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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 2019 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 2019.
Financial Condition, Liquidity and Capital Resources
The following table presents selected financial information and statistics as of March 31, 2019 and December 31, 2018 (dollars in thousands):
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March 31,
2019
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December 31,
2018
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Cash and cash equivalents
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$
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8,390
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$
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8,067
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Accounts receivable, net
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$
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1,954
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$
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2,455
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Working capital
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$
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679
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$
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939
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Cash ratio
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0.81
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|
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0.80
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Quick ratio
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1.00
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1.04
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Current ratio
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1.07
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1.09
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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 March 31, 2019, the Company had $8.39 million in cash and cash equivalents, an increase of approximately $323,000 from December 31, 2018. This
increase was the result of cash provided by operating activities ($363,000) being greater than cash used to acquire property and equipment ($40,000).
The main component of current liabilities at March 31, 2019 is unexpired subscription revenue of $9.12 million, which should not require significant
future cash outlay other than the cost of preparation and delivery of the applicable commercial credit reports, which cost much less than the unexpired subscription revenue shown. Unexpired subscription revenue is recognized as income over the
subscription term, which approximates twelve months.
The Company has no bank lines of credit or other currently available credit sources.
The Company believes that its existing balances of cash and cash equivalents and cash generated from operations will be sufficient to satisfy its currently
anticipated cash requirements through at least the next 12 months and the foreseeable future. Moreover, the Company has been cash flow positive for 7 of the last 10 fiscal years and has no long-term debt. However, the Company’s liquidity could be
negatively affected if it were to make an acquisition or license products or technologies, which may necessitate the need to raise additional capital through future debt or equity financing. Additional financing may not be available at all or on
terms favorable to the Company.
Off-Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangements.
Results of Operations
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3 Months Ended March 31,
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2019
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2018
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Amount
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% of Total
Operating
Revenues
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Amount
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% of Total
Operating
Revenues
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Operating revenues
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$
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3,495,809
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100.00
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%
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$
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3,371,924
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100.00
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%
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|
|
|
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Operating expenses:
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Data and product costs
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1,468,993
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42.02
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%
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1,483,991
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44.01
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%
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Selling, general and administrative expenses
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2,167,411
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62.00
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%
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2,188,124
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64.89
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%
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Depreciation and amortization
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50,989
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1.46
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%
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47,048
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1.40
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%
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Total operating expenses
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3,687,393
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105.48
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%
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3,719,163
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110.30
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%
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|
|
|
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|
|
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|
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Loss from operations
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|
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(191,584
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)
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(5.48
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%)
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(347,239
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)
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(10.30
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%)
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Other income, net
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40,890
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1.17
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%
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21,042
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|
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0.63
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%
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Loss before income taxes
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(150,694
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)
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(4.31
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%)
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(326,197
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)
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(9.67
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%)
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Benefit from income taxes
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14,226
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0.41
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%
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70,761
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2.09
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%
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Net loss
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$
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(136,468
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)
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(3.90
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%
)
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$
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(255,436
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)
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(7.58
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%
)
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Operating revenues increased $123,885, or 4%, for the three months ended March 31, 2019 compared to the first quarter of fiscal 2018. 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 decreased $14,998, or 1%, for the first quarter of 2019 compared to the same period of fiscal 2018. This decrease was due primarily
to: (1) lower hosted facility costs, as the Company incurred spikes in its Internet usage in 2018 above the contracted amount resulting in additional charges that were not incurred in 2019, and (2) lower costs associated with the outsourcing of
certain data entry tasks, as in 2018 the Company authorized overtime to catch up on some processing backlogs which were not incurred in 2019. These cost savings were offset in part by: (1) higher costs of third-party content, due to minor
inflationary increases instituted by some of the Company’s major suppliers, and (2) higher salary and related employee benefits due to pay raises to staff.
Selling, general and administrative expenses decreased $20,713, or 1%, for the first quarter of fiscal 2019 compared to the same period of fiscal 2018.
This decrease was due to: (1) lower salary and related employee benefits, because of a headcount reduction as well as a lower bonus accrual, and (2) lower professional and consulting fees. These decreases were offset in part by higher rent and
related expenses resulting from the Company’s expansion of its office in mid-2018.
Depreciation and amortization increased $3,941, or 8%, for the first quarter of fiscal 2019 compared to the same period of fiscal 2018. This increase was
due to the leasehold improvements incurred in connection with the Company’s expansion of its office in mid-2018.
Other income, net increased $19,848 for first quarter of fiscal 2019 compared to the same period last year. This increase was due to greater dividend
income received in the first quarter of fiscal 2019 on all of the Company’s money market fund holdings.
Benefit for income taxes decreased $56,535 for the first quarter of fiscal 2019 compared to the same period of fiscal 2018. This decrease was due to the
Company reporting a lower pre-tax loss in 2019 versus 2018, because of the reasons enumerated above, as well as a lower effective tax rate in 2019.
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 continue to increase in dollar amount and as a percentage of revenues during the remainder of 2019 and future
periods as the Company continues to expand its business on a worldwide basis. Further, the Company expects that product development expenses will also continue to increase in dollar amount and may increase as a percentage of revenues during the
remainder of 2019 and future periods because it expects to employ more development personnel on average compared to prior periods and build the infrastructure required to support the development of new and improved products and services. However,
as these expenditures are discretionary in nature, the Company expects that the actual amounts incurred will be in line with its projections of future cash flows in order not to negatively impact its future liquidity and capital needs. There can be
no assurance that the Company will be able to achieve these objectives within a meaningful time frame.
The Company expects to experience fluctuations in its future quarterly operating results due to a variety of factors, some of which are outside the
Company’s control. Factors that may adversely affect the Company’s quarterly operating results include, among others, (i) the 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.