As filed with the Securities and Exchange Commission on May 13, 1999
Registration No. 333-77727
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
Amendment No. 1
to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CREDITRISKMONITOR.COM, INC.
(Exact name of registrant as specified in its charter)
Nevada 8700 36-2972588
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code) Identification No.)
incorporation or
organization)
------------------
2001 Marcus Avenue, Suite W290
Lake Success, New York 11042
(516) 327-2400
(Address, including zip code and telephone number, including area code
of registrant's principal executive offices)
------------------
Jerome S. Flum
Chairman, President and Chief Executive Officer
2001 Marcus Avenue, Suite W290
Lake Success, New York 11042
(516) 327-2400
(Name, address, including zip code and
telephone number, including area code of agent for service)
------------------
Copies to:
David I. Schaffer, Esq.
Meltzer, Lippe, Goldstein & Schlissel, P.C.
190 Willis Avenue
Mineola, New York 11501
------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering:____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: _____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: ____
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount to be Offering Price Aggregate Offering Amount of
be Registered Registered Per Share (1) Price (2) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share.......................... 1,300,000 shares $ 8,00 $ 10,400,000 $ 2,891.20
========================================================================================================================
</TABLE>
(1) Based on the average of the high and the low prices of the common stock on
the NASD Electronic Bulletin Board Service on April 28, 1999.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
[COMPANY LOGO]
1,300,000 shares of Common Stock
The Shares of common stock A purchase of these securities
offered by this prospectus involves a high degree of risk.
are being sold by stockholders See "Risk Factors" beginning on
of CreditRiskMonitor.com, Inc. page 6.
The common stock of CreditRiskMonitor.com, Inc.
is traded on the NASD Electronic Bulletin Board Service
under the symbol "CRMZ."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CreditRiskMonitor.com, Inc.
2001 Marcus Avenue, Suite W290
Lake Success, New York 11042
(516) 327-2400
www.creditriskmonitor.com
The date of this prospectus is _________________, 1999.
2
<PAGE>
PROSPECTUS SUMMARY
The following summarizes certain information in this prospectus. The more
detailed description elsewhere in the prospectus governs the matters discussed
in this summary.
The Company
We are a Nevada corporation and we were organized in February 1977. We
changed our name from New Generation Foods, Inc. to CreditRiskMonitor.com, in
May 1999.
We were engaged in the development and sale of nutritional food products
from 1982 until October 22, 1993, when we sold substantially all of our assets
to American Pacific Financial Corporation. As a result of this sale, we were no
longer an operating company. From 1994 to 1998, we had no revenues and our
income was derived from interest, dividends and gains on the sale of our assets.
In September 1998, we paid $60,000 for an option to purchase the assets of
a credit information service business from Market Guide Inc. ("Market Guide").
We exercised the option on December 29, 1998 and completed the purchase of the
credit information service business assets effective January 19, 1999 for a
purchase price of approximately $2,390,000, including the $60,000 paid for the
option. Approximately $1.23 million of the purchase price was paid in cash at
closing and the balance is represented by two promissory notes, one for
approximately $100,000 and the other for $1,000,000 (together the "Market Guide
Notes"). We granted to Market Guide a security interest in substantially all our
assets to secure payment of the Market Guide Notes.
The Credit Information Service Business
In 1996, the management of the credit information service business, all of
whom have extensive experience in the credit reporting industry, approached
Market Guide to explore the use of Market Guide's database as the basis for an
Internet-based subscription service which would provide information specifically
designed for the corporate credit professional. Market Guide agreed to finance
the development of such a service and formed the credit information service
business division in September 1996. In April 1997, the credit information
service business commenced its sales operations as a division of Market Guide,
under the name "CreditRisk Monitor".
We believe that we are the only totally interactive Internet-based
financial information and news service designed specifically for corporate
credit professionals. Our credit risk analysis service is the result of our
management's extensive experience in the credit industry and on-going research
with respect to corporate credit department information needs. This has enabled
us to satisfy the credit industry's requirements with what we believe is
3
<PAGE>
the most timely, technologically advanced, lowest cost credit information
service available. Since our credit information service has been available over
the Internet, it has attracted more than 365 subscribers at an average annual
subscription price of slightly over $3,500. We currently monitor, for the
purpose of credit evaluation, approximately 575 U.S. publicly-held domestic
retail chains, wholesalers and selected manufacturers in various industries.
Present plans call for the coverage to increase to approximately 8,000
publicly-held companies during the second quarter of 1999, and for the coverage
of privately-owned companies by the end of the second quarter of 2000.
We designed our service for corporate credit managers who must decide
whether or not to ship their company's goods to their customers and to extend
credit on the purchase. If the purchaser is unable to pay its account, the
selling company can suffer substantial losses. The decision to ship or not to
ship may have to be made under intense time pressure, with potentially damaging
results if the manager has inaccurate or stale information.
With the continuing downsizing of corporate America and the related
reductions in credit departmental budgets and personnel, these corporate credit
professionals have to do more with less. There has been an explosion in the
amount of information that is available to these professionals, resulting in an
overwhelming amount of data and limited time for research and analysis. Our
service provides corporate credit professionals with a one-stop information
service in order to continuously monitor the creditworthiness of their public
company customers, in the shortest possible time and with a minimum of effort.
This timesaving is critical where immediate decisions must be made.
The Offering
Common Stock offered by
the Selling Stockholders.......... 1,300,000 shares
Use of Proceeds................... All shares offered hereby are being
offered for the account of selling
stockholders.
Accordingly, we will not receive any
proceeds of any sales made hereunder.
Risk Factors...................... An investment in the shares of common
stock offered hereby involves a high
degree of risk.
NASD Electronic Bulletin Board
Service Symbol..................... CRMZ
4
<PAGE>
Summary Financial Information
The summary financial data contained in this section should be read
together with our audited consolidated financial statements, including the notes
accompanying these statements, the pro forma consolidated financial statements
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
The pro forma statement of operations for the year ended December 31, 1998
assumes that the acquisition of the assets of the credit information service
business from Market Guide was made as of January 1, 1998.
Statement of Operations Data:
<TABLE>
<CAPTION>
Pro Forma
Year Ended Year Ended
December 31, December 31,
1997 1998 1998
---- ---- ----
<S> <C> <C> <C>
Revenues $ -- $ -- $ 809,563
Loss from operations (162,206) (28,216) (1,235,352)
Write-off of intangible assets -- -- (134,076)
Net loss (81,049) (23,439) (1,364,651)
Basic and diluted net loss per $ (0.67) $ (0.06) $ (0.26)
common share outstanding
Basic and diluted weighted average 399,830 399,830 5,300,129
number of common shares
outstanding
</TABLE>
The pro forma balance sheet as of December 31, 1998 gives effect to the
following:
o the sale in a 1998 private placement of 1,300,000 shares of common
stock at a price of $2.50 per share and the application of the
proceeds received therefrom;
o the conversion of 1,100,000 shares of senior preferred stock into
3,598,299 shares of common stock;
o the issuance of 2,000 shares of common stock to Flum Partners; and
o the acquisition of the assets of the credit information service
business from Market Guide.
5
<PAGE>
Balance Sheet Data:
December 31, 1998
-----------------
Actual Pro Forma
------ ---------
Cash and cash equivalents $ 13,400 $ 2,030,213
Working capital 30,628 2,244,572
Total assets 128,400 4,970,868
Total liabilities 97,772 1,876,264
Redeemable convertible voting 1,100,000 --
senior preferred stock
Total stockholders' equity (1,069,372) 3,094,604
(deficit)
RISK FACTORS
An investment in the common stock offered hereby involves a high degree of
risk. You should carefully consider the following factors, in addition to the
other information included in this prospectus, before purchasing any of the
shares offered hereby.
Our success depends on our ability to operate a recently acquired credit
information service business. Since 1993, and prior to our purchase of the
credit information service business, we had conducted no business operations.
Accordingly, our future success is totally dependent upon our ability to operate
the credit information service business profitably and successfully.
The credit information service business is an early stage business and
there can be no assurance that it will operate successfully. The credit
information service business began selling its Internet-based subscription
service in April 1997. Accordingly, this business has a limited operating
history on which to base an evaluation of its performance and prospects. You
should consider this factor in light of the risks, expenses and difficulties
that are associated with our early stage of development, particularly because we
operate in the new and rapidly evolving markets of online commerce. These risks
include, but are not limited to, an evolving and unpredictable business model,
the difficulty in managing our growth and the uncertainties regarding future
revenues. We cannot assure that we will be successful in addressing these risks,
and the failure to do so could have a material adverse effect on our business,
prospects, financial condition and results of operations.
Since inception in April 1997, the credit information service business has
incurred significant losses, and we expect to incur additional losses. As of
November 30, 1998, the credit information service business, as a division of
Market Guide, had an accumulated deficit of $1,163,930, and we expect to incur
losses until at least September 2000. In addition, we do not expect to operate
at a breakeven level on a cash flow basis before June 2000. We cannot assure
that we will be able to operate profitably by September 2000 or achieve a cash
flow breakeven status by June 2000.
6
<PAGE>
Achieving profitability or generating positive cash flow will depend on our
ability to generate and sustain substantially increased revenue levels. In
addition, expenses associated with our acquisition of the credit information
service business, including amortization of goodwill and ongoing operating
expenses, as well as interest expense related to the Market Guide Notes, will
further affect our ability to become profitable.
If we are unable to expand our credit reporting of public and private
companies, our ability to market our service may be substantially impeded.
Currently we monitor, for the purpose of credit evaluation, approximately 575
U.S. publicly-held companies. We do not currently monitor any privately-owned
companies. While we expect to significantly increase our coverage of public
companies, and we plan to begin monitoring privately-owned companies, we cannot
assure that we will be able to do so. If we are unable to expand the coverage of
our credit reporting, our ability to market our service will be substantially
impeded. Such impediment could have a material adverse effect on our business,
prospects, financial condition and results of operations.
Competition from other credit analysis data services could cause a
reduction in our operating margins, loss of our market share and a diminished
brand franchise. Our competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than we do. Our competitors may be able to secure
data from vendors on more favorable terms, devote greater resources to marketing
and promotional campaigns, adopt more aggressive pricing and devote
substantially more resources to Web site and systems development than we can.
Our current or potential competitors include:
o companies now selling or who will be selling credit analysis data,
such as The Dun & Bradstreet Corporation; and
o a number of indirect competitors that specialize in online commerce or
derive a substantial portion of their revenues from online commerce,
many of which possess significant brand awareness, sales volume and
customer bases.
We cannot assure that we will be able to compete successfully against
current and future competitors, or that our competitors will not independently
develop technologies that are substantially equivalent or superior to our
technology.
In addition, new technologies and the expansion of existing technologies
may increase the competitive pressures on us. Competitive pressures created by
any one of our competitors, or by our competitors collectively, could have a
material adverse effect on our business, prospects, financial condition and
results of operations.
7
<PAGE>
We may not be able to obtain additional debt financing. Debt financing may
be unavailable because of the first priority liens which have been granted to
Market Guide and, if available, will likely include restrictive covenants,
including financial maintenance covenants restricting our ability to incur
additional indebtedness and to pay dividends. Our failure to raise capital
through debt financing on acceptable terms, when needed, could have a material
adverse effect on us.
We may default on the Market Guide Notes. If we are unable to generate
sufficient cash flow or otherwise obtain funds necessary to make required
payments, or if we otherwise fail to comply with the terms of the Market Guide
Notes, we would be in default under the terms thereof, which would permit the
holders of such Notes to accelerate the maturity of such indebtedness. Such a
default could have a material adverse effect on our business, prospects,
financial condition and results of operation. We cannot assure that we will be
able to meet our debt service obligations under the Market Guide Notes. In the
event our cash flow is inadequate to meet our obligations, we could face
substantial liquidity problems.
We may not be able to effectively market our service because of our limited
marketing experience and our limited personnel. We have limited marketing
experience and limited financial, personnel and other resources to undertake the
extensive marketing activities necessary to market our service. Our ability to
generate revenue from the credit information service business will be dependent
upon, among other things, our ability to manage an effective sales organization.
We will need to develop a sales force and a marketing group with technical
expertise to coordinate marketing efforts. We cannot assure that we will be able
to market our service effectively through:
o an in-house sales force;
o independent sales representatives;
o arrangements with an outside sales force; or
o strategic partners.
If we are unable to respond to rapid technological changes, we may lose our
market share. To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our Web-based data analysis
service. The Internet and the online commerce industry are characterized by:
o rapid technological change;
o changes in user and customer requirements and preferences, frequent
new products and service introductions embodying new technologies; and
o the emergence of new industry standards and practices;
8
<PAGE>
all of which could render our existing Web site and proprietary technology and
systems obsolete. Our success will depend, in part, on our ability to:
o license leading technologies useful in our business;
o enhance existing services;
o develop new services and technology that address the increasingly
sophisticated and varied needs of prospective customers; and
o respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
The development of a Web site and other proprietary technology entails
significant technical, financial and business risks. We cannot assure that we
will successfully implement new technologies or adapt our Web site, proprietary
technology and transaction-processing systems to customer requirements or
emerging industry standards. If we are unable, for any reason, to adapt in a
timely manner in response to changing market conditions or customer
requirements, such inability could have a material adverse effect on our
business, prospects, financial condition and results of operations.
We rely on Market Guide to supply our data; without such data we cannot
assure that the credit information service business will be successful. We
purchase a significant portion of our data from Market Guide pursuant to a
Database License Agreement which expires on December 31, 2003, unless sooner
terminated by us. We have no other long-term contracts or arrangements with any
supplier of data that guarantee the availability of data. We cannot assure that
Market Guide will continue to supply data to us on current terms or that we will
be able to establish new or extend current vendor relationships to ensure
acquisition of data in a timely and efficient manner and on acceptable
commercial terms. If we are unable to develop and maintain relationships with
suppliers that would allow us to obtain sufficient quantities of reliable
information on acceptable commercial terms, such inability could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
We depend on our ability to provide our service over the Internet. Our
success is largely dependent on our ability to deliver high quality,
uninterrupted access to our service over the Internet. Any system interruptions
that result in the unavailability of our Web site would reduce the
attractiveness of our service. We have experienced periodic system
interruptions, which we believe will continue to occur from time to time. Our
failure to add additional software and hardware and further develop and upgrade
our existing technology and network infrastructure to accommodate increased
traffic on our Web site may cause:
9
<PAGE>
o system disruptions;
o slower response times;
o degradation in levels of customer service;
o impaired quality; or
o delays in reporting accurate financial information.
Most of our computer and communications hardware are located at a single
leased facility in Lake Success, New York. Our systems and operations are
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-ins, earthquake and similar events. We do not
have off-site back-up systems or a formal disaster recovery plan and do not have
sufficient business interruption insurance to compensate us for losses that may
occur. Despite the implementation of network security measures, our servers are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions. These could lead to interruptions, delays, loss of critical data or
the inability to provide our service.
Any system or network failure that causes interruptions in our Internet
operations could have a material adverse effect on our business, prospects,
financial condition or results of operations.
A determination by the Internal Revenue Service that our net operating
losses may not be carried forward and used to offset future profits, if any,
could result in substantial tax liability which would reduce our after-tax
income and adversely affect our financial condition and results of operations.
As of January 1, 1999, we had approximately $13.9 million of net operating loss
carryforwards expiring in varying amounts over the next 19 years, which we
believe should be available to shelter future taxable income, if any. We do not
intend to seek a ruling from the Internal Revenue Service as to the availability
of our net operating losses. Our views are not binding on the Internal Revenue
Service. Moreover, our view is predicated on the accuracy of certain factual
assumptions, including assumptions as to the value of our respective preferred
and common equity interests as of certain relevant dates. There can be no
assurance that such assumptions would be sustained if challenged by the IRS. If
a successful challenge were maintained, then the sale of common shares in a
recently completed private placement, together with other "owner-shifts" within
the prior three years, could result in an "ownership change," in which event the
net operating loss carryforwards would be lost in their entirety. In addition,
future issuances by us or purchases or sales by others of our equity securities
could result in an "ownership change" which, depending upon the timing thereof,
could in turn cause the loss of our net operating loss carryforwards or a
limitation on the amount of net operating loss carryforwards which can be used
in any one year. Any inability to utilize these net operating losses or any
material limitation on their availability would adversely effect our after-
10
<PAGE>
tax income and, accordingly, our financial condition and results of
operations.
You will not be able to control matters requiring approval by stockholders.
Jerome S. Flum and Flum Partners, a partnership of which Mr. Flum is the sole
general partner, beneficially own 73.75% of the outstanding common stock
(without giving effect to the exercise of outstanding stock options). As a
result, they will effectively control virtually all matters requiring approval
by our stockholders, including:
o amendments of the Articles of Incorporation;
o the approval of mergers or similar transactions; and
o election of directors.
In addition, Mr. Flum is one of our three current directors.
We do not currently have any issued patents or registered copyrights, and
our technology may be misappropriated by others. There can be no assurance that
any steps we take will be adequate to prevent misappropriation of our technology
or other proprietary rights. There can be no assurance that our trademark
applications will result in any trademark registrations, or that, if registered,
any registered trademark will be held valid and enforceable if challenged. We do
not have trademark protection for the name "CreditRiskMonitor," and we cannot
assure that such a name would be granted a trademark because of the generic
nature of those words.
If we become involved in litigation to enforce or defend our intellectual
property rights, such litigation can be a lengthy and costly process causing
diversion of effort and resources with no guarantee of success.
You may not be able to freely trade your shares of common stock. Our common
stock is not listed on a national securities exchange and is quoted only on the
NASD's Electronic Bulletin Board. Accordingly, there is a limited public market
for our securities, and there can be no assurance that a more liquid market will
develop in the future. You must be prepared to bear the economic risk of your
investment for an indefinite period of time.
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" which can be
identified by the use of forward-looking terminology such as "may," "will,"
"anticipate," "believe," "estimate", "continue" or other variations and
comparable terminology. The statements in "Risk Factors" are cautionary
statements. They identify important factors, with respect to forward-looking
statements, that could cause actual results to differ materially from those
forecasted in such statements.
