SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
December 31, 1998 0-10825
Exact name of small business issuer as specified in its charter
NEW GENERATION FOODS, INC.
State or other jurisdiction of IRS Employer
incorporation or organization: Nevada Identification No.: 36-2972588
Address of principal executive offices:
2001 Marcus Avenue, Suite W290, Lake Success, New York 11042
Telephone No.: (516) 327-2400
Securities registered pursuant to Section 12(b) of the Act: None
Name of each exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
[ ]
<PAGE>
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 25, 1999 was $8,147,000 based on the average of the
high and low bid prices of such stock on March 25, 1999 as reported by the NASD
Electronic Bulletin Board Service.1
The number of shares outstanding of the registrant's Common Stock as of
March 25, 1999 was 5,300,129.
Registrant's revenues for its most recent fiscal year were $0.
- --------
1 Exclusion of shares held by any person should not be construed to indicate
that such person possesses the power, direct or indirect, to cause the direction
of the management or policies of the registrant or that such person is
controlled by or under common control with the registrant.
<PAGE>
PART I
ITEM 1. BUSINESS
New Generation Foods, Inc. (the "Company" or "NGF") was organized in
February 1977 under the laws of the State of Nevada and adopted its present name
in August 1977.
The Company 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 (the "Asset Sale"), as previously reported. As a result of the Asset
Sale, the Company was no longer an operating company. From 1994 to 1998, the
Company had no revenues and its income was derived from interest and dividends
and gains on the sale of its assets. The Company's assets from 1994 through 1998
consisted principally of cash, cash equivalents and marketable investment
securities.
In September 1998 the Company paid $60,000 for an option (the
"Option") to purchase the assets of the CreditRisk Monitor credit information
service ("CRM") from Market Guide Inc. ("MGI"). The Company exercised the Option
on December 29, 1998 and completed the purchase of the CRM 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 two secured
promissory notes, one for approximately $100,000 and the other for $1,000,000
(together the "MGI Notes"). The $100,000 MGI 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 MGI Note bears interest at 6% from July 2001, and
provides for the deferral of principal amortization until such date. After the
respective deferrals, both MGI Notes are then payable over 24 months. The MGI
Notes are secured by a first priority purchase money security interest on
substantially all of the assets of the Company.
The assets purchased include customer contracts, receivables,
equipment, software and intangibles.
Following the closing of the CRM purchase, the Company filed the
necessary assumed name certificate and commenced doing business under the name
"CreditRiskMonitor.com." Subject to shareholder approval, the Company will
change its corporate name to "CreditRiskMonitor.com, Inc." by the end of April
1999 and will apply for a new stock symbol that reflects this new name.
During January 1999, the Company 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
"1998 Private Placement"). The proceeds from the 1998 Private Placement were
used to finance the cash portion of the CRM acquisition and the remainder will
be used for future working capital needs.
1
<PAGE>
For a period of five years after the closing of the CRM acquisition,
MGI has agreed to furnish to the Company the database of credit information used
in the preparation of CRM'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 the Company
on 90 days' notice.
MGI 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, MGI 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 CRM competitors or potential competitors,
including The Dun & Bradstreet Corporation ("D&B").
The Company has agreed not to compete with MGI in its other credit
information services for a period of two years, so long as the Company is
obtaining its data directly and not from MGI, or for a period of five years, so
long as the Company is obtaining its data from MGI. This restriction does not
apply, however, if the Company acquires its data from sources other than MGI.
The CreditRisk Monitor Business
- -------------------------------
In 1996, CRM's current management, all of whom have extensive
experience in the credit reporting industry, approached MGI to explore the use
of MGI's database as the basis for an Internet-based product which would provide
information specifically designed for the corporate credit professional. MGI
maintains, collates and provides information on publicly reporting companies to
the securities and investment communities. Since no real-time Internet product
existed in this area, MGI agreed to finance the development of such a product
and formed the CRM division in September 1996. CRM commenced its sales
operations, as a division of MGI, in April 1997, when it introduced its
Internet-based credit information service after an intensive period of
development.
The Company believes that CRM 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 CRM to satisfy the credit industry's requirements with the most timely,
technologically advanced, lowest cost credit information service available. In
the 24 months since CRM's service has been available over the Internet, CRM has
attracted more than 365 subscribers at an average annual subscription price of
slightly over $3,500. CRM 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 companies during the second
quarter of 1999.
2
<PAGE>
CRM designs its product for corporate credit managers who must decide
whether or not to ship their company's goods to their customers, thus extending
credit on the purchase. If the purchaser is unable to pay the account when it
comes due, 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 devastating 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. Simultaneously, there has been an
explosion in the amount of information that has become available, resulting in
an overwhelming amount of data and limited time for research and analysis. CRM's
service provides the corporate credit professional with a one stop information
service that helps to continuously monitor the creditworthiness of the public
companies they do business with, 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 CRM's market: The National
Association of Credit Management ("NACM") 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 CRM's sales solicitation
is by phone and Internet demonstration of the product, it is expected that a
large overseas market also exists. In any case, CRM has a large market that has
been minimally penetrated.
The viability and potential of CRM's business is made possible by its
Internet service delivery and by what the Company believes to be the following
characteristics:
o The value of CRM'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, CRM's service should either reduce or
hold down costs in the credit department because of the time saved in
researching public company credit risk.
o CRM'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 CRM 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.
3
<PAGE>
o CRM's service is designed to penetrate the very 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 held
companies. CRM intends to have available a product for evaluating
credit risk of privately held companies by the end of the first quarter
of 2000.
o Some of CRM's basic cost structure is being reduced. On a broad
generic basis, computer hardware, software, communications and
financial data costs are universally coming down. CRM 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 on new subscriptions (20-35%) are far higher than present
commissions on renewals (5%) and renewal income will increase much
more rapidly then revenues from first-time sales. In summary, CRM's
margins should increase faster than sales.
o CRM'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, after consultation with
its counsel, the Company has concluded that its net operating loss
("NOL") 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 CRM achieves profitability. See "Net
Operating Loss Carryforwards" and Note 2 to Consolidated Financial
Statements.
o CRM 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, CRM is competing against
D&B, a NYSE and multi-billion revenue company that has a near monopoly
for credit services. D&B's service appears to be higher priced and less
timely than the Company's. CRM'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 the Company.
o The Company purchased CRM 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.
The Company's Goals
- -------------------
o Lowest cost provider. CRM's analysis and preparation of data into a
form usable by its customers (corporate credit departments) is nearly
100% computer driven and
4
<PAGE>
minimum incremental personnel costs are required to broaden the number
of companies analyzed. CRM's cost structure is believed to be the
lowest in its industry, because CRM 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 CRM's subscribers. Whenever CRM's customers access company
information it is the most current and comprehensive information
available.
o Lowest price to value received. CRM 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. CRM'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 the Company's interactive
database, consisting of news, financial and credit information. As the
number of companies analyzed expands, the Company's price advantage
over competitors should become even more significant. The increase in
the number of companies monitored will also dramatically increase the
market for CRM's service, as many additional potential subscriber
corporations will find more of their customers analyzed for credit
risk. To maintain this competitive advantage, CRM expects to
aggressively 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, CRM believes, the
credit manager function should rise in importance. Since the cost of
the Company's product is low compared to the size of the losses it is
designed to reduce and to the cost of competitive products, CRM'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. CRM's rapid expansion of
public company coverage will be followed by the expected initiation of
CRM's coverage of privately held companies, beginning sometime during
the first quarter of 2000. This private company coverage should expand
CRM's market. Today, there is little useful and timely information
available to assist in the credit evaluation of private companies. Both
CRM's current subscribers and potential subscribers have actively
encouraged CRM'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 CRM's credit analysis of U.S. companies. Internationally, the
Internet provides the same rapid and inexpensive selling and
distribution of CRM's service as has been achieved domestically.
5
<PAGE>
Important Business Considerations
- ---------------------------------
o Customer Base. The Company believes that before a subscriber purchased
CRM's service, it had the ability to evaluate CRM versus its
competition. Although CRM's present product has only been on the market
for approximately two years and as presently constituted covers only
about 575 companies it has developed a diverse and sophisticated list
of subscribers, a partial list of which includes:
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. The Company's principal competitors are D&B, Information
Clearinghouse Incorporated d/b/a F&D Reports ("ICI") and Global Credit
Services, Inc., some of which, including D&B, have significantly
greater resources than the Company.
D&B dominates the market for credit reporting services.
These competitors' products are either not delivered over the Internet
and/or are not updated prior to delivery. They, therefore, lack the
speed, flexibility and timeliness of
6
<PAGE>
CRM's product. The Company believes that CRM's product is not only
superior but it is also much less expensive.
In the market for credit analysis products beyond the present
approximately 575 companies analyzed by CRM, the Company has only one
serious competitor -- D&B. When the Company expands its CRM 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 product
and price advantages CRM has in its 575 company analyzed market place
will also exist when CRM competes with D&B in this larger market.
o Recurring income stream. The annual subscription price of $3,500 is not
only very low compared to competitive products 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 CRM's product
sophistication, users appear to develop a residual comfort level that
acts to reduce the risk of replacement of CRM's service by a
competitive product. CRM's recurring income stream should give the
Company stability and profitability not found in a one-time sale
product-based company.
o Potentials for cost reductions. The Company 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 the Company's management skills. The Company
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.
The Company further believes that the base of renewal business will
grow larger each year and present sales commission costs for renewals
(i.e., about 5%) are substantially lower than for new sales (i.e.,
approximately 20-35%). In addition, MGI has contracted to provide
financial data to CRM 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 (MGI'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 SEC 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 the Company's in-place fixed costs.
Another potential for cost reduction is the Company's $13.9 million
NOL carryforwards (expiring in varying amounts annually through 2018)
which, the Company believes, should be available to shelter future
taxable income.
o Dependence on Internet Access to Conduct Business. CRM's product 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 CRM started selling its service
in April 1997, the single largest sales impediment was the lack of
Internet access at a prospective customer's site. CRM estimates that in
excess of 60%
7
<PAGE>
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 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 CRM service is being reduced
at a rapid rate.
o Limited Number of Companies Analyzed. The limited number of companies
currently analyzed by CRM's credit risk service -- approximately 575
public U.S. companies (mainly retailers and wholesalers) -- is a
substantial impediment to any sales expansion. The CRM service sells
for $3,500 per year and many potential subscribers do not have enough
of their customers within CRM'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. The Company 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 CRM's coverage at December 1998.
That broadening of corporate credit coverage, combined with an increase
in the number of corporation's who have Internet access, should
increase CRM's sales potential over the next year.
The Company plans to enter the credit risk monitoring of private
companies by the end of the first quarter of 2000. This category
presents a proprietary product with greater market potential than CRM'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.
