In addition to historical information, the following discussion of the Company’s business contains forward-looking statements. These forward-looking statements involve risks, uncertainties, and
assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to, those discussed in the sections in this Annual Report on Form 10-K
entitled “The CreditRiskMonitor Business”, “The Company’s Goals”, “Marketing and Sales”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management’s opinions only as of the date hereof. CreditRiskMonitor.com, Inc. (the “Company” or “CreditRiskMonitor”) undertakes no obligation to revise or publicly release the results of any revision to
these forward-looking statements.
Overview
CreditRiskMonitor was organized in Nevada in February 1977 and was engaged in the development and sale of nutritional food products from 1982 until October 22, 1993, when it sold substantially
all of its assets, as previously reported. Effective January 19, 1999, the Company acquired the assets of the CreditRisk Monitor credit information service (“CM Service”) from Market Guide Inc. Following the closing of the CM Service purchase,
the Company commenced doing business under the name “CreditRiskMonitor.com”.
The CreditRiskMonitor Business
The overall focus of the Company’s Software-as-a-Service (“SaaS”) subscription products is on facilitating the analysis of corporate financial risk, in the context of (a) the extension of trade
credit from one business to another, (b) the management by businesses of important relationships with suppliers, and/or (c) the management by businesses of significant “counter-party” (i.e., buying and selling) relationships.
CreditRiskMonitor (see our website at www.creditriskmonitor.com; the contents of our website are not incorporated in, or otherwise to be regarded as part of this Annual Report on Form 10-K) sells
a suite of web-based, SaaS subscription products providing access to comprehensive commercial credit reports, bankruptcy risk analytics, financial and payment information, and curated news on public and private companies worldwide. The products
help corporate credit and procurement professionals stay ahead of and manage financial risk more quickly, accurately, and cost-effectively. Our subscribers, including more than 35% of the Fortune 1000 and well over a thousand other large
corporations worldwide, use the Company’s timely news alerts, research, and reports on public and private companies to make important risk decisions. The Company’s comprehensive commercial credit reports covering both public and private
companies worldwide are published through its web-based platform and feature detailed analyses of financial statements, including ratio analysis and trend reports, and peer analysis.
Academic research has found that, in the United States, about a quarter of corporate debt is trade credit, and the size of this trade credit is roughly three times the size of bank loans.
Therefore, more U.S. companies are using trade credit to finance their operations than are using loans from the banking system. Trade credit financing is typically interest-free or even offered at a discount for expedited payment in comparison to
alternative sources of working capital financing such as bank or third party (hedge fund) loans, notes, and bonds. Moreover, many corporations that are starting to show elevated risk are unable to secure bank financing due to poor performance,
poor leverage ratios, or a lack of good cash flow metrics. Finally, the need to tap trade credit financing is highest in points of distress when interest expenses are most burdensome.
In an example business-to-business (“B2B”) transaction: the purchase and sale of $20,000 of merchandise, the seller will usually ship before the buyer pays – this act is an extension of trade
credit by the seller. The seller takes a financial risk by extending this credit, commonly referred to as “trade credit” risk. The buyer may pay late, causing the seller to incur increased borrowing costs; the seller may incur extra costs in
attempting to collect the $20,000; or the buyer may never pay the full $20,000. Amounts unlikely to be repaid are called “bad debts.” If buyers fail to pay, the seller can suffer substantial losses (e.g., assuming the seller averages a 10%
pre-tax margin it will take about $10 of sales to offset each $1 of bad debt).
To help subscribers prioritize and monitor risk, the reports offer the Company’s proprietary FRISK® and PAYCE® scores
(measures of financial distress tied to the probability of bankruptcy, powered by Artificial Intelligence including machine learning and deep neural network technology, respectively), as well as the well-known Altman Z” default score, and
corporate issuer ratings from key Nationally Recognized Statistical Rating Organizations (“NRSROs”). The FRISK® scoring model also features proprietary, aggregate sentiment inputs based on the
crowdsourced usage behaviors of our subscribers providing an improved classification of risk and boosting overall accuracy through the lowering of the false positive rate for the riskiest corporations. We believe the FRISK® score, which can
predict public company bankruptcy risk with 96%1 accuracy within the next 12 months, is the only analytic featuring such inputs in the industry and is trained on our
unmatched depth of usage data. CreditRiskMonitor’s crowdsourced usage behavior specifically identifies the shift in aggregate sentiment among the issuers of trade credit and therefore assists in the monitoring of the most critical situations
when trade credit-based working capital liquidity can dry up. With so much trade credit being utilized in the market, CreditRiskMonitor’s SaaS subscription products, featuring its 96% predictive FRISK® bankruptcy analytic for public companies
and its 70%1 predictive PAYCE® bankruptcy analytic for private companies, are emerging as critical for the accurate evaluation and monitoring of counterparty
bankruptcy risk for many subscribers.