11
<PAGE>
USE OF PROCEEDS
All shares of common stock offered hereby are being offered for the account
of the selling stockholders. Accordingly, CreditRiskMonitor.com, Inc.,
("CreditRiskMonitor") will not receive any proceeds of any sales made hereunder.
CAPITALIZATION
The following table sets forth CreditRiskMonitor's debt and capitalization
as of December 31, 1998:
o on an actual basis; and
o on a pro forma basis to reflect:
1) the sale in a 1998 private placement of 1,300,000 shares of
common stock at a price of $2.50 per share and the application of
the proceeds received therefrom;
2) the conversion of 1,100,000 shares of senior preferred stock into
3,598,299 shares of common stock;
3) the issuance of 2,000 shares of common stock to Flum Partners;
and
4) the acquisition of the assets of the credit information service
business from Market Guide.
12
<PAGE>
December 31, 1998
-----------------
Actual Pro Forma
------------ ------------
Long-term debt $ -- $ 885,792
Redeemable convertible voting senior 1,100,000 --
preferred stock, $.01 par value
(stated at liquidation value of
$1.00 per share). Authorized
1,100,000 shares; issued and
outstanding 1,100,000 shares
Stockholders' equity (deficit):
Common stock, $.01 par value 3,998 53,001
Authorized 25,000,000 shares;
issued and outstanding 399,830
and 5,300,129, respectively
Additional paid-in capital 22,818,930 27,067,999
Retained deficit (23,892,300) (24,026,396)
------------ ------------
Total stockholders' equity (1,069,372) 3,094,604
(deficit) ------------ ------------
Total capitalization $ 30,628 $ 3,980,396
============ ============
DIVIDEND POLICY
We have never paid any cash dividends on our common stock. The Security
Agreement securing the Market Guide Notes prohibits us from paying any dividends
on our capital stock while such Notes are outstanding. Our Board of Directors
will determine future dividend policy based on our results of operations,
financial condition, capital requirements and other circumstances. It is not
anticipated that any cash dividends will be paid on the common stock in the
foreseeable future.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to May 11, 1993, the common stock of CreditRiskMonitor was traded
principally on the NASDAQ Automated Quotation System under the symbol NGEN and
also on the Boston Stock Exchange under the symbol NGF.B or NGF. During the
second quarter of 1993, CreditRiskMonitor's common stock was delisted from both
the Boston Stock Exchange and the NASDAQ Automated Quotation System.
CreditRiskMonitor's common stock now trades in the over-the-counter market
"Bulletin Board Service" under the symbol CRMZ. The following table sets forth
the high and low closing bid quotations for the common stock as reported on the
over-the-counter market Bulletin Board Service for each calendar quarter of 1997
and 1998 and for the first calendar quarter of 1999. Such market quotations
reflect inter-dealer prices without retail markup, markdown or commission and do
not necessarily represent actual transactions.
13
<PAGE>
High Bid Low Bid
-------- -------
1997
First Quarter $0.0001 $0.0001
Second Quarter $0.0001 $0.0001
Third Quarter $0.0001 $0.0001
Fourth Quarter $0.0001 $0.0001
1998
First Quarter $0.0003 $0.0001
Second Quarter $0.0001 $0.0001
Third Quarter $0.01 $0.0001
Fourth Quarter $7.50 $0.07
1999
First Quarter $7.25 $3.00
On April 15, 1999, there were approximately 525 registered holders of
CreditRiskMonitor's common stock.
CreditRiskMonitor has not paid any cash dividends on its common stock and
does not anticipate paying any cash dividends in the foreseeable future. During
1997, the Series A and Series B Preferred Stock of CreditRiskMonitor were
retired. At the retirement date accrued and unpaid dividends were $787,500 and
$111,600, respectively, substantially all of which were subsequently paid. See
"Certain Relationships and Related Transactions". The Security Agreement
securing the Market Guide Notes prohibits CreditRiskMonitor from paying any
dividends on its common stock while such Notes are outstanding.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
From October 1993, when it sold its previous nutritional food products
business to American Pacific Financial Corporation ("American Pacific"), through
the end of 1998, CreditRiskMonitor had no revenues from operations.
During this period, CreditRiskMonitor received revenues from notes issued
to it in connection with the 1993 sale of its assets to American Pacific. During
1997 and 1998 CreditRiskMonitor was required, by the terms of its then
outstanding Series A and Series B Preferred Stock (which required payment of
liquidation preferences upon a sale or transfer of substantially all the assets
of CreditRiskMonitor) to pay the applicable liquidation preferences to Flum
Partners, the holder of those Series of Preferred Stock.
14
<PAGE>
CreditRiskMonitor issued to Flum Partners at the end of 1997 and in the
first quarter of 1998 a total of $1.8 million in cash, plus 1,100,000 shares of
its new Senior Preferred Stock (convertible into 3,598,299 shares of Common
Stock) in payment of the liquidation preferences and accrued dividends on the
Series A and Series B Preferred Stock. This cash payment effectively distributed
all of CreditRiskMonitor's liquid assets and the share issuance gave Flum
Partners the right to own and vote approximately 90% of CreditRiskMonitor's
outstanding equity shares. See "Certain Relationships and Related Transactions."
The employment contract of Jerome S. Flum, CreditRiskMonitor's chairman,
was terminated effective December 1, 1997, and he agreed, for a twelve-month
period, to attempt to identify and consummate a transaction which would increase
the value of CreditRiskMonitor.
During the first quarter of 1998, CreditRiskMonitor located and
investigated the purchase of a credit information service business then owned by
Market Guide. Pending negotiation of the purchase, Mr. Flum agreed to manage
this business on behalf of Market Guide. In September 1998, CreditRiskMonitor
purchased an option to purchase the assets of the credit information service
business for approximately $2,390,000. It exercised its option on December 29,
1998 and the transaction closed effective January 19, 1999. Mr. Flum's
management on behalf of Market Guide continued until the closing. The terms of
the purchase and CreditRiskMonitor's notes issued in connection therewith are
described under "Business" and in the Notes to CreditRiskMonitor's Consolidated
Financial Statements.
In order to raise funds to pay the $1.23 million cash portion of the
purchase price for the credit information service business assets, the costs of
the acquisition and to have sufficient working capital to continue to develop
and run that business, CreditRiskMonitor completed a private placement (the
"Private Placement") on January 19, 1999 of 1,300,000 shares of its common stock
to approximately 25 "accredited investors" at a purchase price of $2.50 per
share, for gross proceeds of $3.25 million. Management believes that the
proceeds of this offering will provide adequate working capital to fund
operating losses of CreditRiskMonitor until cash flow breakeven is achieved.
The transactions described above, along with the issuance of 2,000 shares
of common stock to Flum Partners in January 1999 in consideration of its
provision to CreditRiskMonitor of a line of credit and the conversion by Flum
Partners of its Senior Preferred shares into common stock on or about January
20, 1999, resulted in Flum Partners owning more than 72% of CreditRiskMonitor's
outstanding common stock (which is its only equity security now outstanding)
after the Private Placement.
At December 31, 1998, CreditRiskMonitor had cash, cash equivalents and
other liquid assets of $13,400 compared to $1,400,051 of liquid assets at
December 31, 1997, and had working capital of $30,628, compared to working
capital of $54,067 at
15
<PAGE>
December 31, 1997. This reflected the cash payment to Flum Partners in respect
of the Series A and Series B Preferred Stock. CreditRiskMonitor has no bank
lines of credit or other currently available credit sources.
Funds from the Private Placement became available to CreditRiskMonitor on
or about January 19, 1999, at which date CreditRiskMonitor paid the cash portion
of the purchase price for the credit information service business assets, paid
the expenses of the purchase transaction and retained the remaining proceeds for
use as working capital over the next two years.
The purchase of the credit information service business in January 1999
transformed CreditRiskMonitor into an operating company with revenues from
operations and increased its employee base from 1 employee in 1998 to 14
full-time employees and 1 consultant as of April 30, 1999.
During the next 12 months CreditRiskMonitor plans to expand its
Internet-based credit reporting service substantially, increasing the number of
public companies on which it supplies credit reports to its customers from 575
to approximately 8,000 during the first half of 1999. CreditRiskMonitor is also
developing a database and credit reporting system which will expand its service
line from Internet generated credit reports on public companies to on-line
credit reports on privately-owned companies as well.
Operations
1998 vs. 1997 and 1997 vs. 1996
CreditRiskMonitor terminated its business as a food manufacturer on October
22, 1993, when it sold its operations in the 1993 sale of its assets to American
Pacific. It conducted no operations in the fiscal years ended December 31, 1996,
December 31, 1997 and December 31, 1998.
Net loss for the year ended December 31, 1997 was ($81,049) or ($0.67) per
share, reflecting selling, general and administrative expenses, including the
Chairman's compensation expense, and a loss on investments, in excess of
interest and dividend income.
Net loss for the year ended December 31, 1998 was ($23,439) or ($0.06) per
share, reflecting selling, general and administrative expenses in excess of
interest and dividend income. CreditRiskMonitor eliminated the Chairman's
compensation expense when Mr. Flum's employment contract was terminated. After
the distribution of assets to Flum Partners, CreditRiskMonitor had no
substantial investment income.
16
<PAGE>
Federal Tax Considerations
CreditRiskMonitor has available net operating loss carryforwards which may
be used to reduce its Federal income tax liability. However, provisions
contained in the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), may impose substantial limitations upon CreditRiskMonitor's
ability to utilize its net operating loss carryforwards. For example,
CreditRiskMonitor may be subject to the so-called "alternative minimum tax"
which does not always permit full utilization of net operating loss
carryforwards otherwise available.
Limitations imposed by Section 382 of the Internal Revenue Code upon the
availability of net operating loss carryforwards would apply if certain changes
were to occur in the ownership of CreditRiskMonitor. Thus, CreditRiskMonitor's
utilization of its carryforwards in the future may be terminated, deferred
and/or reduced if CreditRiskMonitor undertakes further equity financings or if
certain other changes occur in the ownership of the common stock. See "Risk
Factors-A determination by the Internal Revenue Service that our net operating
losses may not be carried forward and used to offset future profits, if any,
could result in substantial tax liability which could reduce our after-tax
income and adversely effect our financial condition and results of operations."
For information regarding the amounts and expiration dates of
CreditRiskMonitor's net operating loss carryforwards, see Note 2 to the
Consolidated Financial Statements.
Year 2000 Planning
CreditRiskMonitor has implemented a Year 2000 program to ensure that its
and its vendors' and business partners' computer systems and applications will
function properly beyond 1999. CreditRiskMonitor's current principal supplier of
data for use in the preparation of CreditRiskMonitor's credit analyses reports
is Market Guide. Pursuant to an outstanding Database License Agreement, Market
Guide has agreed to furnish data which is year 2000 compliant. CreditRiskMonitor
has also identified vendor and business partner software with which it
electronically interacts, and has requested Year 2000 compliance certifications.
CreditRiskMonitor has received assurances from those vendors and business
partners whose systems are not currently Year 2000 compliant that the necessary
modifications, or new versions of software, will be made available by 2000.
CreditRiskMonitor has reviewed and tested all of its computers systems and
Internet-based products and determined that they are all Year 2000 Compliant.
CreditRiskMonitor defines "Year 2000 Compliant" as the ability of its hardware
and software to recognize and properly process data beyond December 31, 1999 as
well recognizing that the Year 2000 is a leap year and that any calculations
dependent upon knowing this fact will be performed correctly.
CreditRiskMonitor's cost to comply with the Year 2000 initiative is not expected
to be material.
17
<PAGE>
Risks and Other Considerations
The credit information service business is a relatively new venture with a
limited operating history and history of significant losses. There can be no
assurances that CreditRiskMonitor will be immediately profitable or will not
incur losses in the future.
CreditRiskMonitor is subject to competition from firms that have greater
financial, management, sales and technical resources than CreditRiskMonitor.
CreditRiskMonitor's success depends to a significant degree on the contributions
of its key management. The loss of services of one or more key members of
management could have an adverse affect upon CreditRiskMonitor.
The market price of CreditRiskMonitor's common stock may be volatile at
times in response to fluctuations of CreditRiskMonitor's operating results,
changes in analyst earnings estimates, market conditions as well as general
conditions and other factors general to CreditRiskMonitor.
BUSINESS
CreditRiskMonitor.com, Inc., a Nevada corporation, was organized in
February 1977. It changed its name from New Generation Foods, Inc. to
CreditRiskMonitor.com, in May 1999.
CreditRiskMonitor was engaged in the development and sale of nutritional
food products from 1982 until October 22, 1993, when it sold substantially all
of its assets to American Pacific. As a result of this sale, CreditRiskMonitor
was no longer an operating company. From 1994 to 1998, CreditRiskMonitor had no
revenues and its income was derived from interest, dividends and gains on the
sale of its assets.
In September 1998, CreditRiskMonitor paid $60,000 for an option to purchase
the assets of a credit information service business from Market Guide.
CreditRiskMonitor exercised the option on December 29, 1998 and completed the
purchase of the credit information service business assets effective January 19,
1999 for a purchase price of approximately $2,390,000, including the $60,000
paid for the option. The $1.23 million cash portion of the purchase price was
paid at closing and the balance is represented by the Market Guide Notes. The
$100,000 Market Guide Note, which bears interest at 8.5% from the closing date,
provides for the deferral of principal amortization until February 2001. The
$1,000,000 Market Guide Note bears interest at 6% from July 2001, and provides
for the deferral of principal amortization until such date. After the respective
deferrals, both Market Guide Notes are then payable over 24 months. The Market
Guide Notes are secured by a first priority purchase money security interest on
substantially all of the assets of CreditRiskMonitor.
18
<PAGE>
The assets purchased include customer contracts, receivables, equipment,
software and intangibles.
For a period of five years after the closing of the credit information
service business acquisition, Market Guide has agreed to furnish to
CreditRiskMonitor the database of credit information used in the preparation of
CreditRiskMonitor's credit analysis reports, at no charge through December 31,
2000 and at specified prices thereafter, based on the number of users per
subscriber to the reports. The agreement is cancelable by CreditRiskMonitor on
90 days' notice.
Market Guide also has agreed not to market credit reports that are targeted
specifically to corporate credit personnel, or to advertise or promote such
products in any media or trade shows which are targeted specifically to
corporate credit personnel, for a period of five years. In addition, for a two
year period, Market Guide has agreed not to provide its data or information to
any other business for use in reports targeted specifically to corporate credit
personnel, including a specified list of CreditRiskMonitor competitors or
potential competitors, including The Dun & Bradstreet Corporation ("Dun &
Bradstreet").
CreditRiskMonitor has agreed not to compete with Market Guide in its other
credit information services for a period of two years, so long as
CreditRiskMonitor is obtaining its data directly and not from Market Guide, or
for a period of five years, so long as CreditRiskMonitor is obtaining its data
from Market Guide. This restriction does not apply, however, if
CreditRiskMonitor acquires its data from sources other than Market Guide.
The Credit Information Service Business
In 1996, the credit information service business' management, all of whom
have extensive experience in the credit reporting industry, approached Market
Guide to explore the use of Market Guide's database as the basis for an
Internet-based subscription service which would provide information specifically
designed for the corporate credit professional. Market Guide maintains and
provides information on publicly reporting companies to the securities and
investment communities. Since no real-time Internet product existed in this
area, Market Guide agreed to finance the development of such a service and
formed the credit information service division in September 1996. In April 1997,
the credit information service business commenced its sales operations as a
division of Market Guide, under the name "CreditRisk Monitor".
CreditRiskMonitor believes that it is the only totally interactive
Internet-based financial information and news service designed specifically for
corporate credit professionals. Its credit risk analysis service is the result
of management's extensive experience in the credit industry and on-going
research with respect to corporate credit department information needs. This has
enabled CreditRiskMonitor to satisfy the credit industry's requirements with the
most timely, technologically advanced, lowest
19
<PAGE>
cost credit information service available. Since the credit information service
has been available over the Internet, it has attracted more than 365 subscribers
at an average annual subscription price of slightly over $3,500.
CreditRiskMonitor currently monitors, for the purpose of credit evaluation,
approximately 575 U.S. publicly-held domestic retail chains, wholesalers and
selected manufacturers in various industries. Present plans call for the
coverage to increase to approximately 8,000 publicly-held companies during the
second quarter of 1999, and for the coverage of privately-owned companies by the
end of the second quarter of 2000.
CreditRiskMonitor designed its service for corporate credit managers who
must decide whether or not to ship their company's goods to their customers and
to extend credit on the purchase. If the purchaser is unable to pay the account,
the selling company can suffer substantial losses. The decision to ship or not
to ship may have to be made under intense time pressure, with potentially
damaging results if the manager has inaccurate or stale information.
With the continuing downsizing of corporate America and the related
reductions in credit departmental budgets and personnel, these corporate credit
professionals have to do more with less. There has been an explosion in the
amount of information that is available to these professionals, resulting in an
overwhelming amount of data and limited time for research and analysis.
CreditRiskMonitor's service provides corporate credit professionals with a one
stop information service in order to continuously monitor the creditworthiness
of their public company customers, in the shortest possible time and with a
minimum of effort. This timesaving is critical where immediate decisions must be
made.
There is little hard data on the size of CreditRiskMonitor's market: The
National Association of Credit Management has about 50,000 members, but other
industry observers believe the number of U.S. credit managers or personnel
performing this function is substantially greater. In addition, there are
numerous U.S. based companies who do not have a specific credit function but
still require credit information. Since a good deal of CreditRiskMonitor's sales
solicitation is by phone and Internet demonstration of the product, it is
expected that a large overseas market also exists. CreditRiskMonitor believes
that its service has a large market that has been minimally penetrated.
