U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to _______________ to _______________
Commission File Number 1-8601
CREDITRISKMONITOR.COM, INC.
(Name of small business issuer in its charter)
Nevada 36-2972588
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
110 Jericho Turnpike, Suite 202
Floral Park, New York 11001
(Address of Principal Executive offices) (Zip Code)
Issuer's telephone number: (516) 610-4000
Securities registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered under Section 12(g) of the Act:
Common Stock $.01 Par Value
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 __
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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. [ ]
State issuer's revenues for the most recent fiscal year. $1,259,019.
The aggregate market value of the Registrant's common stock held by
non-affiliates as of March 6, 2000 was $14,337,454. The Company's common stock
is traded on the OTC Electronic Bulletin Board.
There were 5,341,129 shares of common stock $.01 par value outstanding as of
March 6, 2000.
Documents incorporated by reference: None
Transitional Small Business Format (check one); Yes __ ; No _X_
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PART I
ITEM 1. BUSINESS
CreditRiskMonitor.com, Inc. (the "Company" or "CRM") was organized in
February 1977 under the laws of the State of Nevada and adopted its present name
in May 1999.
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 ("CM
Service") from Market Guide Inc. ("MGI"). The Company exercised the Option on
December 29, 1998 and completed the purchase of the CM Service assets effective
January 19, 1999 for a purchase price of approximately $2.39 million, 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 $1.0 million
(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 $1.0 million 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 CM Service purchase, the Company filed the
necessary assumed name certificate and commenced doing business under the name
"CreditRiskMonitor.com".
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
"1999 Private Placement"). The proceeds from the 1999 Private Placement were
used to finance the cash portion of the CM Service acquisition and the remainder
will be used for future working capital needs.
For a period of five years after the closing of the CM Service acquisition,
MGI has agreed to furnish to the Company the database of credit information used
in the preparation of CRM's credit analysis
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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 CreditRiskMonitor Business
In 1996, some of 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 CM Service division in September 1996. CM Service 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 real-time 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 36 months since CRM's service has been available over the Internet, CRM has
attracted almost 550 subscribers at an average annual subscription price of
approximately $3,700. CRM currently monitors, for the purpose of credit
evaluation, approximately 8,900 U.S. publicly held domestic retail chains,
wholesalers and manufacturers in various industries.
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
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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 CRM's market: The National Association of
Credit Management has about 40,000 members, but some industry observers believe
the number of U.S. credit managers or personnel performing this function is
substantially greater. There are numerous U.S. based companies that do not have
a specific credit function but still require credit information. Because our
sales solicitation is by phone and Internet demonstration of the product, an
untapped global market also exists for foreign companies doing business with
U.S. corporations. We believe that our service has a large market that has only
been minimally penetrated.
Future sales, however, will be even more dramatically impacted when CRM's
private company coverage is initiated. CRM plans to increase its credit coverage
to private companies by the end of 2000. CRM presently sells its stand alone
public company service for an annual base fee of $3,500. The private company
service is expected to be sold for an additional fee.
Many of our existing public company service subscribers have indicated
their intent to purchase this upcoming private company service. A customer who
subscribes to both the private and public company services will receive a
pricing discount. Due largely to the addition of the private company coverage,
over the next two years CRM believes that its customer base and revenue per
customer will expand significantly.
The viability and potential of CRM's business is made possible by its
Internet service delivery and the following characteristics:
o Low cost. The value of CRM's service far exceeds the $3,500 annual
base price to the subscriber. This price is low compared to the size
of the possible bad debt loss to the subscriber and compared to the
cost of competitive products.
o Counter-cyclical. CRM's business appears to have counter-cyclical
characteristics. If the economy slows down or contracts, the
importance of the corporate credit manager function should increase.
Additionally, products that allow credit managers to perform their
jobs more efficiently and effectively should gain
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market share in any business environment.
o Recurring revenue stream. Because of the ease of use and CRM's service
sophistication, users develop a residual comfort level that acts to
reduce the risk of replacement by a competitive service. The recurring
annual fee income stream gives us stability and profit potential not
found in a one-time sale product-based company.
o Profit multiplier. Some of the Company's basic costs are being
reduced. On a broad generic basis, computer hardware, software,
communications and financial data prices are coming down for all
buyers, including CRM. In addition, CRM has automated a significant
amount of the processes used to create and deliver its service;
therefore, its production costs are relatively stable over a wide
range of increasing revenue. Margins should increase faster than sales
in the future.
o Self financing. CRM's business has no inventory, manufacturing or
warehouse facilities. Thus, it is non-capital intensive and high
margins should generate significant positive cash flow to rapidly grow
the business with little need for external capital.
o Management. CRM has in-place an experienced management team with
meaningful equity incentives geared to sales and profitability.
Management combines proven talent in three critical areas: (1)
business credit evaluation systems, (2) internet development and
sales, and (3) management with execution experience. Viewed another
way, CRM's management is a balanced team not skewed in any one
discipline.
o Competitor's vulnerability. CRM is primarily competing against D&B, a
New York Stock Exchange company that has a near total monopoly for
business credit services. D&B's service appears to be more expensive
and less timely than CRM's. CRM's internet driven service is a
technological breakthrough that allows a significant reduction in the
selling price of credit risk analysis. CRM's tight cost structure
allows its low prices to translate into a high margin business. Thus,
the Company believes that D&B is vulnerable on both price and product
utility.
o Private company market. CRM's service is designed to penetrate the
large market for credit information on publicly-held companies but
even this market is small compared to the need for credit information
on privately-owned companies. CRM plans to have a product which will
allow a company to evaluate its credit risk of doing business with
private companies by the end of 2000.
The Company's Goals
o Lowest cost provider. CRM's analysis and preparation of data into a
usable form is nearly 100% computer driven and minimum incremental
personnel costs are required to broaden the number of
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companies analyzed. CRM delivers all of its information to customers
via the Internet and there is a seamless interface between the
preparation and the delivery of a company credit report to a
subscriber. CRM's cost structure is believed to be the lowest in its
industry.
o Retain hedge characteristics. If the economy slows down or enters a
recession, general corporate credit risk will increase and the credit
manager's function should rise in importance and complexity. Since the
cost of its service is low compared to both the size of potential
losses it is designed to reduce and to the cost of competitive
services, CRM's business and revenues should be counter-cyclical if
growth in the U.S. economy growth slows or declines.
o Private company service. CRM plans to begin monitoring the credit risk
of private companies by the end of 2000. This proprietary service will
monitor private companies and has a greater market potential than
CRM's present service for the public company market. Meaningful data
for private companies, as opposed to public companies, is scarce and
the occurrence of credit risk loss is substantially more frequent on
credit extended to private versus public corporations. Also, the
number of the private companies dwarfs the number of public companies
in the U.S. Therefore, the private company credit risk analysis
product has the potential of penetrating a significantly larger market
than the public company market. The Company believes that its product
utility and revenue per subscriber will increase significantly over
the next two years.
o International penetration. Foreign companies doing business in the
U.S. have the same need as domestic companies 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.
Important Business Considerations
o Customer Base. Before a sophisticated customer purchases our service,
this type of customer had the ability to evaluate CRM versus the
competition. Although CRM's present service has only been on the
market for approximately three years and only recently increased its
coverage to over 8,900 companies, there is already a sophisticated
list of subscribers, a partial list of which includes:
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PARTIAL LIST OF SUBSCRIBERS
================================================================================
3 Com Corporation Maytag Appliances
- --------------------------------------------------------------------------------
AIWA America Nike
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Bristol Myers Squibb Nikon
- --------------------------------------------------------------------------------
CIT Group Pepsico
- --------------------------------------------------------------------------------
Colgate Palmolive Philips Consumer Communications
- --------------------------------------------------------------------------------
Compaq Computer Polaroid
- --------------------------------------------------------------------------------
Cosco Rayovac
- --------------------------------------------------------------------------------
Dow Chemical Company Rhone-Poulenc Rorer
- --------------------------------------------------------------------------------
Fuji Photo Film Samsung Electronics America
- --------------------------------------------------------------------------------
Georgia Pacific Schering Plough
- --------------------------------------------------------------------------------
Johnson & Johnson Sharp Electronics
- --------------------------------------------------------------------------------
Lever Brothers Sony Electronics
- --------------------------------------------------------------------------------
Lexmark International Warnaco
- --------------------------------------------------------------------------------
M&M/Mars Yamaha Corp. of America
================================================================================
o Recurring income stream. The annual base 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 the Company pays no sales commissions on
renewals versus approximately 30% for new sales. 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
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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 $12.8 million NOL carryforwards
(expiring in varying amounts annually through 2019) 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% of all sales calls, in 1997, encountered this block,
but that it encountered lack of Internet access in 15% of its sales
calls during 1999. 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.
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 greater than the profit on an initial sale.
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.
Employees
As of March 6, 2000, the Company employed 25 persons full time. 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 has suffered no
interruption in operations.
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The Company established a 401(k) Plan covering all employees effective
January 1, 2000 that provides for discretionary Company contributions. The
Company has no other retirement, pension, profit sharing or similar program in
effect for its employees, but has adopted a stock option plan covering its
employees.
Net Operating Loss Carryforwards
At December 31, 1999, the Company had NOL carryforwards aggregating
approximately $12.8 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 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 1999 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 does not own any real property. The Company's principal office
is located in approximately 5,670 square feet of leased space in an office
building located in Floral Park, New York. The lease expires on November 30,
2004 and provides for a monthly cost of $7,560 during the first year and
increases of 3% per annum in subsequent years, plus escalation for real estate
taxes.
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ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor its property is a party to or subject of a pending
legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended December 31, 1999, either through the
solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades in the over-the-counter market "Bulletin
Board Service" under the symbol CRMZ. The following table sets forth the high
and low closing bid quotations for the Common Stock as reported on the
over-the-counter market Bulletin Board Service for each calendar quarter of 1998
and 1999. Such market quotations reflect inter-dealer prices without retail
markup, markdown or commission and do not necessarily represent actual
transactions.
High Bid Low Bid
-------- -------
1998
First Quarter $ 0.03 $ 0.0001
Second Quarter $ 0.01 $ 0.0001
Third Quarter $ 0.01 $ 0.01
Fourth Quarter $ 5.25 $ 0.01
1999
First Quarter $ 6.00 $ 2.00
Second Quarter $10.00 $ 4.50
Third Quarter $ 4.75 $ 3.125
Fourth Quarter $ 5.00 $ 1.25
On March 6, 2000, there were approximately 560 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.
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 (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 the 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
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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.
As described under "Business," during 1998 the Company located,
investigated and negotiated the purchase of the CreditRisk Monitor ("CM
Service") business then owned by Market Guide Inc. ("MGI"). In September 1998
the Company purchased an option to purchase the assets of the CM Service
business for approximately $2.39 million. 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 CM Service 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. The Company expects to achieve cash flow breakeven status during 2000.
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 1999
Private Placement.
At December 31, 1999, the Company had cash, cash equivalents and other
liquid assets of $1.42 million compared to $13,400 of liquid assets at December
31, 1998, and had working capital of $624,295, compared to working capital of
$30,628 at December 31, 1998, in each case reflecting the 1999 Private
Placement. The Company has no bank lines of credit or other currently available
credit sources.
Funds from the 1999 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 CM Service 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 CM Service 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 25
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full time employees as of March 6, 2000.
Operations
1999 vs. 1998 and 1998 vs. 1997
The Company terminated its business as a food manufacturer on October 22,
1993, when it sold its operations in the Asset Sale. It conducted no operations
in the fiscal years ended December 31, 1997 and December 31, 1998.
As a start-up business, the Company incurred a net loss of ($1,252,698), or
($0.23) per share, for the year ended December 31, 1999. Included is a write-off
of $134,076 representing a portion of the purchase price paid for the CRM assets
allocated to in-process research and development projects that have not reached
technological feasibility and have no probable alternative future uses.
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.
The Company over time intends to expand its operations by expanding the
breadth and depth of its product and service offerings and the introduction of
new or complementary products. Gross margins attributable to new business areas
may be lower than those associated with the Company's existing business
activities.
As a result of the Company's limited operating history and the emerging
nature of the market in which it competes, the Company is unable to accurately
forecast its revenues. The Company's current and future expense levels are based
largely on its investment plans and estimates of future revenues and are to a
large extent fixed. Sales and operating results generally depend on the volume
of, timing of and ability to sign new subscribers, which are difficult to
forecast. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenues in relation to the Company's planned expenditures would
have an immediate adverse effect on the Company's business, prospects, financial
condition and results of operations. Further, as a strategic response to changes
in the competitive environment, the Company may from time to time make certain
pricing, purchasing, service, marketing or acquisition decisions that could have
a material adverse effect on its business, prospects, financial condition and
results of operations.