Product Development Strategy and Proprietary Technology
- -------------------------------------------------------
The Company's product 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 products are primarily developed and delivered manually. To achieve this
result CRM utilizes the following proprietary products as part of its report
production process:
o Proprietary financial databases and on-demand report generation
system. The Company's contract with MGI, its present data provider,
gives it exclusive access to
8
<PAGE>
MGI company data through 2003. The Company has converted MGI's
financial database to a state-of-the-art relational database so that as
soon as MGI updates its database with information gathered from the
EDGAR filings of one of the companies that CRM monitors, a new CRM
report can be produced. Because of the nature of CRM's data
requirements, several other financial databases, in addition to MGI,
can also be used with only a reasonable amount of programming effort
required to produce a CRM report. Possible providers of data that could
be used are Disclosure, Inc., Media General, Inc., and Standard &
Poor's Compustat, a division of The McGraw-Hill Companies, Inc.
The Company utilizes CRM's proprietary on-demand report generation
system to create a CRM Company Report from CRM'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 products
that are static and do not change when new information becomes
available.
o Profile based reports. CRM 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, CRM has redistribution agreements with Federal Filings, a
Dow Jones Company, and Reuters (to be activated during the second
quarter of 1999). CRM's software scans the news issued by these
services and selects those articles that meet CRM's criteria. CRM
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 CRM'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 CRM's company report specifically for credit
analysis. CRM 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. CRM subscribers know immediately how
the target company ranks and has changed, over time, relative to its
peers.
Marketing and Sales
- -------------------
CRM'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 held companies.
CRM 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
9
<PAGE>
greater than the profit on an initial sale. The Company'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, CRM will continue to use the Internet as the primary
mechanism for distributing its service. To inform potential subscribers about
its service, CRM 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
- --------------
Once a sales lead is generated, 90% of the selling effort takes place
on the phone. The Internet provides the ability for CRM's sales representative
and the potential subscriber to view our web site simultaneously and a CRM 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 CRM'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.
Employees
- ---------
As of March 25, 1999, the Company employed 15 persons full time and
retained 1 consultant. None of the Company's employees is covered by a
collective bargaining agreement. The Company believes its relations with its
employees to be satisfactory and had suffered no interruption in operations.
The Company has no retirement, pension, profit sharing or similar
program in effect for its employees, but has adopted stock option plans covering
its employees.
Net Operating Loss Carryforwards
- --------------------------------
At December 31, 1998, the Company had NOL carryforwards aggregating
approximately $13.9 million, which, to the extent available under the Internal
Revenue Code of 1986, as amended (the "Code"), may be used to shelter future
taxable income of the Company, if any. Section 382 provides limits on the amount
of a company's NOL carryforwards which can be applied against its earnings after
an "ownership change" occurs. Generally, such a limit is determined, with
respect to the amount of NOL carryforward to which the limit applies, by
multiplying the company's value at the time of the ownership change by the
published long-term tax exempt interest rate. The resulting amount is the
maximum that can be offset by NOL carryforwards in any one year if an ownership
change has occurred. If, however, an ownership
10
<PAGE>
change occurs and during the following 2-year period the Company does not
continue its historic business, no NOL carryforwards would be available.
An ownership change occurs if there has been an "owner shift" -- a more
than 50 percentage point increase in stock ownership involving "5-percent
shareholders" over the lowest percentage of stock of the loss corporation owned
by such shareholders at any time during the testing period (generally, the prior
3 years). For this purpose, in general, shareholders that are not 5-percent
shareholders are aggregated and treated as a single 5-percent shareholder.
The Company believes that no owner shifts or ownership changes had
occurred prior to its 1998 Private Placement. That Private Placement, however,
resulted in a sale of approximately 23% of the outstanding Common Stock to
approximately 25 investors who are, as a group, a "5-percent shareholder".
Hence, the Private Placement constitutes an "owner shift" of approximately 23%.
If subsequent transactions were to occur involving 5-percent
shareholders within the applicable three-year testing period following the
Private Placement, or any subsequent three-year testing period, an "ownership
change" could occur which could cause the loss or limitation of the Company's
available NOL carryforwards, pursuant to Section 382.
ITEM 2. PROPERTIES.
The Company'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 MGI through October 31, 1999 at a monthly cost of
approximately $5,900. CRM 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.
ITEM 3. LEGAL PROCEEDINGS.
In August 1985, an action was commenced against the Company by a former
employee in the Circuit Court of Cook County, Illinois County Department, Law
Division, alleging wrongful demotion and wrongful discharge by the Company. 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, the
Company believes that it has meritorious defenses and that the ultimate outcome
should not have a material adverse impact on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None during 1998.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Prior to May 11, 1993, the Common Stock of the Company 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, the Company's Common Stock was delisted from both the
Boston Stock Exchange and the NASDAQ Automated Quotation System. The Company's
Common Stock now trades in the over-the-counter market "Bulletin Board Service"
under the symbol NGNF. 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. Such market
quotations reflect inter-dealer prices without retail markup, markdown or
commission and do not necessarily represent actual transactions.
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 $0.0001 $0.01
Fourth Quarter $7.50 $0.07
On March 25, 1999, there were approximately 525 registered holders of
the Company's Common Stock.
The Company 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 Preferred Stock and Series B Preferred Stock of the Company
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 Transactions - Payment of Liquidation Preferences and Issuance of
Senior Preferred Stock" in Part III below.
12
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
Financial Condition
-------------------
From October 1993, when it sold its previous natural foods distribution
business to American Foods (the "Asset Sale"), through the end of 1998 the
Company had no revenues from operations.
During this period, the Company received revenues from notes issued to
it in connection with its 1993 Asset Sale. During 1997 and 1998 the Company 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 the Company) to pay out the applicable
liquidation preferences to Flum Partners, the holder of those series.
As previously reported, the Company issued to Flum Partners at the end
of 1997 and in the first quarter of 1998 a total of $1.8 million of 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 Preferred Stock and Series B Preferred Stock. This
cash payment effectively dissipated all of the Company's liquid assets as at the
end of 1997 and the share issuance gave Flum Partners the right to own and vote
90% of the Company's outstanding equity shares. See "Certain Transactions" in
Part III below.
Jerome Flum's employment contract 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 the Company.
As described under "Business," during 1998 the Company located,
investigated and negotiated the purchase of the CreditRisk Monitor ("CRM")
business then owned by Market Guide Inc. ("MGI"). In September 1998 the Company
purchased an option to purchase the assets of the CRM business for approximately
$2,390,000. It exercised its option on December 29, 1998 and the transaction
closed effective January 19, 1999. The terms of the purchase price and the
Company's notes issued in connection therewith are described under "Business"
and in the Notes to the Company's Consolidated Financial Statements.
In order to raise funds to pay the $1.23 million cash portion of the
purchase price for the CRM assets, the costs of the acquisition and to have
sufficient working capital to continue to develop and run that business, the
Company completed a private placement of 1,300,000 shares on January 19, 1999 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 CRM until cash breakeven has been achieved.
13
<PAGE>
The transactions described above, along with the issuance of 2,000
shares of Common Stock to Flum Partners in November 1998 in consideration of its
provision to the Company 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 the Company's outstanding
Common Stock (which is its only equity security now outstanding) after the 1998
Private Placement.
At December 31, 1998, the Company 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 December 31, 1997. This reflected the cash payment to Flum Partners in
respect of the Series A Preferred Stock and Series B Preferred Stock. The
Company has no bank lines of credit or other currently available credit sources.
Funds from the 1998 Private Placement became available to the Company
on or about January 19, 1999, at which date the Company paid the cash portion of
the purchase price for the CRM 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 CRM business in January 1999 transformed the
Company into an operating company with revenues from operations and increased
its employee base from 1 employee in 1998 to 15 full time employees and 1
consultant as of March 25, 1999.
During the next 12 months the Company plans to expand its Internet-
based credit reporting product 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. The Company is also
developing a database and credit reporting system which will expand its product
line from Internet generated credit reports on public companies to on-line
credit reports on privately held companies as well.
Operations
- ----------
1998 vs. 1997 and 1997 vs. 1996
The Company terminated its business as a food manufacturer on October
22, 1993, when it sold its operations in the 1993 Asset Sale. 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.
14
<PAGE>
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. The Company eliminated the Chairman's compensation
expense when Mr. Flum's employment contract was terminated. After the
distribution of assets to Flum Partners, the Company had no substantial
investment income.
Federal Tax Considerations
- --------------------------
The Company has available net operating loss carryforwards ("NOLs")
which may be used to reduce its Federal income tax liability. However,
provisions contained in the Internal Revenue Code of 1986, as amended (the
"Code"), may impose substantial limitations upon the Company's ability to
utilize its NOLs. For example, the Company may be subject to the so-called
"alternative minimum tax" which does not always permit full utilization of NOLs
otherwise available.
Limitations imposed by Section 382 of the Code upon the availability
of NOLs would apply if certain changes were to occur in ownership of the
Company. Thus, the Company's utilization of its carryforwards in the future may
be deferred and/or reduced if the Company undertakes further equity financings
or if certain other changes occur in the ownership of the Common Stock. Finally,
if the Company becomes an investment company subject to the Investment Company
Act of 1940, it will no longer be entitled to a deduction for NOLs. See
"Business - Net Operating Loss Carryforwards". For information regarding the
amounts and expiration dates of the Company's NOLs, see Note 2 to the Company's
Consolidated Financial Statements.
Year 2000 Planning
- ------------------
The Company has implemented a Year 2000 program to ensure that the
Company's and the Company's vendors' and business partners' computer systems and
applications will function properly beyond 1999. The Company's current principal
supplier of data for use in the preparation of the Company's credit analyses
reports is MGI. Pursuant to the outstanding Database License Agreement, MGI has
agreed to furnish data which is year 2000 compliant. The Company has also
identified vendor and business partner software with which it electronically
interacts, and has requested Year 2000 compliance certifications. The Company
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. The Company has reviewed
and tested all of its computers systems and Internet-based products and
determined that they are all Year 2000 Compliant. The Company 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. The Company's cost to comply with the Year 2000 initiative
is not expected to be material.
Risks and Other Considerations
- ------------------------------
From time to time, information provided by the Company or statements
made by its employees, or information provided in its filings with the
Securities and Exchange Commission may contain forward looking information. Any
statements contained herein or otherwise made that are not statements of
historical fact may be deemed to be forward looking statements. Without limiting
the foregoing, the words "believes", "expects", "anticipates", "plans" and
similar expressions are intended to identify forward looking statements. The
Company's actual future results may differ materially from those projections or
statements made in such forward looking information as a result of various risks
and uncertainties, including but not limited to the following in addition to
those set forth elsewhere herein or in other filings made by the Company with
the Commission:
CRM is a relatively new venture with a limited operating history and
history of significant losses. There can be no assurances that the Company will
be immediately profitable or will not incur losses in the future.
The Company is subject to competition from firms that have greater
financial, management, sales and technical resources than the Company. The
Company's success also depends to a significant degree to the contributions of
its key management. The loss of services of one or more key members of
management could have an adverse affect upon the Company.
