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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission File No. 0-28910
GENERAL CREDIT CORPORATION
--------------------------
(Name of Small Business Issuer in Its Charter)
New York 13-3895072
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
370 Lexington Avenue, Suite 2000
New York, New York 10017
------------------------
(Address of principal executive offices)
(212) 697-4441
--------------
(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered
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Common Stock, Par Value $.001 per Share OTC Electronic Bulletin Board
Redeemable Common Stock Purchase Warrants OTC Electronic Bulletin Board
</TABLE>
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $4,917,428.
The aggregate market value of the voting common stock held by non-affiliates of
the issuer based on the closing sales price of $2.1875 of such common stock as
of March 20, 2000, is $5,814,593.75 based upon 2,658,100 shares of common stock
held by non-affiliates. For purposes of this computation, all executive
officers, directors and 5% beneficial owners of the common stock of the
registrant have been deemed to be affiliates. Such determination should not be
deemed to be an admission that such directors, officers or 5% beneficial owners
are, in fact, affiliates of the registrant. As of March 20, 2000, the Company
had a total of 3,615,000 shares of Common Stock, par value $.001 per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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GENERAL CREDIT CORPORATION
FORM 10-KSB
FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
Part I .......................................................................................1
Item 1. Description of Business........................................................1
Item 2. Description of Property........................................................5
Item 3. Legal Proceedings..............................................................6
Item 4. Submission of Matters to a Vote of Security Holders............................6
Part II .......................................................................................6
Item 5. Market for Common Equity and Related Stockholder Matters.......................6
Item 6. Management's Discussion and Analysis or Plan of Operation.....................11
Item 7. Financial Statements..........................................................11
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..........................................................11
Part III......................................................................................12
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act .......................................12
Item 10. Executive Compensation.................................................14
Item 11. Security Ownership of Certain Beneficial Owners and Management ........18
Item 12. Certain Relationships and Related Transactions.........................19
Item 13. Exhibits and Reports on Form 8-k.......................................20
Signatures....................................................................................21
Financial Statements.........................................................................F-1
</TABLE>
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
General Credit Corporation (the "Company") is a New York corporation
organized in February 1995. The Company is currently engaged in providing
working capital financing to its customers through the discounted purchase of
checks (commonly referred to as "check factoring"). The Company provides 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. The Company also purchases credit card sales
slips on a discounted basis ("Credit Card Sales Slips").
The Company's customers are typically small- and medium-sized
independent businesses located in the New York City metropolitan area and
northern New Jersey area. Included among such customers are sewing contractors,
wholesale distributors, independent trucking companies, printing companies,
converters, healthcare providers, retailers, insurers and commercial real estate
owners. The makers of the checks are manufacturers, construction firms and other
businesses paying for goods or services purchased from customers. Occasionally,
the Company purchases checks directly from the manufacturers, construction firms
and other businesses themselves. The Company's customers, typical of garment
industry contractors and other small-and medium-sized vendors, generally face
extraordinary periodic short-term cash requirements. By factoring checks,
customers can realize cash more quickly.
Currently, the Company is evaluating preliminary offers from third
parties to purchase the assets and/or stock of the Company, as well as possible
strategic alliances, including, among others, the combination of the Company
with other entities. On February 2, 2000, the Company entered into a non-binding
Memorandum of Understanding with Diamond Dealing.com, Inc. ("DDI"), a company
intending to develop an Internet-based marketplace for diamonds, gems, pearls,
and other precious stone trading. The Memorandum of Understanding summarizes and
confirms the discussions to date between the Company and DDI regarding the
proposal that the Company acquire substantially all of the assets of DDI,
subject to the liabilities of DDI in exchange for the issuance by the Company of
approximately 24,423,000 shares of the Company's Common Stock. The Company's
acquisition of the assets of DDI is subject to the completion of satisfactory
due diligence, the execution of a definitive agreement regarding the
acquisition, third party approvals and other customary conditions precedent. In
the event the acquisition of DDI is consummated, there will be a change in the
majority equity ownership and management of the Company. In connection with the
discussions with DDI, the Company is evaluating several alternatives regarding
whether, and to what extent, to continue its current check factoring business.
INDUSTRY OVERVIEW
Factoring, including check factoring, has been a method of working
capital financing in the United States for over 200 years. The factoring
industry has undergone considerable consolidation over the past several years;
as a result, the industry is characterized by a small number of very large
factors operating nationally, with a multitude of small companies generally
operating on a local or regional basis.
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OPERATING PROCEDURES
Management estimates that the Company typically purchases checks for
between 98% and 99% of the face amount of the check, depending on the amount of
the check, the historical volume of checks purchased by the Company from that
particular customer, whether the checks are presented directly by the customer
or through a broker, whether the checks actually have been presented to the
Company at the time of the Company's payment to the customer, and whether the
checks are post-dated. Management believes that the dollar amount of checks
purchased before they are presented to the Company, and post-dated checks, is
not material. During 1999, the average discounted purchase price was
approximately 98.9% of the face amount of the check. The difference between the
face amount of the check and the Company's purchase price for the check is known
as the "discount." The discount is negotiated on a case by case basis. The
Company believes that its customers prefer the Company as opposed to more
conventional financial institution financing as a source of funds because (i)
the Company does not require complex credit agreements, credit evaluation of
customers, guarantees or other credit enhancement, financial statements,
collateral or a minimum borrowing base of receivables or inventory, all or some
of which would typically be required by a financial institution prior to
establishing an accounts receivable or asset based line of credit, and (ii) the
Company provides liquidity virtually upon demand of its customers, in larger
amounts daily than most financial institutions are able to supply. In an attempt
to limit its exposure arising from a purchased check not being collectible, the
Company's policy is rarely to purchase any check with a face amount in excess of
$50,000. Losses arising from purchased checks which were not collected amounted
to approximately $176,000 during 1999 or approximately 0.4% of the total amount
of checks purchased by the Company during 1999.
The Company's procedures include its entering into a Purchase and Sale
Agreement with each customer stating the amount of the discount on checks to be
purchased by the Company from the customer, and providing, among other things,
that (i) the Company is not required to purchase any check having a face amount
less than $2,500, or not made payable to the order of the customer, or drawn on
an account of anyone other than a check maker approved by the Company, (ii) the
customer is responsible for losses resulting from forged or unauthorized
signatures of makers of checks or stop payments of checks, (iii) the customer
represents to the Company that, among other things, it owns the checks to be
sold, each check represents payment for merchandise or services actually
delivered or performed for a customer of the customer in a business and not a
consumer transaction, and each check is genuine and not subject to offsets or
defenses. The Company offers a door-to-door armed guard delivery service upon
the request of customers. Pursuant to banking resolutions and powers of attorney
in favor of the Company provided by each customer, the Company endorses each
purchased check beneath the endorsement of the customer before depositing it in
the Company's bank account.
SOURCES OF BUSINESS; COMMISSIONED REPRESENTATIVES
During 1999, management estimates that the Company obtained, as a
percentage of its fee income, approximately 35% of its fee income from
commissioned sales representatives at a weighted average commission of
approximately 1% of fee income.
COMPETITION
The Company competes in the check factoring business with firms that
provide working capital financing to small- and medium-sized businesses. Those
competing firms include banks, financial institutions, commercial finance
companies and factoring companies, some of which may have substantially greater
financial and other resources than the Company. The Company believes, based on
an informal study, that, including the Company, there are approximately 15 check
factoring firms operating in the same area in which its customers are located.
The Company also competes with other regional factoring companies that target
clients similar to the clients of the Company,
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some of which have operated in the markets serviced by the Company for a longer
period of time than the Company. There can be no assurance that the Company can
continue to compete successfully with its competitors.
SECURITY
Company employees at the Company's eight locations work behind
bullet-resistant plexiglass and steel partitions, and security measures for each
office include safes, alarm systems and security cameras, control over entry to
cash processing areas, detection of entry through perimeter openings, walls and
ceilings, checking all movement in and out of secured areas, wireless phones,
security guards and telephone battery back-up.
Since the Company's business requires it to maintain a significant
supply of cash in its stores, the Company is subject to the risk of cash
shortages resulting from theft and employee errors. Although the Company has
implemented various programs to reduce these risks and to provide security for
its facilities and employees, there can be no assurance that these problems will
be eliminated. Daily transportation of currency and checks is provided by
Company-owned armored carriers. The Company currently has insurance protection
against employee theft, burglary, robbery and other similar contingencies.
EMPLOYEES
The Company's employees consist of its two executive officers, Irwin
Zellermaier and Gerald Nimberg, 37 additional full-time and 12 additional
part-time employees. Messrs. Nimberg and Zellermaier devote their full business
time to the Company's business.
REGULATION
Under the Bank Secrecy Act and the Financial Recordkeeping and Currency
and Foreign Transactions Reporting Act regulations of the U.S. Department of the
Treasury, each financial institution, including check cashers such as the
Company, must file a Currency Transaction Report ("CTR") for each deposit,
withdrawal, exchange of currency, or other payment or transfer, by, through, or
to the financial institution which involves a transaction in currency of more
than $10,000. Any series of transactions within any calendar day that total more
than $10,000, and that the Company has knowledge were effected by or on behalf
of the same person, must also be reported. In addition, the Company is required
to report any "suspicious or unusual activity" to its Bank Secrecy Act examiner
and the Internal Revenue Service. The civil penalty imposed upon the Company and
any director, officer or employee thereof willfully violating these requirements
is not more than the greater of the amount (not to exceed $100,000) involved in
the transaction (if any) or $25,000. Criminal penalties for intentional
violations include fines of up to $500,000, and up to ten years imprisonment, or
both.
During a typical week, approximately 1% of the Company's transactions
require the filing of a CTR. The Company believes its computerized daily
transaction reports, its staff training and supervision and its diligence and
persistence in obtaining from its customers the information required to be
reported assist the Company in complying with these reporting requirements, but
there can be no assurance that all information reported by the Company is
accurate, complete, and in accordance with such statute and regulations.
Although some states, including New York, have established limits on
check-cashing fees, management believes that the Company's discount of the face
amount of checks that it purchases is within these limits. The Company is
subject to all local laws and ordinances relating to weapons carried by its
security guards, messengers and other employees. There can be no assurance that
the
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Company will not be materially adversely affected by legislation or regulations
enacted in the future.
RAPIDPAY CORPORATION/CREDIT CARD PROPERTIES
In October 1999 the Company became the holder of 90% of the Class A
voting stock and 88.5% of the Class B nonvoting stock of Rapidpay Corporation, a
Delaware corporation ("Rapidpay") which has recently become engaged in the
business of (i) credit card processing for, among others, banks and; (ii)
purchasing at a discount credit card receipts. Donald Z. Scheiber, an individual
unaffiliated with the Company owns the remaining 10% of outstanding Class A
voting stock of Rapidpay and 10% of the outstanding Class B non-voting stock of
Rapidpay. The remaining outstanding Class B non-voting stock of Rapidpay (1.5%)
is owned by Credit Card Properties, Inc. ("CCP"), a Delaware corporation
currently owned by Irwin Zellermaier and Gerald Nimberg. In the event Rapidpay
generates gross fee income of $400,000 per month for any six consecutive months,
Mr. Scheiber will be issued that amount of shares which will result in Mr.
