The Company established a 401(k) Plan covering all employees effective January 1, 2000 that provides for discretionary Company contributions. Employees are eligible to participate in the 401(k) plan if they are over the age of 21 and after completing one month of service with the company after their hire date. The Company has no other retirement, pension, profit sharing or similar program in effect for its employees. The Company adopted a stock optionlong-term incentive plan in 20092020 that covercovers its employees.
The Company does not own any real property. The Company’s principal office is located in approximately 12,30016,900 square feet of leased space in an industrial warehouse complex located in Valley Cottage, New York. The lease expires on July 31, 20202025 and provides for an aggregate total monthly cost of $14,400,approximately $21,600, subject to annual increases, plus an allocated portion of real estate taxes insurance and common area maintenance.insurance.
Neither the Company nor its property is a party to or the subject of a pending legal proceeding.
Not applicable.
The Company did not repurchase any of its common stock during the fourth quarter of 2017.2020.
Not applicable.
The following table presents selected financial information and statistics as of December 31, 20172020 and 20162019 (dollars in thousands):
The Company has invested some of its excess cash in cash equivalents.equivalents and available for sale securities. 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 December 31, 2017,2020, the Company had $8.74$10.76 million in available for sale securities & cash and cash equivalents, a decreasean increase of approximately $487,000$2.49 million from December 31, 2016. The reason for this decrease2019. This increase was thatprimarily the netresult of cash generatedprovided by financing activities through the SBA’s PPP loan program of approximately $1.56 million. In addition, cash provided by operating activities for the last 12 months ($248,000)of approximately $1.21 million was lessgreater than the cash used to acquire property and equipment and available for the purchase of fixed assets ($199,000) and the dividend paid to stockholders ($536,000).sale securities totaling approximately $746,000.
The Company’s cash generated by operating activities exceeded its net income primarily due to non-cash expenses (e.g., depreciation and stock-based compensation). Additionally, the main component of current liabilities at December 31, 20172020 is deferredunexpired subscription revenue of $8.30$9.65 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 deferredunexpired subscription revenue shown. The deferredUnexpired 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.
A major component of short-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. 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 $1,314,848. The lender of this loan started accepting applications for forgiveness at the beginning of 2021.
TheGiven 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 believes thatapplied for and received a loan under the Paycheck Protection Program. See Item 9C below. With the proceeds of this loan, along with its existing balancesbalance of cash and cash equivalents and cash generated from operations, will bethe Company expects to have sufficient liquidity to satisfy its currently anticipated cash requirements through at leastcontinue for the next 12 months and the foreseeable future. Moreover, the Company has been cash flow positive for 8 of the last 10 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 if it were to 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.
As described more fully in Note 7 of the Notes to Financial Statements, at December 31, 2017 the Company had certain cash obligations, which are due as follows:months.
| | Total | | | | | | 1-3 Years | | | 4-5 Years | | | | |
| | | | | | | | | | | | | | | |
Operating leases | | $ | 467,862 | | | $ | 176,944 | | | $ | 290,918 | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 467,862 | | | $ | 176,944 | | | $ | 290,918 | | | $ | - | | | $ | - | |
Off-Balance Sheet Arrangements
The Company is not a party to any other off-balance sheet arrangements.
Results of Operations
20172020 vs. 20162019
| | Year Ended December 31, | |
| | 2020
| | | 2019
| |
| | Amount | | | % of Total Revenue | | | Amount | | | % of Total Revenue | |
Operating revenues | | $ | 15,732,366 | | | | 100.00 | % | | $ | 14,501,173 | | | | 100.00 | % |
| | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | |
Data and product costs | | | 6,026,464 | | | | 38.31 | % | | | 5,759,660 | | | | 39.72 | % |
Selling, general and administrative expenses | | | 9,724,182 | | | | 61.81 | % | | | 8,347,083 | | | | 57.56 | % |
Depreciation and amortization | | | 219,847 | | | | 1.40 | % | | | 207,224 | | | | 1.43 | % |
Total operating expenses | | | 15,970,493 | | | | 101.51 | % | | | 14,313,967 | | | | 98.71 | % |
| | | | | | | | | | | | | | | | |
(Loss) income from operations | | | (238,127 | ) | | | (1.51 | %) | | | 187,206 | | | | 1.29 | % |
Other income, net | | | 26,774 | | | | 0.17 | % | | | 155,852 | | | | 1.08 | % |
| | | | | | | | | | | | | | | | |
(Loss) income before income taxes | | | (211,353 | ) | | | (1.34 | %) | | | 343,058 | | | | 2.37 | % |
Benefit from (provision for) income taxes | | | 163,925 | | | | 1.04 | % | | | (125,354 | ) | | | (0.87 | %) |
| | | | | | | | | | | | | | | | |
Net (loss) income | | $ | (47,428 | ) | | | (0.30 | %) | | $ | 217,704 | | | | 1.50 | % |
| | Year Ended December 31, | |
| | 2017 | | | 2016 | |
| | Amount | | | % of Total Revenue | | | Amount | | | % of Total Revenue | |
|
| | | | | | | | | | | | |
Operating revenues | | $ | 13,385,068 | | | | 100.00 | % | | $ | 12,814,390 | | | | 100.00 | % |
| | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | |
Data and product costs | | | 5,426,779 | | | | 40.54 | % | | | 4,944,053 | | | | 38.58 | % |
Selling, general and administrative expenses | | | 8,044,256 | | | | 60.10 | % | | | 7,495,742 | | | | 58.50 | % |
Depreciation and amortization | | | 191,960 | | | | 1.43 | % | | | 200,136 | | | | 1.56 | % |
Total operating expenses | | | 13,662,995 | | | | 102.07 | % | | | 12,639,931 | | | | 98.64 | % |
| | | | | | | | | | | | | | | | |
Income (loss) from operations | | | (277,927 | ) | | | (2.07 | %) | | | 174,459 | | | | 1.36 | % |
Other income, net | | | 47,216 | | | | 0.35 | % | | | 27,183 | | | | 0.21 | % |
| | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (230,711 | ) | | | (1.72 | %) | | | 201,642 | | | | 1.57 | % |
Benefit (provision) for income taxes | | | 242,781 | | | | 1.81 | % | | | (149,199 | ) | | | (1.16 | %) |
| | | | | | | | | | | | | | | | |
Net income | | $ | 12,070 | | | | 0.09 | % | | $ | 52,443 | | | | 0.41 | % |
Operating revenues increased $570,678,approximately $1.2 million, or 4%8%, for fiscal 20172020 over the prior year. This overall revenue growth resulted from an increase in Internetinternet subscription service revenue, attributable to increased sales to new and existing subscribers.
Data and product costs increased $482,726,approximately $267,000, or 10%5%, for fiscal 2017.2020 compared to fiscal 2019. This increase was due primarily due to (1) higher salary and related employee benefits as the Company increased its headcount, as well asdue to pay raises to staff, and (2) higher data costs of third-party content, due to price increases instituted by some of certain critical feeds.the Company’s major suppliers.
Selling, general and administrative expenses increased $548,514,approximately $1.38 million, or 7%16%, for fiscal 2017.2020 compared to fiscal 2019. This increase was due to higher salary and related employee benefits, because of a higher commission expense due to increased sales, revised methodology of accruing commissions, a new sales trainee class, maintaining employee head count, and even adding new ones. This increase was offset in part by lower marketing expenditures due to COVID related trade show cancellations and higher executive recruiting fees paid. The increase in marketing expenses was part of our 2017 plan to drive increased traffic to the Company’s website and improve customers’ experience using the website, with the hope of incremental future sales. The executive recruiting fees paid relate to the cost of staffing the Company’s marketing department.travel restrictions.
Depreciation and amortizationOther income decreased $8,176, or 4%,approximately $129,000 for fiscal 2017.2020 compared to fiscal 2019. This decrease was due to athe lower depreciable asset base reflectingreturn received on the continued use of certain items that have been fully depreciated.
Other income, net increased $20,033 for fiscal 2017, primarily due to higher income from cash equivalents recorded in 2017Company’s money market fund holdings compared to 2016.
The Company recorded a benefit for income taxes in 2017 as it had a pre-tax loss while it recorded a provision in 2016 as the Company had pre-tax income. Additionally, in accordance with the Tax Cuts and Jobs Act that was enacted on December 22, 2017 (“U.S. Tax Reform”), we have recorded a credit for income taxes of $220,954 in 2017 (see Note 4 to the financial statements for further details).
2016 vs. 2015
| | Year Ended December 31, | |
| | 2016 | | | 2015 | |
| | Amount | | | | | | Amount | | | | |
| | | | | | | | | | | | |
Operating revenues | | $ | 12,814,390 | | | | 100.00 | % | | $ | 12,486,316 | | | | 100.00 | % |
| | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | |
Data and product costs | | | 4,944,053 | | | | 38.58 | % | | | 4,665,360 | | | | 37.37 | % |
Selling, general and administrative expenses | | | 7,495,742 | | | | 58.50 | % | | | 6,685,528 | | | | 53.54 | % |
Depreciation and amortization | | | 200,136 | | | | 1.56 | % | | | 218,621 | | | | 1.75 | % |
Total operating expenses | | | 12,639,931 | | | | 98.64 | % | | | 11,569,509 | | | | 92.66 | % |
| | | | | | | | | | | | | | | | |
Income from operations | | | 174,459 | | | | 1.36 | % | | | 916,807 | | | | 7.34 | % |
Other income, net | | | 27,183 | | | | 0.21 | % | | | 2,344 | | | | 0.02 | % |
| | | | | | | | | | | | | | | | |
Income before income taxes | | | 201,642 | | | | 1.57 | % | | | 919,151 | | | | 7.36 | % |
Provision for income taxes | | | (149,199 | ) | | | (1.16 | %) | | | (405,965 | ) | | | (3.25 | %) |
| | | | | | | | | | | | | | | | |
Net income | | $ | 52,443 | | | | 0.41 | % | | $ | 513,186 | | | | 4.11 | % |
Operating revenues increased $328,074, or 3%, for fiscal 2016 over the prior year. This overall revenue growth resulted from 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 $278,693, or 6%, for fiscal 2016. This increase was due primarily higher salary and related employee benefits, as the Company increased its headcount.