The market price of the Company's common stock may be volatile at
times in response to fluctuations of the Company's operating results, changes in
analyst earnings estimates, market conditions as well as general conditions and
other factors general to the Company.
15
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company as of and for the
years ended December 31, 1998 and 1997, together with the report of Clifton
Gunderson L.L.C., independent auditors, are set forth at pages F-1 to F-18 of
this Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
16
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
Directors and Executive Officers
- --------------------------------
The following table sets forth certain information with respect to the
directors and executive officers of the Company and the period such persons held
their respective positions with the Company.
<TABLE>
<S> <C> <C> <C>
Name Age Principal Officer or Director
Occupation/Position Since
Held with Company
Jerome S. Flum 58 Chairman of the 1983
Board/President/
Chief Executive Officer
Lawrence Fensterstock 48 Senior Vice President January 20, 1999
Richard J. James 59 Director 1992
Leslie Charm 55 Director 1994
</TABLE>
The sole officer of the Company in 1998 was Mr. Flum, Chairman,
President and Chief Executive Officer.
Jerome S. Flum has been a director of the Company since 1983. He was
appointed President and Chief Executive Officer of the Company and Chairman of
the Board of Directors in June 1985. He resigned as President in 1988 and
resumed that position effective December 1989. Mr. Flum, an attorney, has been,
for more than five years, the sole General Partner of Flum Partners, a New York
limited partnership which was organized in 1972. Since 1995, Mr. Flum has been
Chairman of China Capital Corp., a privately held consulting and management
company headquartered in Bethesda, Maryland.
Lawrence Fensterstock became an employee and was elected to his current
offices in January 1999. Prior thereto he had been employed by MGI since 1996 to
assist in the formation and management of CRM. From 1993 until 1996, he was
chief operating and financial officer of Information Clearinghouse Incorporated
d/b/a F&D Reports ("ICI") a credit information service. Prior thereto, he was
vice president, controller and acting chief financial officer of Joyce
International, Inc., a private entity formed to acquire the office products
operations of Litton Industries. He is a certified public accountant who began
his career in 1973 with Arthur Andersen & Co.
17
<PAGE>
Richard J. James has been a director of the Company since April 1992. Mr.
James has been a Manager of Quality Control in the Camera Division of Polaroid
Corporation since 1983.
Leslie Charm has been a director of the Company since September 1994.
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. From 1977 through 1990, he was the Chairman and President of
Doctor Pet Centers, Inc., a major distributor and specialty retail chain. From
1989 to the present, he has been a director of Moto Photo, Inc., a publicly-held
international franchisor of imaging centers.
The Company's By-Laws provide that (a) directors shall be elected to
hold office until the next annual meeting of stockholders and that each
director, including a director elected to fill a vacancy, shall hold office
until the expiration of the term for which the director was elected and until a
successor has been elected, and (b) officers shall hold office until their
successors are chosen by the Board of Directors, except that the Board may
remove any officer at any time.
Key Employees
- -------------
In addition to the executive officers and directors described above,
the following persons constitute key employees of the Company.
Albert Fensterstock, age 61, cousin of Lawrence Fensterstock, is one of
the creators of CreditRisk Monitor and is in charge of new product development,
enhancements and modifications to CRM's service. At CRM, he developed a
bankruptcy prediction model that has been published by the Credit Research
Foundation. Prior to joining CRM in 1996, he was Managing Director of ICI 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.
William H. Gerold, IV, age 46, joined the Company 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.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
- --------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and officers, and persons who own more than 10%
of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission
18
<PAGE>
("SEC") initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Such persons are
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file.
To the Company's knowledge, based solely on its review of the copies of
such reports received by it with respect to fiscal 1998, or written
representations from certain reporting persons, the Company believes that all
filing requirements applicable to its directors, officers and persons who own
more than 10% of a registered class of the Company's equity securities have been
timely complied with, except for Jerome S. Flum who filed a Form 4 and 5 late
and Flum Partners who filed a Form 4 and 5 late.
ITEM 10. EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended December 31,
1998, 1997 and 1996, the compensation of the Chief Executive Officer. The
Company had no other executive officers during that period. The table also shows
the compensation of the Company'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 the Company effective January 20, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C>
Annual
Compensation(2) Long Term Compensation
Number of
Name and Principal Securities All Other
Positions Year Salary Underlying Options Compensation
Jerome S. Flum, 1998 $ -0-(1) 150,000 None
Chairman, President 1997 $113,859
and Chief Executive 1996 $121,506
Officer
Lawrence Fensterstock, 1998 N/A 150,000 None
Senior Vice President 1997 N/A
1996 N/A
</TABLE>
(1) Effective December 31, 1997 Mr. Flum's Employment Agreement was terminated.
See "Related Party Transactions." Beginning January 20, 1999, Mr. Flum is being
compensated by the Company at the rate of $150,000 per annum, of which $90,000
per annum is being deferred until such time as the Company achieves cash flow
breakeven or until the MGI Notes have been paid in full, whichever occurs
sooner.
19
<PAGE>
(2) No Bonus or other Annual Compensation was paid during the past three fiscal
years.
Directors' Fees
- ---------------
Commencing September 1994, 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 $.0001 per share were
granted to each of the two non-employee directors.
Compensation Pursuant to Stock Option Plans
- -------------------------------------------
The following table sets forth all stock options granted to the
Company's Chief Executive Officer, who was the only executive officer during the
last fiscal year and to the Company's Senior Vice President, who became an
executive officer on January 20, 1999.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1) Grant
Date
Individual Grants Value
<S> <C> <C> <C> <C> <C>
Percent of Total
Number of Securities Options Granted to
Underlying Options Employees in Fiscal Exercise Basic Expiration Present
Name Amount (#) Year Price ($/Sh) Date Value
Jerome S. Flum, 150,000 100% $.00011(2) 8/25/2003 (3)
Chairman, President and
CEO (5)
Lawrence Fensterstock, 150,000 N/A $.00010(4) 8/25/2008 (3)(4)
Senior Vice President (5)
</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 compensation as described
below.
(4) Represents fair market value at date of grant. Mr. Fensterstock was a
consultant to the Company 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 Company Common Stock at December 31, 1998 was $5.00.
20
<PAGE>
Pursuant to the 1992 Incentive Stock Option Plan of the Company, 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 issuance.
Non-qualified options to purchase an aggregate of 530,500 shares of
Common Stock were granted on August 26, 1998 and November 11, 1998 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 the Company in 1998 and became Company 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, subject, however, to the Company's purchase
of the CRM business, which occurred on January 19, 1999.
<TABLE>
<S> <C> <C>
EXERCISE PRICE PER
NAME NUMBER OF SHARES SHARE
Lawrence Fensterstock 150,000 .0001
Non-Officer 380,500 .0001
Consultant/Employees
</TABLE>
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 the Company's NOL 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
1998 Private Placement, unless accelerated in the sole discretion of the
Company.
All of the 530,500 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 the Company 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.
21
<PAGE>
<TABLE>
MINIMUM ANNUAL
<S> <C> <C> <C> <C>
Cumulative
Options Vested Options Vested
Pre-Tax Operating
Level Gross Sales 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%
</TABLE>
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 control, will vest in whole or in part according to a
formula based on the value of the Company at the time of such change in control.
ITEM 11. SECURITY HOLDINGS OF PRINCIPAL STOCKHOLDERS AND
MANAGEMENT
The following table sets forth as of March 25, 1999 information
regarding the beneficial ownership of the Company's voting securities (i) by
each person who is known to the Company to be the owner of more than five
percent of the Company's voting securities, (ii) by each of the Company's
directors, and (iii) by all directors and executive officers of the Company as a
group. Except as indicated in the following notes, the owners have sole voting
and investment power with respect to the shares:
22
<PAGE>
<TABLE>
<S> <C> <C>
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 -----*
All directors and officers 3,912,353(4) 73.79%
(as a group (4 persons))
*less than 1%
</TABLE>
(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 the Company, 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 the Company. 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 the Company.
(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, of which Mr. Flum is the
sole general partner 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 (giving effect to the
Senior Preferred Stock Conversion and the issuance of stock to Investors in the
1998 Private Placement) 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 (the "Act").
Does not include options to purchase 150,000 shares granted to Mr. Flum under
the 1992 Incentive Stock Option Plan.
23
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions
- --------------------
Payment of Liquidation Preferences and Issuance of Senior Preferred Stock
Under the terms of the Company's previously outstanding Series A
Preferred Stock and Series B Preferred Stock, a sale or transfer of
substantially all of the assets of the Company was deemed to be a liquidation,
dissolution or winding up of the Company for purposes of determining the payment
of the liquidation preferences on the Series A Preferred Stock and Series B
Preferred Stock. Accordingly, the 1993 Asset Sale entitled Flum Partners, the
holder of all of the outstanding Series A Preferred Stock 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 the Company
demanding payment of the applicable liquidation preferences on the Series A
Preferred Stock 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. Jerome 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 the Company's financial
situation at such time. The Company had approximately $1.89 million of cash and
cash equivalents, and it was deemed prudent for the Company to maintain a cash
balance of approximately $90,000 for potential claims and other expenses and for
working capital to enable the Company 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
Preferred Stock and Series B Preferred Stock. The new series of Senior Preferred
Stock did not accrue dividends, but was convertible into 90% of the Company's
Common Stock on a fully-
24
<PAGE>
diluted basis. The new Senior Preferred Stock was "participating", in that, upon
a liquidation or sale of the Company, 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 the Company approximately $190,000 in salary expense through the
end of the term of such agreement, in consideration of which the Company
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 the Company, 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 the Company.
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 the Company, saving the Company an aggregate of
approximately $190,000 in salary expense; (ii) the Senior Preferred Stock would
not accrue dividends, saving the Company 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 Preferred Stock
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 the Company. 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 the Company's cash to Flum Partners in partial satisfaction of the
liquidation preferences, and then to proceed with the final liquidation of the
Company, which would result in the holders of Common Stock not receiving
anything.
In accordance with the foregoing, the Company 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 Preferred Stock and Series B
Preferred Stock.
25
<PAGE>
Interest of Certain Persons and Conflicts of Interest
- -----------------------------------------------------
As a consequence of the payment of the liquidation preferences of the
Series A Preferred Stock 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, Jerome S.
Flum, the Chairman of the Board, Chief Executive Officer and President of the
Company, individually and through Flum Partners, beneficially owns 3,910,353
shares of Common Stock. In addition, Mr. Flum has been granted Incentive Stock
Options ("ISOs") 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
- --------------------------
The Company 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 the Company until June 30, 1999, unless
sooner terminated by the Company 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 the Company's outstanding voting shares, and the
general partner of which is Jerome S. Flum, the Company's Chairman, President
and CEO, provided the Company with a line of credit of up to $20,000 of which
only $5,500 was drawn upon. In consideration thereof, the Company 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 1998 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.
