<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________ .
Commission File No. 0-28910
GENERAL CREDIT CORPORATION
(Exact name of small business issuer as specified in its charter)
New York 13-3895072
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
370 Lexington Avenue, Suite 2000
New York, New York 10017
(Address of principal executive offices)
(212) 697-4441
(Issuer's telephone number, including area code)
--------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the issuer: (1) 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 [ ]
The number of shares outstanding of the issuer's common stock, par value $.001
per share as of August 1, 1998 was 3,615,000 shares.
Traditional Small Business Disclosure Format (check one) Yes [X] No [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Certain Exhibits to the Registration Statement on Form SB-2, as amended (File
No. 333-0009831) Parts I and II of this Report.
<PAGE> 2
GENERAL CREDIT CORPORATION
FORM 10-QSB
QUARTER ENDED JUNE 30,1998
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
PART I. FINANCIAL INFORMATION (UNAUDITED).................................................................. 1
Item 1. Financial Statements.......................................................................... 1
Consolidated Condensed Balance Sheets,
June 30, 1998 and December 31, 1997.......................................................... F-1
Consolidated Condensed Statements of Operations for the
Six and Three Months Ended June 30, 1998 and 1997............................................ F-2
Consolidated Condensed Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997...................................................... F-3
Notes to Consolidated Condensed Financial Statements.............................................. F-5
Item 2. Management's Discussion and Analysis or Plan of Operation..................................... 1
PART II
Item 1. Legal Proceedings............................................................................. 5
Item 2. Changes in Securities and Use of Proceeds..................................................... 5
Item 3. Defaults Upon Senior Securities............................................................... 6
Item 4. Submission of Matters to Vote of Security Holders............................................. 6
Item 5. Other Information............................................................................. 6
Item 6. Exhibits And Reports on Form 8-K.............................................................. 7
SIGNATURES................................................................................................. 8
</TABLE>
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
The unaudited, condensed financial statements included herein,
commencing at page F-1, have been prepared in accordance with the requirements
of Regulation S-B and supplementary financial information included herein, if
any, has been prepared in accordance with Item 310(b) of Regulation S-B and,
therefore, omit or condense certain footnotes and other information normally
included in financial statements prepared in accordance with generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of the
financial information for the interim periods reported have been made. Results
of operations for the six months ended June 30, 1998 are not necessarily
indicative of the results for the year ending December 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
General Credit Corporation (the "Company") was organized in February
1995. From its inception through May 2, 1997, the Company's operations were
limited to administrative activities. On May 2, 1997, the Company acquired
substantially all of the assets of New York Payroll Factors, Inc. ("NYPF")
concurrently with the closing of the Company's initial public offering of
securities (the "IPO") and commenced operations. For approximately seven years,
NYPF had been engaged in providing working capital financing to its customers
through the discounted purchase of checks (commonly referred to as "Check
Factoring"). Since May 3, 1997 the Company has provided check factoring services
to its customers, generally on a non-recourse basis with respect to its
customers except to the extent of forged signatures on and stop payments of the
purchased checks. In September 1997 the Company commenced purchasing credit card
sales slips on a discounted non-recourse basis. To date, the purchase of credit
card sales slips ("Credit Card Sales Slips") has not been a material part of the
Company's business. Pursuant to the closing of the IPO, the Company received net
proceeds of approximately $7,200,000 in consideration for the issuance of
900,000 Units, each Unit consisting of three shares of the Company's Common
Stock, par value $.001 per share and six warrants, each warrant entitling the
holder thereof to purchase one share of Common Stock at any time and from time
to time through April 24, 2002 at an exercise price of $3.375 per share.
Pursuant to the closing of the acquisition of substantially all of the assets of
NYPF (the "NYPF Business Combination"), the Company delivered the remaining
balance to close the NYPF Business Combination of $4,275,000 and issued a total
of 125,000 shares of the Company's Common Stock to Gerald Nimberg, a former
affiliate of NYPF and currently the Company's President in consideration for the
business assets of NYPF.
RESULTS OF OPERATIONS
Information provided below for the three and six month periods ended
June 30, 1997 reflects the Company's check factoring operations from May 3, 1997
through June 30, 1997 (the "Operational Period") as well as the period from
April 1, 1997 through May 2, 1997 when the Company's operations were limited to
administrative activities (the "Administrative Period").
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THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998
For the three and six months ended June 30, 1998, the Company derived
fee income of $957,118 and $1,921,421, respectively, from the purchase of checks
and credit card sales slips. The face amount of checks purchased during the
three and six months ended June 30, 1998 was approximately $88,000,000 and
$177,000,000, respectively, and the face amount of credit card sales slips
during the three and six months ended June 30, 1998 was approximately $936,000
and $1,607,000, respectively.
Selling, general and administrative expenses, including, among other
expenses, amounts paid in respect of sales representatives, payroll and related
expenses and office overhead costs (including rent) during the three and six
months ended June 30, 1998 was $743,079 and $1,509,356 which represents 77.6%
and 78.6%, respectively of fee income.