Selling, general and administrative expenses increased $810,214, or 12%, for fiscal 2016. This increase was due to higher marketing expenditures and higher salary and related employee benefits. The increase in marketing expenses was part of our 2016 plan to drive increased traffic to the Company’s website and improve customers’ experience using the website, with the hope of incremental future sales. This is the Company’s first significant marketing campaign and it includes investment in a substantial redesign of the website, which was launched early in the second quarter.
Depreciation and amortization decreased $18,485, or 8%, for fiscal 2016. This decrease was due to a lower depreciable asset base reflecting the continued use of certain items that have been fully depreciated. The increase in property and equipment, net since year end is due to a deposit made at the end of the first quarter for a new telephone system that was not installed until mid-September.
Other income, net increased $24,839 for fiscal 2016, primarily due to a larger mark-to-market adjustment related to the Company’s investments recorded in 2016.
Provision for income taxes decreased $256,766 due to the Company having lower pre-tax income because of the reasons enumerated.2019.
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.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 2018into 2021 and future periods as the Company continues to expand its business on a worldwide basis. Further, the Company expects that product development expenses will also continue to increase in dollar amount and may increase as a percentage of revenues in 2018into 2021 and future periods because it expects to employ more development personnel on average compared to prior periods and build the infrastructure required to support the development of new and improved products and services. However, as some these expenditures are discretionary in nature, the Company expects that the actual amounts incurred will be in line with its projections of future cash flows in order not to negatively impact its future liquidity and capital needs. There can be no assurance that the Company will be able to achieve these objectives within a meaningful time frame.
The Company expects to experience fluctuations in its future quarterly operating results due to a variety of factors, some of which are outside the Company’s control. Factors that may adversely affect the Company’s quarterly operating results include, among others, (i) the short-term and long-term effects the COVID-19 outbreak and related developments will have on our customers and their ongoing businesses and how those effects may impact our sales to them, (ii) the Company’s ability to retain existing customers, attract new customers at a steady rate and maintain customer satisfaction, (iii) the Company’s ability to maintain gross margins in its existing business and in future product lines and markets, (iv) the development of new services and products by the Company and its competitors, (v) price competition, (vi) the Company’s ability to obtain products and services from its vendors, including information suppliers, on commercially reasonable terms, (vii) the Company’s ability to upgrade and develop its systems and infrastructure, and adapt to technological change, (viii) the Company’s ability to attract and retain personnel in a timely and effective manner, (ix) the Company’s ability to manage effectively its development of new business segments and markets, (x) the Company’s ability to successfully manage the integration of operations and technology of acquisitions or other business combinations, (xi) technical difficulties, system downtime or Internet brownouts, (xii) the amount and timing of operating costs and capital expenditures relating the Company’s business, operations and infrastructure, (xiii) governmental regulation and taxation policies, (xiv) disruptions in service by common carriers due to strikes or otherwise, (xv) risks of fire or other casualty, (xvi) litigation costs or other unanticipated expenses, (xvii) interest rate risks and inflationary pressures, and (xviii) general economic conditions and economic conditions specific to the Internet and online commerce.
Due to the foregoing factors, the Company believes that period-to-period comparisons of its revenues and operating results are not necessarily meaningful and should not be relied on as an indication of future performance.
Critical Accounting Policies, Estimates and Judgments
The Company’s financial statements are prepared in accordance with accounting principles that are generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Management continually evaluates its estimates and judgments, the most critical of which are those related to:
Revenue recognition15 -- CreditRiskMonitor’s North American and worldwide service is sold on a subscription basis pursuant to customer contracts that span varying periods of time, but are generally for a period of one year. The Company initially records amounts billed as accounts receivable and defers the related revenue until persuasive evidence of an arrangement exists, fees are fixed and determinable, and collection is reasonably assured. Revenues are recognized ratably over the related subscription period. Revenue from the Company’s third-party international credit report service is recognized as information is delivered and products and services are used by customers.
Valuation of goodwill -- Goodwill is reviewed for impairment annually, or more frequently if events or changes in circumstances warrant. If the carrying value of this asset exceeds its estimated fair value, the Company will record an impairment loss to write the asset down to its estimated fair value.
Income taxes -- The Company provides for deferred income taxes resulting from temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred tax liabilities are recognized for temporary differences that will be taxable in future years’ tax returns. Deferred tax assets are recognized for temporary differences that will be deductible in future years’ tax returns and for operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized.
Recently Issued Accounting Standards
The information set forth under Note 2 to the financial statements under the caption “Recently Issued Accounting Standards“ is incorporated herein by reference.
Risks and Other Considerations
The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties not presently known to the Company or currently deemed immaterial also may impair its business operations. If any of the risks described below actually occur, the Company’s business could be impaired.
From time to time, information provided by the Company or statements made by its employees, or information provided in its filings with the SEC may contain forward-looking information. Any statements contained herein or otherwise made 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” and similar expressions are intended to identify forward-looking statements. The Company’s actual future operating results or short-term or long-term liquidity may differ materially from those projections or statements made in such forward-looking information as a result of various risks and uncertainties, including but not limited to the following in addition to those set forth elsewhere herein or in other filings made by the Company with the SEC.
Slowing Rates of Growth and Margins. In order to continue to grow its business and maintain or increase its profit margins, the Company among other things, must maintain and increase its customer base, implement and successfully execute its business and marketing strategy and its expansion into new product markets, continue to develop and upgrade its technology and transaction-processing systems, improve its website, provide superior customer service, respond to competitive developments and attract, retain and motivate qualified personnel. There can be no assurance that the Company will be successful in addressing such risks, and the failure to do so could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.
Unpredictability of Future Revenues and Profits; Potential Fluctuations in Operating Results. 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 and to a large extent are fixed. Sales and operating results generally depend on the Company’s ability to attract and retain customers and the volume of and timing of their 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.
Maintaining and improving profitability depends on the Company’s ability to generate and sustain substantially increased revenue levels. The Company believes that its success will depend in large part on its ability to (i) extend its brand position, (ii) provide its customers with outstanding value, and (iii) achieve sufficient sales volume to realize economies of scale. Accordingly, the Company intends to continue to invest in marketing and promotion, product development and technology and operating infrastructure development. 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 and the Company’s limited forecasting abilities, 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.
Competition. The online commerce market, particularly over the Web, is intensely competitive. The Company’s current or potential competitors include (i) companies now selling or who will be selling credit analysis data, such as Dun & Bradstreet which currently has the dominant position in the industry and the financial resources to invest much more than the Company can while withstanding substantial price competition, and (ii) a number of indirect competitors that specialize in online commerce or information or who derive a substantial portion of the revenues from online commerce, advertising or information, and who may offer competing products, and many of which possess significant brand awareness, sales volume and customer bases. The Company believes that the principal competitive factors in its market are brand recognition, selection, personalized services, convenience, price, accessibility, customer service, quality of search tools, breadth of coverage, quality of editorial and other site content and reliability and speed of delivery. Many of the Company’s competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than the Company. Certain of the Company’s competitors may be able to secure data from vendors on more favorable terms, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing and devote substantially more resources to Web site and systems development than the Company. Increased competition may result in reduced operating margins, loss of market share and a diminished brand franchise. There can be no assurance that the Company will be able to compete successfully against current and future competitors.
The Company expects that the competition in the Internet and online commerce markets will intensify in the future. For example, as various Internet market segments obtain large, loyal customer bases, participants in those segments may seek to leverage their market power to the detriment of participants in other market segments. In addition, new technologies and the expansion of existing technologies may increase the competitive pressures on the Company. Competitive pressures created by any one of the Company’s competitors, or by the Company’s competitors collectively, could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.
Need for Additional Financing; Risks of Default. The Company’s future liquidity and capital funding requirements will depend on numerous factors, including whether or when the Company will increase its customer base and revenues, and the costs and timing of expansion of sales, control of information costs and other expenses and competition. There can be no assurance that additional capital, if needed, will be available on terms acceptable to the Company, or at all. Furthermore, debt financing, if available, will likely include restrictive covenants, including financial maintenance covenants restricting the Company’s ability to incur additional indebtedness and to pay dividends. The failure of the Company to raise capital on acceptable terms when needed could have a material adverse effect on the Company.