Scheiber owning 20% of the outstanding capital stock of CCP. In the event
Barbara Ronan, the wife of Greg Ronan, a director of the Company and an attorney
with a law firm who provides legal services to the Company, is successful in
causing Rapidpay to obtain $1.0 million of debt or equity financing, Mrs. Ronan
will be issued that amount of shares which will result in Mrs. Ronan owning 20%
of the outstanding capital stock of CCP. Mr. Zellermaier is the Chief Executive
Officer of Rapidpay, Mr. Nimberg is the President of Rapidpay and Stephanie
Nimberg, Mr. Nimberg's daughter is the Vice President and Secretary of Rapidpay.
Pursuant to a five year employment agreement, (the term of which is extended to
seven years in the event Rapidpay collects certain gross fee income over certain
periods of time), Mr. Scheiber acts as the Executive Vice President and General
Manager of Rapidpay and is paid a base salary equal to 10% of the gross fee
income generated by Rapidpay on a monthly basis. In addition to his executive
officer responsibilities, Mr. Scheiber is obligated to cause credit card company
affiliations and customer service and support services to be provided to
Rapidpay. Until such time as Mr. Scheiber receives $360,000 in salary in any 12
month period from Rapidpay, or until and unless the Company acquires The Bart
Group, Inc. (a company controlled by Mr. Scheiber engaged in a substantially
similar business as that which Rapidpay intends to engage), Mr. Scheiber's
employment with Rapidpay is on an "as needed basis." Rapidpay may terminate Mr.
Scheiber's employment with Rapidpay in the event Rapidpay does not collect at
least $270,000 in gross fee income by June 30, 2000 or at least $150,000 per
month in gross fee income in months 16, 17 and 18 after October 1999 (the "Gross
Fee Income Goals"). In the event Rapidpay terminates Mr. Scheiber's employment
with Rapidpay due to Rapidpay not achieving the Gross Fee Income Goals, Mr.
Scheiber shall retain his shares of stock in Rapidpay. If Mr. Scheiber resigns
as the Executive Vice President and General Manager of Rapidpay prior to April
23, 2000, Rapidpay has the right to purchase his shares for nominal
consideration. Rapidpay's Board of Directors consists of three members elected
by the Company and one member elected by Mr. Scheiber. No distribution of
profits may be made from Rapidpay during its first five years of operation
without the unanimous approval of all members of the Board of Directors. The
Company intends to loan funds to Rapidpay for working capital purposes and has
obligated that it shall loan amounts to Rapidpay sufficient for Mr. Scheiber to
cause Rapidpay to achieve the Gross Fee Income Goals.
The Company is obligated to contribute labor and overhead and up to
$50,000 cash for the purchase by Rapidpay of fixed assets during the first year
of operation of Rapidpay. In exchange for the Company contributing labor,
overhead and cash, the Company shall be paid 30% of the gross fee income
received by Rapidpay monthly.
The Company may in conjunction with the sale of the Company, sell all of
its stock in Rapidpay provided that: (i) it provides notice to Mr. Scheiber;
(ii) the acquiring entity agrees to purchase Mr. Scheiber's stock on the same
terms as the Company; and (iii) the acquiring entity assumes all of the
Company's obligations under various agreements with Mr. Scheiber, including a
shareholders agreement, an employment agreement and a license and royalty
agreement (discussed below), provided however, that if such obligations are not
assumed, Mr.
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Scheiber shall retain 100% ownership in all contracts between Rapidpay and its
customers. Further, should the Company or Mr. Scheiber desire to sell or
otherwise dispose of their stock in Rapidpay, the non-selling shareholders shall
have a right of first refusal to purchase such shareholder's stock on a pro rata
basis. To the extent such shares are not purchased by non-selling shareholders,
then Rapidpay shall have the option to purchase said shares. To the extent such
shares are not purchased by Rapidpay, the selling shareholder may sell such
shares to a third party upon the same terms and conditions.
In October 1999 Rapidpay entered into a 30 year License and Royalty
Agreement with CCP. Pursuant to the License and Royalty Agreement, Rapidpay is
obligated to pay CCP a royalty amount equal to 1.25% of the gross fee income
collected by Rapidpay from its credit card customers in exchange for CCP
granting to Rapidpay the non-assignable, non-exclusive right to use CCP's credit
card processing technology. CCP is currently developing its credit card
technology. In the event the Company acquires additional financing, the Company
presently intends that certain of the financing currently provided to the
Company which is guaranteed by Gerald Nimberg (ie: the $2.15 Million Dollar
Loan) will be used for working capital purposes of Rapidpay.
In the event of (i) the sale of the shares of Rapidpay held by the Company; (ii)
the sale of substantially all of the assets of Rapidpay or the Company; or (iii)
if Mr Nimberg's employment with the Company is terminated or reassigned or Mr.
Nimberg becomes disabled or dies ((i), (ii) and (iii) each being a "Trigger
Event"), then Rapidpay is obligated to pay to CCP, an amount equal to the
greater of (x) the royalties earned by CCP over the six month period immediately
preceding the Trigger Event; or (ii) $500,000. In the event of the sale of
Rapidpay, 1.5% of the proceeds of the gross sales price received by Rapidpay
(whether in kind or in cash) shall be paid to CCP in addition to any amounts
payable under the license and royalty agreement.
The CCP stockholders agreement provides for the purchase of the shares
of a deceased stockholder by the remaining stockholders on a pro rata basis, to
the extent such shares have not been transferred or bequeathed to family members
of the deceased stockholder. In addition, the agreement provides that if any
stockholder desires to sell, transfer or otherwise dispose of any or all of his
shares, nonselling stockholders have a right of first refusal to purchase such
shares on a pro rata basis, and, to the extent such shares are not purchased by
nonselling stockholders, the selling stockholder may sell such shares to a third
party upon the same terms and conditions.
ITEM 2. DESCRIPTION OF PROPERTY
The Company is currently obligated under nine separate real property
operating lease agreements with unaffiliated third parties as follows:
1. Lease agreement through June 29, 2006 for office space of
approximately 2,200 square feet located at 201-203 Allen Street
(lower east side of Manhattan);
2. Lease agreement through January 31, 2007 for office space of
approximately 2,000 square feet located at 499 Seventh Avenue
(midtown Manhattan near the "garment district");
3. Lease agreement through February 28, 2003 for office space of
approximately 600 square feet located at 1430 Broadway (garment
district);
4. Month to month lease agreement for office space of approximately
1,400 square feet located at 669 Kent Avenue (Brooklyn);
5. Month to month lease agreement for office space of approximately
1,500 square feet located at 45-10 Skillman Avenue (Sunnyside,
Queens);
6. Lease agreement through August 31, 2000 for office space of
approximately 2,500 square feet located at 370 Lexington Avenue,
the Company's midtown Manhattan headquarters; and
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7. Lease agreement through April 30, 2009 for office space of
approximately 500 square feet located at 165 West 25th Street
(Manhattan).
8. Lease agreement through April 30, 2001 for office space of
approximately 1,400 square feet located at 889 Fourth Avenue
(Brooklyn).
9. Lease agreement through February 25, 2002 for office space of
approximately 120 square feet located at 54 W 47th Street
(Manhattan).
The Company's annual rental obligation in the aggregate for the year
2000 under the nine leases listed above is approximately $201,000, exclusive of
real estate taxes, common area maintenance charges and other pass thru items.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently a plaintiff in a lawsuit against a bank seeking
$2 million of damages arising out of an alleged breach of contract and alleged
improper return of checks. In connection with this lawsuit, the bank has
counter-claimed against the Company seeking $10 million in damages arising out
of bank charges for returned checks which the bank alleges the Company has not
paid (the "$10 Million Counterclaim"). In addition, the bank has filed a
separate counterclaim against the Company seeking $204,000 in damages arising
from returned checks. The Company is vigorously defending against the
counterclaims. Based on advice of its counsel, the Company believes the $10
Million Counterclaim is without merit or legal basis.
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 previously 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. The Company has
transferred back to the unaffiliated third party the improved real property. The
Company has been informed by the unaffiliated third party that it has petitioned
for the Real Property Suit, together with the "over reaching" claim against the
Company to be voluntarily dismissed with prejudice.
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
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 1999, no
matters were submitted to a vote of security holders of the Company.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, par value $0.001 per share (the "Common
Stock") and common stock purchase warrants (the "Warrants") were quoted on The
Nasdaq SmallCap Market ("Nasdaq") from April 28, 1997 through September 28, 1998
under the symbols "LOAN" and "LOANW". Effective at the close of business on
September 28, 1998, the Common Stock and Warrants were delisted from the Nasdaq
SmallCap Market System due to, among other things, Nasdaq's determination that
the Company could not sustain compliance with all of the requirements for
continued Nasdaq listing and commenced quotation on the OTC Electronic Bulletin
Board under the symbols "LOAN" and "LOANW."
The following table sets forth the range of high and low closing sales
prices of the Common Stock and Warrants as reported by Nasdaq (through September
28, 1998) and the high and low bid quotations for the Common Stock and Warrants
obtained from the OTC Electronic Bulletin Board
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(from September 29, 1998). The quotations reflect interdealer prices, without
retail mark-up, markdown or commission, and may not reflect actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK
NASDAQ SMALLCAP MARKET HIGH LOW
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First Quarter 1998..............................................................$ 2.13 $ 1.13
Second Quarter 1998.............................................................$ 2.00 $ 1.00
Third Quarter 1998 through September 28, 1998...................................$1.250 $0.15625
OTC ELECTRONIC BULLETIN BOARD HIGH BID LOW BID
-------- --------
September 29 and 30, 1998.......................................................$ 0.6875 $ 0.625
Fourth Quarter 1998.............................................................$0.71875 $ 0.21
First Quarter 1999..............................................................$ 0.40 $ 0.15
Second Quarter 1999.............................................................$ 2.00 $ 1.00
Third Quarter 1999..............................................................$ 0.36 $ 0.10
Fourth Quarter 1999.............................................................$ 0.58 $ 0.13
WARRANTS
NASDAQ SMALLCAP MARKET HIGH LOW
-------- --------
First Quarter 1998..............................................................$ 0.34 $ 0.16
Second Quarter 1998.............................................................$ 0.34 $ 0.16
Third Quarter 1998 through September 28, 1998...................................$0.21875 $0.03125
OTC ELECTRONIC BULLETIN BOARD HIGH BID LOW BID
-------- --------
September 29 and 30, 1998.......................................................$ 0.125 $ 0.125
Fourth Quarter 1998.............................................................$ 0.0675 $0.00001
First Quarter 1999..............................................................$ 0.05 $0.00001
Second Quarter 1999.............................................................$ 0.04 $ 0.01
Third Quarter 1999..............................................................$ 0.32 $ 0.001
Fourth Quarter 1999.............................................................$ 0.04 $ 0.005
</TABLE>
The approximate number of holders of record of the Common Stock, as of
March 20, 2000, amounts to 24 inclusive of those brokerage firms and/or clearing
houses holding the shares of Common Stock for their clientele (with each such
brokerage house and/or clearing house being considered as one holder).
The Company has not paid or declared any dividends upon its Common Stock
since its inception and, by reason of its present financial status and its
contemplated financial requirements, does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future.
ITEM 6. 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.
