Item 2.
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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 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 2018 are to continue to build on the improvement initiatives underway to achieve sustainable, profitable growth.
Global market conditions, however, may affect the level and timing of resources deployed in pursuit of these initiatives in 2018.
Financial Condition, Liquidity and Capital Resources
The following table presents selected financial information and statistics as of September 30, 2018 and December 31, 2017 (dollars in thousands):
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Cash and cash equivalents
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$
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8,606
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|
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$
|
8,735
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Accounts receivable, net
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$
|
1,570
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|
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$
|
2,140
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Working capital
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$
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1,190
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$
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1,697
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Cash ratio
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0.90
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|
|
0.90
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Quick ratio
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1.07
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|
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1.12
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Current ratio
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|
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1.13
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|
|
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1.17
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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 September 30, 2018, the Company had $8.61 million in cash and cash equivalents, a decrease of approximately $128,700 from December 31, 2017. This
decrease was the result of cash provided from operating activities ($125,300) being less than cash used to acquire property and equipment ($254,000).
The main component of current liabilities at September 30, 2018 is deferred revenue of $8.21 million, which should not require significant future cash
outlay other than the cost of preparation and delivery of the applicable commercial credit reports, which cost much less than the deferred revenue presented. Deferred revenue is recognized as income over the subscription term, which
approximates twelve months.
The Company has no bank lines of credit or other currently available credit sources.
The Company believes that its existing balances of cash and cash equivalents and cash generated from operations will be sufficient to satisfy its
currently anticipated cash requirements through at least the next 12 months and the foreseeable future. Moreover, the Company has been cash flow positive for 8 of the last 10 fiscal years and has no long-term debt. However, the Company’s
liquidity could be negatively affected if it were to make an acquisition or license products or technologies, which may necessitate the need to raise additional capital through future debt or equity financing. Additional financing may not be
available at all or on terms favorable to the Company.
Off-Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangements.
Results of Operations
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3 Months Ended September 30,
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2018
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2017
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Amount
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|
|
|
|
Amount
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating revenues
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$
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3,481,359
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|
|
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100.00
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%
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$
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3,385,352
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|
|
|
100.00
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%
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|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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Operating expenses:
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|
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|
|
|
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|
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|
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Data and product costs
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1,416,783
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|
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40.70
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%
|
|
|
1,332,759
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|
|
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39.37
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%
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Selling, general and administrative expenses
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2,060,322
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59.18
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%
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|
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2,013,962
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|
|
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59.49
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%
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Depreciation and amortization
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|
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49,583
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|
|
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1.42
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%
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|
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43,410
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|
|
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1.28
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%
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Total operating expenses
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|
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3,526,688
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|
|
101.30
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%
|
|
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3,390,131
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|
|
|
100.14
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%
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|
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Loss from operations
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(45,329
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)
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(1.30
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%)
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|
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(4,779
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)
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|
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(0.14
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%)
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Other income, net
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36,710
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|
|
|
1.05
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%
|
|
|
15,362
|
|
|
|
0.45
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income (loss) before income taxes
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|
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(8,619
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)
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|
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(0.25
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%)
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|
|
10,583
|
|
|
|
0.31
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%
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Provision from income taxes
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|
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(2,527
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)
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(0.07
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%
)
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|
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(29,700
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)
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|
|
(0.87
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%
)
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Net loss
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$
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(11,146
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)
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|
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(0.32
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%
)
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$
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(19,117
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)
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|
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(0.56
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%
)
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Operating revenues increased $96,007, or 3%, for the three months ended September 30, 2018 compared to the same period of fiscal 2017. 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 $84,024, or 6%, for the third quarter of fiscal 2018 compared to the same period of fiscal 2017. This increase was due
primarily to: (1) higher salary and related employee benefits, as the Company increased its headcount, (2) higher costs of third-party content, due to minor inflationary increases instituted by some of the Company’s major suppliers, and (3)
higher costs associated with the outsourcing of certain data entry tasks, as the Company authorized overtime to catch up on some processing backlogs.
Selling, general and administrative expenses increased $46,360, or 2%, for the third
quarter of fiscal 2018 compared to the same period of fiscal 2017. This increase was due to higher professional and consulting fees partially offset by lower salary and related employee benefits.
Depreciation and amortization increased $6,173, or 14%, for the third quarter of fiscal 2018 compared to the same period of fiscal 2017. This increase
was due to a higher depreciable asset base reflecting the cost of furniture and leasehold improvements incurred in connection of additional space effective August 1
st
as well as the cost of new servers used in back-end operations.
Other income, net increased $21,348 for the third quarter of fiscal 2018 compared to the same period last year. This increase was due to greater dividend
income received in the third quarter of fiscal 2018 on a U.S. Treasury Money Market Fund.
The benefit for income taxes decreased $27,173 for the third quarter of fiscal 2018 compared to the same period of fiscal 2017.
In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017
(“U.S. Tax Reform”).
The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates
from a maximum of 35% to a flat 21% rate,
effective January 1, 2018.
The provision for income taxes for the interim quarters of 2017 were calculated under the old tax laws and as such are not comparable to the 2018 effective tax rates. The impact of the U.S. Tax Reform is
primarily from revaluing the deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The provisional impact of the U.S. Tax Reform is the current best estimate based on the preliminary review of
the new law and is subject to revision based on the Company’s existing accounting for income taxes policy as further information is gathered and interpretation and analysis of the tax legislation evolves. The SEC has issued rules allowing for a
measurement period of up to one year after the enactment date of the U.S. Tax Reform to finalize the recording of related tax impacts. Any future changes to the provisional estimated impact of the U.S. Tax Reform will be included as an adjustment
to the provision for income taxes.