System Development and Operation Risks. Any system interruptions that result in the unavailability of the Company’s Web site would reduce the attractiveness of the Company’s service offerings. The Company has experienced periodic system interruptions, which it believes will continue to occur from time to time. The Company will be required to add additional software and hardware and further develop and upgrade its existing technology and network infrastructure to accommodate increased traffic on its Web site resulting from increased sales volume. Any inability to do so may cause unanticipated system disruptions, slower response times, degradation in levels of customer service, impaired quality, or delays in reporting accurate financial information. There can be no assurance that the Company will be able to accurately project the rate or timing of increases, if any, in the use of its Web site or in a timely manner to effectively upgrade and expand its systems or to integrate smoothly any newly developed or purchased modules with its existing systems. Any inability to do so could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.
The Company’s web servers are located at a secure offsite location. Its back office computer and communications hardware is located at a single leased facility in Valley Cottage, New York. The Company’s systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, break-ins, earthquake and similar events. The Company does not currently have redundant systems or a formal disaster recovery plan and does not have sufficient business interruption insurance to compensate it for losses that may occur. Despite the implementation of network security measures by the Company, its servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays, loss of critical data or the inability to accept and fulfill customer orders. The occurrence of any of the foregoing events could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.
Management of Potential Growth. To continue to manage the expected growth of its operations and personnel, the Company will be required to improve existing and implement new operational and financial systems, procedures and controls, as well as to expand, train and manage its growing employee base. There can be no assurance that the Company's current and planned personnel, systems, procedures and controls will be adequate to support the Company’s future operations, that management will be able to hire, train, retain, motivate and manage required personnel or that Company management will be able to successfully identify, manage and exploit existing and potential market opportunities. If the Company is unable to manage growth effectively, such inability could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.
Limited Personnel. The Company currently has limited personnel and other resources to undertake the extensive marketing activities necessary to maintain and grow is revenues. The Company’s ability to continue to generate revenue will be dependent upon, among other things, its ability to manage an effective sales organization. The Company will need to continue to develop and expand a sales force and a marketing group with technical expertise to coordinate marketing efforts. In addition, there can be no assurance that the Company will be able to market its products effectively through an in-house sales force, independent sales representatives, through arrangements with an outside sales force, or through strategic partners.
Risks of New Business Areas. The Company intends to expand its operations by continuing to promote new and complementary products and by expanding the breadth and depth of its product or service offerings. Expansion of the Company’s operations in this manner will require significant additional expense and development, operations and editorial resources and could strain the Company’s management, financial and operational resources. There can be no assurance that the Company will be able to expand its operations in a cost-effective or timely manner. Furthermore, any new business launched by the Company that is not favorably received by customers could damage the Company’s reputation or the CreditRiskMonitor brand. The lack of market acceptance of such efforts or the Company’s inability to generate satisfactory revenues from such expanded services or products to offset their cost could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations. Gross margins attributable to new business areas may be lower than those associated with the Company’s existing business activities.
Risks of Business Combinations and Strategic Alliances. The Company may choose to expand its operations or market presence by entering into business combinations, investments, joint ventures or other strategic alliances with third parties. Any such transaction will be accompanied by risks commonly encountered in such transactions, which include, among others, the difficulty of assimilating the operations, technology and personnel of the combined companies, the potential disruption of the Company's ongoing business, the possible inability to retain key technical and managerial personnel, the potential inability of management to maximize the financial and strategic position of the Company through the successful integration of acquired businesses, additional expenses associated with amortization of purchased intangible assets, additional operating losses and expenses associated with the activities and expansion of acquired businesses, the maintenance of uniform standards, controls and policies and the possible impairment of relationships with existing employees and customers. There can be no assurance that the Company will be successful in overcoming these risks or any other problems encountered in connection with such business combinations, investments, joint ventures or other strategic alliances, or that such transactions will not have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.
Rapid Technological Change. To remain competitive, the Company must continue to enhance and improve the responsiveness, functionality and features of its services. The Internet and the online commerce industry are characterized by rapid technological change, changes in user and customer requirements and preferences, frequent new products and service introductions embodying new technologies and the emergence of new industry standards and practices that could render the Company’s existing website and proprietary technology and systems obsolete. The Company’s success will depend, in part, on its ability to license leading technologies useful in its business, enhance its existing services, develop new services and technology that address the increasingly sophisticated and varied needs of its prospective customers and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. The continuing development of a website and other proprietary technology entails significant technical, financial and business risks. There can be no assurance that the Company will successfully implement new technologies or adapt its website, proprietary technology and transaction-processing systems to customer requirements or emerging industry standards. If the Company is unable, for technical, legal, financial or other reasons, to adapt in a timely manner in response to changing market conditions or customer requirements, such inability could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.
Dependence on Key Personnel. The Company’s performance is substantially dependent on the continued services and on the performance of its senior management and other key personnel. The Company does not have long-term employment agreements with any of its key personnel and maintains no “key person” life insurance policies. The loss of the services of its executive officers or other key employees could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.
Reliance on Certain Suppliers. The Company purchases its data and/or credit reports from a limited number of vendors under agreements having terms of 36 months or less. The Company has no longer-term contracts or arrangements with any vendor of data that guarantee the availability of data, the continuation of particular payment terms or the extension of credit. Nevertheless, the Company believes that it would be able to obtain the necessary data from other sources, at competitive prices, should it become necessary or advisable to do so. There can be no assurance, however, that the Company’s vendors will continue to supply data to the Company on current terms or that the Company will be able to establish new or extend current vendor relationships to ensure acquisition of information in a timely and efficient manner and on acceptable commercial terms. If the Company were unable to maintain or develop relationships with vendors that would allow it to obtain sufficient quantities of reliable information on acceptable commercial terms, such inability could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.
Risk of Expansion and Implementation of Growth Strategy. The Company’s growth and expansion have placed, and may continue to place, a strain on the Company’s management, administrative, operational, financial and technical resources and increased demands on its systems and controls. Demands on the Company’s network resources and technical staff and resources have grown rapidly with the Company’s expanding customer bases. A failure to effectively provide customer and technical support services will adversely affect the Company’s ability to attract and maintain its customer base. The Company expects to experience continued strain on its operational systems as it develops, operates and maintains its network. Expected increases in the Company’s Internet client base will produce increased demands on sales, marketing and administrative resources, its engineering and technical resources, and its customer and technical support resources. The Company believes that it will need, both in the short-term and the long-term, to hire additional sales and marketing and technical personnel as well as qualified administrative and management personnel in the accounting and finance areas to manage its financial control systems. In addition, the Company will need to hire or to train managerial and support personnel. Although the Company has hired additional personnel and upgraded certain of its systems, there can be no assurance that the Company’s administrative, operating and financial control systems, infrastructure, personnel and facilities will be adequate to support the Company’s future operations or maintain and effectively adapt to future growth.
There can be no assurance that the Company will be able to build its infrastructure, add services, expand its customer bases or implement the other features of its business strategy at the rate or to the extent presently planned, or that its business strategy will be successful. The Company’s ability to continue to grow may be affected by various factors, many of which are not within the Company’s control, including U.S. and foreign regulation of the Internet industry, competition and technological developments. The inability to continue to upgrade the networking systems or the operating and financial control systems, the inability to recruit and hire necessary personnel or the emergence of unexpected expansion difficulties could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.
Risks of Network Failure. The success of the Company is largely dependent on its ability to deliver high quality, uninterrupted access to its product over the Internet. Any system or network failure that causes interruptions in the Company’s Internet operations could have a material adverse effect on the business, financial condition or results of operations of the Company. The Company’s operations are dependent on its ability to successfully expand its network and integrate new and emerging technologies and equipment into its network, which are likely to increase the risk of system failure and cause unforeseen strain upon the network. The Company’s operations also are dependent on the Company’s protection of its hardware and other equipment from damage from natural disasters such as fires, floods, hurricanes, and earthquakes, or other sources of power loss, telecommunications failures or similar occurrences.
Significant or prolonged system failures could damage the reputation of the Company and result in the loss of customers. Such damage or losses could have a material adverse effect on the Company’s ability to obtain new subscribers and customers, and on the Company’s business, prospects, financial condition and results of operations.
Security Risks. Despite the implementation of network security measures by the Company, such as limiting physical and network access to its routers, its Internet access systems and information services are vulnerable to computer viruses, break-ins and similar disruptive problems caused by its customers or other Internet users. Such problems caused by third parties could lead to interruption, delays or cessation in service to the Company’s Internet customers. Furthermore, such inappropriate use of the Internet by third parties could also potentially jeopardize the security of confidential information stored in the computer systems of the Company’s customers and other parties connected to the Internet, which may deter potential subscribers. Persistent security problems continue to plague public and private data networks. Recent break-ins, “worms” and “viruses” reported in the press and otherwise have reached computers connected to the Internet at major corporations and Internet access providers and have involved the theft of information, including incidents in which hackers bypassed firewalls by posing as trusted computers. Alleviating problems caused by computer viruses, worms, break-ins or other problems caused by third parties may require significant expenditures of capital and resources by the Company, which could have a material adverse effect on the Company. Until more comprehensive security technologies are developed, the security and privacy concerns of existing and potential customers may inhibit the growth of the Internet service industry in general and the Company’s customer base and revenues in particular. Moreover, if the Company experiences a breach of network security or privacy, there can be no assurance that the Company’s customers will not assert or threaten claims against the Company based on or arising out of such breach, or that any such claims will not be upheld, which could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.
