UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-QSB

 

For the quarterly period ended: June 30, 2007

 

For the transition period from________to_______

 

Commission file number 1-8601

 

 

 

 

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 x   No o

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes o   No x

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Check whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

Yes o   No o

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date:

 

 

 

 

 

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CREDITRISKMONITOR.COM, INC.

INDEX

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Balance Sheets – June 30, 2007 (Unaudited) and

 

Statements of Operations for the Three Months Ended

 

Statements of Operations for the Six Months Ended

 

Statements of Cash Flows for the Six Months Ended

 

 

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

 

 

PART II. OTHER INFORMATION

 

 

 

EXHIBITS

 

 

 

18 U.S.C. Section 1350, as Adopted Pursuant to Section

 

18 U.S.C. Section 1350, as Adopted Pursuant to Section

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CREDITRISKMONITOR.COM, INC.

BALANCE SHEETS

JUNE 30, 2007 AND DECEMBER 31, 2006

 

 

 

See accompanying condensed notes to financial statements.

 

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CREDITRISKMONITOR.COM, INC.

STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006

(Unaudited)

 

 

 

 

 

 

 

 

 

 

See accompanying condensed notes to financial statements.

 

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CREDITRISKMONITOR.COM, INC.

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(Unaudited)

 

 

 

 

 

 

 

 

 

 

See accompanying condensed notes to financial statements.

 

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CREDITRISKMONITOR.COM, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(Unaudited)

 

 

 

 

 

 

See accompanying condensed notes to financial statements.

 

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CREDITRISKMONITOR.COM, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

(1) Basis of Presentation

 

The condensed financial statements included herein have been prepared by CreditRiskMonitor.com, Inc. (the “Company” or “CRM”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures herein are adequate to make the information presented not misleading. The December 31, 2006 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 notes thereto in the Company’s annual report on Form 10-KSB for the year ended December 31, 2006.

 

In the opinion of the Company, the unaudited financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented. Results of operations for the three and six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the full year.

 

During the first quarter of 2007, the Company filed documents to dissolve Barbito Corp., its inactive wholly-owned subsidiary.

 

(2) Stock-Based Compensation

 

The Company applies Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) 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 SFAS 123R for the three and six months ended June 30:

 

 

 

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The following table summarizes information about stock option activity for the six months ended June 30, 2007:

 

 

As of June 30, 2007, there was $228,000 of total unrecognized compensation cost related to non-vested stock option awards, which is expected to be recognized over a weighted-average period of 4.05 years.

 

The Company adopted the alternative transition method provided in FASB Staff Position No. FAS 123R-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards”, for calculating the tax effects of stock-based compensation. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and statements of cash flows of the tax effects of employee stock-based compensation awards that were outstanding upon adoption of SFAS 123R.

 

(3) Other Recently Issued Accounting Standards

 

The FASB and the SEC had issued certain accounting pronouncements as of June 30, 2007 that will become effective in subsequent periods; however, management does not believe that any of those pronouncements would have significantly affected our 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 our future financial position or results of operations.

 

(4) 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 and six months ended June 30, 2006, the computation of diluted net loss per share excludes the effects of the assumed exercise of 734,500 and 710,500 options, respectively, since their inclusion would be anti-dilutive as the Company had a loss in these periods.

 

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(5) Income Taxes

 

In June 2006, the FASB issued FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 during the first quarter of fiscal 2007 and the impact of adoption was not material to its financial position or results of operations.

 

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

 

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

At June 30, 2007, the Company had cash and cash equivalents of $2.72 million compared to $2.47 million at December 31, 2006. The Company’s working capital deficit at June 30, 2007 was approximately $159,000 compared to a working capital deficit of approximately $209,000 at December 31, 2006. The Company’s cash ratio (which measures a company’s ability to pay its current bills and is computed by dividing cash and cash equivalents by total current liabilities) improved from 0.68 at December 31, 2006 to 0.70 at June 30, 2007 and its current ratio (which measures a company’s ability to meet its current obligations and is computed by dividing total current assets by total current liabilities) went from 0.94 at December 31, 2006 to 0.96 at June 30, 2007. Additionally, the working capital deficit at June 30, 2007 is mainly derived from $3.48 million in deferred revenue, which does not require any future cash outlay other than the costs of acquiring the raw data and electronically preparing and delivering the applicable commercial credit reports. The deferred revenue is recognized as income over the subscription term, which approximates twelve months. The Company has no bank lines of credit or other currently available credit sources.

 

The Company believes that it will have sufficient resources to meet its working capital and capital expenditure needs, including debt service, for the foreseeable future.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

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

 

RESULTS OF OPERATIONS

 

 

Operating revenues increased 17% for the three months ended June 30, 2007. This increase was primarily due to an increase in the number of subscribers to the Company’s Internet subscription service as the market became more aware of the Company’s enhanced service as well as sales from the Company’s

 

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new credit limit service introduced during the first quarter, offset in part by a decrease in the number of subscribers to the Company’s subscription service for third-party international credit reports as the result of declining demand for such reports.

 

Data and product costs increased 10% for the second quarter of 2007 compared to the same period of fiscal 2006. This increase was primarily due to higher salary and related employee benefits, including the hiring of additional quality control personnel, as well as the cost of new third-party content added to the Company’s website offset in part by lower consulting fees.

 

Selling, general and administrative expenses decreased 3% for the second quarter of fiscal 2007 compared to the same period of fiscal 2006. This decrease was primarily due to lower salary and related employee benefit costs as the result of the Company’s change in benefits provider effective January 1, 2007 and a decrease in marketing expenses, partially offset by an increase in professional fees, primarily for outside assistance in complying with the requirements of the Sarbanes-Oxley Act of 2002.