<PAGE>
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) Exhibits
2 - Copy of the Asset Purchase Agreement dated December 29, 1998. (9)
3(1)A - Copy of the Company's Restated Articles of Incorporation. (1)
3(3)B - Copy of the Company's Certificate of Amendment to the Articles of
Incorporation, dated August 31, 1987. (2)
3(u)C - Copy of the Company's By-Laws as amended April 27, 1987. (2)
3(i)D - Certificate of Designations for Series A Preferred Stock,
together with Certificate of Amendment thereto and Second
Certificate of Amendment thereto. (3)
3(i)E - Certificate of Designations for Series B Preferred Stock. (4)
3(i)F - Third Certificate of Amendment of The Certificate of
Designations of Series A Preferred Stock. (8)
3(i)G - Certificate of Amendment of The Certificate of Designations of
Series B Preferred Stock. (8)
3(i)H - Certificate of Designations of Senior Preferred Stock. (8)
10-A - Copy of Company's 1992 Stock Option Plan. (7)
10-B - Copy of Company's 1985 SAR and Non-Qualified Stock Option Plan.
(3)
10-C - Copy of Employment Agreement dated as of July 1, 1992 between
the Company and Jerome Flum. (7)
10-D - Copy of 1988 Amendments to Company's 1985 SAR and Non-Qualified
Stock Option Plan. (5)
10-E - Letter Agreement dated November 12, 1990 by and between New
Generation Foods, Inc. and Jerome S. Flum. (6)
10-F - Letter Agreement dated November 27, 1990 by and between New
Generation Foods, Inc. and Jerome S. Flum. (6)
10-G - Registration Rights Agreement dated November 12, 1990 by and
between New Generation Foods, Inc. and Jerome S. Flum. (6)
10-H - Letter Agreement dated November 18, 1997 between New Generation
Foods, Inc., Flum Partners and Jerome Flum. (8)
10-I - Copy of Company's 1998 Long-Term Incentive Plan.
11 - Statements regarding computation of per share earnings.
21 - Subsidiaries of the Company.
27 - Financial Data Schedule.
26
<PAGE>
(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 ending December 31, 1988 (File No. 0-10825) and
incorporated herein by reference thereto.
(3) Filed as an Exhibit to Registrant's Registration Statement on Form S-2
(File No. 33- 17446) and incorporated herein by reference thereto.
(4) Filed as an Exhibit to Registrant's Registration Statement on Form S-8
(File No. 33- 17446) filed October 25, 1989 and incorporated herein by
reference thereto.
(5) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ending December 31, 1989 (File No. 0-10825) and
incorporated herein by reference thereto.
(6) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 to
Registration Statement on Form S-3 filed November 15, 1991 (File No.
33-17446) and incorporated herein by reference thereto.
(7) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for
the fiscal year ending December 31, 1992 (File No. 0-10825) and
incorporated herein by reference thereto.
(8) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for
the fiscal year ending December 31, 1997 (File No. 0-10825) and
incorporated herein by reference.
(9) 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.
DOCUMENTS AVAILABLE UPON REQUEST
Exhibits 10-I, 11, 21 and 27 are filed with this Form 10-KSB. All other
exhibits indicated above are available upon request and payment of a reasonable
fee approximating the Company's cost of providing and mailing the exhibits by
writing to:
Office of the Senior Vice President, New Generation Foods, Inc. d/b/a
CreditRiskMonitor.com, 2001 Marcus Ave., Suite W290, Lake Success, NY
11042-1011.
(b) Reports on Form 8-K
The following Reports on Form 8-K were filed during the last quarter of
1998:
Report on Form 8-K dated December 30, 1998 and filed on January 14, 1999
reporting the exercise by the Company of its option to purchase the assets
of the CreditRisk Monitor credit information service from Market Guide Inc.
27
<PAGE>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITOR'S REPORT.................................................F-2
FINANCIAL STATEMENTS
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
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>
<TABLE>
<CAPTION>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
1998 1997
---- ----
ASSETS
<S> <C> <C>
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
=============== ================
</TABLE>
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
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
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)
========= =========
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C>
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 - $ -
============= ==============
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
<S>
Preferred Stock Additional Retained Total
Series B Common Stock Paid-in Earnings Stockholders'
Shares Amount Shares Amount Capital (Deficit) Equity
------ ------ ------ ------ ------- --------- ------
<C> <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>
<TABLE>
<CAPTION>
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997
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, Spicer's 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.
<TABLE>
<CAPTION>
<S>
Net Investment Year of
Operating Loss Tax Credit Expiration
<C> <C> <C>
$ 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
=============== ===========
</TABLE>
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:
<TABLE>
<S> <C> <C>
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)
============= =============
</TABLE>
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.
This information is an integral part of the accompanying consolidated financial
statements.
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereto duly authorized.
NEW GENERATION FOODS, INC.
By:/s/ Jerome Flum
----------------
Jerome Flum
Chairman of the Board and
Chief Executive Officer
March 31, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose
signature appears below constitutes and appoints Jerome S. Flum and David I.
Schaffer his true and lawful attorney-in-fact, with full power of substitution
and resubstitution, to act for him and in his name, place and stead, in any and
all capacities to sign any and all amendments to this Annual Report on Form
10-KSB, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each of said attorneys-in-fact and agents, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, and fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that each of such
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Position Date
/s/ Jerome S. Flum Chairman of the Board and March 31, 1999
- ------------------ Chief Executive Officer
Jerome S. Flum
/s/ Lawrence Fensterstock Senior Vice President, Assistant March 31, 1999
- ------------------------- Secretary and Principal Accounting
Lawrence Fensterstock Officer
/s/ Leslie Charm Director March 31, 1999
- ----------------
Leslie Charm
/s/ Richard J. James Director March 31, 1999
- --------------------
Richard J. James
<PAGE>
EXHIBIT 10-I
NEW GENERATION FOODS, INC.
d/b/a CreditRiskMonitor.com
1998 LONG-TERM INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this 1998 Long-Term Incentive
Plan are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees,
Consultants and Non-Employee Directors of the Company and its Subsidiaries, to
promote the success of the Company's business and to align the interests of the
Company's stockholders and the recipients of awards under this Plan. Any one or
a combination of the following awards (collectively "Awards" and individually an
"Award") may be made under this Plan: (i) Options to purchase shares of Common
Stock in the form of Incentive Stock Options or Non-Qualified Stock Options,
(ii) SARs in the form of Tandem SARs or Free-Standing SARs, (iii) Stock Awards
in the form of Restricted Stock or Bonus Stock, and (iv) Performance Shares.
2. Definitions. As used herein, the following definitions shall apply:
"Administrator" means the Board or any of its Committees
appointed pursuant to Section 4.
"Affiliate" of any Person shall be any other Person which
controls, is controlled by, or is under common control with, such
Person. As used herein, "control" shall be the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract, or
otherwise.
"Agreement" shall have the meaning provided in Section 9.3
hereof.
"Award" shall have the meaning provided in Section 1 hereof.
"Board" means the Board of Directors of the Company.
"Bonus Stock" shall mean shares of Common Stock which are not
subject to a Restriction Period or Performance Measures.
"Bonus Stock Award" shall mean an award of Bonus Stock under this
Plan.
"Code" means the Internal Revenue Code of 1986, as amended.
"Change in Control" shall have the meaning provided in Section
9.8 hereof.
"Committee" means the Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
<PAGE>
"Common Stock" means the Common Stock, par value $.01, of the
Company.
"Company means New Generation Foods, Inc., d/b/a
CreditRiskMonitor. com, a Nevada corporation.
"Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render
services and is compensated for such services, and any director
of the Company whether compensated for such services or not,
provided that if and in the event the Company registers any class
of any equity security pursuant to the Exchange Act, the term
Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee
by the Company.
"Continuous Status as an Employee" means the absence of any
interruption or termination of the employment relationship by the
Company or any Subsidiary. Continuous Status as an Employee shall
not be considered interrupted in the case of: (i) sick leave;
(ii) military leave; (iii) any other leave of absence approved by
the Board, provided that such leave is for a period of not more
than ninety (90) days, unless reemployment upon the expiration of
such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time
to time; or (iv) in the case of transfers between locations of
the Company or between the Company, its Subsidiaries or its
successor.
"Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the
Company. The payment of fees by the Company for a director's
services as director shall not be sufficient to constitute
"employment" by the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means, as of any date, the value of Common
Stock determined as follows.
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation
the NASDAQ ("Nasdaq") National Market System, its Fair Market
Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported, as quoted on such system
or exchange, or the exchange with the greatest volume of trading
in Common Stock, for the last market trading day prior to the
time of determination) as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq National Market
System or regularly quoted by a recognized securities dealer but
selling prices are not reported, its Fair Market Value shall be
the
<PAGE>
mean between the high bid and low asked prices for the Common
Stock or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good
faith by the Administrator.
"Free-Standing SAR" shall mean an SAR which is not issued in
tandem with, or by reference to, an Option, which entitles the
holder thereof to receive, upon exercise, shares of Common Stock
(which may be Restricted Stock), cash or a combination thereof
with an aggregate value equal to the excess of the Fair Market
Value of one share of Common Stock on the date of exercise over
the base price of such SAR, multiplied by the number of shares of
Common Stock with respect to which such SARs are exercised.
"Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of
the Code.
"Non-Employee Director" shall mean any director of the Company
who is not an Employee of the Company.
"Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
"Option" means a stock option granted pursuant to the Plan.
"Optioned Stock" means the Common Stock subject to an Option.
"Optionee" means an Employee or Consultant who receives an
Option.
"Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
"Participant" means a person to whom an Award is granted under
the Plan.
"Performance Measures" shall mean the criteria and objectives,
established by the Committee, which shall be satisfied or met (i)
as a condition to the exercisability of all or a portion of an
Option or SAR, or (ii) as a condition to the grant of a
Restricted Stock Award, or (iii) during the applicable
Restriction Period or Performance Period as a condition to the
holder's receipt, in the case of a Restricted Stock Award, of the
shares of Common Stock subject to such award. Such criteria and
objectives may include criteria selected by the Committee
including, but not limited to, one or more of the following: the
attainment by a share of Common Stock of a specified Fair Market
Value for a specified period of time, earnings per share, return
on capital employed, return to stockholders (including
dividends), return on equity, earnings of the Company, revenues,
profit margins, market share, cash flow or cost reduction goals,
or any combination of the foregoing. If the Committee desires
that compensation
<PAGE>
payable pursuant to any award subject to Performance Measures be
"qualified performance-based compensation" within the meaning of
Section 162(m) of the Code, the Performance Measures shall be
established by the Committee no later than the end of the first
quarter of the Performance Period (or such other time designated
by the Internal Revenue Service).
"Performance Period" shall mean a period designated by the
Committee during which the Performance Measures applicable to a
Performance Share Award shall be measured.