GENERAL
On December 23, 1999, the Company was informed by its sole depository
and clearinghouse bank that as of Feb. 8, 2000 such bank would no longer accept
for deposit and clearing, third party
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checks purchased by the Company. As a result of this development, the Company
entered into informal arrangements with several banks, who have agreed to act
as deposit and clearinghouse banks for the third party checks purchased by the
Company. There can be no assurances that such banks will not terminate their
relationships with the Company and force the Company to locate replacement
banks. In the event the Company is unable to sustain a relationship with a bank
to provide depository and clearinghouse services, the Company would be unable
to continue its Check Factoring business operations.
RESULTS OF OPERATIONS
For the years ended December 31, 1998 and December 31, 1999, the Company
derived fee income of approximately $4,083,000 and $4,917,000, respectively,
from the purchase of checks and Credit Card Sales Slips. The face amount of
checks purchased during the periods ended December 31, 1998 and December 31,
1999 was approximately$372,000,000 and $453,000,000, respectively, and the face
amount of Credit Card Sales Slips during the years ended December 31, 1998 and
December 31, 1999 was approximately$3,200,000 and $3,900,000, respectively.
Selling, general and administrative expenses, including, among other
expenses, amounts paid to sales representatives, payroll and related expenses
and office overhead costs (including rent) during the years ended December 31,
1998 and December 31, 1999 was approximately $3,535,000 and $4,133,000,
respectively. During 1999, the Company's selling, general and administrative
expenses increased as a result of an increase in the Company's bad debt expense
(approximately $270,000), an increase in the Company's payment of brokerage
commissions (approximately $92,000), an increase in payroll and related costs
(approximately $145,000) and an increase in rental expenses (approximately
$52,000). These increased expense amounts were offset by a decrease in
professional expenses (approximately $148,000) and decreased bank charges
(approximately $67,000) during 1999. During the years ended December 31, 1998
and December 31, 1999, selling, general and administrative expenses constituted
approximately 87% and 84%, respectively, of fee income.
For the years ended December 31, 1998 and December 31, 1999, interest
expense was approximately $828,000 and $1,151,000 net of approximately $98,000
and $76,000 of interest income, respectively. The Company's interest expense
increased during 1999 due to the Company's increased borrowings to support
expanded operations.
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 (the
"Impairment Charge"). This charge, which is non-cash in nature, reflects
elimination of the remaining balance of the goodwill and the covenant not to
compete from the Company's acquisition of 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 in May of 1997 (the "NYPF
Business Combination"). This charge was recorded due to the Company's continuing
losses since the closing of the NYPF Business Combination and the changes that
the Company believes it must employ to achieve profitability. These changes
include the location of additional and less expensive financing sources. This
charge includes the amortization of the costs of goodwill and the covenant not
to compete from the NYPF Business Combination taken by the Company during the
first three quarters of 1998.
For the years ended December 31, 1998 and December 31, 1999, the Company
incurred non-cash expenses of approximately $4.9 million (inclusive of the
Impairment Charge) and $448,000, respectively. Net loss for the years ended
December 31, 1998 and December 31, 1999 was approximately ($4,966,000) and
($322,000), respectively, or approximately ($1.41) and ($.09) per share,
respectively.
Losses before taxes, depreciation and amortization ("EBTDA") during the
year ended December 31, 1999 was approximately $174,000 or approximately ($.05)
per share per the weighted average number of shares outstanding. EBTDA is not
presented as an alternative to operating results
8
<PAGE> 11
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 finances its operations principally through (i) cash flow
generated from operations; (ii) a $500,000 working capital loan (the "500,000
Loan") provided by the wife of a sales representative of the Company; (iii) a
demand loan from an unaffiliated third party in the principal amount of $2.15
million (the "$2.15 Million Dollar Loan"); (iv) a term loan due March 2003 from
Irwin Zellermaier, the Company's Chief Executive Officer and Chairman of the
Board in the principal amount of $43,772 (the "Zellermaier Loan"); (v) a demand
loan from an entity controlled by Irwin Zellermaier, Ann Nimberg, the wife of
Gerald Nimberg, the Company's President, Chief Operating Officer, acting Chief
Financial Officer and a member of the Company's Board of Directors and Greg
Ronan, a director of the Company and an attorney with a law firm who provides
legal services to the Company, in the principal amount of $995,000 as of
December 31, 1999 (the "Zellermaier Entity Loan"); (vi) a term loan due July
2000 from a bank in the principal amount of $250,000 (the "250,000 Bank Loan");
(vii) a demand loan from an unaffiliated third party in the principal amount of
$968,000 (the $968,000 Loan"); (vii)a demand loan from Marjorie Nimberg, Gerry
Nimberg's sister in the amount $101,000 (the "Marjorie Nimberg Loan"); (viii) a
demand loan from an unaffiliated third party in the principal amount of
$147,000; (ix) a demand loan from an employee of the Company in the principal
amount of $40,000 (the "40,000 Loan"); (x) a demand loan from an unaffiliated
third party in the principal amount of $50,000 (the "50,000 Loan") and (xi)
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 $3 million and is
typically repaid with interest or uncollected bank charges daily or every few
days (the "Uncollected Check Loans"). Prior to June 1999, when the funding
ceased, the Company was receiving financing from a long term working capital
credit facility (the "Long Term Loan") provided by a corporation (the
"Affiliated Corporation"), in part owned by Gerald Schultz, the former owner of
the Check Factoring business of the Company and Ann Nimberg, the wife of Gerald
Nimberg, the President, Chief Operating Officer and acting Chief Financial
Officer of the Company.
Pursuant to the terms of the Long Term Loan, as amended (last amended in
April 1999), the Affiliated Corporation established a credit facility in favor
of the Company in the aggregate principal amount of $2,333,335. No further
credit has been available to the Company under the Long Term Loan since June
1999. The Long Term Loan was fully satisfied in December 1999.
As of December 31, 1999, the principal amount owed under the $2.15
Million Dollar Loan was $2.15 million, which amount is payable by the Company
upon demand. Interest at 24% per annum on the $2.15 Million Dollar Loan is
payable by the Company monthly. The Company's repayment obligations under the
$2.15 Million Dollar Loan are guaranteed personally by Gerald Nimberg.
Pursuant to the $500,000 Loan, the Company is obligated to pay, on a
amonthly basis, interest only at 21% per annum on the outstanding principal
amount outstanding 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.
9
<PAGE> 12
As of December 31, 1999. the principal amount owed under the Zellermaier
Loan was approximately $42,900. The Company is obligated to make monthly
payments on the Zellermaier Loan through March 2003 consisting of principal and
interest at 11.9% per annum.
As of December 31, 1999, the principal amount owed under the Zellermaier
Entity Loan was $995,000. During 1999, the Zellermaier Entity advanced the sum
of $1,074,000 to the Company, of which $79,000 was repaid along with interest at
the rate of 21% per annum. The principal amount of the Zellermaier Entity Loan
is repayable by the Company on demand. Interest at 21% per annum is payable
monthly by the Company on the Zellermaier Entity Loan.
As of December 31, 1999 the principal amount owed under the $250,000
Bank Loan was $250,000. Pursuant to the $250,000 Bank Loan the Company is
obligated to pay interest amounts monthly at four basis points above the prime
rate of interest and is obligated to repay all accrued but unpaid principal
amounts in July 2000.
As of December 31, 1999, the principal amount owed under the $968,000
Loan was $968,000, which amount is payable by the Company upon demand. Interest
at two basis points above the prime rate of interest on the $968,000 Loan is
payable by the Company monthly.
As of December 31, 1999, the amount owed under the Marjorie Nimberg
Loan was approximately $101,000 with interest accrued at 21% per annum.
The Marjorie Nimberg Loan is payable by the Company upon demand.
As of December 31, 1999, the amount owed under the $40,000 Loan was
$40,000 which is payable by the Company upon demand. Interest at 21% per annum
is payable monthly by the Company on the $40,000 Loan.
As of December 31, 1999, the amount owed under the $50,000 Loan was
$50,000 which is payable by the Company upon demand. Interest at 20% per annum
is payable monthly by the Company on the $50,000 Loan.
In March 2000, the Company borrowed $750,000 from an unaffiliated third
party individual, which amount is payable upon demand. The Company is obligated
to make monthly interest payments at 17% per annum on this loan.
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. To the extent the
Company has borrowed capital, it has incurred very high interest rates. The
Company is currently seeking additional long term debt or equity financing to
replace the financing previously provided by the Long Term Loan and to attempt
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, if at
all. If adequate funds are not available or are not available on acceptable
terms, the Company may not be able to maintain or improve operating results,
fund growth, take advantage of certain acquisition opportunities or respond to
competitive pressures.
As of December 31, 1999, the Company had available cash and cash
equivalents of approximately $4,510,000 as compared to approximately $1,548,000
as of December 31, 1998. This increase in cash is due principally to the
elimination of the Company's obligation to maintain collateral in the form of
restricted cash as was required under the Long Term Loan.
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.
YEAR 2000 COMPLIANCE
The Company owns or uses computer software that could have been impacted
by the year 2000 problem, and the Company also relies on vendors of equipment
and services whose products
10
<PAGE> 13
and services may be impacted by the year 2000 problem. The year 2000 compliance
issues included: (1) the computer hardware and internally developed software
which is used in the performance of services for customers, (2) the hardware and
third-party software which is used for corporate administration, (3) the
services of third-party providers which is purchased for certain professional
services, and (4) the external services required, such as telecommunications and
electrical power.
The Company conducted a project to identify all computer hardware and
software, other significant equipment, and services on which the Company relies
that may be impacted. Based on the results of this project, and the fact that
the calendar has already moved past January 1, 2000, the Company believes that
the hardware, software, services and equipment on which the Company relies are
year-2000 compliant. The Company continues to monitor this issue to ensure that
no end-of-month or other similar date-related issues arise.
FORWARD LOOKING INFORMATION MAY PROVE INACCURATE
This Annual Report on Form 10-KSB 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 Annual Report on Form 10-KSB, 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.
ITEM 7. FINANCIAL STATEMENTS
The 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(a) of Regulation S-B.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
11
<PAGE> 14
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
--- -----
<S> <C> <C>
Irwin Zellermaier(1) 75 Chairman, Chief Executive Officer, Director
Gerald Nimberg 56 President, Chief Operating Officer, Acting Chief
Financial Officer, Secretary, Treasurer, Director
Vincent J. Putignano(1)(2) 54 Director
Brien G. Reidy(1)(2) 48 Director
Melvyn Dobrichovsky, CPA 53 Director
Gregory E. Ronan, Esq. 51 Director
</TABLE>
------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
IRWIN ZELLERMAIER, Chairman, Chief Executive Officer and Director of
the Company since February 1995, and President of the Company from February 1995
until May 2, 1997, has been engaged in investment banking and management
consulting as a sole proprietorship for more than five years.
GERALD NIMBERG, President, Chief Operating Officer, and Director of the
Company since May 2, 1997, Acting Chief Financial Officer of the Company since
November 1998 and Vice President and Chief Operating Officer of NYPF since May
1993 until the Closing. From May 1992 until May 1993, he was Regional Manager of
Exchange Mortgage, Inc., a residential mortgage lending firm, and from May 1991
until May 1992, he was Regional Manager of Gelt Funding, also a residential
mortgage lending firm. Previously, he was a manager of various divisions of Sun
Oil.