CreditRiskMonitor’s reports include company background information, trade payment reports, as well as public filings (i.e., suits, liens, judgments, and bankruptcy information) on millions of
companies around the world. To keep subscribers current with changing risk conditions, the Company uses email to “push” selected information to subscribers. These emails include continuously filtered news monitoring that keeps subscribers up to
date on events affecting the creditworthiness of companies selected by the subscribers. Subscribers also receive alerts covering such topics as FRISK® score changes, credit limit alerts, financial statement updates, U.S. Securities and Exchange
Commission (“SEC”) filings, and changes in agency ratings. All news items are filtered to assure the stories have financial relevance and materiality. On U.S. banks, reports include financial data from the Federal Financial Institutions
Examination Council (“FFIEC”) call reports.
CreditRiskMonitor’s SaaS subscription products are most often purchased to review the risks of extending trade credit by a company to its corporate customers. Within a midsized or large
corporation, there is often a professional whose responsibility is managing this credit (often together with managing collections of the company’s accounts receivable). CreditRiskMonitor believes that, with the long-term downsizing of
corporations and the related reductions in credit departmental budgets and personnel, corporate credit professionals have to do more with less. It is also notable that trade credit decisions are often made under intense time pressure.
Simultaneously, the Company believes, there has been an explosive growth in the volume of data about large businesses. Credit professionals are often faced with an overwhelming amount of available data concerning their most important customers,
while the time for research and analysis is severely limited. CreditRiskMonitor’s products are designed to save them time, money, and effort by prioritizing their risk and helping them automatically stay up to date as conditions change.
1 Claim based on back testing of the model on U.S. companies and continued performance checks to validate if the score indicated “high risk” (a score less than 5)
at least 3 month prior to a subject company bankruptcy filing.
A meaningful portion of the Company’s subscribers uses its SaaS subscription products for managing the financial risk of relationships with suppliers and/or “counter-parties” with whom they both
buy and sell. Strategic planning is another use of the Company’s products. In the last recession and the COVID-19 pandemic, risks to the “supply chain” became a prominent focus of management concern. Companies were reminded that while the
financial distress of a single important customer might jeopardize a large receivable associated with that account, the financial distress of a single important supplier can shut down an entire factory and jeopardize a company’s entire revenue
stream. The Company’s revenue from existing subscribers who have added users responsible for procurement functions and new subscribers whose usage is entirely related to supply chain use cases is a growing percentage of total revenue.
In its 2021 10-K Filing, the Dun & Bradstreet Corporation (“Dun & Bradstreet”), our major competitor, disclosed that it generated approximately $834.7
million from its Finance & Risk business (i.e., credit, supply chain, and legal/regulatory information services) in North America (i.e., U.S. and Canada) and $430.3 million the rest of the world, total approximately $1,262.8 million2 for 2021, which we believe serves a similar mix of business functions. The remaining market is extremely fragmented
with numerous other vendors, notably including Experian plc and Equifax Inc. On that basis, we estimate that our revenue represents a little more than 1% of the Total Addressable Market (“TAM”).
CreditRiskMonitor’s annual-fee, SaaS subscription products represented over 99% of its fiscal 2020 and 2021 operating revenues. These products are sold to a diverse subscriber base with no single
subscriber representing more than 2% of 2020 and 2021 operating revenues. Accordingly, the Company is not dependent on a single subscriber nor is the Company dependent on a few large subscribers, such that a loss of any individual subscriber
would have a material adverse effect on its financial condition or results of operations.
The Company has contractual agreements with its data suppliers, including leading NRSROs to redistribute their information as part of our service. We also
obtain financial statements and other data from Refinitiv US LLC. Although we report some of this “raw” data directly on our web-based platform, the critical elements of our SaaS subscription products – the FRISK® score, PAYCE® score, ratio analysis, trend reports, peer analyses, Altman Z”-Scores, and email alerts– are computed by the Company using its algorithms and weighting techniques, and are delivered in formats carefully designed
for the way our subscribers prefer to use this information.
