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, 2000
[_] 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)
110 Jericho Turnpike, Suite 202
Floral Park, New York 11001
(Address of principal executive offices)
(516) 620-5400
(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 -- 5,341,129 shares outstanding as of November 6,
2000.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [x]
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CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
INDEX
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Page
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 2000 (Unaudited)
and December 31, 1999 (Audited).............................................3
Consolidated Statements of Operations for the Three Months
Ended September 30, 2000 and 1999 (Unaudited)...............................4
Consolidated Statements of Operations for the Nine Months
Ended September 30, 2000 and 1999 (Unaudited)...............................5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 (Unaudited)...............................6
Condensed Notes to Consolidated Financial Statements........................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................12
SIGNATURES..........................................................................13
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
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Sept. 30, Dec. 31,
2000 1999
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(Unaudited) (Audited)
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ASSETS
Current assets:
Cash and cash equivalents $ 1,319,085 $ 1,421,885
Accounts receivable, net of allowance of $32,500
and $32,500, respectively 452,215 575,048
Other 16,456 15,798
------------ ------------
Total current assets 1,787,756 2,012,731
Property and equipment, net of accumulated
depreciation of $135,476 and $61,771, respectively 316,234 316,999
Goodwill, net of accumulated amortization 2,097,470 2,183,275
Other assets 28,320 21,075
------------ ------------
Total assets $ 4,229,780 $ 4,534,080
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Unearned subscription income $ 1,395,563 $ 1,263,145
Deferred service fee income 61,219 --
Deferred advertising revenue 2,625 --
Accrued expenses 88,923 55,598
Accounts payable 44,202 23,388
Current portion of capitalized lease obligation 5,116 4,070
Other 20,015 41,768
------------ ------------
Total current liabilities 1,617,663 1,387,969
Long-term debt, net of current portion:
Secured promissory note, net of unamortized discount
of $104,761 and $167,643, respectively 895,239 832,357
Expense promissory note 113,045 106,087
Capitalized lease obligation 19,837 19,990
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1,028,121 958,434
Deferred rent 5,141 467
Deferred compensation 157,917 86,250
------------ ------------
Total liabilities 2,808,842 2,433,120
Stockholders' equity:
Common stock 53,411 53,411
Additional paid-in capital 27,192,567 27,192,567
Accumulated deficit (25,825,040) (25,145,018)
------------ ------------
Total stockholders' equity 1,420,938 2,100,960
------------ ------------
Total liabilities and stockholders' equity $ 4,229,780 $ 4,534,080
============ ============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
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CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
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2000 1999
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Operating revenues:
Subscription and service fee income $ 520,048 $ 309,788
Management fee 32,000 --
----------- -----------
Total operating revenues 552,048 309,788
Operating expenses:
Data and product costs 189,999 142,614
Selling, general and administrative expenses 476,533 407,414
Depreciation and amortization 54,301 46,075
----------- -----------
Total operating expenses 720,833 596,103
----------- -----------
Loss from operations (168,785) (286,315)
Other income 16,986 10,136
Interest expense (24,554) (21,661)
----------- -----------
Loss before income taxes (176,353) (297,840)
Provision (benefit) for income taxes 366 (435)
----------- -----------
Net loss $ (176,719) $ (297,405)
=========== ===========
Net loss per share of common stock:
Basic $ (0.03) $ (0.06)
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Diluted $ (0.03) $ (0.06)
=========== ===========
Weighted average number of common shares outstanding:
Basic 5,341,129 5,300,129
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Diluted 5,341,129 5,300,129
=========== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
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CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
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2000 1999
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Operating revenues:
Subscription and service fee income $ 1,428,403 $ 870,813
Management fee 32,000 --
----------- -----------
Total operating revenues 1,460,403 870,813
Operating expenses:
Data and product costs 554,392 448,594
Selling, general and administrative expenses 1,407,578 1,115,615
Depreciation and amortization 159,511 118,554
----------- -----------
Total operating expenses 2,121,481 1,682,763
----------- -----------
Loss from operations (661,078) (811,950)
Other income 56,887 48,064
Interest expense (71,795) (59,709)
Write-off of intangible assets -- (134,076)
Loss on sale of fixed assets -- (3,191)
----------- -----------
Loss before income taxes (675,986) (960,862)
Provision (benefit) for income taxes 4,036 (435)
----------- -----------
Net loss $ (680,022) $ (960,427)
=========== ===========
Net loss per share of common stock:
Basic $ (0.13) $ (0.18)
=========== ===========
Diluted $ (0.13) $ (0.18)
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Weighted average number of common shares outstanding:
Basic 5,341,129 5,300,129
=========== ===========
Diluted 5,341,129 5,300,129
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</TABLE>
See accompanying condensed notes to consolidated financial statements.