VINCENT J. PUTIGNANO, Director of the Company since July 1996, has
operated a securities brokerage and investment banking and consulting business
in New York State since 1978. Before March 1991, he was President and Chief
Executive Officer of United States Business Products, Inc., a business equipment
firm. Since March 1991, he has engaged in sales administration and consulting
with Minor & Casey, a commercial real estate firm.
BRIEN G. REIDY, Director of the Company since July 1996, has been
engaged in financial consulting and public relations in California and New York
since 1987.
MELVYN DOBRICHOVSKY, CPA, Director of the Company since November 1998,
is a certified public accountant licensed in the state of New York since 1973.
Prior to 1991 he was a partner in Deloitte & Touche LLP. He currently is
associated with Salibello & Broder, an accounting firm based in New York, New
York. Mr. Dobrichovsky provides accounting, consulting and tax services to the
Company for which he received fees in 1999 totalling approximately $30,000.
GREGORY E. RONAN, ESQ., Director of the Company since November, 1998,
has been a partner at the law firm of Goddard, Ronan & Dineen since 1982. Mr.
Ronan served as a trial attorney with the U.S. government until 1982. He is a
1971 cum laude graduate of Fordham
12
<PAGE> 15
University and a 1974 graduate of St. John's University Law School. Mr. Ronan
was the 1976 Distinguished Graduate at U.S. Army JAGC School, in
Charlottesville, Virginia. Goddard, Ronan & Dineen provides legal services to
the Company for which the firm received fees in 1999 of approximately $163,000.
Each director serves until the next annual meeting of shareholders and
until his successor is elected and qualified. Each officer is appointed to serve
until the next annual meeting of the Board of Directors and until his successor
has been appointed and qualified. David Bader served as the Company's Vice
President and Chief Financial Officer from June 1996 through November 19, 1998.
See "Executive Compensation; Employment Contracts, Termination of Employment and
Change in Control Arrangements."
SIGNIFICANT EMPLOYEES
None.
FAMILY RELATIONSHIPS
Stephanie Nimberg, Gerald Nimberg's daughter is the Vice President and
Secretary of Rapidpay.
OTHER: INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation of the
ability and integrity of any executive officer during the past five years.
COMPLIANCE WITH SECTION 16(a)
To the Company's knowledge, for the fiscal year ended December 31,
1999, and for the period ended March 24, 2000, no person who was a director,
officer or beneficial owner of more than ten percent of the Company's
outstanding Common Stock or any other person subject to Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act") failed to file on a timely
basis, reports required by Section 16(a) of the Exchange Act.
13
<PAGE> 16
ITEM 10. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
No amounts have been paid to directors for attendance at meetings.
EXECUTIVE OFFICER COMPENSATION
Other than Messrs. Zellermaier and Nimberg, no officer or director
employed by the Company received salary and bonus exceeding in the aggregate
$100,000 in the fiscal years 1999, 1998 or 1997. The following Summary
Compensation Table sets forth the information concerning compensation for
services in all capacities awarded to, earned by or paid to Mr. Zellermaier and
Mr. Nimberg.
14
<PAGE> 17
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
=====================================================================================================================
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
- ---------------------------------------------------------------------------------------------------------------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION (1) OPTIONS/SARS COMPENSATION
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Irwin Zellermaier, 1999 $131,244 -- $52,120 100,000/0 --
Chairman, Chief
Executive Officer and ---------------------------------------------------------------------------------------
Director of the 1998 $135,678 -- $50,941 100,000/0 --
Company since February
1995. ---------------------------------------------------------------------------------------
President from February 1997 $101,298 -- $31,466 75,000/0 --
1995 until May 1997.
- ---------------------------------------------------------------------------------------------------------------------
Gerald Nimberg, 1999 $141,508 -- $14,400 100,000/0 --
President and Chief
Operating Officer of the ---------------------------------------------------------------------------------------
Company since May 1998 $125,731 -- $11,532 100,000/0 --
1997 and Chief Financial
Officer of the Company ---------------------------------------------------------------------------------------
since November 1998. 1997 $ 75,374 -- -- 65,000/0 --
=====================================================================================================================
</TABLE>
- ----------------
(1) Represents payments made for Mr. Zellermaier's and Mr. Nimberg's and their
dependents' medical insurance, Mr. Zellermaier's and Mr. Nimberg's
automobile expense allowance and insurance covering Mr. Zellermaier's life,
the beneficiary of which is not the Company.
15
<PAGE> 18
STOCK OPTION GRANTS IN FISCAL YEAR 1999
The following table sets forth information concerning stock option
grants made during 1999 to Messrs. Zellermaier and Nimberg.
<TABLE>
<CAPTION>
=========================================================================================================================
NUMBER OF
SECURITIES PERCENT OF TOTAL MARKET
UNDERLYING OPTIONS GRANTED TO PRICE ON EXERCISE OR
OPTIONS EMPLOYEES DATE OF BASE PRICE EXPIRATION
NAME GRANTED(1) IN FISCAL YEAR GRANT ($) ($) DATE
=========================================================================================================================
<S> <C> <C> <C> <C> <C>
Irwin Zellermaier 100,000 50% $0.25 $0.25 July 1, 2001
- -------------------------------------------------------------------------------------------------------------------------
Gerald Nimberg 100,000 50% $0.25 $0.25 July 1, 2001
- -------------------------------------------------------------------------------------------------------------------------
TOTAL 200,000 100%
=========================================================================================================================
</TABLE>
- ----------------
(1) All options are non-qualified options.
16
<PAGE> 19
STOCK OPTION EXERCISES IN FISCAL YEAR 1999
AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain summary information concerning
exercised and unexercised options to purchase the Company's Common Stock as of
December 31, 1999 held by Messrs. Zellermaier and Nimberg. Neither Mr.
Zellermaier nor Mr. Nimberg exercised any options during the year ended December
31, 1999.
<TABLE>
<CAPTION>
================================================================================================================================
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT FY-END AT FY-END
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
================================================================================================================================
<S> <C> <C> <C> <C>
Irwin Zellermaier -- -- 275,000 / 0 $0 / $0
- --------------------------------------------------------------------------------------------------------------------------------
Gerald Nimberg -- -- 265,000 / 0 $0 / $0
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL 540,000 / 0 $0 / $0
================================================================================================================================
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In June 1996, Irwin Zellermaier entered into a ten-year employment
agreement with the Company. Under the terms of the agreement, Mr. Zellermaier
serves as the Chairman and Chief Executive Officer of the Company and receives
an annual base salary of $160,000 per annum. The employment agreement with Mr.
Zellermaier further provides that Mr. Zellermaier shall receive bonuses and such
other fringe benefits as are paid to other executive officers of the Company.
Such fringe benefits take the form of medical coverage, life insurance benefits
and an automobile expense allowance. Further pursuant to the terms of his
employment agreement, Mr. Zellermaier has agreed not to compete with the Company
during the term of his employment with the Company and for a three-year period
thereafter. In May 1998, Mr. Zellermaier's employment agreement was amended to
provide that, if his employment is terminated by the Company for cause (as
defined in the agreement) or by voluntary unilateral decision by the employee
without cause, then Mr. Zellermaier is entitled to his base salary under the
agreement earned, accrued vacation, and reimbursements of expenses, through the
date of termination. In addition, the amended employment agreement with Mr.
Zellermaier provides that, if his employment is otherwise terminated, Mr.
Zellermaier is entitled to receive, in one lump sum payment, three times his
compensation (base salary plus bonus) paid by the Company to Mr. Zellermaier for
the fiscal year prior to termination and all applicable allowances and
reimbursements to the date of termination. Furthermore, the amended agreement
provides that, in the event Mr. Zellermaier exercises his right to terminate due
to a change of control (as defined in the agreement), Mr. Zellermaier agrees to
consult with the Company for a period of at least two years.
Effective May 2, 1997, the date of the closing of the Company's initial
public offering of securities (the "Closing"), Gerald Nimberg and the Company
entered into a ten-year employment agreement which will terminate on May 2,
2007, pursuant to which Mr. Nimberg is to serve as the President and Chief
Operating Officer of the Company. The employment agreement with Mr. Nimberg
provides that Mr. Nimberg shall receive an annual base salary of $120,000 per
annum, commencing on May 2, 1997, with annual adjustments for increases in the
Consumer Price Index. The employment agreement with Mr. Nimberg further provides
for payment of bonuses and for such other fringe benefits as are paid to other
executive officers of the Company. Such fringe benefits take the form of medical
insurance coverage and an automobile expense allowance. Pursuant to the
employment agreement with Mr. Nimberg, on the date of the Closing, the Company
became obligated to loan to Mr. Nimberg the sum of $250,000 (which amount has
been amended to
17
<PAGE> 20
$60,000). To date, the Company has loaned to Mr. Nimberg the $60,000 amount,
which sum, with simple interest calculated on the basis of the annual rate of
9%, which annual rate was amended from 24% per annum, is to be repaid by Mr.
Nimberg to the Company through payroll deductions over a period of time no
longer than ten years, interest only being payable during the first two years.
Further pursuant to the terms of his employment agreement, Mr. Nimberg has
agreed not to compete with the Company during the term of his employment with
the Company and for a three-year period thereafter. In May 1998, Mr. Nimberg's
employment agreement was amended to provide that, if his employment is
terminated by the Company for cause (as defined in the agreement) or by
voluntary unilateral decision by Mr. Nimberg without cause, then Mr. Nimberg is
entitled to his base salary under the agreement earned, accrued vacation, and
reimbursements of expenses, through the date of termination. In addition, the
amended employment agreement with Mr. Nimberg provides that, if his employment
is otherwise terminated, Mr. Nimberg is entitled to receive, in one lump sum
payment, three times his total compensation (base salary plus bonus) paid by the
Company to Mr. Nimberg for the fiscal year prior to termination and all
applicable allowances and reimbursements to the date of termination.
Furthermore, the amended agreement provides that, in the event Mr. Nimberg
exercises his right to terminate due to a change of control (as defined in the
agreement), Mr. Nimberg agrees to consult with the Company for a period of at
least two years.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 20, 2000, based
on information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by the
Company to be the owner of more than 5% of the outstanding shares of Common
Stock; (ii) each director; and (iii) Messrs. Zellermaier and Nimberg, the only
persons named in the Summary Compensation Table; and (iv) officers and directors
as a group:
PRINCIPAL SHAREHOLDERS
<TABLE>
<CAPTION>
=================================================================================================================
NAME AND ADDRESS SHARES OF COMMON STOCK PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)(2) OWNED
=================================================================================================================
<S> <C> <C> <C>
Irwin Zellermaier 1,004,500 (3) 25.2%
211 East 70th Street
New York, NY 10021
- -----------------------------------------------------------------------------------------------------------------
Gerald Nimberg 692,400 (4) 17.4%
1009 Owl Place
Cherry Hill, NJ 08003
- -----------------------------------------------------------------------------------------------------------------
Vincent J. Putignano 10,000 (5) 0.28%
907 Palmer Avenue
Mamaroneck, NY 10543
- -----------------------------------------------------------------------------------------------------------------
Brien G. Reidy 10,000 (6) 0.28%
Seven Miller Lane West
East Hampton, NY 11937
- -----------------------------------------------------------------------------------------------------------------
Melvyn Dobrichovsky 0 0.00%
Salibello & Broder, CPA's
810 7th Avenue, 27th Floor
New York, New York 10019
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
=================================================================================================================
NAME AND ADDRESS SHARES OF COMMON STOCK PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)(2) OWNED
=================================================================================================================
<S> <C> <C> <C>
Gregory Ronan 300,000 (7) 0.00%
Goddard, Ronan & Dineen, P.C.
