<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 the Quarterly Period Ended March 31, 1999
[ ] 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 (IRS Employer
incorporation or organization) Identification No.)
370 Lexington Avenue, Suite 2000
NEW YORK, NEW YORK 10017
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(Address of principal executive offices)
(212) 697-4441
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(Issuer's Telephone Number)
----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check 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 | |
On May 11, 1999, the number of shares of Common Stock of the issuer
outstanding was 3,615,000 shares of Common Stock, par value $.001 per
share.
Traditional Small Business Disclosure Format (check one) Yes |X| No | |
Documents Incorporated By Reference: None
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GENERAL CREDIT CORPORATION
FORM 10-QSB
QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION (UNAUDITED)
<S> <C>
Item 1. Financial Statements............................................................................1
Consolidated Condensed Balance Sheets,
March 31, 1999 and December 31, 1998.................................................2
Consolidated Condensed Statements of Operations for the
Three Months Ended March 31, 1999 and 1998...........................................3
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998...........................................4
Notes to Consolidated Condensed Financial Statements.......................................5
Item 2. Management's Discussion and Analysis or Plan of Operation.......................................8
PART II: OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................13
Item 2. Changes in Securities and Use of Proceeds......................................................13
Item 3. Defaults Upon Senior Securities................................................................13
Item 4. Submission of Matters to a Vote of Security Holders............................................14
Item 5. Other Information..............................................................................14
Item 6. Exhibits and Reports on Form 8-K...............................................................14
SIGNATURES..................................................................................................15
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited, condensed financial statements included herein, 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 months ended March 31, 1999 are not necessarily
indicative of the results for the year ending December 31, 1999.
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GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,084,981 $ 1,335,548
Certificates of deposit 62,819 212,819
Restricted cash and uncleared checks 2,333,335 2,333,335
Receivables from customers
and agents, net 1,824,989 1,625,315
Prepaid expenses and other current
assets 119,609 95,142
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Total current assets 5,425,733 5,602,159
Fixed assets, at cost, less
accumulated depreciation 338,093 310,646
Notes receivable from officer 58,224 58,900
Goodwill and other intangibles, net 379,416 393,916
Other assets 123,387 128,088
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Total $ 6,324,853 $ 6,493,709
=========== ===========
LIABILITIES
Current liabilities:
Notes payable $ 2,954,767 $ 3,114,615
Accounts payable and accrued
expenses 599,609 527,442
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Total current liabilities 3,554,376 3,642,057
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Long-term portion of notes payable 754,618 768,074
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SHAREHOLDERS' EQUITY
Shareholders' equity:
Common shares, $.001 par value,
20,000,000 shares authorized,
3,615,000 shares issued and
outstanding 3,615 3,615
Additional paid-in capital 7,953,938 7,953,938
Stock subscription (97,475) (99,778)
Deficit (5,844,219) (5,774,197)
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2,015,859 2,083,578
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Total $ 6,324,853 $ 6,493,709
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE FINANCIAL STATEMENTS.
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GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1999 1998
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<S> <C> <C>
Fee income - net $1,104,592 $ 964,303
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Expenses:
Selling general and administrative 916,251 766,277
Depreciation and amortization 39,077 95,837
Interest expense - net 219,286 220,599
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1,174,614 1,082,713
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Net loss $ (70,022) $ (118,410)
========== ==========
Net loss per common share $(.02) $ (.03)
===== ======
Weighted average number of
common shares outstanding 3,615,000 3,436,875
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE FINANCIAL STATEMENTS.
3
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GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (70,022) $ (118,410)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and amortization 39,077 95,837
Issuance of stock options -- 24,900
Bad debt expense 50,000 --
Change in assets and liabilities
Receivables from customers and agents (249,674) (555,638)
Prepaid expenses (30,717) (27,058)
Other assets 2,165 1,629
Accounts payable and accrued expenses 72,167 (114,399)
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Net cash used in operating
activities (187,004) (693,139)
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Cash flows from investing activities:
Purchase of fixed assets (43,239) (42,642)
Decrease in certificate of deposit 150,000 --
----------- ----------
Net cash provided by (used in)
investing activities 106,761 (42,642)
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Cash flows from financing activities:
Borrowings under long-term and
short term debt agreements 530,432 370,000
Repayments of long-term and
short-term debt (703,735) (12,119)
Proceeds from exercise of warrants -- 10,125
Cash restricted for debt payments -- (300,000)
Collection on loans to officer 676 --
Collection on stock subscription 2,303 --
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Net cash (used in) provided by
financing activities (170,324) 68,006
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Net decrease in cash and cash
equivalents (250,567) (667,775)
Cash and cash equivalents, beginning of
period 1,335,548 1,794,338
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Cash and cash equivalents, end of
period $ 1,084,981 $1,126,563
=========== ==========
SUPPLEMENTARY INFORMATION:
Interest paid $ 244,074 $ 234,309
=========== ==========
Taxes paid $ 20,247 $ --
=========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE FINANCIAL STATEMENTS.
