<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 September 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) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock, par
value $.001 per share as of November 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.
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GENERAL CREDIT CORPORATION
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
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PAGE
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Part I. FINANCIAL INFORMATION (UNAUDITED)..................................................................... 1
Item 1. Financial Statements.............................................................................. 1
Consolidated Condensed Balance Sheets,
September 30, 1998 and December 31, 1997.............................................. F-1
Consolidated Condensed Statements of Operations for the
Nine and Three Months Ended September 30, 1998 and 1997............................... F-2
Consolidated Condensed Statements of Cash Flows for the
Nine Months Ended September 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 OTHER INFORMATION
Item 1. Legal Proceedings ............................................................................... 5
Item 2. Changes in Securities and Use of Proceeds........................................................ 5
Item 3. Defaults Upon Senior Securities.................................................................. 5
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 5
Item 5. Other Information................................................................................ 5
Item 6. Exhibits and Reports on Form 8-K................................................................. 5
SIGNATURES.................................................................................................... 6
</TABLE>
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PART I. FINANCIAL INFORMATION
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 three and nine months ended September 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
prior to the IPO, 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 nine month period ended
September 30, 1997 reflects the Company's check factoring operations from May 3,
1997 through September 30, 1997 (the "Operational Period") as well as the period
from January 1, 1997 through May 2, 1997 when the Company's operations were
limited to administrative activities (the "Administrative Period").
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998
For the three and nine months ended September 30, 1998, the Company
derived fee income of $1,046,254 and $2,967,675 from the purchase of checks and
credit card sales slips. The face amount of checks purchased during the three
and nine months ended September 30, 1998 was
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approximately $93,000,000 and $270,000,000, and the face amount of credit card
sales slips purchased during the three and nine months ended September 30, 1998
was approximately $1,034,000 and $2,579,000.
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 nine
months ended September 30, 1998 was $881,638 and $2,390,994 which represents
84.3% and 80.6%, respectively of fee income.
For the three and nine months ended September 30, 1998, interest
expense was $187,281 and $632,255 which reflects the high interest rate the
Company is paying for its borrowings.
For the three and nine months ended September 30, 1998, the Company
incurred non-cash expenses of $99,912 and $319,607 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 nine months ended September 30, 1998 was
$122,577 and $350,281, or $.03 and $.10 per share.
Earnings before taxes, depreciation and amortization ("EBTDA") for the
three and nine months ended September 30, 1998 was a loss of $7,238 and $15,247.
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 NINE MONTHS ENDED SEPTEMBER 30, 1997
For the three and nine months ended September 30, 1997 the Company
derived fee income of $945,435 and $1,489,576 from the purchase of checks and
credit card sales slips. The face amount of checks purchased during the three
and nine months ended September 30, 1997 was approximately $84,000,000 and
$133,000,000 and the face amount of credit card sales slips purchased during the
three and nine months ended September 30, 1997 was approximately $230,000 and
$790,000.
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 nine
months ended September 30, 1997 was $798,938 and $1,178,884, respectively,
representing $1,129,364 of expenses incurred during the Operational Period.
During the three and nine months ended September 30, 1997, selling, general and
administrative expenses constituted approximately 84.5% and 79.1% of fee income.
For the three and nine months ended September 30, 1997, interest
expense was $144,941 and $291,291 of which $258,925 was incurred during the
Operational Period.
For the three and nine months ended September 30, 1997 the Company
incurred non-cash expenses of $77,461 and $129,275 consisting of primarily 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.
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Net loss for the three months ended September 30, 1997 was $75,905 or
$.02 per share and net loss for the nine months ended September 30, 1997 was
$264,024 or a loss of $.12 per share. For the Operational Period, the Company
generated a net loss of $27,425 or $.01 per share.
