UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|x| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ___________
Commission file number 1-8601
CREDITRISKMONITOR.COM, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 36-2972588
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
704 Executive Boulevard, Suite A
Valley Cottage, New York 10989
(Address of principal executive offices)
(845) 230-3000
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes |x| No |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes |_| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date:
Common stock $.01 par value -- 7,679,462 shares outstanding as of April 29,
2005.
Transitional Small Business Disclosure Format (check one): Yes |_| No |x|
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARY
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2005 (Unaudited)
and December 31, 2004......................................................2
Consolidated Statements of Operations for the Three Months
Ended March 31, 2005 and 2004 (Unaudited)..................................3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2005 and 2004 (Unaudited)..................................4
Condensed Notes to Consolidated Financial Statements.......................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................9
Item 3. Controls and Procedures.............................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................14
Item 2. Changes in Securities and Small Business Issuer Purchases
of Equity Securities......................................................15
Item 6. Exhibits............................................................15
SIGNATURES....................................................................16
EXHIBITS
10.1 Stipulation of Settlement and Order dated as of
April 27, 2005......................................................17
31.1 Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.......................31
31.2 Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.......................33
32.1 Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002...............................35
32.2 Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002...............................36
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2005 AND DECEMBER 31, 2004
March 31, Dec. 31,
2005 2004
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 924,126 $ 877,025
Accounts receivable, net of allowance 372,065 637,221
Other current assets 93,905 172,019
------------ ------------
Total current assets 1,390,096 1,686,265
Property and equipment, net 160,633 162,085
Goodwill, net 1,954,460 1,954,460
Prepaid and other assets 32,994 20,042
------------ ------------
Total assets $ 3,538,183 $ 3,822,852
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred revenue $ 2,082,572 $ 2,221,233
Accounts payable 140,677 170,949
Accrued expenses 192,096 218,990
Current portion of long-term debt 102,683 100,084
Current portion of capitalized lease obligations 25,820 26,518
------------ ------------
Total current liabilities 2,543,848 2,737,774
------------ ------------
Long-term debt, net of current portion:
Promissory note 494,036 520,703
Capitalized lease obligations 38,553 44,904
------------ ------------
532,589 565,607
Deferred rent payable 3,799 2,375
Deferred compensation 88,890 88,890
------------ ------------
Total liabilities 3,169,126 3,394,646
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value; authorized
5,000,000 shares; none issued -- --
Common stock, $.01 par value; authorized 25,000,000
shares; issued and outstanding 7,679,462 shares 76,794 76,794
Additional paid-in capital 28,122,383 28,122,383
Accumulated deficit (27,830,120) (27,770,971)
------------ ------------
Total stockholders' equity 369,057 428,206
------------ ------------
Total liabilities and stockholders' equity $ 3,538,183 $ 3,822,852
============ ============
See accompanying condensed notes to consolidated financial statements.
2
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Unaudited)
2005 2004
---- ----
Operating revenues $ 895,254 $ 827,197
----------- -----------
Operating expenses:
Data and product costs 239,376 270,500
Selling, general and administrative expenses 682,219 598,148
Depreciation and amortization 16,542 17,984
----------- -----------
Total operating expenses 938,137 886,632
----------- -----------
Loss from operations (42,883) (59,435)
Other income 2,743 2,064
Interest expense (17,834) (18,848)
----------- -----------
Loss before income taxes (57,974) (76,219)
Provision for state and local income taxes (1,175) (709)
----------- -----------
Net loss $ (59,149) $ (76,928)
=========== ===========
Net loss per share of common stock:
Basic and diluted $ (0.01) $ (0.01)
=========== ===========
Weighted average number of common shares outstanding:
Basic and diluted 7,679,462 7,407,462
=========== ===========
See accompanying condensed notes to consolidated financial statements.