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GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited, condensed consolidated financial statements included
herein, commencing at page 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
1998 Annual Report on Form 10-KSB. Results of operations for the three months
ended March 31, 1999 are not necessarily indicative of the results for a full
year.
The Company's independent auditors' report on the Company's consolidated
financial statements for the fiscal year ended December 31, 1998, includes an
explanatory paragraph stating that the Company has not complied with certain
financial covenants of the Long Term Loan which have not been waived by the
Affiliated Corporation. While management believes that if the Long Term Loan is
called by the Affiliated Corporation, there exists sufficient collateral to
repay the Long Term Loan, such an event would severely limit the Company's
ability to conduct normal operations, which raises substantial doubt about the
Company's ability to continue as a going concern. Notwithstanding the
non-compliance with certain technical covenants of the Long Term Loan, in April
1999, the Affiliated Corporation and the Company entered into a third amendment
to the Long Term Loan, which, among other things, extends the termination date
of the Long Term Loan. Management believes because of the extension, among other
things, that the Affiliated Corporation will continue to make funds available to
the Company under the Long Term Loan. Management is also seeking additional
sources of funding. No assurances can be given that the Company will be able to
obtain alternate sources of funding, on a timely basis, if at all, or that the
Affiliated Corporation will not call the Long Term Loan resulting in the Company
being required to pay all of the outstanding amounts owed under the Long Term
Loan.
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GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 are 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.
NOTE 3 - ACQUISITIONS
NEW YORK PAYROLL FACTORS ("NYPF")
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. During the year ended December 31, 1998, the
Company wrote off the remaining unamortized portion of the goodwill and the
covenant not to complete.
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GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITIONS (CONT'D)
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION OR PLAN OF
OPERATION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS
REPORT.
THE COMPANY'S INDEPENDENT AUDITORS' REPORT ON THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998,
INCLUDED AN EXPLANATORY PARAGRAPH STATING THAT THE COMPANY HAS NOT COMPLIED WITH
CERTAIN FINANCIAL COVENANTS OF THE LONG TERM LOAN WHICH HAVE NOT BEEN WAIVED BY
THE AFFILIATED CORPORATION (AS SUCH TERMS ARE DEFINED BELOW). WHILE MANAGEMENT
BELIEVES THAT IF THE LONG TERM LOAN IS CALLED BY THE AFFILIATED CORPORATION,
THERE EXISTS SUFFICIENT COLLATERAL TO REPAY THE LONG TERM LOAN, SUCH AN EVENT
WOULD SEVERELY LIMIT THE COMPANY'S ABILITY TO CONDUCT NORMAL OPERATIONS, WHICH
RAISES SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A GOING
CONCERN. NOTWITHSTANDING THE NON-COMPLIANCE WITH CERTAIN TECHNICAL COVENANTS OF
THE LONG TERM LOAN, IN APRIL 1999, THE AFFILIATED CORPORATION AND THE COMPANY
ENTERED INTO A THIRD AMENDMENT TO THE LONG TERM LOAN, WHICH, AMONG OTHER THINGS,
EXTENDS THE TERMINATION DATE OF THE LONG TERM LOAN. MANAGEMENT BELIEVES BECAUSE
OF THE EXTENSION, AMONG OTHER THINGS, THAT THE AFFILIATED CORPORATION WILL
CONTINUE TO MAKE FUNDS AVAILABLE TO THE COMPANY UNDER THE LONG TERM LOAN.