Factors that may adversely affect the Company's quarterly operating results
include, among others, (i) the Company's ability to retain existing subscribers,
attract new subscribers at a steady rate and maintain subscriber satisfaction,
(ii) the development, announcement or introduction of new services and products
by the Company and its competitors, (iii) price competition, (iv) the
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increasing acceptance of the Internet for the purchase of credit information
such as that offered by the Company, (v) the Company's ability to upgrade and
develop its systems and infrastructure, (vi) the Company's ability to attract
new personnel in a timely and effective manner, (vii) the Company's ability to
manage effectively the broadening of its service to encompass additional
companies monitored and the development of new products, (viii) the Company's
ability to successfully manage the integration of third-party data into its
Internet site, (ix) technical difficulties, system downtime or Internet
brownouts, (x) the amount and timing of operating costs and capital expenditures
relating to expansion of the Company's business, operations and infrastructure,
and (xi) general economic conditions and economic conditions specific to the
Internet and the credit information industry.
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 3 to the Company's Consolidated
Financial Statements.
Recently Issued Accounting Standards
In June 1999, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 137, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 137 is an amendment to Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 137
establishes accounting and reporting standards for all derivative instruments
and is effective for fiscal years beginning after June 15, 2000.
CreditRiskMonitor.com does not currently have any derivative instruments and,
accordingly, does not expect the adoption of SFAS No. 137 to have an impact on
its financial position or results of operations.
13
<PAGE>
Year 2000 Issues
The Company did not experience any material disruptions in its operations
or activities as a result of the so-called "Y2K Problem". Nor did the Company
incur material expenses in correcting perceived or suspected Y2K problems. In
addition, the Company is not aware that any of its suppliers, customers or
on-line partners has experienced any material disruptions in their operations or
activities. The Company does not expect to encounter any such problems in the
foreseeable future, although it continues to monitor its computer operations for
signs or indications of such a problem.
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
operating results or short-term or long-term liquidity 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:
o CRM is a relatively new venture with limited operating history and a
history of significant losses. There can be no assurances that the
Company will be immediately profitable or will not incur losses in the
future.
o 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.
o 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.
o While the Company expects to expand its credit reporting to
privately-owned companies in 2000, if it is unable to do so, its
ability to market its service will be substantially impeded and such
impediment could have a material adverse affect upon the Company.
o If CRM is unable to generate sufficient cash flow or otherwise obtain
funds necessary to make required payments on the Market Guide Notes,
it would be in default under the terms thereof, which would permit the
holders of such Notes to accelerate the
14
<PAGE>
maturity of such indebtedness. Such a default could have a material
adverse effect on CRM's business, prospects, financial condition and
results of operation.
o CRM may not be able to effectively market its service because of its
limited marketing experience and limited personnel. The Company's
ability to generate revenue from the credit information service
business will be dependent upon, among other things, its ability to
manage an effective sales organization.
o If CRM is unable to respond to rapid technological changes, it may
lose market share. If CRM is unable, for any reason, to adapt its Web
site and other technology in a timely manner in response to changing
market conditions or customer requirements, such inability could have
a material adverse effect on its business, prospects, financial
condition and results of operations.
o CRM cannot assure that Market Guide will continue to supply data on
current terms or that CRM will be able to establish new or extend
current vendor relationships to ensure acquisition of data in a timely
and efficient manner and on acceptable commercial terms. If the
Company is unable to develop and maintain relationships with suppliers
that would allow it to obtain sufficient quantities of reliable
information on acceptable commercial terms, such inability could have
a material adverse effect on the Company.
o CRM's success is largely dependent on its ability to deliver high
quality, uninterrupted access to its service over the Internet. Any
system interruptions that result in the unavailability of its Web site
would reduce the attractiveness of its service.
o CRM's computer and communications hardware and systems are vulnerable
to damage or interruption from fire, flood, power loss,
telecommunications failure, break-ins, earthquake and similar events.
CRM does not have off-site back-up systems or a formal disaster
recovery plan and does not have sufficient business interruption
insurance to compensate it for losses that may occur. The Company's
servers are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions. These could lead to interruptions,
delays, loss of critical data or the inability to provide its service,
which could have a material adverse effect on its business, prospects,
financial condition or results of operations.
o A determination by the Internal Revenue Service that CRM's net
operating losses may not be carried forward and used to offset future
profits, if any, could result in substantial tax liability which would
reduce after-tax income and adversely affect CRM's financial condition
and results of operations.
o CRM does not currently have any issued patents or registered
copyrights, and its technology may be misappropriated by others.
15
<PAGE>
There can be no assurance that any steps it takes will be adequate to
prevent misappropriation of its technology or other proprietary
rights. If CRM becomes involved in litigation to enforce or defend its
intellectual property rights, such litigation can be a lengthy and
costly process causing diversion of effort and resources with no
guarantee of success.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company as of and for the
years ended December 31, 1999 and 1998, together with the report of Clifton
Gunderson L.L.C., independent auditors, are set forth at pages F-1 to F-17 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>
<CAPTION>
====================================================================================================================
Principal Occupation/Position Officer or
Name Age Held with Company Director
Since
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jerome S. Flum 59 Chairman of the 1983
Board/President/
Chief Executive Officer
- --------------------------------------------------------------------------------------------------------------------
Joseph L. DeMartino 36 Senior Vice President/Chief September 1, 1999
Operating Officer
- --------------------------------------------------------------------------------------------------------------------
Lawrence Fensterstock 49 Senior Vice President/Chief January 20, 1999
Financial Officer/
Secretary
- --------------------------------------------------------------------------------------------------------------------
Richard J. James 60 Director 1992
- --------------------------------------------------------------------------------------------------------------------
Leslie Charm 56 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. Since 1995, Mr. Flum has been Chairman of
the Board of China Capital Corp., a privately-held consulting and management
company headquartered in Bethesda, Maryland. From 1968 to 1985, Mr. Flum was in
the investment business as an institutional security analyst, research and sales
partner at an investment firm and then as a general partner of a private
investment pool. Before entering the investment business Mr. Flum practiced law,
helped manage a U.S. congressional campaign and served as a legal and
legislative aide to a U.S. congressman. Since 1999, Mr. Flum has been a director
of China B2B.com, Inc., a privately-held company owned in part by China Capital
Corporation and headquartered in Bethesda, Maryland. Mr. Flum received a BS
degree in Business Administration from Babson College and a JD degree from
Georgetown University Law School.
Joseph DeMartino joined the firm as Chief Operating Officer in September
1999. Previously, he was Chief Operating Officer of Market
17
<PAGE>
Guide Inc. from 1998 until its merger with Multex, Inc. in the third quarter of
1999. While at Market Guide, Mr. DeMartino was responsible for managing many
facets of its business, including the CreditRisk Monitor division, information
systems, and the research department. Prior to joining Market Guide, Mr.
DeMartino was Vice President, Account Management for ADP's Brokerage Services
Division from 1993 to 1998 where he managed their largest Wall Street clients.
He pioneered ADP's effort to install systems into non-traditional areas such as
Research, Investment Banking, and Fixed Income trading at Merrill Lynch, Smith
Barney, and Prudential. He began his career at International Business Machines
as a Marketing Representative in their Wall Street offices, where he installed
the first ever IBM complex system on the floor of the Commodities Exchange
Center in 1989 and later lead the IBM team assisting in the merger of Smith
Barney and Shearson in 1993. He holds a BA in Computer Science from CUNY Queens
College.
Lawrence Fensterstock became an employee and was elected to his current
offices in January 1999. He joined Information Clearinghouse Incorporated
("ICI") in 1993 and was closely involved in the formation of its credit
reporting service. In addition to being responsible for the publication of the
various facets of the F&D service, he was chief operating and financial officer
of ICI. Upon leaving ICI, in 1996, he joined Market Guide to assist in the
formation of its credit information services division. From August 1989 through
October 1992, he was vice president-controller, treasurer and corporate
secretary for a private entity formed to acquire Litton Industries' office
products operations in a leveraged buyout. There, he spent 2-1/2 years acting as
de facto chief financial officer. Lawrence Fensterstock is a certified public
accountant who began his career in 1973 with Arthur Andersen & Co. He had an MBA
degree from The University of Chicago Business School and a BA degree from
Queens College.
Richard James has been a director of the Company since April 1992. Mr.
James is the Customer Satisfaction Manager for the Consumer Hardware Division of
Polaroid Corporation. In this role he is responsible for improving the business
performance of Polaroid's instant consumer cameras through improved redesigns
and manufacturing processes, as well as by enhancing the customers' picture
taking experiences. This role encompasses manufacturing plants in Scotland,
China, India and the USA, and worldwide consumer markets. From 1968 through 1979
Mr. James was President of James Associates, a group of businesses involving
accounting and tax preparation, small business consulting, real estate sales and
rentals, and retail jewelry sales. Mr. James is a founding Board member and VP
Finance of the Boston Chapter of the Society of Concurrent Engineering, a
national professional organization dedicated to the application of Integrated
Product Development principles to achieve rapid design, development and
inception of new products and services. Mr. James holds a BS in Chemical
Engineering from Northeastern University, as well as extensive studies in
managerial and technical subjects. He has developed and taught numerous
technical and business courses for many years as a faculty member of Polaroid's
internal training organization.
18
<PAGE>
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. Youngman & Charm also advises entrepreneurs in the growing
of companies. From 1989 to the present, he has been a director of Moto Photo,
Inc., a publicly-held international franchisor of imaging centers. Mr. Charm is
an adjunct professor in entrepreneurial finance at Babson College and is a
graduate of the Harvard Business School
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.
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 ("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 1999, 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 that a Form 4 and Form 5, reporting a total of 5
transactions, for each of Flum Partners and Jerome S. Flum were filed late.
19
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table shows all cash compensation paid or to be paid
by the Company during the fiscal years indicated to the chief executive officer
and all other executive officers of the Company as of the end of the Company's
last fiscal year.
<TABLE>
<CAPTION>
================================================================================================
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------
Annual
Compensation(2) Long-Term Compensation
- ------------------------------------------------------------------------------------------------
Number of
Name and Principal Securities
Positions Underlying All Other
Year Salary Options Compensation
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jerome S. Flum, Chairman, 1999 $ 57,500(1) -- None
President and Chief Executive 1998 $ -0-(1) 150,000 None
Officer 1997 $113,859 -- None
- ------------------------------------------------------------------------------------------------
Joseph L. DeMartino, Senior Vice 1999 $ 40,311 130,000 None
President 1998 N/A -- N/A
1997 N/A -- N/A
- ------------------------------------------------------------------------------------------------
Lawrence Fensterstock, Senior 1999 $140,582 -- None
Vice President 1998 N/A 150,000 N/A
1997 N/A -- 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.
(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 $0.0001 per share were
granted to each of the two non-employee directors.
Compensation Pursuant to Stock Option Plans
The following table sets forth all stock options granted to the Company's
executive officers during the last fiscal year.
20
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
- ----------------------------------------------------------------------------------------------------------
Individual Grants
- ----------------------------------------------------------------------------------------------------------
Percent of Total
Number of Securities Options Granted to
Underlying Options Employees in Fiscal Exercise Basic Expiration Date
Name Amount (#) Year Price ($/Sh)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph L. DeMartino, 100,000 37.13% $3.3125 9/01/2009
Senior Vice President 30,000 11.14% $4.00 12/23/2009
==========================================================================================================
</TABLE>
- ----------
(1) No stock appreciation rights were granted to the executive officers in
fiscal 1999.
All of the options granted to Mr. DeMartino 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.
<TABLE>
<CAPTION>
==========================================================================================================
MINIMUM ANNUAL
- ----------------------------------------------------------------------------------------------------------
Pre-Tax Operating Options Cumulative Options
Level Gross Sales Margin Vested Vested
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
21
<PAGE>
according to a formula based on the value of the Company at the time of such
change in control.
