CRMZ 10-Q Quarterly Report June 30, 2020 | Alphaminr
CREDITRISKMONITOR COM INC
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CRMZ 10-Q Quarter ended June 30, 2020

Balance Sheet
Cash Flow
Income Statement
CREDITRISKMONITOR COM INC
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10-Q 1 brhc10014318_10q.htm 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to______

Commission File Number: 1-8601

CreditRiskMonitor.com, Inc.
(Exact name of registrant as specified in its charter)

Nevada
36-2972588
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

704 Executive Boulevard, Suite A
Valley Cottage, New York  10989
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (845) 230-3000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
None
N/A
N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer
☐
Non-accelerated filer   ☑ Smaller reporting company
☑ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).   Yes ☐    No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common stock $.01 par value – 10,722,401 shares outstanding as of August 13, 2020.

CREDITRISKMONITOR.COM, INC.
INDEX

Page
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
2
3
4
5
6
7
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
11
Item 4.
Controls and Procedures
15
PART II. OTHER INFORMATION
Item 6.
Exhibits
16
17

PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

CREDITRISKMONITOR.COM, INC.
CONDENSED BALANCE SHEETS
JUNE 30, 2020 AND DECEMBER 31, 2019

June 30,
2020
December 31,
2019
(Unaudited)
(Note 1)
ASSETS
Current assets:
Cash and cash equivalents
$
9,955,650
$
8,275,836
Accounts receivable, net of allowance
2,270,026
2,287,921
Other current assets
798,626
549,821
Total current assets
13,024,302
11,113,578
Property and equipment, net
439,299
477,973
Operating lease right-to-use asset
2,291,330
2,380,974
Goodwill
1,954,460
1,954,460
Other assets
33,450
35,723
Total assets
$
17,742,841
$
15,962,708
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Unexpired subscription revenue
$
9,381,309
$
8,651,843
Accounts payable
87,369
137,500
Current portion of operating lease liability
154,422
147,229
Current portion of bank loan
907,079
--
Accrued expenses
1,278,216
1,344,550
Total current liabilities
11,808,395
10,281,122
Deferred taxes on income, net
318,108
521,765
Unexpired subscription revenue, less current portion
185,639
166,169
Bank loan, less current portion
654,421
--
Operating lease liability, less current portion
2,221,030
2,299,433
Total liabilities
15,187,593
13,268,489
Stockholders’ equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares; none issued
--
--
Common stock , $.01 par value; authorized 32,500,000 shares; issued and outstanding 10,722,401 shares
107,224
107,224
Additional paid-in capital
29,736,129
29,705,673
Accumulated deficit
(27,288,105
)
(27,118,678
)
Total stockholders’ equity
2,555,248
2,694,219
Total liabilities and stockholders’ equity
$
17,742,841
$
15,962,708

See accompanying notes to condensed financial statements.

CREDITRISKMONITOR.COM, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2020 AND 2019
(Unaudited)

2020
2019
Operating revenues
$
3,852,003
$
3,567,531
Operating expenses:
Data and product costs
1,515,469
1,426,497
Selling, general and administrative expenses
2,394,266
2,147,733
Depreciation and amortization
53,693
50,045
Total operating expenses
3,963,428
3,624,275
Loss from operations
(111,425
)
(56,744
)
Other income, net
3,417
43,209
Loss before income taxes
(108,008
)
(13,535
)
Benefit from income taxes
136,929
2,005
Net income (loss)
$
28,921
$
(11,530
)
Net income (loss) per share – Basic and diluted
$
0.00
$
(0.00
)
Weighted average number of common shares outstanding – Basic and diluted
10,722,401
10,722,401

See accompanying notes to condensed financial statements.

CREDITRISKMONITOR.COM, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Unaudited)

2020
2019
Operating revenues
$
7,560,754
$
7,063,340
Operating expenses:
Data and product costs
3,041,797
2,895,490
Selling, general and administrative expenses
4,809,524
4,315,144
Depreciation and amortization
107,805
101,034
Total operating expenses
7,959,126
7,311,668
Loss from operations
(398,372
)
(248,328
)
Other income, net
26,101
84,099
Loss before income taxes
(372,271
)
(164,229
)
Benefit from income taxes
202,844
16,231
Net loss
$
(169,427
)
$
(147,998
)
Net loss per share – Basic and diluted
$
(0.02
)
$
(0.01
)
Weighted average number of common shares outstanding – Basic and diluted
10,722,401
10,722,401

See accompanying notes to condensed financial statements.