3
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Unaudited)
2005 2004
---- ----
Cash flows from operating activities:
Net loss $ (59,149) $ (76,928)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 16,542 17,984
Deferred rent 1,424 (1,444)
Changes in operating assets and liabilities:
Accounts receivable 265,156 301,837
Other current assets 78,114 30,423
Prepaid and other assets (12,952) (9,158)
Deferred revenue (138,661) (195,023)
Accounts payable (30,272) (31,747)
Accrued expenses (26,894) 17,800
----------- -----------
Net cash provided by operating activities 93,308 53,744
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (15,090) (11,379)
----------- -----------
Net cash used in investing activities (15,090) (11,379)
----------- -----------
Cash flows from financing activities:
Payments on promissory note (24,068) (21,721)
Payments on capital lease obligations (7,049) (3,270)
----------- -----------
Net cash used in financing activities (31,117) (24,991)
----------- -----------
Net increase in cash and cash equivalents 47,101 17,374
Cash and cash equivalents at beginning of
period 877,025 1,138,447
----------- -----------
Cash and cash equivalents at end of period $ 924,126 $ 1,155,821
=========== ===========
See accompanying condensed notes to consolidated financial statements.
4
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements included herein have been prepared by
CreditRiskMonitor.com, Inc. (the "Company" or "CRM"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in consolidated financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures herein are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and the
notes thereto in the Company's annual report on Form 10-KSB for the year ended
December 31, 2004.
In the opinion of the Company, the unaudited consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments) considered
necessary to present fairly the Company's financial position as of March 31,
2005 and the results of its operations and its cash flows for the three-month
periods ended March 31, 2005 and 2004.
Results of operations for the three-month periods ended March 31, 2005 and 2004
are not necessarily indicative of the results of a full year.
(2) Stock-Based Compensation
The Company accounts for its stock-based employee compensation plan using the
intrinsic value method in accordance with the provisions of APB No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations. No
stock-based employee compensation cost for employee stock options is reflected
in net loss, as all options granted under this plan had an exercise price equal
to or greater than the market value of the underlying common stock on the date
of grant.
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation--Transition
and Disclosure," the following table presents the effect on net loss and net
loss per share had compensation cost for the Company's stock plan been
determined using a fair value based method and amortized over the vesting period
consistent with SFAS No. 123 for the three months ended March 31:
5
2005 2004
---- ----
Net loss
As reported $ (59,149) $ (76,928)
Less: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related
tax benefits or effects 245 (4,508)
--------- ---------
Pro forma $ (58,904) $ (81,436)
========= =========
Net loss per share - basic and diluted
As reported $ (0.01) $ (0.01)
Pro forma $ (0.01) $ (0.01)
The above stock-based employee compensation costs determined under the fair
value based method were calculated using the Black-Scholes option valuation
model. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions,
are fully transferable, and do not include a discount for large block trades. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility, expected life of the
option and other estimates. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
(3) Recently Issued Accounting Standards
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets--an amendment of APB Opinion No. 29," which addresses the measurement of
exchanges of nonmonetary assets and eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive assets and replaces
it with an exception for exchanges that do not have commercial substance. SFAS
No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005, with earlier application permitted. The adoption
of SFAS No. 153 will have no impact on our results of operations or our
financial position.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment,"
replacing SFAS No. 123 and superseding APB Opinion No. 25. SFAS No. 123R
requires public companies to recognize compensation expense for the cost of
stock options and all other awards of equity instruments. This compensation cost
will be measured as the fair value of the award on the grant date estimated
using an option-pricing model. The Company is evaluating the various transition
provisions under SFAS No. 123R. For public entities that file as small business
issuers, this Statement is effective as of the beginning of the first interim or
annual reporting period that begins after December 15, 2005.
(4) Legal Proceedings
On April 27, 2005, the Company executed an agreement (the "Stipulation of
Settlement") which settled all of the lawsuits between it and its competitor
discussed in the succeeding paragraphs below, and its competitor simultaneously
paid the
6
Company $1.1 million. This payment will be reflected in the Company's
consolidated financial statements for its quarter ending June 30, 2005. In
addition, the competitor agreed in the Stipulation of Settlement to assume
certain potential liabilities against the Company and defend the Company in
connection with the Decision Strategies litigation also discussed below.