"Performance Share" shall mean a right, contingent upon the
attainment of specified Performance Measures within a specified
Performance Period, to receive one share of Common Stock, which
may be Restricted Stock, or in lieu thereof, the Fair Market
Value of such Performance Share in cash.
"Performance Share Award" shall mean an award of Performance
Shares under the Plan.
"Permanent and Total Disability" shall have the meaning set forth
in Section 22(e)(3) of the Code or any successor thereto.
"Plan" means this 1998 Long-Term Incentive Plan.
"Restricted Stock" shall mean shares of Common Stock which are
subject to a Restriction Period.
"Restricted Stock Award" shall mean an award of Restricted Stock
under this Plan.
"Restriction Period" shall mean a period designated by the
Committee during which the Common Stock subject to a Restricted
Stock Award may not be sold, transferred, assigned, pledged,
hypothecated or otherwise encumbered or disposed of, except as
provided in this Plan or the Agreement relating to such award.
"SAR" shall mean a stock appreciation right which may be a
Free-Standing SAR or a Tandem SAR.
"Securities Act" means the Securities Act of 1933, as amended.
"Share" means a share of the Common Stock, as adjusted in
accordance with Section 9.7 of the Plan.
"Stock Award" shall mean a Restricted Stock Award or a Bonus
Stock Award.
"Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
<PAGE>
"Tandem SAR" shall mean an SAR which is granted in tandem with,
or by reference to, an option (including a Non-Qualified Stock
Option granted prior to the date of grant of the SAR), which
entitles the holder thereof to receive, upon exercise of such SAR
and surrender for cancellation of all or a portion of such
option, shares of Common Stock (which may be Restricted Stock),
cash or a combination thereof with an aggregate value equal to
the excess of the Fair Market Value of one share of Common Stock
on the date of exercise over the base price of such SAR,
multiplied by the number of shares of Common Stock subject to
such option, or portion thereof, which is surrendered.
"Tax Date" shall have the meaning set forth in Section 9.5.
"Ten Percent Holder" shall have the meaning set forth in Section
6.1.1.
3. Stock Subject to the Plan. Subject to the provisions of Section of
the Plan, the maximum aggregate number of shares which may be awarded under the
Plan is 1,500,000 shares of Common Stock. The shares may be authorized, but
unissued, or reacquired Common Stock, including without limitation any shares of
Common Stock which are subject to an Option, an SAR, a Performance Share Award
or a Restricted Stock Award, and which were not issued prior to the expiration,
termination or cancellation of the Option, SAR or Performance Share Award or
which were forfeited upon the forfeiture of a Restricted Stock Award.
4. Administration of the Plan. The Plan shall be administered by (i)
the Board if the Board may administer the Plan in compliance with paragraph (d)
of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3") or any successor
thereto, or (ii) a Committee designated by the Board to administer the Plan,
which Committee shall be constituted in such a manner as to permit the Plan to
comply with paragraph (d) of Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by paragraph (d) of Rule 16b-3.
4.1 Powers of the Administrator. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock;
(ii) to select the Employees, Consultants and Non-Employee
Directors to whom Awards from time to time may be granted
hereunder;
(iii) to determine whether and to what extent Awards are granted
hereunder, including vesting arrangements (including without
limitation, in respect of a Change of Control);
(iv) to determine the number of shares of Common Stock to be
covered by each such Award granted hereunder;
<PAGE>
(v) to approve the Agreement for use under the Plan;
(vi) upon a Change in Control, to determine whether to accelerate
the vesting of any Awards granted hereunder;
(vii) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Award granted hereunder; and
(viii) to reduce the exercise price of any Option or base price
of an SAR to the then current Fair Market Value if the Fair
Market Value of the Common Stock covered by such Option or such
SAR shall have declined since the date the Option was or SAR
granted.
4.2 Non-Employee Directors. In granting any Awards to Non-Employee
Directors, the Administrator shall be required to comply with the applicable
procedures, if any, set forth in Rule 16b-3 under the Exchange Act.
4.3 Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding.
5. Eligibility. All Employees, Consultants and Non-Employee Directors shall
be eligible to participate in this Plan. All Participants shall be selected by
the Committee.
6. Stock Options and Stock Appreciation Rights. 6.1 Stock Options. The
Committee may, in its discretion, grant Options to purchase shares of Common
Stock to such eligible persons as may be selected by the Committee. Each Option,
or portion thereof, that is not an Incentive Stock Option, shall be a
Non-Qualified Stock Option. Each Option shall be granted within ten years of the
effective date of this Plan. To the extent that the aggregate Fair Market Value
(determined as of the date of grant) of shares of Common Stock with respect to
which Options designated as Incentive Stock Options are exercisable for the
first time by a participant during any calendar year (under this Plan or any
other plan of the Company, or any Parent or Subsidiary) exceeds the amount
(currently $100,000) set forth in the Code, such Options shall constitute
Non-Qualified Stock Options. The terms of each Option granted by the Committee
shall be embodied in an Agreement.
Options shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
this Plan, as the Committee shall deem advisable:
6.1.1 Number of Shares and Purchase Price. The number of shares of
Common Stock subject to an Option and the purchase price per share of Common
Stock purchasable upon exercise of the Option shall be determined by the
Committee; provided, however, that the purchase price per share of Common Stock
purchasable upon exercise of an Incentive Stock Option shall not be less than
100% of the Fair Market Value of a share of Common Stock on the date of grant of
such Option; provided further, that if an Incentive Stock Option shall be
granted to any person who, at the time such Option is granted, owns capital
stock possessing more than ten percent of the total combined voting power of all
classes of capital stock of the Company (or of any Parent or Subsidiary) (a "Ten
Percent Holder"), the purchase price per share of Common Stock shall be the
price (currently 110% of Fair Market Value) required by the Code in order to
constitute an Incentive Stock Option.
<PAGE>
6.1.2 Option Period and Exercisability. The period during which an
Option may be exercised shall be determined by the Committee; provided, however,
that no Incentive Stock Option shall be exercised later than ten years after its
date of grant; provided further, that if an Incentive Stock Option shall be
granted to a Ten Percent Holder, such Option shall not be exercised later than
five years after its date of grant. The Committee may, in its discretion,
establish Performance Measures which shall be satisfied or met as a condition to
the grant of an Option or to the exercisability of all or a portion of an
Option. The Committee shall determine whether an Option shall become exercisable
in cumulative or non-cumulative installments and in part or in full at any time.
An exercisable Option, or portion thereof, may be exercised only with respect to
whole shares of Common Stock.
6.1.3 Method of Exercise. An Option may be exercised (i) by giving
written notice to the Company specifying the number of whole shares of Common
Stock to be purchased and accompanied by payment therefor in full (or
arrangement made for such payment to the Company's satisfaction) either (A) in
cash, (B) in shares of Common Stock having a Fair Market Value, determined as of
the date of exercise, equal to the aggregate purchase price payable by reason of
such exercise, (C) by authorizing the Company to withhold whole shares of Common
Stock which would otherwise be delivered upon exercise of the Option having a
Fair Market Value, determined as of the date of exercise, equal to the aggregate
purchase price payable by reason of such exercise, (D) in cash by a
broker-dealer acceptable to the Company to whom the Optionee has submitted an
irrevocable notice of exercise or (E) a combination of (A), (B) and (C), in each
case to the extent set forth in the Agreement relating to the Option, (ii) if
applicable, by surrendering to the Company any Tandem SARs which are cancelled
by reason of the exercise of the Option and (iii) by executing such documents as
the Company may reasonably request. The Committee shall have sole discretion to
disapprove of an election pursuant to any of clauses (B)-(E) and in the case of
an Optionee who is subject to Section 16 of the Exchange Act, the Company may
require that the method of making such payment be in compliance with Section 16
and the rules and regulations thereunder. Any fraction of a share of Common
Stock which would be required to pay such purchase price shall be disregarded
and the remaining amount due shall be paid in cash by the holder. No certificate
representing Common Stock shall be delivered until the full purchase price
therefor has been paid.
6.1.4 Non-Employee Directors. Any Options granted to Non-Employee
Directors shall be Non-Qualified Options.
6.2 Stock Appreciation Rights. The Committee may, in its direction,
grant SARs to such eligible persons as may be selected by the Committee. The
Agreement relating to an SAR shall specify whether the SAR is a Tandem SAR or a
Free-Standing SAR.
SARs shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
this Plan, as the Committee shall deem advisable:
6.2.1 Number of SARs and Base Price. The number of SARs subject to an
award shall be determined by the Committee. Any Tandem SAR related to an
Incentive Stock Option shall be granted at the same time that such Incentive
Stock Option is granted and the base price thereof shall be the purchase price
per share of Common
<PAGE>
Stock of the related Option. The base price of a Free-Standing SAR or
an SAR granted in tandem with, or by reference to, a Non-Qualified Stock Option
shall be determined by the Committee; provided, however, that such base price
shall not be less than 100% of the Fair Market Value of one share of Common
Stock on the date of grant of such SAR.
6.2.2 Exercise Period and Exercisability. The Agreement relating to an
award of SARs shall specify whether such award may be settled in shares of
Common Stock (including shares of Restricted Stock) or cash or a combination
thereof. The period for the exercise of an SAR shall be determined by the
Committee; provided, however, that no Tandem SAR shall be exercised later than
the expiration, cancellation, forfeiture or other termination of the related
Option. The Committee may, in its discretion, establish Performance Measures
which shall be satisfied or met as a condition to the exercisability of an SAR.
The Committee shall determine whether an SAR may be exercised in cumulative or
non-cumulative installments and in part or in full at any time. An exercisable
SAR, or portion thereof, may be exercised, in the case of a Tandem SAR, only
with respect to whole shares of Common Stock and, in the case of a Free-Standing
SAR, only with respect to a whole number of SARs. If an SAR is exercised for
shares of Restricted Stock, a certificate or certificates representing such
Restricted Stock shall be issued in accordance with Section 7.2.3 and the holder
of such Restricted Stock shall have such rights of a stockholder of the Company
as determined pursuant to Section 7.2.4. Prior to the exercise of an SAR for
shares of Common Stock, including Restricted Stock, the holder of such SAR shall
have no rights as a stockholder of the Company with respect to the shares of
Common Stock subject to such SAR.
6.2.3 Method of Exercise. A Tandem SAR may be exercised (i) by giving
written notice to the Company specifying the number of whole SARs which are
being exercised, (ii) by surrendering to the Company any Options which are
cancelled by reason of the exercise of the Tandem SAR and (iii) by executing
such documents as the Company may reasonably request. A Free-Standing SAR may be
exercised (i) by giving written notice to the Company specifying the whole
number of SARs which are being exercised and (ii) by executing such documents as
the Company may reasonably request.