ITEM 11. SECURITY OWNERHSIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
The following table sets forth as of March 6, 2000 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
executive officers, 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:
================================================================================
Percentage of
Number of Shares Outstanding
Name of Common Stock(1) Common Stock
- --------------------------------------------------------------------------------
Flum Partners(2) 3,797,128(3) 71.08%
- --------------------------------------------------------------------------------
Jerome S. Flum 3,910,353(4)(5) 73.20%
- --------------------------------------------------------------------------------
Richard J. James 1,000 --*
- --------------------------------------------------------------------------------
Leslie Charm 1,000 --*
- --------------------------------------------------------------------------------
All directors and officers 3,943,353(4)(5) 73.82%
(as a group (5 persons))
================================================================================
- ----------
* less than 1%
(1) Does not give effect to (a) options to purchase 150,000 shares granted to
Mr. Flum pursuant to the 1992 Incentive Stock Option Plan of the Company,
(b) options to purchase 761,700 shares of Common Stock granted to 25
officers, employees and consultants pursuant to the 1998 Long Term
Incentive 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 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.
22
<PAGE>
(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 73.20% of the outstanding shares of
Common Stock (giving effect to the Senior Preferred Stock Conversion and
the issuance of stock to Investors in the 1999 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.
(5) Includes 2,000 shares of common stock owned by a grandchild of Mr. Flum,
the beneficial ownership of which is disclaimed by Mr. Flum.
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
23
<PAGE>
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-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.
24
<PAGE>
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.
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 $0.00011 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 1999 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.
On May 17, 1999, Flum Partners and the Company entered into an Agreement
(the "Agreement") pursuant to which Flum Partners and its partners agreed not to
purchase or sell any shares of stock of the Company, including purchases from
the Company but excluding transfers by Flum Partners to its partners, without
the prior written authorization of the Board of Directors. The purpose of the
Agreement is to reduce the risk that certain changes in stock ownership of the
Company would jeopardize the Company's ability to utilize fully its NOLs or
other federal income tax attributes. The Agreement terminates on May 17, 2000
unless otherwise terminated or extended by mutual agreement and in any event
shall terminate upon the Company having less than $100,000 in federal tax
attributes. The Company in turn agreed to grant to Flum Partners and its
partners to whom stock of the Company may be
25
<PAGE>
transferred certain "piggyback" registration rights in the event of future
public offerings by the Company of its securities.
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) Exhibits
2 - Copy of the Asset Purchase Agreement dated December 29, 1998. (8)
3(i)A- Copy of the Company's Amended and Restated Articles of
Incorporation dated as of May 7, 1999.
3(i)B- Certificate of Designations for Series A Preferred Stock,
together with Certificate of Amendment thereto and Second
Certificate of Amendment thereto. (2)
3(i)C- Certificate of Designations for Series B Preferred Stock. (3)
3(i)D- Third Certificate of Amendment of The Certificate of Designations
of Series A Preferred Stock. (7)
3(i)E- Certificate of Amendment of The Certificate of Designations of
Series B Preferred Stock. (7)
3(i)F- Certificate of Designations of Senior Preferred Stock. (8)
3(ii)- Copy of the Company's By-Laws as amended April 27, 1987. (1)
10-A - Copy of Company's 1992 Stock Option Plan. (6)
10-B - Copy of Company's 1985 SAR and Non-Qualified Stock Option Plan.
(2)
10-C - Copy of Employment Agreement dated as of July 1, 1992 between the
Company and Jerome Flum. (6)
10-D - Copy of 1988 Amendments to Company's 1985 SAR and Non-Qualified
Stock Option Plan. (4)
10-E - Letter Agreement dated November 12, 1990 by and between New
Generation Foods, Inc. and Jerome S. Flum. (5)
10-F - Letter Agreement dated November 27, 1990 by and between New
Generation Foods, Inc. and Jerome S. Flum. (5)
10-G - Registration Rights Agreement dated November 12, 1990 by and
between New Generation Foods, Inc. and Jerome S. Flum. (5)
10-H - Letter Agreement dated November 18, 1997 between New Generation
Foods, Inc., Flum Partners and Jerome Flum. (7)
10-I - Copy of Company's 1998 Long-Term Incentive Plan. (9)
10-J - Letter Agreement dated May 17, 1999 by and between Flum Partners
and the Company.
11 - Statements Regarding Computation of Per Share Earnings.
21 - Subsidiaries of the Company.
27 - Financial Data Schedule.
- ----------
(1) 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.
(2) Filed as an Exhibit to Registrant's Registration Statement on Form S-2
(File No. 33-17446) and incorporated herein by reference thereto.
26
<PAGE>
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the
fiscal year ending December 31, 1998 (File No. 0-10825) and incorporated
herein by reference thereto.
27
<PAGE>
DOCUMENTS AVAILABLE UPON REQUEST
Exhibits 3(i)A, 10-J, 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 Secretary, CreditRiskMonitor.com, Inc., 110 Jericho Turnpike,
Suite 202, Floral Park, NY 11001-2019.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
28
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITOR'S REPORT F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets - December 31, 1999 and 1998 F-3
Consolidated Statements of Operations - Years Ended
December 31, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity
(Deficit) - Years Ended December 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows - Years Ended
December 31, 1999 and 1998 F-6
Notes to Consolidated Financial Statements -
December 31, 1999 and 1998 F-7
F-1
<PAGE>
Independent Auditor's Report
The Board of Directors and Stockholders
CreditRiskMonitor.com, Inc.
We have audited the accompanying consolidated balance sheets of
CreditRiskMonitor.com, Inc. and subsidiaries as of December 31, 1999 and 1998,
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
CreditRiskMonitor.com, Inc. and subsidiaries as of December 31, 1999 and 1998,
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
January 26, 2000
F-2
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,421,885 $ 13,400
Accounts receivable, net of allowance of $32,500 575,048 --
Purchase option -- 115,000
Other 15,798 --
------------ ------------
Total current assets 2,012,731 128,400
Property and equipment, net of accumulated depreciation 316,999 --
Goodwill, net of accumulated amortization 2,183,275 --
Other assets 21,075 --
------------ ------------
Total assets $ 4,534,080 $ 128,400
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Unearned subscription income $ 1,263,145 $ --
Accrued expenses 55,598 86,364
Accounts payable 23,388 5,908
Current portion of capitalized lease obligation 4,070 --
Other 42,235 5,500
------------ ------------
Total current liabilities 1,388,436 97,772
Long-term debt, net of current portion:
Secured promissory note, net of unamortized discount
of $167,643 832,357 --
Expense promissory note 106,087 --
Capitalized lease obligation 19,990 --
------------ ------------
958,434 --
Deferred compensation 86,250 --
------------ ------------
Total liabilities 2,433,120 97,772
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 -0- and 1,100,000 shares,
respectively -- 1,100,000
Stockholders' equity (deficit):
Preferred stock, $.01 par value. Authorized
5,000,000 and 3,900,000 shares, respectively;
none issued and outstanding -- --
Common stock, $.01 par value. Authorized 25,000,000
shares; issued and outstanding 5,341,129 and
399,830 shares, respectively 53,411 3,998
Additional paid-in capital 27,192,567 22,818,930
Accumulated deficit (25,145,018) (23,892,300)
------------ ------------
Total stockholders' equity (deficit) 2,100,960 (1,069,372)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 4,534,080 $ 128,400
============ ============
</TABLE>
These consolidated financial statements should be read only in conjunction
with the accompanying notes to consolidated financial statements.
F-3
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Operating revenues $ 1,259,019 $ --
Operating expenses:
Data and product costs 686,517 --
Selling, general and administrative expenses 1,504,829 28,216
Depreciation and amortization 167,250 --
----------- -----------
Total operating expenses 2,358,596 28,216
----------- -----------
Loss from operations (1,099,577) (28,216)
Other income 66,244 7,702
Interest expense (82,153) --
Write-off of intangible assets (134,076) --
Loss on sales of fixed assets (3,191) --
----------- -----------
Loss before income taxes (1,252,753) (20,514)
Provision (benefit) for income taxes (55) 2,925
----------- -----------
Net loss $(1,252,698) $ (23,439)
=========== ===========
Net loss per share
Basic $ (0.23) $ (0.06)
=========== ===========
Dilutive $ (0.23) $ (0.06)
=========== ===========
</TABLE>
These consolidated financial statements should be read only in conjunction
with the accompanying notes to consolidated financial statements.
F-4
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Common Stock Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficit)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1997 399,830 $ 3,998 $ 22,818,930 $(23,868,861) $ (1,045,933)
Net loss for year ended
December 31, 1998 -- -- -- (23,439) (23,439)
------------ ------------ ------------ ------------ ------------
Balance December 31, 1998 399,830 3,998 22,818,930 (23,892,300) (1,069,372)
Net loss for year ended
December 31, 1999 -- -- -- (1,252,698) (1,252,698)
Conversion of redeemable
convertible voting
senior preferred
stock 3,598,299 35,983 1,064,017 -- 1,100,000
Proceeds from private
offering, net of
offering expenses 1,300,000 13,000 3,180,553 -- 3,193,553
Proceeds from issuance
of common stock 42,000 420 128,975 (20) 129,375
Proceeds from exercise
of stock options 1,000 10 92 -- 102
------------ ------------ ------------ ------------ ------------
Balance December 31, 1999 5,341,129 $ 53,411 $ 27,192,567 $(25,145,018) $ 2,100,960
============ ============ ============ ============ ============
</TABLE>
These consolidated financial statements should be read only in conjunction
with the accompanying notes to consolidated financial statements.
F-5
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,252,698) $ (23,439)
----------- -----------
Adjustments to reconcile net loss to net cash used
in operating activities:
Goodwill amortization 104,874 --
Depreciation 62,376 --
Write-off of intangible assets 134,076 --
Deferred compensation 86,250 --
Amortization of debt discount 73,970 --
Provision for bad debts 32,500 --
Deferred interest expense 7,925 --
Loss on sale of fixed assets 3,191 --
Change in operating assets and liabilities,
net of effect of purchase of
assets of Market Guide Inc.:
Accounts receivable (199,070) --
Other current assets (15,799) --
Unearned subscription income 466,792 --
Accounts payable 17,479 (454,092)
Accrued expenses (30,766) 45,880
Other current liabilities 31,791 --
----------- -----------
Total adjustments 775,589 (408,212)
----------- -----------
Net cash used in operating activities (477,109) (431,651)
----------- -----------
Cash flows from investing activities:
Purchase of assets of Market Guide Inc.,
net of debt issued (1,273,547) --
Acquisition of purchase option -- (115,000)
Purchase of fixed assets (142,467) --
Proceeds from sale of fixed assets 500 --
Increase in other assets (21,075) --
----------- -----------
Net cash used in investing activities (1,436,589) (115,000)
----------- -----------
Cash flows from financing activities:
Proceeds from private offering, net of
offering expenses 3,193,553 --
Proceeds from issuance of common stock 129,375 --
Payments on capital lease obligation (847) --
Proceeds from exercise of stock options 102 --
Dividends paid -- (840,000)
----------- -----------
Net cash provided by (used in) financing activities 3,322,183 (840,000)
----------- -----------
Net decrease in cash and cash equivalents 1,408,485 (1,386,651)
Cash and cash equivalents at beginning of year 13,400 1,400,051
----------- -----------
Cash and cash equivalents at end of year $ 1,421,885 $ 13,400
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the year for income taxes $ -- $ 2,925
=========== ===========
</TABLE>
Supplement schedule of 1999 non-cash investing and financing activities:
In connection with the purchase of assets of Market Guide Inc. debt was
issued as follows:
Secured promissory note $758,386
Expense promissory note 98,162
A capital lease obligation of $24,907 was incurred when the Company entered
into a lease for new equipment.
These consolidated financial statements should be read only in conjunction
with the accompanying notes to consolidated financial statements.
F-6
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Description of Business
CreditRiskMonitor.com, Inc. (also referred to as the "Company" and formerly
known as New Generation Foods, Inc.) provides a totally interactive
business-to-business Internet-based service designed specifically for corporate
credit professionals.
(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.
These estimates and assumptions affect the reported amounts of assets and
liabilities and the 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) Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided on the
straight-line method over the estimated useful life of the asset. Capital leases
are recorded at the lower of the fair market value of the asset or the present
value of future minimum lease payments. These leases are amortized on the
straight-line method over their primary term. Estimated useful lives are
generally as follows: fixtures and equipment--3 to 6 years; and capitalized
leases--5 years.
(f) Goodwill
Goodwill resulting from business acquisitions represents the excess of purchase
price over fair value of net assets acquired and is being amortized over 20
years using the straight-line method. The carrying value of goodwill is
evaluated periodically for impairment. Any impairment loss is recognized in the
period when it is determined that the carrying value of the goodwill may not be
recoverable. Accumulated amortization at December 31, 1999 and 1998 was $104,874
and $0, respectively. Amortization expense was $104,874 and $0 for the years
ended December 31, 1999 and 1998, respectively.