Further, hundreds of subscribers and non-subscribers provide us with confidential data from their accounts receivable systems that we parse, process, aggregate, and report,
so subscribers can see how their counterparties are paying the invoices of other suppliers, without disclosing the specific contributors of this information (the “Trade Contributor Program”). The Trade Contributor Program’s current trade credit
file exceeds $2 trillion of transaction data annually.
2
There was an approximately -$2.2 million adjustment to Total Revenue for the Finance & Risk segment from Corporate and other
CreditRiskMonitor’s products are the result of management’s experience in the commercial credit industry and ongoing research concerning the information needs of corporate credit and
purchasing/procurement departments. These factors have enabled CreditRiskMonitor to satisfy its subscribers’ needs for a timely, efficient, and low-cost credit information service. CreditRiskMonitor sells the following SaaS subscription products
for analyzing commercial financial risk with all additional products requiring an active subscription to its base subscription product (the “Fundamental Service”):
|
(1) |
The Fundamental Service provides subscribers with unlimited usage and coverage of public and private companies, featuring multi-period spreads of financial reports and ratio analysis, credit risk scores, payment-behavior scores, trend
reports, peer analysis, as well as up-to-date financial news screened specifically for materiality in credit evaluation. Another feature of the Fundament Service is the notification and delivery of this news via email, concerning only
companies of interest to the subscriber. This feature is supplemented with trade receivable data contributed through the Company’s Trade Contributor Program, as well as U.S. public-record filing information (i.e., suits, liens, judgments,
and bankruptcy information) covering millions of public and private U.S. companies. The Company’s Fundamental Services is delivered via its web platform and is highly structured, enabling the tracking of subscriber usage information for
over 15 years, through many financial shifts.
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Subscribers can purchase a more limited version of the Fundamental Service coverage of just U.S., Canadian, Mexican and Caribbean companies (the “North American Service”) for a lower annual fee.
The Company’s flagship version of the Fundamental Service (the “Worldwide Service”) covers all public and millions of private non-financial companies internationally.
Subscribers can purchase expanded U.S. private company coverage (the “Experian FSR Scores Enhancement”) via CreditRiskMonitor’s redistribution of Experian’s Financial Stability Risk (“FSR”) Score
for an additional annual fee. The Experian FSR Scores Enhancement provides access to financial distress scores on 3 million private U.S. companies.
Subscribers to the Worldwide Service can purchase expanded European private company coverage (the “European Private Data Enhancement”) for an additional annual fee. The European Private Data
Enhancement provides access to data covering 10 European countries, over 250,000 additional private company FRISK® scores, over 1.2 million Altman Z”-Scores, and over 9 million businesses with financial statements.
The Fundamental Service features the Company’s proprietary credit scores: the FRISK® score and the PAYCE® score. These proprietary scores indicate the level of financial distress, by predicting
the probability of bankruptcy within the next 12 months at public and private companies, respectively. The scores provide subscribers with a fast, consistent method for identifying those companies at greatest risk.
|
i. |
The FRISK® score is updated daily, based on the latest information available to the Company, and is derived from a structural statistical model back-tested using company data and bankruptcies. Many experienced and knowledgeable credit
and risk professionals use the Company’s Fundamental Service routinely to analyze the companies with whom they do business. The Company has collected anonymous usage information from its subscribers since 2003 and was able to develop an
independently predictive, corporate bankruptcy risk model trained on this aggregated data. The Company’s modeling confirmed that when its subscribers are concerned with a risky company, they investigate that company more closely, in
distinct behavioral patterns. When such patterns occur in aggregate, the herd signal is predictive of increased bankruptcy risk. Essentially, when credit professionals start looking more closely as a group, there is usually a growing
concern that can result in the reduction or even elimination of trade credit extension, specifically at one of the most critical financing times for a corporation. In 2016, the FRISK® score was retrained and augmented to include this proprietary, aggregate sentiment input. The resulting enhanced FRISK® score more accurately classifies the risk level of the riskiest corporations
and can predict public company bankruptcy risk with 96% accuracy within 12 months. The accuracy level of the FRISK® score is monitored, at least annually, by our Quality Assurance and Data Science teams and has maintained or surpassed its
benchmark 96% accuracy since 2016. Calculation of the FRISK® score involves preparation of data from multiple sources, the use of executable software created expressly by and owned by the Company, as well as sophisticated algorithms and
weighting techniques that are proprietary Company trade secrets. It appears that CreditRiskMonitor is the only company currently using crowdsourcing of subscriber activity in generating a financial risk score. In 2021, the FRISK® score
covered approximately 300,000 public and private companies worldwide, totaling an estimated $91.4 trillion in corporate revenue compared to estimated global Gross Domestic Product (“GDP”) of $89.4 trillion3.