CREDITRISKMONITOR.COM, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2020 AND 2019
(Unaudited)

Common Stock
Additional
Paid-in
Accumulated
Total
Stockholders’
Shares


Amount


C apital


D eficit


Equity

Balance April 1, 2019
10,722,401
$
107,224
$
29,665,024
$
(26,936,620
)
$
2,835,628
Net loss
-
-
-
(11,530
)
(11,530
)
Stock-based compensation
-
-
13,793
-
13,793
Balance June 30, 2019
10,722,401
$
107,224
$
29,678,817
$
(26,948,150
)
$
2,837,891
Balance April 1, 2020
10,722,401
$
107,224
$
29,720,901
$
(27,317,026
)
$
2,511,099
Net income
-
-
-
28,921
28,921
Stock-based compensation
-
-
15,228
-
15,228
Balance June 30, 2020
10,722,401
$
107,224
$
29,736,129
$
(27,288,105
)
$
2,555,248

See accompanying notes to condensed financial statements.

CREDITRISKMONITOR.COM, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Unaudited)

Common Stock
Additional
Paid-in
Accumulated
Total
Stockholders’
Shares


Amount


C apital


D eficit


Equity
Balance January 1, 2019
10,722,401
$
107,224
$
29,650,760
$
(26,800,152
)
$
2,957,832
Net loss
-
-
-
(147,998
)
(147,998
)
Stock-based compensation
-
-
28,057
-
28,057
Balance June 30, 2019
10,722,401
$
107,224
$
29,678,817
$
(26,948,150
)
$
2,837,891
Balance January 1, 2020
10,722,401
$
107,224
$
29,705,673
$
(27,118,678
)
$
2,694,219
Net loss
-
-
-
(169,427
)
(169,427
)
Stock-based compensation
-
-
30,456
-
30,456
Balance June 30, 2020
10,722,401
$
107,224
$
29,736,129
$
(27,288,105
)
$
2,555,248

See accompanying notes to condensed financial statements.

CREDITRISKMONITOR.COM, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Unaudited)

2020
2019
Cash flows from operating activities:
Net loss
$
(169,427
)
$
(147,998
)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred income taxes
(203,657
)
(17,187
)
Depreciation and amortization
107,805
101,034
Operating lease right-to-use asset, net
18,434
22,106
Stock-based compensation
30,456
28,057
Changes in operating assets and liabilities:
Accounts receivable
17,895
525,625
Other current assets
(248,805
)
(271,104
)
Other assets
2,273
4,006
Unexpired subscription revenue
748,936
351,916
Accounts payable
(50,131
)
31,786
Accrued expenses
(66,334
)
(179,869
)
Net cash provided by operating activities
187,445
448,372
Cash flows from investing activities:
Purchase of property and equipment
(69,131
)
(112,092
)
Net cash used in investing activities
(69,131
)
(112,092
)
Cash flows from financing activities:
Proceeds from bank loan
1,561,500
--
Net cash provided from financing activities
1,561,500
--
Net increase in cash and cash equivalents
1,679,814
336,280
Cash and cash equivalents at beginning of period
8,275,836
8,066,899
Cash and cash equivalents at end of period
$
9,955,650
$
8,403,179

See accompanying notes to condensed financial statements.

CREDITRISKMONITOR.COM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

(1) Basis of Presentation

The accompanying unaudited condensed financial statements of CreditRiskMonitor.com, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosure required by generally accepted accounting principles (“GAAP”) in the United States for complete financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying unaudited condensed financial statements reflect all material adjustments, including normal recurring accruals, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented, and have been prepared in a manner consistent with the audited financial statements for the fiscal year ended December 31, 2019.

The results of operations for the three and six months ended June 30, 2020 and 2019 are not necessarily indicative of the results for an entire fiscal year.

The December 31, 2019 balance sheet has been derived from the audited financial statements at that date, but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the audited financial statements and the footnotes for the fiscal year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K.