F-7
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Continued)
(g) Income Taxes
The Company provides for deferred income taxes resulting from 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.
(h) Revenue Recognition
The Company recognizes revenue as its service is used by its customers. Amounts
billed for subscriptions are credited to unearned subscription income and
reflected in operating revenues as earned over the subscription term, which is
generally one year.
(i) Income (Loss) Per Share
Income (loss) per share is computed under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. Amounts
reported as income (loss) per share for each of the two years in the period
ended December 31, 1999 reflect the income (loss) available to stockholders for
the year divided by the weighted average of common shares outstanding during the
period.
(j) 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.
(k) Fair Value of Financial Instruments
The Company believes the recorded value of cash and cash equivalents, purchase
option, accounts receivable, accounts payable, and accrued expenses approximates
fair value because of the short maturity of these financial instruments. The
Company's promissory notes have been discounted, as appropriate, to bear
interest rates that represent the cost of borrowings with third-party lenders,
which approximates current fair value.
F-8
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Continued)
(l) Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
financial statement presentation.
NOTE 2 - PURCHASE OF CREDITRISK MONITOR AND CAPITAL TRANSACTIONS
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, 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.
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 $2.15 million (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 $760,000, net of $240,000 discount - see Note 6 for
details).
Concurrently, 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 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. These securities were
subsequently registered under a Registration Statement on Form SB-2
(Registration No. 333-77727) declared effective by the Securities and Exchange
Commission on May 17, 1999.
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 20, 1999.
F-9
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Continued)
This acquisition was accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to net tangible and
intangible assets acquired based on their estimated fair values. A portion was
also allocated to in-process research and development projects that have not
reached technological feasibility and have no probable alternative future uses.
This amount ($134,076) was written-off in the first quarter of 1999. The balance
of the purchase price was recorded as goodwill, and is being amortized over 20
years.
The following unaudited pro forma summary for the year ended December 30, 1998
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 income (loss) $ (1,364,651)
=============
Net income (loss) per share - basic $ (0.26)
=============
Net income (loss) per share - dilutive $ (0.26)
=============
Net income (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.
NOTE 3 - INCOME TAXES
The provision (benefit) for income taxes consisted of:
1999 1998
------ ------
Current tax provision (benefit):
U.S. Federal $ -- $ --
State and local (55) 2,925
------ ------
Total current tax provision (benefit) (55) 2,925
------ ------
Deferred tax provision:
U.S. Federal -- --
State and local -- --
------ ------
Total deferred tax provision -- --
------ ------
Total $ (55) $2,925
====== ======
F-10
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Continued)
The actual tax expense for 1999 and 1998 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:
1999 1998
--------- ---------
Computed "expected" benefit $(425,936) $ (6,975)
Expiration of net operating loss carryforward 792,980 760,920
Expiration of investment tax carryforward 16,000 21,000
Underaccrual of prior year taxes -- 2,925
Decrease in valuation allowance (382,667) (774,143)
Other (432) (802)
--------- ---------
Income tax expense (benefit) $ (55) $ 2,925
========= =========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 4,340,534 $ 4,724,640
Deferred salary 29,325 --
Investment tax credit carryforwards 19,000 35,000
Alternative minimum tax carryforward 6,655 6,655
----------- -----------
Total gross deferred tax assets 4,395,514 4,766,295
----------- -----------
Deferred tax liabilities:
Goodwill amortization (11,886) --
----------- -----------
Total gross deferred tax liabilities (11,886) --
----------- -----------
Valuation allowance (4,383,628) (4,766,295)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
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,
1999 and 1998 was a decrease of $382,667 and $774,143, respectively.
At December 31, 1999, the Company has net operating loss carryforwards as
follows which are available to offset future federal taxable income, if any,
through 2019. The Company also has investment tax credit carryforwards as
follows which are available to reduce future federal income taxes, if any,
through 2000.
F-11
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Continued)
Net Investment Year of
Operating Loss Tax Credit Expiration
-------------- ---------- ----------
$ 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
1,201,000 -- 2019
----------- -----------
$12,765,000 $ 19,000
=========== ===========
NOTE 4 - COMMON STOCK, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS
(a) Common Stock
At December 31, 1999, 974,050 shares of the Company's authorized common stock
were reserved for issuance under stock option plans. An additional 10,000 shares
of the Company's common stock were reserved for issuance under warrants granted
in connection with the Company's private placement. The warrants are exercisable
at $2.50 per share beginning in January 2002 and expire in 2005.
(b) Stock Options and Stock Appreciation Rights
The Company has three stock option plans: the 1998 Long-Term Incentive Plan, 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, 1999, there were options outstanding for 821,800 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
F-12
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Continued)
150,000 shares of common stock. At December 31, 1999, 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,
1999, there were options outstanding for 2,250 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:
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, 1999 and 1998, nor are there any
stock appreciation rights outstanding at December 31, 1999 and 1998.
Transactions with respect to the Company's stock option plans for the years
ended December 31, 1999 and 1998 are as follows:
F-13
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Continued)
Weighted
Average
Number Exercise
of Shares Price
--------- -----
Outstanding at December 31, 1997 3,250 $0.90412
Granted 752,500 0.00011
--------
Outstanding at December 31, 1998 755,750 $0.00399
Granted 274,300 4.69415
Forfeited (55,000) 0.00010
Exercised (1,000) 0.10200
--------
Outstanding at December 31, 1999 974,050 $1.32489
======== ========
As of December 31, 1999, there were 678,200 shares of common stock reserved for
the granting of additional options.
The following table summarizes information about the Company's stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Range of Number Life Exercise Number Exercise
Exercise Prices Outstanding (in years) Price Exercisable Price
--------------- ----------- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 0.0001 - $ 0.1020 698,500 7.18 $0.0002 1,000 $0.1020
$ 2.1875 - $ 4.5000 160,050 9.64 $3.5338 1,250 $2.1875
$ 5.5000 - $10.1250 115,500 9.03 $6.2749 -- --
------- ---- ------- ------- -------
974,050 7.81 $1.3249 2,250 $1.2606
======= =======
</TABLE>
The weighted average fair value at date of grant for options granted during 1999
and 1998 was $2.35 and $0.00 per option, respectively. The fair value of options
at date of grant was estimated using the Black-Scholes model with the following
weighted average assumptions:
Years ended December 31,
------------------------
Assumption 1999 1998
---------- ---- ----
Risk-free interest rate 5.80% 5.30%
Dividend yield 0.00% 0.00%
Volatility factor 1.64 0.00
Weighted-average expected life of the option (years) 9 9
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input
F-14
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Continued)
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
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. Accordingly, no
compensation cost has been recognized for the stock options granted in the prior
two years. Had compensation cost been determined based on the fair value at the
grant date consistent with the provisions of this statement, the Company's pro
forma net income (loss) and net income (loss) per share would have been as
follows:
1999 1998
---- ----
Net income (loss)
As reported $ (1,252,698) $ (23,439)
Pro forma $ (1,322,880) $ (23,439)
Net income (loss) per share - basic
As reported $ (0.23) $ (0.06)
Pro forma $ (0.25) $ (0.06)
Net income (loss) per share - dilutive
As reported $ (0.23) $ (0.06)
Pro forma $ (0.25) $ (0.06)
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
1999 1998
--------- --------
Computer equipment and software $ 305,985 $ --
Furniture and fixtures 47,878 --
Capitalized lease 24,907 --
--------- --------
378,770 --
Accumulated depreciation (61,771) --
--------- --------
$ 316,999 $ --
========= ========
NOTE 6 - PROMISSORY NOTES
In connection with the Company's acquisition of the assets of CRM from MGI (see
Note 2), the Company issued two secured promissory notes. These notes are
summarized as follows:
o $1,000,000 secured promissory note, bearing interest at 6.0% beginning
on July 1, 2001, payable in 24 equal monthly installments of principal
and interest in the amount of $44,321 commencing July 31, 2001 through
June 30, 2003. The present value
F-15
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Continued)
of such promissory note was approximately $760,000 at its origination.
o $98,162 secured expense promissory note, accruing interest at 8.5%
beginning on February 1, 1999, payable in 24 equal monthly
installments of principal and interest in the amount of $5,286
commencing February 28, 2001 through January 31, 2003.
Both notes are secured by the assets purchased and substantially all other
assets of the Company.
The principal maturities on these notes, including deferred interest to be
capitalized and amortization of deferred discount, for the five years subsequent
to December 31, 1999 are as follows:
Year Ended
December 31, Amount
------------ ------
2000 $ --
2001 273,520
2002 541,045
2003 263,771
2004 --
NOTE 7 - LEASE COMMITMENTS
The Company's operations are conducted from a leased facility, which is under an
operating lease that expires in approximately five years. The Company also
leases certain equipment under operating leases that expire over the next five
years. Rental expenses under operating leases were $69,800 and $0 for the years
ended December 31, 1999 and 1998, respectively.
The Company acquired telephone and office equipment under a capital lease that
expires in 2004 and has an implicit interest rate of approximately 10%. This
lease contains a purchase option at the end of the original lease term.
Future minimum lease payments for the capital lease and noncancelable operating
leases at December 31, 1999, are as follows:
F-16
<PAGE>
CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Continued)
Capital Lease Operating
Obligation Leases
---------- --------
2000 $ 6,306 $ 98,381
2001 6,306 101,109
2002 6,306 103,919
2003 6,306 106,814
2004 5,256 98,714
-------- --------
Total minimum lease payments 30,480 $508,937
========
Less amounts representing interest 6,420
--------
24,060
Less current portion of capitalized
lease obligation 4,070
--------
Long-term capitalized lease obligation $ 19,990
========
NOTE 8 - EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
1999 1998
---- ----
Net income (loss) $ (1,252,698) $ (23,439)
============== ===========
Basic average common shares outstanding 5,341,129 399,830
============== ===========
Net income (loss) per share - basic $ (0.23) $ (0.06)
============== ===========
Net income (loss) per share - dilutive $ (0.23) $ (0.06)
============== ===========
The effect of dilutive securities (i.e., convertible voting senior preferred
stock, options and warrants) is anti-dilutive for 1999 and 1998, therefore,
basic and dilutive loss per share are the same for those years.
F-17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CREDITRISKMONITOR.COM, INC.
(REGISTRANT)
Date: March 28, 2000 By: /s/ Jerome S. Flum
Jerome S. Flum
Chairman of the Board and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: March 28, 2000 By: /s/ Jerome S. Flum
Jerome S. Flum
Chairman of the Board and
Chief Executive Officer
Date: March 28, 2000 By: /s/ Joseph L. DeMartino
Joseph L. DeMartino
Chief Operating Officer
Date: March 28, 2000 By: /s/ Lawrence Fensterstock
Lawrence Fensterstock
Chief Financial Officer
Date: March 28, 2000 By: /s/ Richard J. James
Richard J. James
Director
Date: March 28, 2000 By: /s/ Leslie Charm
Leslie Charm
Director
F-18
EXHIBIT 3(i)A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NEW GENERATION FOODS, INC.
Law Offices
MELTZER, LIPPE, GOLDSTEIN & SCHLISSEL, P.C.
The Chancery
190 Willis Avenue
Mineola, NY 11501
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NEW GENERATION FOODS, INC.
(changing the corporation's name to CreditRiskMonitor.com, Inc.)
The undersigned, the President and Assistant Secretary of NEW GENERATION
FOODS, INC., a corporation organized and existing under and by virtue of the
Nevada General Corporation law, DO HEREBY CERTIFY:
FIRST: The undersigned are, respectively, the President and Assistant
Secretary of NEW GENERATION FOODS, INC.;
SECOND: The original Articles of Incorporation of NEW GENERATION FOODS,
INC. (formerly RALSPICE, INC.) was filed with the Secretary of State of Nevada
on February 25, 1977;
THIRD: A certified copy of the Articles of Incorporation was filed with the
Washoe County Clerk on March 2, 1977;
FOURTH: Certificates of Amendment to Articles to Incorporation of NEW
GENERATION FOODS, INC. were filed with the Secretary of State of Nevada on April
7, 1977, August 15, 1977, September 17, 1979, February 22, 1980, March 26, 1980,
and July 15, 1980; Restated Articles of Incorporation were filed July 15, 1980;
Certificates of Amendment to Articles of Incorporation were filed December 9,
1980, September 8, 1987 and November 31, 1989; Certificates of Designation were
filed on December 16, 1988, January 3, 1989,
<PAGE>
April 13, 1989, December 31, 1997; and two Certificates of Amendment of the
Certificate of Designation filed on December 31, 1997, respectively, all of
which were subsequently filed with the Washoe County Clerk.