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|
9 Months Ended September 30,
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2018
|
|
|
2017
|
|
|
|
Amount
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Operating revenues
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$
|
10,331,106
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|
|
|
100.00
|
%
|
|
$
|
9,963,078
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|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data and product costs
|
|
|
4,314,468
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|
|
|
41.76
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%
|
|
|
4,058,940
|
|
|
|
40.74
|
%
|
Selling, general and administrative expenses
|
|
|
6,398,936
|
|
|
|
61.94
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%
|
|
|
6,200,518
|
|
|
|
62.23
|
%
|
Depreciation and amortization
|
|
|
138,670
|
|
|
|
1.34
|
%
|
|
|
143,132
|
|
|
|
1.44
|
%
|
Total operating expenses
|
|
|
10,852,074
|
|
|
|
105.04
|
%
|
|
|
10,402,590
|
|
|
|
104.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(520,968
|
)
|
|
|
(5.04
|
%)
|
|
|
(439,512
|
)
|
|
|
(4.41
|
%)
|
Other income, net
|
|
|
88,354
|
|
|
|
0.85
|
%
|
|
|
29,932
|
|
|
|
0.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(432,614
|
)
|
|
|
(4.19
|
%)
|
|
|
(409,580
|
)
|
|
|
(4.11
|
%)
|
Benefit from income taxes
|
|
|
79,195
|
|
|
|
0.77
|
%
|
|
|
62,483
|
|
|
|
0.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(353,419
|
)
|
|
|
(3.42
|
%
)
|
|
$
|
(347,097
|
)
|
|
|
(3.48
|
%
)
|
Operating revenues increased $368,028, or 4%, for the nine months ended September 30, 2018 compared to the same period of fiscal 2017. 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 $255,528, or 6%, for the first nine months of fiscal 2018 compared to the same period of fiscal 2017. This increase was
due primarily to: (1) higher salary and related employee benefits, as the Company increased its headcount, (2) higher costs of third-party content, due to minor inflationary increases instituted by some of the Company’s major suppliers, and (3)
higher costs associated with the outsourcing of certain data entry tasks, as the Company authorized overtime to catch up on some processing backlogs.
Selling, general and administrative expenses increased $198,418, or 3%, for the first nine
months of fiscal 2018 compared to the same period of fiscal 2017. This increase was due to higher professional and consulting fees as well as higher marketing expenses, as the Company’s marketing effort is fully functional compared to last year
when a new Chief Marketing Officer was hired and was re-evaluating the Company’s 2017 marketing plans.
Depreciation and amortization decreased $4,462, or 3%, for the first nine months of fiscal 2018 compared to the same period of fiscal 2017. This decrease
was due to a lower depreciable asset base reflecting the continued use of certain items that have been fully depreciated.
Other income, net increased $58,422 for the first nine months of fiscal 2018 compared to the same period last year. This increase was due to greater
dividend income received in the first nine months of fiscal 2018 on a U.S. Treasury Money Market Fund.
Benefit from income taxes increased $16,712 for the first nine months of fiscal 2018 compared to the same period of fiscal 2017.
In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017
(“U.S. Tax Reform”).
The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates
from a maximum of 35% to a flat 21% rate,
effective January 1, 2018.
The provision for income taxes for the interim quarters of 2017 were calculated under the old tax laws and as such are not comparable to the 2018 effective tax rates. The impact of the U.S. Tax Reform is
primarily from revaluing the deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The provisional impact of the U.S. Tax Reform is the current best estimate based on the preliminary review of
the new law and is subject to revision based on the Company’s existing accounting for income taxes policy as further information is gathered and interpretation and analysis of the tax legislation evolves. The SEC has issued rules allowing for a
measurement period of up to one year after the enactment date of the U.S. Tax Reform to finalize the recording of related tax impacts. Any future changes to the provisional estimated impact of the U.S. Tax Reform will be included as an adjustment
to the provision for income taxes.
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 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 increase in dollar amount and as a percentage of revenues during the remainder of 2018 and future periods
as the Company continues to expand its business on a worldwide basis. Further, the Company expects that product development expenses and data costs will also continue to increase in dollar amount and may increase as a percentage of revenues
during the remainder of 2018 and future periods because it expects to employ more development personnel on average compared to prior periods, obtain additional data and build the infrastructure required to support the development of new and
improved products and services. However, as these expenditures are largely 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 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 Company’s ability to obtain products and services from its vendors, including information suppliers, on commercially reasonable terms, (vi) the Company’s ability to upgrade and develop its systems and infrastructure, and adapt to
technological change, (vii) the Company’s ability to attract and retain personnel in a timely and effective manner, (viii) the Company’s ability to manage effectively its development of new business segments and markets, (ix) the Company’s
ability to successfully manage the integration of operations and technology of acquisitions or other business combinations, (x) technical difficulties, system downtime or Internet brownouts, (xi) the amount and timing of operating costs and
capital expenditures relating the Company’s business, operations and infrastructure, (xii) governmental regulation and taxation policies, (xiii) disruptions in service by common carriers due to strikes or otherwise, (xiv) risks of fire or other
casualty, (xv) litigation costs or other unanticipated expenses, (xvi) interest rate risks and inflationary pressures, and (xvii) 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 “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.