(2) Recently Issued Accounting Standards

The Financial Accounting Standards Board (“FASB”) and the SEC have issued certain accounting pronouncements that will become effective in subsequent periods; however, management does not believe that any of those pronouncements would have significantly affected the Company’s financial accounting measurements or disclosures had they been in effect during the interim periods for which financial statements are included in this quarterly report. Management also believes those pronouncements will not have a significant effect on the Company’s future financial position or results of operations.

(3) Revenue Recognition

The Company applies FASB Accounting Standards Codification (“ASC”) 606, Revenue from Contract with Customers (“ASC 606”) to recognize revenue. ASC 606 requires an entity to apply the following five-step approach: (1) identify the contract(s) with a customer; (2) identify each performance obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation; and (5) recognize revenue when or as each performance obligation is satisfied. The Company’s primary source of revenue is subscription income which is recognized ratably over the subscription term.

(4) Stock-Based Compensation

The Company applies ASC 718, Compensation-Stock Compensation (“ASC 718”) to account for stock-based compensation.

The following table summarizes the stock-based compensation expense for stock options that was recorded in the Company’s results of operations in accordance with ASC 718 for six months ended June 30:

2020
2019
Data and product costs
$
11,166
$
12,409
Selling, general and administrative expenses
19,290
15,648
$
30,456
$
28,057

(5) Fair Value Measurements

The Company records its financial instruments at fair value in accordance with accounting guidance. The determination of fair value assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The fair value hierarchy is broken down into three levels based on the source of inputs as follows: (a) Level 1 – valuations based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; (b) Level 2 – valuations based on quoted prices in markets that are not active, or financial instruments for which all significant inputs are observable, either directly or indirectly; and (c) Level 3 – valuations based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable, thus, reflecting assumptions about the market participants.

The Company’s cash and cash equivalents are stated at fair value. The carrying value of accounts receivable, other current assets, bank loan, accounts payable and other current liabilities approximates fair market value because of the short maturity of these financial instruments.

The Company’s cash equivalents are generally classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

The table below sets forth the Company’s cash and cash equivalents as of June 30, 2020 and December 31, 2019, respectively, which are measured at fair value on a recurring basis by level within the fair value hierarchy.

June 30, 2020
Level 1
Level 2
Level 3
Total
Cash and cash equivalents
$
9,955,650
$
-
$
-
$
9,955,650

December 31, 2019
Level 1
Level 2
Level 3
Total
Cash and cash equivalents
$
8 ,275,836
$
-
$
-
$
8,275,836

The Company did not hold financial assets and liabilities which were recorded at fair value in the Level 2 or 3 categories as of either June 30, 2020 or December 31, 2019.

(6) Net Income (Loss) per Share

Basic net income (loss) per share is based on the weighted average number of common shares outstanding. Diluted net income (loss) per share is based on the weighted average number of common shares outstanding and the dilutive effect of outstanding stock options.

For the three months ended June 30, 2020, the computation of diluted net income per share excludes the effects of the assumed exercise of 451,750 options since their inclusion would be anti-dilutive as their exercise prices were above market value.

Because the Company has reported a net loss for the six months ended June 30, 2020, and three and six months ended June 30, 2019, diluted net loss per share is the same as basic net loss per share, as the effect of utilizing the fully diluted share count would have reduced the net loss per share. Therefore, all outstanding stock options were excluded from the computation of diluted net loss per share because their effect was anti‐dilutive for each of the periods presented.

(7) Related Party Transaction

On October 24, 2019, the Company’s Board of Directors appointed Michael Flum to serve as Senior Vice President and Chief Operating Officer effective immediately. Mr. Flum had served as Vice President of Operations & Alternative Data since June 4, 2018. Mr. Flum is the son of Jerome Flum, the Company’s Chief Executive Officer and Chairman of the Board of Directors, and the brother of Joshua Flum, a director of the Company.

