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: September 30, 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 |_|
Indicated by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act).
Yes |_| No |x|
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 November 3,
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 - September 30, 2005 (Unaudited)
and December 31, 2004.................................................2
Consolidated Statements of Operations for the Three Months
Ended September 30, 2005 and 2004 (Unaudited).........................3
Consolidated Statements of Operations for the Nine Months
Ended September 30, 2005 and 2004 (Unaudited).........................4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2005 and 2004 (Unaudited).........................5
Condensed Notes to Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................9
Item 3. Controls and Procedures..........................................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................15
Item 2. Changes in Securities and Small Business Issuer Purchases
of Equity Securities.................................................15
Item 6. Exhibits.........................................................15
SIGNATURES....................................................................16
EXHIBITS
31.1 Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002....................17
31.2 Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002....................19
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............................21
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............................22
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
Sept. 30, Dec. 31,
2005 2004
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,000,020 $ 877,025
Accounts receivable, net of allowance 437,243 637,221
Other current assets 105,466 172,019
------------ ------------
Total current assets 2,542,729 1,686,265
Property and equipment, net 162,641 162,085
Goodwill, net 1,954,460 1,954,460
Prepaid and other assets 23,678 20,042
------------ ------------
Total assets $ 4,683,508 $ 3,822,852
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred revenue $ 2,263,666 $ 2,221,233
Accounts payable 209,260 170,949
Accrued expenses 140,656 218,990
Current portion of long-term debt 108,086 100,084
Current portion of capitalized lease obligations 25,763 26,518
------------ ------------
Total current liabilities 2,747,431 2,737,774
------------ ------------
Long-term debt, net of current portion:
Promissory note 438,608 520,703
Capitalized lease obligations 25,324 44,904
------------ ------------
463,932 565,607
Deferred rent payable 6,188 2,375
Deferred compensation 88,890 88,890
------------ ------------
Total liabilities 3,306,441 3,394,646
------------ ------------
Commitments and contingencies
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 (26,822,110) (27,770,971)
------------ ------------
Total stockholders' equity 1,377,067 428,206
------------ ------------
Total liabilities and stockholders' equity $ 4,683,508 $ 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 SEPTEMBER 30, 2005 AND 2004
(Unaudited)
2005 2004
---- ----
Operating revenues $ 985,106 $ 851,231
----------- -----------
Operating expenses:
Data and product costs 300,542 282,366
Selling, general and administrative expenses 669,354 501,274
Litigation related legal fees and expenses -- 29,083
Depreciation and amortization 16,725 15,499
----------- -----------
Total operating expenses 986,621 828,222
----------- -----------
Income (loss) from operations (1,515) 23,009
Other income 9,930 2,193
Loss on retirement of fixed assets -- (267)
Interest expense (16,069) (18,183)
----------- -----------
Income (loss) before income taxes (7,654) 6,752
Provision for income taxes 563 --
----------- -----------
Net income (loss) $ (8,217) $ 6,752
=========== ===========
Net income (loss) per share of common stock:
Basic and diluted $ (0.00) $ 0.00
=========== ===========
Weighted average number of common shares
outstanding:
Basic and diluted 7,679,462 7,559,649
=========== ===========
See accompanying condensed notes to consolidated financial statements.
3
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(Unaudited)
2005 2004
---- ----
Operating revenues $ 2,830,106 $ 2,484,855
----------- -----------
Operating expenses:
Data and product costs 817,158 801,120
Selling, general and administrative expenses 1,932,880 1,486,271
Litigation related legal fees and expenses 149,089 191,803
Depreciation and amortization 49,458 47,759
----------- -----------
Total operating expenses 2,948,585 2,526,953
----------- -----------
Loss from operations (118,479) (42,098)
Other income 19,980 5,779
Gain on settlement of litigation 1,100,000 --
Loss on retirement of fixed assets -- (267)
Interest expense (50,902) (55,292)
----------- -----------
Income (loss) before income taxes 950,599 (91,878)
Provision for income taxes 1,738 226
----------- -----------
Net income (loss) $ 948,861 $ (92,104)
=========== ===========
Net income (loss) per share of common stock:
Basic and diluted $ 0.12 $ (0.01)
=========== ===========
Weighted average number of common shares
outstanding:
Basic and diluted 7,679,462 7,458,191
=========== ===========
See accompanying condensed notes to consolidated financial statements.
