The CreditRiskMonitor Business

CRMZ (see our website at www.crmz.com) is an Internet-based publisher of financial information, designed to save time for busy corporate credit professionals, which competes with Dun & Bradstreet, Inc. ("D&B^TM") and other firms. The Company publishes comprehensive commercial credit reports covering public companies worldwide, including detailed financial statements, ratio analysis and trend reports, peer analyses, Altman Z" default scores, FRISK^® scores, credit limit recommendations, company background information, plus Moody's Investors Service ("Moody's") and Standard & Poor's ("S&P") ratings. The service also includes trade payment data and public filings (i.e., suits, liens, judgments and bankruptcy information) on millions of U.S. companies. In addition, the service provides continuous filtered news monitoring that keeps subscribers up to date on events affecting the creditworthiness of companies, including FRISK^® score reports, credit limit alerts, financial statement updates, SEC filings, Moody's and S&P rating changes, credit-relevant news stories and press releases.

In a business-to-business transaction, for example the purchase and sale of $20,000 of merchandise, the seller usually will ship before the buyer pays - this is an extension of trade credit by the seller. The seller takes a financial risk extending this credit, 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 debt". 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).

CRMZ's service is usually purchased by a seller to review the risks of extending trade credit to its customers. CRMZ believes that, with the 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 businesses. Credit professionals are often faced with an overwhelming amount of available data concerning important customers, while the time for research and analysis is severely limited.

There is little hard data on the size of CRMZ's market. The U.S. National Association of Credit Management has about 30,000 members, but some industry observers believe the number of U.S. credit managers and other personnel performing this function is substantially greater. In addition, there are numerous U.S. based companies that do not have a full-time credit function but still require credit information. Furthermore, a market exists outside of the U.S. for information on U.S. and foreign companies. Finally, a small fraction of the Company's customers use the information for purposes outside of the credit function, including procurement and strategic planning/competitive analysis. D&B^TM, our major competitor, has disclosed that it generated approximately $731.5 million from its Risk Management Solutions business (i.e., credit information services revenue) in the U.S. for 2010. The remaining market is extremely fragmented with numerous other vendors. On that basis, we estimate that we have a little more than 1% of the U.S. market.

CRMZ's annual fixed-price subscription service represented over 97% of its fiscal 2010 operating revenues. This annual service is sold to a diverse customer base with no single customer representing more than 2% of 2010 operating revenues. Accordingly, the Company is not dependent on a single customer nor is the Company dependent on a few large customers, such that a loss of any one customer would have a material adverse effect on its financial condition or results of operations.

The Company has contractual agreements with its data suppliers, including Moody's and S&P, to redistribute their information as part of our service. We also obtain financial statement data from Thomson Reuters Corporation. Although we report some of this "raw" data directly on our website, the critical elements of our service - the ratio analysis and trend reports, the peer analyses, the Altman Z" default scores and the FRISK^® score - are computed by the Company using its own algorithms and weighting techniques based on this information. Further, both subscribers and non-subscribers provide us with trade payment data that is aggregated and reported without disclosing the source of this information.

CRMZ's service is the result of management's experience in the commercial credit industry and on-going research with respect to the information needs of corporate credit departments. This has enabled CRMZ to satisfy the credit profession's need for a timely, efficient, low cost credit information service. CRMZ publishes and sells the following commercial credit analysis services primarily to corporate credit managers:

1. An annual fixed-price service (the "Fundamental Service") with unlimited usage and coverage of public companies, featuring multi-period spreads of financial reports and ratio analysis, as well as up-to-date financial news screened specifically for usefulness in credit evaluation. Another feature of the service is notification and delivery of this news via email, concerning only companies of interest to the subscriber. This service is supplemented with trade receivable data contributed mainly by CRMZ's subscribers, 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 Fundamental Service includes the Company's proprietary credit score, the "FRISK^®" score. This proprietary score predicts the probability of bankruptcy within the next 12 months, and provides clients with a fast, consistent method for identifying those companies at greatest risk of filing for bankruptcy. The FRISK^® score is updated daily, based on the latest information available to the Company, and is derived from a statistical model back-tested on 7,000 companies over a multi-year period and continually monitored by the Company. Preparation of the FRISK^® score involves the use of executable software created expressly by and owned by the Company as well as sophisticated algorithms and weighting techniques which are proprietary Company trade secrets. At the end of 2010, the Fundamental Service covered over 40,000 public companies worldwide, totaling approximately $49 trillion in corporate revenue compared to world GDP of $74 trillion. Subscribers may opt, at lower prices, for limited regional coverage, i.e., "North American Service" for coverage of just U.S., Canadian, Mexican and Caribbean companies. In addition, the Company sells its Credit Limit Service on an annual subscription basis. Available since 2007, this interactive service helps credit managers to manage credit line limits for their customers, in light of changes in the companies' financial strength. This service 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. This Credit Limit Service is fully integrated with the Fundamental Service, which provides analytical depth to subscribers when questions arise or more analysis is needed. It is only sold in conjunction with the Fundamental Service, for an additional fee. The fee is based, in part, on the number of subject companies evaluated during the annual subscription period, and includes monitoring.
2. Single credit reports on any of the over 40,000 companies covered in item (1) above. These reports are sold mainly via credit card and obtained via the Internet. Email alerts are not available with this single-report service.
3. Individual credit reports on approximately 20 million foreign public and private companies. These reports are purchased by CRMZ through affiliations with third-party suppliers and sold to CRMZ subscribers.