As previously reported: (a) on April 20, 2001, the Company filed an action in
the Supreme Court of the State of New York, Nassau County, against Samuel
Fensterstock and a competitor (collectively, the "Defendants"), seeking
injunctive relief, declaratory relief and monetary damages; (b) thereafter, the
parties entered into a Settlement Agreement that was so ordered by the Court in
July 2001 pursuant to which the Defendants were restricted from engaging in
certain activities; (c) on November 27, 2001, the Company commenced an action
against the Defendants (the "Contempt Proceedings") in the Supreme Court of the
State of New York, Nassau County; (d) on August 6, 2004, in the Contempt
Proceedings, the Court issued a Decision finding that Defendants violated the
Settlement Agreement and were in contempt of the July 2001 Order, and awarded
compensatory and punitive damages against the Defendants aggregating $821,044,
plus attorney fees and legal costs in an amount to be determined; (e) on August
24, 2004, the Court entered a Judgment providing for the enforcement of its
award and assigned a Referee to conduct a hearing concerning the amount of
attorneys' fees and costs to be awarded; (f) on August 30, 2004, Defendants
filed a Notice of Appeal and posted a $900,000 bond to secure the compensatory
and punitive damages awarded in the Judgment; (g) on September 10, 2004, the
competitor and Samuel Fensterstock served separate Motions to Reargue; (h) in
January 2005, the Court rejected the arguments contained in Defendants' Motions
to Reargue and the Defendants each filed Notices of Appeal of the Court's
rejection of the arguments contained in the Motions to Reargue; and (i) in
February 2005, the Defendants presented separate applications to the Appellate
Division requesting that the Appellate Division dispense with requiring
Defendants to file a complete copy of the trial transcript from the Contempt
Proceeding and the Company opposed Defendants' applications.
On March 25, 2005 the Appellate Division denied Defendants' separate motions
requesting the Appellate Division to dispense with the requirement that
Defendants file a complete copy of the trial transcript with respect to the
appeal. On April 7, 2005 the Court entered a Judgment providing that the
competitor would pay the Company at least $620,000 in attorney fees and allowing
the competitor to post a bond.
As previously reported: (a) in February 2003, the competitor commenced an action
(the "Competitor Action") in the same Court, against the Company, its President
and a senior manager, seeking compensatory damages, exemplary damages and
injunctive relief; and (b) the Company denied the allegations in the Competitor
Action and counterclaimed against the competitor, its President and Samuel
Fensterstock.
As previously reported: (a) in January 2004, the Company filed a second action
in the same Court by order to show cause against the competitor and Mark
McNamara, a former Company employee, seeking injunctive relief, declaratory
relief and monetary damages arising from the competitor's and McNamara's
misappropriation of CRM's proprietary information; and (b) by Order dated April
2, 2004 the Court denied the Company's request for immediate injunctive relief.
As previously reported: in March 2004, the Company filed a third action in the
same Court against the competitor and Ryan Kohler, a former Company
7
employee, seeking declaratory relief and compensatory damages arising from the
competitor's and Kohler's misappropriation of CRM's proprietary information.
As previously reported: (a) in July 2004, the Company commenced an action in
Nassau County against Decision Strategies LLC ("Decision Strategies"), the
court-appointed forensic computer expert in the Enforcement Proceedings, for
breach of its services contract and seeking a declaration of the rights of the
parties under the terms of the contract; (b) also in July 2004, Decision
Strategies commenced an action in New York against the Company and the
competitor for fees in excess of the limitations provided in the services
contract; and (c) Decision Strategies successfully moved to dismiss the
Company's Nassau County action because Decision Strategies had commenced an
action in New York County.
On April 13, 2005, at a preliminary conference in New York County, the Court
indicated that the action should be moved to Nassau County and scheduled a new
conference date on May 12, 2005. Pursuant to the Stipulation of Settlement, the
competitor has agreed to assume certain potential liabilities and defend the
Company in this litigation, as noted above.
