-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NtRm07cOPKg5oK8X/9lAfZ5uaL4WwrjZmuFj1n2Sv7+cYEZMVMwEZDyonjhdalwz SVLfse8nHD7VrJd/PYYyrw== 0000891554-00-000837.txt : 20000411 0000891554-00-000837.hdr.sgml : 20000411 ACCESSION NUMBER: 0000891554-00-000837 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREDITRISKMONITOR COM INC CENTRAL INDEX KEY: 0000315958 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SERVICES, NEC [8900] IRS NUMBER: 362972588 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 001-08601 FILM NUMBER: 581956 BUSINESS ADDRESS: STREET 1: 2001 MARCUS AVE W290 CITY: LAKE SUCCESS STATE: NY ZIP: 11042-1011 BUSINESS PHONE: 9147222410 MAIL ADDRESS: STREET 1: 2001 MARCUS AVE W290 CITY: LAKE SUCCESS STATE: NY ZIP: 11042-1011 FORMER COMPANY: FORMER CONFORMED NAME: NEW GENERATION FOODS INC DATE OF NAME CHANGE: 19920703 10KSB 1 FORM 10-KSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to _______________ to _______________ Commission File Number 1-8601 CREDITRISKMONITOR.COM, INC. (Name of small business issuer in its charter) Nevada 36-2972588 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification number) 110 Jericho Turnpike, Suite 202 Floral Park, New York 11001 (Address of Principal Executive offices) (Zip Code) Issuer's telephone number: (516) 610-4000 Securities registered under Section 12(b) of the Act: Title of each class Name of each exchange on which registered None Securities registered under Section 12(g) of the Act: Common Stock $.01 Par Value (Title of Class) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No __ Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenues for the most recent fiscal year. $1,259,019. The aggregate market value of the Registrant's common stock held by non-affiliates as of March 6, 2000 was $14,337,454. The Company's common stock is traded on the OTC Electronic Bulletin Board. There were 5,341,129 shares of common stock $.01 par value outstanding as of March 6, 2000. Documents incorporated by reference: None Transitional Small Business Format (check one); Yes __ ; No _X_ PART I ITEM 1. BUSINESS CreditRiskMonitor.com, Inc. (the "Company" or "CRM") was organized in February 1977 under the laws of the State of Nevada and adopted its present name in May 1999. The Company was engaged in the development and sale of nutritional food products from 1982 until October 22, 1993, when it sold substantially all of its assets (the "Asset Sale"), as previously reported. As a result of the Asset Sale, the Company was no longer an operating company. From 1994 to 1998, the Company had no revenues and its income was derived from interest and dividends and gains on the sale of its assets. The Company's assets from 1994 through 1998 consisted principally of cash, cash equivalents and marketable investment securities. In September 1998 the Company paid $60,000 for an option (the "Option") to purchase the assets of the CreditRisk Monitor credit information service ("CM Service") from Market Guide Inc. ("MGI"). The Company exercised the Option on December 29, 1998 and completed the purchase of the CM Service assets effective January 19, 1999 for a purchase price of approximately $2.39 million, including the $60,000 paid for the Option. The $1.23 million cash portion of the purchase price was paid at closing and the balance is represented by two secured promissory notes, one for approximately $100,000 and the other for $1.0 million (together the "MGI Notes"). The $100,000 MGI Note, which bears interest at 8.5% from the closing date, provides for the deferral of principal amortization until February 2001. The $1.0 million MGI Note bears interest at 6% from July 2001, and provides for the deferral of principal amortization until such date. After the respective deferrals, both MGI Notes are then payable over 24 months. The MGI Notes are secured by a first priority purchase money security interest on substantially all of the assets of the Company. The assets purchased include customer contracts, receivables, equipment, software and intangibles. Following the closing of the CM Service purchase, the Company filed the necessary assumed name certificate and commenced doing business under the name "CreditRiskMonitor.com". During January 1999, the Company completed a private placement of 1,300,000 shares of its Common Stock to approximately 25 "accredited investors" at a purchase price of $2.50 per share, for gross proceeds of $3.25 million (the "1999 Private Placement"). The proceeds from the 1999 Private Placement were used to finance the cash portion of the CM Service acquisition and the remainder will be used for future working capital needs. For a period of five years after the closing of the CM Service acquisition, MGI has agreed to furnish to the Company the database of credit information used in the preparation of CRM's credit analysis reports, at no charge through December 31, 2000 and at specified prices thereafter, based on the number of users per subscriber to the reports. The agreement is cancelable by the Company on 90 days' notice. MGI also has agreed not to market credit reports that are targeted specifically to corporate credit personnel, or to advertise or promote such products in any media or trade shows which are targeted specifically to corporate credit personnel, for a period of five years. In addition, for a two year period, MGI has agreed not to provide its data or information to any other business for use in reports targeted specifically to corporate credit personnel, including a specified list of CRM competitors or potential competitors, including The Dun & Bradstreet Corporation ("D&B"). The Company has agreed not to compete with MGI in its other credit information services for a period of two years, so long as the Company is obtaining its data directly and not from MGI, or for a period of five years, so long as the Company is obtaining its data from MGI. This restriction does not apply, however, if the Company acquires its data from sources other than MGI. The CreditRiskMonitor Business In 1996, some of CRM's current management, all of whom have extensive experience in the credit reporting industry, approached MGI to explore the use of MGI's database as the basis for an Internet-based product which would provide information specifically designed for the corporate credit professional. MGI maintains, collates and provides information on publicly reporting companies to the securities and investment communities. Since no real-time Internet product existed in this area, MGI agreed to finance the development of such a product and formed the CM Service division in September 1996. CM Service commenced its sales operations, as a division of MGI, in April 1997, when it introduced its Internet-based credit information service after an intensive period of development. The Company believes that CRM is the only totally real-time interactive Internet-based financial information and news service designed specifically for corporate credit professionals. Its credit risk analysis service is the result of management's extensive experience in the credit industry and on-going research with respect to corporate credit department information needs. This has enabled CRM to satisfy the credit industry's requirements with the most timely, technologically advanced, lowest cost credit information service available. In the 36 months since CRM's service has been available over the Internet, CRM has attracted almost 550 subscribers at an average annual subscription price of approximately $3,700. CRM currently monitors, for the purpose of credit evaluation, approximately 8,900 U.S. publicly held domestic retail chains, wholesalers and manufacturers in various industries. CRM designs its product for corporate credit managers who must decide whether or not to ship their company's goods to their customers, thus extending credit on the purchase. If the purchaser is unable to pay the account when it comes due, the selling company can suffer substantial losses. The decision to ship or not to ship may have to be 2 made under intense time pressure, with potentially devastating results if the manager has inaccurate or stale information. With the continuing downsizing of corporate America and the related reductions in credit departmental budgets and personnel, these corporate credit professionals have to do more with less. Simultaneously, there has been an explosion in the amount of information that has become available, resulting in an overwhelming amount of data and limited time for research and analysis. CRM's service provides the corporate credit professional with a one stop information service that helps to continuously monitor the creditworthiness of the public companies they do business with, in the shortest possible time and with a minimum of effort. This timesaving is critical where immediate decisions must be made. There is little hard data on CRM's market: The National Association of Credit Management has about 40,000 members, but some industry observers believe the number of U.S. credit managers or personnel performing this function is substantially greater. There are numerous U.S. based companies that do not have a specific credit function but still require credit information. Because our sales solicitation is by phone and Internet demonstration of the product, an untapped global market also exists for foreign companies doing business with U.S. corporations. We believe that our service has a large market that has only been minimally penetrated. Future sales, however, will be even more dramatically impacted when CRM's private company coverage is initiated. CRM plans to increase its credit coverage to private companies by the end of 2000. CRM presently sells its stand alone public company service for an annual base fee of $3,500. The private company service is expected to be sold for an additional fee. Many of our existing public company service subscribers have indicated their intent to purchase this upcoming private company service. A customer who subscribes to both the private and public company services will receive a pricing discount. Due largely to the addition of the private company coverage, over the next two years CRM believes that its customer base and revenue per customer will expand significantly. The viability and potential of CRM's business is made possible by its Internet service delivery and the following characteristics: o Low cost. The value of CRM's service far exceeds the $3,500 annual base price to the subscriber. This price is low compared to the size of the possible bad debt loss to the subscriber and compared to the cost of competitive products. o Counter-cyclical. CRM's business appears to have counter-cyclical characteristics. If the economy slows down or contracts, the importance of the corporate credit manager function should increase. Additionally, products that allow credit managers to perform their jobs more efficiently and effectively should gain 3 market share in any business environment. o Recurring revenue stream. Because of the ease of use and CRM's service sophistication, users develop a residual comfort level that acts to reduce the risk of replacement by a competitive service. The recurring annual fee income stream gives us stability and profit potential not found in a one-time sale product-based company. o Profit multiplier. Some of the Company's basic costs are being reduced. On a broad generic basis, computer hardware, software, communications and financial data prices are coming down for all buyers, including CRM. In addition, CRM has automated a significant amount of the processes used to create and deliver its service; therefore, its production costs are relatively stable over a wide range of increasing revenue. Margins should increase faster than sales in the future. o Self financing. CRM's business has no inventory, manufacturing or warehouse facilities. Thus, it is non-capital intensive and high margins should generate significant positive cash flow to rapidly grow the business with little need for external capital. o Management. CRM has in-place an experienced management team with meaningful equity incentives geared to sales and profitability. Management combines proven talent in three critical areas: (1) business credit evaluation systems, (2) internet development and sales, and (3) management with execution experience. Viewed another way, CRM's management is a balanced team not skewed in any one discipline. o Competitor's vulnerability. CRM is primarily competing against D&B, a New York Stock Exchange company that has a near total monopoly for business credit services. D&B's service appears to be more expensive and less timely than CRM's. CRM's internet driven service is a technological breakthrough that allows a significant reduction in the selling price of credit risk analysis. CRM's tight cost structure allows its low prices to translate into a high margin business. Thus, the Company believes that D&B is vulnerable on both price and product utility. o Private company market. CRM's service is designed to penetrate the large market for credit information on publicly-held companies but even this market is small compared to the need for credit information on privately-owned companies. CRM plans to have a product which will allow a company to evaluate its credit risk of doing business with private companies by the end of 2000. The Company's Goals o Lowest cost provider. CRM's analysis and preparation of data into a usable form is nearly 100% computer driven and minimum incremental personnel costs are required to broaden the number of 4 companies analyzed. CRM delivers all of its information to customers via the Internet and there is a seamless interface between the preparation and the delivery of a company credit report to a subscriber. CRM's cost structure is believed to be the lowest in its industry. o Retain hedge characteristics. If the economy slows down or enters a recession, general corporate credit risk will increase and the credit manager's function should rise in importance