MANAGEMENT IS ALSO SEEKING ADDITIONAL SOURCES OF FUNDING. NO ASSURANCES CAN BE
GIVEN THAT THE COMPANY WILL BE ABLE TO OBTAIN ALTERNATE SOURCES OF FUNDING, ON A
TIMELY BASIS, IF AT ALL, OR THAT THE AFFILIATED CORPORATION WILL NOT CALL THE
LONG TERM LOAN RESULTING IN THE COMPANY BEING REQUIRED TO PAY ALL OF THE
OUTSTANDING AMOUNTS OWED UNDER THE LONG TERM LOAN.
OVERVIEW
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.
RESULTS OF OPERATIONS
For the three months ended March 31, 1999, the Company derived fee
income of $1,104,592 from the purchase of checks and credit card sales slips,
compared to $964,303 for the three months ended March 31, 1998. The face amount
of checks purchased during the three months ended March 31, 1999 was
approximately $102,133,000 compared to $88,748,000 for the three months ended
March 31, 1998, and the face amount of credit card sales slips purchased during
the three months ended March 31, 1999 was approximately $502,000 compared to
$671,000 for the three months ended March 31, 1998.
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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 months
ended March 31, 1999 and March 31, 1998 was $916,251 and $766,277, respectively,
which represents 83% and 79% of fee income, respectively. The increase in the
selling, general and administrative expenses is due to the expenses associated
with new locations, including, among other things, increased payroll and rental
expenses. In addition, included in the selling, general and administrative
expenses for the three month period ended March 31, 1999 is an increase in the
allowance for bad debts in the amount of $50,000 (the "Allowance").
For the three month period ended March 31, 1999 and March 31, 1998,
interest expense, net of interest income, was $219,286 and $220,599, which
reflects the high interest rate the Company is paying for its borrowings.
For the three months ended March 31, 1999, the Company incurred
non-cash expenses of $89,077 consisting primarily of the amortization of the
intangible assets acquired by the Company when it purchased the business of a
commissioned agent in September 1997 and an increase in the allowance for bad
debts in the amount of $50,000 compared to $95,837 for the three months ended
March 31, 1998. The Company recorded a one-time non-recurring charge in the
fourth quarter of 1998 of approximately $ 4.65 million, or ($1.32) per share
relating to the elimination of the remaining balance of the goodwill and the
covenant not to compete from the NYPF Business Combination. Accordingly, the
Company during the first quarter ended March 31, 1999 did not incur any expense
or amortization cost relating to the NYPF Business Combination.
Net loss for the three months ended March 31, 1999 was $70,022 or $.02
per share, compared to $118,410 or $.03 per share for the three months ended
March 31, 1998.
Earnings before taxes, depreciation, and the increase in allowance for
bad debts and amortization ("EBTDA") during the three months ended March 31,
1999 was $39,302 or approximately $.01 per share per the weighted average number
of shares outstanding compared to $1,877 for the three months ended March 31,
1998. 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 purchased checks can mitigate the Company's cash needs.
The Company received the net proceeds from the IPO in May 1997. The
Company finances its operations principally through (i) cash flow generated from
operations; (ii) a long term working capital credit facility in the aggregate
principal amount of up to $2,333,335 (the "Long Term Loan") provided by a
corporation (the "Affiliated Corporation"), in part owned by Gerald Schultz, the
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former owner of NYPF and Ann Nimberg, the wife of Gerald Nimberg, the President
of the Company; (iii) a $500,000 working capital loan (the "500,000 Loan")
provided by the wife of a sales representative of the Company; (iv) demand loans
from Irwin Zellermaier and Gerald Nimberg, the Company's Chief Executive Officer
and President, respectively, in the principal amount of $225,000; and (v) 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 and deposited for payment. This
credit has, from time to time, reached approximately $5.5 million and is
typically repaid with interest or uncollected bank charges daily or every few
days (the "Uncollected Check Loans"). Ann Nimberg has informed the Company that
she owns approximately 8% of the Affiliated Corporation.