(5) Earnings Per Share
The computation of diluted earnings per share excludes all options since their
inclusion would be anti-dilutive. During the three months ended March 31, 2005
and 2004, 556,500 and 486,000 options, respectively, were excluded.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2005, the Company had cash and cash equivalents of $924,000
compared to $877,000 at December 31, 2004. The Company's working capital deficit
at March 31, 2005 was approximately $1.15 million compared to a working capital
deficit of approximately $1.05 million at December 31, 2004, due primarily to a
decrease of $265,000 in accounts receivable and somewhat off-set by a $139,000
decrease in deferred revenue. Additionally, the working capital deficit at March
31, 2005 is mainly derived from the $2.08 million in deferred revenue, which
should not require any future cash outlay other than the cost of preparation and
delivery of the applicable commercial credit reports. The deferred revenue is
recognized as income over the subscription term, which approximates twelve
months. The Company has no bank lines of credit or other currently available
credit sources.
Excluding cash expenditures of $67,000 and $98,000 in the first quarter of
fiscal 2005 and 2004, respectively, incurred in connection with the Contempt
Proceeding, the Competitor Action and the other litigation described in Part II,
Item 1 (collectively, the "Litigation"), the Company had positive cash flow of
$114,000 and $115,000 for the three months ended March 31, 2005 and 2004,
respectively.
On April 27, 2005, a Stipulation of Settlement was filed with the Supreme Court
of the State of New York, Nassau County, pursuant to which: (i) the Company, the
competitor and all other parties agreed to settle the Litigation described above
(other than the Decision Strategies litigation referred to below), and (ii) the
Company received payment of $1.1 million from the competitor.
After giving effect to the Stipulation of Settlement and the receipt of the $1.1
million settlement proceeds, the Company believes that it will have sufficient
resources to meet its working capital and capital expenditure needs, including
debt service, for the foreseeable future.
OFF-BALANCE SHEET ARRANGEMENTS
The Company is not a party to any off-balance sheet arrangements.
9
RESULTS OF OPERATIONS
3 Months Ended March 31,
------------------------
2005 2004
---- ----
% of Total % of Total
Operating Operating
Amount Revenues Amount Revenues
------ -------- ------ --------
Operating revenues $ 895,254 100.00% $ 827,197 100.00%
--------- --------- --------- ---------
Operating expenses:
Data and product costs 239,376 26.74% 270,500 32.70%
Selling, general & administrative 682,219* 76.20% 598,148* 72.31%
Depreciation and amortization 16,542 1.85% 17,984 2.17%
--------- --------- --------- ---------
Total operating expenses 938,137 104.79% 886,632 107.19%
--------- --------- --------- ---------
Loss from operations (42,883) -4.79% (59,435) -7.19%
Other income 2,743 0.31% 2,064 0.25%
Interest expense (17,834) -1.99% (18,848) -2.28%
--------- --------- --------- ---------
Loss before income taxes (57,974) -6.48% (76,219) -9.21%
Provision for income taxes (1,175) -0.13% (709) -0.09%
--------- --------- --------- ---------
Net loss $ (59,149) -6.61% $ (76,928) -9.30%
========= ========= ========= =========
* Litigation expenses were $57,000 and $66,000 for the first quarter of
fiscal 2005 and 2004, respectively.
Operating revenues increased 8% for the three months ended March 31, 2005. This
increase was primarily due to an increase in the number of subscribers to the
Company's Internet subscription service offset in part by a decrease in the
number of subscribers to the Company's subscription service for third-party
international credit reports.
Data and product costs decreased 12% for the first quarter of 2005 compared to
the same period of fiscal 2004. This decrease was primarily due to the lower
cost of acquiring third-party international credit reports, and lower salary and
related employee benefits resulting from a decrease in headcount, offset
partially by the cost of the co-location facility that the Company started
leasing in the third quarter of 2004.