(8) COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of Coronavirus Disease 2019 (“COVID-19” or “virus”) as a global pandemic. The full impact of COVID-19 is unknown and rapidly evolving. The outbreak and any preventative or protective actions that the Company or its customers may take in respect of this virus may result in a period of disruption, including the Company’s financial reporting capabilities, its operations generally and could potentially impact the Company’s customers, data providers and other third parties. Any resulting financial impact cannot be reasonably estimated at this time, but may materially affect the business and the Company’s financial condition and results of operations. The extent to which the COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain the virus or treat its impact, among others. The Company has been operating remotely without any significant disruption of operations. To date, the Company’s data providers have provided an uninterrupted stream of information thus enabling the Company to deliver its product. The Company is currently evaluating the impact, if any, on its financial statements and has not yet quantified what material impacts to the financial statements may result from the actions taken by the Company and its customers in respect of this virus.

In response to COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. Additionally, the CARES Act contains relief for small businesses through several new temporary programs, one of which is the Paycheck Protection Program (“PPP”). T he PPP is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. The Small Business Administration (“SBA”) will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent or utilities. The Company applied for a loan under this program and has received $1.56 million. The SBA provides a “safe harbor” for borrowers and has deemed certifications regarding the necessity of the loan to have been made in good faith for borrowers of less than $2 million. The PPP loan is scheduled to mature on April 15, 2022, has a 1.00% interest rate, may be prepaid at any time without penalty and is subject to the terms and conditions applicable to all loans made pursuant to the PPP as administered by the SBA under the CARES Act. The loan and accrued interest is forgivable after eight weeks so long as the Company uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.  No payments are due on this loan for six months from the date of first disbursement of this loan. In accordance with the requirements for forgiveness of the CARES Act, the Company has used the entire proceeds from the PPP Loan for eligible payroll, benefits, rent, utility costs, and maintained its employment levels.  If the Company does not apply for forgiveness, the current portion of this loan, including interest that is due within the next 12 months is $920,934.

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Environment

The continuing uncertainty in the worldwide financial system has negatively impacted general business conditions. It is possible that a weakened economy could adversely affect our clients’ need for credit information, or even their solvency, but we cannot predict whether or to what extent this will occur.

Our strategic priorities and plans for 2020 are to continue to build on the improvement initiatives underway to achieve sustainable, profitable growth. However, the COVID-19 pandemic has spread throughout the world, including the U.S . While the Company believes it meets the criteria of an essential business under the guidelines issued by New York State, the Company has elected to voluntarily “close in-office personnel functions” for the safety of our employees. Only a limited number of IT and other personnel are periodically visiting our office to ensure the integrity of our computer network, retrieve physical files, and any other function that cannot be done remotely. This has allowed our employee base to work remotely and the Company’s operations to continue normally. Nevertheless, the impact the pandemic will have on the Company’s operations is unknown at this time. The Company may face supply chain disruptions, loss of contracts and/or customers, loss of human capital or personnel at the Company, customer credit risk, and general economic calamities. Accordingly, these global market conditions will affect the level and timing of resources deployed in pursuit of these initiatives in 2020.

Financial Condition, Liquidity and Capital Resources
The following table presents selected financial information and statistics as of June 30, 2020 and December 31, 2019 (dollars in thousands):

June 30,
2020
December 31,
2019
Cash and cash equivalents
$
9,956
$
8,276
Accounts receivable, net
$
2,270
$
2,288
Working capital
$
1,216
$
832
Cash ratio
0.84
0.80
Quick ratio
1.04
1.03
Current ratio
1.10
1.08

The Company has invested some of its excess cash in cash equivalents. All highly liquid investments with an original maturity of three months or less when purchased are considered cash equivalents, while those with maturities in excess of three months when purchased are reflected as marketable securities.

As of June 30, 2020, the Company had $9.96 million in cash and cash equivalents, an increase of approximately $1.68 million from December 31, 2019. This increase was primarily the result of cash provided by financing activities through the SBA’s PPP loan program of approximately $1.56 million. In addition, cash provided by operating activities of approximately $187,000 being greater than cash used to acquire property and equipment of approximately $70,000.

The main component of current liabilities at June 30, 2020 is unexpired subscription revenue of $9.38 million, which should not require significant future cash outlay other than the cost of preparation and delivery of the applicable commercial credit reports, which cost much less than the unexpired subscription revenue shown. Unexpired subscription revenue is recognized as income over the subscription term, which approximates twelve months.