For the three and six months ended June 30, 1998, interest expense was
$224,375 and $444,974 which reflects the high interest rate the Company is
paying for its credit facilities.
For the three and six months ended June 30, 1998, the Company incurred
non-cash expenses of $123,858 and $219,695 consisting primarily of the
amortization of the covenants not to compete and the goodwill related to the
NYPF Business Combination, the acquisition of a commissioned agent and the
issuance of stock options to certain individuals.
Net loss for the three and six months ended June 30, 1998 was $109,294
($.03 per share) and $227,704 ($.07 per share), respectively.
Earnings before taxes, depreciation and amortization ("EBTDA") for the
three and six months ended June 30, 1998 was a loss of $10,336 and $8,009. EBTDA
is not presented as an alternative to operating results or cash flow from
operations as determined by generally accepted accounting principles ("GAAP"),
but rather to provide additional information related to the ability of the
Company to meet current trade obligations and debt service requirements. EBTDA
should not be considered in isolation from, or construed as having greater
importance than, GAAP operating income or cash flows from operations as a
measure of an entity's performance.
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
For the three and six month periods ended June 30, 1997 the Company
derived fee income of $544,141 from the purchase of checks, all of which was
derived during the Operational Period. The face amount of checks purchased
during the Operational Period was approximately $55,000,000.
Selling, general and administrative expenses, including, among other
expenses, amounts paid in respect of sales representatives, payroll and related
expenses and office overhead costs (including rent) during the three and six
month periods ended June 30, 1997 was $342,505 and $379,946, respectively,
representing $330,426 of expenses incurred during the Operational Period. During
the Operational Period, selling, general and administrative expenses constituted
approximately 60.72% of fee income.
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<PAGE> 5
For the three month and six month periods ended June 30, 1997, interest
expense was $43,337 and $146,350, respectively, of which $113,984 was incurred
during the Operational Period.
For the three and six month periods ended June 30, 1997 the Company
incurred a non-cash expense of $51,390 and $51,814, consisting primarily of the
amortization of the purchase price paid by the Company in connection with the
NYPF Business Combination, all of which was incurred during the Operational
Period.
Net loss for the three and six months ended June 30, 1997 was $47,241
($.02 per share) and $188,119 ($.13 per share), respectively. For the
Operational Period, the Company generated net income of $48,481 or $.01 per
share. Net income as a percentage of fee income during the Operational Period
was approximately 8.91%.
Earnings before taxes, depreciation and amortization ("EBTDA") during
the Operational Period was approximately $99,731 ($.03 per share). EBTDA is not
presented as an alternative to operating results or cash flow from operations as
determined by generally accepted accounting principles ("GAAP"), but rather to
provide additional information related to the ability of the Company to meet
current trade obligations and debt service requirements. EBTDA should not be
considered in isolation from, or construed as having greater importance than,
GAAP operating income or cash flows from operations as a measure of an entity's
performance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements generally increase proportionately
to the aggregate face amount of checks purchased, although more rapid collection
of checks can mitigate the Company's cash needs.
The Company received the net proceeds from the IPO in May 1997. In
addition to the use of the net proceeds and proceeds received from operations,
the Company finances its operations principally through (i) short term working
capital loans in the aggregate amount of up to $500,000, which amounts are
typically repaid daily or every few days, provided by an unaffiliated entity,
and (ii) a long term working capital loan in the aggregate amount of $2.6
million (the "Long Term Loan") provided by a general partnership (the
"Affiliated General Partnership"), in part owned by Gerald Schultz, the former
owner of NYPF and Ann Nimberg, the wife of Gerald Nimberg, the President of the
Company (collectively, the "Working Capital Loans"). Ann Nimberg has informed
the Company that she owns approximately 8% of the Affiliated General
Partnership. Pursuant to the terms of the Long Term Loan, the Affiliated General
Partnership had established a credit facility in favor of the Company in the
aggregate principal amount of $2.6 million. The Company had the right to borrow
from the Affiliated General Partnership an amount based upon funds derived from
the purchase of checks by the Company. Borrowings under the Long Term Loan bore
interest at the rate of 24% per annum. Interest was payable monthly by the
Company under the Long Term Loan on the outstanding principal amount borrowed.
All accrued but unpaid interest as well as the principal amount owed under the
Long Term Loan was due in February 2001. In June 1998 the terms of the Long Term
Loan were modified so as to reduce the interest rate from 24% to 21% per annum
and to require the Company to deliver a monthly payment of principal of $55,000
plus interest
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<PAGE> 6
on the outstanding balance for a period of three years. In addition, the Company
repaid $600,000 of the original amount owed and the prepayment penalty was
eliminated. The Company's repayment obligations under the Long Term Loan are
secured by, among other things, all of the Company's fixtures and equipment at
the Company's leased premises located at 499 Seventh Avenue, 201 Allen Street,
and 370 Lexington Avenue, New York, New York. As of June 30, 1998, the
outstanding amount owed pursuant to the Working Capital Loans was approximately
$2,320,000 approximately $2,000,000 of which is owed pursuant to the Long Term
Loan.