The viability and potential of CRMZ's business is made possible by the following characteristics:

• Low price. The prices of CRMZ's services are low compared to the subscriber's possible loss from not getting paid and low compared to the cost of most competitive products.
• 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, 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 CRMZ. CRMZ's business and revenues therefore have continued to grow as world economic growth slows or declines. Over the last ten years the issuance of corporate "junk bonds" and other debt by public companies and public debt by private companies (LBO's, 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 totally accurate number of the totals, but according to the Bank for International Settlements, as of June 2010 the total "notional" value of Over the Counter Credit Default Swap Derivatives was $30 trillion. To put this in perspective, in 2010 the U.S. Gross Domestic Product ("GDP") was approximately $14.6 trillion, and the market value of all U.S. corporate equity was approximately $20 trillion. Thus, U.S. public 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. This dramatically increases the exposure and complexity of extending commercial trade credit and puts a premium on the speed and analysis of CRMZ's service.
• Recurring revenue stream. The recurring annual revenue stream of its subscription fee model gives the Company stability not found in a one-time sale product-based company.
• 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 CRMZ. In addition, CRMZ has automated a significant amount of the processes used to create and deliver its service; therefore, its production costs, apart from the development cost of enhancing and upgrading the Company's website, are relatively stable over a wide range of increasing revenue. Offsetting these cost reductions is the cost of increasing the data content of CRMZ's services if the Company chooses to increase content and not raise its prices to cover these additional costs.
• Self financing. CRMZ's business has no inventory, manufacturing or warehouse facilities, and payment for the subscription service is made early in the subscription cycle. Thus, the Company's business is characterized by low capital-intensity, and yet it is a business capable of generating high margins and sufficient positive cash flow to grow the business organically with little need for external capital. In addition, the Company has approximately $2.1 million of net operating loss carryforwards which may offset future tax liability and thus positively impact cash flow.
• Management. CRMZ has in-place an experienced management team with proven talent in business credit evaluation systems and Internet development.

The Company’s Goals

• Growth in U.S. market share. Faced with a dominant U.S. competitor, D&B^TM, as well as several other larger competitors, the Company's primary goal is to gain market share. The Company believes that many potential customers are unaware of its service, while others are aware of but have not evaluated its service.
• International penetration. Foreign companies doing business within the U.S. or other foreign countries may have the same need as domestic companies for CRMZ's credit analysis of U.S. and foreign companies. Internationally, the Internet provides a mechanism for rapid and inexpensive marketing and distribution of CRMZ's service.
• Broaden the services supplied. Revenue per subscriber should increase over time as the Company adds functionality and content. Also, revenue per client should increase over time as the Company sells additional passwords to existing clients.
• Lowest cost provider. CRMZ's sourcing, analysis and preparation of data into a usable form is highly automated. CRMZ delivers all of its information to customers via the Internet and there is continuous automation between the sourcing of data and delivery of a company credit report to a subscriber. Because of this automation, CRMZ's production costs are relatively stable over a wide range of increasing revenue. Management believes CRMZ's cost structure is one of the lowest in its industry.
• 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 subscription income stream. The Company has lower sales expenses for customer 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 accounts over the Company's in-place fixed costs.

Marketing and Sales

To gain market share for the Company's service, it will continue to use the Internet (at our website www.crmz.com) as the primary mechanism for demonstrating and distributing its service. To inform potential subscribers about its service, CRMZ uses a combination of telephone sales, Internet demonstration, direct mail, trade show representation and speaking engagements before credit groups and associations.