4
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(Unaudited)
2005 2004
---- ----
Cash flows from operating activities:
Net income (loss) $ 948,861 $ (92,104)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 49,458 47,759
Deferred rent 3,813 (3,383)
Loss on retirement of assets -- 267
Changes in operating assets and liabilities:
Accounts receivable 199,978 22,911
Other current assets 66,553 (6,148)
Prepaid and other assets (3,636) (19,741)
Deferred revenue 42,433 (12,028)
Accounts payable 38,311 6,511
Accrued expenses (78,334) (249)
----------- -----------
Net cash provided by (used in) operating activities 1,267,437 (56,205)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (50,014) (61,365)
----------- -----------
Net cash used in investing activities (50,014) (61,365)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options -- 7
Payments on promissory note (74,093) (66,871)
Payments on capital lease obligations (20,335) (10,207)
----------- -----------
Net cash used in financing activities (94,428) (77,071)
----------- -----------
Net increase (decrease) in cash and cash
equivalents 1,122,995 (194,641)
Cash and cash equivalents at beginning of
period 877,025 1,138,447
----------- -----------
Cash and cash equivalents at end of period $ 2,000,020 $ 943,806
=========== ===========
See accompanying condensed notes to consolidated financial statements.
5
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The condensed 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 audited 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 September 30,
2005 and the results of its operations and its cash flows for the periods ended
September 30, 2005 and 2004.
Results of operations for the three and nine-month periods ended September 30,
2005 and 2004 are not necessarily indicative of the results of a full year.
Certain prior year amounts have been reclassified to conform with the fiscal
2005 presentation.
(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 income (loss)
and net income (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 and nine months ended
September 30:
6
3 Months Ended 9 Months Ended
September 30, September 30,
------------- -------------
2005 2004 2005 2004
---- ---- ---- ----
Net income (loss)
As reported $ (8,217) $ 6,752 $948,861 $(92,104)
Less: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax benefits or effects 11,188 (5,250) 13,342 2,067
-------- -------- -------- --------
Pro forma $(19,405) $ 12,002 $935,519 $(94,171)
======== ======== ======== ========
Net income (loss) per share - basic
and diluted
As reported $ (0.00) $ 0.00 $ 0.12 $ (0.01)
Pro forma $ (0.00) $ 0.00 $ 0.12 $ (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 with the following weighted-average assumptions:
3 Months Ended 9 Months Ended
September 30, September 30,
------------- --------------
2005 2004 2005 2004
---- ---- ---- ----
Risk-free interests rate 4.22% 4.63% 4.26% 4.50%
Dividend yield 0.00% 0.00% 0.00% 0.00%
Volatility factor -0.18 0.96 -1.20 1.02
Weighted-average expected life of
options (in years) 9 9 9 9
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) Income Taxes
Deferred tax assets are evaluated quarterly to assess the likelihood of
realization, which is ultimately dependent upon generating future taxable income
prior to the expiration of the net operating loss carryforwards. The Company has
recorded certain U.S. federal deferred tax assets for which it has provided a
full valuation allowance as of December 31, 2004. The full valuation allowance
on the U.S. federal deferred tax assets was determined to be appropriate at
December 31, 2004 due to continuing losses. Although the Company had pre-tax
income for the nine months ended September 30, 2005, at September 30, 2005, the
Company continues to believe a full valuation allowance is required because such
income was derived primarily from a nonrecurring gain on settlement of
litigation (see Note 4). Should it be determined in the future that it is more
likely than not that these assets
7
will be realized, the valuation allowance would be removed against some or all
of the deferred tax assets.
The actual tax expense for the nine months ended September 30, 2005 differs from
the "expected" tax expense for those periods (computed by applying the
applicable United States federal corporate tax rate to income (loss) before
income taxes) as follows:
3 Months Ended 9 Months Ended
September 30, September 30,
------------- -------------
2005 2004 2005 2004
---- ---- ---- ----
Computed "expected" provision $ -- $ -- $ 284,465 $ --
Utilization of net operating
loss carryforward -- -- (284,465) --
State and local income taxes 563 -- 1,738 226
--------- --------- --------- ---------
Provision for income taxes $ 563 $ -- $ 1,738 $ 226
========= ========= ========= =========
(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 a competitor, as
previously reported, and the competitor simultaneously paid the Company $1.1
million. 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 discussed below.