On June 30, 1998 the Company and its wholly owned subsidiary
corporation (the "Subsidiary") entered into an agreement (the "Sterling
Agreement") with Sterling National Bank ("Sterling") whereby Sterling agreed to
provide the Company a revolving line of credit in the amount not to exceed $3.6
million through June 30, 1999. Borrowings under the Sterling Agreement bear
interest at Sterling's prime rate plus 3.25%. The Sterling Agreement contains
covenants that, among other things, require the Company to maintain certain bank
account balances at Sterling and impose restrictions on the Company's ability to
incur future indebtedness, sell assets and change its capital structure. The
repayment obligations of the Company and the Subsidiary under the Sterling
Agreement are secured by a security interest in favor of Sterling of
substantially all of the assets of the Company and the Subsidiary.
The Company's is currently seeking additional debt or equity financing
to fund expansion of the Company's business. There can be no assurances that
additional financing will be available on terms favorable to the Company, or at
all. If adequate funds are not available or are not available on acceptable
terms, the Company may not be able to fund growth, take advantage of certain
acquisition opportunities or respond to competitive pressures.
As of June 30, 1998, the Company had available cash and cash
equivalents of $1,251,546.
EFFECTS OF INFLATION
The Company believes that the results of its operations could be
materially impacted by inflation, including increases in interest rates
generally, if inflation materially adversely affected the operations of the
Company's customers and their customers, and if inflation materially increased
the Company's costs of obtaining working capital (e.g., if the Company entered
into larger lines of credit in lieu of its maintaining some of the current bank
deposits against which it negotiates checks purchased by it).
FORWARD LOOKING INFORMATION MAY PROVE INACCURATE
This Quarterly Report on Form 10-QSB contains certain forward- looking
statements and information relating to the Company that are based on the beliefs
of management, as well as assumptions made by and information currently
available to the Company. When used in this document, the word "anticipate,"
"believe," "estimate," and "expect" and similar expressions, as they relate to
the Company, are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions,
including those described in this Quarterly Report on
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Form 10-QSB, the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 and the Company's Registration Statement on Form SB-2 (SEC
File No. 333-09831) declared effective by the Securities and Exchange Commission
on April 25, 1997. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated or expected. The Company does not intend to update these
forward-looking statements.
YEAR 2000 COMPLIANCE
The Securities and Exchange Commission has issued Staff Legal Bulletin
No. 5 (CF/IM) stating that public operating companies should consider whether
they will suffer any anticipated costs, problems or uncertainties as a result of
the "Year 2000" issue, which affects existing computer programs that use only
two digits to identify a year in the date field. The Company anticipates that
its business operations will electronically interact with third parties very
minimally, and the issues raised by Staff Legal Bulletin No. 5 are not
applicable in any material way to its contemplated business or operations.
Additionally, the Company intends that any computer systems that it will
purchase or lease will have already addressed the "Year 2000" issue.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently a party to any material litigation. The
Company is engaged from time to time as plaintiff in litigation relating to
collection of returned checks. Such litigation has not historically had any
material effect on its financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In May 1998, the Company granted to Irwin Zellermaier, Gerald Nimberg
and David Bader, the option to acquire 100,000, 100,000 and 25,000 shares,
respectively, of the Company's Common Stock during the period commencing May 12,
1998 and ending May 11, 2001 at a purchase price of $1.625 per share (the "May
Stock Options"). The Company relied upon the exemption in Section 4(2) of the
Securities Act of 1933 (the "1933 Act") in connection with the issuance of the
May Stock Options.
In July 1998, the Company sold 105,000 shares of its Common Stock for
$105,000 to Goddard, Ronan & Dineen. The Company relied upon the exemption in
Section 4(2) of the 1933 Act in connection with the issuance of these shares.
The proceeds from the sale of these shares were used for general working
capital.
On June 30, 1998, in connection with the Sterling Agreement, the
Company granted to Sterling warrants to purchase an aggregate of 100,000 shares
of the Company's Common Stock at an exercise price of $2.25 per share and upon
terms and conditions as referred to in the Sterling Agreement. The Company
relied upon the exemption in Section 4(2) of the 1933 Act in connection with the
issuance of these warrants.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Shareholders was held on June 19,
1998, at which meeting the following votes were cast for the following matters:
<TABLE>
<CAPTION>
ELECTION OF DIRECTORS VOTES FOR VOTES WITHHELD
--------------------- ---------- --------------
<S> <C> <C>
Irwin Zellermaier 2,955,878 327,820
Gerald Nimberg 2,955,878 327,820
David Bader 2,955,878 327,820
Vincent J. Putignano 2,955,878 327,820
Brien G. Reidy 2,955,878 327,820
RATIFICATION OF AUDITORS
Cornick Garber & Sandler, LLP 3,011,878 271,820
APPROVAL OF STOCK OPTION PLAN 1,146,457 2,137,241
</TABLE>
ITEM 5. OTHER INFORMATION
On May 26, 1998 the Company received written correspondence (the "May
26 Correspondence") from The Nasdaq Stock Market, Inc. stating, among other
things, that the Company did not meet the requirements for continued listing on
the Nasdaq SmallCap Market in that its net tangible assets were below $2
million. The Company had previously been informed of this deficiency in April
1998. The May 26 Correspondence further provided that the securities of the
Company would be delisted from the Nasdaq SmallCap Market, effective June 2,
1998 (the "Nasdaq Decision"). The Company requested continued listing on the
Nasdaq SmallCap Market at an oral hearing on July 16, 1998 (the "Request").