The viability and potential of CreditRiskMonitor's business is made
possible by its Internet service delivery and by what CreditRiskMonitor believes
to be the following characteristics:
o The value of CreditRiskMonitor's service exceeds the cost to the
subscriber. The $3,500 yearly subscriber cost is small compared to the size
of the possible loss to the subscriber from shipping to a customer and then
not getting paid. In addition, CreditRiskMonitor's service should either
reduce or
20
<PAGE>
hold down costs in the credit department because of the time saved in
researching public company credit risk.
o CreditRiskMonitor's business appears to have counter-cyclical
characteristics. If the economy slows or contracts, the corporate credit
manager function should increase in importance within corporations, and
products that allow credit managers to perform their jobs more efficiently
and effectively should gain market share in an expanding market.
o CreditRiskMonitor sells its service for a low yearly renewable subscription
cost and, therefore, has a recurring yearly income stream. The service is
not a one-time sale but a source of continuing revenue. As new features are
added there should not be significant resistance to reasonable price
increases.
o CreditRiskMonitor's service is designed to penetrate the large market for
credit information on publicly-held companies but even this market may be
small compared to the need for credit information on privately-owned
companies. CreditRiskMonitor intends to have available a product for
evaluating credit risk of privately-owned companies by the end of the
second quarter of 2000.
o Some of CreditRiskMonitor's basic cost structure is being reduced. On a
broad generic basis, computer hardware, software, communications and
financial data costs are universally coming down. CreditRiskMonitor has
automated a significant amount of the process used to create and deliver
its service; therefore, its production costs are relatively stable over a
wide range of increasing revenue. In addition, sales costs as a percentage
of revenues should continue to decline since sales commissions will only be
paid on new subscriptions and not on renewals, and since renewal income
will increase much more rapidly then revenues from first-time sales. In
summary, CreditRiskMonitor's margins should increase faster than sales.
o CreditRiskMonitor's business has no inventory, manufacturing or warehouse
facilities. Thus, it is not capital intensive and high margins should
generate significant positive cash flow. In addition, CreditRiskMonitor
believes that its net operating loss carryforwards, aggregating $13.9
million at December 31, 1998 and expiring in varying amounts through 2018,
should be available to shelter taxable income if and when CreditRiskMonitor
achieves profitability. See "Risk Factors-A determination by the Internal
Revenue Service that our net operating losses may not be carried forward
and used to offset future profits, if any, could result in substantial tax
liability which could reduce our after-tax income and adversely effect our
financial condition and results of operations" and Note 2 to Consolidated
Financial Statements.
21
<PAGE>
o CreditRiskMonitor has in-place an experienced management team that has
equity incentives.
o With few competitors, the price competitive environment for credit risk
analysis service is not intense. Primarily, CreditRiskMonitor is competing
against Dun & Bradstreet, a New York Stock Exchange and multi-billion
revenue company that has a near monopoly for credit services. Dun &
Bradstreet's service appears to be higher priced and less timely than
CreditRiskMonitor's. CreditRiskMonitor's service is a technological
breakthrough that allows a significant reduction in the selling price of
credit risk analysis to subscribers and yet has a low cost structure that
still allows its low price to be very profitable to CreditRiskMonitor.
o CreditRiskMonitor purchased the credit information service business for a
reasonable price with excellent deferred payment terms that should not
impede cash flow, so that it should be possible to grow the business at a
rapid rate with little need for external capital.
CreditRiskMonitor's Goals
o Lowest cost provider. CreditRiskMonitor's analysis and preparation of data
into a form usable by its customers (corporate credit departments) is
nearly 100% computer driven and minimum incremental personnel costs are
required to broaden the number of companies analyzed. CreditRiskMonitor's
cost structure is believed to be the lowest in its industry, because
CreditRiskMonitor delivers all of its information to its customers via the
Internet and there is a seamless interface between the preparation of a
company report and the delivery of that report to CreditRiskMonitor's
subscribers. Whenever CreditRiskMonitor's customers access company
information it is the most current and comprehensive information available.
o Lowest price to value received. CreditRiskMonitor currently monitors, for
the purpose of credit evaluation, approximately 575 U.S. publicly-held
domestic retail chains, wholesalers and selected manufacturers in various
industries. Present plans call for this coverage to increase to
approximately 8,000 public companies by the end of the first half of 1999.
CreditRiskMonitor's current price for a one-year, one-password subscription
is $3,500. This price allows the subscriber unlimited access to information
on all companies contained in CreditRiskMonitor's interactive database,
consisting of news, financial and credit information and analysis. As the
number of companies analyzed expands, CreditRiskMonitor's price advantage
over competitors should become even more significant. The increase in the
number of companies monitored will also increase the market for
CreditRiskMonitor's service, as many additional potential subscriber
corporations will find more of their customers analyzed for credit risk. To
maintain this competitive
22
<PAGE>
advantage, CreditRiskMonitor expects to add additional proprietary features
and information sources to its service.
o Retain hedge characteristics. If the economy slows down or enters a
recession, corporate credit risk will increase and, CreditRiskMonitor
believes, the credit manager function should rise in importance. Since the
cost of CreditRiskMonitor's service is low compared to the size of the
losses it is designed to reduce and to the cost of competitive services,
CreditRiskMonitor's business and revenues may be counter- cyclical, to a
significant extent, if U.S. economic growth slows or declines.
o Broaden coverage to include private companies. CreditRiskMonitor's rapid
expansion of public company coverage will be followed by the expected
initiation of CreditRiskMonitor's coverage of privately-owned companies, by
the end of the second quarter of 2000. This private company coverage should
expand CreditRiskMonitor's market. Today, there is little useful and timely
information available to assist in the credit evaluation of private
companies. Both CreditRiskMonitor's current and potential subscribers have
actively encouraged CreditRiskMonitor's entry into this field.
o International penetration. Foreign companies doing business in the U.S.
have the same or even greater need than our domestic subscribers have for
CreditRiskMonitor's credit analysis of U.S. companies. Internationally, the
Internet provides the same rapid and inexpensive selling and distribution
of CreditRiskMonitor's service as has been achieved domestically.
Important Business Considerations
o Customer base. CreditRiskMonitor believes that before a subscriber
purchases its service, it had the ability to evaluate CreditRiskMonitor
versus its competition. Although CreditRiskMonitor's present service has
only been on the market for approximately two years and as presently
constituted covers only about 575 companies, CreditRiskMonitor has
developed a diverse and sophisticated list of subscribers, a partial list
of which includes:
23
<PAGE>
PARTIAL LIST OF SUBSCRIBERS
================================================================================
Aiwa America Monsanto
- --------------------------------------------------------------------------------
BIC Osram Sylvania
- --------------------------------------------------------------------------------
Bristol-Myers Squibb Panasonic
- --------------------------------------------------------------------------------
Coca-Cola Foods Pepsi-Cola
- --------------------------------------------------------------------------------
Colgate Palmolive Polygram Group Distributing
- --------------------------------------------------------------------------------
Compaq Computer Prestone Products
- --------------------------------------------------------------------------------
Cosco Procter & Gamble
- --------------------------------------------------------------------------------
First Brands Rayovac
- --------------------------------------------------------------------------------
Fruit of the Loom Rhone-Poulenc Rorer
- --------------------------------------------------------------------------------
Georgia-Pacific Samsung Electronics America
- --------------------------------------------------------------------------------
Johnson & Johnson Schering Plough
- --------------------------------------------------------------------------------
Lever Brothers Sony Electronics
- --------------------------------------------------------------------------------
Lexmark International 3Com
- --------------------------------------------------------------------------------
Lucent Technologies Yamaha Corp. of America
================================================================================
o Competition. CreditRiskMonitor's principal competitors are Dun &
Bradstreet, Information Clearinghouse Incorporated d/b/a F&D Reports and
Global Credit Services, Inc., some of which, including Dun & Bradstreet,
have significantly greater resources than CreditRiskMonitor. Dun &
Bradstreet dominates the market for credit reporting services.
These competitors' services are either not delivered over the Internet
and/or are not updated prior to delivery. They, therefore, lack the speed,
flexibility and timeliness of CreditRiskMonitor's service.
CreditRiskMonitor believes that its service is not only superior but it is
also much less expensive.
In the market for credit analysis services beyond the present approximately
575 companies analyzed by CreditRiskMonitor, CreditRiskMonitor has only one
serious competitor -- Dun & Bradstreet. When CreditRiskMonitor expands its
CreditRiskMonitor coverage to approximately 8,000 public companies, which
it plans to accomplish by the end of the first half of 1999, it believes
that the same service and price advantages CreditRiskMonitor has in its
current market will continue to apply when CreditRiskMonitor competes with
Dun & Bradstreet in this larger market.
o Recurring income stream. The annual subscription price of $3,500 is not
only very low compared to competitive services
24
<PAGE>
but also to the amount of loss inherent in the credit exposure of shipping
to a customer who cannot pay. Because of the ease of use and
CreditRiskMonitor's service sophistication, users appear to develop a
residual comfort level that acts to reduce the risk of replacement of
CreditRiskMonitor's service by a competitive service. CreditRiskMonitor's
recurring income stream should give it stability and profitability not
found in a one-time sale product-based company.
o Potential for cost reductions. CreditRiskMonitor foresees declining costs
in some important expenses, which should increase net profits from its
subscription income stream. Computer and communication costs are coming
down regardless of CreditRiskMonitor's management skills. CreditRiskMonitor
believes that the advent of Internet delivery of telephone calls will
further reduce the cost per phone call over the next several years, and
computer costs per transaction should also continue to decline.
CreditRiskMonitor further believes that the base of renewal business will
grow larger each year and will not be subject to sales commissions. In
addition, Market Guide has contracted to provide financial data to
CreditRiskMonitor at no cost through December 31, 2000, and at the rate of
$5.00 per month, per single password subscriber, from January 1, 2001
through December 31, 2003 (Market Guide's data cost is slightly higher for
subscribers with more than one password). In the future, the cost of
obtaining public company financial data should also continue its downward
slide as the Securities and Exchange Commission works towards its goal of
total electronic filing into a database template. All these naturally
occurring cost reductions will be in addition to the cost reductions
achieved through servicing more accounts over CreditRiskMonitor's in-place
fixed costs. Another potential for cost reduction is CreditRiskMonitor's
$13.9 million net operating loss carryforwards (expiring in varying amounts
annually through 2018) which, CreditRiskMonitor believes, should be
available to shelter future taxable income.
o Dependence on Internet access to conduct business. CreditRiskMonitor's
service is only distributed over the Internet and, therefore, a lack of
Internet access at a potential customer's site makes it impossible for that
customer to utilize the service. When the credit information service
business started selling its service in April 1997, the single largest
sales impediment was the lack of Internet access at a prospective
customer's site. CreditRiskMonitor estimates that in excess of 60% of all
sales calls, in 1997, encountered this block, but that it encountered lack
of Internet access in 40% of its sales calls during 1998. Most industry
observers believe that Internet access, at the company level, is beginning
to explode as companies learn of the Internet's utility as a sales,
advertising, training, administrative and purchasing tool. These observers
expect Internet availability to reach 80% to 90% of the corporate world in
the next few years. There is a lag, however, between
25
<PAGE>
a company getting Internet access and its credit department being hooked
into the Internet. It is clear, however, that this single largest sales
block for CreditRiskMonitor service is being reduced at a rapid rate.
o Limited number of companies analyzed. The limited number of companies
currently analyzed by CreditRiskMonitor's credit risk service --
approximately 575 public U.S. companies (mainly retailers and wholesalers)
-- is a substantial impediment to any sales expansion. The
CreditRiskMonitor service sells for $3,500 per year and many potential
subscribers do not have enough of their customers within
CreditRiskMonitor's current coverage to justify the $3,500 cost, i.e., five
customers covered for $3,500 is $700 per company covered, a high price and
a serious sales hurdle. CreditRiskMonitor plans to add approximately 7,400
companies to its credit coverage by the end of the first half of 1999,
which would constitute more than a 1,390% increase from CreditRiskMonitor's
coverage at March 31, 1999.
That broadening of corporate credit coverage, combined with an increase in
the number of corporations who have Internet access, should increase
CreditRiskMonitor's sales potential over the next year.
CreditRiskMonitor plans to enter the credit risk monitoring of private
companies by the end of the second quarter of 2000. This category presents
a proprietary service with greater market potential than
CreditRiskMonitor's present service for the public company market, since
meaningful data for private as opposed to public companies is scarce. In
addition, most companies' exposure to credit risk loss is substantially
more frequent on credit extended to private versus public corporations.
Private company credit risk analysis and data, therefore, has the potential
of not only accessing a larger market than the public company market, since
the number of private companies dwarfs the number of public companies in
the U.S., but also filling a significant need for credit managers.
Development Strategy and Proprietary Technology
CreditRiskMonitor's development strategy is to minimize the amount of
manual labor required to create a company report. This allows it to continue to
provide higher quality information at a lower price than any of its competitors,
whose services are primarily developed and delivered manually. To achieve this
result CreditRiskMonitor utilizes the following proprietary products or services
as part of its report production process:
o Proprietary financial databases and on-demand report generation system.
CreditRiskMonitor's contract with Market Guide, its present data provider,
gives it exclusive access to Market Guide company data through 2003.
CreditRiskMonitor has converted Market Guide's financial database to a
state-of-the-art relational database so that as soon as Market Guide
26
<PAGE>
updates its database with information gathered from the Securities and
Exchange Commission's Electronic Data Gathering, Analysis and Retrieval
filings of one of the companies that CreditRiskMonitor monitors, a new
credit report can be produced. In addition to Market Guide's database,
several other financial databases can also be used with only a reasonable
amount of programming effort required to produce a CreditRiskMonitor
report. Possible providers of data that can be used are Disclosure, Inc.,
Media General, Inc., and Standard & Poor's Compustat, a division of The
McGraw-Hill Companies, Inc.
CreditRiskMonitor utilizes its proprietary on-demand report generation
system to create a CreditRiskMonitor company report from
CreditRiskMonitor's proprietary news and financial data databases at the
time a subscriber requests the report. This means that each report is up to
date, unlike competitive services that are static and do not change when
new information becomes available.
o Profile based reports. CreditRiskMonitor provides its users with the
ability to create customized profiles of selected companies, thereby
allowing the user to screen-out unneeded information and reduce information
overload.
o Proprietary news database. To provide the broadest possible news coverage,
CreditRiskMonitor has a redistribution agreement with Federal Filings,
Inc., a Dow Jones Company, and is currently negotiating a similar agreement
with Reuters America Inc. CreditRiskMonitor's software scans the news
issued by these services and selects those articles that meet
CreditRiskMonitor's criteria. CreditRiskMonitor presently stores, for at
least one year in its news database, for each article selected, the
headline, the entire original article and an abstract, generally comprised
of the article's first two paragraphs. The news is scanned by
CreditRiskMonitor's news system 24 hours a day, seven days a week.
o Peer group ratio and graphical analysis system. Ratios and graphs have been
designed into CreditRiskMonitor's company report specifically for credit
analysis. CreditRiskMonitor graphs contain one measure per graph, plotted
over time. For each period on the graph, a subscriber will see the highest,
lowest and the average value of the subject company's peer group together
with the value for the target company. CreditRiskMonitor subscribers know
immediately how the target company ranks and has changed, over time,
relative to its peers.
Marketing and Sales
CreditRiskMonitor's goal is to establish its service as the preeminent
online financial information and news service dedicated to credit professionals
doing business with publicly-held and, in the near future, privately-owned
companies. CreditRiskMonitor
27
<PAGE>
expects to maintain its subscriber base by continuing to provide the highest
quality service so that subscribers will continue to renew their subscriptions
each year. This is most important, as the profitability of a renewal is
substantially greater than the profit on an initial sale. CreditRiskMonitor's
ultimate success will depend on the renewal rate of its subscriber base.
To capture a significant percentage of the market for online public company
credit information, CreditRiskMonitor will continue to use the Internet as the
primary mechanism for distributing its service. To inform potential subscribers
about its service, CreditRiskMonitor will continue to use a combination of
direct mail, telemarketing, print advertising in various trade journals, trade
show representation and speaking engagements before credit associations.
Sales Strategy and Commission Program
Once a sales lead is generated, 90% of the selling effort takes place on
the phone. The Internet provides the ability for CreditRiskMonitor's sales
representative and the potential subscriber to view our Web site simultaneously
and a CreditRiskMonitor sales representative has the ability to demonstrate our
service, in-depth, while on the phone with the potential subscriber. Once a
password is given out, the sales representative will go online with the prospect
and demonstrate how CreditRiskMonitor's service is designed to be used. The
potential subscriber can then utilize the service on a trial basis, and is able
to evaluate how the service works and how it will help their department. A trial
period usually lasts from 1 to 3 months before a potential subscriber will make
a decision as to whether or not to purchase a subscription.
CreditRiskMonitor pays commissions on new sales of its service, but not on
renewal sales. Currently the commission is 30% of the contract price, plus
certain overrides and incentives based on sales volume.
Employees
As of April 30, 1999, CreditRiskMonitor employed 14 persons full-time and
retained 1 consultant. None of CreditRiskMonitor's employees is covered by a
collective bargaining agreement. CreditRiskMonitor believes its relations with
its employees to be satisfactory and had suffered no interruption in operations.
CreditRiskMonitor has no retirement, pension, profit sharing or similar
program in effect for its employees, but has adopted stock option plans covering
its employees.
Properties
CreditRiskMonitor's principal office is located in approximately 2,500
square feet of space in an office building located in Lake Success, New York
which it has licensed from Market
28
<PAGE>
Guide through October 31, 1999 at a monthly cost of approximately $5,900.
CreditRiskMonitor has begun to look for and anticipates no significant
difficulty in obtaining at competitive prices, new space of approximately 4,500
square feet in the immediate vicinity.
Legal Proceedings
In August 1985, an action was commenced against CreditRiskMonitor by a
former employee in the Circuit Court of Cook County, Illinois County Department,
Law Division, alleging wrongful demotion and wrongful discharge by
CreditRiskMonitor. The plaintiff is seeking back pay for the period since her
release as well as reinstatement to her position. The claim seeks damages in
excess of $15,000, plus punitive damages in excess of $15,000. This matter has
been dormant virtually since its inception and, while there has been no
discovery, CreditRiskMonitor believes that it has meritorious defenses and that
the ultimate outcome should not have a material adverse impact on
CreditRiskMonitor.