and complexity. Since the cost of its service is low compared to both the size of potential losses it is designed to reduce and to the cost of competitive services, CRM's business and revenues should be counter-cyclical if growth in the U.S. economy growth slows or declines. o Private company service. CRM plans to begin monitoring the credit risk of private companies by the end of 2000. This proprietary service will monitor private companies and has a greater market potential than CRM's present service for the public company market. Meaningful data for private companies, as opposed to public companies, is scarce and the occurrence of credit risk loss is substantially more frequent on credit extended to private versus public corporations. Also, the number of the private companies dwarfs the number of public companies in the U.S. Therefore, the private company credit risk analysis product has the potential of penetrating a significantly larger market than the public company market. The Company believes that its product utility and revenue per subscriber will increase significantly over the next two years. o International penetration. Foreign companies doing business in the U.S. have the same need as domestic companies for CRM's credit analysis of U.S. companies. Internationally, the Internet provides the same rapid and inexpensive selling and distribution of CRM's service as has been achieved domestically. Important Business Considerations o Customer Base. Before a sophisticated customer purchases our service, this type of customer had the ability to evaluate CRM versus the competition. Although CRM's present service has only been on the market for approximately three years and only recently increased its coverage to over 8,900 companies, there is already a sophisticated list of subscribers, a partial list of which includes: 5 PARTIAL LIST OF SUBSCRIBERS ================================================================================ 3 Com Corporation Maytag Appliances - -------------------------------------------------------------------------------- AIWA America Nike - -------------------------------------------------------------------------------- Bristol Myers Squibb Nikon - -------------------------------------------------------------------------------- CIT Group Pepsico - -------------------------------------------------------------------------------- Colgate Palmolive Philips Consumer Communications - -------------------------------------------------------------------------------- Compaq Computer Polaroid - -------------------------------------------------------------------------------- Cosco Rayovac - -------------------------------------------------------------------------------- Dow Chemical Company Rhone-Poulenc Rorer - -------------------------------------------------------------------------------- Fuji Photo Film Samsung Electronics America - -------------------------------------------------------------------------------- Georgia Pacific Schering Plough - -------------------------------------------------------------------------------- Johnson & Johnson Sharp Electronics - -------------------------------------------------------------------------------- Lever Brothers Sony Electronics - -------------------------------------------------------------------------------- Lexmark International Warnaco - -------------------------------------------------------------------------------- M&M/Mars Yamaha Corp. of America ================================================================================ o Recurring income stream. The annual base subscription price of $3,500 is not only very low compared to competitive products but also to the amount of loss inherent in the credit exposure of shipping to a customer who cannot pay. Because of the ease of use and CRM's product sophistication, users appear to develop a residual comfort level that acts to reduce the risk of replacement of CRM's service by a competitive product. CRM's recurring income stream should give the Company stability and profitability not found in a one-time sale product-based company. o Potentials for cost reductions. The Company foresees declining costs in some important expenses, which should increase net profits from its subscription income stream. Computer and communication costs are coming down regardless of the Company's management skills. The Company believes that the advent of Internet delivery of telephone calls will further reduce the cost per phone call over the next several years, and computer costs per transaction should also continue to decline. The Company further believes that the base of renewal business will grow larger each year and the Company pays no sales commissions on renewals versus approximately 30% for new sales. In addition, MGI has contracted to provide financial data to CRM at no cost through December 31, 2000, and at the rate of $5.00 per month, per single password subscriber, from January 1, 2001 through December 31, 2003 (MGI's data cost is slightly higher for subscribers with more than one password). In the future, the cost of obtaining public company financial data should also continue its downward slide as the SEC works towards its goal of total electronic filing into a database 6 template. All these naturally occurring cost reductions will be in addition to the cost reductions achieved through servicing more accounts over the Company's in-place fixed costs. Another potential for cost reduction is the Company's $12.8 million NOL carryforwards (expiring in varying amounts annually through 2019) which, the Company believes, should be available to shelter future taxable income. o Dependence on Internet Access to Conduct Business. CRM's product is only distributed over the Internet and, therefore, a lack of Internet access at a potential customer's site makes it impossible for that customer to utilize the service. When CRM started selling its service in April 1997, the single largest sales impediment was the lack of Internet access at a prospective customer's site. CRM estimates that in excess of 60% of all sales calls, in 1997, encountered this block, but that it encountered lack of Internet access in 15% of its sales calls during 1999. Most industry observers believe that Internet access, at the company level, is beginning to explode as companies learn of the Internet's utility as a sales, advertising, training, administrative and purchasing tool. These observers expect Internet availability to reach 80% to 90% of the corporate world in the next few years. There is a lag, however, between a company getting Internet access and its credit department being hooked into the Internet. It is clear, however, that this single largest sales block for CRM service is being reduced at a rapid rate. Marketing and Sales CRM's goal is to establish its service as the preeminent online financial information and news service dedicated to credit professionals doing business with publicly held and, in the near future, privately held companies. CRM expects to maintain its subscriber base by continuing to provide the highest quality service so that subscribers will continue to renew their subscriptions each year. This is most important, as the profitability of a renewal is substantially greater than the profit on an initial sale. To capture a significant percentage of the market for online public company credit information, CRM will continue to use the Internet as the primary mechanism for distributing its service. To inform potential subscribers about its service, CRM will continue to use a combination of direct mail, telemarketing, print advertising in various trade journals, trade show representation and speaking engagements before credit associations. Employees As of March 6, 2000, the Company employed 25 persons full time. None of the Company's employees is covered by a collective bargaining agreement. The Company believes its relations with its employees to be satisfactory and has suffered no interruption in operations. 7 The Company established a 401(k) Plan covering all employees effective January 1, 2000 that provides for discretionary Company contributions. The Company has no other retirement, pension, profit sharing or similar program in effect for its employees, but has adopted a stock option plan covering its employees. Net Operating Loss Carryforwards At December 31, 1999, the Company had NOL carryforwards aggregating approximately $12.8 million, which, to the extent available under the Internal Revenue Code of 1986, as amended (the "Code"), may be used to shelter future taxable income of the Company, if any. Section 382 provides limits on the amount of a company's NOL carryforwards which can be applied against its earnings after an "ownership change" occurs. Generally, such a limit is determined, with respect to the amount of NOL carryforward to which the limit applies, by multiplying the company's value at the time of the ownership change by the published long-term tax exempt interest rate. The resulting amount is the maximum that can be offset by NOL carryforwards in any one year if an ownership change has occurred. If, however, an ownership change occurs and during the following 2-year period the Company does not continue its historic business, no NOL carryforwards would be available. An ownership change occurs if there has been an "owner shift" -- a more than 50 percentage point increase in stock ownership involving "5-percent shareholders" over the lowest percentage of stock of the loss corporation owned by such shareholders at any time during the testing period (generally, the prior 3 years). For this purpose, in general, shareholders that are not 5-percent shareholders are aggregated and treated as a single 5-percent shareholder. The Company believes that no owner shifts or ownership changes had occurred prior to its 1999 Private Placement. That Private Placement, however, resulted in a sale of approximately 23% of the outstanding Common Stock to approximately 25 investors who are, as a group, a "5-percent shareholder". Hence, the Private Placement constitutes an "owner shift" of approximately 23%. If subsequent transactions were to occur involving 5-percent shareholders within the applicable three-year testing period following the Private Placement, or any subsequent three-year testing period, an "ownership change" could occur which could cause the loss or limitation of the Company's available NOL carryforwards, pursuant to Section 382. ITEM 2. PROPERTIES. The Company does not own any real property. The Company's principal office is located in approximately 5,670 square feet of leased space in an office building located in Floral Park, New York. The lease expires on November 30, 2004 and provides for a monthly cost of $7,560 during the first year and increases of 3% per annum in subsequent years, plus escalation for real estate taxes. 8 ITEM 3. LEGAL PROCEEDINGS. Neither the Company nor its property is a party to or subject of a pending legal proceeding. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of the Company's fiscal year ended December 31, 1999, either through the solicitation of proxies or otherwise. 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock trades in the over-the-counter market "Bulletin Board Service" under the symbol CRMZ. The following table sets forth the high and low closing bid quotations for the Common Stock as reported on the over-the-counter market Bulletin Board Service for each calendar quarter of 1998 and 1999. Such market quotations reflect inter-dealer prices without retail markup, markdown or commission and do not necessarily represent actual transactions. High Bid Low Bid -------- ------- 1998 First Quarter $ 0.03 $ 0.0001 Second Quarter $ 0.01 $ 0.0001 Third Quarter $ 0.01 $ 0.01 Fourth Quarter $ 5.25 $ 0.01 1999 First Quarter $ 6.00 $ 2.00 Second Quarter $10.00 $ 4.50 Third Quarter $ 4.75 $ 3.125 Fourth Quarter $ 5.00 $ 1.25 On March 6, 2000, there were approximately 560 registered holders of the Company's Common Stock. The Company has not paid any cash dividends on its Common Stock and does not anticipate paying any cash dividends in the foreseeable future. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. Financial Condition From October 1993, when it sold its previous natural foods distribution business (the "Asset Sale"), through the end of 1998 the Company had no revenues from operations. During this period, the Company received revenues from notes issued to it in connection with the Asset Sale. During 1997 and 1998 the Company was required, by the terms of its then outstanding Series A and Series B Preferred Stock (which required payment of liquidation preferences upon a sale or transfer of substantially all the assets of the Company) to pay out the applicable liquidation preferences to Flum Partners, the holder of those series. As previously reported, the Company issued to Flum Partners at the end of 1997 and in the first quarter of 1998 a total of $1.8 million of 10 cash, plus 1,100,000 shares of its new Senior Preferred Stock (convertible into 3,598,299 shares of Common Stock) in payment of the liquidation preferences and accrued dividends on the Series A Preferred Stock and Series B Preferred Stock. This cash payment effectively dissipated all of the Company's liquid assets as at the end of 1997 and the share issuance gave Flum Partners the right to own and vote 90% of the Company's outstanding equity shares. See "Certain Transactions" in Part III below. As described under "Business," during 1998 the Company located, investigated and negotiated the purchase of the CreditRisk Monitor ("CM Service") business then owned by Market Guide Inc. ("MGI"). In September 1998 the Company purchased an option to purchase the assets of the CM Service business for approximately $2.39 million. It exercised its option on December 29, 1998 and the transaction closed effective January 19, 1999. The terms of the purchase price and the Company's notes issued in connection therewith are described under "Business" and in the Notes to the Company's Consolidated Financial Statements. In order to raise funds to pay the $1.23 million cash portion of the purchase price for the CM Service assets, the costs of the acquisition and to have sufficient working capital to continue to develop and run that business, the Company completed a private placement of 1,300,000 shares on January 19, 1999 of its Common Stock to approximately 25 "accredited investors" at a purchase price of $2.50 per share, for gross proceeds of $3.25 million. Management believes that the proceeds of this offering will provide adequate working capital to fund operating losses of CRM until cash breakeven has been achieved. The Company expects to achieve cash flow breakeven status during 2000. The transactions described above, along with the issuance of 2,000 shares of Common Stock to Flum Partners in November 1998 in consideration of its provision to the Company of a line of credit and the conversion by Flum Partners of its Senior Preferred shares into Common Stock on or about January 20, 1999, resulted in Flum Partners owning more than 72% of the Company's outstanding Common Stock (which is its only equity security now outstanding) after the 1999 Private Placement. At December 31, 1999, the Company had cash, cash equivalents and other liquid assets of $1.42 million compared to $13,400 of liquid assets at December 31, 1998, and had working capital of $624,295, compared to working capital of $30,628 at December 31, 1998, in each case reflecting the 1999 Private Placement. The Company has no bank lines of credit or other currently available credit sources. Funds from the 1999 Private Placement became available to the Company on or about January 19, 1999, at which date the Company paid the cash portion of the purchase price for the CM Service assets, paid the expenses of the purchase transaction and retained the remaining proceeds for use as working capital over the next two years. The purchase of the CM Service business in January 1999 transformed the Company into an operating company with revenues from operations and increased its employee base from 1 employee in 1998 to 25 11 full time employees as of March 6, 2000. Operations 1999 vs. 1998 and 1998 vs. 1997 The Company terminated its business as a food manufacturer on October 22, 1993, when it sold its operations in the Asset Sale. It conducted no operations in the fiscal years ended December 31, 1997 and December 31, 1998. As a start-up business, the Company incurred a net loss of ($1,252,698), or ($0.23) per share, for the year ended December 31, 1999. Included is a write-off of $134,076 representing a portion of the purchase price paid for the CRM assets allocated to in-process research and development projects that have not reached technological feasibility and have no probable alternative future uses. Net loss for the year ended December 31, 1998 was ($23,439), or ($0.06) per share, reflecting selling, general and administrative expenses in excess of interest and dividend income. The Company eliminated the Chairman's compensation expense when Mr. Flum's employment contract was terminated. After the distribution of assets to Flum Partners, the Company had no substantial investment income. The Company over time intends to expand its operations by expanding the breadth and depth of its product and service offerings and the introduction of new or complementary products. Gross margins attributable to new business areas may be lower than those associated with the Company's existing business activities. As a result of the Company's limited operating history and the emerging nature of the market in which it competes, the Company is unable to accurately forecast its revenues. The Company's current and future expense levels are based largely on its investment plans and estimates of future revenues and are to a large extent fixed. Sales and operating results generally depend on the volume of, timing of and ability to sign new subscribers, which are difficult to forecast. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues in relation to the Company's planned expenditures would have an immediate adverse effect on the Company's business, prospects, financial condition and results of operations. Further, as a strategic response to changes in the competitive environment, the Company may from time to time make certain pricing, purchasing, service, marketing or acquisition decisions that could have a material adverse effect on its business, prospects, financial condition and results of operations. Factors that may adversely affect the Company's quarterly operating results include, among others, (i) the Company's ability to retain existing subscribers, attract new subscribers at a steady rate and maintain subscriber satisfaction, (ii) the development, announcement or introduction of new services and products by the Company and its competitors, (iii) price competition, (iv) the 12 increasing acceptance of the Internet for the purchase of credit information such as that offered by the Company, (v) the Company's ability to upgrade and develop its systems and infrastructure, (vi) the Company's ability to attract new personnel in a timely and effective manner, (vii) the Company's ability to manage effectively the broadening of its service to encompass additional companies monitored and the development of new products, (viii) the Company's ability to successfully manage the integration of third-party data into its Internet site, (ix) technical difficulties, system downtime or Internet brownouts, (x) the amount and timing of operating costs and capital expenditures relating to expansion of the Company's business, operations and infrastructure, and (xi) general economic conditions and economic conditions specific to the Internet and the credit information industry. Federal Tax Considerations The Company has available net operating loss carryforwards ("NOLs") which may be used to reduce its Federal income tax liability. However, provisions contained in the Internal Revenue Code of 1986, as amended (the "Code"), may impose substantial limitations upon the Company's ability to utilize its NOLs. For example, the Company may be subject to the so-called "alternative minimum tax" which does not always permit full utilization of NOLs otherwise available. Limitations imposed by Section 382 of the Code upon the availability of NOLs would apply if certain changes were to occur in ownership of the Company. Thus, the Company's utilization of its carryforwards in the future may be deferred and/or reduced if the Company undertakes further equity financings or if certain other changes occur in the ownership of the Common Stock. Finally, if the Company becomes an investment company subject to the Investment Company Act of 1940, it will no longer be entitled to a deduction for NOLs. See "Business - Net Operating Loss Carryforwards". For information regarding the amounts and expiration dates of the Company's NOLs, see Note 3 to the Company's Consolidated Financial Statements. Recently Issued Accounting Standards In June 1999, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 137, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 137 is an amendment to Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 137 establishes accounting and reporting standards for all derivative instruments and is effective for fiscal years beginning after June 15, 2000. CreditRiskMonitor.com does not currently have any derivative instruments and, accordingly, does not expect the adoption of SFAS No. 137 to have an impact on its financial position or results of operations. 13 Year 2000 Issues The Company did not experience any material disruptions in its operations or activities as a result of the so-called "Y2K Problem". Nor did the Company incur material expenses in correcting perceived or suspected Y2K problems. In addition, the Company is not aware that any of its suppliers, customers or on-line partners has experienced any material disruptions in their operations or activities. The Company does not expect to encounter any such problems in the foreseeable future, although it continues to monitor its computer operations for signs or indications of such a problem. Risks and Other Considerations From time to time, information provided by the Company or statements made by its employees, or information provided in its filings with the Securities and Exchange Commission may contain forward looking information. Any statements contained herein or otherwise made that are not statements of historical fact may be deemed to be forward looking statements. Without limiting the foregoing, the words "believes", "expects", "anticipates", "plans" and similar expressions are intended to identify forward looking statements. The Company's actual future operating results or short-term or long-term liquidity may differ materially from those projections or statements made in such forward looking information as a result of various risks and uncertainties, including but not limited to the following in addition to those set forth elsewhere herein or in other filings made by the Company with the Commission: o CRM is a relatively new venture with limited operating history and a history of significant losses. There can be no assurances that the Company will be immediately profitable or will not incur losses in the future. o The Company is subject to competition from firms that have greater financial, management, sales and technical resources than the Company. The Company's success also depends to a significant degree to the contributions of its key management. The loss of services of one or more key members of management could have an adverse affect upon the Company. o The market price of the Company's common stock may be volatile at times in response to fluctuations of the Company's operating results, changes in analyst earnings estimates, market conditions as well as general conditions and other factors general to the Company. o While the Company expects to expand its credit reporting to privately-owned companies in 2000, if it is unable to do so, its ability to market its service will be substantially impeded and such impediment could have a material adverse affect upon the Company. o If CRM is unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the Market Guide Notes, it would be in default under the terms thereof, which would permit the holders of such Notes to accelerate the 14 maturity of such indebtedness. Such a default could have a material adverse effect on CRM's business, prospects, financial condition and results of operation. o CRM may not be able to effectively market its service because of its limited marketing experience and limited personnel. The Company's ability to generate revenue from the credit information service business will be dependent upon, among other things, its ability to manage an effective sales organization. o If CRM is unable to respond to rapid technological changes, it may lose market share. If CRM is unable, for any reason, to adapt its Web site and other technology in a timely manner in response to changing market conditions or customer requirements, such inability could have a material adverse effect on its business, prospects, financial condition and results of operations. o CRM cannot assure that Market Guide will continue to supply data on current terms or that CRM will be able to establish new or extend current vendor relationships to ensure acquisition of data in a timely and efficient manner and on acceptable commercial terms. If the Company is unable to develop and maintain relationships with suppliers that would allow it to obtain sufficient quantities of reliable information on acceptable commercial terms, such inability could have a material adverse effect on the Company. o CRM's success is largely dependent on its ability to deliver high quality, uninterrupted access to its service over the Internet. Any system interruptions that result in the unavailability of its Web site would reduce the attractiveness of its service. o CRM's computer and communications hardware and systems are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, break-ins, earthquake and similar events. CRM does not have off-site back-up systems or a formal disaster recovery plan and does not have sufficient business interruption insurance to compensate it for losses that may occur. The Company's servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions. These could lead to interruptions, delays, loss of critical data or the inability to provide its service, which could have a material adverse effect on its business, prospects, financial condition or results of operations. o A determination by the Internal Revenue Service that CRM's net operating losses may not be carried forward and used to offset future profits, if any, could result in substantial tax liability which would reduce after-tax income and adversely affect CRM's financial condition and results of operations. o CRM does not currently have any issued patents or registered copyrights, and its technology may be misappropriated by others. 15 There can be no assurance that any steps it takes will be adequate to prevent misappropriation of its technology or other proprietary rights. If CRM becomes involved in litigation to enforce or defend its intellectual property rights, such litigation can be a lengthy and costly process causing diversion of effort and resources with no guarantee of success. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company as of and for the years ended December 31, 1999 and 1998, together with the report of Clifton Gunderson L.L.C., independent auditors, are set forth at pages F-1 to F-17 of this Report on Form 10-KSB. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 16 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. Directors and Executive Officers The following table sets forth certain information with respect to the directors and executive officers of the Company and the period such persons held their respective positions with the Company.