Earnings before taxes, depreciation and amortization ("EBTDA") during
the Operational Period and for the three months ended September 30, 1997 was
approximately $100,723 ($.03 per share) and $1,556 (.00 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 cash flow generated from operations,
the Company finances its operations principally through (i) undocumented short
term working capital loan arrangements with various banks and lenders,
unaffiliated with the Company, who extend credit to the Company based upon
uncollected checks purchased by the Company deposited for payment. This credit
has, from time to time, reached approximately $4 million and is typically repaid
with interest daily or every few days (the "Uncollected Check Loans");(ii)a long
term working capital credit facility in the aggregate principal amount of up to
$2,333,355 (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; and (iii)a $500,000 working capital loan (the "500,000 Loan") provided
by the wife of a sales representative of the Company. 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, as amended, the
Affiliated General Partnership has established a credit facility in favor of the
Company in the aggregate principal amount of $2,333,355. The Company has 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, as amended, bear interest at the rate of 24% per annum. Interest
is payable monthly by the Company under the Long Term Loan, as amended, on the
outstanding principal amount borrowed. All accrued but unpaid interest as well
as $1,833,355 of the principal amount owed under the Long Term Loan, as amended,
is due in June 1999 and all accrued but unpaid interest as well as the remaining
$500,000 of the principal amount owed under the Long Term Loan, is due in
October 2001, provided, however, the Affiliated General Partnership may require
payment in full of the $500,000 principal amount at each of October 1999 and
October 2000 upon thirty days prior written notice. The Company may prepay all
or any part of up to $1,833,355 principal amount owed under the Long Term Loan,
as amended, on three days prior written notice without premium or penalty but
will be subject to a prepayment penalty of three months' interest in the event
the Company prepays all of the remaining $500,000 principal amount of the Long
Term Loan, as amended. 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. Pursuant to the
$500,000 Loan, the Company is obligated to pay, on a monthly basis, interest
only at 21% per annum on the outstanding principal amount under the $500,000
Loan. All accrued but unpaid interest together with the principal amount
outstanding under the $500,000 Loan is due to be repaid by the Company in
November 2001. The Company may prepay the $500,000 Loan without premium or
penalty. As of September 30, 1998, the outstanding amount owed pursuant to the
Uncollected Check Loans and the Long Term Loan
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was approximately $2.1 million approximately $1.8 million of which is owed
pursuant to the Long Term Loan. These amounts do not include any amounts owed
pursuant to the $500,000 Loan because the $500,000 Loan was extended in November
1998.
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 September 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. In October
1998, the Company terminated the Sterling Agreement due to, among other things,
the Company's belief that Sterling could not service the Sterling Agreement to
the Company's satisfaction and in compliance with the Sterling Agreement.
The Company 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 September 30, 1998, the Company had available cash and cash
equivalents of $1,252,352.
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 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.
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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 be "Year 2000" compliant.
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
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
During the third quarter ended September 30, 1998, no matters were
submitted to a vote of security holders of the Company, through the solicitation
of proxies or otherwise.
ITEM 5. OTHER INFORMATION
Effective the close of business on September 28, 1998, the Company's
Common Stock and Warrants were delisted from the Nasdaq SmallCap Market System
due to, among other things, Nasdaq's determination that the Company could not
sustain compliance with all of the requirements for continued Nasdaq listing.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NUMBER DESCRIPTION
------ -----------
10.1 Amendment No. 2 to Employment Contract dated
November 2, 1998 between the Company and David Bader
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
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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: November 13, 1998 By: /s/ Irwin Zellermaier
----------------------------
Irwin Zellermaier,
Chief Executive Officer
Date: November 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
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SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
ASSETS (UNAUDITED)
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Current assets:
Cash and cash equivalents $ 1,252,352 $ 1,794,338
Restricted cash 1,833,335 2,300,000
Receivables from customers
and agents, net 1,386,859 691,728
Prepaid expenses and other current
assets 232,188 69,308
------------ ------------
Total current assets 4,704,734 4,855,374
Fixed assets, at cost, less
accumulated depreciation 287,243 171,903
Notes receivable from officer 60,000 50,000
Goodwill and other intangibles, net 4,838,354 5,103,017
Other assets 67,649 80,018
------------ ------------
Total $ 9,957,980 $ 10,260,312
============ ============
LIABILITIES
Current liabilities:
Notes payable $ 1,676,655 $ 299,483
Accounts payable and accrued
expenses 699,535 400,588
------------ ------------
Total current liabilities 2,376,190 700,071
------------ ------------
Long-term portion of notes payable 782,543 2,622,738
------------ ------------
SHAREHOLDERS' EQUITY
Shareholders' equity:
Common shares, $.001 par value,
20,000,000 shares authorized,
3,615,000 shares and 3,435,000
shares issued and outstanding,
respectively 3,615 3,435
Additional paid-in capital 7,953,938 7,742,093
Deficit (1,158,306) (808,025)
------------ ------------
6,799,247 6,937,503
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Total $ 9,957,980 $ 10,260,312
============ ============
</TABLE>
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)
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NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1998 1997 1998 1997
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Fee income - net $ 2,967,675 $ 1,489,576 $ 1,046,254 $ 945,435
----------- ----------- ----------- -----------
Expenses:
Selling, general and
administrative 2,390,994 1,178,884 881,638 798,938
Depreciation and amortization 294,707 129,275 99,912 77,461
Interest expense - net 632,255 291,291 187,281 144,941
----------- ----------- ----------- -----------
3,317,956 1,599,450 1,168,831 1,021,340
----------- ----------- ----------- -----------
Loss before extraordinary item (350,281) (109,874) (122,577) (75,905)
Extraordinary item - early
extinguishment of debt -- (154,150) -- --
----------- ----------- ----------- -----------
Net loss $ (350,281) $ (264,024) $ (122,577) $ (75,905)
=========== =========== =========== ===========
Loss per share
Loss before
extraordinary item $ (.10) $ (.05) $ (.03) $ (.02)
Extraordinary item -- (.07) -- --
----------- ----------- ----------- -----------
Net loss $ (.10) $ (.12) $ (.03) $ (.02)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 3,505,050 2,150,201 3,588,750 3,435,000
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE FINANCIAL STATEMENTS.