FIFTH: The Articles of Incorporation, as amended as of the date of this
certificate of NEW GENERATION FOODS, INC. are herein amended and restated in
their entirety:
FIRST. The name of this corporation is CreditRiskMonitor.com, Inc.
SECOND. Its principal office in the State of Nevada is located at One
East First Street, Reno, Washoe County, Nevada 89501. The name and address
of its resident agent is The Corporation Trust Company of Nevada, One East
First Street, Reno, Nevada 89501.
THIRD. The nature of the business, or objects or purposes proposed to
be transacted, promoted or carried on are:
To develop, provide, sell and distribute information products.
To engage in any lawful activity and to manufacture, purchase or
otherwise acquire, invest in, own, mortgage, pledge, sell, assign and
transfer or otherwise dispose of, trade, deal in and deal with goods,
wares and merchandise and personal property of every class and
description.
To hold, purchase and convey real and personal estate and to
mortgage or lease any such real or personal estate with its franchises
and to take the same by devise or bequest.
To acquire, and pay for in cash, stock or bonds of this
corporation or otherwise, the good will, rights, assets and property,
and to undertake or assume the whole or any part of the obligations or
liabilities of any person, firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant license in
respect of, mortgage, or otherwise dispose of letters patent of the
United States or any foreign country, patent rights, licenses and
privileges, inventions, improvements and processes, copyrights,
trademarks and trade names, relating to or useful in connection with
any business of this corporation.
<PAGE>
To guarantee, purchase, hold, sell, assign, transfer, mortgage,
pledge, or otherwise dispose of the shares of the capital stock of or
any bonds, securities or evidences of the indebtedness created by any
other corporation or corporations of this state, or any other state or
government, and, while owner of such stocks, bonds, securities or
evidence of indebtedness, to exercise all the rights, powers and
privileges or ownership, including the right to vote, if any.
To borrow money and contract debts when necessary for the
transaction of its business, or for the exercise of its corporate
rights, privileges or franchises, or for any other lawful purpose of
its incorporation; to issue bonds, promissory notes, bills of
exchange, debentures, and other obligations and evidences of
indebtedness, payable at a specified time or times, or payable upon
the happening of a specified event or events, whether secured by
mortgage, pledge, or otherwise, or unsecured, for money borrowed, or
in payment for property purchased, or acquired, or for any other
lawful objects.
To purchase, hold, sell and transfer shares of its own capital
stock, and use therefore its capital, capital surplus, surplus, or
other property or funds; provided it shall not use its funds or
property for the purchase of its own shares of capital stock when such
use would cause any impairment of its capital; and provided further,
that shares of its own capital stock belonging to it shall not be
voted upon, directly or indirectly, nor counted as outstanding, for
the purpose of computing any stockholders' quorum or vote.
To conduct business, have one or more offices, and hold,
purchase, mortgage and convey real and personal property in this
state, and in any of the several states, territories, possessions and
dependencies of the United States, the District of Columbia, and in
any foreign countries.
To do all and everything necessary and proper for the
accomplishment of the objects hereinbefore enumerated or necessary or
incidental to the protection and benefit of the corporation, and, in
general, to carry on any lawful business necessary or incidental to
the attainment of the objects of the corporation, whether or not such
business is similar in nature to the objects hereinbefore set forth.
The objects and purposes specified in the foregoing clauses
shall, except where otherwise expressed, be in nowise limited or
restricted by reference to, or inference from, the terms of any other
clause in these articles of incorporation, but the objects and
purposes specified in each of the foregoing clauses of this article
shall be regarded as independent objects and purposes.
<PAGE>
FOURTH. The aggregate number of shares which this corporation shall
have the authority to issue is Twenty-Five Million (25,000,000) shares of
Common Stock of the par value of $.01 per share and Five Million
(5,000,000) shares of Preferred Stock, of the par value of $.01 per share.
The Preferred Stock may be divided into and issued in series. If the
shares of any such class are to be issued in series, then each series shall
be so designated as to distinguish the shares thereof from the shares of
all other series and classes. Any or all of the series of any such class
and variations and the relative rights and preferences as between different
series can be fixed and be determined by the Board of Directors. The
authority of the Board of Directors with respect to each series shall
include, without limitation thereto, the determination of any or all of the
following and the shares of each series may vary from shares of any other
series in the following respects:
The Board of Directors of this corporation is hereby authorized to
issue the Preferred Stock at any time or from time to time, in one or more
series and for such consideration as may be fixed from time to time by the
then Board of Directors, but not less than the par value thereof. The
number of shares to comprise each such series, which number may be
increased (except where otherwise provided by the Board of Directors in
creating such series) or decreased (but not below the number of shares
thereof then outstanding) shall be determined from time to time by the
Board of Directors. The Board of Directors is hereby expressly authorized,
before issuance of any shares of a particular series, to determine any and
all designations, preferences and relative, participating, optional or
other special rights, or qualifications, restrictions or limitations
thereof, pertaining to such series including but not limited to:
(1) Voting rights, if any, including, without limitation, the
authority to confer multiple votes per share, voting rights as to
specified matters or issues such as mergers, consolidations or sales
of assets, or voting rights to be exercised either together with
holders of Common Stock as a single class, or independently as a
separate class;
(2) Rights if any, permitting the conversion or exchange of any
such shares, at the option of the holder, into any other class or
series of shares of this corporation and the price or prices or the
rates of exchange and any adjustment thereto at which such shares will
be convertible or exchangeable;
(3) The rate of dividends, if any, payable on shares of such
series, the conditions and the dates upon which such dividends shall
be payable and whether such dividends shall be cumulative or
non-cumulative;
<PAGE>
(4) The amount payable on shares of such series in the event of
any liquidation, dissolution or distribution of the assets of or
winding up of the affairs of this corporation;
(5) Redemption, repurchase, retirement and sinking fund rights,
preferences and limitations, if any, the amount payable on shares of
such series in the event of such redemption, repurchase or retirement,
the terms and conditions of any sinking fund, the manner of creating
such fund or funds and whether any of the foregoing shall be payable
in preference to, or in relation to, the dividends payable on any
other class or classes of stock, or cumulative or non-cumulative; and
(6) Any other preference and relative, participating, optional or
other special rights and qualifications, limitations or restrictions
of shares of such series not fixed and determined herein, to the
extent permitted to do so by law.
All shares of Preferred Stock shall be of equal rank and shall be
identical except with respect to the particulars that may be fixed by
the Board of Directors as above provided and as to the date from which
dividends thereon, if any, shall be cumulative if made cumulative by
the Board of Directors.
No stockholder shall be entitled as a matter of right to purchase or
subscribe for or receive additional shares of any class of stock of the
corporation, whether now or hereafter authorized, including, but not
limited to, treasury stock, or any notes, debentures, bonds or other
securities convertible into or carrying warrants or options to purchase
shares of any class now or hereafter authorized. Any such securities or
additional shares of stock may be issued or disposed of by the Board of
Directors to such persons and on such terms as in its discretion may be
deemed advisable.
At each election for directors every stockholder entitled to vote at
such election shall have the right to cast, in person or by proxy, the
number of votes represented by the shares owned by him for as many persons
as there are directors to be elected and for whose election he has a right
to vote. Each share of Common Stock shall be entitled to one vote.
Cumulative voting, for the election of directors or otherwise, is expressly
prohibited. On all matters coming before the stockholders, other than the
election of directors, each share of issued and outstanding Common Stock
shall be entitled to one vote.
FIFTH. The governing board of this corporation shall be known as
directors, and the number of directors may from time to time be increased
or decreased in such manner as shall be provided by the by-laws of this
corporation, provided that the number of directors shall not be reduced to
less than three (3), except that in cases where all the shares of the
corporation are owned beneficially and of record by either
<PAGE>
one or two stockholders, the number of directors may be less than three (3)
but not less than the number of stockholders.
SIXTH. The capital stock, after the amount of the subscription price
or par value has been paid in, shall not be subject to assessment to pay
the debts of the corporation.
SEVENTH. The corporation is to have perpetual existence.
EIGHTH. In furtherance and not in limitation of the powers conferred
by statute, the board of directors is expressly authorized:
Subject to the by-laws, if any, adopted by the stockholders, to
make, alter or amend the by-laws of the corporation.
To fix the amount to be reserved as working capital over and
above its capital stock paid in, to authorize and cause to be executed
mortgages and liens upon the real and personal property of this
corporation.
By resolution passed by a majority of the whole board, to
designate one or more committees, each committee to consist of one or
more of the directors of the corporation, which, to the extent
provided in the resolution or in the by-laws of the corporation, shall
have and may exercise the powers of the board of directors in the
management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers
which may require it. Such committee or committees shall have such
name and names as may be stated in the by-laws of the corporation or
as may be determined from time to time by resolution adopted by the
board of directors.
When and as authorized by the affirmative vote of stockholders
holding stock entitling them to exercise at least a majority of the
voting power given at a stockholders' meeting called for that purpose,
or when authorized by the written consent of the holders of at least a
majority of the voting stock issued and outstanding, the board of
directors shall have power and authority at any meeting to sell, lease
or exchange all of the property and assets of the corporation,
including its good will and its corporate franchises, upon such terms
and conditions as its board of directors deem expedient and for the
best interests of the corporation.
NINTH. Meetings of stockholders may be held outside the State of
Nevada, if the by-laws so provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Nevada at such place or places
<PAGE>
as may be designated from time to time by the board of directors or in the
by-laws of the corporation.
TENTH. This corporation reserves the right to amend, alter, change or
repeal any provision contained in the articles of incorporation, in the
manner now or hereafter prescribed by statute, or by the articles of
incorporation, and all rights conferred upon stockholders herein are
granted subject to this reservation.
ELEVENTH. A director or officer of the corporation shall not be
personally liable to the corporation or its stockholders for damages for
breach of fiduciary duty as a director or officer, expect for liability (i)
for acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law, or (ii) under NRS 78.300. If the Nevada General
Corporation Law is amended after approval by the stockholders of this
article to authorize corporate action further eliminating or limiting the
personal liability of directors or officers, then the liability of a
director or officer of the corporation shall be eliminated or limited to
the fullest extent permitted by the Nevada General Corporation Law, as so
amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such
repeal or modification.
SIXTH: The Board of Directors at a meeting duly called and held on March
22, 1999 adopted the foregoing resolutions by unanimous vote. The holders of
73.78% of the outstanding Common Stock of the corporation (and of all shares of
the corporation entitled to vote) approved and adopted the above resolutions
setting forth the amendments to and restatement of the Articles of Incorporation
by written consent dated April 16, 1999. Accordingly the amendments were adopted
in accordance with the provisions of Sections 78.390 and 78.403 of the Nevada
General Corporation Law.
IN WITNESS WHEREOF, New Generation Foods, Inc. has caused its corporate
seal to be hereunto affixed and the Amendment and Restatement of the Articles of
Incorporation to be signed by its President and Assistant Secretary on this ____
day of April, 1999.
_________________________ ______________________
Jerome S. Flum, President Lawrence Fensterstock,
Assistant Secretary
<PAGE>
CERTIFICATE OF COMPLIANCE WITH NEVADA
REVISED STATUTES 78.390 AND 78.403
STATE OF NEW YORK )
SS:
COUNTY OF NASSAU )
On this 22 day of April, 1999, the undersigned, Jerome S. Flum and Lawrence
Fensterstock, President and Assistant Secretary, respectively, of the
corporation described in and who executed the within instrument, entitled
"Amended and Restated Articles of Incorporation of New Generation Foods, Inc."
on behalf of the corporation therein named, appear and certify as follows:
(1) that they executed the within instrument pursuant to the corporation's
By-Laws and pursuant to a resolution which was duly adopted by the board of
directors of the corporation at a meeting duly called and held on March 22, 1999
at which all directors were present;
(2) the amendments, as set forth in the within instrument, were adopted by
written consent dated April 16, 1999, pursuant to the provisions of the By-Laws
of the corporation and of Section 78.320 of the Nevada Revised Statutes ("NRS"),
of the holders of 73.78% of the outstanding shares of Common Stock of the
corporation (which was the only class of equity shares of the corporation
outstanding and entitled to vote at such date;
(3) pursuant to the corporation's By-Laws, notice of the action by written
consent was mailed by United States Mail, postage prepaid, on April 20, 1999, to
each other stockholder of the corporation, either beneficially or of record,
which would have been entitled to notice of or to vote at a meeting of the
stockholders called to consider such resolution;
<PAGE>
(4) the affidavits of such mailing have been filed with the corporate
records of the corporation.
