and administrative expenses increased $86,469, or 6%, for the second quarter of fiscal 2013 compared to the same period of fiscal 2012. This increase was due to higher salary and related employee benefits, as the result of increased headcount, and legal fees incurred in 2013 for foreign trademark registration.

Depreciation and amortization decreased $3,298, or 9%, for the second quarter of fiscal 2013 compared to the same period of fiscal 2012. This decrease was due to a lower depreciable asset base reflecting the continued use of certain items that have been fully depreciated.

Other income (expense), net decreased $51,497 for second quarter of fiscal 2013 compared to the same period last year. This decrease was due to a negative mark-to-market adjustment recorded in this year's second quarter.

Provision for income taxes decreased $68,442 for the second quarter of fiscal 2013 compared to the same period of fiscal 2012. This decrease was due to the Company having lower pre-tax income because of the reasons enumerated above.


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                                                       6 Months Ended June 30,
                                                2013                              2012
                                                     % of Total                        % of Total
                                                     Operating                         Operating
                                      Amount          Revenues          Amount          Revenues

Operating revenues                  $ 5,799,259           100.00 %    $ 5,385,482           100.00 %

Operating expenses:
Data and product costs                2,172,966            37.47 %      1,863,156            34.60 %
Selling, general and                  3,387,410            58.41 %      3,163,572            58.74 %
administrative expenses
Depreciation and amortization            70,553             1.22 %         76,556             1.42 %
Total operating expenses              5,630,929            97.10 %      5,103,284            94.76 %

Income from operations                  168,330             2.90 %        282,198             5.24 %
Other income (expense), net             (42,430 )          (0.73 %)        12,616             0.23 %

Income before income taxes              125,900             2.17 %        294,814             5.47 %
Provision for income taxes              (49,944 )          (0.86 %)      (129,879 )          (2.41 %)

Net income                          $    75,956             1.31 %    $   164,935             3.06 %

Operating revenues increased $413,777, or 8%, for the six months ended June 30, 2013 compared to the first half of fiscal 2012. This overall revenue growth is due to an increase in Internet subscription service revenue, attributable to increased sales to new and existing subscribers, partially offset by a decrease in the Company's third-party international credit report subscription service, attributable to lower usage by subscribers.

Data and product costs increased $309,810, or 17%, for the first six months of 2013 compared to the same period of fiscal 2012. 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 $223,838, or 7%, for the first six months of fiscal 2013 compared to the same period of fiscal 2012. This increase was primarily due to higher salary and related employee benefits, and legal fees incurred in 2013 for foreign trademark registration.

Depreciation and amortization decreased $6,003, or 8%, for the first six months of fiscal 2013 compared to the same period of fiscal 2012. This decrease was due to a lower depreciable asset base reflecting the continued use of certain items that have been fully depreciated.

Other income (expense), net decreased $55,046 for the first six months of fiscal 2013 compared to the same period last year. This decrease was due to the greater negative mark-to-market adjustment recorded in 2013.

Provision for income taxes decreased $79,935 for the first six months of fiscal 2013 compared to the same period of fiscal 2012. This decrease was due to the Company having 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 2013 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 2013 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 Company's ability to obtain products and services from its vendors, including information suppliers, on commercially reasonable terms, (vi) the Company's ability to upgrade and develop its systems and infrastructure, and adapt to technological change, (vii) the Company's ability to attract and retain personnel in a timely and effective manner, (viii) the Company's ability to manage effectively its development of new business segments and markets, (ix) the Company's ability to successfully manage the integration of operations and technology of acquisitions or other business combinations, (x) technical difficulties, system downtime or Internet brownouts,
(xi) the amount and timing of operating costs and capital expenditures relating to the Company's business, operations and infrastructure, (xii) governmental regulation and taxation policies, (xiii) disruptions in service by common carriers due to strikes or otherwise, (xiv) risks of fire or other casualty,
(xv) litigation costs or other unanticipated expenses, (xvi) interest rate risks and inflationary pressures, and (xvii) 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 "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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