F-2
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GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
----------- -----------
Cash flows from operating activities:
Net loss $ (350,281) $ (264,024)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and amortization 294,707 129,275
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 agents (695,131) (514,223)
Prepaid expenses (162,880) (110,388)
Other assets 10,168 (30,158)
Accounts payable and
accrued expenses 298,947 (77,363)
----------- -----------
Net cash used in operating
activities (579,570) (712,731)
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (143,183) (30,808)
Payment for purchase of business -- (4,500,000)
----------- -----------
Net cash used in investing
activities (143,183) (4,530,808)
----------- -----------
Cash flows from financing activities:
Borrowings under long-term and
short-term debt 90,000 2,250,000
Repayments of long-term and short-term
debt (553,023) --
Borrowings under bridge financing -- 366,390
Repayments of bridge financing -- (884,390)
Proceeds from issuance common stock
- net 105,000 7,542,729
Payment on common stock redemption -- (1,198)
Exercise of common stock warrants 82,125 --
Cash restricted for debt payments 466,665 --
Loans to officer and shareholder (10,000) --
----------- -----------
Net cash provided by
financing activities 180,767 9,273,531
----------- -----------
Net (decrease) increase in cash
and cash equivalents (541,986) 4,029,992
Cash and cash equivalents, beginning of
period 1,794,338 650
----------- -----------
Cash and cash equivalents, end of
period $ 1,252,352 $ 4,030,642
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE FINANCIAL STATEMENTS.
F-3
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GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
------------ --------
Supplemental information:
Interest paid during the period $ 742,395 $ 290,548
=========== =========
Income taxes paid during the period $ 15,427 $ -
=========== =========
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
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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 nine months
ended September 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
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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 nine months ended September 30, 1997 assume each of these acquisitions
occurred as of January 1, 1997.
Net revenue $2,577,291
Net income $ 391,097
Earnings per share $ .11
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. 2 TO EMPLOYMENT CONTRACT
BETWEEN
GENERAL CREDIT CORPORATION
AND
DAVID BADER
<PAGE> 2
AMENDMENT NO. 2 TO EMPLOYMENT CONTRACT
THIS AMENDMENT NO. 2 TO THAT CERTAIN EMPLOYMENT CONTRACT is made and
entered as of the 2nd day of November, 1998 ("Contract"), between GENERAL CREDIT
CORPORATION, a New York corporation ("EMPLOYER"), and DAVID BADER ("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 Vice President and Chief Financial 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, (i) other than as a result of termination by EMPLOYER for
Cause (as hereinafter defined); or (ii) other than as a result of
termination by voluntary unilateral decision by EMPLOYEE without Cause
(as hereinafter defined), 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.
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,
------------------------------
Irwin Zellermaier, CEO
"EMPLOYEE"
/s/ David Bader
------------------------------
David Bader
3
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,252,352
<SECURITIES> 0
<RECEIVABLES> 1,426,859
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<CURRENT-ASSETS> 4,704,734
<PP&E> 325,073
<DEPRECIATION> 37,830
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0
0
<COMMON> 3,615
<OTHER-SE> 6,795,632
<TOTAL-LIABILITY-AND-EQUITY> 9,957,980
<SALES> 2,967,675
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