201 East 42nd Street
New York, New York 10017
- -----------------------------------------------------------------------------------------------------------------
ALL OFFICERS AND DIRECTORS AS A GROUP 1,916,900 41.00%
- -----------------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF SHARES OUTSTANDING 3,615,000
AS OF MARCH 20, 2000
=================================================================================================================
</TABLE>
(1) Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission. In computing
the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock
subject to options or warrants held by that person that are
currently exercisable or will become exercisable within 60
days after March 20, 2000 are deemed outstanding, while such
shares are not deemed outstanding for purposes of computing
percentage ownership of any other person. Unless otherwise
indicated in the footnotes below, the persons and entities
named in the table have sole voting and investment power with
respect to all shares beneficially owned, subject to community
property laws where applicable.
(2) Assumes no exercise of the 5,600,000 Common Stock Purchase
Warrants currently outstanding.
(3) Includes 375,000 shares of Common Stock to be issued upon
exercise of currently exercisable stock options held by Mr.
Zellermaier.
(4) Includes 365,000 shares of Common Stock to be issued upon
exercise of currently exercisable stock options held by Mr.
Nimberg. Does not include 20,100 shares or 3,000 Warrants
owned by Ann Nimberg, Gerald Nimberg's wife, over which Gerald
Nimberg disclaims beneficial ownership. Does not include
10,000 shares owned by Richard Nimberg, Gerald Nimberg's adult
brother, over which Gerald Nimberg disclaims beneficial
ownership.
(5) Represents 10,000 shares of Common Stock to be issued upon
exercise of currently exercisable stock options held by Mr.
Putignano.
(6) Represents 10,000 shares of Common Stock to be issued upon
exercise of currently exercisable stock options held by Mr.
Reidy.
(7) Does not include 105,000 shares of the Company's Common Stock
owned by Goddard, Ronan & Dineen, with whom Mr. Ronan is a
partner, but over which Mr. Ronan disclaims beneficial
ownership. Represents 300,000 shares of Common Stock to be
issued upon exercise of currently exercisable stock options
held by Mr. Ronan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the employment agreement between Gerald Nimberg and the
Company, at the Closing, the Company became obligated to loan to Mr. Nimberg the
sum of $250,000 (amended to $60,000), $60,000 of which has been loaned to date
(the "Closing Loan") which sum, with simple interest calculated on the basis of
the annual rate of 9% is to be repaid by Mr. Nimberg to the Company through
payroll deductions over a period of time no longer than ten years, interest only
being payable during the first two years. Mr. Nimberg is current with respect to
his repayment obligations under the Closing Loan.
During 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, their
family members and affiliates provided unsecured demand and short term working
capital loans to the Company (the "Zellermaier and Nimberg Loans"). As of
December 31, 1999 $1,138,690 was outstanding on the Zellermaier and Nimberg
Loans. Interest at rates ranging from 11.9% to 21% per annum is payable monthly
by the Company on the Zellermaier and Nimberg Loans.
During 1999, Mel Dobrichovsky, CPA, a director of the Company since
November, 1998, was paid an aggregate sum of approximately $30,000 for
accounting services provided to the
19
<PAGE> 22
Company. The Company intends to engage Mel Dobrichovsky to continue to provide
services to the Company during 2000.
During 1999 the law firm of Goddard Ronan & Dineen, P.C. (the "Goddard
Firm") provided legal services to the Company and was paid an aggregate sum of
approximately $163,000 for such services. Gregory E. Ronan, a director of the
Company since November, 1998, is a partner with the Goddard Firm. The Company
intends to continue to engage the Goddard Firm to provide services to the
Company during 2000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
1. Financial Statements
See Financial Statements commencing at page F-1.
2. Exhibits:
See Exhibit Index. The Exhibits listed in the accompanying
Exhibits Index are filed or incorporated by reference as part
of this report.
(b) Reports on Form 8-K:
None
20
<PAGE> 23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GENERAL CREDIT CORPORATION
Date: April 13, 2000 By: /s/ Irwin Zellermaier
-------------------------------------------
Irwin Zellermaier, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Irwin Zellermaier Chairman, Chief Executive April 13, 2000
- ----------------------------- Officer, Director
Irwin Zellermaier
/s/ Gerald Nimberg President, Chief Operating April 13, 2000
- ----------------------------- Officer, Secretary, Treasurer, Chief
Gerald Nimberg Financial Officer, Chief
Accounting Officer, Director
/s/ Vincent J. Putignano Director April 13, 2000
- -----------------------------
Vincent J. Putignano
/s/ Brien G. Reidy Director April 13, 2000
- -----------------------------
Brien G. Reidy
/s/ Melvyn Dobrichovsky Director April 13, 2000
- -----------------------------
Melvyn Dobrichovsky
/s/ Gregory E. Ronan Director April 13, 2000
- -----------------------------
Gregory E. Ronan
</TABLE>
21
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------- -------------------
<S> <C>
2.1* Amended and Restated Asset Purchase Agreement dated as of February 19, 1996 among New York
Payroll Factors, Inc., Gerald Schultz, Gerald Nimberg, and the Company.
2.2* Amendment to Amended and Restated Asset Purchase Agreement dated as of September 6, 1996
among New York Payroll Factors, Inc. and the Company.
2.3* Second Amendment to Amended and Restated Asset Purchase Agreement dated as of January 30,
1997 among New York Payroll Factors, Inc. and the Company.
2.4(2) Contract for Sale of Business between the Company and Ace dated September 30, 1997.
3.1* Certificate of Incorporation of the Company.
3.2* Certificate of Amendment of Certificate of Incorporation of the Company.
3.3* Amended and Restated By Laws of the Company.
10.1*(1) Employment Agreement dated as of June 1, 1996 between the Company and Irwin Zellermaier.
10.2*(1) Employment Agreement dated as of June 1, 1996 between the Company and David Bader.
10.3* Lease Agreement dated January 13, 1992 between 201 Allen Street Associates, as Landlord, and
Mersa Corp., as Tenant.
10.4* Lease Agreement dated as of January 31, 1996 between Benjamin P. Feldman as Receiver for 491-
499 Seventh Avenue, as Owner, and G.S. Capital Corp., as Tenant.
10.5* Lease Agreement dated as of May 4, 1995 between Millinery Syndicate, Inc., as Owner, and Meryka,
Inc., as Tenant.
10.6* Agreement dated as of February 1, 1996 between New York Payroll Factors, Inc. and Ace Venture,
Inc.
10.7* Promissory note and option grant agreement dated February 7, 1996 made by the Company to David
A. Viets.
10.8* Promissory note and option grant agreement dated February 7, 1996 made by the Company to M. S.
Chen.
10.9* Promissory note and option grant agreement dated February 19, 1996 made by the Company to Dr.
Isreal Kazew.
10.10* Promissory note and option grant agreement dated February 22, 1996 made by the Company to John
G. Watson.
10.11* Promissory note and option grant agreement dated February 29, 1996 made by the Company to
Dominic Ricci.
10.12* Promissory note and option grant agreement dated March 4, 1996 made by the Registrant to Anthony
Fazio.
10.13* Promissory note and option grant agreement dated April 2, 1996 made by the Registrant to Regis
Ferguson.
10.14* Promissory note and option grant agreement dated May 14, 1996 made by the Registrant to
Christopher J. Wetzel.
10.15* Form of Agreement regarding Restriction on Transferability of Shares.
10.16*(1) Form of Employment Agreement between the Company and Gerald Nimberg.
10.17* Promissory note and option grant agreement dated April 23, 1996 made by the Registrant to Yung
I. Park, M.D.
10.18* Promissory Note dated September 23, 1996 made by the Company to Walter G. Romano, Jr.
10.19* Promissory Note dated September 30, 1996 made by the Company to Nick Balson.
10.20* Promissory Note dated February 28, 1997 made by the Company to Ronald M. Stein.
10.21* Promissory Note dated February 28, 1997 made by the Company to Robert Stein.
10.22* Promissory Note dated February 28, 1997 made by the Company to Eric Stein.
10.23* Promissory Note dated February 28, 1997 made by the Company to Kinserd Limited Partnership.
</TABLE>
22
<PAGE> 25
<TABLE>
<S> <C>
10.24* Promissory Note dated February 28, 1997 made by the Company to S.J. Workman.
10.25* Promissory Note dated February 28, 1997 made by the Company to Dan Cohen.
10.26* Promissory Note dated February 28, 1997 made by the Company to Jeffrey D. Greenhawt.
10.27* Promissory Note dated February 28, 1997 made by the Company to Jack S. Greenman.
10.28* Promissory Note dated February 28, 1997 made by the Company to Thomas Zotos.
10.29* Promissory Note dated February 28, 1997 made by the Company to Reynaldo Martinez.
10.30* Redemption Agreement dated as of February 15, 1997 by and among the Registrant, Irwin
Zellermaier, David Bader and D.P. Morton & Associates LLC.
10.31* Common Stock Redemption Agreement dated as of December 30, 1996 by and among the Company,
JMB Holding Inc. and Wall Street Equities, Inc.
10.32* Extension of Lease dated as of January 17, 1997 between Allen House, Inc., as agent for Landlord
and Mersa Corp., as Tenant.
10.33(2) Promissory Note made by the Company to Dong Hyun Kang dated September 30, 1997 in the
principal amount of $230,000.00
10.34(2) Promissory Note made by the Company to Sue Yi dated September 30,1997 in the principal amount
of $150,000.00.
10.35 Reserved.
10.36(3) Lease Agreement dated April 30, 1997 between 370 Lex, L.L.C., as Landlord, and Carly Holdings,
Inc., as Tenant.
10.37(3) Lease Agreement dated December 31, 1997 between Realties 1430, as Landlord, and Carly Holdings,
Inc., as Tenant.
10.38(1)(3) Amendment No. 1 to Employment Contract between the Company and David Bader (1)
10.39(3) Loan Agreement dated February 10, 1998 between the Company and Links Court #1 Associates in
the principal amount of $2,600,000.00.
10.40(3) Promissory Note made by the Company to Links Court #1 Associates dated February 10, 1998 in the
principal amount of $2,600,000.00.
10.41(4) Loan and Security Agreement dated as of June 30, 1998 among Sterling National Bank, General
Credit Corporation and G.S. Capital Corporation.
10.42(1)(5) Amendment No. 1 to Employment Contract dated May 13, 1998 between the Company and Irwin
Zellermaier.
10.43(1)(5) Amendment No. 2 to Employment Contract dated May 13, 1998 between the Company and Gerald
Nimberg.
10.44(6) Amendment No. 2 to Employment Contract dated November 2, 1998 between the Company and
David Bader
21.1+ Subsidiaries of Registrant.
27.1+ Financial Data Schedule for the Company as of and for the Year Ended December 31, 1998.