==================================================================================================================== Principal Occupation/Position Officer or Name Age Held with Company Director Since - -------------------------------------------------------------------------------------------------------------------- Jerome S. Flum 59 Chairman of the 1983 Board/President/ Chief Executive Officer - -------------------------------------------------------------------------------------------------------------------- Joseph L. DeMartino 36 Senior Vice President/Chief September 1, 1999 Operating Officer - -------------------------------------------------------------------------------------------------------------------- Lawrence Fensterstock 49 Senior Vice President/Chief January 20, 1999 Financial Officer/ Secretary - -------------------------------------------------------------------------------------------------------------------- Richard J. James 60 Director 1992 - -------------------------------------------------------------------------------------------------------------------- Leslie Charm 56 Director 1994 ====================================================================================================================
The sole officer of the Company in 1998 was Mr. Flum, Chairman, President and Chief Executive Officer. Jerome S. Flum has been a director of the Company since 1983. He was appointed President and Chief Executive Officer of the Company and Chairman of the Board of Directors in June 1985. Since 1995, Mr. Flum has been Chairman of the Board of China Capital Corp., a privately-held consulting and management company headquartered in Bethesda, Maryland. From 1968 to 1985, Mr. Flum was in the investment business as an institutional security analyst, research and sales partner at an investment firm and then as a general partner of a private investment pool. Before entering the investment business Mr. Flum practiced law, helped manage a U.S. congressional campaign and served as a legal and legislative aide to a U.S. congressman. Since 1999, Mr. Flum has been a director of China B2B.com, Inc., a privately-held company owned in part by China Capital Corporation and headquartered in Bethesda, Maryland. Mr. Flum received a BS degree in Business Administration from Babson College and a JD degree from Georgetown University Law School. Joseph DeMartino joined the firm as Chief Operating Officer in September 1999. Previously, he was Chief Operating Officer of Market 17 Guide Inc. from 1998 until its merger with Multex, Inc. in the third quarter of 1999. While at Market Guide, Mr. DeMartino was responsible for managing many facets of its business, including the CreditRisk Monitor division, information systems, and the research department. Prior to joining Market Guide, Mr. DeMartino was Vice President, Account Management for ADP's Brokerage Services Division from 1993 to 1998 where he managed their largest Wall Street clients. He pioneered ADP's effort to install systems into non-traditional areas such as Research, Investment Banking, and Fixed Income trading at Merrill Lynch, Smith Barney, and Prudential. He began his career at International Business Machines as a Marketing Representative in their Wall Street offices, where he installed the first ever IBM complex system on the floor of the Commodities Exchange Center in 1989 and later lead the IBM team assisting in the merger of Smith Barney and Shearson in 1993. He holds a BA in Computer Science from CUNY Queens College. Lawrence Fensterstock became an employee and was elected to his current offices in January 1999. He joined Information Clearinghouse Incorporated ("ICI") in 1993 and was closely involved in the formation of its credit reporting service. In addition to being responsible for the publication of the various facets of the F&D service, he was chief operating and financial officer of ICI. Upon leaving ICI, in 1996, he joined Market Guide to assist in the formation of its credit information services division. From August 1989 through October 1992, he was vice president-controller, treasurer and corporate secretary for a private entity formed to acquire Litton Industries' office products operations in a leveraged buyout. There, he spent 2-1/2 years acting as de facto chief financial officer. Lawrence Fensterstock is a certified public accountant who began his career in 1973 with Arthur Andersen & Co. He had an MBA degree from The University of Chicago Business School and a BA degree from Queens College. Richard James has been a director of the Company since April 1992. Mr. James is the Customer Satisfaction Manager for the Consumer Hardware Division of Polaroid Corporation. In this role he is responsible for improving the business performance of Polaroid's instant consumer cameras through improved redesigns and manufacturing processes, as well as by enhancing the customers' picture taking experiences. This role encompasses manufacturing plants in Scotland, China, India and the USA, and worldwide consumer markets. From 1968 through 1979 Mr. James was President of James Associates, a group of businesses involving accounting and tax preparation, small business consulting, real estate sales and rentals, and retail jewelry sales. Mr. James is a founding Board member and VP Finance of the Boston Chapter of the Society of Concurrent Engineering, a national professional organization dedicated to the application of Integrated Product Development principles to achieve rapid design, development and inception of new products and services. Mr. James holds a BS in Chemical Engineering from Northeastern University, as well as extensive studies in managerial and technical subjects. He has developed and taught numerous technical and business courses for many years as a faculty member of Polaroid's internal training organization. 18 Leslie Charm has been a director of the Company since September 1994. Since 1972, Mr. Charm has been a partner in the firm of Youngman & Charm, a firm specializing in assisting companies that are experiencing operating and/or financial problems. Youngman & Charm also advises entrepreneurs in the growing of companies. From 1989 to the present, he has been a director of Moto Photo, Inc., a publicly-held international franchisor of imaging centers. Mr. Charm is an adjunct professor in entrepreneurial finance at Babson College and is a graduate of the Harvard Business School The Company's By-Laws provide that (a) directors shall be elected to hold office until the next annual meeting of stockholders and that each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which the director was elected and until a successor has been elected, and (b) officers shall hold office until their successors are chosen by the Board of Directors, except that the Board may remove any officer at any time. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and officers, and persons who own more than 10% of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission ("SEC") initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Such persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports they file. To the Company's knowledge, based solely on its review of the copies of such reports received by it with respect to fiscal 1999, or written representations from certain reporting persons, the Company believes that all filing requirements applicable to its directors, officers and persons who own more than 10% of a registered class of the Company's equity securities have been timely complied with, except that a Form 4 and Form 5, reporting a total of 5 transactions, for each of Flum Partners and Jerome S. Flum were filed late. 19 ITEM 10. EXECUTIVE COMPENSATION The following table shows all cash compensation paid or to be paid by the Company during the fiscal years indicated to the chief executive officer and all other executive officers of the Company as of the end of the Company's last fiscal year.
================================================================================================ SUMMARY COMPENSATION TABLE - ------------------------------------------------------------------------------------------------ Annual Compensation(2) Long-Term Compensation - ------------------------------------------------------------------------------------------------ Number of Name and Principal Securities Positions Underlying All Other Year Salary Options Compensation - ------------------------------------------------------------------------------------------------ Jerome S. Flum, Chairman, 1999 $ 57,500(1) -- None President and Chief Executive 1998 $ -0-(1) 150,000 None Officer 1997 $113,859 -- None - ------------------------------------------------------------------------------------------------ Joseph L. DeMartino, Senior Vice 1999 $ 40,311 130,000 None President 1998 N/A -- N/A 1997 N/A -- N/A - ------------------------------------------------------------------------------------------------ Lawrence Fensterstock, Senior 1999 $140,582 -- None Vice President 1998 N/A 150,000 N/A 1997 N/A -- N/A ================================================================================================
- ---------- (1) Effective December 31, 1997 Mr. Flum's Employment Agreement was terminated. See "Related Party Transactions." Beginning January 20, 1999, Mr. Flum is being compensated by the Company at the rate of $150,000 per annum, of which $90,000 per annum is being deferred until such time as the Company achieves cash flow breakeven or until the MGI Notes have been paid in full, whichever occurs sooner. (2) No Bonus or other Annual Compensation was paid during the past three fiscal years. Directors' Fees Commencing September 1994, non-employee directors receive $450 for each Board of Directors' meeting attended, up to a maximum payment of $1,800 per Director per calendar year. During 1998, non-qualified options to purchase 36,000 shares of Common Stock at a purchase price of $0.0001 per share were granted to each of the two non-employee directors. Compensation Pursuant to Stock Option Plans The following table sets forth all stock options granted to the Company's executive officers during the last fiscal year. 20
========================================================================================================== OPTION/SAR GRANTS IN LAST FISCAL YEAR(1) - ---------------------------------------------------------------------------------------------------------- Individual Grants - ---------------------------------------------------------------------------------------------------------- Percent of Total Number of Securities Options Granted to Underlying Options Employees in Fiscal Exercise Basic Expiration Date Name Amount (#) Year Price ($/Sh) - ---------------------------------------------------------------------------------------------------------- Joseph L. DeMartino, 100,000 37.13% $3.3125 9/01/2009 Senior Vice President 30,000 11.14% $4.00 12/23/2009 ==========================================================================================================
- ---------- (1) No stock appreciation rights were granted to the executive officers in fiscal 1999. All of the options granted to Mr. DeMartino may be exercised prior to their final two years only in installments upon the Company attaining certain specified gross revenue and pre-tax profit margin objectives as set forth in the table below, unless such objectives are modified in the sole discretion of the Board of Directors. In order to achieve the vesting of the applicable percentage of options at each level, both the minimum sales amount and the pre-tax operating margin tests for that level must be met.
========================================================================================================== MINIMUM ANNUAL - ---------------------------------------------------------------------------------------------------------- Pre-Tax Operating Options Cumulative Options Level Gross Sales Margin Vested Vested - ---------------------------------------------------------------------------------------------------------- 1 $ 3 Million 20% 6.7% 6.7% - ---------------------------------------------------------------------------------------------------------- 2 $ 4 Million 23% 6.7% 13.4% - ---------------------------------------------------------------------------------------------------------- 3 $ 5 Million 27% 10.0% 23.4% - ---------------------------------------------------------------------------------------------------------- 4 $ 6 Million 36% 10.0% 33.4% - ---------------------------------------------------------------------------------------------------------- 5 $7.5 Million 39% 13.3% 46.7% - ---------------------------------------------------------------------------------------------------------- 6 $ 9 Million 42% 13.3% 60.0% - ---------------------------------------------------------------------------------------------------------- 7 $ 11 Million 45% 16.6% 76.6% - ---------------------------------------------------------------------------------------------------------- 8 $ 14 Million 48% 16.6% 93.2% - ---------------------------------------------------------------------------------------------------------- 9 $ 17 Million 48% 6.8% 100.0% ==========================================================================================================