Pending a decision on the Request, the Nasdaq Decision has been stayed. As of
the date hereof, the Company has received no further correspondence regarding
the Request. There can be no assurances that the Company's securities will
continue to be listed on the Nasdaq SmallCap Market.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NUMBER DESCRIPTION
------ -----------
10.1 Amendment No. 1 to Employment Contract
dated May 13, 1998 between the Company
and Irwin Zellermaier.
10.2 Amendment No. 2 to Employment Contract
dated May 13, 1998 between the Company
and Gerald Nimberg.
27 Financial Data Schedule (for SEC use
only)
(b) Reports on Form 8-K
(i) Current Report on Form 8-K dated June 30, 1998 filed
with the Securities and Exchange Commission on July
23, 1998 regarding the Sterling Agreement.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GENERAL CREDIT CORPORATION
Date: August 13, 1998 By: /s/ Irwin Zellermaier
------------------------------------
Irwin Zellermaier,
Chief Executive Officer
Date: August 13, 1998 By: /s/ David Bader
------------------------------------
David Bader,
Principal Financial and
Accounting Officer
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GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 1,251,546 $ 1,794,338
Restricted cash 2,000,000 2,300,000
Receivables from customers
and agents, net 1,140,673 691,728
Prepaid expenses and other current
assets 136,439 69,308
------------ ------------
Total current assets 4,528,658 4,855,374
Fixed assets, at cost, less
accumulated depreciation 261,302 171,903
Notes receivable from officer 60,000 50,000
Goodwill and other intangibles, net 4,926,575 5,103,017
Other assets 69,330 80,018
------------ ------------
Total $ 9,845,865 $ 10,260,312
============ ============
LIABILITIES
Current liabilities:
Notes payable $ 1,032,009 $ 299,483
Accounts payable and accrued
expenses 361,058 400,588
------------ ------------
Total current liabilities 1,393,067 700,071
------------ ------------
Long-term portion of notes payable 1,635,974 2,622,738
------------ ------------
SHAREHOLDERS' EQUITY
Shareholders' equity:
Common shares, $.001 par value,
20,000,000 shares authorized,
3,510,000 shares and 3,435,000
shares issued and outstanding,
respectively 3,510 3,435
Additional paid-in capital 7,849,043 7,742,093
Deficit (1,035,729) (808,025)
------------ ------------
6,816,824 6,937,503
------------ ------------
Total $ 9,845,865 $ 10,260,312
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE FINANCIAL STATEMENTS.
F-1
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GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fee income - net $ 1,921,421 $ 544,141 $ 957,118 $ 544,141
----------- ----------- ----------- -----------
Expenses:
Selling, general and
administrative 1,509,356 379,946 743,079 342,505
Depreciation & amortization 194,795 51,814 98,958 51,390
Interest expense - net 444,974 146,350 224,375 43,337
----------- ----------- ----------- -----------
2,149,125 578,110 1,066,412 437,232
----------- ----------- ----------- -----------
Income (loss) before
extraordinary item (227,704) (33,969) (109,294) 106,909
Extraordinary item - early
extinguishment of debt -- (154,150) -- (154,150)
----------- ----------- ----------- -----------
Net (loss) $ (227,704) $ (188,119) $ (109,294) $ (47,241)
=========== =========== =========== ===========
Income (loss) per share
Income (loss) before
extraordinary item $ (.07) $ (.02) $ (.03) $ .04
Extraordinary item -- (.11) -- (.06)
----------- ----------- ----------- -----------
Net (loss) $ (.07) $ (.13) $ (.03) $ (.02)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 3,457,929 1,497,155 3,474,000 2,424,011
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE FINANCIAL STATEMENTS.