The Company has no bank lines of credit or other currently available credit sources.

The main component of long term liabilities is the Company’s bank loan from the SBA for the PPP program of $1.56 million. The loan and accrued interest is forgivable after eight weeks so long as the Company uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its employment levels. In accordance with the requirements of the CARES Act, the Company has used the entire proceeds from the PPP Loan for eligible payroll, benefits, rent, utility costs, and maintained its employment levels.

Under normal circumstances, the Company believes its existing balances of cash and cash equivalents and cash generated from operations would be sufficient to satisfy its currently anticipated cash requirements.  However, given the current COVID-19 pandemic, there is no guarantee that our current business levels can be sustained or that our subscriber base will renew their service(s) at similar spend levels in the future. To ensure we have the financial resources to meet our commitments to our employees and service providers in the upcoming months, and to avoid lay-offs or other cost cutting measures, the Company applied for and received a loan under the Paycheck Protection Program.  See Note 8 to our Financial Statements in Item 1 above.

Off-Balance Sheet Arrangements

The Company is not a party to any off-balance sheet arrangements.

Results of Operations

3 Months Ended June 30,
2020
2019
Amount
% of Total
Operating
Revenues
Amount
% of Total
Operating
Revenues
Operating revenues
$
3,852,003
100.00
%
$
3,567,531
100.00
%
Operating expenses:
Data and product costs
1,515,469
39.34
%
1,426,497
39.99
%
Selling, general and administrative expenses
2,394,266
62.16
%
2,147,733
60.20
%
Depreciation and amortization
53,693
1.39
%
50,045
1.40
%
Total operating expenses
3,963,428
102.89
%
3,624,275
101.59
%
Loss from operations
(111,425
)
(2.89
%)
(56,744
)
(1.59
%)
Other income, net
3,417
0.09
%
43,209
1.21
%
Loss before income taxes
(108,008
)
(2.80
%)
(13,535
)
(0.38
%)
Benefit from income taxes
136,929
3.55
%
2,005
0.06
%
Net loss
$
28,921
(0.75
% )
$
(11,530
)
(0.32
% )

Operating revenues increased approximately $284,000, or 8%, for the three months ended June 30, 2020 compared to the second quarter of fiscal 2019. This overall revenue growth resulted from an increase in internet subscription service revenue, attributable to increased sales to new and existing subscribers.

Data and product costs increased approximately $89,000, or 6%, for the second quarter of 2020 compared to the same period of fiscal 2019. This increase was due primarily to: (1) higher salary and related employee benefits due to pay raises to staff, (2) higher costs of third-party content, due to minor inflationary increases instituted by some of the Company’s major suppliers. These higher expenditures were offset in part by: (1) lower consulting fees, and (2) lower costs associated with the outsourcing of certain data entry tasks.

Selling, general and administrative expenses increased approximately $247,000, or 11%, for the second quarter of fiscal 2020 compared to the same period of fiscal 2019. This increase was due to higher salary and related employee benefits, because of a higher commission expense, a new sales trainee class, and a headcount increment. This increase was offset in part by: (1) lower professional fees, as the Company hired in-house counsel as of the beginning of the third quarter of 2019, and (2) lower marketing expenditures due to COVID related trade show cancelations and travel restrictions.

Depreciation and amortization increased approximately $3,600, or 7%, for the second quarter of fiscal 2020 compared to the same period of fiscal 2019. This increase was due to the capitalization of a new accounting system installed in 2019 that the Company started depreciating in last year’s fourth quarter.

Other income, net decreased approximately $40,000 for second quarter of fiscal 2020 compared to the same period last year. This decrease was due to the lower return received on the Company’s money market fund holdings compared to the second quarter of fiscal 2019.

Benefit for income taxes increased approximately $135,000 for the second quarter of fiscal 2020 compared to the same period of fiscal 2019. This increase was due to the Company reporting a higher pre-tax loss in 2020 versus 2019, because of the reasons enumerated above.