Available Information
CreditRiskMonitor is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D. C. 20549; at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and at Seven World
Trade Center, 13th Floor, New York, New York 10048. In addition,
CreditRiskMonitor is required to file electronic versions of these documents
through the Securities and Exchange Commissions' Electronic Data Gathering,
Analysis and Retrieval System (EDGAR). The Commission maintains a World Wide Web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission. Copies of such material may also be
obtained at prescribed rates from the Public Reference Section of the Securities
and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D. C. 20549. CreditRiskMonitor's common stock is quoted on the NASD
Electronic Bulletin Board Service. Information regarding the trading of
CreditRiskMonitor can be obtained from the NASD Electronic Bulletin Board
Service.
CreditRiskMonitor has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2, as amended (the "Registration Statement"),
under the Securities Act with respect to the securities being offered by this
prospectus. As permitted by the rules and regulations of the Securities and
Exchange Commission, this prospectus does not contain all the information set
forth in the Registration Statement and the exhibits thereto. For further
information with respect to CreditRiskMonitor and the
29
<PAGE>
offer and sale of the securities, reference is made to the Registration
Statement and the exhibits thereto. Statements contained in this prospectus
concerning the provisions of documents filed with the Registration Statement as
exhibits are necessarily summaries of such documents, and each such statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Securities and Exchange Commission. The Registration Statement
may be inspected without charge at the Public Reference Section of the
Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D. C. 20549, and copies of all or any part thereof may be
obtained from the Securities and Exchange Commission at prescribed rates.
MANAGEMENT
Name Age Position
---- --- --------
Jerome S. Flum 58 Chairman of the Board of
Directors, President and Chief
Executive Officer
Richard James 59 Director
Leslie Charm 55 Director
Lawrence Fensterstock 49 Senior Vice President and Chief
Financial Officer
Jerome S. Flum. Mr. Flum has been a director of CreditRiskMonitor since
1983. He was appointed President and Chief Executive Officer of
CreditRiskMonitor and Chairman of the Board of Directors in June 1985. Since
1995, Mr. Flum has been Chairman of the Board of China Capital Corp., a
privately-held consulting and management company headquartered in Bethesda,
Maryland.
From 1968 to 1985, Mr. Flum was in the investment business as an
institutional security analyst, research and sales partner at an investment firm
and then as a general partner of a private investment pool.
Before entering the investment business Mr. Flum practiced law, helped
manage a U.S. congressional campaign and served as a legal and legislative aide
to a U.S. congressman.
Mr. Flum received a BS degree in Business Administration from Babson
College and a JD degree from Georgetown University Law School.
Richard James. Mr. James has been a director of CreditRiskMonitor since
April 1992. Mr. James is the Customer Satisfaction Manager for the Consumer
Hardware Division of Polaroid Corporation. In this role he is responsible for
improving the business performance of Polaroid's instant consumer cameras
through improved redesigns and manufacturing processes, as well as by
30
<PAGE>
enhancing the customers' picture taking experiences. This role encompasses
manufacturing plants in Scotland, China, India and the USA, and worldwide
consumer markets.
From 1968 through 1979 Mr. James was President of James Associates, a group
of businesses involving accounting and tax preparation, small business
consulting, real estate sales and rentals, and retail jewelry sales.
Mr. James is a founding Board member and VP Finance of the Boston Chapter
of the Society of Concurrent Engineering, a national professional organization
dedicated to the application of Integrated Product Development principles to
achieve rapid design, development and inception of new products and services.
Mr. James holds a BS in Chemical Engineering from Northeastern University,
as well as extensive studies in managerial and technical subjects. He has
developed and taught numerous technical and business courses for many years as a
faculty member of Polaroid's internal training organization.
Leslie Charm. Mr. Charm has been a director of CreditRiskMonitor since
September 1994. From 1989 to the present, he was a director of Moto Photo, Inc.,
a publicly-held international franchisor of imaging centers. Since 1972, Mr.
Charm has been a partner in the firm of Youngman & Charm, a firm specializing in
assisting companies that are experiencing operating and/or financial problems.
Lawrence Fensterstock. Lawrence Fensterstock has been the Senior Vice
President of CreditRiskMonitor since January 1999. He joined Information
Clearinghouse Incorporated in 1993 and was closely involved in the formation of
its credit reporting service. In addition to being responsible for the
publication of the various facets of the F&D service, he was chief operating and
financial officer of Information Clearinghouse Incorporated. Upon leaving
Information Clearinghouse Incorporated, in 1996, he joined Market Guide to
assist in the formation of its credit information services division.
From August 1989 through October 1992, he was vice president-controller,
treasurer and corporate secretary for a private entity formed to acquire Litton
Industries' office products operations in a leveraged buyout. There, he spent
2-1/2 years acting as de facto chief financial officer. During his tenure, he
was responsible for all financial and treasury functions of this company, which
generated annual volumes of up to $325 million from its five operating
divisions. He was intimately involved in the shut-down of one of these
subsidiaries, and the related renegotiation of the company's banking facility,
the buyout of a long-term lease, the settlement of outstanding accounts payable
at substantial discounts, and the exchange of assets for the settlement of debt
owed to Litton Industries.
31
<PAGE>
Lawrence Fensterstock is a certified public accountant, with an MBA degree
from The University of Chicago Business School and a BA degree from Queens
College.
Compensation of Directors
Non-employee directors receive $450 for each Board of Directors' meeting
attended, up to a maximum payment of $1,800 per Director per calendar year.
During 1998, non-qualified options to purchase 36,000 shares of common stock at
a purchase price of $.0001 per share, being the fair market value of the common
stock on the date of grant, were granted to each of the two non-employee
directors.
Audit and Compensation Committees
The Board of Directors has standing Audit and Compensation Committees,
comprised of Messrs. James and Charm. The Audit Committee assists the Board of
Directors in exercising its fiduciary responsibilities for oversight of audit
and related matters, including corporate accounting, reporting and control
practices. The Compensation Committee is responsible for overseeing
CreditRiskMonitor's executive compensation programs. It administers certain
compensation and benefit plans and approves annual compensation and recommends
to the Board of Directors long-term incentive compensation to be granted to
executive officers, directors and consultants of CreditRiskMonitor.
Remuneration of Executive Officers-Summary Compensation Table
The following table shows, for the fiscal years ended December 31, 1998,
1997 and 1996, the compensation of the Chief Executive Officer.
CreditRiskMonitor had no other executive officers during that period. The table
also shows the compensation of CreditRiskMonitor's Senior Vice President,
Lawrence Fensterstock, who is an executive officer and would have been listed in
the table if he had held that position at the end of 1998. Mr. Fensterstock was
named as Senior Vice President and Assistant Secretary of CreditRiskMonitor
effective January 20, 1999.
32
<PAGE>
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
Annual
Compensation(2) Long Term Compensation
- -------------------------------------------------------------------------------
Number of
Name and Principal Securities All Other
Positions Year Salary Underlying Compensation
Options
- -------------------------------------------------------------------------------
Jerome S. Flum, 1998 $ -0-(1) 150,000
Chairman, 1997 $113,859 None
President and 1996 $121,506
Chief Executive
Officer
- -------------------------------------------------------------------------------
Lawrence 1998 N/A 150,000
Fensterstock, 1997 N/A None
Senior Vice 1996 N/A
President
(1) Effective December 31, 1997 Mr. Flum's Employment Agreement was terminated.
See "Certain Relationships and Related Transactions." Beginning January 20,
1999, Mr. Flum is being compensated by CreditRiskMonitor at the rate of $150,000
per annum, of which $90,000 per annum is being deferred until such time as
CreditRiskMonitor achieves cash flow breakeven or until the Market Guide Notes
have been paid in full, whichever occurs sooner.
(2) No Bonus or other Annual Compensation was paid during the past three fiscal
years.
Key Employees
In addition to the executive officers and directors described above, the
following persons constitute key employees of CreditRiskMonitor.
Albert Fensterstock. Albert Fensterstock, age 61, has been the Managing
Director - Business Development of CreditRiskMonitor since January 1999. Prior
to joining Market Guide, in 1996, he was Managing Director of Information
Clearinghouse Incorporated from its inception, in November 1992 through January
1994, and from July 1995 through August 1996, where he created F&D Reports and
was responsible for day-to-day operations, technological innovation, product
development and product quality control. Albert Fensterstock has over 39 years
of experience in financial and operations analysis and corporate management. He
was a management consultant for two "Big Five" accounting firms where he was
responsible for managing major projects requiring solutions for many diverse
problems in a broad range of industries. His experience as a corporate executive
includes, Vice President and Chief Information Officer of Cadence Industries, a
New York Stock Exchange company and Chief Operating Officer and Chief Financial
Officer of Hebrew National, an international food manufacturer and distributor.
As a management consultant, Albert Fensterstock specialized in the areas of
systems analysis and the design and implementation of
33
<PAGE>
computer based decision supporting systems. In particular, his experience
includes the development of: credit scoring systems; neural network/pattern
recognition systems for credit and sales applications; financial and operations
simulation models; computer based forecasting systems; and computer based
accounting, management information and financial analysis systems.
Albert Fensterstock has been invited to lecture by many trade groups and
credit associations on a variety of topics including: Credit Analysis of High
Risk Companies (specific companies chosen by attendees); The Millennium Crisis;
Using Cash Flow Simulation to Determine When a Debtor Will Run Out of Money;
Using Statistical Analysis for Credit Risk Evaluation; and Principles of Credit
Scoring.
Albert Fensterstock did his undergraduate work at MIT in mathematics and
economic and graduate work at MIT and Columbia University in business and
statistics.
William F. Gerold, IV. Mr. Gerold, age 46, joined CreditRiskMonitor in
February 1999 as Vice President of Information Technology. He has over 20 years
experience in computer technology and systems. For more than six years prior to
joining the Company he was president and sole shareholder of GudAnuf, Inc., a
computer consulting firm specializing in the financial, human resources and
manufacturing industry segments.
Mr. Gerold received his BBA degree from Dowling College.
34
<PAGE>
Stock Option Plans
The following table sets forth all stock options granted to
CreditRiskMonitor's Chief Executive Officer, who was the only executive officer
during the last fiscal year and to CreditRiskMonitor's Senior Vice President,
who became an executive officer on January 20, 1999.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
- ------------------------------------------------------------------------------------------------------
Grant
Individual Grants Date
Value
- ------------------------------------------------------------------------------------------------------
Percent of
Number of Total Options
Securities Granted to Exercise
Underlying Employees in Basic Price Expiration Present
Name Options Amount Fiscal Year ($/Sh) Date Value
(#)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jerome S. Flum, 150,000 100% $.00011(2) 8/25/2003 (3)
Chairman, President
and CEO (5)
- ------------------------------------------------------------------------------------------------------
Lawrence 150,000 N/A $.00010(4) 8/25/2008 (3)(4)
Fensterstock, (5)
Senior Vice
President
</TABLE>
(1) No stock appreciation rights were granted to the executive officers in
fiscal 1998.
(2) Represents 110% of fair market value at date of grant.
(3) 75,000 of the options granted to Mr. Flum and all of the options granted to
Mr. Fensterstock, are subject to performance based objectives as described
below.
(4) Represents fair market value at date of grant. Mr. Fensterstock was a
consultant to CreditRiskMonitor during 1998 and was not an employee.
(5) All options are not exercisable at least until January 2002. The fair market
value of one share of CreditRiskMonitor common stock at March 31, 1999 was
$5.25.
Pursuant to the 1992 Incentive Stock Option Plan of CreditRiskMonitor, on
August 26, 1998 Mr. Flum was granted incentive stock options to purchase 150,000
shares of common stock, exercisable until August 25, 2003, at a price of
$.00011, constituting 110% of the fair market value of the common stock on the
date of grant.
Non-qualified options to purchase an aggregate of 638,000 shares of common
stock were granted between August 1998 and March 1999, subject to Stockholder
approval of the 1998 Long-Term Incentive Plan, exercisable for a ten-year term,
including options to individuals who were employed as consultants to
CreditRiskMonitor in 1998 and became employees in 1999. All of the options were
issued at exercise prices constituting the fair market price of the common stock
on the respective grant dates.
35
<PAGE>
EXERCISE PRICE PER
NAME NUMBER OF SHARES SHARE
Lawrence Fensterstock 150,000 $.0001
Non-Officer 488,000 $.0001-6.00
Consultant/Employees
Options to purchase an additional 72,000 shares common stock were issued to
non-employee directors.
In order to minimize the risk of an "owner-shift" which could limit the
availability of CreditRiskMonitor's net operating loss carryforwards, none of
the options, including the options to non-employee directors, will vest or be
exercisable, under any circumstances, prior to the expiration of three years
from the closing of the Private Placement, unless accelerated in the sole
discretion of CreditRiskMonitor.
All of the 638,000 options (including those granted to Lawrence
Fensterstock) and 75,000 of the options granted to Mr. Flum may be exercised
prior to their final two years only in installments upon CreditRiskMonitor
attaining certain specified gross revenue and pre-tax profit margin objectives
as set forth in the table below, unless such objectives are modified in the sole
discretion of the Board of Directors. In order to achieve the vesting of the
applicable percentage of options at each level, both the minimum sales amount
and the pre-tax operating margin tests for that level must be met.
MINIMUM ANNUAL
- -------------------------------------- Cumulative
Pre-Tax Options Options
Level Gross Sales Operating Vested Vested
Margin
- ---------------------------------------------------------------------------
1 $3 Million 20% 6.7% 6.7%
- ---------------------------------------------------------------------------
2 $4 Million 23% 6.7% 13.4%
- ---------------------------------------------------------------------------
3 $5 Million 27% 10.0% 23.4%
- ---------------------------------------------------------------------------
4 $6 Million 36% 10.0% 33.4%
- ---------------------------------------------------------------------------
5 $7.5 Million 39% 13.3% 46.7%
- ---------------------------------------------------------------------------
6 $9 Million 42% 13.3% 60.0%
- ---------------------------------------------------------------------------
7 $11 Million 45% 16.6% 76.6%
- ---------------------------------------------------------------------------
8 $14 Million 48% 16.6% 93.2%
- ---------------------------------------------------------------------------
9 $17 Million 48% 6.8% 100.0%
Notwithstanding that the objectives may not have been met in whole or in
part, each of the foregoing performance-based options will vest in full on a
date which is two years prior to the expiration date of the option or, in the
event of a change in
36
<PAGE>
control, will vest in whole or in part according to a formula based on the value
of CreditRiskMonitor at the time of such change in control.
Limitation of Liability and Indemnification
CreditRiskMonitor's Articles of Incorporation limit, to the maximum extent
permitted by the Nevada Revised Statues ("Nevada Law"), the personal liability
of directors of monetary damages for breach of their fiduciary duties as
directors, and provides that CreditRiskMonitor shall indemnify its officers and
directors and may indemnify its employees and other agents to the fullest extent
permitted by Nevada Law. Section 78.7502 of the Nevada Law provides that a
corporation may indemnify a director, officer, employee or agent made or
threatened to be made a party to an action by reason of the fact that he was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation against expenses actually and reasonably incurred in
connection with such action if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if he had
no reasonable cause to believe his conduct was unlawful. Nevada Law does not
permit a corporation to eliminate a director's duty of care, and the provisions
of CreditRiskMonitor's Articles of Incorporation have no effect on the
availability of equitable remedies, such as injunction or rescission, for a
director's breach of the duty of care.
CreditRiskMonitor may enter into indemnification agreements with its
directors and officers which may require CreditRiskMonitor, among other things,
to indemnify such directors and officers against liabilities that may arise by
reason of their status or service as directors and officers against liabilities
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance, if available on reasonable terms.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted for directors, officers and controlling
persons of CreditRiskMonitor pursuant to the foregoing provisions, or otherwise,
CreditRiskMonitor has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
37
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of
CreditRiskMonitor's common stock as the date of this prospectus by:
o each person or entity known by CreditRiskMonitor to beneficially own
5% or more of the outstanding shares of common stock;
o each of CreditRiskMonitor's directors and officers; and
o all directors and executive officers of CreditRiskMonitor as a group.
The information as to each person or entity has been furnished by that person or
entity.
38
<PAGE>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
NAME OF COMMON STOCK(1) COMMON STOCK
Flum Partners(2) 3,797,128(3) 71.62%
Jerome S. Flum(1) 3,910,353(4) 73.75%
Richard J. James(1) 1,000 -----*
Leslie Charm(1) 1,000 -----*
Lawrence 0 0
Fensterstock(1)
All directors and 3,912,353(4) 73.79%
officers
(as a group (4
persons))
*less than 1%
- ----------
(1) Does not give effect to (a) the issuance of options to purchase up to
638,000 shares of common stock granted or to be granted to ten officers,
employees and consultants, (b) options to purchase 150,000 shares granted to Mr.
Flum pursuant to the 1992 Incentive Stock Option Plan of CreditRiskMonitor, and
(c) options to purchase an aggregate of 36,000 shares granted to each of the
other directors. All of the foregoing options are not exercisable within sixty
days. Includes 2,000 shares of common stock issued to Flum Partners in
consideration of loans to CreditRiskMonitor. Includes options to purchase 1,000
shares of common stock granted to each of the non-employee directors which are
immediately exercisable.
(2) The sole general partner of Flum Partners is Jerome S. Flum, Chairman of the
Board, President and Chief Executive Officer of CreditRiskMonitor.
(3) Includes 3,598,299 shares of common stock issued upon the conversion on
January 20, 1999 of the Senior Preferred Stock owned by Flum Partners.
(4) Includes 3,797,128 shares owned by Flum Partners which are also deemed to be
beneficially owned by Mr. Flum because of his power, as sole general partner of
Flum Partners, to direct the voting of such shares held by the partnership. Mr.
Flum disclaims beneficial ownership of the shares owned by Flum Partners. The
3,910,353 shares of common stock, or 73.75% of the outstanding shares of common
stock may also be deemed to be owned, beneficially and collectively, by Flum
Partners and Mr. Flum, as a "group", within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended. Does not include options to
purchase 150,000 shares granted to Mr. Flum under the 1992 Incentive Stock
Option Plan.