6.3 Termination of Employment.
6.3.1 Disability. Subject to Section 6.3.6 and Section 9.8 and unless
otherwise specified in the Agreement relating to an Option or SAR, as the case
may be, if the employment with the Company of the holder of an Option or SAR
terminates by reason of Permanent and Total Disability, each Option and SAR held
by such holder shall be exercisable only to the extent that such Option or SAR
is exercisable on the effective date of such holder's termination of employment
and may thereafter be exercised by such holder (or such holder's legal
representative or similar person) until the earlier to occur of (i) the date set
forth in the Agreement relating to such Option or SAR after the effective date
of such holder's termination of employment and (ii) the expiration date of the
term of such Option or SAR.
6.3.2 Retirement. Subject to Section 6.3.6 and Section 9.8 and unless
otherwise specified in the Agreement relating to an Option or SAR, as the case
may be, if the employment with the Company of the holder of an Option or SAR
terminates by reason of retirement on or after age 55, each Option and SAR held
by such holder shall be exercisable only to the extent that such Option or SAR
is exercisable on the effective date of such holder's termination of employment
and may thereafter be exercised by suchholder (or such holder's legal
representative or similar
<PAGE>
person) until the earlier to occur of (i) the date set forth in the Agreement
relating to such Option or SAR after the effective date of such holder's
termination of employment and (ii) the expiration date of the term of such
Option or SAR.
6.3.3 Death. Subject to Section 6.3.6 and Section 9.8 and unless
otherwise specified in the Agreement relating to an Option or SAR, as the case
may be, if the employment with the Company of the holder of an Option or SAR
terminates by reason of death, each Option and SAR held by such holder shall be
exercisable only to the extent that such Option or SAR is exercisable on the
date of death and may thereafter be exercised by such holder's executor,
administrator, legal representative, beneficiary or similar person, as the case
may be, until the earlier to occur of (i) the date set forth in the Agreement
relating to such Option or SAR after the date of death and (ii) the expiration
date of the term of such Option or SAR.
6.3.4 Other Termination. Subject to Section 6.3.6 and Section 9.8 and
unless otherwise specified in the Agreement relating to an Option or SAR, as the
case may be, if the employment with the Company of the holder of an Option or
SAR is terminated by the Company for Cause or is voluntarily terminated by such
holder, each Option and SAR held by such holder shall terminate automatically on
the effective date of such holder's termination of employment. "Cause" shall
mean the conviction of a felony or misdemeanor, failure to abide by reasonable
requests of the Company's Chief Executive Officer, the failure to perform duties
as determined by the Company's Chief Executive Officer, any act of dishonesty or
violation of any statutory or common law duty of loyalty to the Company.
Subject to Section 6.3.6 and Section 9.8 and unless otherwise
specified in the Agreement relating to an Option or SAR, as the case may be, if
the employment with the Company of the holder of an Option or SAR terminates for
any reason other than Permanent and Total Disability, retirement on or after age
55, death, Cause or voluntary termination, each Option and SAR held by such
holder shall be exercisable only to the extent that such Option or SAR is
exercisable on the effective date of such holder's termination of employment and
may thereafter be exercised by such holder (or such holder's legal
representative or similar person) until the earlier to occur of (i) the date set
forth in the Agreement relating to such Option or SAR after the effective date
of such holder's termination of employment and (ii) the expiration date of the
term of such Option or SAR.
6.3.5 Death Following Termination of Employment. Subject to Section
6.3.6 below and Section 9.8 and unless otherwise specified in the Agreement
relating to an Option or SAR, as the case may be, if the holder of an Option or
SAR dies during the period of exercisability of such Option or SAR following
termination of employment for any reason other than Cause or voluntary
termination, each Option and SAR held by such holder shall be exercisable only
to the extent that such Option or SAR, as the case may be, is exercisable on the
date of such holder's death and may thereafter be exercised by the holder's
executor, administrator, legal representative, beneficiary or similar person, as
the case may be, until the earlier to occur of (i) the date set forth in the
Agreement relating to such Option or SAR after the date of death and (ii) the
expiration date of the term of such Option or SAR.
<PAGE>
6.3.6 Termination of Employment - Incentive Stock Options. Subject to
Section 9.8, if the employment with the Company of a holder of an Incentive
Stock Option terminates by reason of Permanent and Total Disability, each
Incentive Stock Option (including any related Tandem SAR) held by such holder
shall be exercisable only to the extent that such Option or SAR is exercisable
on the effective date of such holder's termination of employment and may
thereafter be exercised by such holder (or such holder's legal representative or
similar person) until the earlier to occur of (i) the date which is one year (or
such shorter period as set forth in the Agreement relating to such Option or
SAR) after the effective date of such holder's termination of employment and
(ii) the expiration date of the term of such Incentive Stock Option.
Subject to Section 9.8, if the employment with the Company of a holder
of an Incentive Stock Option terminates by reason of retirement on or after age
55, each Incentive Stock Option (including any related Tandem SAR) held by such
holder shall be exercisable only to the extent that such Option or SAR is
exercisable on the effective date of such holder's termination of employment and
may thereafter be exercised by such holder (or holder's legal representative or
similar person) until the earlier to occur of (i) the date which is three months
(or such shorter period as set forth in the Agreement relating to such Option or
SAR) after the effective date of such holder's termination of employment and
(ii) the expiration date of the term of the Incentive Stock Option.
Subject to Section 9.8, if the employment with the Company of the
holder of an Incentive Stock Option terminates by reason of death, each
Incentive Stock Option (including any related Tandem SAR) held by such holder
shall be exercisable (only to the extent that such Option or SAR is exercisable
on the date of death, and may thereafter be exercised by such holder's executor,
administrator, legal representative, beneficiary or similar person, as the case
may be, until the earlier to occur of (i) the date which is three months (or
such shorter period set forth in the Agreement relating to such Option or SAR)
after the date of death and (ii) the expiration date of the term of such
Incentive Stock Option.
If the employment with the Company of the holder of an Incentive Stock
Option is terminated by the Company for Cause or is voluntarily terminated by
such holder, each Incentive Stock Option (including any related Tandem SAR) held
by such holder shall terminate automatically on the effective date of such
holder's termination of employment. If the employment with the Company of a
holder of an Incentive Stock Option terminates for any reason other than
Permanent and Total Disability, retirement on or after age 55, death, Cause or
voluntary termination, each Incentive Stock Option (including any related Tandem
SAR) held by such holder shall be exercisable only to the extent such Option is
exercisable on the effective date of such holder's termination of employment and
may thereafter be exercised by such holder (or such holder's legal
representative or similar person) until the earlier to occur of (i) the date
which is three months (or such shorter period as set forth in the Agreement
relating to such Option or SAR) after the effective date of such holder's
termination of employment and (ii) the expiration date of the term of the
Incentive Stock Option.
If the holder of an Incentive Stock Option dies during the one-year
period (or such shorter period as set forth in the Agreement relating to such
Option or SAR) following termination of employment by reason of Permanent and
Total Disability or if the holder of an Incentive Stock Option dies during the
three-month period (or such
<PAGE>
shorter period as set forth in the Agreement relating to such Option or SAR)
following termination of employment for any reason other than Permanent and
Total Disability, Cause or voluntary termination, each Incentive Stock Option
(including any related Tandem SAR) held by such holder shall be exercisable only
to the extent such Option is exercisable on the date of the holder's death and
may thereafter be exercised by the holder's executor, administrator, legal
representative, beneficiary or similar person until the earlier to occur of (i)
the date which is one year (or such shorter period as set forth in the Agreement
relating to such Option or SAR) after the date of death and (ii) the expiration
date of the term of such Incentive Stock Option.
7. Stock Awards.
-------------
7.1 The Committee may, in its discretion, grant Stock Awards to such
eligible persons as may be selected by the Committee. Grants of Restricted Stock
Awards may be conditioned upon the attainment of Performance Measures. The
Agreement relating to a Stock Award shall specify whether the Stock Award is a
Restricted Stock Award or Bonus Stock Award.
7.2 Stock Awards shall be subject to the following terms and conditions and
shall contain such additional terms and conditions, not inconsistent with the
terms of this Plan, as the Committee shall deem advisable.
7.2.1 Number of Shares and Other Terms. The number of shares of Common
Stock subject to a Restricted Stock Award or Bonus Stock Award and the
Performance Measures (if any) and Restriction Period applicable to a Restricted
Stock Award shall be determined by the Committee.
7.2.2 Vesting and Forfeiture. The Agreement relating to a Restricted
Stock Award shall provide, in the manner determined by the Committee, in its
discretion, and subject to the provisions of this Plan, for the vesting of the
shares of Common Stock subject to such award (i) if specified Performance
Measures are satisfied or met during the specified Restriction Period or (ii) if
the holder of such award maintains Continuous Status as an Employee during the
specified Restricted Period and for the forfeiture of the shares of Common Stock
subject to such award (x) if specified Performance Measures are not satisfied or
met during the specified Restriction Period or (y) if the holder of such award
does not maintain Continuous Status as an Employee during the specified
Restriction Period. Bonus Stock Awards shall not be subject to any Performance
Measures or Restriction Periods.
7.2.3 Share Certificates. During the Restriction Period, a certificate
or certificates representing a Restricted Stock Award shall be registered in the
holder's name and may bear a legend, in addition to any legend which may be
required pursuant to Section 9.6, indicating that the ownership of the shares of
Common Stock represented by such certificate is subject to the restrictions,
terms and conditions of this Plan and the Agreement relating to the Restricted
Stock Award. All such certificates shall be deposited with the Company, together
with stock powers or other instruments of assignment (including a power of
attorney), each endorsed in blank with a guarantee of signature if deemed
necessary or appropriate, which would permit transfer to the Company of all or a
portion of the shares of Common Stock subject to the Restricted Stock Award in
the event such award is forfeited in whole or in part. Upon termination of any
applicable Restriction Period (and the satisfaction or attainment of applicable
Performance
<PAGE>
Measures), or upon the grant of a Bonus Stock Award, in each case subject to the
Company's right to require payment of any taxes in accordance with Section 9.5,
a certificate or certificates evidencing ownership of the requisite number of
shares of Common Stock shall be delivered to the holder of such award.
7.2.4 Rights With Respect to Restricted Stock Awards. Unless otherwise
set forth in the Agreement relating to a Restricted Stock Award, and subject to
the terms and conditions of a Restricted Stock Award, the holder of such award
shall have all rights as a stockholder of the Company, including, but not
limited to, voting rights, the right to receive dividends and the right to
participate in any capital adjustment applicable to all holders Common Stock;
provided, however, that a distribution with respect to shares of Common Stock,
other than a distribution in cash, shall be deposited with the Company and shall
be subject to the same restrictions as the shares of Common Stock with respect
to which such distribution was made.
7.2.5 Awards to Certain Executive Officers. Notwithstanding any other
provision of this Section 7, and only to the extent necessary to ensure the
deductibility of the award to the Company, and provided the Company's Common
Stock is registered under Section 12 of the Exchange Act, the Fair Market Value
of the number of shares of Common Stock subject to a Restricted Stock Award
granted to a "covered employee" within the meaning of Section 162(m) of the Code
shall not exceed the maximum amount permissible under Section 162(m) (i) at the
time of grant in the case of an award granted upon the attainment of Performance
Measures and (ii) the earlier of (x) the date on which restrictions lapse in the
case of a Restricted Stock Award with restrictions which lapse upon the
attainment of Performance Measures, and (y) the date the holder makes an
election under Section 83(b) of the Code.