Notwithstanding that the objectives may not have been met in whole or in part, each of the foregoing performance-based options will vest in full on a date which is two years prior to the expiration date of the option or, in the event of a change in control, will vest in whole or in part 21 according to a formula based on the value of the Company at the time of such change in control. ITEM 11. SECURITY OWNERHSIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT The following table sets forth as of March 6, 2000 information regarding the beneficial ownership of the Company's voting securities (i) by each person who is known to the Company to be the owner of more than five percent of the Company's voting securities, (ii) by each of the Company's directors and executive officers, and (iii) by all directors and executive officers of the Company as a group. Except as indicated in the following notes, the owners have sole voting and investment power with respect to the shares: ================================================================================ Percentage of Number of Shares Outstanding Name of Common Stock(1) Common Stock - -------------------------------------------------------------------------------- Flum Partners(2) 3,797,128(3) 71.08% - -------------------------------------------------------------------------------- Jerome S. Flum 3,910,353(4)(5) 73.20% - -------------------------------------------------------------------------------- Richard J. James 1,000 --* - -------------------------------------------------------------------------------- Leslie Charm 1,000 --* - -------------------------------------------------------------------------------- All directors and officers 3,943,353(4)(5) 73.82% (as a group (5 persons)) ================================================================================ - ---------- * less than 1% (1) Does not give effect to (a) options to purchase 150,000 shares granted to Mr. Flum pursuant to the 1992 Incentive Stock Option Plan of the Company, (b) options to purchase 761,700 shares of Common Stock granted to 25 officers, employees and consultants pursuant to the 1998 Long Term Incentive Plan of the Company, and (c) options to purchase an aggregate of 36,000 shares granted to each of the other directors. All of the foregoing options are not exercisable within sixty days. Includes 2,000 shares of Common Stock issued to Flum Partners in consideration of loans to the Company. Includes options to purchase 1,000 shares of Common Stock granted to non-employee directors which are immediately exercisable. (2) The sole general partner of Flum Partners is Jerome S. Flum, Chairman of the Board, President and Chief Executive Officer of the Company. (3) Includes 3,598,299 shares of Common Stock issued upon the conversion on January 20, 1999 of the Senior Preferred Stock owned by Flum Partners. 22 (4) Includes 3,797,128 shares owned by Flum Partners, of which Mr. Flum is the sole general partner, which are also deemed to be beneficially owned by Mr. Flum because of his power, as sole general partner of Flum Partners, to direct the voting of such shares held by the partnership. Mr. Flum disclaims beneficial ownership of the shares owned by Flum Partners. The 3,910,353 shares of Common Stock, or 73.20% of the outstanding shares of Common Stock (giving effect to the Senior Preferred Stock Conversion and the issuance of stock to Investors in the 1999 Private Placement) may also be deemed to be owned, beneficially and collectively, by Flum Partners and Mr. Flum, as a "group", within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Act"). Does not include options to purchase 150,000 shares granted to Mr. Flum under the 1992 Incentive Stock Option Plan. (5) Includes 2,000 shares of common stock owned by a grandchild of Mr. Flum, the beneficial ownership of which is disclaimed by Mr. Flum. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain Transactions Payment of Liquidation Preferences and Issuance of Senior Preferred Stock Under the terms of the Company's previously outstanding Series A Preferred Stock and Series B Preferred Stock, a sale or transfer of substantially all of the assets of the Company was deemed to be a liquidation, dissolution or winding up of the Company for purposes of determining the payment of the liquidation preferences on the Series A Preferred Stock and Series B Preferred Stock. Accordingly, the 1993 Asset Sale entitled Flum Partners, the holder of all of the outstanding Series A Preferred Stock and Series B Preferred Stock, to payment of the applicable liquidation preferences and accrued and unpaid dividends. In November 1997 Flum Partners delivered a letter to the Company demanding payment of the applicable liquidation preferences on the Series A Preferred Stock and Series B Preferred Stock ($1,175,000 in the case of the Series A Preferred Stock and $310,000 in the case of the Series B Preferred Stock) and accrued and unpaid dividends on such shares. On the date of the delivery of the demand, accrued dividends on the Series A Preferred Stock amounted to $787,500 and accrued dividends on the Series B Preferred Stock amounted to $111,600. Accordingly, the aggregate amount payable pursuant to the demand of Flum Partners was approximately $2,960,000. Since Flum Partners is an affiliate of Mr. Jerome Flum, a member of the Board, and because of Mr. Flum's interest in Flum Partners and in the transaction, the Board formed an Independent Committee consisting of independent Board members to consider the letter from Flum Partners. The Independent Committee met and reviewed the Company's financial situation at such time. The Company had approximately $1.89 million of cash and cash equivalents, and it was deemed prudent for the Company to maintain a cash balance of approximately $90,000 for potential claims and other expenses and for working capital to enable the Company to 23 attempt to identify new business opportunities. Thus, $1.8 million of cash was available for payment of the liquidation preferences and accrued dividends on the Series A and Series B Preferred Stock, leaving an unpaid amount of approximately $1.16 million of cash. The Independent Committee then engaged in discussions with Mr. Flum, representing Flum Partners. Pursuant to such discussions, Flum Partners agreed to accept, in payment of the unpaid $1.16 million of cash, shares of a new series of convertible senior preferred stock ("Senior Preferred Stock"), with an aggregate liquidation preference equal to $1.1 million, which was $60,000 less than the unpaid liquidation preferences and accrued dividends on the Series A Preferred Stock and Series B Preferred Stock. The new series of Senior Preferred Stock did not accrue dividends, but was convertible into 90% of the Company's Common Stock on a fully-diluted basis. The new Senior Preferred Stock was "participating", in that, upon a liquidation or sale of the Company, and after the Senior Preferred Stock received its liquidation preference, the Senior Preferred Stock would share ratably with the Common Stock on an "as converted" basis. After further negotiations with the Independent Committee, Mr. Flum agreed to a termination of his existing Employment Agreement effective December 1, 1997, saving the Company approximately $190,000 in salary expense through the end of the term of such agreement, in consideration of which the Company transferred to Mr. Flum an automobile and computer equipment with an aggregate value not exceeding $10,000. Mr. Flum also agreed to continue as Chairman of the Board and Chief Executive Officer of the Company, without pay, on an "at will" basis. Mr. Flum also agreed for a twelve month period, to attempt to identify and consummate a transaction which would increase the value of the Company. In its deliberations as to the fairness of the transaction, the Board considered the following factors: (i) Mr. Flum agreed to terminate his existing Employment Agreement with the Company, saving the Company an aggregate of approximately $190,000 in salary expense; (ii) the Senior Preferred Stock would not accrue dividends, saving the Company approximately $157,000 in annual dividends; (iii) the Senior Preferred Stock had a liquidation preference of approximately $60,000 less than the aggregate amount payable in respect of the liquidation preferences and accrued dividends on the Series A Preferred Stock and Series B Preferred Stock (in this regard the Board recognized that the Series A and Series B Preferred Stock had aggregate liquidation preferences (plus accrued dividends) of approximately $2.96 million); and (iv) that Mr. Flum would attempt for a period of twelve months to identify and consummate a transaction which would increase the value of the Company. With regard to the factors described, the Board recognized that in any such transaction, the Senior Preferred Stock would be entitled to its liquidation preference before any distributions to common stockholders. The Independent Committee also noted that, if it did not accept the proposal of Flum Partners, the Board would be obligated to pay all of the Company's cash to Flum Partners in partial satisfaction of the liquidation preferences, and then to proceed with the final liquidation of the Company, which would result in the holders of Common Stock not receiving anything. 24 In accordance with the foregoing, the Company issued to Flum Partners at the end of 1997 and in the first quarter of 1998 a total of 1,100,000 shares of Senior Preferred Stock and $1.8 million of cash in payment of the liquidation preferences and accrued dividends on the Series A Preferred Stock and Series B Preferred Stock. Interest of Certain Persons and Conflicts of Interest As a consequence of the payment of the liquidation preferences of the Series A Preferred Stock and Series B Preferred Stock, the issuance and subsequent conversion of the Senior Preferred Stock, and the purchase of shares by Flum Partners in the private placement, and as described above, Jerome S. Flum, the Chairman of the Board, Chief Executive Officer and President of the Company, individually and through Flum Partners, beneficially owns 3,910,353 shares of Common Stock. In addition, Mr. Flum has been granted Incentive Stock Options ("ISOs") to purchase 150,000 shares of the Common Stock at an exercise price of $0.00011 per share (equal to 110% of the fair market value of the Common Stock on the date of grant). Related Party Transactions The Company entered into an employment agreement with Mr. Flum, effective as of July 1, 1992, which provided for Mr. Flum to serve as the Chairman and Chief Executive Officer of the Company until June 30, 1999, unless sooner terminated by the Company for cause, or upon death or permanent disability. As more fully described above, Mr. Flum agreed to a termination of his Employment Agreement effective December 1, 1997. In November 1998, Flum Partners, an investment limited partnership which during 1998 owned 90% of the Company's outstanding voting shares, and the general partner of which is Jerome S. Flum, the Company's Chairman, President and CEO, provided the Company with a line of credit of up to $20,000 of which only $5,500 was drawn upon. In consideration thereof, the Company issued to Flum Partners 2,000 shares of Common Stock. In addition, Flum Partners purchased 160,000 shares of Common Stock as a participant in the 1999 Private Placement and agreed to convert all of its 1,100,000 shares of Senior Preferred Stock into 3,598,299 shares of Common Stock on or prior to the closing of the Private Placement. This conversion was effected as of January 20, 1999. On May 17, 1999, Flum Partners and the Company entered into an Agreement (the "Agreement") pursuant to which Flum Partners and its partners agreed not to purchase or sell any shares of stock of the Company, including purchases from the Company but excluding transfers by Flum Partners to its partners, without the prior written authorization of the Board of Directors. The purpose of the Agreement is to reduce the risk that certain changes in stock ownership of the Company would jeopardize the Company's ability to utilize fully its NOLs or other federal income tax attributes. The Agreement terminates on May 17, 2000 unless otherwise terminated or extended by mutual agreement and in any event shall terminate upon the Company having less than $100,000 in federal tax attributes. The Company in turn agreed to grant to Flum Partners and its partners to whom stock of the Company may be 25 transferred certain "piggyback" registration rights in the event of future public offerings by the Company of its securities. ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K (a) Exhibits 2 - Copy of the Asset Purchase Agreement dated December 29, 1998. (8) 3(i)A- Copy of the Company's Amended and Restated Articles of Incorporation dated as of May 7, 1999. 3(i)B- Certificate of Designations for Series A Preferred Stock, together with Certificate of Amendment thereto and Second Certificate of Amendment thereto. (2) 3(i)C- Certificate of Designations for Series B Preferred Stock. (3) 3(i)D- Third Certificate of Amendment of The Certificate of Designations of Series A Preferred Stock. (7) 3(i)E- Certificate of Amendment of The Certificate of Designations of Series B Preferred Stock. (7) 3(i)F- Certificate of Designations of Senior Preferred Stock. (8) 3(ii)- Copy of the Company's By-Laws as amended April 27, 1987. (1) 10-A - Copy of Company's 1992 Stock Option Plan. (6) 10-B - Copy of Company's 1985 SAR and Non-Qualified Stock Option Plan. (2) 10-C - Copy of Employment Agreement dated as of July 1, 1992 between the Company and Jerome Flum. (6) 10-D - Copy of 1988 Amendments to Company's 1985 SAR and Non-Qualified Stock Option Plan. (4) 10-E - Letter Agreement dated November 12, 1990 by and between New Generation Foods, Inc. and Jerome S. Flum. (5) 10-F - Letter Agreement dated November 27, 1990 by and between New Generation Foods, Inc. and Jerome S. Flum. (5) 10-G - Registration Rights Agreement dated November 12, 1990 by and between New Generation Foods, Inc. and Jerome S. Flum. (5) 10-H - Letter Agreement dated November 18, 1997 between New Generation Foods, Inc., Flum Partners and Jerome Flum. (7) 10-I - Copy of Company's 1998 Long-Term Incentive Plan. (9) 10-J - Letter Agreement dated May 17, 1999 by and between Flum Partners and the Company. 11 - Statements Regarding Computation of Per Share Earnings. 21 - Subsidiaries of the Company. 27 - Financial Data Schedule. - ---------- (1) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ending December 31, 1988 (File No.0-10825) and incorporated herein by reference thereto. (2) Filed as an Exhibit to Registrant's Registration Statement on Form S-2 (File No. 33-17446) and incorporated herein by reference thereto. 26 (3) Filed as an Exhibit to Registrant's Registration Statement on Form S-8 (File No. 33-17446) filed October 25, 1989 and incorporated herein by reference thereto. (4) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ending December 31, 1989 (File No. 0-10825) and incorporated herein by reference thereto. (5) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 to Registration Statement on Form S-3 filed November 15, 1991 (File No. 33-17446) and incorporated herein by reference thereto. (6) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the fiscal year ending December 31, 1992 (File No. 0-10825) and incorporated herein by reference thereto. (7) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the fiscal year ending December 31, 1997 (File No. 0-10825) and incorporated herein by reference. (8) Filed as an Exhibit to Registrant's Report on Form 8-K dated January 19, 1999 (File No. 1-10825) and incorporated herein by reference thereto. (9) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for the fiscal year ending December 31, 1998 (File No. 0-10825) and incorporated herein by reference thereto. 27 DOCUMENTS AVAILABLE UPON REQUEST Exhibits 3(i)A, 10-J, 11, 21 and 27 are filed with this Form 10-KSB. All other exhibits indicated above are available upon request and payment of a reasonable fee approximating the Company's cost of providing and mailing the exhibits by writing to: Office of the Secretary, CreditRiskMonitor.com, Inc., 110 Jericho Turnpike, Suite 202, Floral Park, NY 11001-2019. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1999. 28 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE INDEPENDENT AUDITOR'S REPORT F-2 FINANCIAL STATEMENTS Consolidated Balance Sheets - December 31, 1999 and 1998 F-3 Consolidated Statements of Operations - Years Ended December 31, 1999 and 1998 F-4 Consolidated Statements of Stockholders' Equity (Deficit) - Years Ended December 31, 1999 and 1998 F-5 Consolidated Statements of Cash Flows - Years Ended December 31, 1999 and 1998 F-6 Notes to Consolidated Financial Statements - December 31, 1999 and 1998 F-7 F-1 Independent Auditor's Report The Board of Directors and Stockholders CreditRiskMonitor.com, Inc. We have audited the accompanying consolidated balance sheets of CreditRiskMonitor.com, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CreditRiskMonitor.com, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. CLIFTON GUNDERSON L.L.C. Peoria, Illinois January 26, 2000 F-2 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998