Risks Associated with Domain Names. The Company currently utilizes its domain names “CreditRiskMonitor.com” and “crmz.com” in its business. The acquisition and maintenance of domain names generally is regulated by governmental agencies and their designees. For example, in the United States, the National Science Foundation has appointed Network Solutions, Inc. as the exclusive registrar for the “.com”, “.net” and “.org” generic top-level domains. The regulation of domain names in the United States and in foreign countries is subject to change. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, there can be no assurance that the Company will be able to acquire or maintain relevant domain names in the United States and all other countries in which it may conduct business. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. The Company, therefore, may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of its trademarks and other proprietary rights. Any such inability could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.
Governmental Regulation and Legal Uncertainties. The Company is not currently subject to direct regulation by any domestic or foreign governmental agency, other than regulations applicable to businesses generally and laws or regulations directly applicable to access to online commerce. However, due to the increasing popularity and use of the Internet and other online services, it is possible that a number of laws and regulations may be adopted with respect to the Internet or other online services covering issues such as user privacy, pricing, content, copyrights, distribution and characteristics and quality of products and services. Furthermore, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies conducting business online. The adoption of any additional laws or regulations may decrease the growth of the Internet or other online services, which could, in turn, decrease the demand for the Company’s products and services and increase the Company’s cost of doing business, or otherwise have a material adverse effect on the Company’s business, prospects, financial condition and results of operations. Moreover, the applicability to the Internet and other online services of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve. Any such new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to the Company's business, or the application of existing laws and regulations to the Internet and other online services could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.
Proprietary Rights. The Company relies and expects to continue to rely on a combination of copyright, trademark and trade secret laws and contractual restrictions to establish and protect its technology. Other than trademarks for CRMZ and FRISK, the Company does not currently have any issued patents or registered copyrights or trademarks. The Company has applied for trademark registration for PAYCE.
The Company has a policy to require employees and consultants to execute confidentiality and technology ownership agreements upon the commencement of their relationships with the Company. There can be no assurance that the steps taken by the Company will be adequate to prevent misappropriation of its technology or other proprietary rights, or that the Company’s competitors will not independently develop technologies that are substantially equivalent or superior to the Company’s technology. There can be no assurance that the Company’s trademark applications will result in any trademark registrations, or that, if registered, any registered trademark will be held valid and enforceable if challenged.
In addition, to the extent the Company becomes involved in litigation to enforce or defend its intellectual property rights; such litigation can be a lengthy and costly process causing diversion of effort and resources by the Company and its management with no guarantee of success.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Stockholders of CreditRiskMonitor.com, Inc.:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of CreditRiskMonitor.com, Inc. (the “Company”) as of December 31, 20172020 and 2016,2019, and the related statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the years in the two-year periodthen ended, December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securitysecurities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal controlscontrol over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ CohnReznick LLP
We have served as the Company’s auditor since 2004.
Jericho, New York
March 27, 201825, 2021
CREDITRISKMONITOR.COM, INC.
BALANCE SHEETS
December 31, 20172020 and 20162019
| | 2017 | | | 2016 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | |
ASSETS | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 8,735,148 | | | $ | 9,222,343 | | | $ | 10,302,732 | | | $ | 8,275,836 | |
Available-for-sale securities - municipal bonds
| | | 458,237 | | | -- | |
Accounts receivable, net of allowance of $30,000 | | | 2,139,707 | | | | 2,090,676 | | | 2,557,443 | | | 2,287,921 | |
Other current assets | | | 530,699 | | | | 487,257 | | | | 589,072 | | | | 549,821 | |
| | | | | | | | | | | | | | |
Total current assets | | | 11,405,554 | | | | 11,800,276 | | | 13,907,484 | | | 11,113,578 | |
| | | | | | | | | | | | | | |
Property and equipment, net | | | 437,216 | | | | 430,324 | | | 545,675 | | | 477,973 | |
Operating lease right-of-use asset | | | 2,200,031 | | | 2,380,974 | |
Goodwill | | | 1,954,460 | | | | 1,954,460 | | | 1,954,460 | | | 1,954,460 | |
Other assets | | | 23,463 | | | | 23,763 | | | | 84,892 | | | | 35,723 | |
| | | | | | | | | | | | | | |
Total assets | | $ | 13,820,693 | | | $ | 14,208,823 | | | $ | 18,692,542 | | | $ | 15,962,708 | |
| | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | |
Deferred revenue | | $ | 8,304,877 | | | $ | 8,088,958 | | |
Unexpired subscription revenue | | | $ | 9,646,407 | | | $ | 8,651,843 | |
Accounts payable | | | 58,901 | | | | 96,725 | | | 130,089 | | | 137,500 | |
Current portion of operating lease liability | | | 161,874 | | | 147,229 | |
Current portion of bank loan | | | 1,299,007 | | | -- | |
Accrued expenses | | | 1,344,526 | | | | 1,282,126 | | | | 1,822,485 | | | | 1,344,550 | |
| | | | | | | | | | | | | | |
Total current liabilities | | | 9,708,304 | | | | 9,467,809 | | | 13,059,862 | | | 10,281,122 | |
| | | | | | | | | | | | | | |
Deferred taxes on income, net | | | 514,333 | | | | 762,403 | | | 333,432 | | | 521,765 | |
Other liabilities | | | 15,748 | | | | 12,574 | | |
Unexpired subscription revenue, less current portion | | | 197,545 | | | 166,169 | |
Bank loan, less current portion | | | 262,493 | | | -- | |
Operating lease liability, less current portion | | | | 2,137,559 | | | | 2.299.433 | |
| | | | | | | | | | | | | | |
Total liabilities | | | 10,238,385 | | | | 10,242,786 | | | | 15,990,891 | | | | 13,268,489 | |
| | | | | | | | | | | | | | |
Commitments and contingencies | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
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 | | | 107,224 | | | 107,224 | |
Additional paid-in capital | | | 29,559,784 | | | | 29,419,463 | | | 29,760,533 | | | 29,705,673 | |
Accumulated deficit | | | (26,084,700 | ) | | | (25,560,650 | ) | | | (27,166,106 | ) | | | (27,118,678 | ) |
| | | | | | | | | | | | | | |
Total stockholders’ equity | | | 3,582,308 | | | | 3,966,037 | | | | 2,701,651 | | | | 2,694,219 | |
| | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 13,820,693 | | | $ | 14,208,823 | | | $ | 18,692,542 | | | $
| 15,962,708 | |
The accompanying notes are an integral part of these financial statements.
CREDITRISKMONITOR.COM, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 20172020 and 20162019
| | 2017 | | | 2016 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | |
Operating revenues | | $ | 13,385,068 | | | $ | 12,814,390 | | | $ | 15,732,366 | | | $ | 14,501,173 | |
| | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | |
Data and product costs | | | 5,426,779 | | | | 4,944,053 | | | 6,026,464 | | | 5,759,660 | |
Selling, general and administrative expenses | | | 8,044,256 | | | | 7,495,742 | | | 9,724,182 | | | 8,347,083 | |
Depreciation and amortization | | | 191,960 | | | | 200,136 | | | | 219,847 | | | | 207,224 | |
| | | | | | | | | | | | | | |
Total operating expenses | | | 13,662,995 | | | | 12,639,931 | | | | 15,970,493 | | | | 14,313,967 | |
| | | | | | | | | | | | | | |
Income (loss) from operations | | | (277,927 | ) | | | 174,459 | | | (238,127 | ) | | 187,206 | |
Other income, net | | | 47,216 | | | | 27,183 | | | | 26,774 | | | | 155,852 | |
| | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (230,711 | ) | | | 201,642 | | | (211,353 | ) | | 343,058 | |
Benefit (provision) for income taxes | | | 242,781 | | | | (149,199 | ) | |
Benefit from (provision for) income taxes | | | | 163,925 | | | | (125,464 | ) |
| | | | | | | | | | | | | | |
Net income | | $ | 12,070 | | | $ | 52,443 | | |
Net income (loss) | | | $ | (47,428 | ) | | $ | 217,594 | |
| | | | | | | | | | | | | | |
| | | | | | | | | |
Net income per share: | | | | | | | | | |
Net income (loss) per share: | | | | | | | |
Basic | | $ | 0.00 | | | $ | 0.00 | | | $ | (0.00 | ) | | $ | 0.02 | |
Diluted | | $ | 0.00 | | | $ | 0.00 | | | $ | (0.00 | ) | | $ | 0.02 | |
The accompanying notes are an integral part of these financial statements.