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CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBR 30, 2000 AND 1999
(Unaudited)
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2000 1999
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Cash flows from operating activities:
Net loss $ (680,022) $ (960,427)
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Goodwill amortization 85,805 76,272
Depreciation 73,705 42,283
Write-off of intangible assets -- 134,076
Deferred compensation 71,667 63,750
Amortization of debt discount 62,882 54,007
Deferred interest expense 6,958 5,702
Deferred rent 4,674 --
Loss on sale of fixed assets -- 3,191
Changes in operating assets and liabilities,
net of effect of purchase of assets from
Market Guide Inc.:
Accounts receivable 122,833 101,301
Other current assets (658) (14,679)
Unearned subscription income 132,418 178,871
Deferred service fee income 61,219 --
Deferred advertising revenue 2,625 --
Accrued expenses 33,325 (1,000)
Accounts payable 20,814 11,794
Other current liabilities (21,753) 9,950
----------- -----------
Net cash used in operating activities (23,508) (294,909)
----------- -----------
Cash flows from investing activities:
Purchase of assets from Market Guide Inc.,
net of debt issued -- (1,273,547)
Purchase of fixed assets (72,940) (90,641)
Proceeds from sale of fixed assets -- 500
Increase in other assets (7,245) (18,298)
----------- -----------
Net cash used in investing activities (80,185) (1,381,986)
----------- -----------
Cash flows from financing activities:
Proceeds from private offering, net of
offering expenses -- 3,193,553
Additions to capital lease obligation, net 893 --
----------- -----------
Net cash provided by financing activities 893 3,193,553
----------- -----------
Net increase (decrease) in cash and cash equivalents (102,800) 1,516,658
Cash and cash equivalents at beginning of period 1,421,885 13,400
----------- -----------
Cash and cash equivalents at end of period $ 1,319,085 $ 1,530,058
=========== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
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CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements included herein have been prepared by the
Company, 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
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto in the Company's annual
report on Form 10-KSB for the year ended December 31, 1999.
In the opinion of management, the unaudited consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) considered
necessary to present fairly the Company's financial position as of September 30,
2000 and the results of its operations and its cash flows for the nine months
ended September 30, 2000 and 1999.
Results of operations for the nine months ended September 30, 2000 are not
necessarily indicative of the results of a full year.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
(2) Purchase of CreditRisk Monitor and Capital Transactions
In September 1998, the Company entered into an option agreement (the "Purchase
Option") to purchase the assets of the CreditRisk Monitor ("CRM") credit
information service from Market Guide Inc. ("MGI"). CRM is an Internet based
service providing credit reports to corporate personnel on retailing and other
companies incorporating MGI developed financial information, peer and trend
analysis, news, and other vital information. The Company paid $60,000 for the
Purchase Option in addition to paid and accrued legal fees totaling $55,000. On
December 29, 1998, the Company notified MGI of its intention to exercise this
Purchase Option, which was consummated on January 19, 1999.
On January 19, 1999, the Company exercised its option to purchase the assets of
CRM. The assets purchased included customer contracts, receivables, equipment,
software, and intangibles. The net present value of the purchase price was
approximately $2.15 million (inclusive of the $60,000 paid for the Purchase
Option in September 1998), of which $1.23 million was paid at closing and the
balance is represented by two secured promissory notes (one for approximately
$100,000 and the other for $760,000, net of $240,000 discount). These promissory
notes provide for the deferral of principal amortization until February 2001
(for the $100,000 note which bears interest at 8.5 percent) and July 2001 (for
the $1.0 million note which bears interest at 6 percent), respectively. Both
notes are then payable over 24 months and are secured by the assets purchased
and substantially all other assets of the Company. The $1.0 million note
provides for no interest through June 30,
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2001, while the other note provides for the deferral of interest until debt
servicing commences.
Concurrently, the Company completed a private placement of 1,300,000 shares of
its common stock to approximately 25 "accredited investors" at a purchase price
of $2.50 per share, for gross proceeds of $3.25 million. The proceeds from this
offering were used to finance the cash portion of the CRM acquisition and the
remainder will be used for future working capital needs. These securities were
subsequently registered under a Registration Statement on Form SB-2 declared
effective by the Securities and Exchange Commission on May 17, 1999.
