| 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 subscribers’
discretionary spending for financial risk information, or even their solvency, but we cannot predict whether or to what extent this will occur.
Our strategic priorities and plans for 2024 are to continue to build on the improvement initiatives underway to achieve sustainable, profitable growth.
Financial Condition, Liquidity and Capital Resources
The following table presents selected financial information and statistics as March 31, 2024 and December 31, 2023 (dollars in thousands):
| |
|
March 31,
2024
|
|
|
December 31,
2023
|
|
|
Cash and cash equivalents
|
|
$
|
11,416
|
|
|
$
|
11,005
|
|
|
Held-to-maturity securities
|
|
$
|
3,539
|
|
|
$
|
3,495
|
|
|
Accounts receivable, net
|
|
$
|
3,793
|
|
|
$
|
3,941
|
|
|
Working capital
|
|
$
|
6,671
|
|
|
$
|
6,499
|
|
|
Cash ratio
|
|
|
0.89
|
|
|
|
0.86
|
|
|
Quick ratio
|
|
|
1.46
|
|
|
|
1.45
|
|
|
Current ratio
|
|
|
1.52
|
|
|
|
1.51
|
|
As of March 31, 2024, the Company had $11.4 million in cash and cash equivalents, an increase of approximately $0.4 million from December 31, 2023. This increase was primarily the result of cash provided by operating
activities of approximately $0.6 million offset by the net cash used in investing activities totaling approximately $0.2 million.
The main component of current liabilities at March 31, 2024 was unexpired subscription revenue of approximately $11.1 million, which should not require significant future cash outlay, as this is annual reoccurring
revenue, other than the cost of preparation and delivery of the applicable commercial credit reports, which cost much less than the unexpired subscription revenue shown. Unexpired subscription revenue is recognized as income over the subscription
term, which approximates 12 months.
The Company has no bank lines of credit or other currently available credit sources.
The Company believes that its existing balances of cash and cash equivalents and cash generated from operations will be sufficient to satisfy its anticipated cash requirements through at least the next 12 months and
the foreseeable future. Moreover, the Company 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.
Results of Operations
| |
|
3 Months Ended March 31,
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2024
|
|
|
2023
|
|
| |
|
|
|
|
% of Total
Operating
Revenues
|
|
|
|
|
|
% of Total
Operating
Revenues
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
4,808,707
|
|
|
|
100
|
%
|
|
$
|
4,590,744
|
|
|
|
100
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data and product costs
|
|
|
2,197,777
|
|
|
|
46
|
%
|
|
|
1,920,371
|
|
|
|
42
|
%
|
|
Selling, general and administrative expenses
|
|
|
2,553,601
|
|
|
|
53
|
%
|
|
|
2,359,041
|
|
|
|
51
|
%
|
|
Depreciation and amortization
|
|
|
93,170
|
|
|
|
2
|
%
|
|
|
97,521
|
|
|
|
2
|
%
|
|
Total operating expenses
|
|
|
4,844,548
|
|
|
|
101
|
%
|
|
|
4,376,933
|
|
|
|
95
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(35,841
|
)
|
|
|
(1
|
%)
|
|
|
213,811
|
|
|
|
5
|
%
|
|
Other income, net
|
|
|
201,759
|
|
|
|
4
|
%
|
|
|
140,978
|
|
|
|
3
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
165,918
|
|
|
|
3
|
%
|
|
|
354,789
|
|
|
|
8
|
%
|
|
Provision for income taxes
|
|
|
(38,511
|
)
|
|
|
(1
|
%)
|
|
|
(79,509
|
)
|
|
|
(2
|
%)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
127,407
|
|
|
|
2
|
%
|
|
$
|
275,280
|
|
|
|
6
|
%
|
Operating revenues increased approximately $218 thousand, or 5%, for the first quarter of fiscal 2024 compared to the same period of fiscal 2023. This overall revenue growth resulted from an increase in SaaS
subscription product revenue, attributable to increased sales to new and existing subscribers, as well as related price increases for subscriptions.
Data and product costs increased approximately $277 thousand, or 14%, for the first quarter of 2024 compared to the same period of fiscal 2023. This increase was due primarily to (1) higher salary and related employee
benefits due to new hires and pay raises to staff, (2) additional data subscriptions for new service offerings including the SupplyChainMonitor™ product, and (3) higher costs of third-party content, due to price increases instituted by some of the
Company’s major suppliers.
Selling, general and administrative expenses increased approximately $195 thousand, or 8%, for the first quarter of fiscal 2024 compared to the same period of fiscal 2023. This increase was due to higher salary
expenses from new hires, higher commissions being paid out in 2024 due to sales of newer product offerings, pay raises, and sales enablement software.
Other income increased approximately $61 thousand for the first quarter of fiscal 2024 compared to the same period of fiscal 2023. This increase was due to higher return received on the Company’s money market funds and
held-to-maturity holdings compared to fiscal 2023.
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.
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 subscribers as well as the volume and timing of the subscriptions for the Company’s products, 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 subscribers with outstanding value, thus encouraging 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 as well as 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 into 2025 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 into 2025 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 of 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 Company’s ability to retain existing subscribers, attract new subscribers 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, cybersecurity breaches, or Internet brownouts, (xi) the amount and timing of operating costs and capital expenditures relating 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 “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.
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the
most recent fiscal quarter that 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
| |
|
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: May 14, 2024
|
By: /s/ Steven Gargano
|
| |
|
Steven Gargano
|
| |
|
Senior Vice President & Chief Financial Officer
|
| |
|
(Principal Accounting Officer)
|
15