Value Proposition

The Company’s fundamental value proposition is that it creates and sells high quality commercial credit reports that save busy credit managers time, at a cost significantly below that of reports from the leading provider (price comparison as of January 28, 2011). Because D&B^TM has the largest share of the commercial credit market, their flagship product, the Business Information Report ("BIR"), is the standard by which that market measures both quality and price. The Company's research shows that its customers overwhelmingly agree that CreditRiskMonitor saves them time, helps them to make better credit decisions, and represents a significant value for the price paid compared to competitive services.

The operational strategy CRMZ follows to deliver on its value proposition is straightforward. CRMZ became (and remains) one of the industry's lowest cost producers of high quality commercial credit information by continuously collecting data from a wide variety of sources and employing sophisticated proprietary computer algorithms to process that data into an extensive database of valuable reports on companies. Highly automated operations add to reliability and consistency, while limiting costs. The Company employs a small number of analysts who selectively review data at critical points in its process to further enhance the quality of its products and their relevance to credit professionals.

CRMZ employs several different selling strategies to deliver this value to different customer segments:

• Credit professionals need to save time, when analyzing their most important customers, and the CRMZ service provides this critical benefit. CRMZ believes that its reports and monitoring of public companies, having aggregate revenues of approximately $49 trillion, are superior in this way to competitive products or services in that the CRMZ service provides financial information in greater depth and better analytical efficiency. It also includes timely email alerts enabling credit professionals to easily stay on top of financial developments at their customers, without the clutter of non-financial news prevalent at other news services. Finally, the Moody's and S&P ratings, and the Altman Z" and proprietary FRISK^® scores offered by the service enable further efficiency by focusing attention on only those companies showing financial weakness.
• The Company's customers typically have contracts with D&B^TM. Traditionally, D&B^TM sold their customers prepaid units and/or reports ("units") on an annual basis, which they could then use to buy D&B^TM products throughout the year. In 2005, the Company became aware that D&B^TM had also begun selling some part of its service on a "fixed-price" basis for "virtually unlimited usage", and in 2006, D&B^TM expanded this practice under the trade name "DNBi". It appears that these contracts offer a fixed price for usage of D&B^TM information within a wide range of amounts, the upper end of which is a multiple of the customer's current usage. D&B^TM attempts to maintain or increase its total annual charges to each DNBi customer, and these charges are generally many times more than comparable CRMZ fees. At the same time, D&B^TM attempts to bind its customers to multi-year agreements, so as to blunt the customer's ability to reduce its D&B^TM costs over several years. Since its introduction through the end of 2009, the DNBi strategy seems to have been both useful for D&B^TM and without obvious negative impact on the Company, suggesting an expansionary effect on the U.S. market for credit risk information. The Company cannot predict the future effectiveness of D&B^TM's strategy much less whether D&B^TM will find this DNBi pricing can lead to sustainable revenue increases over multiple years. To date, the tactic has not significantly diminished the Company's ability to win new customers. The best practice that CRMZ recommends to its subscription customers is to always search CRMZ's database first (which does not incur any incremental expense to them) and, if they have purchased a traditional D&B^TM unit-based plan, to save their expensive D&B^TM units for decisions concerning those privately-held businesses where CRMZ may have little or no information. Likewise, users of the "DNBi" service have reported to CRMZ that it is wise to conserve unit usage even with a "DNBi" contract, because high usage levels seem to become a pretext for D&B^TM to seek large price increases in future years. According to the Company's research, the great majority of CreditRiskMonitor customers continue to report saving money as a result of using the CRMZ service.
• For low-volume customers, CRMZ sells single commercial credit reports for a flat price of $49.95 per report, using credit card transactions via the Internet. Although D&B^TM also sells single reports on the Internet, they impose a complicated pricing schedule, in which the price of a specific company report depends on both the customer's home country and the home country of the company about which they are inquiring. This pricing schedule includes more than 30 different price points for essentially the same D&B^TM Business Information Report alone, ranging from $119 to over $500 for this flagship report. This competitor's approach is apparently designed to protect its legacy revenue streams from the pre-Internet era, when charging large cross-border premiums could be justified to some extent by the increased production costs of producing and delivering reports across boundaries. In contrast, CRMZ was designed from the ground up to be a worldwide provider of commercial credit reports over the Internet, and is not similarly constrained by legacy systems. Consequently, CRMZ's value advantage is even more apparent when customers compare the costs of cross-border report purchases.