F-2
<PAGE> 13
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
------------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
Net loss $ (227,704) $ (188,119)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and amortization 194,795 51,814
Issuance of stock options 24,900 --
Issuance of common stock relating to
prepayment of debt -- 154,150
Change in assets and liabilities, net of
effects of acquisition of business
Receivables from customers and (448,945) (271,083)
Prepaid expenses (67,131) (110,057)
Other assets 9,228 (16,796)
Accounts payable and
accrued expenses (39,530) (108,399)
----------- -----------
Net cash used in operating
activities (554,387) (488,490)
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (106,292) (21,715)
Payment for purchase of business -- (4,500,000)
----------- -----------
Net cash used in investing
activities (106,292) (4,521,715)
----------- -----------
Cash flows from financing activities:
Borrowings under long-term and
short-term debt 70,000 1,400,000
Repayments of long-term and short-term
debt (324,238) --
Borrowings under bridge financing -- 366,390
Repayments of bridge financing -- (884,390)
Proceeds from issuance common stock
- net -- 7,542,729
Payment on common stock redemption -- (1,198)
Exercise of common stock warrants 82,125 --
Cash restricted for debt payments 300,000 (1,400,000)
Loans to officer and shareholder (10,000) --
----------- -----------
Net cash provided by
financing activities 117,887 7,023,531
----------- -----------
Net (decrease) increase in cash
and cash equivalents (542,792) 2,013,326
Cash and cash equivalents, beginning of
period 1,794,338 650
----------- -----------
Cash and cash equivalents, end of
period $ 1,251,546 $ 2,013,976
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE FINANCIAL STATEMENTS.
F-3
<PAGE> 14
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1997
-------- --------
Supplemental information:
Interest paid during the period $437,991 $128,104
======== ========
Income taxes paid during the period $ -- $ --
======== ========
Supplemental schedule of non-cash investing
and financing activities:
Common stock issued in connection with
acquisition of business $385,375
========
Common stock issued in connection with
prepayment of debt $154,150
========
Issuance of stock options $ 24,900
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE FINANCIAL STATEMENTS.
F-4
<PAGE> 15
NOTE 1 - BASIS OF PRESENTATION
The unaudited, condensed consolidated financial statements included herein,
commencing at page F-1, have been prepared in accordance with the requirements
of Regulation S-B and supplementary financial information included herein, if
any, has been prepared in accordance with Item 310(b) of Regulation S-B and,
therefore, omit or condense certain footnotes and other information normally
included in financial statements prepared in accordance with generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of the
financial information for the interim periods reported have been made. The
financial statements should be read in conjunction with the financial statements
and notes thereto, together with Management's Discussion and Analysis of
Financial Condition or Plan of Operation, contained in the Company's
Registration Statement on Form SB-2 (SEC File No. 333-09831) declared effective
by the Securities and Exchange Commission on April 25, 1997 and the Company's
1997 Annual Report on Form 10-KSB. Results of operations for the six months
ended June 30, 1998 are not necessarily indicative of the results for a full
year.
NOTE 2 - PUBLIC OFFERING
In May 1997, the Company sold, in its initial public offering of securities
(the "Offering"), 900,000 Units at $10.00 per unit. Each Unit consisted of three
shares of Common Stock and six redeemable Common Stock Purchase Warrants (the
"Warrants"). Each Warrant entitles the holder to purchase one additional share
of Common Stock at an exercise price of $3.375 through April 24, 2002. The
Warrants are redeemable by the Company, at the option of the Company, at $.25
per Warrant upon 30 days prior written notice, if the closing bid price as
reported on Nasdaq, or the closing price, as reported on a national or regional
securities exchange, as applicable, of the shares of Common Stock for 30
consecutive trading days ending within ten days of the notice of redemption of
the Warrants averages in excess of $6.00 per share. Prior to April 25, 1998, the
Warrants were not redeemable by the Company without the written consent of
Barron Chase Securities, Inc., the representative of the several underwriters of
the Company's initial public offering.
In connection with the Offering, the Company granted to the underwriter an
option to purchase up to 90,000 Units at an exercise price of $16.50 per unit,
exercisable during a five-year period commencing on April 25, 1997.
The net proceeds to the Company, after deducting all expenses of the
Offering, was approximately $7,200,000.
F-5
<PAGE> 16
NOTE 3 - ACQUISITIONS
NEW YORK PAYROLL FACTORS ("NYPF")
In 1996, the Company entered into a definitive agreement to acquire NYPF and
made non-refundable payments of $200,000. Since the acquisition did not close by
November 15, 1996, the closing date stipulated in the original agreement, the
deposit of $200,000 was expensed to operations during fiscal 1996. On January
13, 1997, the Company and NYPF entered into a new agreement to acquire NYPF for
$4,500,000 in cash and 125,000 shares of Common Stock. The acquisition of NYPF
was closed in May 1997 upon the conclusion of the public offering. The value
assigned to the shares issued was $3.083 a share, which equals their value in
the public offering. This acquisition was treated as a purchase for accounting
purposes and the operations of NYPF have been included in the consolidated
statement of operations from May 2,1997. The Company recorded goodwill of
$4,497,691 and a covenant not-to-compete of $350,000 relating to the NYPF
acquisition.