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|
ii. |
The PAYCE® score provides a highly accurate measure of financial stress when no financial statements are available for private companies. It utilizes payment data collected and processed through the Company’s Trade Contribution Program
as well as U.S. federal tax lien data from CreditRiskMonitor’s extensive database, analyzed with sophisticated deep neural network modeling technology to deliver a 70% accurate score on approximately 94,000 private companies in the United
States and Canada. Unlike other payment-based models, a PAYCE® score is only calculated when there is both a sufficient number of trade contributors and trade lines on a company for the analysis.
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|
(2) |
The Credit Limit Service product, an add-on subscription service, helps subscribers manage credit line limits for their customers, in light of changes in the customers’ financial strength. Available since 2007, this interactive product
monitors daily changes in a customized recommended credit limit for each customer and generates alert messages to subscribers as requested, so they can take immediate action when a customer’s circumstances change. The Credit Limit Service
is fully integrated with the Fundamental Service, allowing subscribers to engage in deep analysis when specific credit line limits are questioned or further explanations are required. The additional fee is based, in part, on the number of
companies evaluated during the annual subscription period, and includes email monitoring alerts.
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3 Based on the FY2020 global GDP of $84.7 trillion and estimated 2021 GDP growth rate of 5.5% as reported by the World Bank
|
(3) |
The Financial Statement Processing (“FSP”) product, an add-on subscription service, provides subscribers a flexible option to help ease their process in the collection, data entry, and standardization of private company financial
statements, as well as providing private company FRISK® scores featuring accuracy levels in the 90%+ range1 and peer analysis to public company comparable.
The FSP product is sold in blocks of 10 credits, with a single credit used for each counterparty processed during the annual subscription period. Credits expire at the end of each annual subscription period.
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|
(4) |
Confidential Financial Statement (“CFS”) product, an add-on subscription service, provides subscribers a flexible option to help ease their process in the standardization of private company financial statements and provides private
company FRISK® scores featuring accuracy levels in the 90%+ range1 and peer analysis to public company comparable. This product is offered at a lower cost
per private counterparty processed than the FSP product, as the subscriber is responsible for the data entry of the private counterparty statements via forms on the Company’s web-based platform. The additional fee is based, for
subscribers with existing usage, on the high-watermark of the number of companies processed over the past 3 annual subscription periods.
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The viability and potential of CreditRiskMonitor’s business are made possible by the following characteristics:
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• |
Low price. The prices of CreditRiskMonitor’s SaaS subscription products are low as compared to a subscriber’s possible losses from not being paid, and are low as compared to the cost of most
competitive credit analysis products.
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|
• |
Non-cyclical. As economic growth slows, general corporate credit risk usually increases and the credit manager’s function rises in importance and complexity. Additionally, products that allow
credit managers to perform their jobs more efficiently and cost-effectively, as compared to competitive services, should gain market share in most business environments and especially during a downturn. In a contracting business
environment, many companies face increasing price competition, which should accelerate their shift to lower-cost technologies and providers, such as CreditRiskMonitor. CreditRiskMonitor’s business and recurring revenues have continued to
grow as world economic growth slowed or declined. Over the last ten years the issuance of corporate “junk bonds” and other debt by public companies and public debt by private companies (LBOs, etc.), and the development of credit
instruments to hedge default and interest rate risk (i.e., credit derivatives) has increased dramatically. It is difficult to get a complete or very accurate number of the totals, but according to the Bank for International Settlements,
as of June 2021, the notional value of Over-the-Counter Credit Default Swap Derivatives was $610 trillion4. For perspective, the world GDP estimate for the
full year is approximately $89 trillion and the market value of all worldwide domestic equity was approximately $120 trillion5. Thus, publicly-listed
companies and private companies with public debt have a vulnerability to business cycle contraction and the attendant market risks for interest rates and stock markets. Large over-the-counter debt and generally high market uncertainty
indicate continued high risk and complexity extending commercial trade credit to many companies putting a premium on the speed and analytic strength of CreditRiskMonitor’s products.