1999 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 1,421,885 $ 13,400 Accounts receivable, net of allowance of $32,500 575,048 -- Purchase option -- 115,000 Other 15,798 -- ------------ ------------ Total current assets 2,012,731 128,400 Property and equipment, net of accumulated depreciation 316,999 -- Goodwill, net of accumulated amortization 2,183,275 -- Other assets 21,075 -- ------------ ------------ Total assets $ 4,534,080 $ 128,400 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Unearned subscription income $ 1,263,145 $ -- Accrued expenses 55,598 86,364 Accounts payable 23,388 5,908 Current portion of capitalized lease obligation 4,070 -- Other 42,235 5,500 ------------ ------------ Total current liabilities 1,388,436 97,772 Long-term debt, net of current portion: Secured promissory note, net of unamortized discount of $167,643 832,357 -- Expense promissory note 106,087 -- Capitalized lease obligation 19,990 -- ------------ ------------ 958,434 -- Deferred compensation 86,250 -- ------------ ------------ Total liabilities 2,433,120 97,772 Redeemable convertible voting senior preferred stock, $.01 par value (stated at liquidation value of $1.00 per share). Authorized 1,100,000 shares; issued and outstanding -0- and 1,100,000 shares, respectively -- 1,100,000 Stockholders' equity (deficit): Preferred stock, $.01 par value. Authorized 5,000,000 and 3,900,000 shares, respectively; none issued and outstanding -- -- Common stock, $.01 par value. Authorized 25,000,000 shares; issued and outstanding 5,341,129 and 399,830 shares, respectively 53,411 3,998 Additional paid-in capital 27,192,567 22,818,930 Accumulated deficit (25,145,018) (23,892,300) ------------ ------------ Total stockholders' equity (deficit) 2,100,960 (1,069,372) ------------ ------------ Total liabilities and stockholders' equity (deficit) $ 4,534,080 $ 128,400 ============ ============
These consolidated financial statements should be read only in conjunction with the accompanying notes to consolidated financial statements. F-3 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1999 and 1998
1999 1998 ----------- ----------- Operating revenues $ 1,259,019 $ -- Operating expenses: Data and product costs 686,517 -- Selling, general and administrative expenses 1,504,829 28,216 Depreciation and amortization 167,250 -- ----------- ----------- Total operating expenses 2,358,596 28,216 ----------- ----------- Loss from operations (1,099,577) (28,216) Other income 66,244 7,702 Interest expense (82,153) -- Write-off of intangible assets (134,076) -- Loss on sales of fixed assets (3,191) -- ----------- ----------- Loss before income taxes (1,252,753) (20,514) Provision (benefit) for income taxes (55) 2,925 ----------- ----------- Net loss $(1,252,698) $ (23,439) =========== =========== Net loss per share Basic $ (0.23) $ (0.06) =========== =========== Dilutive $ (0.23) $ (0.06) =========== ===========
These consolidated financial statements should be read only in conjunction with the accompanying notes to consolidated financial statements. F-4 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) Years Ended December 31, 1999 and 1998
Total Additional Stockholders' Common Stock Paid-in Accumulated Equity Shares Amount Capital Deficit (Deficit) ------------ ------------ ------------ ------------ ------------ Balance December 31, 1997 399,830 $ 3,998 $ 22,818,930 $(23,868,861) $ (1,045,933) Net loss for year ended December 31, 1998 -- -- -- (23,439) (23,439) ------------ ------------ ------------ ------------ ------------ Balance December 31, 1998 399,830 3,998 22,818,930 (23,892,300) (1,069,372) Net loss for year ended December 31, 1999 -- -- -- (1,252,698) (1,252,698) Conversion of redeemable convertible voting senior preferred stock 3,598,299 35,983 1,064,017 -- 1,100,000 Proceeds from private offering, net of offering expenses 1,300,000 13,000 3,180,553 -- 3,193,553 Proceeds from issuance of common stock 42,000 420 128,975 (20) 129,375 Proceeds from exercise of stock options 1,000 10 92 -- 102 ------------ ------------ ------------ ------------ ------------ Balance December 31, 1999 5,341,129 $ 53,411 $ 27,192,567 $(25,145,018) $ 2,100,960 ============ ============ ============ ============ ============
These consolidated financial statements should be read only in conjunction with the accompanying notes to consolidated financial statements. F-5 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1999 and 1998
1999 1998 ----------- ----------- Cash flows from operating activities: Net loss $(1,252,698) $ (23,439) ----------- ----------- Adjustments to reconcile net loss to net cash used in operating activities: Goodwill amortization 104,874 -- Depreciation 62,376 -- Write-off of intangible assets 134,076 -- Deferred compensation 86,250 -- Amortization of debt discount 73,970 -- Provision for bad debts 32,500 -- Deferred interest expense 7,925 -- Loss on sale of fixed assets 3,191 -- Change in operating assets and liabilities, net of effect of purchase of assets of Market Guide Inc.: Accounts receivable (199,070) -- Other current assets (15,799) -- Unearned subscription income 466,792 -- Accounts payable 17,479 (454,092) Accrued expenses (30,766) 45,880 Other current liabilities 31,791 -- ----------- ----------- Total adjustments 775,589 (408,212) ----------- ----------- Net cash used in operating activities (477,109) (431,651) ----------- ----------- Cash flows from investing activities: Purchase of assets of Market Guide Inc., net of debt issued (1,273,547) -- Acquisition of purchase option -- (115,000) Purchase of fixed assets (142,467) -- Proceeds from sale of fixed assets 500 -- Increase in other assets (21,075) -- ----------- ----------- Net cash used in investing activities (1,436,589) (115,000) ----------- ----------- Cash flows from financing activities: Proceeds from private offering, net of offering expenses 3,193,553 -- Proceeds from issuance of common stock 129,375 -- Payments on capital lease obligation (847) -- Proceeds from exercise of stock options 102 -- Dividends paid -- (840,000) ----------- ----------- Net cash provided by (used in) financing activities 3,322,183 (840,000) ----------- ----------- Net decrease in cash and cash equivalents 1,408,485 (1,386,651) Cash and cash equivalents at beginning of year 13,400 1,400,051 ----------- ----------- Cash and cash equivalents at end of year $ 1,421,885 $ 13,400 =========== =========== Supplemental disclosure of cash flow information Cash paid during the year for income taxes $ -- $ 2,925 =========== ===========
Supplement schedule of 1999 non-cash investing and financing activities: In connection with the purchase of assets of Market Guide Inc. debt was issued as follows: Secured promissory note $758,386 Expense promissory note 98,162 A capital lease obligation of $24,907 was incurred when the Company entered into a lease for new equipment. These consolidated financial statements should be read only in conjunction with the accompanying notes to consolidated financial statements. F-6 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization and Description of Business CreditRiskMonitor.com, Inc. (also referred to as the "Company" and formerly known as New Generation Foods, Inc.) provides a totally interactive business-to-business Internet-based service designed specifically for corporate credit professionals. (b) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Spicer's International, Inc. and NGF Services, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. (c) Use of Estimates in Preparing Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (d) Cash Equivalents The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. (e) Property and Equipment Property and equipment are recorded at cost. Depreciation is provided on the straight-line method over the estimated useful life of the asset. Capital leases are recorded at the lower of the fair market value of the asset or the present value of future minimum lease payments. These leases are amortized on the straight-line method over their primary term. Estimated useful lives are generally as follows: fixtures and equipment--3 to 6 years; and capitalized leases--5 years. (f) Goodwill Goodwill resulting from business acquisitions represents the excess of purchase price over fair value of net assets acquired and is being amortized over 20 years using the straight-line method. The carrying value of goodwill is evaluated periodically for impairment. Any impairment loss is recognized in the period when it is determined that the carrying value of the goodwill may not be recoverable. Accumulated amortization at December 31, 1999 and 1998 was $104,874 and $0, respectively. Amortization expense was $104,874 and $0 for the years ended December 31, 1999 and 1998, respectively. F-7 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998 (Continued) (g) Income Taxes The Company provides for deferred income taxes resulting from temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred tax liabilities are recognized for temporary differences that will be taxable in future years' tax returns. Deferred tax assets are recognized for temporary differences that will be deductible in future years' tax returns and for operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. (h) Revenue Recognition The Company recognizes revenue as its service is used by its customers. Amounts billed for subscriptions are credited to unearned subscription income and reflected in operating revenues as earned over the subscription term, which is generally one year. (i) Income (Loss) Per Share Income (loss) per share is computed under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. Amounts reported as income (loss) per share for each of the two years in the period ended December 31, 1999 reflect the income (loss) available to stockholders for the year divided by the weighted average of common shares outstanding during the period. (j) Stock Option Plans The Company accounts for its stock option plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. (k) Fair Value of Financial Instruments The Company believes the recorded value of cash and cash equivalents, purchase option, accounts receivable, accounts payable, and accrued expenses approximates fair value because of the short maturity of these financial instruments. The Company's promissory notes have been discounted, as appropriate, to bear interest rates that represent the cost of borrowings with third-party lenders, which approximates current fair value. F-8 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998 (Continued) (l) Reclassifications Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. NOTE 2 - PURCHASE OF CREDITRISK MONITOR AND CAPITAL TRANSACTIONS In September 1998, the Company entered into an option agreement (the "Purchase Option") to purchase the assets of the CreditRisk Monitor ("CRM") credit information service from Market Guide Inc. ("MGI"). CRM is an Internet based service providing credit reports to corporate personnel on retailing and other companies incorporating MGI developed financial information, peer and trend analysis, news, and other vital information. The Company paid $60,000 for the Purchase Option in addition to paid and accrued legal fees totaling $55,000. On December 29, 1998, the Company notified MGI of its intention to exercise this Purchase Option, which was consummated on January 19, 1999. On January 19, 1999, the Company exercised its option to purchase the assets of CRM. The assets purchased included customer contracts, receivables, equipment, software, and intangibles. The net present value of the purchase price was approximately $2.15 million (inclusive of the $60,000 paid for the Purchase Option in September 1998), of which $1.23 million was paid at closing and the balance is represented by two secured promissory notes (one for approximately $100,000 and the other for $760,000, net of $240,000 discount - see Note 6 for details). Concurrently, the Company completed a private placement of 1,300,000 shares of its common stock to approximately 25 "accredited investors" at a purchase price of $2.50 per share, for gross proceeds of $3.25 million. The proceeds from this offering were used to finance the cash portion of the CRM acquisition and the remainder will be used for future working capital needs. These securities were subsequently registered under a Registration Statement on Form SB-2 (Registration No. 333-77727) declared effective by the Securities and Exchange Commission on May 17, 1999. In anticipation of the exercise of the option, in November 1998, Flum Partners, a related party, provided the Company with a line of credit of up to $20,000 of which only $5,500 was drawn upon and, in consideration thereof, the Company agreed to issue to Flum Partners 2,000 shares of common stock. As a participant in the private placement, Flum Partners purchased 160,000 shares of common stock. In addition, as a condition to the private placement, Flum Partners agreed to convert all of its 1,100,000 shares of senior preferred stock into 3,598,299 shares of common stock on or prior to the