6 Months Ended June 30,
2020
2019
Amount
% of Total
Operating
Revenues
Amount
% of Total
Operating
Revenues
Operating revenues
$
7,560,754
100.00
%
$
7,063,340
100.00
%
Operating expenses:
Data and product costs
3,041,797
40.23
%
2,895,490
40.99
%
Selling, general and administrative expenses
4,809,524
63.61
%
4,315,144
61.09
%
Depreciation and amortization
107,805
1.43
%
101,034
1.43
%
Total operating expenses
7,959,126
105.27
%
7,311,668
103.52
%
Loss from operations
(398,372
)
(5.27
%)
(248,328
)
(3.52
%)
Other income, net
26,101
0.35
%
84,099
1.19
%
Loss before income taxes
(372,271
)
(4.92
%)
(164,229
)
(2.33
%)
Benefit from income taxes
202,844
2.68
%
16,231
0.23
%
Net loss
$
(169,427
)
(2.24
% )
$
(147,998
)
(2.10
% )

Operating revenues increased approximately $497,000, or 7%, for the six months ended June 30, 2020 compared to the same period of fiscal 2019. This overall revenue growth resulted from an increase in internet subscription service revenue, attributable to a price increase and increased sales to new and existing subscribers.

Data and product costs increased approximately $146,000, or 5%, for the first half of 2020 compared to the same period of fiscal 2019. This increase was due primarily to: (1) higher salary and related employee benefits due to pay raises to staff, (2) higher costs of third-party content, due to minor inflationary increases instituted by some of the Company’s major suppliers. These higher expenditures were offset in part by: (1) lower consulting fees, and (2) lower costs associated with the outsourcing of certain data entry tasks.

Selling, general and administrative expenses increased approximately $494,000, or 11%, for the first half of fiscal 2020 compared to the same period of fiscal 2019. This increase was due to higher salary and related employee benefits, because of a higher commission expense, a new sales trainee class, and a headcount increment. This increase was offset in part by: (1) lower professional fees, as the Company hired in-house counsel as of the beginning of the third quarter of 2019, and (2) lower marketing expenditures due to COVID related trade show cancelations and travel restrictions.

Depreciation and amortization increased approximately $6,800, or 7%, for the second half of fiscal 2020 compared to the same period of fiscal 2019. This increase was due to the capitalization of a new accounting system installed in 2019 that the Company started depreciating in last year’s fourth quarter.

Other income, net decreased approximately $58,000 for second half of fiscal 2020 compared to the same period last year. This decrease was due to the lower return received on the Company’s money market fund holdings compared to the same period of fiscal 2019.

Benefit for income taxes increased approximately $187,000 for the second half of fiscal 2020 compared to the same period of fiscal 2019. This increase was due to the Company reporting a higher pre-tax loss in 2020 versus 2019, because of the reasons enumerated above.

Future Operations

The Company over time intends to expand its operations by expanding the breadth and depth of its product and service offerings and introducing new and complementary products. Gross margins attributable to new business areas may be lower than those associated with the Company’s existing business activities.

As a result of the evolving nature of the markets in which it competes and the uncertainties caused by the COVID-19 pandemic, the Company’s ability to accurately forecast its revenues, gross profits and operating expenses as a percentage of net sales is limited, as the Company cannot utilize its historical subscription and renewal rates of its clients for guidance. The Company’s current and future expense levels are based largely on its investment plans and estimates of future revenues. To a large extent these costs do not vary with revenue. Sales and operating results generally depend on the Company’s ability to attract and retain customers and the volume of and timing of customer subscriptions for the Company’s services, which are difficult to forecast. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues in relation to the Company’s planned expenditures would have an immediate adverse effect on the Company’s business, prospects, financial condition and results of operations. Further, as a strategic response to changes in the competitive environment, the Company may from time to time make certain pricing, service, marketing or acquisition decisions that could have a material adverse effect on its business, prospects, financial condition and results of operations.