SELLING STOCKHOLDERS
The shares being offered for resale by the selling stockholders were
acquired in the Private Placement which closed on January 19, 1999. In
connection with the Private Placement, CreditRiskMonitor granted the selling
stockholders certain registration rights and agreed to keep the Registration
Statement, of which this prospectus is a part, effective until the earlier of
(i) the sale of all of the shares offered hereby and (ii) two years from closing
of the last purchase in the Private Placement, subject to extension under
certain circumstances. CreditRiskMonitor has agreed to indemnify the selling
stockholders and their legal counsel and accountants and each underwriter of the
shares offered
39
<PAGE>
hereby and each other person, if any, who controls such seller or underwriter
within the meaning of the Securities Act and Exchange Act laws, against certain
losses, claims, damages or liabilities (or actions or proceedings).
CreditRiskMonitor has agreed to pay the expenses of registering the shares under
the Securities Act, including registration and filing fees, blue sky expenses,
printing expenses, accounting fees, administrative expenses and its own counsel
fees.
The following table sets forth the name of each selling stockholder, the
number of shares of common stock of CreditRiskMonitor beneficially owned by such
selling stockholder as of April 30, 1999, and the number of shares being offered
by such selling stockholder. The shares being offered hereby are being
registered to permit public secondary trading, and the selling stockholders may
offer all or part of the shares for resale from time to time. However, such
selling stockholders are under no obligation to sell all or any portion of such
shares nor are such selling stockholders obligated to sell any shares
immediately under this prospectus. All information with respect to share
ownership has been furnished by the selling stockholders. The selling
stockholders may sell all or part of their shares and the table below assumes
that all shares offered hereby shall be sold. See "Plan of Distribution."
40
<PAGE>
<TABLE>
<CAPTION>
Shares owned after
the Offering
Shares Beneficially Shares to be Sold if all Offered
Name of Stockholder Owned Prior to Offering in the Offering Shares are Sold
------------------- ----------------------- ----------------- ----------------
<S> <C> <C> <C>
Flum Partners 3,797,128(1) 160,000 3,637,128
Arsobro, L.P. 200,000 200,000 -0-
Paul Bernstein 200,000 200,000 -0-
Chazen Capital Partners LLC 200,000 200,000 -0-
David Hirsh 70,000 70,000 -0-
Edwin Marco 50,000 50,000 -0-
Jason Berman 40,000 40,000 -0-
Leonard Piontak 40,000 40,000 -0-
Michael Schaenen 40,000 40,000 -0-
Ellen Hirsh 30,000 30,000 -0-
Marilyn Schwartz 30,000 30,000 -0-
Fred Ablon 20,000 20,000 -0-
Peter Epstein 20,000 20,000 -0-
Melvin Fishman 20,000 20,000 -0-
Michael Freede 20,000 20,000 -0-
Antoine Kemper 20,000 20,000 -0-
William Krupman 20,000 20,000 -0-
Wesley McCain 20,000 20,000 -0-
Proximity Fund 20,000 20,000 -0-
Marjorie & Stephen Skolnick 20,000 20,000 -0-
Russel Stern, Jr. 20,000 20,000 -0-
Richard Lippe 10,000 10,000 -0-
Lewis Meltzer 10,000 10,000 -0-
David Schaffer 10,000 10,000 -0-
Paul Alotta 4,000 4,000 -0-
Michael Howell 4,000 4,000 -0-
James Greiner 2,000 2,000 -0-
</TABLE>
DESCRIPTION OF SECURITIES
Common Stock
As of the date of this prospectus, there were 5,300,129 shares of common
stock outstanding. There are 862,000 shares of common stock issuable pursuant to
outstanding options and warrants, and 790,000 shares of common stock reserved
for issuance pursuant to the 1998 Long-Term Incentive Plan. The holders of
common stock are entitled to one vote per share on all matters to be voted upon
by the stockholders. The holders of common stock are entitled to
- --------
(1) See "Security Ownership of Certain Beneficial Owners and Management."
41
<PAGE>
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available for that purpose. In the
event of liquidation, dissolution or winding up of CreditRiskMonitor, holders of
common stock are entitled to share ratably in all assets remaining aster payment
of liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
non-assessable.
Preferred Stock
The Board of Directors is authorized by CreditRiskMonitor's certificate of
incorporation to authorize and issue up to 5,000,000 shares of preferred stock,
$.01 par value, in one or more series. No shares of preferred stock have been
authorized for issuance by the Board of Directors and CreditRiskMonitor has no
present plans to issue any such shares. In the event that the Board of Directors
does issue preferred stock, it may exercise its discretion in establishing the
terms of the preferred stock. In the exercise of such discretion, the Board of
Directors may determine the voting rights, if any, of the series of preferred
stock being issued, which would include the right to vote separately or as a
single class with the common stock and/or other series of preferred stock; to
have more or less voting power per share than that possessed by the common stock
or other series of preferred stock, and to vote on certain specified matters
presented to the shareholders or on all such matters or upon the occurrence of
any specified event or condition. Upon liquidation, dissolution or winding up of
CreditRiskMonitor, or upon events such as a merger or sale of
CreditRiskMonitor's assets, the holders of preferred stock may be entitled to
receive preferential cash distributions fixed by the Board of Directors when
creating the particular series thereof before the holders of the common stock
are entitled to receive anything. Preferred Stock authorized by the Board of
Directors could be redeemable or convertible into shares of any other class or
series of stock of CreditRiskMonitor.
The issuance of preferred stock by the Board of Directors could adversely
affect the rights of holders of shares of common stock by, among other things,
establishing preferential dividends, liquidation rights or voting power. The
issuance of preferred stock could be used to discourage or prevent efforts to
acquire control of CreditRiskMonitor through the acquisition of shares of common
stock.
Transfer Agent and Registrar
The transfer agent for CreditRiskMonitor's common stock is American Stock
Transfer & Trust Co., whose address is 40 Wall Street, 46th Floor, New York, NY
10005, telephone number (212) 936-5100.
42
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions
Payment of liquidation preferences and issuance of Senior Preferred Stock. Under
the terms of CreditRiskMonitor's previously outstanding Series A and Series B
Preferred Stock, a sale or transfer of substantially all of the assets of
CreditRiskMonitor was deemed to be a liquidation, dissolution or winding up of
CreditRiskMonitor for purposes of determining the payment of the liquidation
preferences on the Series A and Series B Preferred Stock. Accordingly, the 1993
sale of assets to American Pacific entitled Flum Partners, the holder of all of
the outstanding Series A and Series B Preferred Stock, to payment of the
applicable liquidation preferences and accrued and unpaid dividends.
In November 1997, Flum Partners delivered a letter to CreditRiskMonitor
demanding payment of the applicable liquidation preferences on the Series A and
Series B Preferred Stock ($1,175,000 in the case of the Series A Preferred Stock
and $310,000 in the case of the Series B Preferred Stock) and accrued and unpaid
dividends on such shares. On the date of the delivery of the demand, accrued
dividends on the Series A Preferred Stock amounted to $787,500 and accrued
dividends on the Series B Preferred Stock amounted to $111,600. Accordingly, the
aggregate amount payable pursuant to the demand of Flum Partners was
approximately $2,960,000.
Since Flum Partners is an affiliate of Mr. Flum, a member of the Board, and
because of Mr. Flum's interest in Flum Partners and in the transaction, the
Board formed an Independent Committee consisting of independent Board members to
consider the letter from Flum Partners.
The Independent Committee met and reviewed CreditRiskMonitor's financial
situation at such time. CreditRiskMonitor had approximately $1.89 million of
cash and cash equivalents, and it was deemed prudent for CreditRiskMonitor to
maintain a cash balance of approximately $90,000 for potential claims and other
expenses and for working capital to enable CreditRiskMonitor to attempt to
identify new business opportunities. Thus, $1.8 million of cash was available
for payment of the liquidation preferences and accrued dividends on the Series A
and Series B Preferred Stock, leaving an unpaid amount of approximately $1.16
million of cash.
The Independent Committee then engaged in discussions with Mr. Flum,
representing Flum Partners. Pursuant to such discussions, Flum Partners agreed
to accept, in payment of the unpaid $1.16 million of cash, shares of a new
series of convertible senior preferred stock ("Senior Preferred Stock"), with an
aggregate liquidation preference equal to $1.1 million, which was $60,000 less
than the unpaid liquidation preferences and accrued dividends on the Series A
and Series B Preferred Stock. The new series of Senior Preferred Stock did not
accrue dividends, but was
43
<PAGE>
convertible into 90% of CreditRiskMonitor's common stock on a fully-diluted
basis. The new Senior Preferred Stock was "participating", in that, upon a
liquidation or sale of CreditRiskMonitor, and after the Senior Preferred Stock
received its liquidation preference, the Senior Preferred Stock would share
ratably with the common stock on an "as converted" basis.
After further negotiations with the Independent Committee, Mr. Flum agreed
to a termination of his existing employment agreement effective December 1,
1997, saving CreditRiskMonitor approximately $190,000 in salary expense through
the end of the term of such agreement, in consideration of which
CreditRiskMonitor transferred to Mr. Flum an automobile and computer equipment
with an aggregate value not exceeding $10,000. Mr. Flum also agreed to continue
as Chairman of the Board and Chief Executive Officer of CreditRiskMonitor,
without pay, on an "at will" basis. Mr. Flum also agreed for a twelve month
period, to attempt to identify and consummate a transaction which would increase
the value of CreditRiskMonitor.
In its deliberations as to the fairness of the transaction, the Board
considered the following factors: (i) Mr. Flum agreed to terminate his existing
employment agreement with CreditRiskMonitor, saving CreditRiskMonitor an
aggregate of approximately $190,000 in salary expense; (ii) the Senior Preferred
Stock would not accrue dividends, saving CreditRiskMonitor approximately
$157,000 in annual dividends; (iii) the Senior Preferred Stock had a liquidation
preference of approximately $60,000 less than the aggregate amount payable in
respect of the liquidation preferences and accrued dividends on the Series A and
Series B Preferred Stock (in this regard the Board recognized that the Series A
and Series B Preferred Stock had aggregate liquidation preferences (plus accrued
dividends) of approximately $2.96 million); and (iv) that Mr. Flum would attempt
for a period of twelve months to identify and consummate a transaction which
would increase the value of CreditRiskMonitor. With regard to the factors
described, the Board recognized that in any such transaction, the Senior
Preferred Stock would be entitled to its liquidation preference before any
distributions to common stockholders. The Independent Committee also noted that,
if it did not accept the proposal of Flum Partners, the Board would be obligated
to pay all of CreditRiskMonitor's cash to Flum Partners in partial satisfaction
of the liquidation preferences, and then to proceed with the final liquidation
of CreditRiskMonitor, which would result in the holders of common stock not
receiving anything.
In accordance with the foregoing, CreditRiskMonitor issued to Flum Partners
at the end of 1997 and in the first quarter of 1998 a total of 1,100,000 shares
of Senior Preferred Stock and $1.8 million of cash in payment of the liquidation
preferences and accrued dividends on the Series A and Series B Preferred Stock.
All shares of Senior Preferred Stock were converted into 3,598,299 shares
of common stock, effective as of January 20, 1999.
44
<PAGE>
Interest of certain persons and conflicts of interest. As a consequence of the
payment of the liquidation preferences of the Series A and Series B Preferred
Stock, the issuance and subsequent conversion of the Senior Preferred Stock, and
the purchase of shares by Flum Partners in the Private Placement, and as
described above, Mr. Flum, the Chairman of the Board, Chief Executive Officer
and President of CreditRiskMonitor, individually and through Flum Partners,
beneficially owns 3,910,353 shares of common stock. In addition, Mr. Flum has
been granted Incentive Stock Options to purchase 150,000 shares of the common
stock at an exercise price of $.00011 per share (equal to 110% of the fair
market value of the common stock on the date of grant).
Related Party Transactions
CreditRiskMonitor entered into an employment agreement with Mr. Flum,
effective as of July 1, 1992, which provided for Mr. Flum to serve as the
Chairman and Chief Executive Officer of CreditRiskMonitor until June 30, 1999,
unless sooner terminated by CreditRiskMonitor for cause, or upon death or
permanent disability. As more fully described above, Mr. Flum agreed to a
termination of his employment agreement effective December 1, 1997.
In November 1998, Flum Partners, an investment limited partnership which
during 1998 owned 90% of CreditRiskMonitor's outstanding voting shares, and the
general partner of which is Mr. Flum, CreditRiskMonitor's Chairman, President
and CEO, provided CreditRiskMonitor with a line of credit of up to $20,000. In
consideration thereof, CreditRiskMonitor issued to Flum Partners 2,000 shares of
common stock. In addition, Flum Partners purchased 160,000 shares of common
stock as a participant in the Private Placement and agreed to convert all of its
1,100,000 shares of Senior Preferred Stock into 3,598,299 shares of common stock
on or prior to the closing of the Private Placement. This conversion was
effected as of January 20, 1999.
PLAN OF DISTRIBUTION
The shares offered hereby may be sold or distributed from time to time by
the selling stockholders or by pledgees, donees or transferees of, or successors
in interest to, the selling stockholders directly to one or more purchasers,
including pledgees, or through brokers, dealers or underwriters who may act
solely as agents or may acquire shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices, which may be changed.
The distribution of the shares may be effected in one or more of the
following methods:
o ordinary brokers transactions, which may include long or short sales,
45
<PAGE>
o purchases by brokers, dealers or underwriters as principal and resale
by such purchasers for their own accounts pursuant to this prospectus,
o "at the market" to or through market makers or into an existing market
for the common stock,
o in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents,
o through transactions in options, swaps or other derivatives, whether
exchange listed or otherwise, or
o any combination of the foregoing, or by any other legally available
means.
In addition, the selling stockholders or their successors in interest may
enter into hedging transactions with broker-dealers who may engage in short
sales of shares of common stock in the course of hedging the positions they
assume with the selling stockholders. The selling stockholders or their
successors in interest may also enter into option or other transactions with
broker-dealers that require the delivery by such broker-dealers of the shares,
which shares may be resold thereafter pursuant to this prospectus.
Brokers, dealers, underwriters or agents participating in the distribution
of the shares may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders and/or the purchasers of shares for
whom such broker-dealers may act as agent or to whom they may sell as principal,
or both. Such compensation as to a particular broker-dealer may be in excess of
customary commissions. The selling stockholders and any broker-dealers acting in
connection with the sale of the shares hereunder may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act, and any
commission received by them and any profit realized by them on the resale of
shares as principals may be deemed underwriting compensation under the
Securities Act. Neither CreditRiskMonitor nor any selling stockholder can
presently estimate the amount of such compensation. CreditRiskMonitor knows of
no existing arrangements between any selling stockholder and any such
stockholder, broker, dealer, underwriter or agent relating to the sale or
distribution of the shares.
Each selling stockholder and any other person participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of securities by, selling stockholders and
other persons participating in a distribution of securities. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and
46
<PAGE>
certain other activities with respect to such securities for a specified period
of time prior to the commencement of such distributions, subject to specified
exceptions or exemptions. All of the foregoing may affect the marketability of
the securities offered hereby.
Any securities covered by this prospectus that qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under that rule rather than
pursuant to this prospectus.
There can be no assurance that the selling stockholders will sell any or
all of the shares of common stock offered by them hereunder.
LEGAL MATTERS
The validity of the common stock offered hereby and certain other matters
will be passed on for CreditRiskMonitor by Meltzer, Lippe, Goldstein &
Schlissel, P.C., Mineola, New York. Messrs. Lewis S. Meltzer, Richard A. Lippe
and David I. Schaffer, shareholders of the firm, each owns 10,000 shares of
common stock of CreditRiskMonitor and are Selling Stockholders.
EXPERTS
The consolidated financial statements of New Generation Foods, Inc. as of
and for the years ended December 31, 1998 and 1997 included in this prospectus
have been so included in reliance on the report of Clifton Gunderson L.L.C.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of CreditRisk Monitor-A division of Market Guide
Inc., as of and for the years ended February 28, 1998 and 1997 included in this
prospectus have been so included in reliance on the report of Zerbo, McKiernan &
Zambito, L.L.C., independent accountants, given on the authority of said firm as
experts in auditing and accounting.
47
<PAGE>
NEW GENERATION FOODS, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
Independent Auditor's Report ........................................F-2
Consolidated Balance Sheets - December 31, 1998 and 1997 ............F-3
Consolidated Statements of Operations - Years Ended
December 31, 1998 and 1997 .......................................F-4
Consolidated Statements of Stockholders' Equity (Deficit) -
Years Ended December 31, 1998 and 1997 ...........................F-5
Consolidated Statements of Cash Flows - Years Ended
December 31, 1998 and 1997 .......................................F-7
Notes to Consolidated Financial Statements -
December 31, 1998 and 1997 .......................................F-8
CREDITRISK MONITOR - A DIVISION OF MARKET GUIDE INC.
Report of Independent Auditors' ....................................F-19
Balance Sheets - February 28, 1998 and 1997 ........................F-20
Statements of Operation and Accumulated Deficit -
Years Ended February 28, 1998 and 1997 ..........................F-21
Statements of Cash Flows - Years Ended February 28, 1998 and 1997 ..F-22
Notes to Financial Statements - February 28, 1998 and 1997 .........F-23
(Unaudited) Interim Financial Statements
Balance Sheets - November 30, 1998 and February 28, 1998 ...........F-27
Statements of Operation and Accumulated Deficit - 3 Months and
9 Months Ended November 30, 1998 and 1997 .......................F-28
Statements of Cash Flows - 9 Months Ended November 30, 1998
and 1997 ........................................................F-29
Notes to Financial Statements - November 30, 1998 ..................F-30
NEW GENERATION FOODS, INC. AND SUBSIDIARIES PRO FORMA FINANCIAL STATEMENTS
Pro Forma Consolidated Balance Sheet - December 31, 1998 ...........F-31
Pro Forma Consolidated Statement of Operations - Year Ended
December 31, 1998 ...............................................F-33
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
New Generation Foods, Inc.