7.3 Termination of Employment. Subject to Section 9.8, all of the terms
relating to a Restricted Stock Award, or any cancellation or forfeiture of such
Restricted Stock Award upon a termination of employment with the Company of the
holder of such Restricted Stock Award, whether by reason of Disability,
retirement, death or other termination, shall be set forth in the Agreement
relating to such Restricted Stock Award.
8. Performance Share Awards.
8.1 Performance Share Awards. The Committee may in its discretion
grant Performance Share Awards to such eligible persons as may be selected by
the Committee.
8.2 Terms of Performance Share Awards. Performance Share Awards shall
be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of this Plan,
as the Committee shall deem advisable.
8.2.1 Number of Performance Shares and Performance Measures. The
number of Performance Shares subject to any award and the Performance Period
applicable to such award shall be determined by the Committee.
8.2.2 Vesting and Forfeiture. The Agreement relating to a Performance
Share Award shall provide, in the manner determined by the Committee, in its
discretion, and subject to the provisions of this Plan, for the vesting of such
award, if specified Performance Measures are satisfied or met during the
specified Performance Period, and
<PAGE>
for the forfeiture of such award, if specified Performance Measures are not
satisfied or met during the specified Performance Period.
8.2.3 Settlement of Vested Performance Share Awards. The Agreement
relating to a Performance Share Award (i) shall specify whether such award may
be settled in shares of Common Stock (including shares of Restricted Stock) or
cash or a combination thereof and (ii) may specify whether the holder thereof
shall be entitled to receive, on a current or deferred basis, dividend
equivalents, and, if determined by the Committee, interest on any deferred
dividend equivalents, with respect to the number of shares of Common Stock
subject to such award. If a Performance Share Award is settled in shares of
Restricted Stock, a certificate or certificates representing such Restricted
Stock shall be issued in accordance with Section 7.2.3 and the holder of such
Restricted Stock shall have such rights of a stockholder of the Company as
determined pursuant to Section 7.2.4. Prior to the settlement of a Performance
Share Award in shares of Common Stock, including Restricted Stock, the holder of
such award shall have no rights as a stockholder of the Company with respect to
the shares of Common Stock subject to such award.
8.2.4 Awards to Certain Executive Officers. Notwithstanding any other
provision of this Section 8, and only to the extent necessary to ensure
deductibility of any payment under an award made by the Company, and provided
that the Company's Common Stock is registered under Section 12 of the Exchange
Act, the maximum amount payable upon the attainment of the Performance Measures
applicable to an award granted to any employee who is a "covered employee"
within the meaning of Section 162(m) of the Code at the time of such payment
shall be as set forth in Section 162(m) of the Code.
9. General.
9.1 Effective Date and Term of Plan. This Plan shall be submitted to
the stockholders of the Company for approval and shall become effective on
approval thereof. This Plan shall terminate ten (10) years after its effective
date unless terminated earlier by the Board. Termination of this Plan shall not
affect the terms or conditions of any award granted prior to termination.
Awards hereunder may be made at any time on or after the date of
adoption of this Plan by the Board, subject to approval by the stockholders of
the Company as provided above, and prior to the termination, of this Plan,
provided that no award may be made later than ten (10) years after the effective
date of this Plan. In the event that this Plan is not approved by the
stockholders of the Company, this Plan and any awards hereunder shall be void
and of no force or effect.
9.2 Amendments. The Board may amend this Plan as it shall deem
advisable, subject to any requirement of stockholder approval required by
applicable law, rule or regulation including Rule 16b-3 under the Exchange Act
and Section 162(m) of the Code; provided, however, that no amendment shall be
made without stockholder approval if such amendment would (a) increase the
maximum number of shares of Common Stock available for issuance under this Plan
(subject to Section 9.7), (b) effect any change inconsistent with Section 422 of
the Code or (c) extend the term of this Plan. No amendment may impair the rights
of a holder of an outstanding Award without the consent of such holder.
<PAGE>
9.3 Agreement. For each Award under the Plan, the Company shall
furnish a Notice of Grant to the recipient thereof and shall cause the recipient
to enter into an Agreement with respect thereto, unless and to the extent
otherwise determined by the Administrator. The form of Notice of Grant and
Agreement with respect to a Stock Option shall be in substantially the form of
Exhibits "A" and "B" hereto, respectively, with such changes therein as the
Administrator may determine from time to time, consistent with the terms of the
Plan. The form Notice of Grant and Agreement with respect to any other Award
shall be as determined from time to time by the Administrator, consistent with
the terms of the Plan. No Award shall be valid until an Agreement is executed by
the Company and the recipient of such Award and, upon execution by each party
and delivery of the Agreement to the Company, such Award shall be effective as
of the effective date set forth in the Agreement.
9.4 Non-Transferability of Stock Options, SARs and Performance Shares.
No Option, SAR or Performance Share shall be transferable other than (i) by
will, the laws of descent and distribution or pursuant to beneficiary
designation procedures approved by the Company or (ii) as otherwise permitted
under Rule 16b-3 under the Exchange Act as set forth in the Agreement relating
to such award. Each Option, SAR or Performance Share may be exercised or settled
during the participant's lifetime only by the holder or the holder's guardian,
legal representative or similar person, or any such transferee as permitted
under Rule 16b-3 as aforesaid. Except as permitted by the second preceding
sentence, no Option, SAR or Performance Share may be sold, transferred,
assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by
operation of law or otherwise) or be subject to execution, attachment or similar
process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate,
encumber or otherwise dispose of any Option, SAR or Performance Share, such
award and all rights thereunder shall immediately become null and void.
9.5 Tax Withholding. The Company shall have the right to require,
prior to the issuance or delivery of any shares of Common Stock or the payment
of any cash pursuant to an award made hereunder, payment by the holder of such
award of any federal, state, local or other taxes which may be required to be
withheld or paid in connection with such award. An Agreement may provide that
(i) the Company shall withhold whole shares of Common Stock which would
otherwise be delivered to a holder, having an aggregate Fair Market Value
determined as of the date the obligation to withhold or pay taxes arises in
connection with an award (the "Tax Date"), or withhold an amount of cash which
would otherwise be payable to a holder, in the amount necessary to satisfy any
such obligation or (ii) the holder may satisfy any such obligation by any of the
following means: (A) a cash payment to the Company, (B) delivery to the Company
of shares of Common Stock having an aggregate Fair Market Value, determined as
of the Tax Date, equal to the amount necessary to satisfy any such obligation,
(C) authorizing the Company to withhold whole shares of Common Stock which would
otherwise be delivered having an aggregate Fair Market Value, determined as of
the Tax Date, or withhold an amount of cash which would otherwise be payable to
a holder, equal to the amount necessary to satisfy any such obligation, (D) in
the case of the exercise of an Option, a cash payment by a broker-dealer
acceptable to the Company to whom the Optionee has submitted an irrevocable
notice of exercise or (E) any combination of (A), (B) and (C), in each case to
the extent set forth in the Agreement relating to the award; provided, however,
that the Committee shall have sole discretion to disapprove of an election
pursuant to any of clauses (B)-(E) and that in the case of a holder who is
subject to Section 16 of the Exchange Act, the Company may require that the
method of satisfying such an obligation be in compliance with Section 16 and the
rules and regulations thereunder. An Agreement may provide for shares of Common
Stock to be delivered or withheld having an aggregate Fair Market Value in
excess of the minimum amount required
<PAGE>
to be withheld, but not in excess of the amount determined by applying the
holder's maximum marginal tax rate. Any fraction of a share of Common Stock
which would be required to satisfy such an obligation shall be disregarded and
the remaining amount due shall be paid in cash by the holder.
9.6 Restrictions on Shares. Each Award shall be subject to the
requirement that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
award upon any securities exchange or under any law, or the consent or approval
of any governmental body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the delivery of shares
thereunder, such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company. Each
Award shall be subject to any further restriction upon the acquisition or
disposition of Common Stock subject to such Award which may be set forth in the
Certificate of Incorporation or By-Laws of the Company, whether adopted or
effective before or after the making of such Award.
The Company may require that certificates evidencing shares of Common
Stock delivered pursuant to any Award bear a legend indicating that the sale,
transfer or other disposition thereof by the holder is prohibited except in
compliance with the Securities Act and the rules and regulations thereunder,
and/or (ii) except in compliance with the Certificate of Incorporation or
By-Laws of the Company.
9.7 Adjustment. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than a regular cash
dividend, the number and class of securities available under this Plan, the
number and class of securities subject to each outstanding Option and the
purchase price per security, the terms of each outstanding SAR, the number and
class of securities subject to each outstanding Stock Award, and the terms of
each outstanding Performance Share shall be appropriately adjusted by the
Committee, such adjustments to be made in the case of outstanding Options and
SARs without an increase in the aggregate purchase price or base price, other
than an increase resulting from rounding. The decision of the Committee
regarding any such adjustment shall be final, binding and conclusive. If any
such adjustment would result in a fractional security being (i) available under
this Plan, such fractional security shall be disregarded, or (ii) subject to an
award under this Plan, the Company shall pay the holder of such award, in
connection with the first vesting, exercise or settlement of such award, in
whole or in part, occurring after such adjustment, an amount in cash determined
by multiplying (i) the fraction of such security (rounded to the nearest
hundredth) by (ii) the excess, if any, of (A) the Fair Market Value on the
vesting, exercise or settlement date over (B) the exercise or base price, if
any, of such award.
9.8 Change in Control.
(a) Except as set forth in Section 9.8(c) below or unless provided
otherwise in the Agreement, a Change in Control of the Company shall
not result in (i) any outstanding Options and SARs immediately
becoming exercisable in full, (ii) the lapse of any Restriction Period
applicable to any outstanding Restricted Stock Award, (iii) the lapse
of any Performance Period applicable to any outstanding Performance
Share and (iv) the deemed satisfaction of any Performance Measures
applicable to any outstanding Restricted Stock Award and
<PAGE>
to any outstanding Performance Share. Unless provided otherwise in the
Agreement, in the event of a merger of the Company with or into
another corporation in which the Company is not the survivor, there
shall be no requirement for an Award to be substituted for or assumed,
and such Award shall terminate as of the date of the merger, and the
grantee shall have no claim against the Company, its officers or
directors, the successor corporation or its officers or directors.
Nothing contained herein shall prohibit the Board or the Committee
from accelerating the vesting of any Awards upon the occurrence of a
Change of Control. Any good faith determination by the Board as to
whether a Change in Control within the meaning of this Section has
occurred shall be conclusive and binding on the Participants.