Achieving greater profitability depends on the Company’s ability to generate and sustain increased revenue levels. The Company believes that its success will depend in large part on its ability to (i) increase its brand awareness, (ii) provide its customers with outstanding value, thus encouraging customer renewals, and (iii) achieve sufficient sales volume to realize economies of scale. Accordingly, the Company intends to continue to increase the size of its sales force and service staff, and to invest in product development, operating infrastructure, marketing and promotion. The Company believes that these expenditures will help it to sustain the revenue growth it has experienced over the last several years. We anticipate that sales and marketing expenses will continue to increase in dollar amount and as a percentage of revenues during the remainder of 2020 and future periods as the Company continues to expand its business on a worldwide basis. Further, the Company expects that product development expenses will also continue to increase in dollar amount and may increase as a percentage of revenues during the remainder of 2020 and future periods because it expects to employ more development personnel on average compared to prior periods and build the infrastructure required to support the development of new and improved products and services. However, as these expenditures are discretionary in nature, the Company expects that the actual amounts incurred will be in line with its projections of future cash flows in order not to negatively impact its future liquidity and capital needs. There can be no assurance that the Company will be able to achieve these objectives within a meaningful time frame.

The Company expects to experience fluctuations in its future quarterly operating results due to a variety of factors, some of which are outside the Company’s control. Factors that may adversely affect the Company’s quarterly operating results include, among others, (i) the short-term and long-term effects the COVID-19 outbreak and related developments will have on our customers and their ongoing businesses and how those effects may impact our sales to them, (ii) the Company’s ability to retain existing customers, attract new customers at a steady rate and maintain customer satisfaction, (iii) the Company’s ability to maintain gross margins in its existing business and in future product lines and markets, (iv) the development of new services and products by the Company and its competitors, (v) price competition, (vi) the Company’s ability to obtain products and services from its vendors, including information suppliers, on commercially reasonable terms, (vii) the Company’s ability to upgrade and develop its systems and infrastructure, and adapt to technological change, (viii) the Company’s ability to attract and retain personnel in a timely and effective manner, (ix) the Company’s ability to manage effectively its development of new business segments and markets, (x) the Company’s ability to successfully manage the integration of operations and technology of acquisitions or other business combinations, (xi) technical difficulties, system downtime or Internet brownouts, (xii) the amount and timing of operating costs and capital expenditures relating the Company’s business, operations and infrastructure, (xiii) governmental regulation and taxation policies, (xiv) disruptions in service by common carriers due to strikes or otherwise, (xv) risks of fire or other casualty, (xvi) litigation costs or other unanticipated expenses, (xvii) interest rate risks and inflationary pressures, and (xviii) general economic conditions and economic conditions specific to the Internet and online commerce.

Due to the foregoing factors, the Company believes that period-to-period comparisons of its revenues and operating results are not necessarily meaningful and should not be relied on as an indication of future performance.

Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain forward-looking statements, including statements regarding future prospects, industry trends, competitive conditions and litigation issues. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes”, “expects”, “anticipates”, “plans” or words of similar meaning are intended to identify forward-looking statements. This notice is intended to take advantage of the “safe harbor” provided by the Private Securities Litigation Reform Act of 1995 with respect to such forward-looking statements. These forward-looking statements involve a number of risks and uncertainties. Among others, factors that could cause actual results to differ materially from the Company’s beliefs or expectations are those listed under “Business Environment” and “Results of Operations” and other factors referenced herein or from time to time as “risk factors” or otherwise in the Company’s Registration Statements or Securities and Exchange Commission reports. The Company disclaims any intention or obligation to revise any forward-looking statement, whether as a result of new information, a future event or otherwise.

Item 4.
Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective to ensure that all material information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to them as appropriate to allow timely decisions regarding required disclosure and that all such information is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

Changes in Internal Control over Financial Reporting

As a result of governmental imposed limitations on the use our facilities due to the COVID-19 pandemic, we have had to make changes to the operating methods of some of our internal controls. For example, moving from manual sign-offs / in-person meetings to electronic sign-offs and electronic communications such as email and telephonic/ or video conference due to out-of-office working arrangements. However, the design of our internal control framework/objectives over financial reporting is unchanged and the Company does not believe that these changes have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Limitations of the Effectiveness of Internal Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

PART II. OTHER INFORMATION

Item 6 .
Exhibits

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CREDITRISKMONITOR.COM, INC.
(REGISTRANT)
Date: August 13, 2020
By: /s/ Steven Gargano
Steven Gargano
Senior Vice President & Chief Financial Officer
(Principal Accounting Officer)


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TABLE OF CONTENTS