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 2022 are to continue to build on the improvement initiatives underway to achieve sustainable, profitable growth. The Company’s top priority is the sale of
our newly launched procurement risk platform, SupplyChainMonitor™, which was officially launched during the second quarter of 2022.
Due to COVID-19 variants, 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 long-term impact the pandemic will have on the Company’s subscriber base is unknown at this time. The Company may face loss of contracts and/or customers, 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 2022.
Financial Condition, Liquidity and Capital Resources
The following table presents selected financial information and statistics as of September 30, 2022 and December 31, 2021 (dollars in thousands):
|
|
September 30,
2022
|
|
|
December 31,
2021
|
|
Cash and cash equivalents
|
|
$
|
13,606
|
|
|
$
|
12,382
|
|
Accounts receivable, net
|
|
$
|
2,951
|
|
|
$
|
2,803
|
|
Working capital
|
|
$
|
5,230
|
|
|
$
|
3,964
|
|
Cash ratio
|
|
|
1.13
|
|
|
|
1.05
|
|
Quick ratio
|
|
|
1.37
|
|
|
|
1.29
|
|
Current ratio
|
|
|
1.43
|
|
|
|
1.34
|
|
As of September 30, 2022, the Company had $13.60 million in cash and cash equivalents, an increase of approximately $1.2 million from December 31, 2021. This increase was primarily the result of cash provided by
operating activities of approximately $1.4 million and the purchase of equipment totaling approximately $197 thousand.
The main component of current liabilities at September 30, 2022 was unexpired subscription revenue of approximately $10 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 bank lines of credit or other currently available credit sources.
The Company believes that its existing balances of cash and cash equivalents and cash generated from operations will be sufficient to satisfy its currently anticipated cash requirements through at least the next 12
months and the foreseeable future. Moreover, the Company has no long-term debt. However, the Company’s liquidity could be negatively affected if it were to make an acquisition or license products or technologies, which may necessitate the need to
raise additional capital through future debt or equity financing. Additional financing may not be available at all or on terms favorable to the Company.
Off-Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangements.
Results of Operations
|
|
3 Months Ended September 30,
|
|
|
|
2022
|
|
|
2021
|
|
|
|
Amount
|
|
|
% of Total
Operating
Revenues
|
|
|
Amount
|
|
|
% of Total
Operating
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
4,547,708
|
|
|
|
100
|
%
|
|
$
|
4,323,676
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data and product costs
|
|
|
1,644,489
|
|
|
|
36
|
%
|
|
|
1,519,860
|
|
|
|
35
|
%
|
Selling, general and administrative expenses
|
|
|
2,230,553
|
|
|
|
49
|
%
|
|
|
2,024,562
|
|
|
|
47
|
%
|
Depreciation and amortization
|
|
|
100,448
|
|
|
|
2
|
%
|
|
|
75,067
|
|
|
|
2
|
%
|
Total operating expenses
|
|
|
3,975,490
|
|
|
|
87
|
%
|
|
|
3,619,489
|
|
|
|
84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
572,218
|
|
|
|
13
|
%
|
|
|
704,187
|
|
|
|
16
|
%
|
Other income, net
|
|
|
54,581
|
|
|
|
1
|
%
|
|
|
263
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
626,799
|
|
|
|
14
|
%
|
|
|
704,450
|
|
|
|
16
|
%
|
Provision for income taxes
|
|
|
(140,822
|
)
|
|
|
(3
|
%)
|
|
|
(209,098
|
)
|
|
|
(5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
485,977
|
|
|
|
11
|
%
|
|
$
|
495,352
|
|
|
|
11
|
%
|
Operating revenues increased approximately $224 thousand, or 5%, for the three months ended September 30, 2022 compared to the third quarter of fiscal 2021. This overall revenue growth resulted from price
increases, an increase in subscription service revenue, attributable to increased sales to new and existing subscribers.
Data and product costs increased approximately $125 thousand, or 8%, for the third quarter of 2022 compared to the same period of fiscal 2021. 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 inflationary increases instituted by some of the Company’s suppliers.
Selling, general and administrative expenses increased approximately $206 thousand, or 10%, for the third quarter of fiscal 2022 compared to the same period of fiscal 2021. This increase was primarily due to: (1)
higher salary and related employee benefits due to pay raises to staff, and (2) higher commission expense due to increased sales.
|
|
9 Months Ended September 30,
|
|
|
|
2022
|
|
|
2021
|
|
|
|
Amount
|
|
|
% of Total
Operating
Revenues
|
|
|
Amount
|
|
|
% of Total
Operating
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
13,335,927
|
|
|
|
100
|
%
|
|
$
|
12,704,756
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data and product costs
|
|
|
5,117,975
|
|
|
|
38
|
%
|
|
|
4,721,331
|
|
|
|
37
|
%
|
Selling, general and administrative expenses
|
|
|
6,864,354
|
|
|
|
52
|
%
|
|
|
6,415,736
|
|
|
|
50
|
%
|
Depreciation and amortization
|
|
|
301,656
|
|
|
|
2
|
%
|
|
|
206,083
|
|
|
|
2
|
%
|
Total operating expenses
|
|
|
12,283,985
|
|
|
|
92
|
%
|
|
|
11,343,150
|
|
|
|
89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,051,942
|
|
|
|
8
|
%
|
|
|
1,361,606
|
|
|
|
11
|
%
|
Other income, net
|
|
|
66,368
|
|
|
|
0
|
%
|
|
|
3,756
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,118,310
|
|
|
|
8
|
%
|
|
|
1,365,362
|
|
|
|
11
|
%
|
Provision for income taxes
|
|
|
(268,544
|
)
|
|
|
(2
|
%)
|
|
|
(359,588
|
)
|
|
|
(3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
849,766
|
|
|
|
6
|
%
|
|
$
|
1,005,774
|
|
|
|
8
|
%
|
Operating revenues increased approximately $631 thousand, or 5%, for the nine months ended September 30, 2022 compared to the same period of fiscal 2021. This overall revenue growth resulted from price increases,
an increase in subscription service revenue, attributable to increased sales to new and existing subscribers.
Data and product costs increased approximately $397 thousand, or 8%, for the nine months ended September 30, 2022 compared to the same period of fiscal 2021. 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 inflationary increases instituted by some of the Company’s suppliers.
Selling, general and administrative expenses increased approximately $449 thousand, or 7%, for the nine months ended September 30, 2022 compared to the same period of fiscal 2021. This increase was primarily due
to: (1) higher salary and related employee benefits due to pay raises to staff, and (2) higher commission expense due to increased sales.
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, the Company’s ability to accurately forecast its revenues, gross profits, and operating expenses as a percentage of net sales is limited. The
Company’s current and future expense levels are based largely on its investment plans and estimates of future revenues. 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 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.
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.