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 proceeding, 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; (c) Decision Strategies successfully moved to dismiss the Company's
Nassau County action because Decision Strategies had commenced an action in New
York County; and (d) at a conference in New York County held in June 2005, the
Court denied a motion to move the action to Nassau County.
Pursuant to the Stipulation of Settlement, the competitor has agreed to assume
certain potential liabilities and defend the Company in the Decision Strategies
litigation, as noted above.
(5) Net Income (Loss) Per Share
The computation of diluted net income (loss) per share excludes the effects of
the assumed exercise of all options since their inclusion would be
anti-dilutive. For the nine-months ended September 30, 2005 and three-months
ended September 30, 2004, 546,500 and 486,000 options, respectively, were
excluded as their exercise prices were above market value. For the three-months
ended September 30, 2005 and nine-months ended September 30, 2004, 678,000 and
468,000 options, respectively, were excluded because the Company had losses in
those periods.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2005, the Company had cash and cash equivalents of $2.00
million compared to $877,000 at December 31, 2004. The Company's working capital
deficit at September 30, 2005 was approximately $205,000 compared to a working
capital deficit of approximately $1.05 million at December 31, 2004, due
primarily to an increase of $1.12 million in cash and cash equivalents
reflecting receipt of the settlement proceeds of $1.1 million referred to below.
Additionally, the working capital deficit at September 30, 2005 is mainly
derived from the $2.26 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 $91,000 and $228,000 in the first nine months 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 or previously reported (collectively, the "Litigation"), and before
giving effect to the settlement proceeds of $1.1 million, the Company had
positive cash flow of $114,000 and $33,000 for the nine months ended September
30, 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 (other than the
Decision Strategies litigation referred to above), 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 September 30,
2005 2004
---- ----
% of Total % of Total
Operating Operating
Amount Revenues Amount Revenues
--------- ---------- --------- ----------
Operating revenues $ 985,106 100.00% $ 851,231 100.00%
--------- --------- --------- ---------
Operating expenses:
Data and product costs 300,542 30.51% 282,366 33.17%
Selling, general & administrative 669,354 67.95% 501,274 58.89%
Litigation related legal fees & expenses -- 0.00% 29,083 3.42%
Depreciation and amortization 16,725 1.70% 15,499 1.82%
--------- --------- --------- ---------
Total operating expenses 986,621 100.16% 828,222 97.30%
--------- --------- --------- ---------
Income (loss) from operations (1,515) -0.16% 23,009 2.70%
Other income 9,930 1.01% 2,193 0.26%
Loss on retirement of fixed assets -- 0.00% (267) -0.03%
Interest expense (16,069) -1.63% (18,183) -2.14%
--------- --------- --------- ---------
Income (loss) before income taxes (7,654) -0.78% 6,752 0.79%
Provision for income taxes 563 0.06% -- 0.00%
--------- --------- --------- ---------
Net income (loss) ($ 8,217) -0.84% $ 6,752 0.79%
========= ========= ========= =========
Operating revenues increased 16% for the three months ended September 30, 2005
versus the same period last year. 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 increased 6% for the third quarter of 2005 compared to
the same period of fiscal 2004. This increase was primarily due to higher salary
and related employee benefit costs, offset in part by a reduction in consulting
fees that were incurred last year in connection with setting up the Company's
data center due to its move to a new facility.
Selling, general and administrative expenses increased 34% for the third quarter
of fiscal 2005 compared to the same period of fiscal 2004. This increase was
primarily due to higher salary and related employee benefit costs due to an
increase in the Company's sales force during the past 12 months and an increase
in marketing expenses, partially offset by a decrease in rent expense due to a
doubling up of rent expense in last year's third quarter as the Company moved to
its new leased facility prior to the expiration of the lease on its old location
as well as moving expenses incurred in the third quarter of 2004 related to the
Company's relocation.
Litigation related legal fees and expenses were down 100% for the third quarter
of 2005 compared to the same period last year as a settlement to the Litigation
was reached during this year's second quarter.
Depreciation and amortization increased 8% for the third quarter of fiscal 2005
compared to the same period of fiscal 2004. This increase was due to the
depreciation expense on assets either purchased or leased in connection with the
Company's move and the decision to co-locate its production servers in the third
quarter of fiscal 2004 as well as on new servers acquired during the past 12
months.
10
Other income increased 353% for the third quarter of fiscal 2005 compared to the
same period last year. This increase primarily reflects the investing of the
settlement proceeds received in the second quarter in interest bearing accounts,
as well as a higher interest rate received on funds invested in interest bearing
accounts during the current quarter compared to the same period last year.