 

Depreciation and amortization decreased 2% for the second quarter of fiscal 2007 compared to the same period of fiscal 2006. This decrease was due to a lower depreciable asset base reflecting the continued use of certain items that have been fully depreciated.

 

Other income increased 5% for second quarter of fiscal 2007 compared to the same period last year. This increase was due to a higher level of funds invested in interest bearing accounts as well as a higher interest rate received on such funds during the current period compared to the same period last year.

 

Interest expense decreased 28% for the second quarter of fiscal 2007 compared to the same period of fiscal 2006. This decrease was primarily due to a lower outstanding long-term debt balance.

 

The Company reported net income of $58,000 versus a net loss of $103,000 for the three months ended June 30, 2007 and 2006, respectively.

 

 

 

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Operating revenues increased 15% for the six months ended June 30, 2007 versus the first half of 2006. This increase was primarily due to an increase in the number of subscribers to the Company’s Internet subscription service as well as sales from the Company’s new credit limit service introduced during the first quarter, offset in part by a decrease in the number of subscribers to the Company’s subscription service for third-party international credit reports.

 

Data and product costs increased 20% for the first six months of fiscal 2007 compared to the same period of fiscal 2006. This increase was primarily due to higher salary and related employee benefits, including the hiring of additional quality control personnel, as well as the cost of new third-party content added to the Company’s website offset in part by lower consulting fees.

 

Selling, general and administrative expenses decreased 2% for the first six months of fiscal 2007 compared to the same period of fiscal 2006. This decrease was primarily due to lower salary and related employee benefit costs, due to a decrease in the Company’s sales force during the past 12 months as well as the result of the Company’s change in benefits provider effective January 1, 2007 and a decrease in marketing expenses, partially offset by an increase in professional fees, primarily for outside assistance in complying with the requirements of the Sarbanes-Oxley Act of 2002.

 

Depreciation and amortization increased by less than 1% for the first six months of fiscal 2007 compared to the same period of fiscal 2006. This increase was due to a higher depreciable asset base during the current period resulting from the purchase of new trade booths and computer equipment during the last 12 months, partially offset by lower depreciation expense during the fiscal 2006 period on certain items that have been fully depreciated but are still in use.

 

Other income increased 17% for the first six months of fiscal 2007 compared to the same period last year. This increase was due to a higher level of funds invested in interest bearing accounts as well as a higher interest rate received on such funds during the current period compared to the same period last year.

 

Interest expense decreased 26% for the first six months of fiscal 2007 compared to the same period of fiscal 2006. This decrease was due to a lower outstanding long-term debt balance.

 

The Company reported net income of $78,000 versus a net loss of $132,000 for the six months ended June 30, 2007 and 2006, respectively.

 

FUTURE OPERATIONS

 

The Company over time intends to expand its operations by expanding the breadth and depth of its product and service offerings and 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.

 

Due to the evolving nature of the markets in which it competes, the Company’s ability to accurately forecast its revenues, gross profits and operating expenses as a percentage of net sales is limited. The Company’s current and future expense levels are based largely on its investment plans and estimates

 

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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 their subscriptions for the Company’s services, which are difficult to forecast. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues in relation to the Company’s planned expenditures would have an immediate adverse effect on the Company’s business, prospects, financial condition and results of operations. Further, as a strategic response to changes in the competitive environment, the Company may from time to time make certain pricing, service, marketing or acquisition decisions that could have a material adverse effect on its business, prospects, financial condition and results of operations.

 

Maintaining 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 invest in marketing and promotion, product development and technology and operating infrastructure development. There can be no assurance that the Company will be able to achieve these objectives within a meaningful time frame.

 

The Company expects to experience significant fluctuations in its future quarterly operating results due to a variety of factors, some of which are outside the Company’s control. Factors that may adversely affect the Company’s quarterly operating results include, among others, (i) the Company’s ability to retain existing customers, attract new customers at a steady rate and maintain customer satisfaction, (ii) the Company’s ability to maintain gross margins in its existing business and in future product lines and markets, (iii) the development of new services and products by the Company and its competitors, (iv) price competition, (v) the level of use of the Internet and online services and increasing acceptance of the Internet and other online services for the purchase of products such as those offered by the Company, (vi) the Company’s ability to upgrade and develop its systems and infrastructure, (vii) the Company’s ability to attract new personnel in a timely and effective manner, (viii) the level of traffic on the Company’s Web site, (ix) the Company’s ability to manage effectively its development of new business segments and markets, (x) the Company’s ability to successfully manage the integration of operations and technology of acquisitions or other business combinations, (xi) technical difficulties, system downtime or Internet brownouts, (xii) the amount and timing of operating costs and capital expenditures relating to expansion of the Company’s business, operations and infrastructure, (xiii) governmental regulation and taxation policies, (xiv) disruptions in service by common carriers due to strikes or otherwise, (xv) risks of fire or other casualty, (xvi) litigation costs or other unanticipated expenses, (xvii) interest rate risks and inflationary pressures, and (xviii) general economic conditions and economic conditions specific to the Internet and online commerce.

 

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

 

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FORWARD-LOOKING STATEMENTS

 

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

 

Item 3. Controls and Procedures

 

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

 

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Management is aware that there is a lack of segregation of duties due to the small number of employees dealing with general administrative and financial matters. However, management has decided that considering the employees involved and the control procedures in place, risks associated with such lack of segregation are insignificant and the potential benefit of adding employees to clearly segregate duties do not justify the expenses associated with such increase.

 

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PART II. OTHER INFORMATION

 

Item 6. Exhibits

 

 

 

 

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

CREDITRISKMONITOR.COM, INC.

(REGISTRANT)

 

Lawrence Fensterstock

Chief Financial Officer

 

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