In anticipation of the exercise of the Purchase Option, in November 1998, Flum
Partners, a related party, provided the Company with a line of credit of up to
$20,000 of which only $5,500 was drawn upon and, in consideration thereof, the
Company agreed to issue to Flum Partners 2,000 shares of common stock. As a
participant in the private placement, Flum Partners purchased 160,000 shares of
common stock. In addition, as a condition to the private placement, Flum
Partners agreed to convert all of its 1,100,000 shares of senior preferred stock
into 3,598,299 shares of common stock on or prior to the closing of the private
placement. This conversion was effected as of January 19, 1999.
This acquisition was accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to net tangible and
intangible assets acquired based on their estimated fair values. A portion was
also allocated to in-process research and development projects that have not
reached technological feasibility and have no probable alternative future uses.
This amount ($134,076) was written-off in the first quarter of 1999. The balance
of the purchase price was recorded as goodwill, and is being amortized over 20
years.
(3) Graydon UK Ltd.
In July 2000, the Company entered into a Letter of Intent with Graydon UK Ltd.
("Graydon") to be their sole re-distributor of Graydon's international credit
reports in the United States. As part of the transaction, CRM assumed the
servicing of current contracts of a Graydon related company, Graydon America,
Inc., for which CRM is receiving a monthly management fee. Additionally, with
respect to new contracts signed by CRM, the Company recognizes revenue as
information is delivered and products and services are used by its customers.
Amounts billed for subscriptions are credited to deferred service fee income and
reflected in operating revenues as earned over the subscription term, which is
generally one year.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
In January 1999, the Company acquired the assets of the CRM and commenced
operations. Accordingly, the three and nine month periods ended September 30,
2000 and 1999 reflect the operating results of the Company's credit information
service business. This business began selling its product in April 1997 and is
still in its early stages of development.
Operating revenues for the third quarter of fiscal 2000 increased 78% to
$552,048 compared to $309,788 for the third quarter of fiscal 1999. On a
year-to-date basis, operating revenues increased 68% to $1,460,403 compared to
$870,813 for the same period of fiscal 1999. These increases were primarily due
to an increase in the number of subscribers to the Company's subscription
service, revenues from the management of the former Graydon America credit
reporting business during fiscal 2000 and the selling of advertising space on
its web site during fiscal 2000.
Data and product costs were $189,999 and $554,392 for the third quarter and
first nine months of fiscal 2000, respectively, compared to $142,614 and
$448,594, respectively, for the same fiscal 1999 periods. The dollar increases
were primarily due to higher salary and related employee benefits resulting from
an increase in headcount as the Company added personnel to deliver its expanded
product line. The Company is currently tracking in excess of 9,000 public
companies versus less than 5,700 companies at the end of the third quarter of
fiscal 1999. As a percentage of operating revenues, data and product costs
decreased to 34% and 38% for the third quarter and first nine months of fiscal
2000, respectively, compared to 46% and 52%, respectively, for the same periods
in fiscal 1999, due to the Company's growing revenue base.
Selling, general and administrative expenses for the third quarter and
first nine months of fiscal 2000 were $476,533 and $1,407,578, respectively,
compared to $407,414 and $1,115,615, respectively, for the same periods of
fiscal 1999. The dollar increases were primarily due to an increase in headcount
as the Company has added salespeople and customer support personnel over the
past 12 months. As a percent of operating revenues, selling, general and
administrative expenses were 86% and 96% for the third quarter and first nine
months of fiscal 2000, respectively, compared to 132% and 128%, respectively,
for the same periods of fiscal 1999, due to the Company's growing revenue base.
Depreciation and amortization increased to $54,301 and $159,511 for the
third quarter and first nine months of fiscal 2000, respectively, compared to
$46,075 and $118,554, respectively, for the same periods of fiscal 1999. These
increases were primarily due to higher depreciation expense related to the
acquisition of computer equipment and other fixed assets during the last 12
months.
The Company incurred a net loss of $176,719 and $297,405 for the three
months ended September 30, 2000 and 1999, respectively. For the first nine
months of fiscal 2000 and 1999, the Company incurred a net loss of $680,022 and
$960,427, respectively. Included in the year-to-date results for fiscal 1999 is
a write-off of $134,076 representing a portion of the purchase price paid for
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the CRM assets allocated to in-process research and development projects that
had not reached technological feasibility and had no probable alternative future
uses as of the date of the purchase.