Selling, general and administrative expenses increased 14% for the first quarter
of fiscal 2005 compared to the same period of fiscal 2004. This increase was due
primarily to higher salary and related employee benefit costs due to an increase
in the Company's sales force during the past 12 months, an increase in rent
expense due to the Company's relocation to new leased facilities in the third
quarter of 2004, and an increase in marketing expenses, partially offset by a
decrease in legal fees incurred in connection with the Litigation.
Depreciation and amortization decreased 8% for the first quarter of fiscal 2005
compared to the same period of fiscal 2004. This decrease was due to a lower
depreciable asset base during most of the quarter, as certain items have been
fully depreciated but are still in use, offset by depreciation expense recorded
for assets either purchased or leased in connection with the Company's move and
the decision to co-locate its production servers in the second half of fiscal
2004.
Other income increased 33% for first quarter of fiscal 2005 compared to the same
period last year. This increase was due to a higher interest rate received
10
on funds invested in interest bearing accounts during the current quarter
compared to the same period last year.
Interest expense decreased 5% for the first quarter of fiscal 2005 compared to
the same period of fiscal 2004. This decrease was due to a lower outstanding
promissory note balance.
The Company reported a net loss of $59,000 versus a net loss of $77,000 for the
three months ended March 31, 2005 and 2004, respectively. Excluding the
Litigation expenses of $57,000 and $66,000 for the three months ended March 31,
2005 and 2004, respectively, the Company would have reported net losses of
$2,000 and $11,000 for the three months ended March 31, 2005 and 2004,
respectively.
FUTURE OPERATIONS
The Company over time intends to expand its operations by expanding the breadth
and depth of its product and service offerings and the introduction of new or
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 Company's limited operating history and the emerging nature
of the markets in which it competes, the Company's ability to accurately
forecast its revenues, gross profits and operating expenses as a percentage of
net sales is limited. The Company's current and future expense levels are based
largely on its investment plans and estimates of future revenues 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.
Achieving 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) 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
11
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 Web site,
(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, (xviii) 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.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB may contain forward-looking statements,
including statements regarding future prospects, industry trends, competitive
conditions and litigation issues. Any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes", "expects", "anticipates",
"plans" or words of similar meaning are intended to identify forward-looking
statements. This notice is intended to take advantage of the "safe harbor"
provided by the Private Securities Litigation Reform Act of 1995 with respect to
such forward-looking statements. These forward-looking statements involve a
number of risks and uncertainties. Among others, factors that could cause actual
results to differ materially from the Company's beliefs or expectations are
those listed under "Results of Operations" and other factors referenced herein
or from time to time as "risk factors" or otherwise in the Company's
Registration Statements or Securities and Exchange Commission reports.
Item 3. Controls and Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended) as of the end of the period covered by this report. Based on that
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that, as of the end of such period, the Company's disclosure
controls and procedures are effective.
12
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended) during our most recent fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting. Management is
aware that there is a lack of segregation of duties due to the small number of
employees dealing with general administrative and financial matters. However,
management has decided that considering the employees involved and the control
procedures in place, risks associated with such lack of segregation are
insignificant and the potential benefit of adding employees to clearly segregate
duties do not justify the expenses associated with such increase.
13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 27, 2005, the Company executed an agreement (the "Stipulation of
Settlement") which settled all of the lawsuits between it and its competitor
discussed in the succeeding paragraphs below, and its competitor simultaneously
paid the Company $1.1 million. This payment will be reflected in the Company's
consolidated financial statements for its quarter ending June 30, 2005. In
addition, the competitor agreed in the Stipulation of Settlement to assume
certain potential liabilities against the Company and defend the Company in
connection with the Decision Strategies litigation also discussed below.