We have audited the accompanying consolidated balance sheets of New Generation
Foods, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of New Generation
Foods, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
CLIFTON GUNDERSON L.L.C.
Peoria, Illinois
March 17, 1999
F-2
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
1998 1997
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,400 $ 1,400,051
Purchase option (Note 6) 115,000 -
----------- -----------
TOTAL ASSETS $ 128,400 $ 1,400,051
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable - shareholder $ 5,908 $ 460,000
Dividends payable - 840,000
Accrued franchise taxes 45,580 45,200
Accrued expenses 46,284 784
----------- -----------
Total current liabilities 97,772 1,345,984
----------- -----------
REDEEMABLE CONVERTIBLE VOTING
SENIOR PREFERRED STOCK, $.01 par
value (stated at liquidation value of $1.00 per
share). Authorized 1,100,000 shares; issued
and outstanding 1,100,000 shares (Note 3) 1,100,000 1,100,000
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 3 and 4)
Cumulative Convertible Voting Preferred Stock, $.01
par value:
Series A. Authorized 2,333,333 shares; no shares
issued and outstanding - -
Series B (stated at liquidation value of $1.00 per
share). Authorized 350,000 shares; no shares
issued and outstanding - -
Common stock, $.01 par value. Authorized 25,000,000
shares; issued and outstanding 399,830 3,998 3,998
Additional paid-in capital 22,818,930 22,818,930
Retained deficit (23,892,300) (23,868,861)
----------- -----------
Total stockholders' equity (deficit) (1,069,372) (1,045,933)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 128,400 $ 1,400,051
=========== ===========
These consolidated financial statements should be read only in connection
with the accompanying notes to consolidated financial statements
F-3
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1998 and 1997
1998 1997
-------- ---------
OPERATING EXPENSES
Selling, general, and administrative $ 28,216 $ 48,347
Chairman's compensation expense - 113,859
-------- ---------
Total operating expenses 28,216 162,206
-------- ---------
Operating loss (28,216) (162,206)
-------- ---------
OTHER INCOME (DEDUCTIONS)
Interest and dividend income 7,700 96,790
Gain (loss) on investments 2 (15,633)
-------- ---------
7,702 81,157
-------- ---------
Loss before income taxes (20,514) (81,049)
INCOME TAXES (Note 2) 2,925 -
-------- ---------
NET LOSS $(23,439) $ (81,049)
======== =========
NET LOSS PER SHARE (Note 5)
Basic $ (0.06) $ (0.67)
========= =========
Dilutive $ (0.06) $ (0.67)
========= =========
These consolidated financial statements should be read only in connection
with the accompanying notes to consolidated financial statements
F-4
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 1998 and 1997
Preferred Stock
------------------------
Series A
------------------------
Shares Amount
---------- -----------
BALANCE AT DECEMBER 31, 1996 2,333,333 $ 1,750,000
Redemption and conversion of preferred stock (Note 3) (2,333,333) (1,750,000)
Preferred stock dividends (Note 3) -- --
Net loss for year ended December 31, 1997 -- --
---------- -----------
BALANCE AT DECEMBER 31, 1997 -- --
Net loss for year ended December 31, 1998 -- --
---------- -----------
BALANCE AT DECEMBER 31, 1998 -- $ --
========== ===========
F-5
<PAGE>
<TABLE>
<CAPTION>
Preferred Stock
- ----------------------------
Series B Common Stock Additional Retained Total
- ---------------------------- --------------------------- Paid-in Earnings Stockholders'
Shares Amount Shares Amount Capital (Deficit) Equity
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
310,000 $ 310,000 399,830 $ 3,998 $ 22,818,930 $(22,936,481) $ 1,946,447
(310,000) (310,000) -- -- -- -- (2,060,000)
-- -- -- -- -- (851,331) (851,331)
-- -- -- -- -- (81,049) (81,049)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- 399,830 3,998 22,818,930 (23,868,861) (1,045,933)
-- -- -- -- -- (23,439) (23,439)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- $ -- 399,830 $ 3,998 $ 22,818,930 $(23,892,300) $ (1,069,372)
============ ============ ============ ============ ============ ============ ============
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying notes to consolidated financial statements
F-6
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (23,439) $ (81,049)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation -- 5,330
Loss on sale or maturity of marketable investment securities -- 5,429
Change in assets and liabilities:
Receivables -- 17,274
Accounts payable (trade), accrued compensation,
accrued franchise taxes, and accrued expenses (408,212) (10,327)
----------- -----------
Total adjustments (408,212) 17,706
----------- -----------
Net cash used in operating activities (431,651) (63,343)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of purchase option (115,000) --
----------- -----------
Net cash used in investing activities (115,000) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (840,000) --
Redemption of preferred stock -- (500,000)
----------- -----------
Net cash used in financing activities (840,000) (500,000)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,386,651) (563,343)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,400,051 1,963,394
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 13,400 $ 1,400,051
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for taxes $ 2,925 $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING ACTIVITIES
Partial conversion of Preferred Stock, Series A, to
Senior Preferred Stock $ -- $ 1,100,000
=========== ===========
REDEMPTION OF PREFERRED STOCK, SERIES B,
AND REMAINING SERIES A THROUGH
ACCOUNTS PAYABLE - SHAREHOLDER $ -- $ 460,000
=========== ===========
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements
F-7
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Description of Business
New Generation Foods, Inc. (the "Company") is a publicly traded company
engaged in the active search for acquisition opportunities which have
attractive valuations and which meet its financial acquisition criteria.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Spicers International, Inc. and NGF Services,
Inc. All significant intercompany balances and transactions have been eliminated
in consolidation.
(c) Use of Estimates in Preparing Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(d) Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(e) Income Taxes
Deferred income taxes are provided on temporary differences between financial
statement and income tax reporting. Temporary differences are differences
between the amounts of assets and liabilities reported for financial statement
purposes and their tax bases. Deferred tax liabilities are recognized for
temporary differences that will be taxable in future years' tax returns.
Deferred tax assets are recognized for temporary differences that will be
deductible in future years' tax returns and for operating loss and tax credit
carryforwards. Deferred tax assets are reduced by a valuation allowance if it is
deemed more likely than not that some or all of the deferred tax assets will not
be realized.
(f) Earnings (Loss) Per Share
Earnings (loss) per share is computed under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which was
adopted retroactively by the Company at December 31, 1997. Amounts reported as
earnings (loss) per share for each of the two years in the period ended December
31, 1998 reflect the earnings (loss) available to stockholders for the year
divided by the weighted average of common shares outstanding during the period.
F-8
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Stock Option Plans
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the current market price
of the underlying stock exceeded the exercise price. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation.
(h) Fair Value of Financial Instruments
The Company believes the recorded value of cash and cash equivalents, purchase
option, accounts payable, dividends payable, accrued franchise taxes, and
accrued expenses approximates fair value because of the short maturity of these
financial instruments.
NOTE 2 - INCOME TAXES
Components of income tax expense for 1998 are as follows:
Federal State Total
------ ------ ------
Current $ - $2,925 $2,925
Deferred - - -
------ ------ ------
Total $ - $2,925 $2,925
====== ====== ======
The actual tax expense for 1998 and 1997 differs from the "expected" tax expense
for those years (computed by applying the applicable United States federal
corporate tax rate to income (loss) before income taxes) as follows:
1998 1997
-------- ---------
Computed "expected" benefit $ (6,975) $ (27,557)
Expiration of net operating loss carryforward 760,920 652,937
Expiration of investment tax carryforward 21,000 8,877
Underaccrual of prior year taxes 2,925 -
Decrease in valuation allowance (774,143) (633,605)
Other (802) (652)
-------- ---------
Income tax expense $ 2,925 $ -
======== =========
F-9
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 2 - INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at December 31, 1998 and 1997 are as follows:
1998 1997
---------- ----------
Deferred tax assets:
Net operating loss carryforwards $4,724,640 $5,478,012
Investment tax credit carryforwards 35,000 55,771
Alternative minimum tax carryforward 6,655 6,655
---------- ----------
Total gross deferred tax assets 4,766,295 5,540,438
Less valuation allowance (4,766,295) (5,540,438)
---------- ----------
Net deferred tax assets $ - $ -
========== ==========
A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized. The net deferred assets reflects
management's estimate of the amount which will be realized from future
profitability which can be predicted with reasonable certainty.
The net change in the total valuation allowance for the years ended December 31,
1998 and 1997 was a decrease of $774,143 and $633,605, respectively.
At December 31, 1998, the Company has net operating loss carryforwards as
follows which are available to offset future federal taxable income, if any,
through 2018. The Company also has investment tax credit carryforwards as
follows which are available to reduce future federal income taxes, if any,
through 2000.
Net Investment Year of
Operating Loss Tax Credit Expiration
-------------- ---------- ----------
$ 2,332,000 $16,000 1999
3,436,000 19,000 2000
1,750,000 - 2001
1,434,000 - 2002
1,512,000 - 2003
1,131,000 - 2004
805,000 - 2005
547,000 - 2006
574,000 - 2007
238,000 - 2008
114,000 - 2017
23,000 - 2018
----------- -------
$13,896,000 $35,000
=========== =======
F-10
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 3 - PREFERRED STOCK
During 1987, 5,000,000 shares of preferred stock $.01 par value, were authorized
by the stockholders.
The sale or transfer of substantially all of the assets of the Company is deemed
to be a liquidation, dissolution or winding-up of the Company for the purposes
of determining when the liquidation preference of the holders of the Series A
and Series B Preferred Stock is to be paid. Accordingly, upon consummation of
the sale of substantially all of the Company's assets in October 1993, the
holders of the Series A and Series B Preferred Stock were entitled to receive
preference in liquidation before any distribution to the holders of the common
stock.
(a) Senior Preferred Stock
On November 17, 1997, the Company received a letter from the holder of all of
the shares of the Series A and Series B Preferred Stock, a related party,
demanding payment of the liquidation preference and accrued dividends relative
to those shares. The total amount payable pursuant to this demand was
approximately $2,959,000. On November 18, 1997, the Company's Board of Directors
approved settlement of this demand by issuing $1,100,000 of Senior Preferred
Stock, agreeing to pay $1,800,000 in cash, and agreeing to give computer
equipment and a Company car to the shareholder. Also, as part of the settlement,
the Chief Executive Officer of the Company, who was also a representative of the
shareholder, agreed to terminate his existing employment agreement effective
December 1, 1997. At December 31, 1997, there was $1,300,000 of cash owed to the
shareholder for this settlement which was paid during 1998.
During 1997, 1,100,000 shares of Senior Preferred Stock were authorized and
issued. Each share of the Senior Preferred Stock was convertible into 3.2711808
common shares based upon a ratio utilizing a conversion price of $.3057 per
share. The ratio was determined by dividing $1.00 by the conversion price in
effect at the time of conversion. The conversion price was subject to adjustment
in certain events, including the issue or sale of common stock or any
convertible securities, rights, or related rights for a consideration per share
of common stock less than the conversion price in effect immediately prior to
the issuance of such common stock or convertible securities, rights, or related
rights. In such event, the conversion price would be reduced to the
consideration per share of common stock paid in connection with the issuance of
common stock or any convertible securities, rights, or related rights. At
December 31, 1998, the Senior Preferred Stock was convertible in the aggregate
into 3,598,299 common shares and was converted in full during January 1999. The
Senior Preferred Stock had a liquidation preference of $1.00 per share.
Each holder of shares of Senior Preferred Stock was entitled to the number of
votes equal to the number of shares of common stock into which such shares of
Senior Preferred Stock could be converted and had voting rights equal in all
respects to those of the common stock into which the Senior Preferred Stock was
convertible on the record date for the vote in question.
F-11
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 3 - PREFERRED STOCK (CONTINUED)
(a) Senior Preferred Stock (Continued)
The holders of the Senior Preferred Stock were entitled to receive dividends at
the same rate as dividends (other than dividends paid in additional shares of
common stock) were paid with respect to the common stock (treating each share of
Senior Preferred Stock as being equal to the number of shares of common stock
into which each share of Senior Preferred Stock was then convertible).
The Senior Preferred Stock was redeemable at the option of the holders of a
minimum of one-half of the aggregate number of shares then outstanding. The
redemption price of the Senior Preferred Stock was equal to the sum of (i) $1.00
per share (as adjusted for any stock dividends, combination, or splits with
respect to such shares) and (ii) any accumulated and unpaid dividends on any
such share of Senior Preferred Stock. The redemption value at December 31, 1998
was $1,100,000.
(b) Series A Preferred Stock
During 1988, 2,333,333 shares of Series A Cumulative Convertible Voting
Preferred Stock (Series A Preferred Stock) were authorized and issued. Each
share of the Series A Preferred Stock was convertible into .0297625 common
shares based upon a ratio utilizing a conversion price of $25.20 per share, as
adjusted, plus an amount of Special Conversion Shares, calculated each June 1
through June 1, 1992, based on an amount per share of Series A Preferred Stock
of $0.0675 per annum, divided by the then conversion price. The conversion price
was $25.20 at June 1, 1997. The conversion price was subject to adjustment in
certain events, including the issue or sale of common stock for a consideration
per share less than the lesser of the conversion price or 80 percent of the
market price immediately prior to such issue or sale (except for Series A
Preferred Stock conversion, exercise of warrants, options, or similar rights
outstanding on the date the Series A Preferred Stock was issued).
Each share of Series A Preferred Stock had voting rights equal in all respects
to those of the common stock into which the Series A Preferred Stock was
convertible on the record date for the vote in question.
Dividends on the Series A Preferred Stock were payable annually each June 1,
commencing June 1, 1993, to holders of record on the May 1st preceding the
dividend payment date. Dividends were to be paid upon the discretion of the
Board; however, if not paid, the dividends were cumulative from June 1, 1992.
Dividends were to be paid at the rate of $0.0675 per share per year and were
payable in cash.
During 1997, the Series A Preferred Stock was retired. At the retirement date
unpaid dividends were $787,500, a majority of which were paid during 1998.
F-12
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 3 - PREFERRED STOCK (CONTINUED)
(c) Series B Preferred Stock
During 1989, 350,000 shares of Series B Preferred Stock, $.01 par value, were
authorized by the Board of Directors. During 1989, 310,000 shares of Series B
Cumulative Convertible Voting Preferred Stock (Series B Preferred Stock) were
issued. Each share of the Series B Preferred Stock was convertible into .0294125
common shares based upon a ratio utilizing a conversion price of $34.00 per
share, as adjusted, plus an amount of Special Conversion Shares, calculated on
June 1, 1990 and on each June 1 thereafter through June 1, 1993, based on an
amount per share of Series B Preferred Stock of $.09 per annum, divided by the
then conversion price. The conversion price was $34.00 at June 1, 1997. The
conversion price was subject to adjustment in certain events, including the
issue or sale of common stock for a consideration per share less than the
conversion price or less than an amount equal to 80 percent of the market price
immediately prior to such issue or sale (except for conversion of Series B
Preferred Stock, any other series of preferred stock of the Corporation issued
prior to the issuance of the Series B Preferred Stock; exercise of warrants,
options or similar rights outstanding on the date the Series B Preferred Stock
was issued).
Each share of Series B Preferred Stock had voting rights equal in all respects
to those of the common stock into which the Series B Preferred Stock was
convertible on the record date for the vote in question.
Dividends on the Series B Preferred Stock were payable annually each June 1,
commencing June 1, 1994, to holders of record on the May 1st preceding the
dividend payment date. Dividends were to be paid upon the discretion of the
Board; however, if not paid, the dividends were cumulative from June 1, 1993.
Dividends were to be paid at the rate of $.09 per share per year and were
payable in cash, provided that during the period ended December 1, 1996 the
holders of a majority of the Series B Preferred Stock could elect, in lieu of
entitlement to a cash dividend, to cause the Company to increase the number of
Special Conversion Shares in the annual amounts described above.
This election was not exercised.
During 1997, the Series B Preferred Stock was retired. At the retirement date
unpaid dividends were $111,600, a majority of which were paid during 1998.
NOTE 4 - COMMON STOCK, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS
(a) Common Stock
At December 31, 1998, 4,354,049 shares of the Company's authorized common stock
were reserved for issuance under stock option plans and Senior Preferred Stock
(convertible) outstanding.
F-13
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 4 - COMMON STOCK, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS (CONTINUED)
(b) Stock Options and Stock Appreciation Rights
The Company has three stock option plans, the 1998 Long-Term Incentive Plan,
which was adopted by the Company's Board of Directors on August 26, 1998 and is
subject to stockholder approval within one year from the adoption date, the 1992
Incentive Stock Option Plan, and the 1985 SAR and Non-Qualified Stock Option
Plan.
The 1998 Long-Term Incentive Plan authorizes the grant of incentive stock
options, non-qualified stock options, stock appreciation rights (SARs),
restricted stock, bonus stock, and performance shares to employees, consultants,
and non-employee directors of the Company. The total number of the Company's
shares that may be awarded under this plan is 1,500,000 shares of common stock.
At December 31, 1998, there were options outstanding for 602,500 shares of
common stock under this plan. The exercise price of each option shall not be
less than the fair market value of the common stock at the date of grant.
Options expire on the date determined, but not more than ten years from the date
of grant. The plan shall terminate ten years from the date of stockholder
approval.
The Company's 1992 Incentive Stock Option Plan authorizes the grant of incentive
stock options to employees of the Company. The total number of the Company's
shares that may be issued or transferred pursuant to options granted under the
Incentive Stock Option Plan, as amended, is 150,000 shares of common stock. At
December 31, 1998, there were 150,000 options outstanding for shares of common
stock under this plan. The exercise price of each option shall not be less than
the fair market value of the common stock at the date of grant. Options expire
on the date determined, but not more than ten years from the date of grant. No
option may be exercised unless the holder is then an employee of the Company,
provided that such exercise may be made for no more than three months following
termination of employment or one year after death while being employed. No
options may be granted under this plan after June 12, 2002.