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4 As reported by the Bank of International Settlements (“BIS”) in a Statistical Release on November 15, 2021
5 As reported by the Securities Industry and Financial Markets Association (“SIFMA”) in its Global Equity Market Primer issued on November 9, 2021
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• |
Recurring revenue stream. The recurring annual revenue stream of its SaaS subscription fee model gives the Company stability not found in a traditional, non-subscription company.
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|
• |
Profit multiplier. Some of the Company’s basic costs are being reduced. On a broad generic basis, the prices of computer hardware, software, and telecommunications have been coming down for all
buyers, including CreditRiskMonitor. In addition, CreditRiskMonitor has automated a significant amount of the processes used to create and deliver its SaaS subscription products; therefore, its production costs, apart from the development
cost of enhancing and upgrading the Company’s web platform, are relatively stable over a wide range of increasing revenue. Offsetting these cost reductions is the cost of increasing the data content of CreditRiskMonitor’s SaaS
subscription products if the Company chooses to increase content and not raise its prices to cover these additional costs.
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• |
Self-financing. CreditRiskMonitor’s business has no inventory, manufacturing, or warehouse facilities, and payments for its products are made early in the subscription period with nearly all
subscribers paying annual fees without termination for convenience rights as opposed to monthly or quarterly contracts. Thus, the Company’s business has a low capital intensity and is capable of generating high margins and sufficient
positive cash flow to grow the business organically with little need for external capital.
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|
• |
Management. CreditRiskMonitor has an experienced management team with proven talent in business credit evaluation systems and SaaS web development. The Company’s senior management team has an
average tenure of over 15 years.
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The Company’s Goals
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• |
Growth in U.S. market share. Faced with a dominant U.S. competitor, Dun & Bradstreet, as well as several other larger competitors, the Company’s primary goal is to gain market share. The
Company believes that many potential subscribers are unaware of its SaaS subscription products, while many others who are aware of CreditRiskMonitor have not evaluated its products.
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• |
International penetration. Foreign companies doing business within the U.S. or other foreign countries may have the same need as domestic companies for CreditRiskMonitor’s credit analysis of U.S.
and foreign companies. Internationally, the Internet provides a mechanism for rapid and inexpensive marketing and distribution of CreditRiskMonitor’s SaaS subscription products.
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|
• |
Broaden the services supplied. Revenue per subscriber may increase over time as the Company adds functionality, content, and new products. Also, revenue per subscriber should increase over time
as the Company sells additional seat licenses (upsell) and products (cross-sell) to existing subscribers.
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|
• |
Lowest cost provider. CreditRiskMonitor’s sourcing, analysis, and preparation of data into a usable form are highly automated. CreditRiskMonitor delivers all of its information to subscribers via
the Internet and there is automation between the sourcing of data and delivery of a company credit report to a subscriber. Because of this automation, CreditRiskMonitor’s production costs are relatively stable over a wide range of
increasing revenue. Management believes CreditRiskMonitor’s cost structure is one of the lowest in its industry while maintaining a higher customer service level for subscribers.
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• |
High margins and return on investment. The Company foresees declining unit costs in some important expense areas, such as computer and communication costs, which should increase net profits from
its SaaS subscription products’ income stream. The Company has lower sales expenses for subscriber renewals than for new sales, and the Company expects that its renewal revenue will continue to grow to be a larger share of total revenue
each year. All these naturally occurring unit cost reductions will be in addition to the cost reductions achieved through servicing more subscribers over the Company’s in-place fixed costs.
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Marketing and Sales
To gain market share for the Company’s products, it will continue to use the Internet (at our website www.creditriskmonitor.com) as the primary mechanism for demonstrating and distributing its
offerings. To inform potential subscribers about its products, CreditRiskMonitor uses a combination of telephone sales, Internet demonstration, and inbound and outbound marketing, including but not limited to digital strategies, social media,
media/PR outreach, trade show representation, and speaking engagements before credit and procurement groups and associations.
Value Proposition
The Company’s fundamental value proposition is that it creates and sells high-quality, industry-leading commercial credit reports featuring analytics with the highest accuracy levels in the
market that help busy risk professionals stay ahead of financial risk quickly, easily, and precisely, at a competitive cost to those from the leading provider. Because Dun & Bradstreet has the largest share of the commercial credit market,
their flagship product, DNBi, is the standard by which the market measures both quality and price. The Company’s research shows that its subscribers overwhelmingly agree that CreditRiskMonitor’s products save them time, help them to make better
credit decisions, and represent a significant value for the price paid compared to its competitors.