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 market in which it competes, the Company is unable to accurately
forecast its revenues. The Company's current and future expense levels are based
largely on its investment plans and estimates of future revenues and are to a
large extent fixed. Sales and operating results generally depend on the volume
of, timing of and ability to sign new subscribers, 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, purchasing, service, marketing or acquisition decisions that could have
a material adverse effect on its business, prospects, financial condition and
results of operations.
Factors that may adversely affect the Company's quarterly operating results
include, among others: (i) the Company's ability to retain existing subscribers,
attract new subscribers at a steady rate and maintain subscriber satisfaction,
(ii) the development, announcement or introduction of new services and products
by the Company and its competitors, (iii) price competition, (iv) the increasing
acceptance of the Internet for the purchase of credit information such as that
offered by the Company, (v) the Company's ability to upgrade and develop its
systems and infrastructure, (vi) the Company's ability to attract new personnel
in a timely and effective manner, (vii) the Company's ability to manage
effectively the broadening of its product to encompass additional companies
monitored and the development of new products, (viii) the Company's ability to
successfully manage the integration of third-party data into its Internet site,
(ix) technical difficulties, system downtime or Internet brownouts, (x) the
amount and timing of operating costs and capital expenditures relating to
expansion of the Company's business, operations and infrastructure, and (xi)
general economic conditions and economic conditions specific to the Internet and
the credit information industry.
Liquidity and Capital Resources
During 1998 the Company located, investigated and negotiated the purchase
of the CRM business then owned by MGI. In September 1998 the Company purchased
an option to purchase the assets of the CRM business and it exercised its option
on December 29, 1998. The transaction closed effective January 19, 1999.
In order to raise funds to pay the $1.23 million cash portion of the
purchase price for the CRM assets, the costs of the acquisition and to have
sufficient working capital to continue to develop and run that business, the
Company completed a private placement of 1,300,000 shares on January 19, 1999
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of its Common Stock to approximately 25 "accredited investors" at a purchase
price of $2.50 per share, for gross proceeds of $3.25 million. Management
believes that the proceeds of this offering will provide adequate working
capital to fund operating losses of CRM until cash breakeven has been achieved.
The transactions described above, along with the issuance of 2,000 shares
of Common Stock to Flum Partners in November 1998 in consideration of its
provision to the Company of a line of credit and the conversion by Flum Partners
of its Senior Preferred shares into Common Stock on or about January 20, 1999,
resulted in Flum Partners owning more than 72% of the Company's outstanding
Common Stock (which is its only equity security now outstanding) after the 1999
Private Placement.
Funds from the 1999 Private Placement became available to the Company on or
about January 19, 1999, at which date the Company paid the cash portion of the
purchase price for the CRM assets, paid the expenses of the purchase transaction
and retained the remaining proceeds for use as working capital.
At September 30, 2000, the Company had cash and cash equivalents of
$1,319,085 compared to $1,421,885 at December 31, 1999. Working capital at
September 30, 2000 was $170,093 compared to working capital of $624,762 at
December 31, 1999. The decline in working capital from December 31, 1999 is due
primarily to: (1) a decrease in accounts receivable, reflecting the seasonality
of the Company's billing cycle, (2) an increase in unearned subscription income,
as the result of the Company's growing subscriber base, and (3) the use of cash
to fund the Company's operating loss. The Company has no bank lines of credit or
other currently available credit sources.
For the nine months ended September 30, 2000, the Company reported that net
cash used in operating activities was $23,508 compared to $294,909 for last
year's comparable period. The Company anticipates that it will be running at an
overall cash flow breakeven basis by the end of the current fiscal year and that
it has sufficient resources to meet its working capital and capital expenditure
needs for the ensuing 12 months.
FORWARD-LOOKING STATEMENTS
Part I, Item 2 (Management's Discussion and Analysis of Financial Condition
and Results of Operations) of this Quarterly Report on Form 10-QSB may contain
forward-looking statements, including statements regarding future prospects,
industry trends, competitive conditions, litigation and Year 2000 systems
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 in Part
I, Item 2 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.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule.
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated August 30, 2000, was filed on September
5, 2000, regarding the resignation of Clifton Gunderson L.L.C., the
Company's principal accountant.
A Current Report on Form 8-K, dated July 26, 2000, was filed on August 1,
2000, regarding the Company's signing of a Letter of Intent with Graydon UK
Ltd. to be their sole re-distributor of Graydon's international credit
reports in the United States.
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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, 2000 By: /s/ Lawrence Fensterstock
Lawrence Fensterstock
Chief Financial Officer
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