_______________________ __________________________
Jerome S. Flum Lawrence Fensterstock
STATE OF NEW YORK )
SS:
COUNTY OF NASSAU )
On this ____ day of April, 1999, before me, ________________, a Notary
Public in and for the County of Nassau and State of New York, residing therein,
duly commissioned and sworn, personally appeared Jerome S. Flum and Lawrence
Fensterstock, known to me to be the President and Assistant Secretary,
respectively, of the corporation described in and who executed the within
instruments on behalf of the corporation therein named, and acknowledged to me
that such corporation executed the within instrument pursuant to its By-Laws and
resolutions of its board of directors and stockholders.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal in the County of Nassau the day and year in this certificate first above
written.
____________________
Notary Public
EXHIBIT 10-J
CREDITRISKMONITOR.COM, INC.
2001 Marcus Avenue
Lake Success, NY 11042-1011
May 17, 1999
Flum Partners
c/o Jerome S. Flum
9 Dunham Road
Scarsdale, New York 10583
Gentlemen:
As you know, CreditRiskMonitor.com, Inc. (formerly known as New Generation
Foods, Inc.), a Nevada corporation (the "Corporation"), has various federal
income tax attributes, including up to approximately $13.9 Million of net
operating loss (NOL) carryforwards as of December 31, 1998, expiring in varying
amounts through 2018 (the "Tax Attributes").
The Board of Directors believes that these Tax Attributes constitute a
valuable asset of the Corporation. To the extent the Corporation generates
taxable income over the next nineteen years, and is able to utilize its Tax
Attributes to offset future federal income taxes on its taxable income, funds
not needed to pay such tax become available to fund the Corporation's expanded
operations and for stockholder distributions.
Section 382 of the Internal Revenue Code limits 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 change occurs and during the following 2-year period, the
Corporation does not continue its historic business, no NOL carryforwards would
be available. Since the acquisition of CreditRisk Monitor constituted a change
in the Corporation's historic food business, if an ownership change in the
Corporation were to occur within the next two years, no NOL carryforwards would
be available.
<PAGE>
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 Corporation believes that no owner shifts or ownership changes had
occurred prior to its 1998 Private Placement. Such 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 Corporation's available NOL
carryforwards, pursuant to Section 382.
Under Section 382, options and warrants to purchase equity securities are
"counted" in the determination of "owner-shifts" only when exercised. The
Corporation has provided and will provide that all such options and warrants
granted and to be granted to employees, brokers and others may not be exercised
for at least three years from the closing of the Private Placement.
In order to insure to the extent feasible that no inadvertent "owner shift"
will occur which, when aggregated with the 23% owner shift presently
outstanding, or other existing, proposed or future owner shifts during an
applicable testing period, could result in an "ownership change", the Board of
Directors had considered the adoption of amendments to its Articles of
Incorporation and By-Laws which would have provided in general that no purchase
or other acquisition, sale or other disposition of stock of the Corporation
could be made without the approval of the Board of Directors. Requests for Board
approval would be made in writing and Transfers made without Board approval
would be null and void, thereby enabling the Board to reverse or cancel a
transfer, such as a trade made in the over the counter market, if it determined
that the purchaser was a 5-percent shareholder and an "owner shift" would have
occurred, before new certificates are issued by the Transfer Agent.
The Board of Directors is seriously concerned, however, that these proposed
amendments to the Articles of Incorporation and By-Laws, which would give the
Board the authority to reverse stock trades made in the public market, could
limit the marketability of the Corporation's publicly-traded common stock and in
turn depress the Corporation's market value. Accordingly, it has proposed an
alternative pursuant to which only Flum Partners would agree to restrict the
shares owned by them, including shares which may be distributed in the future by
Flum Partners to its partners.
<PAGE>
As you know, at the date hereof, Flum Partners owns 73.78% of the
outstanding common stock of the Corporation. To the Corporation's knowledge,
there is no other holder of 5% or more of the Corporation's stock.
Accordingly, in consideration of the foregoing, and in order to assist the
Corporation to preserve its Tax Attributes for the benefit of its shareholders
and to maintain and increase the market value of the Corporation's Common Stock,
Flum Partners and the Corporation have agreed as follows:
1. Certain Transfers Prohibited.
(a) Except as otherwise permitted under this Agreement, without the prior
written authorization of the Board of Directors of the Corporation (the
"Board"), neither Flum Partners nor any limited or general partner of Flum
Partners who receives shares of stock of the Company upon a distribution by Flum
Partners (each a "Person"), shall (i) purchase or otherwise acquire any shares
of stock of the Corporation from the Corporation, or (ii) sell, transfer or
otherwise dispose of, or purchase or acquire in any manner whatsoever, whether
voluntarily or involuntarily, by operation of law or otherwise any shares of
stock of the Corporation. Each Person who purports to purchase, acquire, sell,
transfer or dispose of stock as described in (i) or (ii) above is each
hereinafter called a "Restricted Holder" and any such purchase, acquisition,
sale, transfer or disposition is hereinafter called a "Transfer".
(b) For purposes of this Agreement, "stock" of the Corporation shall
include any class of common stock of the Corporation, including without
limitation the common stock, par value $0.01 per share, and such other classes
of stock or other securities treated as "stock" under Section 382 of the
Internal Revenue Code of 1986, as amended, including any additional or successor
legislation which limits the availability of the Corporation's Tax Attributes
and the applicable regulations issued from time to time thereunder (collectively
the "Code"). Whenever a reference in this Agreement is made to a specific
Section of the Code, such reference shall be deemed to include any other Section
thereof issued in substitution or replacement therefor.
(c) The restrictions contained in this Section are for the purpose of
reducing the risk that certain changes in stock ownership may jeopardize the
preservation of the Corporation's Tax Attributes. In connection therewith, and
to provide for the effective policing of these restrictions, a Person who
proposes to Transfer shares of stock shall request in writing, prior to the date
of the proposed Transfer (a "Request"), that the Board review the proposed
Transfer and authorize or not authorize the proposed Transfer pursuant to
Section 3 hereof. A Request shall be mailed or delivered to the President of the
Corporation at the Corporation's principal place of business or telecopied to
the Corporation's telecopier number at its principal place of business. Such
Request shall include (i) the name, address and telephone number of the
Restricted Holder, (ii) a description of the shares of stock proposed to be
Transferred by or to the Restricted Holder, (iii) the date on which the proposed
Transfer is
<PAGE>
expected to take place, (iv) the name, if known, of the proposed transferee of
the stock to be transferred to the Restricted Holder, and (v) a request that the
Board authorize, if appropriate, the Transfer pursuant to Section 3 hereof and
inform the Restricted Holder of its determination regarding the proposed
Transfer. Within five business days of receipt by the President of a Request, a
meeting of the Board shall be held to determine whether to authorize the
proposed Transfer described in the Request under Section 3 hereof. The Board
shall conclusively determine whether to authorize the proposed Transfer, and
shall immediately cause the Restricted Holder making the Request to be informed
of such determination.
2. Effect of Unauthorized Transfer. Any Transfer attempted to be made in
violation of this Agreement will be null and void. In the event of an attempted
or purported Transfer involving a sale or disposition of stock by a Restricted
Holder in violation of this Agreement, the Restricted Holder shall remain the
owner of such stock. In the event of an attempted or purported Transfer
involving the purchase or acquisition by a Restricted Holder in violation of
this Agreement, the Corporation shall be deemed to be the exclusive and
irrevocable agent for the transferor of such stock. The Corporation shall be
such agent for the limited purpose of returning the stock to the transferor or
consummating a sale of such stock to a Person who is determined to be a
permitted transferee hereunder (an "eligible transferee"), which may include,
without limitation, the transferor, as the Corporation may elect. The record
ownership of the subject stock shall remain in the name of the transferor until
the stock has been returned to the transferor or sold by the Corporation or its
assignee, as agent, to an eligible transferee. The Corporation shall be entitled
to assign its agency hereunder to any person or entity including, but not
limited to, the intended transferee of the stock, for the purpose of returning
the stock to the transferor or effecting a permitted sale of such stock. Neither
the Corporation, as agent, nor any assignee of its agency hereunder, shall be
deemed to be a shareholder of the Corporation nor be entitled to any rights of
shareholders of the Corporation, including, but not limited to, any right to
vote such stock or to receive dividends or liquidating distributions in respect
thereof, if any (collectively "Shareholder Rights"), but the Corporation or its
assignee shall only have the right to return the stock to the transferor or to
sell and transfer such stock on behalf of and as agent for the transferor to
another person or entity; provided, however, that a Transfer to such other
person or entity may not violate the provisions of this Agreement. All
Shareholder Rights with respect to such stock shall remain with the transferor.
The intended transferee shall not be entitled to any Shareholder Rights with
respect to such stock. In the event of a permitted sale or transfer, whether by
the Corporation or its assignee, as agent, the Corporation shall have no
obligation to collect or cause to be collected any proceeds of such sale or
transfer, such proceeds regardless of whom collected shall be applied first to
reimburse the Corporation or its assignee, as agent, for any expenses incurred
by the Corporation acting in its role as the agent for the sale of such stock,
second to the extent of any remaining proceeds, to satisfy any and all
commissions, margin expenses or other transaction costs incurred by or on behalf
of the transferor, and the remainder, if any, to the original transferor. No
Person precluded from effecting the transfer of Stock pursuant to the provisions
of this Agreement shall have any
<PAGE>
claim against the Corporation or any assignee of its agency hereunder, or their
respective officers, directors or employees.
3. Authorization of Transfer of Stock by a Restricted Holder. The Board
shall authorize a Transfer by a Restricted Holder, or to a Restricted Holder,
if, in the sole discretion and judgment of the Board, it determines that the
Transfer will not jeopardize the Corporation's preservation of its Tax
Attributes pursuant to Code Section 382, or is otherwise in the best interests
of the Corporation. In deciding whether to approve any proposed Transfer of
stock by or to a Restricted Holder, the Board may seek the advice of counsel
with respect to the Corporation's preservation of its Tax Attributes pursuant to
Code Section 382 and may request all relevant information from the Restricted
Holder with respect to all stock owned directly or through attribution (as
determined under Code Section 382) by such Restricted Holder.
4. Permitted Transfers. Notwithstanding Section 1 hereof, a Restricted
Holder shall have the right to Transfer any stock of the Corporation provided
that the following conditions are satisfied:
(a) the Transfer of such stock by the Restricted Holder will not constitute
an "owner shift" as determined under Section 382 of the Code and the Restricted
Holder delivers to the Corporation, together with its Request for approval of
the Transfer, a certificate of the General Partner or other principal of the
Restricted Holder to such effect; and
(b) upon request of the Corporation, at least ten business days prior to
any such Transfer, the Restricted Holder delivers a reasoned opinion of counsel
for such Restricted Holder, which opinion and which counsel each shall be
reasonably satisfactory to the Board, that such Transfer will not result in an
owner shift as determined under Section 382 of the Code. The reasonable fees and
expenses of such counsel shall be paid or reimbursed by the Corporation.
5. Legend on Certificates. All certificates for shares of stock heretofore
or hereafter issued by the Corporation to any Person shall conspicuously bear
the following legend:
The Shares represented by this Certificate are subject to
restrictions contained in an Agreement dated May 17, 1999 (the
"Agreement") among Flum Partners, Jerome S. Flum and the
Corporation which prohibit the sale, transfer, disposition,
purchase or acquisition of any stock, as that term is defined in
Section 382(k)(6) of the Internal Revenue Code of 1986, as
amended (the "Code"), of the Corporation without the
authorization of the Board of Directors of the Corporation (the
"Board of Directors"), if that sale, transfer, disposition,
purchase or acquisition would jeopardize the Corporation's
preservation of its federal income tax attributes pursuant to
<PAGE>
Section 382 of the Code. The Corporation will furnish without
charge to the holder of record of this certificate a copy of the
Agreement, containing the above-referenced restrictions on
transfer of stock upon written request to the Corporation at its
principal place of business.
6. Transfer to Partners of Flum Partners. Notwithstanding the restrictions
contained above, Flum Partners may distribute shares of stock of the Corporation
to its partners, in proportion to their partnership interests, upon prior
written notice to but without the consent or approval of the Board, provided
that (a) each partner receiving such shares shall agree in writing to be bound
by the restrictions contained in this Agreement with respect to any Transfer by
such partner of the shares so received, and (b) all certificates issued to such
partner shall bear the restrictive legend set forth above.