CREDITRISKMONITOR.COM, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 20172020 and 20162019
| | Common Stock | | | Additional Paid-in | | | Accumulated | | | Total Stockholders’ | | | Common Stock | | | Additional Paid-in | | | Accumulated | | | Total Stockholders’ | |
| | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | |
| | | | | | | | | | | | | | | | |
Balance January 1, 2016 | | | 10,722,321 | | | $ | 107,223 | | | $ | 29,279,791 | | | $ | (25,076,973 | ) | | $ | 4,310,041 | | |
| | | | | | | | | | | | | | | | | | | | | |
Net income | | | - | | | | - | | | | - | | | | 52,443 | | | | 52,443 | | |
Cash dividend paid | | | - | | | | - | | | | - | | | | (536,120 | ) | | | (536,120 | ) | |
Exercise of stock options | | | 80 | | | | 1 | | | | (1 | ) | | | - | | | | - | | |
Stock-based compensation | | | - | | | | - | | | | 139,673 | | | | - | | | | 139,673 | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance December 31, 2016 | | | 10,722,401 | | | | 107,224 | | | | 29,419,463 | | | | (25,560,650 | ) | | | 3,966,037 | | |
Balance January 1, 2019 | | | 10,722,401 | | | $ | 107,224 | | | $ | 29,650,760 | | | $ | (26,800,152 | ) | | $ | 2,957,832 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | - | | | | - | | | | - | | | | 12,070 | | | | 12,070 | | | - | | | - | | | - | | | 217,594 | | | 217,594 | |
Cash dividend paid | | | - | | | | - | | | | - | | | | (536,120 | ) | | | (536,120 | ) | | - | | | - | | | - | | | (536,120 | ) | | (536,120 | ) |
Stock-based compensation | | | - | | | | - | | | | 140,321 | | | | - | | | | 140,321 | | | | - | | | | - | | | | 54,913 | | | | - | | | | 54,913 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance December 31, 2017 | | | 10,722,401 | | | $ | 107,224 | | | $ | 29,559,784 | | | $ | (26,084,700 | ) | | $ | 3,582,308 | | |
Balance December 31, 2019 | | | 10,722,401 | | | 107,224 | | | 29,705,673 | | | (27,118,678 | ) | | 2,694,219 | |
| | | | | | | | | | | | | | | | |
Net loss | | | - | | | - | | | - | | | (47,428 | ) | | (47,428 | ) |
Stock-based compensation | | | | - | | | | - | | | | 54,860 | | | | - | | | | 54,860 | |
| | | | | | | | | | | | | | | | |
Balance December 31, 2020 | | | | 10,722,401 | | | $ | 107,224 | | | $ | 29,760,533 | | | $ | (27,166,106 | ) | | $ | 2,701,651 | |
The accompanying notes are an integral part of these financial statements.
CREDITRISKMONITOR.COM, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 20172020 and 20162019
| | 2017 | | | 2016 | |
| | | | | | |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 12,070 | | | $ | 52,443 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Deferred income taxes | | | (248,070 | ) | | | 2,949 | |
Depreciation and amortization | | | 191,960 | | | | 200,136 | |
Realized loss on marketable securities | | | - | | | | 5,063 | |
Stock-based compensation | | | 140,321 | | | | 139,673 | |
Deferred rent | | | 3,174 | | | | 8,260 | |
Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable, net | | | (49,031 | ) | | | (163,248 | ) |
Other current assets | | | (43,442 | ) | | | 68,614 | |
Other assets | | | 300 | | | | 10,236 | |
Deferred revenue | | | 215,919 | | | | 652,194 | |
Accounts payable | | | (37,824 | ) | | | 18,458 | |
Accrued expenses | | | 62,400 | | | | 40,809 | |
| | | | | | | | |
Net cash provided by operating activities | | | 247,777 | | | | 1,035,587 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Sale of marketable securities | | | - | | | | 240,411 | |
Purchase of property and equipment | | | (198,852 | ) | | | (235,434 | ) |
| | | | | | | | |
Net cash provided by (used in) investing activities | | | (198,852 | ) | | | 4,977 | |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Dividend paid to stockholders | | | (536,120 | ) | | | (536,120 | ) |
| | | | | | | | |
Net cash used in financing activities | | | (536,120 | ) | | | (536,120 | ) |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (487,195 | ) | | | 504,444 | |
Cash and cash equivalents at beginning of year | | | 9,222,343 | | | | 8,717,899 | |
| | | | | | | | |
Cash and cash equivalents at end of year | | $ | 8,735,148 | | | $ | 9,222,343 | |
| | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | |
Cash paid during the year for: | | | | | | | | |
Income taxes | | $ | 136,647 | | | $ | 74,356 | |
| | 2020 | | | 2019 | |
Cash flows from operating activities: | | | | | | |
Net income (loss) | | $ | (47,428 | ) | | $ | 217,594 | |
Adjustments to reconcile net income (loss) to net | | | | | | | | |
cash provided by operating activities: | | | | | | | | |
Deferred income taxes | | | (188,333 | ) | | | 31,384 | |
Depreciation and amortization | | | 219,847 | | | | 207,224 | |
Stock-based compensation | | | 54,860 | | | | 54,913 | |
Operating lease | | | 33,715 | | | | 41,151 | |
Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable, net | | | (269,523 | ) | | | 166,664 | |
Other current assets | | | 3,153 | | | | 12,040 | |
Other assets | | | (91,068 | ) | | | (110 | ) |
Unexpired subscription revenue | | | 1,025,940 | | | | 79,567 | |
Accounts payable | | | (7,412 | ) | | | 42,733 | |
Accrued expenses | | | 477,936 | | | | 33,332 | |
| | | | | | | | |
Net cash provided by operating activities | | | 1,211,687 | | | | 886,492 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Purchase of available-for-sale securities - municipal bonds
| | | (458,742 | ) | | | -- | |
Purchase of property and equipment | | | (287,549 | ) | | | (141,435 | ) |
| | | | | | | | |
Net cash used in investing activities | | | (746,291 | ) | | | (141,435 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Dividend paid to stockholders | | | -- | | | | (536,120 | ) |
Bank loan | | | 1,561,500 | | | | -- | |
| | | | | | | | |
Net cash provided by (used in) financing activities | | | 1,561,500 | | | | (536,120 | ) |
| | | | | | | | |
Net increase in cash and cash equivalents | | | 2,026,896 | | | | 208,937 | |
Cash and cash equivalents at beginning of year | | | 8,275,836 | | | | 8,066,899 | |
| | | | | | | | |
Cash and cash equivalents at end of year | | $ | 10,302,732 | | | $ | 8,275,836 | |
| | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | |
Cash paid, net during the year for: | | | | | | | | |
Income taxes | | $ | 66,000 | | | $ | 41,261 | |
The accompanying notes are an integral part of these financial statements.
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
CreditRiskMonitor.com, Inc. (also referred to as the “Company” or “CreditRiskMonitor”) provides a totally interactive business-to-business Internet-based service designed specifically for credit and supply chain managers. This service is sold predominantly to corporations located in the United States. In addition, the Company is a re-distributor of international credit reports in the United States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recently Issued Accounting Standards
The Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”) have issued certain other accounting pronouncements as of December 31, 2020 that will become effective in subsequent periods; however, management does not believe that any of these pronouncements would have significantly affected the Company’s financial accounting measurements or disclosures had they been in effect during the periods for which financial statements are included in this annual report, nor does management believe those pronouncements would have a significant effect on the Company’s future financial position or results of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash in banks and highly liquid instruments with original maturities of three months or less, primarily consisting of investments in institutional money market funds.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided on the straight-line method over the estimated useful life of the asset. Estimated useful lives are generally as follows:
| · | Fixtures, equipment and software -- 3 to 6 years |
Fixtures, equipment and software -- 3 to 10 years
| · | Leasehold improvements -- lower of life or term of lease |
Leasehold improvements -- lower of estimated useful life or term of lease (i.e., 2 to 7 years)
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
Goodwill
Goodwill and other indefinite-lived intangible assets are subject to annual impairment testing using the specific guidance and criteria described in the accounting guidance. The Company performs its goodwill impairment testing at least annually in the fourth quarter of each year, unless circumstances dictate the need for more frequent assessment. Goodwill impairment is determined using a two-step process. The first step of the impairment test is used to identify potential impairment by comparing the fair value of a reporting unit to the book value, including goodwill. If the fair value of a reporting unit exceeds its book value, goodwill of the reporting unit is not considered impaired and the second step of the impairment test is not required. If the book value of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any. The second step of the impairment test compares the implied fair value of the reporting unit’s goodwill with the book value of that goodwill. If the book value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The Company completed its annual goodwill impairment tests for 20172020 and 20162019 during the fourth quarter of each year and determined there was no impairment of existing goodwill.
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
Long-Lived Assets
The Company reviews its long-lived amortizable assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with accounting guidance. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to undiscounted pre-tax future net cash flows expected to be generated by that asset. An impairment loss is recognized for the amount by which the carrying amount of the assets exceeds the fair value of the assets. As of December 31, 20172020 and 2016,2019, management believes no impairment of long-lived assets has occurred.
Income Taxes
The Company provides for deferred income taxes resulting from temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred tax liabilities are recognized for temporary differences that will be taxable in future years’ tax returns. Deferred tax assets are recognized for temporary differences that will be deductible in future years’ tax returns and for operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized.
Revenue Recognition
CreditRiskMonitor’s North American and worldwide service is sold on a subscription basis pursuant to customer contracts that span varying periods of time, but are generally for a period of one year. The Company initially records amounts billedapplies FASB Accounting Standards Codification (“ASC”) 606, Revenue from Contracts 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 accounts receivable and defers the relatedeach performance obligation is satisfied. The Company’s primary source of revenue until persuasive evidence of an arrangement exists, fees are fixed and determinable, and collection is reasonably assured. Revenues aresubscription income which is recognized ratably over the related subscription period. Revenue fromterm.
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
The Company has applied the Company’s third-party international credit report servicepractical expedient to recognize incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less.
Lease Accounting
For all leases, at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the remaining lease payments under the lease. Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments and payments for optional renewal periods where it is reasonably certain the renewal period will be exercised. Lease expense for operating leases consists of the lease payments plus any initial direct costs, and is recognized as information is deliveredon a straight-line basis over the lease term.