Interest expense decreased 12% for the third 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 $8,000 versus net income of $7,000 for the
three months ended September 30, 2005 and 2004, respectively.
9 Months Ended September 30,
2005 2004
---- ----
% of Total % of Total
Operating Operating
Amount Revenues Amount Revenues
---------- ---------- ---------- ----------
Operating revenues $2,830,106 100.00% $2,484,855 100.00%
---------- ---------- ---------- ----------
Operating expenses:
Data and product costs 817,158 28.87% 801,120 32.24%
Selling, general & administrative 1,932,880 68.30% 1,486,271 59.81%
Litigation related legal fees & expenses 149,089 5.27% 191,803 7.72%
Depreciation and amortization 49,458 1.75% 47,759 1.92%
---------- ---------- ---------- ----------
Total operating expenses 2,948,585 104.19% 2,526,953 101.69%
---------- ---------- ---------- ----------
Loss from operations (118,479) -4.19% (42,098) -1.69%
Other income 19,980 0.71% 5,779 0.23%
Gain on settlement of litigation 1,100,000 38.87% -- 0.00%
Loss on retirement of fixed assets -- 0.00% (267) -0.01%
Interest expense (50,902) -1.80% (55,292) -2.23%
---------- ---------- ---------- ----------
Income (loss) before income taxes 950,599 33.59% (91,878) -3.70%
Provision for income taxes 1,738 0.06% 226 0.01%
---------- ---------- ---------- ----------
Net income (loss) $ 948,861 33.53% $ (92,104) -3.71%
========== ========== ========== ==========
Operating revenues increased 14% for the nine months ended September 30, 2005
versus the first nine months of 2004. 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 increased 2% for the first nine months of fiscal 2005
compared to the same period of fiscal 2004. This increase was primarily due to
higher salary and related employee benefits as well as the cost of leasing the
co-location facility that commenced in the third quarter of 2004, offset in part
by the lower cost of acquiring additional third-party international credit
reports and by a reduction in consulting fees that were incurred last year in
connection with setting up the Company's data center due to its move to a new
facility.
Selling, general and administrative expenses increased 30% for the first nine
months of fiscal 2005 compared to the same period of fiscal 2004. This increase
was primarily due 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
11
facilities in the third quarter of 2004, and an increase in marketing expenses,
offset in part by the moving expenses incurred in 2004.
Litigation related legal fees and expenses were down 22% for the first nine
months of fiscal 2005 compared to the same period of fiscal 2004 as a result of
the settlement of the Litigation which was reached during this year's second
quarter.
Depreciation and amortization increased 4% for the first nine months of fiscal
2005 compared to the same period of fiscal 2004. This increase was due to the
depreciation expense on 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 offset by lower depreciation expense during the
fiscal 2005 period on certain items that have been fully depreciated but are
still in use.
Other income increased 246% for the first nine months of fiscal 2005 compared to
the same period last year. This increase was primarily due to the settlement
proceeds received at the end of April 2005 that were invested in interest
bearing accounts as well as a higher interest rate received on funds invested in
interest bearing accounts during the current period compared to the same period
last year.
Interest expense decreased 8% for the first nine months 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 net income of $949,000 versus a net loss of $92,000 for the
nine months ended September 30, 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.
12
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 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, (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.
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
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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 to be determined. The Company is evaluating the
various transition provisions under SFAS No. 123R. This Statement is effective
for the Company as of the beginning of the quarter ending March 31, 2006.
No other new accounting pronouncement issued or effective during the fiscal year
has had or is expected to have a material impact on the consolidated financial
statements.
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.
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.
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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 a competitor, as
previously reported, and the competitor simultaneously paid the Company $1.1
million. 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 discussed below.
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; (c) Decision Strategies successfully moved to dismiss the Company's
Nassau County action because Decision Strategies had commenced an action in New
York County; and (d) at a conference in New York County held in June 2005, the
Court denied a motion to move the action to Nassau County.
Pursuant to the Stipulation of Settlement, the competitor has agreed to assume
certain potential liabilities and defend the Company in the Decision Strategies
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 in favor of Market Guide Inc.
Item 6. Exhibits
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: November 14, 2005 By: /s/ Lawrence Fensterstock
Lawrence Fensterstock
Chief Financial Officer
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