closing of the private placement. This conversion was effected as of January 20, 1999. F-9 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998 (Continued) This acquisition was accounted for using the purchase method of accounting. Accordingly, a portion of the purchase price was allocated to net tangible and intangible assets acquired based on their estimated fair values. A portion was also allocated to in-process research and development projects that have not reached technological feasibility and have no probable alternative future uses. This amount ($134,076) was written-off in the first quarter of 1999. The balance of the purchase price was recorded as goodwill, and is being amortized over 20 years. The following unaudited pro forma summary for the year ended December 30, 1998 presents the consolidated results of operations as if the acquisition had been made at the beginning of 1998. These results do not purport to be indicative of what would have occurred had the acquisition actually been made as of January 1, 1998 or the results which may occur in the future. Revenues $ 809,563 ============= Net income (loss) $ (1,364,651) ============= Net income (loss) per share - basic $ (0.26) ============= Net income (loss) per share - dilutive $ (0.26) ============= Net income (loss) per share was computed on a pro forma basis giving effect to the issuance of 1,300,000 common shares, the conversion of the 1,100,000 shares of redeemable preferred stock into 3,598,299 common shares, and the issuance of 2,000 common shares to Flum Partners. All of these stock transactions were related to the acquisition. NOTE 3 - INCOME TAXES The provision (benefit) for income taxes consisted of: 1999 1998 ------ ------ Current tax provision (benefit): U.S. Federal $ -- $ -- State and local (55) 2,925 ------ ------ Total current tax provision (benefit) (55) 2,925 ------ ------ Deferred tax provision: U.S. Federal -- -- State and local -- -- ------ ------ Total deferred tax provision -- -- ------ ------ Total $ (55) $2,925 ====== ====== F-10 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998 (Continued) The actual tax expense for 1999 and 1998 differs from the "expected" tax expense for those years (computed by applying the applicable United States federal corporate tax rate to income (loss) before income taxes) as follows: 1999 1998 --------- --------- Computed "expected" benefit $(425,936) $ (6,975) Expiration of net operating loss carryforward 792,980 760,920 Expiration of investment tax carryforward 16,000 21,000 Underaccrual of prior year taxes -- 2,925 Decrease in valuation allowance (382,667) (774,143) Other (432) (802) --------- --------- Income tax expense (benefit) $ (55) $ 2,925 ========= ========= The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at December 31, 1999 and 1998 are as follows:
1999 1998 ----------- ----------- Deferred tax assets: Net operating loss carryforwards $ 4,340,534 $ 4,724,640 Deferred salary 29,325 -- Investment tax credit carryforwards 19,000 35,000 Alternative minimum tax carryforward 6,655 6,655 ----------- ----------- Total gross deferred tax assets 4,395,514 4,766,295 ----------- ----------- Deferred tax liabilities: Goodwill amortization (11,886) -- ----------- ----------- Total gross deferred tax liabilities (11,886) -- ----------- ----------- Valuation allowance (4,383,628) (4,766,295) ----------- ----------- Net deferred tax assets $ -- $ -- =========== ===========
A valuation allowance is provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. The net deferred assets reflects management's estimate of the amount which will be realized from future profitability which can be predicted with reasonable certainty. The net change in the total valuation allowance for the years ended December 31, 1999 and 1998 was a decrease of $382,667 and $774,143, respectively. At December 31, 1999, the Company has net operating loss carryforwards as follows which are available to offset future federal taxable income, if any, through 2019. The Company also has investment tax credit carryforwards as follows which are available to reduce future federal income taxes, if any, through 2000. F-11 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998 (Continued) Net Investment Year of Operating Loss Tax Credit Expiration -------------- ---------- ---------- $ 3,436,000 $ 19,000 2000 1,750,000 -- 2001 1,434,000 -- 2002 1,512,000 -- 2003 1,131,000 -- 2004 805,000 -- 2005 547,000 -- 2006 574,000 -- 2007 238,000 -- 2008 114,000 -- 2017 23,000 -- 2018 1,201,000 -- 2019 ----------- ----------- $12,765,000 $ 19,000 =========== =========== NOTE 4 - COMMON STOCK, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS (a) Common Stock At December 31, 1999, 974,050 shares of the Company's authorized common stock were reserved for issuance under stock option plans. An additional 10,000 shares of the Company's common stock were reserved for issuance under warrants granted in connection with the Company's private placement. The warrants are exercisable at $2.50 per share beginning in January 2002 and expire in 2005. (b) Stock Options and Stock Appreciation Rights The Company has three stock option plans: the 1998 Long-Term Incentive Plan, the 1992 Incentive Stock Option Plan, and the 1985 SAR and Non-Qualified Stock Option Plan. The 1998 Long-Term Incentive Plan authorizes the grant of incentive stock options, non-qualified stock options, stock appreciation rights (SARs), restricted stock, bonus stock, and performance shares to employees, consultants, and non-employee directors of the Company. The total number of the Company's shares that may be awarded under this plan is 1,500,000 shares of common stock. At December 31, 1999, there were options outstanding for 821,800 shares of common stock under this plan. The exercise price of each option shall not be less than the fair market value of the common stock at the date of grant. Options expire on the date determined, but not more than ten years from the date of grant. The plan shall terminate ten years from the date of stockholder approval. The Company's 1992 Incentive Stock Option Plan authorizes the grant of incentive stock options to employees of the Company. The total number of the Company's shares that may be issued or transferred pursuant to options granted under the Incentive Stock Option Plan, as amended, is F-12 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998 (Continued) 150,000 shares of common stock. At December 31, 1999, there were 150,000 options outstanding for shares of common stock under this plan. The exercise price of each option shall not be less than the fair market value of the common stock at the date of grant. Options expire on the date determined, but not more than ten years from the date of grant. No option may be exercised unless the holder is then an employee of the Company, provided that such exercise may be made for no more than three months following termination of employment or one year after death while being employed. No options may be granted under this plan after June 12, 2002. The Company's 1985 SAR and Non-Qualified Stock Option Plan authorizes the grant of stock incentives in the form of stock options and stock appreciation rights to key service personnel of the Company. The total number of the Company's shares that may be issued or transferred pursuant to stock incentives granted under the plan, as amended, is 62,500 shares of common stock. At December 31, 1999, there were options outstanding for 2,250 shares of common stock under this plan. The plan authorizes the grant of two categories of stock incentives: (1) Stock Options. The exercise price of each option is determined by the Board of Directors. Options expire on the date determined, but not more than ten years from the date of grant. (2) Stock Appreciation Rights. Stock appreciation rights (SARs) may be granted in one of three forms: i) In combination with any option granted under the plan, in which event the exercise of the SAR has the effect of canceling the related option, and exercise of the related option has the effect of canceling the related SAR; ii) Independently of a stock option; or iii) In addition to a stock option, entitling the optionee to exercise the SAR and, in addition, either to exercise the related stock option or surrender it and receive in return a number of shares equal to the excess of the fair market value of the option shares on the date of exercise over the option price. No stock incentives may be granted under this Plan after September 20, 1995. There have been no transactions with respect to the Company's stock appreciation rights during the years ended December 31, 1999 and 1998, nor are there any stock appreciation rights outstanding at December 31, 1999 and 1998. Transactions with respect to the Company's stock option plans for the years ended December 31, 1999 and 1998 are as follows: F-13 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998 (Continued) Weighted Average Number Exercise of Shares Price --------- ----- Outstanding at December 31, 1997 3,250 $0.90412 Granted 752,500 0.00011 -------- Outstanding at December 31, 1998 755,750 $0.00399 Granted 274,300 4.69415 Forfeited (55,000) 0.00010 Exercised (1,000) 0.10200 -------- Outstanding at December 31, 1999 974,050 $1.32489 ======== ======== As of December 31, 1999, there were 678,200 shares of common stock reserved for the granting of additional options. The following table summarizes information about the Company's stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable ------------------- ------------------- Weighted Average Remaining Weighted Weighted Contractual Average Average Range of Number Life Exercise Number Exercise Exercise Prices Outstanding (in years) Price Exercisable Price --------------- ----------- ---------- ----- ----------- ----- $ 0.0001 - $ 0.1020 698,500 7.18 $0.0002 1,000 $0.1020 $ 2.1875 - $ 4.5000 160,050 9.64 $3.5338 1,250 $2.1875 $ 5.5000 - $10.1250 115,500 9.03 $6.2749 -- -- ------- ---- ------- ------- ------- 974,050 7.81 $1.3249 2,250 $1.2606 ======= =======
The weighted average fair value at date of grant for options granted during 1999 and 1998 was $2.35 and $0.00 per option, respectively. The fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions: Years ended December 31, ------------------------ Assumption 1999 1998 ---------- ---- ---- Risk-free interest rate 5.80% 5.30% Dividend yield 0.00% 0.00% Volatility factor 1.64 0.00 Weighted-average expected life of the option (years) 9 9 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input F-14 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998 (Continued) assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation, but applies APB Opinion No. 25 and related interpretations in accounting for its option plan. Accordingly, no compensation cost has been recognized for the stock options granted in the prior two years. Had compensation cost been determined based on the fair value at the grant date consistent with the provisions of this statement, the Company's pro forma net income (loss) and net income (loss) per share would have been as follows: 1999 1998 ---- ---- Net income (loss) As reported $ (1,252,698) $ (23,439) Pro forma $ (1,322,880) $ (23,439) Net income (loss) per share - basic As reported $ (0.23) $ (0.06) Pro forma $ (0.25) $ (0.06) Net income (loss) per share - dilutive As reported $ (0.23) $ (0.06) Pro forma $ (0.25) $ (0.06) NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following: 1999 1998 --------- -------- Computer equipment and software $ 305,985 $ -- Furniture and fixtures 47,878 -- Capitalized lease 24,907 -- --------- -------- 378,770 -- Accumulated depreciation (61,771) -- --------- -------- $ 316,999 $ -- ========= ======== NOTE 6 - PROMISSORY NOTES In connection with the Company's acquisition of the assets of CRM from MGI (see Note 2), the Company issued two secured promissory notes. These notes are summarized as follows: o $1,000,000 secured promissory note, bearing interest at 6.0% beginning on July 1, 2001, payable in 24 equal monthly installments of principal and interest in the amount of $44,321 commencing July 31, 2001 through June 30, 2003. The present value F-15 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998 (Continued) of such promissory note was approximately $760,000 at its origination. o $98,162 secured expense promissory note, accruing interest at 8.5% beginning on February 1, 1999, payable in 24 equal monthly installments of principal and interest in the amount of $5,286 commencing February 28, 2001 through January 31, 2003. Both notes are secured by the assets purchased and substantially all other assets of the Company. The principal maturities on these notes, including deferred interest to be capitalized and amortization of deferred discount, for the five years subsequent to December 31, 1999 are as follows: Year Ended December 31, Amount ------------ ------ 2000 $ -- 2001 273,520 2002 541,045 2003 263,771 2004 -- NOTE 7 - LEASE COMMITMENTS The Company's operations are conducted from a leased facility, which is under an operating lease that expires in approximately five years. The Company also leases certain equipment under operating leases that expire over the next five years. Rental expenses under operating leases were $69,800 and $0 for the years ended December 31, 1999 and 1998, respectively. The Company acquired telephone and office equipment under a capital lease that expires in 2004 and has an implicit interest rate of approximately 10%. This lease contains a purchase option at the end of the original lease term. Future minimum lease payments for the capital lease and noncancelable operating leases at December 31, 1999, are as follows: F-16 CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998 (Continued) Capital Lease Operating Obligation Leases ---------- -------- 2000 $ 6,306 $ 98,381 2001 6,306 101,109 2002 6,306 103,919 2003 6,306 106,814 2004 5,256 98,714 -------- -------- Total minimum lease payments 30,480 $508,937 ======== Less amounts representing interest 6,420 -------- 24,060 Less current portion of capitalized lease obligation 4,070 -------- Long-term capitalized lease obligation $ 19,990 ======== NOTE 8 - EARNINGS (LOSS) PER SHARE The following table sets forth the computation of basic and diluted earnings (loss) per share: 1999 1998 ---- ---- Net income (loss) $ (1,252,698) $ (23,439) ============== =========== Basic average common shares outstanding 5,341,129 399,830 ============== =========== Net income (loss) per share - basic $ (0.23) $ (0.06) ============== =========== Net income (loss) per share - dilutive $ (0.23) $ (0.06) ============== =========== The effect of dilutive securities (i.e., convertible voting senior preferred stock, options and warrants) is anti-dilutive for 1999 and 1998, therefore, basic and dilutive loss per share are the same for those years. F-17 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CREDITRISKMONITOR.COM, INC. (REGISTRANT) Date: March 28, 2000 By: /s/ Jerome S. Flum Jerome S. Flum Chairman of the Board and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 28, 2000 By: /s/ Jerome S. Flum Jerome S. Flum Chairman of the Board and Chief Executive Officer Date: March 28, 2000 By: /s/ Joseph L. DeMartino Joseph L. DeMartino Chief Operating Officer Date: March 28, 2000 By: /s/ Lawrence Fensterstock Lawrence Fensterstock Chief Financial Officer Date: March 28, 2000 By: /s/ Richard J. James Richard J. James Director Date: March 28, 2000 By: /s/ Leslie Charm Leslie Charm Director F-18 EX-3.