7. Termination. The restrictions set forth in this Agreement (a) may be
terminated at any time by action of the Board of Directors, (b) shall terminate
on the first anniversary of the date of execution hereof (the "Effective Date"),
or any subsequent anniversary date the Effective Date if extended as hereinafter
provided, unless the Corporation and the holders of 70% of the shares of stock
of the Corporation then owned by Flum Partners or distributed to and then owned
by the partners of Flum Partners, shall agree in writing to extend such
termination date for an additional one year period, and (c) shall terminate at
such time as the Corporation no longer has at least $100,000 in Tax Attributes
which could be terminated or limited by a Transfer of the shares of stock owned
by Flum Partners or the partners of Flum Partners. Upon any such termination,
the Corporation shall direct the transfer agent to remove the legend described
above from the applicable share certificates upon request of the holder.
8. Registration Rights. In consideration of the agreements of Flum Partners
contained herein, the Corporation agrees to provide to Flum Partners and the
partners of Flum Partners to whom shares of stock of the Corporation may be
distributed by Flum Partners certain "piggyback" registration rights with
respect to their shares of stock of the Corporation, upon the terms set forth in
Exhibit "A" annexed hereto and made a part hereof.
9. Miscellaneous. This Agreement (a) shall be binding upon and inure to the
benefit of the parties hereto, their respective legal representatives,
successors and assigns, (b) contains the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior written or oral
and all contemporaneous oral agreements, understandings and negotiations among
the parties with respect thereto, (c) may not be modified or amended or any of
its provisions waived except by an instrument in writing duly executed by the
party or parties to be charged, (d) may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which shall
constitute one and the same instrument, and (e) shall be governed by and
construed in accordance with the laws of the State of New York (other than with
respect to matters solely involving Nevada corporate law) without regard to
principles of conflicts of laws.
<PAGE>
Please execute this letter where indicated below to signify your agreement
with the foregoing.
Very truly yours,
CREDITRISKMONITOR.COM, INC.
By: ______________________________
Lawrence Fensterstock
Senior Vice President
ACCEPTED AND AGREED AS OF THIS
____ DAY OF MAY, 1999
FLUM PARTNERS
By:
Jerome S. Flum, General Partner
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May
17, 1999, by and among CREDITRISKMONITOR.COM, a Nevada corporation (the
"Company"), and Flum Partners (the "Investor").
W I T N E S S E T H :
WHEREAS, the Investor owns 3,797,128 of shares of Common Stock (as
hereinafter defined) of the Company; and
WHEREAS, the Company desires to induce the Investor to enter into an
Agreement restricting the transfer of the Investor's shares of Common Stock;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties intending to be
legally bound hereby agree as follows:
1. Certain Definitions. As used in this Agreement, unless the context
otherwise requires the following terms shall have the following respective
meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, par value $.01 per share, of
the Company.
"Effectiveness Period" shall be as defined in Section 3.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect from time to time.
"Holder" shall mean the Investor and any other Person holding shares to
whom the rights under this Agreement have been transferred in accordance with
Section 10.
"Person" any individual, corporation, association, partnership, limited
liability company, trust or estate, organization, business, government or agency
or political subdivision thereof or any other entity.
<PAGE>
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean the expenses so described in Section 5.
"Registration Statement" shall mean any registration statement of the
Company which registers any of the Investor's Common Stock pursuant to the
provisions of this Agreement, including the prospectus, amendments and
supplements to such registration statement, ncluding post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
"Selling Expenses" shall mean the expenses so described in Section 5.
2. Required Registration. If the Company at any time proposes to register
any of its securities under the Securities Act for sale to the public, whether
for its own account or for the account of other security holders or both (except
in connection with the registration of the shares of Common Stock issued in the
Company's 1998 Private Placement or with respect to registration statements on
Forms S-4, S-8 or another form not available for registering the Investor's
Common Stock for sale to the public or any successors to any such forms), each
such time it will give written notice to the Investor of its intention in this
regard. Upon the written request of the Investor received by the Company within
30 days after the giving of any such notice by the Company, to register [at
least 10%] of the Investor's Common Stock (which request shall state the
intended method of disposition thereof), the Company will use its best efforts
to cause such Stock as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed
to be filed by the Company. In the event that any registration pursuant to this
Section 2 shall be, in whole or in part, an underwritten public offering of
Common Stock, the number of shares of the Investor's Common Stock to be included
in such an underwriting shall be reduced, if and to the extent that the managing
underwriter thereof shall be of the opinion that such inclusion would adversely
affect the marketing of the securities to be sold by the Company therein.
3. Registration Procedures. In connection with the Company's registration
obligations under Section 2 hereof, the Company shall use its reasonable best
efforts to effect such registration to permit the sale of the Investor's Common
Stock in accordance with the method or methods of disposition thereof intended
by the Investor and pursuant thereto the Company shall as expeditiously as
practicable:
<PAGE>
a. prepare and file with the Commission a Registration Statement on any
appropriate form under the Securities Act available for the sale of the
Investor's Common Stock by the Investor with the intended method or methods of
distribution thereof, and use its reasonable best efforts to cause such
Registration Statement to become effective and remain effective as provided
herein.
b. prepare and file with the Commission such amendments and post-effective
amendments to such Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness Period (as
hereinafter defined); cause the related prospectus to be amended or supplemented
by any required amendment or prospectus supplement, and as so amended or
supplemented to be filed pursuant to Rule 424 (or any similar provisions then in
force) under the Securities Act; and comply with the provisions of the
Securities Act with respect to the disposition of the Investor's Common Stock
covered by such Registration Statement during the applicable period in
accordance with the methods of disposition intended by the Investor set forth in
such Registration Statement as so amended or in such prospectus as so amended or
supplemented.
c. furnish to the Investor such number of copies of the Registration
Statement and of each amendment and supplement thereto (in each case including
exhibits) and the prospectus included therein (including each preliminary
prospectus) and any other prospectus filed under Rule 424 or Rule 430 under the
Securities Act, in conformity with the requirements of the Securities Act, and
such other documents (in each case including all exhibits) as the Investor
reasonably may request;
d. use its reasonable best efforts to register or qualify the Investor's
Common Stock covered by the Registration Statement under the securities or "blue
sky" laws of such jurisdictions as the Investor reasonably shall request and to
keep such registrations or qualifications in effect for so long as such
registration statement remains in effect, and to take such other action as may
be reasonably necessary or advisable to enable the Investor to consummate the
disposition in such jurisdiction of the securities owned by the Investor;
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
e. use its reasonable best efforts (i) to list all securities covered by
the Registration Statement on any securities exchange on which any of such
securities is then listed or (ii) in the event such securities are not so listed
to have the Investor's Common Stock qualified for inclusion on The NASDAQ
National Market, if such securities are then so qualified or (iii) in the event
such securities are not so listed or qualified, to have such securities
qualified for inclusion on the Nasdaq System;
f. immediately notify the Investor at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the receipt of
any stop order or thereafter of a proceeding for such purpose or of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration
<PAGE>
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and at the request of the Investor promptly prepare to furnish to the
Investor a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
g. use all reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Investor's Common Stock for sale in any jurisdiction, at the earliest
practicable moment.
h. notify the Investor, if participating in such registration, promptly
after it shall receive notice thereof, (i) of the time when the Registration
Statement has become effective or a supplement to any prospectus forming a part
of the Registration Statement has been filed and (ii) of any request by the
Commission for the amending or supplementing of such prospectus or Registration
Statement;
i. make available for inspection by the Investor, and any attorney,
accountant or other agent retained by the Investor, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all information
reasonably requested by the Investor underwriter, attorney, accountant or agent
in connection with such registration statements;
j. otherwise use its reasonable best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first full calendar month after the effective date of the Registration
Statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act, and will furnish to the Investor at least two
business days prior to the filing thereof a copy of any amendment or supplement
to the Registration Statement and shall not file any thereof which do not comply
in all material respects with the requirements of the Securities Act or of the
rules or regulations thereunder; and
k. provide and cause to be maintained a transfer agent for all of the
Investor's Common Stock covered by the Registration Statement and a CUSIP number
for all such Stock, in each case not later than the effective date of the
Registration Statement.
For purposes of Section 3(a) and 3(b), the period of distribution of the
Investor's Common Stock in a firm commitment underwritten public offering shall
be deemed to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of the Investor's
Common Stock in any other registration
<PAGE>
shall be deemed to extend until the earlier of the sale of all of the Investor's
Common Stock covered thereby or 120 days after the effective date thereof (the
"Effectiveness Period"); provided, however, that the Company shall not be
required, in order to comply with the provisions of Sections 3(a) and 3(b),
except in the case of a continuous shelf registration pursuant to Rule 415 as
promulgated under the Securities Act, to prepare and file financial statements
through a period later than the last period reflected in its financial
statements in a registration statement which has been declared effective by the
Commission and is the subject of the rights being exercised by the Investor.
The Company may require the Investor, and the Investor agrees, to furnish
to the Company such information regarding the distribution of the Investor's
Common Stock as the Company may, from time to time, reasonably request in
writing and the Company may exclude from such registration the Common Stock of
the Investor if the Investor unreasonably fails to furnish such information
within a reasonable time after receiving such request. The Investor agrees
promptly to furnish to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by the
Investor not misleading. Any sale of any Common Stock by the Investor pursuant
to a Registration Statement shall constitute a representation and warranty by
the Investor that the information relating to such holder and its plan of
distribution is as set forth in the prospectus delivered by the Investor in
connection with such disposition, that such prospectus does not as of the time
of such sale contain any untrue statement of a material fact relating to the
Investor or its plan of distribution and that such prospectus does not as of the
time of such sale omit to state any material fact relating to the Investor or
its plan of distribution necessary to make the statements in such prospectus, in
the light of the circumstances under which they were made, not misleading.
The Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(f) hereof, the
Investor will forthwith discontinue disposition of its Common Stock covered by
the applicable Registration Statement or prospectus until the Investor's receipt
of the copies of the supplemented or amended prospectus contemplated by Section
3(f) hereof, or until it is advised in writing by the Company that the use of
the applicable prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such prospectus.
4. Suspension of Registration Requirement. Notwithstanding anything to the
contrary set forth in this Agreement, the Company's obligation under this
Agreement to use reasonable best efforts to cause the Registration Statement and
any filings with any state securities commission to be made or to become
effective or to amend or supplement the Registration Statement shall be
suspended in the event and during such period pending negotiations relating to,
or consummation of, a transaction or the occurrence of an event that would
require additional disclosure of material information by the Company in the
Registration Statement or such filing, as to which the Company has a bona fide
business purpose for preserving confidentiality or which renders the Company
unable to comply with SEC requirements (such circumstances being hereinafter
referred to as a "Suspension Event") that
<PAGE>
would make it impractical or unadvisable to cause the Registration Statement or
such filings to be made or to become effective or to amend or supplement the
Registration Statement, but such suspension shall continue only for so long as
such event or its effect is continuing (the "Suspension Period"). The Company
shall be entitled to exercise the rights set forth in this Section 4 an
unlimited number of times but in no event will the Company's obligation under
this Agreement to use reasonable best efforts to cause the Registration
Statement and any filings with any state securities commission to be made or to
become effective or to amend or supplement the Registration Statement be
suspended for more than 90 consecutive days or for more than an aggregate of 120
days in any twelve (12) month period. The Company shall promptly notify the
Holders of the existence of any Suspension Event.
5. Expenses. All expenses incurred by the Company in complying with
Sections 2 and 3, including, without limitation, all registration and filing
fees, printing expenses, duplicating, word processing, messenger and delivery
expenses, fees and disbursements of counsel for the Company and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars and costs of insurance and reasonable
fees and disbursements of one counsel for the Investor a "due diligence"
examination of the Company and a review of all related documents, but excluding
(i) any compensation of regular employees of the Company which shall be paid in
any event by the Company and (ii) Selling Expenses, are called "Registration
Expenses". All discounts and selling commissions and other expenses of the
Investor, including attorneys' fees, applicable to the sale of the Investor's
Common Stock are called "Selling Expenses".
The Company will pay all Registration Expenses in connection with all
registration statements under Sections 2 and 3. All Selling Expenses in
connection with each registration statement under Section 2 or 3 shall be borne
by the Investor.