The Company’s operating lease right-of-use asset and products and services areoperating lease liability represent the lease for the office space used by customers.to conduct its business.
Net Income (Loss) Per Share
Net income (loss) per share is calculated based on the weighted average number of shares of common stock outstanding during the reporting period. Diluted net income (loss) per share is calculated giving effect to all potentially dilutive common shares, assuming such shares were outstanding during the reporting period. The difference between basic and diluted net income (loss) per share is solely attributable to stock options. The Company uses the treasury stock method to calculate the impact of outstanding stock options (see Note 8).
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
Fair Value of Financial Instruments
The Company calculates the fair value of financial instruments and includes this additional information in the notes to the financial statements when the fair value is different than the book value of those financial instruments. The Company believes the recorded value of cash and cash equivalents, accounts receivable, and accounts payable and other liabilities approximates fair value because of the short maturity of these financial instruments.
Comprehensive Income
The Company adheres to accounting guidance for the reporting and displaying of comprehensive income or loss and its components (revenues, expenses, gains and losses). The accounting guidance requires that all items that are required to be recognized under accounting standards as components of comprehensive income be classified by their nature. Furthermore, the Company is required to display the accumulated balances of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. For the years ended December 31, 2017 and 2016, there were no items that gave rise to other comprehensive income or loss and net income equaled comprehensive income.
Segment Information
An operating segment, in part, is a component of an enterprise whose operating results are regularly reviewed by the chief operating decision maker (the “CODM”) to make decisions about resources to be allocated to the segment and assess its performance. Operating segments may be aggregated only to a limited extent. The Company’s CODM, the Chief Executive Officer, reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues for purposes of making operating decisions and assessing financial performance. Accordingly, the Company currently believeshas determined that it operateshas a single operating and reportable segment. In addition, the Company has no foreign operations or any assets in one segment.foreign locations.
Stock-Based Compensation
The Company recognizes the grant-date fair value of all stock-based awards on a straight-line basis over their respective requisite service periods (generally equal to an award’s vesting period). The Company records deferred tax assets for awards that will result in deductions on its tax returns, based upon the amount of compensation cost recognized and the statutory tax rate in the jurisdiction in which it will receive a deduction.
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
See Note 5 for more information regarding the Company’s stock compensation plans.
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.
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
Recently Issued Accounting Standards
In May 2014, new accounting guidance was issued that replaces most existing revenue recognition guidance under U.S. GAAP. The core principal of the new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Using this principle, a comprehensive framework was established for determining how much revenue to recognize and when it should be recognized. To be consistent with this core principle, an entity is required 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 new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Entities have the option of adopting this standard using either a full retrospective approach or a modified retrospective approach (i.e., through a cumulative effect adjustment directly to retained earnings at the time of adoption). The Company, will adopt this standard in the first quarter of 2018 and apply the modified retrospective approach. Because the Company’s primary source of revenue is subscription income which is recognized ratably over the subscription term, the Company does not anticipate that the adoption of this standard will have a significant impact on its financial statements.
In February of 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and nonlease components in a contract in accordance with the new revenue guidance in ASU 2014-09. The updated guidance is effective for interim and annual periods beginning after December 15, 2018. The Company is currently evaluating the effect of ASU 2016-02 on its financial statements.
The Financial Accounting Standards BoardUpdate (“ASU”) 2016-01, classifies its debt securities as “available-for-sale” and the SEC have issued certainare recorded at fair value. Realized gains and losses on available-for-sale debt securities are reported in net income with unrealized gains and losses reported in other accounting pronouncements as of December 31, 2017 that will become effective in subsequent periods; however, management does not believe that any of these 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 annual report, nor does management believe those pronouncements would have a significant effect on the Company’s future financial position or results of operations.income.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk principally consist of cash, cash equivalents, available-for-sale securities and accounts receivable. The Company maintains its cash and cash equivalents in bank deposit and other accounts, the balances of which, at times, may exceed federally insured limits. Exposure to credit risk is reduced by placing such deposits in high credit quality financial institutions.
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
The Company closely monitors the extension of credit to its customers. The Company’s accounts receivable balance is net of an allowance for doubtful accounts. The Company does not require collateral or other security to support credit sales, but provides an allowance for doubtful accounts
of $30,000 as of December, 31, 2020 and 2019, based on historical experience and specifically identified risks. Accounts receivable are charged off against the allowance for doubtful accounts when management determines that recovery is unlikely and the Company ceases collection efforts. The Company does not believe that significant credit risk existed at December 31,
2017 and 2016.2020 nor 2019.
NOTE 3 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following as of December 31:
| | 2017 | | | 2016 | |
| | | | | | |
Cash | | $ | 508,942 | | | $ | 757,820 | |
Money market funds | | | 8,226,206 | | | | 8,464,523 | |
| | | | | | | | |
| | $ | 8,735,148 | | | $ | 9,222,343 | |
NOTE 4 - INCOME TAXES
In accordance with the Tax Cuts and Jobs Act that was enacted on December 22, 2017 (“U.S. Tax Reform Act”), we have recorded a credit for income taxes of $220,954. The impact of the U.S. Tax Reform Act is primarily from revaluing our U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. For U.S. federal purposes the corporate statutory income tax rate was reduced from 35% to 21%, effective for our 2018 tax year. The provisional impact of the U.S. Tax Reform Act is our current best estimate based on the preliminary review of the new law and is subject to revision based on our existing accounting for income taxes policy as further information is gathered and interpretation and analysis of the tax legislation evolves. The Securities and Exchange Commission has issued rules allowing for a measurement period of up to one year after the enactment date of the U.S Tax Reform Act to finalize the recording of the related tax impacts. Any future changes to our provisional estimated impact of the U.S Tax Reform Act will be included as an adjustment to the provision for income taxes.– FAIR VALUE MEASUREMENTS
The Company’s income tax expense (benefit) consistedcash, cash equivalents and available-for-sale securities are stated at fair value. The carrying value of accounts receivable, other current assets, bank loan and accounts payable approximates fair market value because of the following:short maturity of these financial instruments.
| | 2017 | | | 2016 | |
Current: | | | | | | |
Federal | | $ | (2,746 | ) | | $ | 127,768 | |
State | | | 8,035 | | | | 18,482 | |
Deferred: | | | | | | | | |
Federal | | | (264,707 | ) | | | 20,444 | |
State | | | 16,637 | | | | (17,495 | ) |
| | | | | | | | |
| | $ | (242,781 | ) | | $ | 149,199 | |
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
The Company’s cash equivalents are generally classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.
All available-for-sale securities as of December 31, 2020 were municipal bonds. Investments in municipal bonds are valued using pricing models maximizing the use of observable inputs for similar securities. Municipal bonds are classified as Level 2 of the fair value hierarchy.
The tables below set forth the Company’s cash and cash equivalents, as well as marketable securities as of December 31, 2020 and December 31, 2019, respectively, which are measured at fair value on a recurring basis by level within the fair value hierarchy.
| | December 31, 2020 | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | | | | | | | |
Cash and cash equivalents | | $ | 10,302,732 | | | $ | - | | | $ | - | | | $ | 10,302,732 | |
| | | | | | | | | | | | | | | | |
Available-for-sale securities | | $ | - | | | $ | 458,237 | | | $ | - | | | $ | 458,237 | |
| | 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 December 31, 2019.
The preceding methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The cost and fair value of available-for-sale securities at December 31, 2020 is as follows:
| | Cost | | | Unrealized Loss | | | Fair Value | |
| | | | | | | | | |
Available-for-sale securities | | $ | 458,742 | | | $ | (505 | ) | | $ | 458,237 | |
Maturities of available-for-sale securities were as follows at December 31, 2020:
Available-for-sale securities | | | |
Due after 10 years | | $ | 458,237 | |
The fair value of available-for-sale securities are presented in the available-for-sale category by contractual maturity in the preceding table. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations without call or prepayment penalties.
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
Management evaluates securities for other-than-temporary impairment at least on an annual basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Management has determined that no other-than-temporary impairment exists as of December 31, 2020.
There were no proceeds from the sale of marketable securities in 2020. Subsequent to December 31, 2020 the Company liquidated all of their municipal bond investments in available-for-sale securities, and transferred the proceeds to Level 1 cash and cash equivalent investments.