Pursuant to the terms of the Long Term Loan, as amended (last amended
in April 1999), the Affiliated Corporation has established a credit facility in
favor of the Company in the aggregate principal amount of $2,333,335. The
Company has the right to borrow from the Affiliated Corporation 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 all principal amount owed under the Long Term Loan, as amended, is due
in April 2001. The Company may not prepay all or any part of the principal
amount owed under the Long Term Loan, as amended until the Company has delivered
twelve months of interest payments. Subsequent to the Company's payment of the
twelve months interest, on three days prior written notice, the Company may
prepay all principal amount owed under the Long Term Loan subject to a
prepayment penalty of three months' interest. The Company's repayment
obligations under the Long Term Loan are secured by, among other things, all of
the Company's accounts receivable and certain fixtures and equipment at the
Company's leased premises. The Long Term Loan requires that the Company maintain
collateral in the form of uncollected purchased checks or cash in the amount of
$2,333.335 (the "Collateral Requirement"). Pursuant to the Long Term Loan, the
full amount of the Long Term Loan is due and payable, in the event, among other
things: (i) the Company's losses (before non-cash charges) are greater than
$50,000 per year or in any two consecutive quarters in a fiscal year; (ii) the
Company's cash balances are less than $1.1 million (which amounts are exclusive
of the Collateral Requirement); or (iii) the Company does not deliver to the
Affiliated Corporation its audited financial statements before the date which is
90 days from December 31. An event of default exists under the Long Term Loan
due to the Company's losses (before non-cash items) being greater than $50,000
during 1998 and the Company not delivering audited financial statements to the
Affiliated Corporation prior to March 31, 1999. On April 15, 1999, the Company
delivered the audited financial statements called for in the Long Term Loan.
Although the Affiliated Corporation has not exercised any of its rights under
the Long Term Loan (including its right to accelerate payment of all amounts
owed by the Company under the Long Term Loan), the Affiliated Corporation has
not waived its rights under the Long Term Loan. Notwithstanding these events of
default, the Affiliated Corporation entered into an amendment to the Long Term
Loan in April 1999 without waiving the prior defaults.
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.
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During the three months ended March 31, 1999, Irwin Zellermaier, the
Company's Chief Executive Officer and Chairman of the Board of Directors and
Gerald Nimberg, the Company's President, Chief Operating Officer and acting
Chief Financial Officer provided unsecured short term working capital loans to
the Company in the principal amount of $210,000 and approximately $15,000
(collectively the "Zellermaier and Nimberg Loans"). The principal amount of the
Zellermaier and Nimberg Loans are repayable by the Company to Mr. Zellermaier
and Mr. Nimberg on Mr. Zellermaier's and Mr. Nimberg's respective demand subject
to the Company's obligation to notice the Affiliated Corporation of such demand
for payment and the Affiliated Corporation's right to be repaid all outstanding
amounts under the Long Term Loan. Interest at 24% per annum is payable monthly
by the Company on the Zellermaier and Nimberg Loans.
As of March 31, 1999, in addition to the above mentioned liabilities,
the Company is obligated under several notes and advances payable in the
aggregate amount of approximately $651,000.
In order for the Company to grow and purchase checks, it requires
capital. To date, the Company has not had adequate cash resources to satisfy the
demand it perceives for its check purchasing services. 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 achieve profitability, fund growth, take advantage of certain acquisition
opportunities or respond to competitive pressures.
As of March 31, 1999, the Company had available cash and cash
equivalents and certificates of deposit of approximately $1,147,000 as compared
to approximately $ 1,548,000 as of December 31, 1998. This decrease in cash is
due principally to the purchase of fixed assets for the Company's new locations
(approximately $43,000), net repayment of loans (approximately $173,000) and the
increase in the Company's purchase of post dated checks.
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).
YEAR 2000 COMPLIANCE
The Year 2000 ("Year 2000") computer issue is the result of computer
programs using a two-digit format, as opposed to a four-digit format to indicate
the year. Such computer programs will be unable to recognize date information
correctly when the year changes to 2000. The Year 2000 issue poses risks for the
Company's information technology systems.
The Company's information technology systems are based upon software
licenses and software maintenance agreements with third party software
companies. Based upon the Company's internal assessments and communications with
its software vendors, all of the software utilized by
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the Company is Year 2000 compliant software. The Company has used internal
personnel to test its software systems for Year 2000 compliance and such tests
yielded positive results. The Company will continue to monitor its Year 2000
readiness. Also, the Company does not anticipate difficulty in resolving issues
related to imbedded technology in the equipment provided to the Company by other
manufacturers.
Based on the foregoing, the Company believes that it will be Year 2000
compliant on a timely basis and that future costs relating to the Year 2000
issue will not have a material impact on the Company's consolidated financial
position, results of operations or cash flows.