CreditRiskMonitor’s operational strategy is to deliver on its value proposition by continuing to be one of the industry’s lowest-cost producers of high-quality, accurate commercial credit
information by continuously collecting data from a wide variety of sources and employing sophisticated, proprietary, algorithms to process that data into an extensive database of valuable reports on companies. Highly automated operations add to
the reliability and consistency of these reports while limiting costs. The Company employs a small number of analysts who selectively review data at critical points in its processes to further enhance the quality of its products and their
relevance to credit professionals.
Risks Related to Information Systems Security
The Company’s information systems, and those of its third-party service providers and vendors, are vulnerable to an increasing threat of continually evolving cybersecurity
risks. These risks may take the form of malware, computer viruses, cyber threats, extortion, employee error, malfeasance, system errors, or other types of risks, and may occur from inside or outside of our organization. Cybersecurity risk is
increasingly difficult to identify and quantify and cannot be fully mitigated because of the rapidly evolving nature of the threats, targets, and consequences. Additionally, unauthorized parties may attempt to gain access to these systems or our
information through fraud or other means of deceiving our third-party service providers, employees, or vendors. The Company’s operations depend, in part, on how well it and its suppliers protect networks, equipment, information technology (“IT”)
systems, and software against damage from several threats. The Company has entered into agreements with third parties for hardware, software, telecommunications, and other services in connection with its operations. The Company’s operations
depend on the timely maintenance, upgrade, and replacement of networks, equipment, IT systems, and software. However, if the Company is unable or delayed in maintaining, upgrading, or replacing its IT systems and software, the risk of a
cybersecurity incident could materially increase. Any of these and other events could result in information system failures, delays, and/or increases in capital expenses. The failure of information systems or a component of information systems
may, depending on the nature of any such failure, adversely impact the Company’s reputation and results of operations.
In addition, targeted attacks on the Company’s systems (or on systems of third parties that it relies on), failure or non-availability of a key IT system, or a breach of
security measures designed to protect its IT systems could result in disruptions to its operations through delays or the corruption and destructions of its data, property damage, loss of confidential information or financial or reputational
risks. As the threat landscape is ever-changing, the Company must make continuous mitigation efforts, including risk prioritized controls to protect against known and emerging threats; tools to provide automated monitoring and alerting; frequent
employee training; and backup and recovery systems to restore systems and return to normal operations. However, there can be no assurance that the Company’s ability to monitor for or mitigate cybersecurity risks will be fully effective, and the
Company may fail to identify cybersecurity breaches or discover them in a timely way.
Any significant compromise or breach of the Company’s data security, whether external or internal, or misuse of its data, could result in significant costs, lost sales,
fines, and lawsuits, as well as damage to its reputation. In addition, as the regulatory environment as related to information security, data collection, data use, and privacy becomes increasingly rigorous, with new and constantly changing
requirements applicable to our business, compliance with those requirements could also result in additional costs. As cyber threats continue to evolve, the Company may be required to expend additional resources to continue to modify or enhance
protective measures or to investigate and remediate any security vulnerabilities.
Employees
As of March 1, 2022 the Company had approximately 90 employees. None of the Company’s employees are covered by a collective bargaining agreement. The Company believes its relations with its
employees to be satisfactory and has suffered no interruption in operations.
The Company established a 401(k) Plan covering all employees effective January 1, 2000 that provides for discretionary Company contributions. Employees are eligible to participate in the 401(k)
plan if they are over the age of 21 and after completing one month of service with the company after their hire date. The Company has no other retirement, pension, profit sharing, or similar program in effect for its employees. The Company
adopted a long-term incentive plan in 2020 that covers its employees, replacing its former 2009 Plan.
Available Information
Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), are available free of charge on its website (www.creditriskmonitor.com) as soon as reasonably practicable after the Company electronically files the
material with or furnishes it to the SEC. Printed copies of these documents may be requested, free of charge, by contacting the Corporate Secretary, CreditRiskMonitor.com, Inc., 704 Executive Boulevard, Valley Cottage, NY 10989. Additionally, the
SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Information on the Company’s website or linked to its website is
not incorporated by reference into this Annual Report.
The Company does not own any real property. The Company’s principal office is located in approximately 16,900 square feet of leased space in an industrial warehouse complex located in Valley
Cottage, New York. The lease expires on July 31, 2025 and provides for an aggregate total monthly cost of approximately $21,600, subject to annual increases, plus an allocated portion of real estate taxes and insurance.