NOTE 4 - INCOME TAXES
The Company’s income tax (benefit) expense consisted of the following:
| | 2020 | | | 2019 | |
Current: | | | | | | |
Federal | | $ | 37,373 | | | $ | 67,677 | |
State | | | (12,854 | ) | | | 26,404 | |
Deferred: | | | | | | | | |
Federal | | | (67,742 | ) | | | 23,781 | |
State | | | (120,702 | ) | | | 7,602 | |
| | | | | | | | |
| | $ | (163,925 | ) | | $ | 125,464 | |
The actual tax (benefit) expense (benefit) for 20172020 and 20162019 differs from the "expected"“expected” tax expense for those years (computed by applying the applicable United States federal corporate tax rate to income before income taxes) as follows:
| | 2017 | | | 2016 | |
| | | | | | |
Computed "expected" expense (benefit) | | $ | (78,408 | ) | | $ | 68,558 | |
Permanent differences | | | 42,570 | | | | 55,998 | |
State and local income tax expense | | | (7,749 | ) | | | 11,738 | |
True-up of current taxes | | | 1,025 | | | | 9,295 | |
True-up of deferred taxes | | | 20,735 | | | | 3,610 | |
Change in federal statutory rate | | | (220,954 | ) | | | -- | |
| | | | | | | | |
Income tax expense (benefit) | | $ | (242,781 | ) | | $ | 149,199 | |
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
| | 2020 | | | 2019 | |
| | | | | | |
Computed “expected” (benefit) expense | | $ | (44,384 | ) | | $ | 72,042 | |
Permanent differences | | | 11,516 | | | | 25,619 | |
State and local income tax expense | | | 2,720 | | | | 12,344 | |
True-up of current taxes | | | (25,916 | ) | | | 4,763 | |
True-up of deferred taxes | | | 11,644 | | | | 11,014 | |
Change in state apportionment | | | (119,505 | ) | | | (318 | ) |
| | | | | | | | |
Income tax (benefit) expense | | $ | (163,925 | ) | | $ | 125,464 | |
The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets/assets (liabilities) at December 31, 20172020 and 20162019 are as follows:
| | 2017 | | | 2016 | | | 2020 | | | 2019 | |
Deferred tax assets: | | | | | | | | | | | | |
Net operating loss carryovers | | | $ | - | | | $ | - | |
Stock options | | $ | 12,406 | | | $ | 39,837 | | | 17,556 | | | 20,085 | |
Accrued vacation | | | 65,317 | | | | 76,669 | | | 85,436 | | | 70,654 | |
Bad debt allowance | | | 8,309 | | | | 11,878 | | | 6,411 | | | 8,314 | |
Deferred revenue | | | 4,674 | | | | 6,682 | | | 4,732 | | | 5,833 | |
Deferred rent | | | 4,362 | | | | 4,978 | | | 15,999 | | | 11,403 | |
Other | | | 19,945 | | | | 24,402 | | | | 17,212 | | | | 21,972 | |
| | | | | | | | | | | | | | |
Total deferred tax assets | | | 115,013 | | | | 164,446 | | | | 147,346 | | | | 138,261 | |
| | | | | | | | | | | | | | |
Deferred tax liabilities: | | | | | | | | | | | | | | |
Goodwill | | | (541,310 | ) | | | (773,848 | ) | | (417,688 | ) | | (541,628 | ) |
Fixed assets | | | (88,036 | ) | | | (153,001 | ) | | | (63,090 | ) | | | (118,398 | ) |
| | | | | | | | | | | | | | |
Total deferred tax liabilities | | | (629,346 | ) | | | (926,849 | ) | | | (480,778 | ) | | | (660,026 | ) |
| | | | | | | | | | | | | | |
Net deferred tax liabilities | | $ | (514,333 | ) | | $ | (762,403 | ) | | $ | (333,432 | ) | | $ | (521,765 | ) |
NOTE 5 - COMMON STOCK STOCK OPTIONS, AND STOCK APPRECIATION RIGHTSOPTIONS
Common Stock
At December 31, 2017, 421,3502020 and 2019, there were 575,750 and 456,870 shares, respectively, of the Company’s authorized common stock were reserved for issuance upon exercise of outstanding options under its stock option plan.
Preferred Stock
The Company’s Articles of Incorporation provide that the Board of Directors has the authority, without further action by the holders of the outstanding common stock, to issue up to five million shares of preferred stock from time to time in one or more series. The Board of Directors shall fix the consideration to be paid, but not less than par value thereof, and to fix the terms of any such series, including dividend rights, dividend rates, conversion or exchange rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price and the liquidation preference of such series. As of December 31, 2017,2020 and 2019, the Company does not have any preferred stock outstanding.
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
Stock Options and Stock Appreciation Rights
As of December 31, 2017,2020, the Company has onetwo stock option plan:plans: the 2009 Long-Term Incentive Plan (“2009 Plan”). During 2017, which ended in 2019, and the Company’s prior plan (the 19982020 Long-Term Incentive Plan) expired.Plan (“2020 Plan”).
TheBoth the 2009 and the 2020 Plan authorizesauthorize the grant of incentive stock options, non-qualified stock options, SARs, restricted stock, bonus stock, and performance shares to employees, consultants, and non-employee directors of the Company. The exercise price of each option shall not be less than the fair market value of the common stock at the date of grant. The total number of the Company’s shares that may be awarded under this plan is 1,300,000the 2009 Plan was 1,000,000 shares of common stock, and the 2020 Plan was 1,000,000 shares of common stock. At December 31, 2017,2020, there were options outstanding for 421,350393,650 shares of common stock under the 2009 Plan, and 182,100 shares of common stock under the 2020 Plan. As of December, 31 2019, there were options outstanding for 456,870 shares of common stock under the 2009 Plan.
Options expire on the date determined, but not more than ten years from the date of grant. All of the options granted under the 2009 and 2020 Plan may be exercised after four years in installments upon the attainment of specified length of service.service, unless otherwise determined by the Compensation Committee as set forth in the Award Agreement. In the event of a change in control (as defined), the options will vest in full at the time of such change in control.
There have been no transactions with respect to the Company’s stock appreciation rights during the years ended December 31, 2017 and 2016, nor are there any stock appreciation rights outstanding at December 31, 2017 and 2016.
Transactions with respect to the Company’s stock option plans for the years ended December 31, 20172020 and 20162019 are as follows:
| | Number of Shares | | | Weighted Average Exercise Price | | | Number of Shares | | | Weighted Average Exercise Price | |
| | | | | | | | | | | | |
Outstanding at January 1, 2016 | | | 337,350 | | | $ | 3.0092 | | |
Exercised | | | (260 | ) | | | 2.3154 | | |
Outstanding at January 1, 2019 | | | 376,850 | | | $ | 2.98 | |
Granted | | | 195,800 | | | 1.45 | |
Forfeited | | | (55,500 | ) | | | 2.0946 | | | | (115,780 | ) | | 3.06 | |
| | | | | | | |
Outstanding at December 31, 2019 | | | 456,870 | | | $ | 2.30 | |
Granted | | | 114,500 | | | | 2.9873 | | | 182,100 | | | 2.17 | |
Expired | | | (26,000 | ) | | 4.62 | |
Forfeited | | | | (37,220 | ) | | 2.15 | |
| | | | | | | | | | | | | | |
Outstanding at December 31, 2016 | | | 396,090 | | | $ | 3.1315 | | |
Forfeited | | | (49,540 | ) | | | 2.1762 | | |
Granted | | | 74,800 | | | | 2.0588 | | |
| | | | | | | | | |
Outstanding at December 31, 2017 | | | 421,350 | | | $ | 3.0534 | | |
Outstanding at December 31, 2020 | | | | 575,750 | | | $ | 2.17 | |
As of December 31, 2017,2020, there were 878,390817,900 shares of common stock reserved for the granting of additional options. The 2009 Plan expired at the end of 2019 and no additional options could be granted.
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
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 the years ended December 31:
| | 2017 | | | 2016 | |
| | | | | | |
Data and product costs | | $ | 35,661 | | | $ | 32,588 | |
Selling, general and administrative costs | | | 104,660 | | | | 107,085 | |
| | | | | | | | |
| | $ | 140,321 | | | $ | 139,673 | |
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
| | 2020 | | | 2019 | |
| | | | | | |
Data and product costs | | $ | 19,928 | | | $ | 22,460 | |
Selling, general and administrative costs | | | 34,932 | | | | 32,453 | |
| | | | | | | | |
| | $ | 54,860 | | | $ | 54,913 | |
The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model that uses the weighted average assumptions noted in the following table. Expected volatilities are based on historical volatility of our stock through the date of grant. The Company uses the simplified method under Staff Accounting Bulletin No. 110, “Use of a Simplified Method in Developing an Estimate of Expected Term of ‘Plain Vanilla’ Share Options”, to estimate the options’ expected term. The risk-free interest rate used is based on the U.S. Treasury constant maturities at the time of grant having a term that approximates the expected life of the option.
The fair value of options granted during the yearsyear ended December 31, 2017 and 20162019 was $1.21 and $2.97, respectively.$125,832. The fair value of options granted during the year ended December 31, 2020 was $206,087. The fair value of options at date of grant was estimated using the Black-Scholes model with the following assumptions:
| | 2017 | | | 2016 | | 2020 | 2019 |
Risk-free interest rate | | | 2.37 | % | | | 2.07 | % | 0.26% | 1.78% |
Expected dividend yield | | | 2.61 | % | | | 1.68 | % | |
Expected volatility factor | | | 0.73 | | | | 0.78 | | 72.57% | 64.00% |
Expected dividends | | 0.05 |
Expected life of the option (years) | | | 9.00 | | | | 8.82 | | 7.17 | 9 |
The Company issues new shares upon the exercise of options.