The Company's 1985 SAR and Non-Qualified Stock Option Plan authorizes the grant
of stock incentives in the form of stock options and stock appreciation rights
to key service personnel of the Company. The total number of the Company's
shares that may be issued or transferred pursuant to stock incentives granted
under the plan, as amended, is 62,500 shares of common stock. At December 31,
1998, there were options outstanding for 3,250 shares of common stock under this
plan. The plan authorizes the grant of two categories of stock incentives:
(1) Stock Options. The exercise price of each option is determined by the Board
of Directors. Options expire on the date determined, but not more than ten
years from the date of grant.
(2) Stock Appreciation Rights. Stock appreciation rights (SARs) may be granted
in one of three forms:
F-14
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 4 - COMMON STOCK, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS (CONTINUED)
(b) Stock Options and Stock Appreciation Rights (Continued)
i) In combination with any option granted under the plan, in which event
the exercise of the SAR has the effect of canceling the related option,
and exercise of the related option has the effect of canceling the
related SAR;
ii) Independently of a stock option; or
iii) In addition to a stock option, entitling the optionee to exercise the
SAR and, in addition, either to exercise the related stock option or
surrender it and receive in return a number of shares equal to the
excess of the fair market value of the option shares on the date of
exercise over the option price.
No stock incentives may be granted under this Plan after September 20, 1995.
There have been no transactions with respect to the Company's stock appreciation
rights during the years ended December 31, 1998 and 1997, nor are there any
stock appreciation rights outstanding at December 31, 1998 and 1997.
Transactions with respect to the Company's stock option plans for the years
ended December 31, 1998 and 1997 are as follows:
Weighted
Average
Number Exercise
of Shares Price
------- --------
Outstanding at December 31, 1996 and 1997 3,250 $ .90412
Granted during 1998 pursuant to:
1992 Incentive Stock Option Plan 150,000 .00011
1998 Long-Term Incentive Plan (subject
to stockholder approval) 602,500 .00010
------- --------
Outstanding at December 31, 1998 755,750 $ .00399
======= ========
F-15
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 4 - COMMON STOCK, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS (CONTINUED)
(b) Stock Options and Stock Appreciation Rights (Continued)
The following is summary information about the Company's stock options
outstanding at December 31, 1998:
Number of Shares Exercise Price Expiration Date
---------------- -------------- ---------------
1,250 $ 2.18750 March 19, 2003
150,000 $ .00011 August 25, 2003
72,000 $ .00010 August 25, 2004
2,000 $ .10200 September 14, 2004
505,000 $ .00010 August 25, 2008
25,500 $ .00010 November 11, 2008
-------
755,750
=======
At both December 31, 1998 and 1997, the number of options exercisable was 3,250
and the weighted-average exercise price of those options was $.90412.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, but applies APB Opinion No. 25 and
related interpretations in accounting for its option plan. If the Company had
elected to recognize compensation cost for the plan based on the fair value at
the grant dates for awards under the plan consistent with the method prescribed
by SFAS No. 123, the effect on net loss and loss per share would not have been
significant.
NOTE 5 - EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
1998 1997
----------- ---------
Net earnings (loss) $ (23,439) $ (81,049)
Dividends on cumulative preferred stock -- (185,400)
----------- ---------
Net earnings (loss) applicable to common stock $ (23,439) $(266,449)
=========== =========
Basic average common shares outstanding 399,830 399,830
=========== =========
Earnings (loss) per share - basic $ (0.06) $ (0.67)
=========== =========
Earnings (loss) per share - dilutive $ (0.06) $ (0.67)
=========== =========
The effect of dilutive securities (convertible preferred stock and options) is
anti-dilutive for 1998 and 1997, therefore, basic and dilutive loss per share
are the same for those years.
F-16
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 6 - PURCHASE OPTION
In September 1998, the Company entered into an option agreement (the "Purchase
Option") to purchase the assets of the CreditRisk Monitor ("CRM") credit
information service from Market Guide Inc. ("MGI"). CRM is an Internet based
service providing credit reports to corporate personnel on retailing and other
companies incorporating MGI developed financial information, peer and trend
analysis, news, alert notifications, and other vital information. The Company
paid $60,000 for the Purchase Option in addition to paid and accrued legal fees
totaling $55,000. On December 29, 1998, the Company notified MGI of its
intention to exercise this Purchase Option, which was consummated on January 19,
1999 (see Note 7).
NOTE 7 - SUBSEQUENT EVENTS
On January 19, 1999, the Company exercised its option to purchase the assets of
CRM. The assets purchased included customer contracts, receivables, equipment,
software, and intangibles. The net present value of the purchase price was
approximately $2,180,000 (inclusive of the $60,000 paid for the Purchase Option
in September 1998), of which $1.23 million was paid at closing and the balance
is represented by two secured promissory notes (one for approximately $100,000
and the other for $790,000, net of $210,000 discount). These promissory notes
provide for the deferral of principal amortization until February 2001 (for the
$100,000 note which bears interest at 8.5 percent) and July 2001 (for the $1.0
million note which bears interest at 6 percent), respectively. Both notes are
then payable over 24 months and are secured by the CRM assets purchased and
substantially all other assets of the Company. The $1.0 million note provides
for no interest through June 30, 2001, while the other note provides for the
deferral of interest until debt servicing commences.
Concurrently, New Generation completed a private placement of 1,300,000 shares
of its common stock to approximately 25 "accredited investors" at a purchase
price of $2.50 per share, for gross proceeds of $3.25 million. The proceeds from
this offering were used to finance the cash portion of the CRM acquisition and
the remainder will be used for future working capital needs.
In anticipation of the exercise of the option, in November 1998, Flum Partners,
a related party, provided the Company with a line of credit of up to $20,000 of
which only $5,500 was drawn upon and, in consideration thereof, the Company
agreed to issue to Flum Partners 2,000 shares of common stock. As a participant
in the private placement, Flum Partners purchased 160,000 shares of common
stock. In addition, as a condition to the private placement, Flum Partners
agreed to convert all of its 1,100,000 shares of senior preferred stock into
3,598,299 shares of common stock on or prior to the closing of the private
placement. This conversion was effected as of January 19, 1999.
This acquisition will be accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price will be allocated to net tangible
and intangible assets acquired based on their estimated fair values. A portion
will also be allocated to in-process research and development projects that have
not reached technological feasibility and have no probable alternative future
uses which will be expensed in the first quarter of 1999. The balance of the
purchase price will be recorded as goodwill, which will be amortized over 20
years.
F-17
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 7 - SUBSEQUENT EVENTS (CONTINUED)
The following unaudited pro forma summary presents the consolidated results of
operations as if the acquisition had been made at the beginning of 1998. These
results do not purport to be indicative of what would have occurred had the
acquisition actually been made as of January 1, 1998 or the results which may
occur in the future.
Revenues $ 809,563
===========
Net earnings (loss) $(1,364,651)
===========
Earnings (loss) per share - basic $ (0.26)
===========
Earnings (loss) per share - dilutive $ (0.26)
===========
Earnings (loss) per share was computed on a pro forma basis giving effect to the
issuance of 1,300,000 common shares, the conversion of the 1,100,000 shares of
redeemable preferred stock into 3,598,299 common shares, and the issuance of
2,000 common shares to Flum Partners. All of these stock transactions were
related to the acquisition.
Pending shareholder approval, the Company plans to change its name to
CreditRiskMonitor.com, Inc. and apply for a new stock symbol that reflects this
new name.
F-18
<PAGE>
REPORT OF INDEPENDENT AUDITORS'
To the Board of Directors of
Market Guide, Inc.
2001 Marcus Avenue, Suite S200
Lake Success, NY 11042-1011
We have audited the accompanying Balance Sheets of CreditRisk Monitor - A
Division of Market Guide, Inc. as of February 28, 1998 and 1997 and the related
Statements of Operation and Accumulated Deficit and Cash Flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CreditRisk Monitor - A Division
of Market Guide, Inc. as of February 28, 1998 and 1997 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ZERBO, MCKIERNAN & ZAMBITO, L.L.C
Fairfield, New Jersey
August 28, 1998
F-19
<PAGE>
CREDITRISK MONITOR - A DIVISION OF MARKET GUIDE INC.
BALANCE SHEETS
February 28, February 28,
1998 1997
----------- -----------
ASSETS
Current assets:
Cash $ -0- $ -0-
Accounts receivable (net of allowance
for doubtful accounts) 220,040 -0-
----------- -----------
Total current assets 220,040 -0-
Property, plant and equipment:
Furniture and equipment 220,271 99,757
Software 15,063 14,039
----------- -----------
235,334 113,796
Less: Accumulated depreciation 41,481 5,734
----------- -----------
Net property, plant and equipment 193,853 108,062
Other assets:
Capitalized projects (net of 516,260 391,976
Accumulated amortization)
----------- -----------
Total other assets 516,260 391,976
----------- -----------
Total assets $ 930,153 $ 500,038
=========== ===========
LIABILITIES AND EQUITY
Current liabilities:
Unearned revenues $ 444,279 $ -0-
----------- -----------
Total current liabilities 444,279 -0-
Total liabilities 444,279 -0-
Equity:
Advances from Market Guide Inc. 1,199,857 568,331
Accumulated Deficit (713,983) (68,293)
----------- -----------
Total equity 485,874 500,038
----------- -----------
Total liabilities and equity $ 930,153 $ 500,038
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
CREDITRISK MONITOR - A DIVISION OF MARKET GUIDE INC.
STATEMENTS OF OPERATION AND ACCUMULATED DEFICIT
For the Years Ended
-------------------------------
February 28, February 28,
1998 1997
-------------- -------------
Revenue:
Earned revenue $ 297,244 $ -0-
-------------- -------------
Total revenues 297,244 -0-
Expenses:
Salaries, payroll taxes and employee 802,128 8,525
benefits
Database and product costs 91,957 8,812
General and administrative 215,245 58,112
Depreciation 35,747 5,734
Amortization 71,938 -0-
Advertising and promotion 167,250 33,788
-------------- -------------
Total expenses 1,384,265 114,971
-------------- -------------
Loss before income taxes (1,087,021) (114,971)
Provision for income taxes (441,331) (46,678)
-------------- -------------
Net loss $ (645,690) $ (68,293)
Accumulated deficit, beginning of year (68,293) -0-
-------------- -------------
Accumulated deficit, end of year $ (713,983) $ (68,293)
============== =============
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
CREDITRISK MONITOR - A DIVISION OF MARKET GUIDE INC.
STATEMENTS OF CASH FLOWS
For the Years Ended
----------------------------
February 28, February 28,
1998 1997
----------- -----------
Cash Flows From Operating Activities:
Net income $ (645,690) $ (68,293)
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 107,686 5,734
Changes in assets and liabilities:
(Increase)/Decrease in accounts receivable (220,040) -0-
Increase/(Decrease) in unearned revenues 444,279 -0-
----------- -----------
Total adjustments 331,925 5,734
----------- -----------
Cash used by operating activities (313,765) (62,559)
----------- -----------
Cash Flows From Investing Activities:
Payments for fixed assets (121,538) (113,796)
Payments for capitalized projects (196,222) (391,976)
----------- -----------
Cash used by investing activities (317,760) (505,772)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from Market Guide Inc. 1,144,499 568,331
Proceeds to Market Guide Inc. (512,974) -0-
----------- -----------
Cash provided by financing activities 631,525 568,331
----------- -----------
Net change in cash -0- -0-
Cash at beginning of year -0- -0-
----------- -----------
Cash at end of year $ -0- $ -0-
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
CREDITRISK MONITOR - A DIVISION OF MARKET GUIDE INC.
NOTES TO FINANCIAL STATEMENTS
February 28, 1998 and February 28, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Nature of Business
CreditRisk Monitor (CRM), a division of Market Guide Inc., formed in
September 1996, is an online information and news service that follows more
than 575 U.S. publicly held domestic retail chains and wholesalers. This
online service is accessible through the Internet
(www.creditriskmonitor.com) and has been designed to provide corporate
credit managers with the analytical tools necessary to analyze and follow,
on a daily basis, all the public companies they do business with.
The CRM information service consists of: CRM Company Reports, the CRM Alert
Notification Service and the CRM Real-Time News Service. The CRM web site
became operational in April 1997.
All of the Company's revenues are derived from annual subscription sales of
its CreditRisk Monitor Internet service.
2. Revenue Recognition
CreditRisk Monitor subscriptions are deferred at the time of sale and
recognized ratably as revenue over the terms of their subscriptions. Costs
associated with procurement of these revenues are expensed as incurred.
Bad debts are recorded under the allowance method of accounting. For the
fiscal years ended February 28, 1998 and February 28, 1997, $6,461 and $0
were charged to bad debt expense, respectively. As of February 28, 1998 and
February 28, 1997, the allowance for doubtful accounts totalled $6,461 and
$0, respectively.
3. Property and Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to their estimated useful service lives.
The straight-line method of depreciation is followed for substantially all
assets for both financial and tax reporting purposes. For the fiscal years
ended February 28, 1998 and February 28, 1997, $35,747 and $5,734,
respectively, were charged to depreciation expense.
Market Guide Inc. assumes all liability for equipment purchased under
capital lease obligations.
F-23
<PAGE>
4. Capitalization of Computer Software
Management has elected, pursuant to SFAS No. 86, to capitalize certain
computer software costs incurred for new product development. These costs
are reported at the lower of unamortized cost or net realizable value. All
research and development, database maintenance and customer support costs
are expensed as incurred.
The straight-line method of amortization is used over the estimated
economic life of the asset. For the years ended February 28, 1998 and
February 28, 1997, capitalization of computer software and database
expansion totaled $588,198 and $391,976, respectively. For the fiscal years
ended February 28, 1998 and February 28, 1997, $71,938 and $0,
respectively, were charged to amortization expense. As of February 28, 1998
and February 28, 1997, accumulated amortization was $71,938 and $0,
respectively.
5. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Estimated overhead costs have been allocated to CreditRisk Monitor from
Market Guide Inc. These general and administrative costs totaled $86,327
and $24,950 in the fiscal years ended February 28, 1998 and February 28,
1997, respectively.
6. Advances from Market Guide Inc.
Market Guide Inc. subsidizes all costs incurred by CreditRisk Monitor. All
cash generated from CreditRisk Monitor operations is used to offset costs
incurred by Market Guide Inc.
The Advances from Market Guide Inc. account represents the following:
1998 1997
----------- -----------
Total cash outlay by Market Guide Inc. $ 1,585,830 $ 615,009
Less: Cash generated by CreditRisk
Monitor operations (512,974) -0-
----------- -----------
Net cash outlay by Market Guide Inc. 1,072,856 615,009
Less: Tax benefits received by Market Guide Inc. (441,331) (46,678)
----------- -----------
Advances from Market Guide Inc. $ 631,525 $ 568,331
=========== ===========
Market Guide Inc. will continue to meet the obligations of CreditRisk
Monitor as they become due without substantial disposition of assets
outside the ordinary course of business, restructuring of debt, externally
forced revisions of its operations, or similar actions.
F-24
<PAGE>
7. Advertising Costs
All advertising costs are expensed as incurred and are included in
advertising and promotion expense. For the fiscal years ended February 28,
1998 and February 28, 1997, $61,590 and $9,151, respectively, were charged
to advertising expense.
NOTE B - LEGAL PROCEEDINGS
Market Guide Inc. is currently involved in a pending lawsuit. The ultimate
outcome of this litigation is unknown at the present time. Market Guide's
management does not believe that pending actions will have a material
effect on the business activities of Market Guide or its division,
CreditRisk Monitor. Accordingly, no provision for any liability has been
made to the accompanying financial statements of CreditRisk Monitor, a
division of Market Guide Inc.
NOTE C - INCOME TAXES
Market Guide Inc. has adopted SFAS 109 and Management believes that it does
not have a greater than 50 percent probability of realization of net
operating loss carryforwards and has provided for a full valuation
allowance. This procedure has been consistently applied to CreditRisk
Monitor. Market Guide Inc. also assumes all responsibility of income taxes
currently payable.
The components of the provisions for income taxes (credits) are as follows:
For the Years Ended
------------------------------
02/28/98 02/28/97
------------------------------
Current
Federal $ (332,629) $ (35,181)
State and Local (108,702) (11,497)
Deferred
Federal -0- -0-
State and Local -0- -0-
------------------------------
TOTALS $ (441,331) $ (46,678)
==============================
F-25
<PAGE>
NOTE C - INCOME TAXES (continued)
Total income tax expense differs from the expected tax expense (computed by
applying the U.S. Federal statutory income tax rate of 34% to income before
income taxes) as follows:
2/28/98 % 2/28/97 %
-------------------------------------------
Tax at Federal statutory rate $ (369,587) (34.0) $ (39,090) (34.0)
State income taxes, net of (71,744) (6.6) (7,588) (6.6)
Federal tax benefit
-------------------------------------------
TOTALS $ (441,331) (40.6) $ (46,678) (40.6)
===========================================
NOTE D - SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Selected quarterly financial data for the years ended February 28, 1998 and
February 28, 1997 are presented for CreditRisk Monitor, a division of
Market Guide Inc. in the following table:
<TABLE>
<CAPTION>
Three Months Ended
May 31, 1997 August 31, 1997 November 30, 1997 February 28, 1998
<S> <C> <C> <C> <C>
Earned revenue $ 10,629 $ 47,324 $ 97,168 $ 142,123
Loss before taxes (170,887) (288,513) (297,170) (330,451)
Net loss (101,506) (171,377) (176,519) (196,288)
<CAPTION>
May 31, 1996 August 31, 1996 November 30, 1996 February 28, 1997
<S> <C> <C> <C> <C>
Earned revenue $ -0- $ -0- $ -0- $ -0-
Loss before taxes -0- -0- (34,325) (80,646)
Net loss -0- -0- (20,389) (47,904)
</TABLE>
F-26
<PAGE>
CREDITRISK MONITOR - A DIVISION OF MARKET GUIDE INC.