</TABLE>
- ------------
* Incorporated by reference to the Company's Registration Statement on Form
SB-2 declared effective on April 25, 1997 by the Securities and Exchange
Commission, SEC File NO. 333-09831.
(1) Contracts with executive officers.
(2) Incorporated by reference to the Company's Current Report on
Form 8-K dated October 10, 1998.
(3) Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1997.
(4) Incorporated by reference to the Company's Current Report on
Form 8-K dated June 30, 1998.
(5) Incorporated by reference to the Company's Quarterly Report
on Form 10-QSB for the quarter ended June 30, 1998.
(6) Incorporated by reference to the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1998.
+ Filed herewith.
23
<PAGE> 26
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
GENERAL CREDIT CORPORATION
We have audited the accompanying consolidated balance sheet of
GENERAL CREDIT CORPORATION AND SUBSIDIARIES as at December 31, 1999 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1999 and 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
General Credit Corporation and Subsidiaries as at December 31, 1999, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
/s/ Cornick, Garber & Sandler, LLP
------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
NEW YORK, NEW YORK
MARCH 29, 2000
F-1
<PAGE> 28
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2) $4,509,741
Receivables from customers and brokers (Note 2) $ 1,977,449
Less allowance for doubtful accounts (183,000) 1,794,449
------------
Prepaid expenses and other current assets 27,638
------------
Total current assets 6,331,828
Fixed assets, at cost, less accumulated depreciation
and amortization (Notes 2 and 3) 446,356
Investment in and advances to CPE (Notes 4 and 11) 894,997
Notes receivable - broker (Note 6) 587,268
Notes receivable from officer (Note 7) 52,132
Goodwill and other intangibles, net (Note 2) 335,916
Other assets (Note 8) 165,863
------------
Total $8,814,360
============
LIABILITIES
Current liabilities:
Notes and advances payable (Note 9) $5,090,796
Accounts payable and accrued expenses 1,063,343
------------
Total current liabilities 6,154,139
Long-term portion of notes and advances payable (Note 9) 883,256
Commitments and contingencies (Notes 10 and 16)
SHAREHOLDERS' EQUITY
Shareholders' equity:
Common shares, $.001 par value, 20,000,000 shares
authorized, 3,615,000 shares issued and outstanding $ 3,615
Additional paid-in capital 7,953,938
Stock subscription receivable (Note 13) (84,331)
Deficit (6,096,257) 1,776,965
------------ ----------
Total $8,814,360
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 29
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998*
------------ -----------
<S> <C> <C>
Fee income, net $ 4,917,428 $ 4,082,871
Selling, general and administrative expenses 4,133,135 3,534,662
------------ -----------
Income from operations before depreciation, amortization
and other income and expenses 784,293 548,209
Depreciation and amortization (Notes 2 and 3) 147,758 99,400
------------ ------------
Income before other income and expenses 636,535 448,809
Other income (expenses):
Equity in earnings of subsidiary (Note 4) 192,810
Interest expense (net of interest income of $75,643
in 1999 and $98,194 in 1998) (1,151,405) (827,630)
Other income 63,750
------------ -----------
Loss before write-off of goodwill and related
intangible asset (322,060) (315,071)
Write-off of goodwill and related intangible asset (Note 2) 4,651,101
------------ -----------
Net loss $ (322,060) $(4,966,172)
============ ===========
Basic and diluted net loss per share (Notes 2 and 11) $ (.09) $ (1.41)
============ ===========
Weighted average number of common
shares outstanding (Note 2) 3,615,000 3,530,423
============ ===========
</TABLE>
- -----------------
* Certain amounts have been reclassified to conform to current year's
presentation.
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 30
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
TOTAL
SHAREHOLDERS'
COMMON STOCK ADDITIONAL STOCK EQUITY
--------------------- PAID-IN SUBSCRIPTION (CAPITAL
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE DEFICIENCY)
------ ------ ------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 3,435,000 $ 3,435 $ 7,742,093 $ (808,025) $ 6,937,503
Options issued to consultants
(Note 11) 24,900 24,900
Shares issued in connection
with the exercise of
warrants 75,000 75 82,050 82,125
Shares issued for prepaid
legal services (Note 13) 105,000 105 104,895 $(99,778) 5,222
Net loss for the year ended
December 31, 1998 (4,966,172) (4,966,172)
----------- -------- ----------- ----------- --------- -----------
Balance, December 31, 1998 3,615,000 3,615 7,953,938 (5,774,197) (99,778) 2,083,578
Reduction of stock subscription
receivable (Note 13) 15,447 15,447
Net loss for the year ended
December 31, 1999 (322,060) (322,060)
----------- -------- ----------- ----------- --------- -----------
Balance, December 31, 1999 3,615,000 $ 3,615 $ 7,953,938 $(6,096,257) $ (84,331) $ 1,776,965
=========== ======== =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 31
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998*
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities:
Net loss $ (322,060) $(4,966,172)
Adjustment to reconcile net loss to net cash used
in operating activities:
Equity in earnings of subsidiary (192,810)
Depreciation and amortization 147,758 99,400
Issuance of stock options 24,900
Bad debt expense 370,257 100,000
Reduction of stock subscription receivable 15,447
Write-off of goodwill and related intangible asset 4,651,101
Change in assets and liabilities:
Receivables from customers and agents (1,095,503) (678,587)
Prepaid expenses 25,828 8,977
Other assets 29,204 (43,062)
Accounts payable and accrued expenses 535,948 126,854
----------- -----------
Net cash used for operating activities (485,931) (676,589)
----------- -----------
Cash flows from investing activities:
Investment in certificates of deposit (212,819)
Proceeds from maturity of certificates of deposits 212,819
Increase in officer's life insurance receivable (36,520) (34,811)
Increases on notes receivable (280,642) (355,000)
Collections of notes receivable 249,486
Purchase of fixed assets (214,253) (179,929)
Investment in and advances to subsidiary (307,187)
Loans to officer (10,000)
Collections of loans from officer 6,769 1,100
----------- -----------
Net cash used for investing activities (369,528) (791,459)
----------- -----------
Cash flows from financing activities:
Borrowings under long-term and short-term debt agreements 7,746,816 1,259,951
Repayments of long-term and short-term debt (6,050,499) (299,483)
Proceeds from exercise of warrants 82,125
Cash restricted for debt payments 2,333,335 (33,335)
----------- -----------
Net cash provided by financing activities 4,029,652 1,009,258
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,174,193 (458,790)
Cash and cash equivalents, January 1 1,335,548 1,794,338
----------- -----------
CASH AND CASH EQUIVALENTS, DECEMBER 31 $ 4,509,741 $ 1,335,548
=========== ===========
(Continued)
</TABLE>
F-5
<PAGE> 32
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998*
---------- --------
<S> <C> <C>
Supplemental disclosure of cash paid for:
Interest $1,182,748 $956,906
========== ========
Income taxes $ 22,565
==========
Supplemental disclosures of noncash activities:
Investment in subsidiary financed with debt from seller $ 395,000
==========
</TABLE>
- ------------
*Certain amounts in this column have been reclassified to conform to current
year's presentation.
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 33
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
General Credit Corporation (the "Company"), was incorporated in
February 1995, for the purposes of seeking out business
opportunities, including acquisitions. On May 2, 1997, the Company
emerged from the development stage by acquiring the operations of
New York Payroll Factors, Inc. ("NYPF") (see Note 2). Prior to May
2, 1997, the Company's activities were limited to administrative
activities.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND OPERATIONS
The consolidated financial statements include the accounts of
General Credit Corporation and its majority owned and controlled
subsidiaries. The Company's investment in Cash Payroll Express, LLC
acquired in April 1999 is accounted for on the equity method since
the Company does not have voting control (See Note 4). The Company
is engaged in providing working capital financing to its customers
through the discounted purchase of checks made payable to the
Company's customers and, to a lesser extent, the discounted
purchase of credit card sales slips. Gross proceeds from the
purchase of these checks and credit card sales slips during 1999
and 1998 are estimated to be approximately $453 million and $372
million in checks, respectively, and $3.9 million and $3.2 million
in credit card slips, respectively. The Company's customers
primarily comprise numerous small and medium-sized contracting
firms and restaurants located in the New York metropolitan area and
other northern New Jersey areas. Revenues, which are comprised of
the discounted portion of checks and credit card sales slips
purchased, are recognized when payment for them is made to the
Company.
FIXED ASSETS
Fixed assets are recorded at cost. Expenditures for additions and
betterments are capitalized and expenditures for maintenance and
repairs are charged to operations as incurred. Depreciation is
provided using the straight-line method over the estimated useful
lives of the related assets (vehicles, 3 years, equipment,
furniture and fixtures, 7 years and leasehold improvements over the
remaining lives of the leases). Upon retirement or disposal, the
asset cost and related accumulated depreciation and amortization
are eliminated from the respective accounts and the resulting gain
or loss, if any, is included in the results of operations for the
period.
F-7
<PAGE> 34
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
The net assets of businesses acquired are recorded at their fair
value at the acquisition date and any excess of acquisition costs
over the value of identifiable net assets acquired is recorded as
goodwill which is being amortized on a straight-line basis over
twenty years. At December 31, 1999, goodwill was $206,383, net of
accumulated amortization of $25,617.
Amounts paid for covenants not-to-compete are stated at cost and
are amortized using the straight-line method over the non-compete
period of five years. At December 31, 1999, covenants
not-to-compete were $129,533, net of accumulated amortization of
$102,467.
The Company continually evaluates the existence of goodwill
impairment on the basis of whether the goodwill is fully
recoverable from projected undiscounted net cash flows for each
related business. Based upon its then most recent analysis, in the
fourth quarter of 1998 the Company wrote off the goodwill and
remaining covenant not-to-compete related to the NYPF acquisition.
The Company believes that no impairment of goodwill exists at
December 31, 1999 for the goodwill and covenant not-to-compete
related to the acquisition of Ace Venture, Inc. in September 1997.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments, purchased
with original maturities of three months or less, to be cash
equivalents.
ADVERTISING
Advertising costs, which are included in selling, general and
administrative expenses, are expensed as incurred. Advertising
expense for the years ended December 31, 1999 and 1998 was
approximately $9,300 and $4,600, respectively.
F-8
<PAGE> 35
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist of accounts and notes
receivable and cash deposits. Cash balances are held principally at
one financial institution and usually exceed FDIC insured amounts.
The Company believes the concentration of credit risk with respect
to receivables from customers is limited due to the large number of
customers comprising the Company's customer base. However, at
December 31, 1999 advances to two customers from whom the Company
purchases credit card receipts aggregate approximately 19% of
receivables from customers and brokers. The Company performs
ongoing informal background and financial evaluations of its
customers and does not require collateral (see Note 6 for further
information with respect to notes receivable from brokers). The
Company's broker agreements (see Note 10) have generated
approximately 39% and 30% of its fee income in 1999 and 1998,
respectively. The loss of these arrangements could have a
significant impact on the Company's financial position and results
of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents and receivables are reflected in the
accompanying balance sheets at amounts considered by management to
reasonably approximate fair value. It is not practicable to assess
the fair value of the Company's notes payable (see Note 9) because
management believes such debt is not readily marketable due to the
nature of its incurrence.
USES OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets, liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
LOSS PER SHARE
Loss per share has been computed by dividing net losses by the
weighted average number of common shares outstanding. The effect of
outstanding stock options and warrants is not included in the per
share calculations as it would be anti-dilutive.