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ITEM 3.
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LEGAL PROCEEDINGS.
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The Company, at various times, may be involved in legal proceedings arising from the ordinary course of business. The Company records a liability when it believes it has enough information to
assess the probability that a loss will be incurred and the amount of loss or range of loss can be reasonably estimated. Neither the Company nor its property is a party to or the subject of a pending legal proceeding.
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ITEM 4.
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MINE SAFETY DISCLOSURES.
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Not applicable.
PART II
| ITEM 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
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The Company’s Common Stock is traded on the OTC Markets OTCQX U.S. under the symbol “CRMZ”. The following table sets forth the high and low closing bid quotations reported on the OTCQX for each
calendar quarter of 2020 and 2021. These quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
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High Bid
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Low Bid
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2020
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|
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First Quarter
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$
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1.62
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|
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$
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1.23
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Second Quarter
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|
$
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1.55
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|
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$
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1.40
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Third Quarter
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|
$
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2.30
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|
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$
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1.40
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Fourth Quarter
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|
$
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2.47
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|
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$
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2.10
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2021
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|
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First Quarter
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|
$
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2.65
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|
|
$
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2.18
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Second Quarter
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|
$
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3.29
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|
|
$
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2.30
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Third Quarter
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|
$
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2.57
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|
|
$
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1.90
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Fourth Quarter
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|
$
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2.02
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|
|
$
|
1.63
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On March 1, 2022, there were approximately 170 registered holders of the Company’s Common Stock based on information provided by our transfer agent. This number does not reflect the number of
individuals or institutional investors holding stock in nominee name through banks, brokerage firms, and others.
In fiscal 2021 and 2020, the Company did not declare a cash dividend.
The Company did not repurchase any of its common stock during the year ending 2021.
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ITEM 6.
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SELECTED FINANCIAL DATA.
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Not applicable.
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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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 subscribers’
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 2022 are to continue to build on the improvement initiatives underway to achieve sustainable, profitable growth.
Financial Condition, Liquidity and Capital Resources
The following table presents selected financial information and statistics as of December 31, 2021 and 2020 (dollars in thousands):
| |
|
2021
|
|
|
2020
|
|
|
Cash and cash equivalents
|
|
$
|
12,382
|
|
|
$
|
10,303
|
|
|
Accounts receivable, net
|
|
$
|
2,803
|
|
|
$
|
2,557
|
|
|
Working capital
|
|
$
|
3,964
|
|
|
$
|
848
|
|
|
Cash ratio
|
|
|
1.04
|
|
|
|
0.79
|
|
|
Quick ratio
|
|
|
1.28
|
|
|
|
0.98
|
|
|
Current ratio
|
|
|
1.32
|
|
|
|
1.06
|
|
The Company has invested some of its excess cash in cash equivalents and available for sale securities. All highly liquid investments with an original maturity of three months or less when
purchased are considered cash equivalents, while those with maturities in excess of three months when purchased are reflected as marketable securities.
As of December 31, 2021, the Company had $12.38 million in cash and cash equivalents, an increase of approximately $2.08 million from December 31, 2020. This increase was primarily the result
of cash provided by operating activities of approximately $2 million and cash provided by investing activities of approximately $100 thousand.
The main component of current liabilities at December 31, 2021 was unexpired subscription revenue of $9.52 million, which should not require significant future cash outlay, as this is annual
reoccurring revenue, other than the cost of preparation and delivery of the applicable commercial credit reports, which cost much less than the unexpired subscription revenue shown. Unexpired subscription revenue is recognized as income over
the subscription term, which approximates 12 months. The Company has no debt, and expects to meet the current and long term lease obligations for office space using operating cash flows. The Company maintains an adequate cash balance to meet
the Company’s material cash requirements.
The Company has no bank lines of credit or other currently available credit sources.
Off-Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangements.