BALANCE SHEETS
November 30, February 28,
1998 1998
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash $ -0- $ -0-
Accounts receivable (net of allowance
for doubtful accounts) 255,368 220,040
----------- -----------
Total current assets 255,368 220,040
Property, plant and equipment at cost:
Furniture and equipment 338,901 220,271
Software 19,961 15,063
----------- -----------
358,862 235,334
Less: Accumulated depreciation 83,915 41,481
----------- -----------
Net property, plant and equipment 274,947 193,853
Other assets:
Capitalized projects (net of
Accumulated amortization) 457,402 516,260
----------- -----------
Total other assets 457,402 516,260
----------- -----------
Total assets $ 987,717 $ 930,153
=========== ===========
LIABILITIES AND EQUITY
Current liabilities:
Unearned revenues $ 549,894 $ 444,279
----------- -----------
Total current liabilities 549,894 444,279
Total liabilities 549,894 444,279
Equity
Advances from Market Guide Inc. 1,601,753 1,199,857
Accumulated deficit (1,163,930) (713,983)
----------- -----------
Total equity 437,823 485,874
----------- -----------
Total liabilities and equity $ 987,717 $ 930,153
=========== ===========
F-27
<PAGE>
CREDITRISK MONITOR - A DIVISION OF MARKET GUIDE INC.
UNAUDITED STATEMENTS OF OPERATION AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
For the 3 Months Ended For the 9 Months Ended
---------------------------- ----------------------------
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Earned Revenues $ 245,812 $ 97,168 $ 667,440 $ 155,121
----------- ----------- ----------- -----------
Total revenues 245,812 97,168 667,440 155,121
Expenses:
Salaries, payroll taxes and employee benefits 279,306 244,793 835,959 520,893
Database and product costs 32,003 19,420 101,832 42,891
General and administrative 95,691 72,735 274,220 152,545
Depreciation 16,871 10,256 42,434 24,397
Amortization 19,620 19,620 58,859 52,319
Advertising and promotion 36,131 27,514 111,583 118,647
----------- ----------- ----------- -----------
Total expenses 479,622 394,338 1,424,887 911,692
----------- ----------- ----------- -----------
Loss before income taxes (233,810) (297,170) (757,447) (756,571)
Provision for income taxes (94,926) (120,650) (307,501) (307,168)
----------- ----------- ----------- -----------
Net loss (138,884) (176,520) (449,946) (449,403)
Accumulated deficit, beginning of quarter (1,025,045) (341,177) (713,983) (68,294)
----------- ----------- ----------- -----------
Accumulated deficit, end of quarter $(1,163,929) $ (517,697) $(1,163,929) $ (517,697)
=========== =========== =========== ===========
</TABLE>
F-28
<PAGE>
CREDITRISK MONITOR - A DIVISION OF MARKET GUIDE INC.
UNAUDITED STATEMENTS OF CASH FLOWS
For the 9 Months Ended
---------------------------
November 30, November 30,
1998 1997
----------- -----------
Cash Flows From Operating Activities:
Net loss $ (449,946) $ (449,403)
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 101,292 76,716
Changes in assets and liabilities:
(Increase)/Decrease in accounts receivable (35,328) (358,513)
Increase/(Decrease) in unearned revenues 105,615 419,416
----------- -----------
Total adjustments 171,579 137,619
----------- -----------
Cash used by operating activities (278,367) (311,784)
----------- -----------
Cash Flows From Investing Activities:
Payments for fixed assets (123,529) (111,246)
Payments for capitalized projects -0- (196,223)
----------- -----------
Cash used by investing activities (123,529) (307,469)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from Market Guide Inc. 1,127,318 835,277
Proceeds to Market Guide Inc. (725,423) (216,024)
----------- -----------
Cash provided by financing activities 401,895 619,253
----------- -----------
Net change in cash -0- -0-
Cash at beginning of year -0- -0-
----------- -----------
Cash at end of year $ 0 $ 0
=========== ===========
F-29
<PAGE>
CREDITRISK MONITOR - A DIVISION OF MARKET GUIDE INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1998
Note 1 INTERIM FINANCIAL STATEMENTS
The accompanying financial statements of Market Guide Inc. have been prepared
without audit, except for the balance sheet as of February 28, 1998. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the nine months ended November 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
February 28, 1999.
Note 2 DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service lives.
The straight-line method of depreciation is followed for substantially all
assets for both financial and tax reporting purposes.
F-30
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Historical
---------------------------
New
Generation CreditRisk Pro Forma
Foods, Inc. Monitor Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,400 $ -- $ 3,250,000 (a) $ 2,030,213
(1,233,187) (c)
Purchase option 115,000 -- (115,000) (c) --
Accounts receivable -- 408,478 -- 408,478
----------- ----------- ----------- -----------
Total current assets 128,400 408,478 1,901,813 2,438,691
GOODWILL -- -- 2,433,524 (c) 2,316,487
17,039 (d)
(134,076) (f)
FIXED ASSETS -- 215,690 -- 215,690
----------- ----------- ----------- -----------
TOTAL ASSETS $ 128,400 $ 624,168 $ 4,218,300 $ 4,970,868
=========== =========== =========== ===========
</TABLE>
F-31
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Historical
------------------------------
New
Generation CreditRisk Pro Forma
Foods, Inc. Monitor Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 5,908 $ 4,945 $ 25,000 (a) $ 58,268
22,415 (c)
Accrued franchise taxes 45,580 -- -- 45,580
Accrued expenses 46,284 -- 26,948 (b) 90,271
17,039 (d)
------------ ------------ ------------ ------------
Total current liabilities 97,772 4,945 91,402 194,119
SENIOR SECURED NOTE -- -- 787,630 (c) 787,630
EXPENSE PROMISSORY NOTE -- -- 98,162 (c) 98,162
UNEARNED INCOME -- 796,353 -- 796,353
------------ ------------ ------------ ------------
Total liabilities 97,772 801,298 977,194 1,876,264
------------ ------------ ------------ ------------
REDEEMABLE CONVERTIBLE VOTING
SENIOR PREFERRED STOCK 1,100,000 -- (1,100,000)(e) --
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 3,998 -- 13,000 (a) 52,981
35,983 (e)
Additional paid-in capital 22,818,930 -- 3,212,000 (a) 27,067,999
1,064,017 (e)
(26,948)(b)
Accumulated deficit (23,892,300) (177,130)(g) (134,076)(f) (24,026,376)
177,130 (c)
------------ ------------ ------------ ------------
Total stockholders' equity (deficit) (1,069,372) (177,130) 4,341,106 3,094,604
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 128,400 $ 624,168 $ 4,218,300 $ 4,970,868
============ ============ ============ ============
</TABLE>
(a) Represents net proceeds from private placement of 1,300,000 shares of common
stock.
(b) Represents legal and state filing fees incurred in connection with the
private placement.
(c) Represents purchase of the assets of the CreditRisk Monitor credit
information service.
(d) Represents legal, state filing fees, and taxes incurred in connection with
the acquisition of the CreditRisk Monitor assets.
(e) Represents conversion of 1,100,000 shares to senior preferred stock into
3,598,299 shares of common stock.
(f) Represents write-off of capitalized in-process research and development
projects that have not reached technological feasibility.
(g) Represents accumulated deficit net of advances from Market Guide Inc.
F-32
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Historical
----------------------------
New
Generation CreditRisk Pro Forma
Foods, Inc. Monitor (f) Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Earned revenues $ -- $ 809,563 $ -- $ 809,563
----------- ----------- ----------- -----------
EXPENSES
Salaries and employee benefits -- 1,117,194 -- 1,117,194
Database and product costs -- 150,898 -- 150,898
General and administrative 28,216 336,920 -- 365,136
Depreciation and amortization -- 132,262 37,344 (a) 169,606
Advertising and promotion -- 160,186 -- 160,186
Interest expense -- -- 7,925 (b) 81,895
73,970 (c)
----------- ----------- ----------- -----------
28,216 1,897,460 119,239 2,044,915
----------- ----------- ----------- -----------
Loss from operations (28,216) (1,087,897) (119,239) (1,235,352)
----------- ----------- ----------- -----------
OTHER INCOME AND EXPENSES
Interest and dividend income 7,700 -- -- 7,700
Gain on investments 2 -- -- 2
Write-off of intangible assets -- -- (134,076)(e) (134,076)
----------- ----------- ----------- -----------
7,702 -- (134,076) (126,374)
----------- ----------- ----------- -----------
Loss before income taxes (20,514) (1,087,897) (253,315) (1,361,726)
PROVISION (BENEFIT) FOR
INCOME TAXES 2,925 (441,664) 441,664 (d) 2,925
----------- ----------- ----------- -----------
NET LOSS $ (23,439) $ (646,233) $ (694,979) $(1,364,651)
=========== =========== =========== ===========
NET LOSS PER SHARE
Basic $ (0.06) $ (0.26)
=========== ===========
Diluted $ (0.06) $ (0.26)
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES
Basic 399,830 5,300,129
=========== ===========
Diluted 399,830 5,300,129
=========== ===========
</TABLE>
F-33
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
(a) Represents goodwill amortization in excess of capitalized costs
written-off.
(b) Represents deferred interest expense on Expense Promissory Note.
(c) Represents amortization of debt discount on Senior Secured Note.
(d) Represents NGNF's inability to take advantage of net operating loss.
(e) Represents write-off of capitalized in-process research and development
projects that have not reached technological feasibility.
(f) Amounts for CreditRisk Monitor were determined by adding results for the
year ended February 28, 1998 and the results from the nine months ended
November 30, 1998 and subtracting the results for the nine months ended
November 30, 1997.
F-34
<PAGE>
TABLE OF CONTENTS
PROSPECTUS
Page
Prospectus Summary...................... 3
Risk Factors............................ 6
Forward-Looking Statements.............. 11
Use of Proceeds......................... 12
Capitalization.......................... 12
Dividend Policy......................... 13
Market for Common Equity
and Related Stockholder
Matters............................... 13
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............. 14
Business................................ 18
Management.............................. 30
Security Ownership of Certain
Beneficial Owners and
Management............................ 38
Selling Stockholders.................... 39
Description of Securities............... 41
Certain Relationships and
Related Transactions.................. 43
Plan of Distribution.................... 45
Legal Matters........................... 47
Experts................................. 47
Index to Financial Statements........... F-1
1,300,000 Shares
[COMPANY LOGO]
Common Stock
PROSPECTUS
___________, 1999
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Statement of Expenses of the Offering:
Expense Amount
Registration Fees............................................ $ 2,891.20
Transfer Agent Fees.......................................... $ 0*
Printing and Engraving....................................... $ 7,500*
Legal Fees................................................... $20,000.00
TOTAL............................................... $30,391.20*
*estimate only
The Selling Stockholders will not pay any of the above listed expenses.
RECENT SALES OF UNREGISTERED SECURITIES
In December 1998, CreditRiskMonitor commenced a private placement of shares
of common stock at a price of $2.50 per share. CreditRiskMonitor sold 1,300,000
shares of its common stock in the private placement to 27 accredited investors,
receiving gross proceeds of $3,250,000.
The private placement was exempt from state and Federal registration
pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act of
1933.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
CreditRiskMonitor's Articles of Incorporation limit, to the maximum extent
permitted by the Nevada Revised Statutes ("Nevada Law"), the personal liability
of directors of monetary damages for breach of their fiduciary duties as
directors, and provides that CreditRiskMonitor shall indemnify its officers and
directors and may indemnify its employees and other agents to the fullest extent
permitted by Nevada Law. Section 78.7502 of the Nevada Law provides that a
corporation may indemnify a director, officer, employee or agent made or
threatened to be made a party to an action by reason of the fact that he was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation against expenses actually and reasonably incurred in
connection with such action if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if he had
no reasonable cause to believe his conduct was unlawful. Nevada Law does not
permit a corporation to eliminate a director's duty of care, and the provisions
of CreditRiskMonitor's Articles of Incorporation have no
II-1
<PAGE>
effect on the availability of equitable remedies, such as injunction or
rescission, for a director's breach of the duty of care.
CreditRiskMonitor may enter into indemnification agreements with its
directors and officers which may require CreditRiskMonitor, among other things,
to indemnify such directors and officers against liabilities that may arise by
reason of their status or service as directors and officers against liabilities
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance, if available on reasonable terms.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted for directors, officers and controlling
persons of CreditRiskMonitor pursuant to the foregoing provisions, or otherwise,
CreditRiskMonitor has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
II-2
<PAGE>
EXHIBITS
Index to Exhibits
(3) (i) Restated Articles of Incorporation(1)
(ii) Certificate of Amendment to the Articles of Incorporation(2)
(iii) Bylaws(1)
(4) (i) Specimen Common Stock Certificate*
(ii) Market Guide Notes*
(5) Form of Opinion re: legality
(10) Material Contracts
(i) Credit Information Service Business Asset Purchase
Agreement(3)
(11) Statements Regarding Computation of Per Share Earnings(4).
(21) Subsidiaries of the Company(4)
(23.2) Consent of Clifton Gunderson L.L.C.
(23.3) Consent of Zerbo, McKiernan & Zambito, L.L.C.
(27) Financial Data Schedule(5)
- --------------------
(1) Filed as an Exhibit to Registrant's Registration Statement on Form S-18
(File No. 1-67055C) and incorporated herein by reference thereto.
(2) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988 (File No. 0-10825) and incorporated
herein by reference thereto.
(3) Filed as an Exhibit to Registrant's Report on Form 8-K dated January 19,
1999 (File No. 1-10825) and incorporated herein by reference thereto.
(4) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998 (File No. 0-10825) and incorporated
herein by reference thereto.
(5) The financial statements included herein have been previously included in
filings with the Commission. Therefore, no Financial Data Schedules are
being filed as exhibits to this Registration Statement.
* To be filed by amendment
II-3
<PAGE>
UNDERTAKINGS
CreditRiskMonitor will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b), if, in the
aggregate, the changes in the volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Nassau, State of New
York, on May 13, 1999.
CreditRiskMonitor.com, Inc.
By: /s/ Jerome S. Flum
---------------------------------
Jerome S. Flum, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Jerome S. Flum Director, President and May 13, 1999
- ----------------------------- Chief Executive Officer
Jerome S. Flum
/s/ Richard James Director May 13, 1999
- -----------------------------
Richard James
/s/ Leslie Charm Director May 13, 1999
- -----------------------------
Leslie Charm
/s/ Lawrence Fensterstock Senior Vice President May 13, 1999
- ----------------------------- and Chief Financial
Lawrence Fensterstock Officer
II-5
<PAGE>
EXHIBITS
Index to Exhibits
(3) (i) Restated Articles of Incorporation(1)
(ii) Certificate of Amendment to the Articles of Incorporation(2)
(iii) Bylaws(1)
(4) (i) Specimen Common Stock Certificate*
(ii) Market Guide Notes*
(5) Form of Opinion re: legality
(10) Material Contracts
(i) Credit Information Service Business Asset Purchase
Agreement(3)
(11) Statements Regarding Computation of Per Share Earnings(4).
(21) Subsidiaries of the Company(4)
(23.2) Consent of Clifton Gunderson L.L.C.
(23.3) Consent of Zerbo, McKiernan & Zambito, L.L.C.
(27) Financial Data Schedule(5)
- --------------------
(1) Filed as an Exhibit to Registrant's Registration Statement on Form S-18
(File No. 1-67055C) and incorporated herein by reference thereto.
(2) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988 (File No. 0-10825) and incorporated
herein by reference thereto.
(3) Filed as an Exhibit to Registrant's Report on Form 8-K dated January 19,
1999 (File No. 1-10825) and incorporated herein by reference thereto.
(4) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998 (File No. 0-10825) and incorporated
herein by reference thereto.
(5) The financial statements included herein have been previously included in
filings with the Commission. Therefore, no Financial Data Schedules are
being filed as exhibits to this Registration Statement.
* To be filed by amendment
II-6
MELTZER, LIPPE, GOLDSTEIN & SCHLISSEL, P.C.
190 Willis Avenue
Mineola, NY 11501
(516) 747-0300
May 13, 1999
CreditRiskMonitor.com, Inc.
2001 Marcus Avenue, Suite W290
Lake Success, NY 11042
Ladies and Gentlemen:
We refer to the Registration Statement on Form SB-2 File No. 333-77727 (the
"Registration Statement"), as filed by you with the Securities and Exchange
Commission with respect to the registration under the Securities Act of 1933, as
amended (the "Act"), of 1,300,000 shares, $.01 par value per Share, of the
common stock (the "Shares") of CreditRiskMonitor.com, Inc. (the "Company") for
sale by the holders thereof.
We are qualified to practice law in the State of New York. We express no
opinion as to, and, for the purposes of the opinion set forth herein, we have
conducted no investigation of, and do not purport to be qualified to opine on,
any laws other than the laws of the State of New York, Chapter 78 of the Nevada
Revised Statutes and the federal laws of the United States of America.
We have examined such documents as we considered necessary for the purposes
of this opinion. Based on such examination, it is our opinion that the Shares
have been duly authorized, legally issued, fully paid and non-assessable under
the laws of the State of Nevada (the state of incorporation of the Company).
We consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
MELTZER, LIPPE, GOLDSTEIN & SCHLISSEL, P.C.
By: /s/ David I. Schaffer
---------------------
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Registration Statement of
CreditRiskMonitor.com, Inc. in Amendment No. 1 to Form SB-2 of our report dated
March 17, 1999 on our audits of the financial statements of New Generation
Foods, Inc. as of December 31, 1998 and 1997, and for each of the years then
ended. We also consent to the reference to our firm under the caption "Experts".
Clifton Gunderson L.L.C.
Peoria, Illinois
May 13, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Registration Statement of
CreditRiskMonitor.com, Inc. in Amendment No. 1 to Form SB-2 of our report dated
August 28, 1998 on our audits of the financial statements of CreditRisk Monitor
- - A Division of Market Guide Inc. as of February 28, 1998 and 1997, and for each
of the years then ended. We also consent to the reference to our firm under the
caption "Experts".
Zerbo, McKiernan & Zambito, L.L.C.
Fairfield, New Jersey
May 13, 1999