F-9
<PAGE> 36
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - FIXED ASSETS
<TABLE>
<CAPTION>
<S> <C>
Fixed assets consist of the following at December 31, 1999:
Furniture, fixtures and office equipment $ 318,360
Leasehold improvements 134,238
Vehicles 123,474
---------
TOTAL 576,072
Less accumulated depreciation and amortization (129,716)
---------
NET $ 446,356
=========
</TABLE>
Depreciation expense for the year ended December 31, 1999 and 1998
was $85,709 and $41,186, respectively.
NOTE 4 - INVESTMENT IN AND ADVANCES TO CPE
On April 27, 1999, the Company paid $130,000 cash and issued
$395,500 of notes to purchase a 80.5% common stock interest in Cash
Payroll Express, LLC ("CPE"), a newly formed corporation which is
engaged in the same business as the Company. Previously, the
business conducted by CPE was conducted through an entity
wholly-owned by its current minority stockholder. In accordance
with the purchase agreement, if CPE meets certain predetermined
minimum income levels during the year following the closing, the
Company is required to pay an additional $215,000. At December 31,
1999, CPE has exceeded the minimum income requirements and the
$215,000 due April 2000 has been recorded as additional purchase
cost of CPE.
Although the Company acquired 80.5% of CPE's common stock interest,
under the terms of a related stockholders' agreement, control of
CPE's Board of Directors is divided equally between its minority
stockholder and the Company. The minority stockholder is entitled
to a 50% interest in both CPE's earnings (as defined) and the
proceeds of its sale or liquidation and has also been granted
certain management decisions over its daily operations.
Accordingly, the Company's investment in CPE has been accounted for
on the equity method in the same manner as a corporate joint
venture. The $525,000 excess of the purchase price over the
Company's 50% share of CPE's net assets is being charged to
operations as a reduction of the Company's equity in earnings of
the subsidiary over a period of 20 years. The Company has also
agreed to fund 80% of CPE's operating cash requirements with
interest at 7% a year on 75% of such advances.
F-10
<PAGE> 37
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVESTMENT IN AND ADVANCES TO CPE (CONTINUED)
The following summarizes the financial position and results of
operations of CPE at December 31, 1999 and for the period from
April 27,1999 to December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Balance sheet:
Assets:
Cash $351,088
Receivables from customers 70,328
Other 2,237
---------
TOTAL $423,653
=========
Liabilities and stockholders' equity:
Due to Company $176,687
Stockholders' equity 246,966
---------
TOTAL $423,653
=========
Statement of operations:
Fee and other income $569,423
Operating expenses 145,770
---------
NET INCOME $423,653
=========
Company's share of net income, after $19,016
charge for amortization of excess of purchase price
over share of net assets $192,810
The Company's investment and advances to CPE at December 31, 1999
are summarized as follows:
Investment 525,500
Advances 176,687
---------
Total $894,997
=========
</TABLE>
Amounts paid to the minority stockholder of CPE for his share of
its earnings are recorded as a direct reduction of its
stockholders' equity. The Company's share of such earnings is
required to be retained in CPE until the Company's obligations to
the minority stockholder have been paid.
NOTE 5 - RAPIDPAY
On October 23, 1999, the Company formed a new subsidiary, Rapidpay
Corporation ("Rapidpay"). The Company owns 90% of its Class A
voting stock and 88.5% of the Class B non-voting stock. The
division president of Rapidpay owns 10% of both the Class A and
Class B stock. The remaining 1 1/2% of the Class B stock is owned
by Credit Card Properties, Inc. "CCP", a company wholly owned by
the executive officers of the Company and the wife of a member of
the Board of Directors of the Company. If Rapidpay generates gross
fee income of at least $400,000 for any six consecutive months, the
principal operating officer is to receive a 20% ownership interest
in CCP.
F-11
<PAGE> 38
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - RAPIDPAY (CONTINUED)
On October 23, 1999, Rapidpay also entered into a royalty agreement
with CCP, under which Rapidpay has agreed to pay a royalty fee of
1.25% of the gross fee income collected by Rapidpay from its credit
card customers for a period of 30 years, except for specific escape
clauses as defined in the royalty agreement. Payments due under the
royalty agreement can be accelerated upon the occurrence of (i)
sale of all of the stock of Rapidpay held by the Company, or (ii)
sale of all or substantially all of the assets of Rapidpay or the
Company, or (iii) the termination of the employment or reassignment
by the Company, for any reason, of the president of the Company.
Upon the events listed, Rapidpay is obligated to pay a royalty
amount equal to the unpaid balance for the previous six months,
with a minimum payment of $500,000 due to CCP.
The minority stockholder of Rapidpay has a five year employment
agreement, which can be extended for two years at the executive's
option, that provides for a monthly salary equal to 10% of
Rapidpay's gross income as defined. A company, wholly owned by the
minority stockholder of Rapidpay, is required to provide credit
card back office services and customer service support at cost.
Through December 31, 1999, the operations of Rapidpay have been
immaterial.
NOTE 6 - NOTES RECEIVABLE
<TABLE>
<CAPTION>
<S> <C>
Notes receivable at December 31, 1999 consist of:
Advances to two individuals, no stated interest rate
payable on demand $ 67,575
Due from broker, no stated interest rate and no
formal payment terms 519,693
--------
TOTAL $587,268
========
</TABLE>
The notes due from broker, which arise primarily from the broker's
guarantee of certain checks which were dishonored by their alleged
makers, have been guaranteed by a third party up to $250,000,
collateralized by a second mortgage on certain real property.
In addition, on December 26, 1999, the Company entered into an
agreement with the broker to form a check factoring company, in
which the Company has been granted a 9% interest as additional
collateral for the notes receivable until they are repaid, at which
time the 9% interest will be returned to the broker. The Company is
entitled to receive 9% of the profits of the check factoring
company in payment of the notes receivable after it has factored
$13,000,000 of checks.
F-12
<PAGE> 39
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES RECEIVABLE - OFFICER
The notes are due under an employment agreement which, as revised
in April 1998, provided for loans of $60,000 payable over seven
years with interest at 9% a year. Monthly payments of
approximately $1,062, including interest, are payable as follows:
Year ending December 31:
2000 $ 8,481
2001 9,277
2002 10,147
2003 11,099
2004 13,128
--------
TOTAL $52,132
========
Interest income on these notes was $4,935 and $5,335 for 1999 and
1998, respectively.
NOTE 8 - OTHER ASSETS
Other assets at December 31, 1999 are comprised of:
<TABLE>
<CAPTION>
<S> <C>
Security deposits $ 42,607
Prepaid consulting fee 12,000
Interest in officer's split-dollar life insurance 78,194
Noncurrent prepaid expenses and
other miscellaneous assets 33,062
--------
TOTAL $165,863
========
</TABLE>
F-13
<PAGE> 40
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - NOTES AND ADVANCES PAYABLE
Notes and advances payable are comprised of the following at
December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Auto loans; due in monthly installments of $2,063,
including interest of 14.15% a year to October 2004 $ 83,686
*21% notes payable to related party due on demand 995,000
*Notes payable - Chairman of the Board due in monthly
payments of $1,313, including interest at
11.9% per year to March 2003 42,890
7% notes and contingent payable relating to the acquisition of
CPE (Note 4) due in monthly payments of principal and
interest of $2,873 to April 2003, plus a contingent
payment of $215,000 due April 2000 377,252
10% notes payable relating to the acquisition of Ace
Venture, Inc. due in monthly payments of principal and
interest of $7,040 to October 2003 268,074
Bank notes payable; due July 15, 2000, interest payable
monthly at prime plus 4% (12.5% at December 31, 1999) 250,000
24% demand notes payable due to an individual, interest payable
monthly, collateralized by receivables and
fixed assets 2,150,400
Corporate advances, payable on demand, interest
payable monthly at prime plus 2% (10.5% at
December 31, 1999) 968,480
21% demand notes due to two individuals, interest
payable monthly 187,470
*21% demand notes due to family member of the
president of the Company, interest payable quarterly 100,800
20% note payable to an individual due April 2000,
interest payable monthly 50,000
21% note payable to an individual due November 2001,
interest payable monthly 500,000
-----------
TOTAL 5,974,052
LESS CURRENT MATURITIES 5,090,796
-----------
NONCURRENT PORTION OF LONG-TERM DEBT $ 883,256
===========
</TABLE>
F-14
<PAGE> 41
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - NOTES AND ADVANCES PAYABLE (CONTINUED)
Maturities of the noncurrent portion of long-term debt are as
follows:
Year Ending December 31:
2001 $625,505
2002 138,666
2003 104,342
2004 14,744
--------
TOTAL $883,257
========
---------------
*Interest expense on related party notes listed above and
additional and related party short-term borrowings during the year
was approximately $79,000.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company has ten year employment contracts with its two
executive officers that expire in 2006 and 2007. The salary
pursuant to these contracts aggregates $280,000 a year excluding
bonuses, fringe benefits and cost of living increases. One of the
officers is entitled to annual salary adjustments for increases in
the Consumer Price Index. In May 1998, these agreements were
amended to provide that if employment is otherwise terminated, the
officer will receive a lump sum payment equal to three times his
compensation (base salary plus bonuses) paid for the year prior to
termination.
The Company entered into a ten year employment agreement with the
president of Ace Venture, Inc. at a base annual salary of $130,000,
plus bonuses, if certain sales volume is achieved. The base salary
increases each year by 5% or the increase in the consumer price
index, whichever is greater.
The Company is obligated under noncancelable real property
operating lease agreements through June 2009. Minimum rents under
these obligations are as follows:
Year Ending December 31:
2000 $ 201,452
2001 179,873
2002 151,537
2003 110,364
2004 106,656
Thereafter 317,432
----------
TOTAL $1,067,314
==========
F-15
<PAGE> 42
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
These leases also contain operating expense and real estate tax
escalation clauses. Rent expense, included in selling, general and
administrative expenses, was approximately $214,000 and $166,000 in
1999 and 1998, respectively.
The Company is contractually obligated pursuant to two broker
agreements with unrelated entities. These agreements provide that
the entities will refer certain check factoring customers to the
Company for fees ranging from 40% to 50% of the net fee revenue
received. These agreements terminate in January 2001. The Company
makes noninterest bearing advances to these brokers for use in
their check cashing activities. These advances, which are included
in receivables from customers and brokers, are evidenced by notes
and are partially collateralized by personal assets of the
brokers; at December 31, 1999, such advances totaled approximately
$532,000.
NOTE 11 - SHAREHOLDERS' EQUITY
In connection with the April 1997 sale of 900,000 units to the
public, at December 31, 1999 there are outstanding common stock
warrants to purchase 5,400,000 shares of common stock at $3.375 a
share. The warrants expire on April 24, 2002. Upon certain
conditions, the Company is entitled to call all or a portion of the
warrants for a redemption price of $.25 per warrant upon 30 days
prior written notice to the holders.
In connection with the offering, the Company granted the
underwriter an option to purchase up to 90,000 units (each unit
consisting of three shares of common stock and six common stock
warrants) at $16.50 a unit, exercisable during a five year period
commencing on the effective date of the offering.