ACE VENTURE, INC. ("ACE")
On September 30, 1997 the Company acquired the operations of Ace (an
exclusive sales agent of the Company) for $489,500 (which includes legal costs
of $9,500). The purchase price was paid for by the Company by its issuance of
notes totaling $380,000 and cash of $109,500. The notes bear interest at 10% a
year and are payable in equal monthly installments of $7,040 for principal and
interest over 72 months to October 2003. This acquisition was treated as a
purchase for accounting purposes and the operations of Ace have been included in
the consolidated statement of operations from October 1,1997. The Company
recorded goodwill of $232,000 and a covenant not-to-compete of $232,000 relating
to the Ace acquisition.
The following unaudited pro-forma results of operations of the Company for
the six months ended June 30, 1997 assume each of these acquisitions occurred as
of January 1,1997.
Net revenue $1,631,856
Net income $ 440,943
Earnings per share $ .13
NOTE 4 - ADOPTION OF FASB STATEMENT NO. 130 "REPORTING COMPREHENSIVE INCOME"
The Company is exempt from the requirements of FASB Statement No. 130 since
it does not have items of "other comprehensive income".
F-6
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 1 TO EMPLOYMENT CONTRACT
BETWEEN
GENERAL CREDIT CORPORATION
AND
IRWIN ZELLERMAIER
<PAGE> 2
AMENDMENT NO. 1 TO EMPLOYMENT CONTRACT
THIS AMENDMENT NO. 1 TO THAT CERTAIN EMPLOYMENT CONTRACT is made and
entered as of the 13th day of May, 1998 ("Contract"), between GENERAL CREDIT
CORPORATION, a New York corporation ("EMPLOYER"), and IRWIN ZELLERMAIER
("EMPLOYEE").
R E C I T A L S:
A. The parties have entered into that certain Employment Contract dated
as of June 1, 1996 between EMPLOYER and EMPLOYEE (the "Contract").
B. EMPLOYEE is the Chairman and Chief Executive Officer of EMPLOYER.
C. The parties desire to amend the Contract to the extent and in the
respects set forth in this Amendment No. 1.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto mutually agree
as follows:
1. Article IV B 2 of the Contract is hereby amended in its entirety to
read as follows:
TERMINATION FOR REASONS OTHER THAN TERMINATION BY EMPLOYER FOR CAUSE;
OR VOLUNTARY UNILATERAL DECISION BY EMPLOYEE; OR DUE TO A CHANGE IN
CONTROL. If there is a termination of this Contract for any reason by
either party, other than as a result of (i) termination by EMPLOYER for
Cause (as hereinafter defined); or (ii) termination by voluntary
unilateral decision by EMPLOYEE without Cause (as hereinafter defined),
in addition to any damages hereunder; or (iii) due to a Change in
Control (as hereinafter defined), EMPLOYEE, in addition to any other
damages suffered hereunder, shall be entitled to receive (1) a lump sum
in an amount equal to three times EMPLOYEE's total compensation (base
salary plus bonus) paid by EMPLOYER to EMPLOYEE for the fiscal year
prior to EMPLOYEE's termination; and (2) all applicable allowances and
reimbursements from EMPLOYER due under Article V.
1
<PAGE> 3
2. New Article X of the Contract is hereby added to read in its entirety
as follows:
ARTICLE X.
CHANGE IN CONTROL
A. IN GENERAL. This Contract shall continue in full force and effect
notwithstanding any Change in Control (as defined below) involving
EMPLOYER. This Contract shall be binding upon EMPLOYER and EMPLOYEE and
their respective heirs, executors, administrators, successors and
assigns.
B. TERMINATION UPON CHANGE IN CONTROL. Notwithstanding anything to the
contrary contained herein, if at any time during the term of this
Contract and any renewal thereof, there shall be a Change in Control of
EMPLOYER, and if such Change in Control results in a diminution in
EMPLOYEE's compensation, responsibilities or position such that
EMPLOYEE cannot in good faith continue to fulfill the responsibilities
for which he is employed, as determined by EMPLOYEE in his sole
discretion, and if such Change in Control did not occur due to
EMPLOYEE's intentional bulk sale of voting shares of EMPLOYER owned by
him directly to such control persons or group, then:
1. LUMP SUM PAYMENT. EMPLOYEE shall have the option of
terminating this Contract upon thirty (30) days' notice and, in such
event EMPLOYER shall pay to EMPLOYEE at the time of such termination
(a) a lump sum in an amount equal to three times EMPLOYEE's total
compensation (base salary plus bonus) paid by EMPLOYER to EMPLOYEE for
the fiscal year prior to the Change in Control; and (b) all applicable
reimbursements from EMPLOYER due under Article V. Said lump sum payment
shall be in lieu of any and all compensation due to EMPLOYEE for the
years that would otherwise be remaining for the term of this Contract.
Upon receipt of said lump sum payment, this Contract and all rights and
duties of the parties shall be terminated, except as provided in
subsection 2 below.