The following table summarizes information about the Company’s stock options outstanding at December 31, 2017:2020:
| | | Options Outstanding | | | Options Exercisable | | | | Options Outstanding | | | Options Exercisable | |
Range of Exercise Prices | | | Number Outstanding | | | Weighted Average Remaining Contractual Life (in years) | | | Weighted Average Exercise Price | | | Number Exercisable | | | Weighted Average Exercise Price | | | | Number Outstanding | | | Weighted Average Remaining Contractual Life (in years) | | | Weighted Average Exercise Price | | | Number Exercisable | | | Weighted Average Exercise Price | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ 1.00 - $ 2.00 | | | | 54,800 | | | | 9.79 | | | $ | 1.6788 | | | | - | | | | - | | | | 256,100 | | | 8.36 | | | $ | 1.52 | | | - | | | - | |
$ 2.01 - $ 3.00 | | | | 163,000 | | | | 6.76 | | | $ | 2.6831 | | | | 26,000 | | | $ | 2.3154 | | | | 279,100 | | | 5.67 | | | $ | 2.42 | | | 57,350 | | | $ | 2.49 | |
$ 3.01 - $ 6.00 | | | | 203,550 | | | | 3.24 | | | $ | 3.7200 | | | | 150,930 | | | $ | 3.6278 | | | | | 40,550 | | | 0.84 | | | $ | 4.51 | | | | 32,550 | | | $ | 4.73 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 421,350 | | | | 5.45 | | | $ | 3.0534 | | | | 176,930 | | | $ | 3.4350 | | | | | 575,750 | | | 6.53 | | | $ | 2.17 | | | | 89,900 | | | $ | 3.30 | |
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
The aggregate intrinsic value represents the total pre-tax intrinsic value, based on options with an exercise price less than the Company'sCompany’s closing stock price of $1.75$2.35 and $3.10$1.57 as of December 31, 20172020 and 2016,2019, respectively, which would have been received by the option holders had those option holders exercised their options as of that date. The aggregate intrinsic value of options outstanding as of December 31, 20172020 and 20162019 was $3,900$23,046 and $120,966,$238,548, respectively.
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2017,2020, the total compensation cost related to unvested stock-based awards granted to employees under the Company’s stock option plan but not yet recognized was $346,336.$407,771. This cost will be amortized on a straight-line basis over a weighted average term of 3.455.85 years and will be adjusted for subsequent changes in estimated forfeitures.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
| | 2017 | | | 2016 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | |
Computer equipment and software | | $ | 1,485,044 | | | $ | 1,389,854 | | | $ | 1,720,814 | | | $ | 1,485,579 | |
Furniture and fixtures | | | 369,595 | | | | 332,900 | | | | 512,975 | | | | 507,503 | |
Leasehold improvements | | | 187,062 | | | | 184,136 | | | | 268,741 | | | | 240,328 | |
| | | 2,041,701 | | | | 1,906,890 | | | | 2,502,530 | | | | 2,233,410 | |
Less accumulated depreciation and amortization | | | (1,604,485 | ) | | | (1,476,566 | ) | | | (1,956,855 | ) | | | (1,755,437 | ) |
| | | | | | | | | | | | | | |
| | $ | 437,216 | | | $ | 430,324 | | | $ | 545,675 | | | $ | 477,973 | |
NOTE 7 -– OPERATING LEASE COMMITMENTS
The following table reconciles the undiscounted cash flows for the Company’s operations are conducted from a leased facility, which is under an operating lease that expires on July 31, 2020. Rental expenses under operating leases were $290,634 and $291,016 for the years ended December 31, 2017 and 2016, respectively.
Future minimum lease payments for noncancelable operating leases at December 31, 2017 are as follows:2020 to the operating lease liability recorded on the balance sheet:
| | | |
| | | |
2018 | | $ | 176,944 | |
2019 | | | 182,340 | |
2020 | | | 108,578 | |
| | | | |
Total minimum lease payments | | $ | 467,862 | |
2021 | | $ | 262,970 | |
2022 | | | 270,859 | |
2023 | | | 278,985 | |
2024 | | | 287,355 | |
2025 | | | 295,975 | |
Thereafter | | | 1,473,078 | |
Total future undiscounted lease payments | | | 2,869,222 | |
LESS: Imputed interest | | | (569,789 | ) |
Present value of lease liability | | $ | 2,299,433 | |
| | | | |
Current portion of operating lease liability | | $ | 161,874 | |
Non-current portion of operating lease liability | | | 2,137,559 | |
| | $ | 2,299,433 | |
CREDITRISKMONITOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - NET INCOME (LOSS) PER SHARE
The following table sets forthBasic 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:
| | 2020 | | | 2019 | |
| | | | | | |
Net income (loss) | | $ | (47,428 | ) | | $ | 217,594 | |
| | | | | | | | |
Weighted average common shares outstanding – basic | | | 10,722,401 | | | | 10,722,401 | |
Potential shares exercisable under stock option plans | | | -- | | | | 13,700 | |
Less: Shares which could be repurchased under treasury stock method | | | -- | | | | (11,562 | ) |
Weighted average common shares outstanding – diluted | | | 10,722,401 | | | | 10,724,539 | |
| | | | | | | | |
Net income (loss) per share: | | | | | | | | |
Basic | | $ | (0.00 | ) | | $ | 0.02 | |
Diluted | | $ | (0.00 | ) | | $ | 0.02 | |
Because the Company has reported a net loss for fiscal 2020, 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 basic and diluted net incomeloss per share:share because their effect was anti‐dilutive for each of the periods presented.
| | 2017 | | | 2016 | |
| | | | | | |
Net income | | $ | 12,070 | | | $ | 52,443 | |
| | | | | | | | |
Weighted average common shares outstanding – basic | | | 10,722,401 | | | | 10,722,323 | |
Potential shares exercisable under stock option plans | | | 143,280 | | | | 256,947 | |
LESS: Shares which could be repurchased under treasury stock method | | | (139,560 | ) | | | (198,759 | ) |
Weighted average common shares outstanding – diluted | | | 10,726,121 | | | | 10,780,511 | |
| | | | | | | | |
Net income per share: | | | | | | | | |
Basic | | $ | 0.00 | | | $ | 0.00 | |
Diluted | | $ | 0.00 | | | $ | 0.00 | |
For fiscal 2017 and 2016,2019, the computation of diluted net income per share excludes the effects of the assumed exercise of 264,675 and 130,338369,455 options, respectively, since their inclusion would be anti-dilutive as their exercise prices were above the average market value.
NOTE 9 - RELATED PARTY TRANSACTION
In October 2020, the Company’s Board of Directors appointed Michael Flum to serve as President and Chief Operating Officer. Previously, he was serving as Senior Vice President and Chief Operating Officer effective October 2019 and had served as Vice President of Operations & Alternative Data since June 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.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
ITEM 9A. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
We maintainThe Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion. In designing and evaluating such controls and procedures, we recognizethe Company recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. OurThe Company’s management is necessarily required to use judgment in evaluating controls and procedures.
Under the supervision andThe Company’s management, with the participation of the Company’s management, including its principal executive officerChief Executive Officer and principal financial officer,Chief Financial Officer, has evaluated the Company conducted an evaluationeffectiveness of the Company’s disclosure and 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 of December 31, 2017. Based on this evaluation, the Company’s management concluded that its disclosure controls and proceduresamended) as of the end of the period covered by this reportreport. 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.effective to ensure that all material information required to be disclosed by us in reports that we file or submit under the Exchange Act are 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.
In the ordinary course of business, we review ourthe Company reviews its internal control over financial reporting and make changes to ourits systems and processes to improve such controls and increase efficiency, while ensuring that we maintainthe Company maintains an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, updating existing systems and automating manual processes. These changes have not materially affected, and are not reasonably likely to materially affect, the Company’s internal control over financial reporting. However, they allow usthe Company to continue to enhance ourits internal control over financial reporting and ensure that ourits internal control environment remains effective.
Management’s Report on Internal Control Over Financial Reporting
Under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on criteria established in the framework in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management concluded that its internal control over financial reporting was effective as of December 31, 2017.2020.
Internal controls over financial reporting, no matter how well designed, have inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There were noAs a result of governmental imposed limitations on the use our facilities due to the COVID-19 pandemic, we have had to make changes into the Company’soperating 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 duringis unchanged and the quarter ended December 31, 2017Company does not believe that these changes have materially affected, or are reasonably likely to materially affect, the Company’s internal controlscontrol 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.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
None.
The following table sets forth certain information with respect to the directors and executive officers of the Company and the period such persons held their respective positions with the Company.
The Company’s By-Laws provide that (a) directors shall be elected to hold office until the next annual meeting of stockholders and that each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which the director was elected and until a successor has been elected, and (b) officers shall hold office until their successors are chosen by the Board of Directors, except that the Board may remove any officer at any time.
The Audit Committee shall assist the Board of Directors in fulfilling its responsibility to the shareholders, potential shareholders and investment community relating to corporate accounting, reporting practices of the Company and the quality and integrity of the Company’s financial reporting. To fulfill its purposes, the Committee’s duties shall include to:
The Audit Committee currently consists of its outside directors – Andrew Melnick, Jeffrey Geisenheimer,Richard Lippe, and Joshua FlumFlum. Both Andrew Melnick and Richard James, all of whom, except Mr. Flum,Lippe are independent, and Andrew Melnick is an audit committee financial experts and are independent,expert, as such terms are defined by the SEC.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the Securities and Exchange Commission (“SEC”) initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Such persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports they file.
To the Company’s knowledge, based solely on its review of the copies of such reports received by it with respect to fiscal 2017,2020, or written representations from certain reporting persons, the Company believes that all filing requirements applicable to its directors, officers and persons who own more than 10% of a registered class of the Company’s equity securities have been timely complied with.
CreditRiskMonitor’s Board of Directors has adopted a Code of Ethics for its Principal Executive Officer and Senior Financial Officers. This Code applies to the Company’s Chief Executive Officer, PresidentChief Operating Officer and Chief Financial Officer (who also is the Company’s principal accounting officer).