NONQUALIFIED STOCK OPTIONS
In July 1999, the Company issued to two of its executive officers,
options to purchase a total of 200,000 shares of the Company's
common stock at $0.25 a share. These options are exercisable until
July 7, 2001.
In May 1998, the Company issued to its three executive officers,
options to purchase a total of 225,000 shares of the Company's
common stock at $1.625 a shares. These options are exercisable
until May 2001.
In January 1998, the Company issued to two of its directors options
to purchase a total of 20,000 shares of the Company's stock at
$1.50 a share. These options are exercisable until January 7, 2001.
F-16
<PAGE> 43
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMETNS
NOTE 11 - SHAREHOLDERS' EQUITY (CONTINUED)
NONQUALIFIED STOCK OPTIONS (CONTINUED)
On November 4, 1997, the Company issued to its three executive
officers options to purchase a total of 190,000 shares of the
Company's stock at $2.125 a share. These options are exercisable
until November 3, 2000.
The Company may receive income tax benefits for the above options
when they are exercised. Such income tax benefits are credited to
additional paid-in capital when realized. None of the above options
have been exercised as of December 31, 1999.
The Company has adopted the disclosure only provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock Based Compensation," for stock options granted to employees,
officers and directors and, therefore, applies Accounting
Principles Board Opinion No. 25. Accordingly, no compensation cost
has been recognized for the stock options granted. If the Company
had elected to recognize compensation cost for the nonqualified
options granted based upon their fair values at the grant date
consistent with the method of SFAS No. 123, the net loss and loss
per share on a pro forma basis for the years ended December 31,
1999 and 1998 would be as follows:
1999 1998
---------------- ----------------
Net loss:
As reported $(322,060) $(4,966,172)
Pro forma $(356,060) $(5,183,099)
Loss per share:
As reported $(.09) $(1.41)
Pro forma $(.10) $(1.47)
The fair value of the Company's stock options used to compute the
pro forma net loss and net loss per share disclosures are their
estimated present values at grant date using the Black-Scholes
option pricing model with the following assumptions: expected
volatility of 136.5% in 1999 and 79.23% in 1998, risk free interest
of 5.56% in 1999 and 5.715% in 1998 and an expected holding period
of three years for both 1999 and 1998.
F-17
<PAGE> 44
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SHAREHOLDERS' EQUITY (CONTINUED)
NONQUALIFIED STOCK OPTIONS (CONTINUED)
In addition, in 1998, options to purchase a total of 30,000 shares
of stock, exercisable until May 2001 at $1.625 per share, were
issued to two outside consultants and options to purchase 30,000
shares of stock, exercisable until January 2001 at $1.50 a share,
were issued to three outside consultants. The $24,900 fair value of
these options which was charged to operations in 1998 using the
Black-Scholes option pricing model utilizing the same assumptions
described above.
In January 2000, the Company issued to two of its executive
officers/directors, a director and one individual, options to
purchase a total of 400,000 shares of the Company's stock at $0.63
a share. These options are exercisable until January 30, 2002. The
Company also issued to one individual an option to purchase 50,000
shares of the Company's stock at $1.62 a share. These options are
also exercisable until January 30, 2002.
WARRANTS
In connection with the investment in CPE (see Note 4), the Company
has agreed to issue warrants to purchase up to 30,000 shares of the
Company's stock (at a price to be determined) to the minority
stockholder of CPE, if CPE meets certain earnings targets by
specified dates. Should CPE's fees exceed predetermined levels
through April 2002, the Company, at its option, can pay $20,000 to
the stockholder instead of issuing warrants for 20,000 shares.
NOTE 12 - INCOME TAXES
For income tax purposes, the Company files consolidated income tax
returns, which include the operations of CPE (Note 4). At December
31, 1999, the Company has net operating loss carryforwards of
approximately $1,616,000 for federal income tax purposes. These
carryforwards expire between 2011 and 2019. As a result of the
public offering, in April 1996, the amount of loss carryforwards
which can be utilized to offset future taxable income is limited to
approximately $553,000 a year, plus the approximately $1,044,000 of
loss carryforwards incurred after April 25, 1997.
While generally accepted accounting principles permit the
recognition of a deferred tax asset for the benefit of net
operating loss carryforwards, they also require the recognition of
a valuation allowance against such asset when it is more likely
than not that such benefit will not be realized. As a result of the
Company's losses since inception, it has recorded a valuation
allowance equal to its net deferred tax asset account.
F-18
<PAGE> 45
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INCOME TAXES (CONTINUED)
Deferred taxes relate to the following carryforwards and temporary
differences at December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 743,000
Allowance for doubtful accounts 84,000
Write-off and amortization of intangible assets 1,854,000
Amortization of leasehold improvements 11,000
-----------
TOTAL 2,692,000
Less valuation allowance (2,692,000)
-----------
Net deferred income tax assets after valuation
allowance $ --
===========
</TABLE>
NOTE 13 - RELATED PARTY TRANSACTIONS
The Company has received accounting and legal services from two
directors appointed in November 1998. Charges for accounting
services by one director were approximately $28,000 and $40,000 in
1999 and 1998, respectively. The other director's firm, in which
he is a partner, charged approximately $163,000 and $147,000 for
legal services in 1999 and 1998, respectively. In addition, the
Company issued to this firm 105,000 shares of common stock at $1 a
share (the market price on the date issued) for prepaid legal
services. At December 31, 1999, the $84,331 remaining balance due
for future services has been shown as a stock subscription
receivable and, accordingly, the shareholders' equity of the
Company has been reduced by this amount.
NOTE 14 - LITIGATION
The Company received a deed for residential property as payment
for a $280,000 receivable from an agent. Subsequently, a lawsuit
was brought against the Company to have this deed stricken on the
basis of fraud. The plaintiff also seeks $1,000,000 in damages
against the Company for "over reaching." The Company has
transferred back the deed to the plaintiff in accordance with a
court order. The Company has been informed that the plaintiff has
petitioned the court to dismiss the claim, including the
$1,000,000 in damages, voluntarily with prejudice. Based on the
advice of counsel, the Company believes that no liability will
result from this claim.
The Company is currently a plaintiff in a lawsuit against a bank,
seeking $2 million in damages for breach of contract and for the
improper return of checks. In connection with this lawsuit, the
bank has counterclaimed against the Company for $10 million for
return of check costs. In addition, the bank has filed a separate
counterclaim against the Company for $204,000 in damages arising
from returned checks. The Company is vigorously defending the
counterclaims. Based upon the advice of counsel, the Company
believes that the $10 million counterclaim is without merit or
legal basis.
In March 1998, a former bridge loan lender to the Company claimed
that he is owed 750,000 shares of the Company's stock and
threatened a lawsuit if his claim is not satisfied. The Company
has received no further correspondence from this individual. In
management's opinion, this claim is without merit and if it is
pursued the Company intends to vigorously defend against the
allegations.
F-19
<PAGE> 46
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - RETIREMENT PLAN
Effective January 1998, the Company instituted a "S.I.M.P.L.E."
retirement plan. Eligible employees may make salary reduction
contributions of up to $6,000 in 1999 and as adjusted for
inflation in future years. The Company is required to match,
dollar for dollar, up to 3% (but not below 1% in two of the last 5
years) of the employees' compensation up to $160,000 in 1999 and
as adjusted for inflation in future years. The Company made
matching contributions of approximately $23,000 in 1999 and
$22,000 in 1998 which is included in selling, general and
administrative expenses.
NOTE 16 - SUBSEQUENT EVENTS
CREDIT CARD PROCESSING AGREEMENT
In March 2000, the Company entered into a ten year agreement with
a marketing agency where the Company has agreed to provide funding
for the development of a "marketing page" in a publication in
exchange for the right to process credit card sales generated by
advertisers on the "marketing page" and a participation in the
fees charged to the advertisers.
When a "marketing page" is sold, the agency has agreed to assign
to the Company the fees receivable from the advertisers, subject
to the Company's acceptance of each advertiser. It is estimated
that the fees to be paid by the advertisers on each marketing page
will total approximately $332,000, payable over twelve months, to
be recovered from each advertiser's credit card slips. When a page
is sold, the agency is entitled to approximately 49% of the
advertising fees. Initially, the Company will pay 75% of the
agency fee upon commencement of the agency's work with the
remaining balance to be paid over the next twelve months. If more
than thirty-six marketing pages are completed, the Company will
advance 50% upon commencement of work with the balance being paid
over the next twelve
F-20
<PAGE> 47
GENERAL CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - SUBSEQUENT EVENTS (CONTINUED)
CREDIT CARD PROCESSING AGREEMENT (CONTINUED)
months. The Company has also agreed to pay to the agency, the
media fees, estimated to be approximately $54,000 a page, in
twelve monthly installments. The balance of the advertising fee
(currently estimated to total approximately $115,000) will be
retained by the Company. If an advertiser discontinues its
payments, the agency can replace the advertiser or repay to the
Company, the uncollected agency and media fees advanced by the
Company. In April 2000, the Company advanced to the agency,
approximately $122,000 which will be repaid from the agency fee
earned on the first "marketing page."
MEMORANDUM OF UNDERSTANDING
On February 2, 2000, the Company entered into a non-binding
Memorandum of Understanding (the "memorandum") with Diamond
Dealing.com, Inc., ("DDI"), a company intending to develop an
internet-based market place for diamonds, gems, pearls and other
precious stone trading. The memorandum summarizes and confirms
discussions regarding a proposal whereby the Company would acquire
substantially all the assets, subject to the liabilities of DDI,
in exchange for the issuance of 24,423,000 shares of the Company's
common stock. If this transaction is consummated, there will be a
majority change in the ownership and management of the Company.
DDI and the Company are evaluating several alternatives as to
whether, and to what extent, to continue the check factoring
business.
NEW BORROWINGS
In March 2000, the Company borrowed $750,000 from an individual,
payable on demand, with interest payable monthly at 17% a year.
F-21
<PAGE> 48
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
21.1 Subsidiaries of Registrant.
27.1 Financial Data Schedule for the Company as of and for the Year Ended December
31, 1999.
</TABLE>
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
1. G. S. Capital Corp.
2. Carly Holdings, Inc.
3. Meryka, Inc.
4. Mersa Corp.
5. General Armored Corporation
6. Rapidpay Corporation
7. General Check Cashing Corporation
8. CCC Acquisition LLC
9. GCC of Williamsburg, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,509,741
<SECURITIES> 0
<RECEIVABLES> 1,977,449
<ALLOWANCES> (183,000)
<INVENTORY> 0
<CURRENT-ASSETS> 6,331,828
<PP&E> 576,076
<DEPRECIATION> 129,716
<TOTAL-ASSETS> 8,814,360
<CURRENT-LIABILITIES> 6,154,139
<BONDS> 883,256
0
0
<COMMON> 3,615
<OTHER-SE> 1,773,350
<TOTAL-LIABILITY-AND-EQUITY> 8,814,360
<SALES> 4,917,428
<TOTAL-REVENUES> 5,110,238
<CGS> 0
<TOTAL-COSTS> 5,170,238
<OTHER-EXPENSES> 3,910,636
<LOSS-PROVISION> 370,257
<INTEREST-EXPENSE> 1,151,405
<INCOME-PRETAX> (322,060)
<INCOME-TAX> 0
<INCOME-CONTINUING> (322,060)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (322,060)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