Results of Operations
2021 vs. 2020
| |
|
Year Ended December 31,
|
|
| |
|
2021
|
|
|
2020
|
|
| |
|
Amount
|
|
|
% of Total Revenue
|
|
|
Amount
|
|
|
% of Total Revenue
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
17,065,132
|
|
|
|
100
|
%
|
|
$
|
15,732,366
|
|
|
|
100
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data and product costs
|
|
|
6,332,091
|
|
|
|
37
|
%
|
|
|
6,026,464
|
|
|
|
38
|
%
|
Selling, general and administrative expenses
|
|
|
8,134,694
|
|
|
|
48
|
%
|
|
|
9,724,182
|
|
|
|
62
|
%
|
|
Depreciation and amortization
|
|
|
296,299
|
|
|
|
2
|
%
|
|
|
219,847
|
|
|
|
1
|
%
|
|
Total operating expenses
|
|
|
14,763,084
|
|
|
|
87
|
%
|
|
|
15,970,493
|
|
|
|
102
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
2,302,048
|
|
|
|
13
|
%
|
|
|
(238,127
|
)
|
|
|
(2
|
%)
|
|
Gain on forgiveness of bank loan
|
|
|
1,561,500
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
9,962
|
|
|
|
0
|
%
|
|
|
26,774
|
|
|
|
0
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
3,873,510
|
|
|
|
23
|
%
|
|
|
(211,353
|
)
|
|
|
(1
|
%)
|
|
Benefit from (provision for) income taxes
|
|
|
(509,806
|
)
|
|
|
(3
|
%)
|
|
|
163,925
|
|
|
|
1
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,363,704
|
|
|
|
20
|
%
|
|
$
|
(47,428
|
)
|
|
|
(0
|
%)
|
Operating revenues increased approximately $1.3 million, or 8%, for fiscal 2021 over the prior year. This overall revenue growth resulted from an increase in SaaS subscription products revenue,
attributable to increased sales to new and existing subscribers.
Data and product costs increased approximately $306 thousand, or 5%, for fiscal 2021 compared to fiscal 2020. This increase was due primarily to (1) higher salary and related employee benefits due to pay raises to
staff, and (2) higher costs of third-party content, due to price increases instituted by some of the Company’s major suppliers.
Selling, general and administrative expenses decreased approximately $1.59 million, or 16%, for fiscal 2021 compared to fiscal 2020. This decrease was due to lower commissions being paid out in 2021 due to
lower-than-expected new sales and lower salary expenses due to employee turnover. This decrease was offset by some higher salary and related employee benefits.
The Company’s PPP loan was forgiven by the Small Business Administration resulting in a gain of $1.56 million.
Other income decreased approximately $17 thousand for fiscal 2021 compared to fiscal 2020. This decrease was due to the lower return received on the Company’s money market fund holdings compared to fiscal 2020.
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.
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 subscribers and the volume of and timing of the subscriptions for the Company’s products, 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 subscribers with outstanding value, thus encouraging 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 into 2022 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 into 2022 and future periods because it expects to employ more development
personnel on average compared to prior periods and build the infrastructure required to support the development of new and improved products and services. However, as some of 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) new variants of COVID-19 and government related restrictions on our subscribers and their ongoing businesses and how those effects may impact our sales to them, (ii) the
Company’s ability to retain existing subscribers, attract new subscribers 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, cybersecurity breaches, or Internet brownouts, (xii) the amount and timing of operating costs and capital expenditures relating the Company’s business, operations and infrastructure, (xiii) governmental regulation and taxation
policies, (xiv) disruptions in service by common carriers due to strikes or otherwise, (xv) risks of fire or other casualty, (xvi) litigation costs or other unanticipated expenses, (xvii) interest rate risks and inflationary pressures, and
(xviii) general economic conditions and economic conditions specific to the Internet and online commerce.
Due to the foregoing factors, the Company believes that period-to-period comparisons of its revenues and operating results are not necessarily meaningful and should not be relied on as an
indication of future performance.
Critical Accounting Policies, Estimates and Judgments
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial
statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
Management continually evaluates its estimates and judgments, the most critical of which are those related to:
Valuation of goodwill -- Goodwill requires critical accounting estimates in the evaluation of the Company’s assets which are subject to valuation
judgements. In addition, the Company uses the publicly traded stock price to estimate fair value, which is subject to market fluctuations and change. See the information in Note 2 to the financial statements under the caption “Goodwill” for
accounting polices related to the recognition of goodwill.
Income taxes -- The calculation of income taxes requires critical accounting estimates in budgeting expenses, estimating sales figures, and forecasting
staffing and technology needs for the upcoming year, all of which are constantly subject to change as the year progresses. See the information in Note 2 to the financial statements under the caption “Income Taxes” for accounting polices related
to the recognition of income taxes.
Recently Issued Accounting Standards
The information set forth under Note 2 to the financial statements under the caption “Recently Issued Accounting Standards” is incorporated herein by reference.
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|