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," "expect" and "intends" 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 the uncertainty associated with the Company's acquisition of
additional financing, those described in this Quarterly Report on Form 10- QSB,
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 periodic reports filed by the Company. 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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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently a defendant in a lawsuit brought by an
unaffiliated third party individual who seeks to have a parcel of improved real
property located in Brooklyn, New York currently owned by the Company
transferred back to the unaffiliated third party individual on the basis of
fraud committed by the Company (the "Real Property Suit"). The improved real
property was initially transferred to the Company in consideration for amounts
owed to the Company. The unaffiliated third party individual's claim also seeks
damages for "over reaching" against the Company in the amount of $1,000,000. The
Company is vigorously defending the lawsuit and based on advice of its counsel,
believes the action is without merit or legal basis.
In March 1998, the Company received a demand letter from an
unaffiliated third party individual regarding certain allegations advanced by
this unaffiliated third party individual against the Company (the "Letter").
According to the Letter, the unaffiliated third party individual alleges he is
entitled to have the Company transfer to him 750,000 shares of the Company's
Common Stock due to certain breaches of agreements by the Company. The Company
has received no further correspondence from this unaffiliated third party
individual. If pursued, the Company intends to vigorously defend against these
allegations.
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
An event of default exists under the Long Term Loan due to the
Company's losses (before non-cash items) being greater than $50,000 during 1998
and the Company not delivering audited financial statements to the Affiliated
Corporation prior to March 31, 1999. Although the Affiliated Corporation has not
exercised any of its rights under the Long Term Loan (including its right to
accelerate payment of all amounts owed by the Company under the Long Term Loan),
the Affiliated Corporation has not waived its rights under the Long Term Loan.
Notwithstanding these events of default, the Affiliated Corporation entered into
an amendment to the Long Term Loan in April 1999 without waiving the prior
defaults. Management believes because of the extension, among other things, that
the Affiliated Corporation will continue to make funds available to the Company
under the Long Term Loan. Management is also seeking additional sources of
funding. No assurances can be given that the Company will be able to obtain
alternate sources of funding, on a timely basis, if at all, or that the
Affiliated Corporation will not call the Long Term Loan resulting in the Company
being required to pay all of the outstanding amounts owed under the Long Term
Loan.
13
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
During the first quarter ended March 31, 1999, no matters were
submitted to a vote of security holders of the Company, through the solicitation
of proxies or otherwise.
ITEM 5. OTHER INFORMATION
In April 1999, the Company entered into a joint venture arrangement
with an unaffiliated third party for the purpose of operating a check cashing
location in Brooklyn, NY. The joint venture is owned 80.5% by the Company and
19.5% by the unaffiliated third party. Pursuant to the joint venture
arrangement, the Company delivered to the unaffiliated third party the sum of
$130,000 and promissory notes which, inclusive of interest, obligate the Company
to pay to such unaffiliated third party the sum of $120,000 in varying monthly
installment amounts commencing May 1999 over a four year period. In addition, in
connection with this transaction, the Company has agreed to pay to the
unaffiliated third party over a four year period (commencing upon the
presentation of an audit of the joint venture for the 12 month period), 50% of
the first twelve months of pre-tax operating profits, on a cash basis, of the
joint venture up to $215,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NUMBER DESCRIPTION
------ -----------
27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
14
<PAGE> 17
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: May 12, 1999 By: /S/IRWIN ZELLERMAIER
------------------------------
Irwin Zellermaier,
Chief Executive Officer
Date: May 12, 1999 By: /S/GERALD NIMBERG
---------------------------------
Gerald Nimberg,
Principal Financial and Accounting Officer
15
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,084,981
<SECURITIES> 62,819
<RECEIVABLES> 1,925,358
<ALLOWANCES> 100,369
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<PP&E> 405,057
<DEPRECIATION> 66,964
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<CURRENT-LIABILITIES> 3,554,376
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0
0
<COMMON> 3,615
<OTHER-SE> 2,012,244
<TOTAL-LIABILITY-AND-EQUITY> 6,324,853
<SALES> 1,104,592
<TOTAL-REVENUES> 1,104,592
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<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 219,286
<INCOME-PRETAX> (70,022)
<INCOME-TAX> 0
<INCOME-CONTINUING> (70,022)
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<EXTRAORDINARY> 0
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<NET-INCOME> (70,022)
<EPS-PRIMARY> (.02)
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