6. Indemnification and Contribution.
a. In the event of a registration or qualification of any of the Investor's
Common Stock under the Securities Act pursuant to the provisions of this
Agreement, the Company shall and hereby does indemnify and hold harmless the
Investor thereunder, its legal counsel and accountants and each underwriter of
the Investor's Common Stock thereunder and each other Person, if any, who
controls the Investor or underwriter within the meaning of the Securities Act
and Exchange Act laws, against any losses, claims, damages or liabilities, joint
or several, to which the Investor's Common Stock, legal counsel, accountant,
underwriter or controlling Person may become subject under the Securities Act,
the Exchange Act, State securities laws or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which the Investor's Common Stock was registered
under the Securities Act and any preliminary prospectus or final prospectus or
summary prospectus or other document contained therein, or any amendment or
supplement
<PAGE>
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (ii) any violation by the Company of
any federal, State or common law rule or regulation applicable to the Company in
connection with any such registration or qualification and the Company, and will
reimburse the Investor, each such legal counsel or accountant, each such
underwriter and each such controlling Person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
reliance upon and in conformity with information furnished by the Investor, any
such underwriter or any such controlling Person in writing duly executed by such
seller or underwriter, as the case may be, specifically stating that it is for
use in such registration statement or prospectus.
b. In the event of a registration of any of the Investor's Common Stock
under the Securities Act pursuant to the provisions of this Agreement, the
Investor will to the extent permitted by law indemnify and hold harmless the
Company, each Person, if any, who controls the Company within the meaning of the
Securities Act and the Exchange Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
Person who controls any underwriter within the meaning of the Securities Act and
the Exchange Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer, director, underwriter or
controlling Person may become subject under the Securities Act, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which the Investor's
Common Stock was registered under the Securities Act pursuant to the provisions
of this Agreement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter and
controlling Person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Investor will be liable
hereunder in any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to the Investor, as such,
furnished in writing to the Company duly executed by the Investor stating that
it is specifically for use in such registration statement or prospectus;
provided, further, that the liability of each seller hereunder shall be limited
to the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the shares sold by the
Investor under such registration statement bears to the total public offering
price of all securities sold thereunder, but not in any event to exceed the net
proceeds received by the Investor from the sale of its Common Stock covered by
such registration statement.
<PAGE>
c. Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 6 and shall only relieve it
from any liability which it may have to such indemnified party under this
Section 6 if and to the extent the indemnifying party is actually prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 6 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred. No indemnifying party,
in defense of any such action, shall, except with the consent of each
indemnified party, consent to the entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving,
by the claimant or plaintiff, to such indemnified party of a release from all
liability in respect to such action.
d. In order to provide for just and equitable contribution in circumstances
in which the indemnification provided for in Section 6 is for any reason held to
be unavailable from the Company to an indemnified party with respect to any
loss, liability, claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage or expense (including any
investigation, legal and other expense incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted, but after deducting any contribution received by the Company from
persons other than the indemnified parties, such as Persons who control the
Company within the meaning of the Securities Act or the Exchange Act, officers
of the Company who signed the registration statement and directors of the
Company, who may also be liable for contribution) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and of the indemnified party, on the other hand, in connection with the
statements or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations.
<PAGE>
The relative fault of the indemnifying party and of the indemnified party shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. For purposes of
this Section 6(d), each Person, if any, who controls, within the meaning of the
Securities Act or the Exchange Act, any indemnified party shall have the same
rights to contribution as such indemnified party, and each Person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act, each officer of the Company who shall have signed the registration
statement and each director of the Company shall have the same rights to
contribution as the Company. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be made
against another party or parties under this Section 6(d), notify such party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties from whom contribution may be sought shall not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have hereunder or otherwise than under this Section 6(d). The
provisions of Section 6 shall survive the termination of this Agreement and the
registration of all of the Investor's Common Stock.
7. Changes in Common Stock.
a. If, and as often as, there is any change in the Common Stock by way of a
stock split, stock dividend, combination or reclassification, or through a
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and privileges granted hereby shall continue with respect to the Common
Stock as so changed.
b. The Company will not effect or permit to occur any combination or
subdivision of shares which would materially adversely affect the ability of the
Investor to include its Common Stock in any registration of its Common Stock
contemplated by this Agreement or the marketability of the Investor's Common
Stock under any such registration.
8. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Investor's Common Stock to the public without registration (but in
no way reducing the rights of the Investor hereunder relating to such
registrations) so long as the Common Stock of the Company shall continue to be
registered pursuant to the requirements of Section 12 of the Exchange Act, and
until that date that is two years (or for such other time period as shall be
specified in Rule 144(k) as the holding period required for termination of
certain restrictions on sales of restricted securities by persons other than
affiliates) from the Closing Date, the Company agrees at its cost and expense to
use its reasonable best efforts to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
<PAGE>
b. file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
c. furnish to the Investor, forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of such Rule
144 and of the Securities Act and the Exchange Act, a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed by the Company as the Investor may reasonably request in availing
itself of any rule or regulation of the Commission allowing the Investor to sell
any of its Common Stock without registration; and
d. furnish to the Investor, in the event that the Investor is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act,
promptly upon written request from the Investor, such information as may be
required under Rule 144A for delivery to any prospective purchaser of the
Investor's Common Stock in order to permit the Investor to avail itself of the
benefits of the exemptions under the Securities Act afforded by such Rule.
9. Additional Rights of the Investor. If any registration statement of the
Company refers to the Investor by name or otherwise as the Holder of any
securities of the Company, then the Investor shall have the right to require (a)
the insertion therein of language, in form and substance reasonably satisfactory
to the Investor, to the effect that the holding by the Investor of the Common
Stock does not necessarily make the Investor a "controlling person" of the
Company within the meaning of the Securities Act and is not to be construed as a
recommendation by the Investor of the investment quality of the Company's debt
or equity securities covered thereby and that such holding does not imply that
the Investor will assist in meeting any future financial requirements of the
Company, or (b) in the event that such reference to the Investor's Common Stock
by name or otherwise is not required by the Securities Act or any rules and
regulations promulgated thereunder, the deletion of the reference to the
Investor.
10. Transfer or Assignment of Registration Rights. The rights to cause the
Company to register the Investor's Common Stock granted to the Investor by the
Company under Section 2 or 3 may be transferred or assigned by the Investor to a
transferee or assignee of any of the Investor's Common Stock, provided that
(except in the case of transfers to affiliates) the Company is given written
notice by the Investor at the time of or within a reasonable time after said
transfer or assignment, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned, and provided further that the
transferee or assignee of such rights assumes the obligations of the Investor
under this Agreement.
11. "Market Stand-Off" Agreement". The Investor agrees, if requested by the
Company and an underwriter of Common Stock (or other securities) of the Company,
not to sell publicly any Common Stock (or other securities) of the Company held
by it, other than
<PAGE>
securities included in the underwriting, without the consent of such
underwriter, during the one hundred eighty (180) day period following the
effective date of a registration statement of the Company filed under the
Securities Act, provided that:
a. such agreement only applies to the first such registration statement of
the Company including securities to be sold on its behalf to the public in an
underwritten offering which shall commence after the Effectiveness Period; and
b. all other holders of one (1%) percent or more of the outstanding Common
Stock of the Company (calculated on a fully-diluted basis) and all officers and
directors of the Company enter into similar agreements.
Such agreement shall be in writing in a form satisfactory to the Company
and such underwriter. The Company may impose stop-transfer instructions with
respect to the shares (or securities) subject to the foregoing restriction until
the end of said one hundred eighty (180) day period.
12. Miscellaneous.
a. The Company has not entered, as of the date hereof, and shall not enter,
on or after the date of this Agreement, any agreement with respect to its
securities which is inconsistent with the rights granted to the Investor in this
Agreement.
b. The provisions of this Agreement, including the provisions of this
sentence, may not be amended (other than the last sentence of Section 12(h),
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of the Investor.
c. All notices, requests, consents and other communications hereunder shall
be in writing and shall be mailed by certified or registered mail, return
receipt requested, postage pre-paid, or by nationally recognized overnight
courier addressed as follows: (i) if to the Company, at 2001 Marcus Avenue,
Suite 290W, Lake Success, New York 11042, (ii) if to the Investor, at the most
current address given by the Investor to the Company in accordance with the
provisions of this Section 12(c), or to such other address as any party may have
furnished to the other parties in writing in accordance herewith.
d. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to the conflict of laws
principles thereof.
e. No failure to exercise and no delay in exercising, on the part of the
Company or the Investor of any right, power or privilege granted under this
Agreement shall operate as a waiver of such right, power, or privilege. No
single or partial exercise by the Company or the Investor of any right, power or
privilege granted under this Agreement shall preclude any other or further
exercise thereof or the exercise of any other right, power or
<PAGE>
privilege. The rights and remedies provided in this Agreement are cumulative and
are not exclusive of any rights or remedies provided by law.
f. If any provision of this Agreement shall be held to be illegal, invalid
or unenforceable, such illegality, invalidity or unenforceability shall attach
only to such provision and shall not in any manner affect or render illegal,
invalid or unenforceable any other provision of this Agreement, and this
Agreement shall be carried out as if any such illegal, invalid or unenforceable
provision were not contained herein.
g. The Company will maintain, or will cause its registrar and transfer
agent to maintain, a register with respect to the Investor's Common Stock in
which all transfers of the Investor's Common Stock of which the Company has
received notice will be recorded. The Company may deem and treat the person in
whose name the Investor's Common Stock are registered in such register of the
Company as the owner thereof for all purposes, including, without limitation,
the giving of notices under this Agreement.
h. This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of each of the parties and shall insure to the
benefit of the Investor. The Company may not assign its rights or obligations
hereunder without the prior written consent of the Investor.
i. This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements
relating to the subject matter of this Agreement.
j. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument and it shall not be necessary in making proof of
this Agreement to account for more than one such counterpart.
k. The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
l. In any action or proceeding brought to enforce any provision of this
Agreement, or where any provision hereof is validly asserted as a defense, the
prevailing party, as determined by the court, shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
m. Each of the parties hereto shall use all reasonable efforts to take, or
cause to be taken, all appropriate action, do or cause to be done all things
reasonable necessary, proper or advisable under applicable law, and execute and
deliver such documents and other papers, as may be required to carry out the
provisions of this Agreement and the other documents contemplated hereby and
consummate and make effective the transactions contemplated hereby.
<PAGE>
n. This Agreement and the obligations of the parties hereunder shall
terminate at the end of the Effectiveness Period, except for any liabilities or
obligations under Sections 5, 6 and 8 above, each of which shall remain in
effect in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be executed as of this 17th day of May, 1999.
CREDITRISKMONITOR.COM
By:____________________________________
Name: Jerome S. Flum
Title: Chairman and President
By:____________________________________
Name: Jerome S. Flum
Title: General Partner
Flum Partners
This page shall constitute a counterpart copy of the Registration Rights
Agreement, dated as of ____________, 199_, by and among CreditRiskMonitor.Com
Inc. and Flum Partners.
CREDITRISKMONITOR.COM, 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, options
and warrants) because their inclusion would have had an antidilutive effect.
Loss Per Share Computation
For the Years Ended December 31, 1999 and 1998
1999 1998
---- ----
Net loss applicable to common stock $ (1,252,698) $ (23,439)
============ =========
Basic average common shares outstanding 5,341,129 399,830
============ =========
Net loss per share - basic and dilutive $ (0.23) $ (0.06)
============ =========
EXHIBIT 21
SUBSIDIARIES OF
CREDITRISKMONITOR.COM, INC.
STATE OF % OF OWNERSHIP
NAME INCORPORATION CREDITRISKMONITOR.COM, INC.
---- ------------- ---------------------------
Spicer's International, Inc. Nevada 100%
NGF Services, Inc. New York 100%
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000315958
<NAME> CREDITRISKMONITOR.COM, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,422
<SECURITIES> 0
<RECEIVABLES> 608
<ALLOWANCES> 33
<INVENTORY> 0
<CURRENT-ASSETS> 2,013
<PP&E> 379
<DEPRECIATION> 62
<TOTAL-ASSETS> 4,534
<CURRENT-LIABILITIES> 1,388
<BONDS> 0
0
0
<COMMON> 53
<OTHER-SE> 2,048
<TOTAL-LIABILITY-AND-EQUITY> 4,534
<SALES> 1,259
<TOTAL-REVENUES> 1,259
<CGS> 687
<TOTAL-COSTS> 2,359
<OTHER-EXPENSES> 137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> (1,253)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,253)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,253)
<EPS-BASIC> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