(b) "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act, of beneficial ownership within the
meaning of Rule 13d-3 promulgated under the Exchange Act, of 50% or
more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided that the following
acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company (excluding any acquisition
resulting from the exercise of a conversion or exchange privilege in
respect of outstanding convertible or exchangeable securities), (B)
any acquisition by the Company, (C) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (D) any acquisition
by any corporation pursuant to a reorganization, merger or
consolidation involving the Company, if, immediately after such
reorganization, merger or consolidation, each of the conditions
described in clauses (i), (ii) and (iii) of subsection (3) of this
Section 9.8(b) shall be satisfied; provided, however, that in no event
shall a Change in Control be deemed to have occurred with respect to a
Participant if that Participant is part of a purchasing group which
consummates a Change in Control transaction. A Participant shall be
deemed "part of a purchasing group" for purposes of the preceding
sentence if it is an equity Participant or has been identified as a
potential equity Participant or has agreed to become an equity
Participant in the purchasing company or group, except for (x) passive
ownership of less than three (3%) percent of the shares or voting
securities of the purchasing Company or companies comprising the
purchasing group, or (y) such other ownership of equity participation
in the purchasing company or group which is otherwise not deemed to be
significant, as determined prior to the Change in Control by a
majority of the disinterested Directors.
(2) individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute
at least two-thirds of such Board; provided that any individual who
becomes a director of the Company subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders,
was nominated and approved by the Board of Directors shall be deemed
to have been a member of the Incumbent Board; and provided further,
that no individual who was initially elected as a
<PAGE>
director of the Company as a result of an actual or threatened
election contest, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act, or any other actual or
threatened solicitation of proxies or consents by or on behalf of any
Person other than the Board shall be deemed to have been a member of
the Incumbent Board and such person shall not thereafter become a
member of the Incumbent Board unless approved by two-thirds of the
members of the then Incumbent Board;
(3) approval by the stockholders of the Company of a reorganization,
merger or consolidation unless, in any such case, immediately after
such reorganization, merger or consolidation, (i) more than 60% of the
then outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation and more than 60% of
the combined voting power of the then outstanding securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals or entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior
to such reorganization, merger or consolidation and in substantially
the same proportions relative to each other as their ownership,
immediately prior to such reorganization, merger or consolidation, of
the Outstanding Company Common Stock and the Outstanding Company
Voting Securities, as the case may be, (ii) no Person (other than the
Company, any employee benefit plan (or related trust) sponsored or
maintained by the Company or the corporation resulting from such
reorganization, merger or consolidation (or any corporation controlled
by the Company) and any Person which beneficially owned, immediately
prior to such reorganization, merger or consolidation, directly or
indirectly, 50% or more of the Outstanding Company Common Stock or the
Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 50% or more of the then
outstanding shares of common stock of such corporation or 50% or more
of the combined voting power of the then outstanding securities of
such corporation entitled to vote generally in the election of
directors and (iii) at least a majority of the members of the Board of
Directors of the corporation resulting from such reorganization merger
or consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement or action of the Board of
Directors providing for such reorganization merger or consolidation;
or
(4) approval by the stockholders of the Company of (i) a plan of
complete liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of the
Company other than to a corporation with respect to which, immediately
after such sale or other disposition, (A) more than 60% of the then
outstanding shares of common stock thereof and more than 60% of the
combined voting power of the then outstanding securities thereof
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were the beneficial owners,
respectively of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such sale
or other disposition and in substantially the same proportions
relative to each other as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
the Outstanding
<PAGE>
Company Voting Securities, as the case may be, (B) no Person (other
than the Company, an Exempt Person, any employee benefit plan (or
related trust) sponsored or maintained by the Company or such
corporation (or any corporation controlled by the Company) and any
Person which beneficially owned, immediately prior to such sale or
other disposition, directly or indirectly, 50% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 50% or more of the then outstanding shares of common stock
thereof or 50% or more of the combined voting power of the then
outstanding securities thereof entitled to vote generally in the
election of directors and (C) at least a majority of the members of
the Board of Directors thereof were members of the Incumbent Board at
the time of the execution of the initial agreement or action of the
Board providing for such sale or other disposition.
Notwithstanding anything in this Section 9.8(b) to the contrary, an
event or occurrence (or a series of events or occurrences) which would
otherwise constitute a Change in Control under the foregoing shall not
constitute a Change in Control for purposes of this Plan if the Board,
by majority vote, determines that a Change in Control does not result
therefrom; but only if Incumbent Directors constitute a majority of
the directors voting in favor of such determination. Further, an event
or occurrence (or a series of events or occurrences) which would not
otherwise constitute a Change in Control under the foregoing shall be
deemed to constitute a Change in Control for purposes of this Plan if
the Board, by majority vote, determines that a Change in Control does
result therefrom; but only if Incumbent Directors constitute a
majority of the directors voting in favor of such determination. A
determination by directors under the provisions of this paragraph
shall be made solely for purposes of this Plan and shall not directly
or indirectly affect any determination or analysis of whether a change
in control results for any other purpose. Any determination made with
respect to whether a change in control results for purposes of any
other plan or agreement of the Company shall have no effect for
purposes of this Plan.
(c) (1) Notwithstanding any contrary provision of this Section 9.8,
upon the occurrence of a Change in Control at any time after the
second anniversary of the date of grant of any Award hereunder and
before the earlier to occur of (i) the expiration date of the Award or
(ii) the sixth anniversary of such date of grant, and if in connection
with such Change in Control consideration is or is to be paid to the
Company or its shareholders, whether in cash, notes or other property,
then, to the extent set forth in Subsection (c)(2) below, Options and
SARs shall immediately become exercisable, the Restriction Period
shall lapse with respect to any outstanding Restricted Stock Award,
the Performance Period shall lapse with respect to any outstanding
Performance Share and the Performance Measures shall be deemed
satisfied with respect to any outstanding Restricted Stock Award and
Performance Share (the occurrence of such condition of immediate
exercisability, lapse of a Restriction Period or Performance Period or
deemed satisfaction of a Performance Measure hereinafter called a
"Vesting").
(2) An Award shall Vest as provided in Section 9.8(c)(1) above as to a
specified percentage of the outstanding Award, including in such
percentage all Awards, if any, which may have Vested prior to the
Change in Control,
<PAGE>
whether or not then exercised, based on (i) the "Market Value" of the
Company at the time of and giving effect to the Change in Control, and
(ii) the number of full years which have elapsed since the date of
grant of the Award at the time of the Change in Control, as set forth
in the following table, which may be modified if deemed appropriate by
the Administrator:
<TABLE>
<S> <C> <C> <C>
No. of Years Market Value
At Least But Less Than Percentage Vesting
2 $60,000,000 $ 90,000,000 30%
$90,000,000 $120,000,000 50%
$120,000,000 $150,000,000 75%
$150,000,000 100%
3 or more $120,000,000 $150,000,000 20%
$150,000,000 $180,000,000 30%
$180,000,000 $210,000,000 40%
$210,000,000 $240,000,000 50%
$240,000,000 $270,000,000 60%
$270,000,000 $300,000,000 70%
$300,000,000 $330,000,000 80%
$330,000,000 $360,000,000 90%
$360,000,000 100%
</TABLE>
(3) As used herein, "Market Value" shall be determined by (i)
calculating the aggregate consideration being paid in connection with
the Change in Control, (ii) calculating the aggregate percentage of
the Company as to which Control is being Changed, (iii) dividing (i)
by (ii) to determine the consideration being paid for each percentage
point of the Company, and (iv) multiplying the amount of (iii) by 100.
By way of example, if 75% of the outstanding shares of voting stock of
the Company is being acquired by a purchaser for $150,000,000, the
Market Value would be $200,000,000 ($150,000,000 divided by 75 =
$2,000,000 x 100 = $200,000,000). Any good faith determination by the
Board as to the Market Value within the meaning of this Section shall
be conclusive and binding on the Participants.
9.9 No Right of Participation or Employment. No person shall have any
right to participate in this Plan. Neither this Plan nor any award made
hereunder shall confer upon any person any right to continued employment by the
Company any Subsidiary or any affiliate of the Company or affect in any manner
the right of the Company, any Subsidiary or any affiliate of the Company to
terminate the employment of any person at any time without liability hereunder
<PAGE>
9.10 Rights as Stockholder. No person shall have any right as a
stockholder of the Company with respect to any shares of Common Stock or other
equity security of the Company which is subject to an Award unless and until
such person becomes a stockholder of record with respect to such shares of
Common Stock or equity security.
9.11 Governing Law. This Plan, each Award and the related Agreement,
and all determinations made and actions taken pursuant thereto, to the extent
not otherwise governed by the Code or the laws of the United States, shall be
governed by the laws of the State of Nevada and construed in accordance
therewith without giving effect to principles of conflicts of laws.
9.12 Conditions Upon Issuance of Shares. As a condition to the
exercise of an Option or the issuance of any shares of Common Stock subject to
an Award, the Company may require the person exercising such Option or receiving
such shares to represent and warrant at the time of any such exercise that the
shares of Common Stock are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is necessary or required by any
of the aforementioned relevant provisions of law.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any shares of Common Stock
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not have
been obtained.
9.13 Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of shares of Common
Stock as shall be sufficient to satisfy the requirements of the Plan.
<PAGE>
EXHIBIT 11
----------
NEW GENERATION FOODS, INC. AND SUBSIDIARIES
Net Loss Per Share
- ------------------
Net loss per share - basic is computed by dividing net loss less dividends on
preferred stock by the weighted average number of shares of common stock
outstanding during each year. Net loss per share - diluted is computed by
dividing net income by the weighted average number of shares of common stock and
the number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. The computation excludes the
effect of dilutive potential securities (convertible preferred stock and
options) because their inclusion would have had an antidilutive effect.
Loss Per Share Computation
For the Years Ended December 31, 1998 and 1997
<TABLE>
<S> <C> <C>
1998 1997
---- ----
Net loss $ 23,439 $ 81,049
Dividends on cumulative preferred stock - 185,400
------------ --------------
Net loss applicable to common stock $ 23,439 $ 266,449
============ ==============
Basic average common shares outstanding 399,830 399,830
============ ==============
Loss per share - basic and dilutive $ 0.06 $ 0.67
============ ==============
</TABLE>
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF
NEW GENERATION FOODS, INC.
NAME STATE OF % OF OWNERSHIP
- ---- INCORPORATION BY NEW GENERATION
------------- FOODS, INC.
-----------
Spicer's International, Inc. Nevada 100%
NGF Services, Inc. New York 100%
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000315958
<NAME> NEW GENERATION FOODS, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 13
<SECURITIES> 115
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 128
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 128
<CURRENT-LIABILITIES> 97
<BONDS> 0
1,100
0
<COMMON> 4
<OTHER-SE> (1,073)
<TOTAL-LIABILITY-AND-EQUITY> 128
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 28
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (20)
<INCOME-TAX> 0
<INCOME-CONTINUING> 3
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