As previously reported: (a) on April 20, 2001, the Company filed an action in
the Supreme Court of the State of New York, Nassau County, against Samuel
Fensterstock and a competitor (collectively, the "Defendants"), seeking
injunctive relief, declaratory relief and monetary damages; (b) thereafter, the
parties entered into a Settlement Agreement that was so ordered by the Court in
July 2001 pursuant to which the Defendants were restricted from engaging in
certain activities; (c) on November 27, 2001, the Company commenced an action
against the Defendants (the "Contempt Proceedings") in the Supreme Court of the
State of New York, Nassau County; (d) on August 6, 2004, in the Contempt
Proceedings, the Court issued a Decision finding that Defendants violated the
Settlement Agreement and were in contempt of the July 2001 Order, and awarded
compensatory and punitive damages against the Defendants aggregating $821,044,
plus attorney fees and legal costs in an amount to be determined; (e) on August
24, 2004, the Court entered a Judgment providing for the enforcement of its
award and assigned a Referee to conduct a hearing concerning the amount of
attorneys' fees and costs to be awarded; (f) on August 30, 2004, Defendants
filed a Notice of Appeal and posted a $900,000 bond to secure the compensatory
and punitive damages awarded in the Judgment; (g) on September 10, 2004, the
competitor and Samuel Fensterstock served separate Motions to Reargue; (h) in
January 2005, the Court rejected the arguments contained in Defendants' Motions
to Reargue and the Defendants each filed Notices of Appeal of the Court's
rejection of the arguments contained in the Motions to Reargue; and (i) in
February 2005, the Defendants presented separate applications to the Appellate
Division requesting that the Appellate Division dispense with requiring
Defendants to file a complete copy of the trial transcript from the Contempt
Proceeding and the Company opposed Defendants' applications.
On March 25, 2005 the Appellate Division denied Defendants' separate motions
requesting the Appellate Division to dispense with the requirement that
Defendants file a complete copy of the trial transcript with respect to the
appeal. On April 7, 2005 the Court entered a Judgment providing that the
competitor would pay the Company at least $620,000 in attorney fees and allowing
the competitor to post a bond.
As previously reported: (a) in February 2003, the competitor commenced an action
(the "Competitor Action") in the same Court, against the Company, its President
and a senior manager, seeking compensatory damages, exemplary damages and
injunctive relief; and (b) the Company denied the allegations in the Competitor
Action and counterclaimed against the competitor, its President and Samuel
Fensterstock.
As previously reported: (a) in January 2004, the Company filed a second action
in the same Court by order to show cause against the competitor and Mark
McNamara, a former Company employee, seeking injunctive relief,
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declaratory relief and monetary damages arising from the competitor's and
McNamara's misappropriation of CRM's proprietary information; and (b) by Order
dated April 2, 2004 the Court denied the Company's request for immediate
injunctive relief.
As previously reported: in March 2004, the Company filed a third action in the
same Court against the competitor and Ryan Kohler, a former Company employee,
seeking declaratory relief and compensatory damages arising from the
competitor's and Kohler's misappropriation of CRM's proprietary information.
As previously reported: (a) in July 2004, the Company commenced an action in
Nassau County against Decision Strategies LLC ("Decision Strategies"), the
court-appointed forensic computer expert in the Enforcement Proceedings, for
breach of its services contract and seeking a declaration of the rights of the
parties under the terms of the contract; (b) also in July 2004, Decision
Strategies commenced an action in New York against the Company and the
competitor for fees in excess of the limitations provided in the services
contract; and (c) Decision Strategies successfully moved to dismiss the
Company's Nassau County action because Decision Strategies had commenced an
action in New York County.
On April 13, 2005, at a preliminary conference in New York County, the Court
indicated that the action should be moved to Nassau County and scheduled a new
conference date on May 12, 2005. Pursuant to the Stipulation of Settlement, the
competitor has agreed to assume certain potential liabilities and defend the
Company in this litigation, as noted above.
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
Securities
The Company is prohibited from paying dividends pursuant to the Loan Security
Agreement that secures its Secured Promissory Note with Market Guide Inc.
Item 6. Exhibits
10.1 Stipulation of Settlement and Order dated as of April 27, 2005.
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CREDITRISKMONITOR.COM, INC.
(REGISTRANT)
Date: May 16, 2005 By: /s/ Lawrence Fensterstock
Lawrence Fensterstock
Chief Financial Officer
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