2. CONSULTING SERVICES. In consideration for such lump sum
payment and for the right to terminate the Contract under the
conditions set forth above, EMPLOYEE agrees to consult with EMPLOYER
and its officers if requested to do so for a period of at least two (2)
years from the date of such termination. However, EMPLOYEE shall be
required to devote only such part of his time to such services as
EMPLOYEE believes reasonable in EMPLOYEE's sole discretion, and the
time and date such services are offered shall be determined by EMPLOYEE
so long as that time and date is within a reasonable period of time
after the request. It is expressly agreed that EMPLOYER's rights to
avail itself of the advice and consulting services of EMPLOYEE shall at
all times be exercised in a reasonable manner, that adequate notice
shall be given to EMPLOYEE in such event, and that noncompliance with
any such request by EMPLOYEE for good cause, including, but not limited
to, ill health, prior commitments, conflicts of interest or absence
from the New York
2
<PAGE> 4
City metropolitan area shall not constitute a breach or violation of
this Contract. EMPLOYEE agrees that, except for reimbursement of all
reasonable expenses incurred by him with respect to such consulting and
advisory services, payable as such consulting and advisory services are
rendered, he shall not be entitled to any further compensation. It is
understood that in furnishing any advisory and consulting services
provided herein, EMPLOYEE shall not be an EMPLOYEE of EMPLOYER but
shall act in the capacity of an independent contractor.
C. "CHANGE OF CONTROL" shall mean the occurrence of any one of the
following: (i) EMPLOYER sells substantially all of its assets to a
purchaser other than a Subsidiary, (ii) the sale of all outstanding
shares of capital stock of the EMPLOYER for cash, or (iii) a
transaction, including, but not limited to, the original issuance of
shares for cash, a merger or a consolidation of EMPLOYER in which the
holders of EMPLOYER's outstanding capital stock possessing the voting
power (under ordinary circumstances) to elect EMPLOYER's Board of
Directors immediately prior to the transaction do not continue to own a
majority of the capital stock possessing the voting (under ordinary
circumstances) to elect the surviving entity's Board of Directors
immediately after such transaction.
3. Articles X, XI, XII, and XIII of the Contract are hereby renumbered as
Articles XI, XII, XIII and XIV, respectively.
4. Except to the extent expressly set forth in this Amendment No. 1, the
Contract shall remain in full force and effect in accordance with its
terms.
3
<PAGE> 5
IN WITNESS WHEREOF, EMPLOYER and EMPLOYEE have caused this Amendment
No. 1 to be executed on the day and year first above written.
"EMPLOYER"
GENERAL CREDIT CORPORATION
By: /s/ Gerald Nimberg
---------------------------------
Authorized Representative
"EMPLOYEE"
/s/ Irwin Zellermaier
---------------------------------------
Irwin Zellermaier
4
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 2 TO EMPLOYMENT CONTRACT
BETWEEN
GENERAL CREDIT CORPORATION
AND
GERALD NIMBERG
<PAGE> 2
AMENDMENT NO. 2 TO EMPLOYMENT CONTRACT
THIS AMENDMENT NO. 2 TO THAT CERTAIN EMPLOYMENT CONTRACT is made and
entered as of the 13th day of May, 1998 ("Contract"), between GENERAL CREDIT
CORPORATION, a New York corporation ("EMPLOYER"), and GERALD NIMBERG
("EMPLOYEE").
R E C I T A L S:
A. The parties have entered into that certain Amendment No. 1 to
Employment Contract dated as of April 15, 1998 between EMPLOYER and EMPLOYEE
(the "Contract").
B. EMPLOYEE is the President and Chief Operating Officer of EMPLOYER.
C. The parties desire to amend the Contract to the extent and in the
respects set forth in this Amendment No. 2.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto mutually agree
as follows:
1. Article IV B 2 of the Contract is hereby amended in its entirety to
read as follows:
TERMINATION FOR REASONS OTHER THAN TERMINATION BY EMPLOYER FOR CAUSE;
OR VOLUNTARY UNILATERAL DECISION BY EMPLOYEE; OR DUE TO A CHANGE IN
CONTROL. If there is a termination of this Contract for any reason by
either party, other than as a result of (i) termination by EMPLOYER for
Cause (as hereinafter defined); or (ii) termination by voluntary
unilateral decision by EMPLOYEE without Cause (as hereinafter defined),
in addition to any damages hereunder; or (iii) due to a Change in
Control (as hereinafter defined), EMPLOYEE, in addition to any other
damages suffered hereunder, shall be entitled to receive (1) a lump sum
in an amount equal to three times EMPLOYEE's total compensation (base
salary plus bonus) paid by EMPLOYER to EMPLOYEE for the fiscal year
prior to EMPLOYEE's termination; and (2) all applicable allowances and
reimbursements from EMPLOYER due under Article V.
1
<PAGE> 3
2. New Article X of the Contract is hereby added to read in its entirety
as follows:
ARTICLE X.
CHANGE IN CONTROL
A. IN GENERAL. This Contract shall continue in full force and effect
notwithstanding any Change in Control (as defined below) involving
EMPLOYER. This Contract shall be binding upon EMPLOYER and EMPLOYEE and
their respective heirs, executors, administrators, successors and
assigns.
B. TERMINATION UPON CHANGE IN CONTROL. Notwithstanding anything to the
contrary contained herein, if at any time during the term of this
Contract and any renewal thereof, there shall be a Change in Control of
EMPLOYER, and if such Change in Control results in a diminution in
EMPLOYEE's compensation, responsibilities or position such that
EMPLOYEE cannot in good faith continue to fulfill the responsibilities
for which he is employed, as determined by EMPLOYEE in his sole
discretion, and if such Change in Control did not occur due to
EMPLOYEE's intentional bulk sale of voting shares of EMPLOYER owned by
him directly to such control persons or group, then:
1. LUMP SUM PAYMENT. EMPLOYEE shall have the option of
terminating this Contract upon thirty (30) days' notice and, in such
event EMPLOYER shall pay to EMPLOYEE at the time of such termination
(a) a lump sum in an amount equal to three times EMPLOYEE's total
compensation (base salary plus bonus) paid by EMPLOYER to EMPLOYEE for
the fiscal year prior to the Change in Control; and (b) all applicable
reimbursements from EMPLOYER due under Article V. Said lump sum payment
shall be in lieu of any and all compensation due to EMPLOYEE for the
years that would otherwise be remaining for the term of this Contract.
Upon receipt of said lump sum payment, this Contract and all rights and
duties of the parties shall be terminated, except as provided in
subsection 2 below.
2. CONSULTING SERVICES. In consideration for such lump sum
payment and for the right to terminate the Contract under the
conditions set forth above, EMPLOYEE agrees to consult with EMPLOYER
and its officers if requested to do so for a period of at least two (2)
years from the date of such termination. However, EMPLOYEE shall be
required to devote only such part of his time to such services as
EMPLOYEE believes reasonable in EMPLOYEE's sole discretion, and the
time and date such services are offered shall be determined by EMPLOYEE
so long as that time and date is within a reasonable period of time
after the request. It is expressly agreed that EMPLOYER's rights to
avail itself of the advice and consulting services of EMPLOYEE shall at
all times be exercised in a reasonable manner, that adequate notice
shall be given to EMPLOYEE in such event, and that noncompliance with
any such request by EMPLOYEE for good cause, including, but not limited
to, ill health, prior commitments, conflicts of interest or absence
from the New York
2
<PAGE> 4
City metropolitan area shall not constitute a breach or violation of
this Contract. EMPLOYEE agrees that, except for reimbursement of all
reasonable expenses incurred by him with respect to such consulting and
advisory services, payable as such consulting and advisory services are
rendered, he shall not be entitled to any further compensation. It is
understood that in furnishing any advisory and consulting services
provided herein, EMPLOYEE shall not be an EMPLOYEE of EMPLOYER but
shall act in the capacity of an independent contractor.
C. "CHANGE OF CONTROL" shall mean the occurrence of any one of the
following: (i) EMPLOYER sells substantially all of its assets to a
purchaser other than a Subsidiary, (ii) the sale of all outstanding
shares of capital stock of the EMPLOYER for cash, or (iii) a
transaction, including, but not limited to, the original issuance of
shares for cash, a merger or a consolidation of EMPLOYER in which the
holders of EMPLOYER's outstanding capital stock possessing the voting
power (under ordinary circumstances) to elect EMPLOYER's Board of
Directors immediately prior to the transaction do not continue to own a
majority of the capital stock possessing the voting (under ordinary
circumstances) to elect the surviving entity's Board of Directors
immediately after such transaction.
3. Articles X, XI, XII, and XIII of the Contract are hereby renumbered as
Articles XI, XII, XIII and XIV, respectively.
4. Except to the extent expressly set forth in this Amendment No. 2, the
Contract shall remain in full force and effect in accordance with its
terms.
3
<PAGE> 5
IN WITNESS WHEREOF, EMPLOYER and EMPLOYEE have caused this Amendment
No. 2 to be executed on the day and year first above written.
"EMPLOYER"
GENERAL CREDIT CORPORATION
By: /s/ Irwin Zellermaier
-------------------------------------
Authorized Representative
"EMPLOYEE"
/s/ Gerald Nimberg
-----------------------------------------
Gerald Nimberg
4
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,251,546
<SECURITIES> 0
<RECEIVABLES> 1,180,673
<ALLOWANCES> 40,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,528,658
<PP&E> 288,182
<DEPRECIATION> 26,880
<TOTAL-ASSETS> 9,845,865
<CURRENT-LIABILITIES> 1,393,067
<BONDS> 0
0
0
<COMMON> 3,510
<OTHER-SE> 6,813,314
<TOTAL-LIABILITY-AND-EQUITY> 9,845,865
<SALES> 1,921,451
<TOTAL-REVENUES> 1,921,451
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,704,151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 444,974
<INCOME-PRETAX> (227,704)
<INCOME-TAX> 0
<INCOME-CONTINUING> (227,704)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (227,704)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