(I) 2 ARTICLES OF INCORPORATION EXHIBIT 3(i)A AMENDED AND RESTATED ARTICLES OF INCORPORATION OF NEW GENERATION FOODS, INC. Law Offices MELTZER, LIPPE, GOLDSTEIN & SCHLISSEL, P.C. The Chancery 190 Willis Avenue Mineola, NY 11501 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF NEW GENERATION FOODS, INC. (changing the corporation's name to CreditRiskMonitor.com, Inc.) The undersigned, the President and Assistant Secretary of NEW GENERATION FOODS, INC., a corporation organized and existing under and by virtue of the Nevada General Corporation law, DO HEREBY CERTIFY: FIRST: The undersigned are, respectively, the President and Assistant Secretary of NEW GENERATION FOODS, INC.; SECOND: The original Articles of Incorporation of NEW GENERATION FOODS, INC. (formerly RALSPICE, INC.) was filed with the Secretary of State of Nevada on February 25, 1977; THIRD: A certified copy of the Articles of Incorporation was filed with the Washoe County Clerk on March 2, 1977; FOURTH: Certificates of Amendment to Articles to Incorporation of NEW GENERATION FOODS, INC. were filed with the Secretary of State of Nevada on April 7, 1977, August 15, 1977, September 17, 1979, February 22, 1980, March 26, 1980, and July 15, 1980; Restated Articles of Incorporation were filed July 15, 1980; Certificates of Amendment to Articles of Incorporation were filed December 9, 1980, September 8, 1987 and November 31, 1989; Certificates of Designation were filed on December 16, 1988, January 3, 1989, April 13, 1989, December 31, 1997; and two Certificates of Amendment of the Certificate of Designation filed on December 31, 1997, respectively, all of which were subsequently filed with the Washoe County Clerk. FIFTH: The Articles of Incorporation, as amended as of the date of this certificate of NEW GENERATION FOODS, INC. are herein amended and restated in their entirety: FIRST. The name of this corporation is CreditRiskMonitor.com, Inc. SECOND. Its principal office in the State of Nevada is located at One East First Street, Reno, Washoe County, Nevada 89501. The name and address of its resident agent is The Corporation Trust Company of Nevada, One East First Street, Reno, Nevada 89501. THIRD. The nature of the business, or objects or purposes proposed to be transacted, promoted or carried on are: To develop, provide, sell and distribute information products. To engage in any lawful activity and to manufacture, purchase or otherwise acquire, invest in, own, mortgage, pledge, sell, assign and transfer or otherwise dispose of, trade, deal in and deal with goods, wares and merchandise and personal property of every class and description. To hold, purchase and convey real and personal estate and to mortgage or lease any such real or personal estate with its franchises and to take the same by devise or bequest. To acquire, and pay for in cash, stock or bonds of this corporation or otherwise, the good will, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities of any person, firm, association or corporation. To acquire, hold, use, sell, assign, lease, grant license in respect of, mortgage, or otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privileges, inventions, improvements and processes, copyrights, trademarks and trade names, relating to or useful in connection with any business of this corporation. To guarantee, purchase, hold, sell, assign, transfer, mortgage, pledge, or otherwise dispose of the shares of the capital stock of or any bonds, securities or evidences of the indebtedness created by any other corporation or corporations of this state, or any other state or government, and, while owner of such stocks, bonds, securities or evidence of indebtedness, to exercise all the rights, powers and privileges or ownership, including the right to vote, if any. To borrow money and contract debts when necessary for the transaction of its business, or for the exercise of its corporate rights, privileges or franchises, or for any other lawful purpose of its incorporation; to issue bonds, promissory notes, bills of exchange, debentures, and other obligations and evidences of indebtedness, payable at a specified time or times, or payable upon the happening of a specified event or events, whether secured by mortgage, pledge, or otherwise, or unsecured, for money borrowed, or in payment for property purchased, or acquired, or for any other lawful objects. To purchase, hold, sell and transfer shares of its own capital stock, and use therefore its capital, capital surplus, surplus, or other property or funds; provided it shall not use its funds or property for the purchase of its own shares of capital stock when such use would cause any impairment of its capital; and provided further, that shares of its own capital stock belonging to it shall not be voted upon, directly or indirectly, nor counted as outstanding, for the purpose of computing any stockholders' quorum or vote. To conduct business, have one or more offices, and hold, purchase, mortgage and convey real and personal property in this state, and in any of the several states, territories, possessions and dependencies of the United States, the District of Columbia, and in any foreign countries. To do all and everything necessary and proper for the accomplishment of the objects hereinbefore enumerated or necessary or incidental to the protection and benefit of the corporation, and, in general, to carry on any lawful business necessary or incidental to the attainment of the objects of the corporation, whether or not such business is similar in nature to the objects hereinbefore set forth. The objects and purposes specified in the foregoing clauses shall, except where otherwise expressed, be in nowise limited or restricted by reference to, or inference from, the terms of any other clause in these articles of incorporation, but the objects and purposes specified in each of the foregoing clauses of this article shall be regarded as independent objects and purposes. FOURTH. The aggregate number of shares which this corporation shall have the authority to issue is Twenty-Five Million (25,000,000) shares of Common Stock of the par value of $.01 per share and Five Million (5,000,000) shares of Preferred Stock, of the par value of $.01 per share. The Preferred Stock may be divided into and issued in series. If the shares of any such class are to be issued in series, then each series shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. Any or all of the series of any such class and variations and the relative rights and preferences as between different series can be fixed and be determined by the Board of Directors. The authority of the Board of Directors with respect to each series shall include, without limitation thereto, the determination of any or all of the following and the shares of each series may vary from shares of any other series in the following respects: The Board of Directors of this corporation is hereby authorized to issue the Preferred Stock at any time or from time to time, in one or more series and for such consideration as may be fixed from time to time by the then Board of Directors, but not less than the par value thereof. The number of shares to comprise each such series, which number may be increased (except where otherwise provided by the Board of Directors in creating such series) or decreased (but not below the number of shares thereof then outstanding) shall be determined from time to time by the Board of Directors. The Board of Directors is hereby expressly authorized, before issuance of any shares of a particular series, to determine any and all designations, preferences and relative, participating, optional or other special rights, or qualifications, restrictions or limitations thereof, pertaining to such series including but not limited to: (1) Voting rights, if any, including, without limitation, the authority to confer multiple votes per share, voting rights as to specified matters or issues such as mergers, consolidations or sales of assets, or voting rights to be exercised either together with holders of Common Stock as a single class, or independently as a separate class; (2) Rights if any, permitting the conversion or exchange of any such shares, at the option of the holder, into any other class or series of shares of this corporation and the price or prices or the rates of exchange and any adjustment thereto at which such shares will be convertible or exchangeable; (3) The rate of dividends, if any, payable on shares of such series, the conditions and the dates upon which such dividends shall be payable and whether such dividends shall be cumulative or non-cumulative; (4) The amount payable on shares of such series in the event of any liquidation, dissolution or distribution of the assets of or winding up of the affairs of this corporation; (5) Redemption, repurchase, retirement and sinking fund rights, preferences and limitations, if any, the amount payable on shares of such series in the event of such redemption, repurchase or retirement, the terms and conditions of any sinking fund, the manner of creating such fund or funds and whether any of the foregoing shall be payable in preference to, or in relation to, the dividends payable on any other class or classes of stock, or cumulative or non-cumulative; and (6) Any other preference and relative, participating, optional or other special rights and qualifications, limitations or restrictions of shares of such series not fixed and determined herein, to the extent permitted to do so by law. All shares of Preferred Stock shall be of equal rank and shall be identical except with respect to the particulars that may be fixed by the Board of Directors as above provided and as to the date from which dividends thereon, if any, shall be cumulative if made cumulative by the Board of Directors. No stockholder shall be entitled as a matter of right to purchase or subscribe for or receive additional shares of any class of stock of the corporation, whether now or hereafter authorized, including, but not limited to, treasury stock, or any notes, debentures, bonds or other securities convertible into or carrying warrants or options to purchase shares of any class now or hereafter authorized. Any such securities or additional shares of stock may be issued or disposed of by the Board of Directors to such persons and on such terms as in its discretion may be deemed advisable. At each election for directors every stockholder entitled to vote at such election shall have the right to cast, in person or by proxy, the number of votes represented by the shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote. Each share of Common Stock shall be entitled to one vote. Cumulative voting, for the election of directors or otherwise, is expressly prohibited. On all matters coming before the stockholders, other than the election of directors, each share of issued and outstanding Common Stock shall be entitled to one vote. FIFTH. The governing board of this corporation shall be known as directors, and the number of directors may from time to time be increased or decreased in such manner as shall be provided by the by-laws of this corporation, provided that the number of directors shall not be reduced to less than three (3), except that in cases where all the shares of the corporation are owned beneficially and of record by either one or two stockholders, the number of directors may be less than three (3) but not less than the number of stockholders. SIXTH. The capital stock, after the amount of the subscription price or par value has been paid in, shall not be subject to assessment to pay the debts of the corporation. SEVENTH. The corporation is to have perpetual existence. EIGHTH. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized: Subject to the by-laws, if any, adopted by the stockholders, to make, alter or amend the by-laws of the corporation. To fix the amount to be reserved as working capital over and above its capital stock paid in, to authorize and cause to be executed mortgages and liens upon the real and personal property of this corporation. By resolution passed by a majority of the whole board, to designate one or more committees, each committee to consist of one or more of the directors of the corporation, which, to the extent provided in the resolution or in the by-laws of the corporation, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name and names as may be stated in the by-laws of the corporation or as may be determined from time to time by resolution adopted by the board of directors. When and as authorized by the affirmative vote of stockholders holding stock entitling them to exercise at least a majority of the voting power given at a stockholders' meeting called for that purpose, or when authorized by the written consent of the holders of at least a majority of the voting stock issued and outstanding, the board of directors shall have power and authority at any meeting to sell, lease or exchange all of the property and assets of the corporation, including its good will and its corporate franchises, upon such terms and conditions as its board of directors deem expedient and for the best interests of the corporation. NINTH. Meetings of stockholders may be held outside the State of Nevada, if the by-laws so provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Nevada at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. TENTH. This corporation reserves the right to amend, alter, change or repeal any provision contained in the articles of incorporation, in the manner now or hereafter prescribed by statute, or by the articles of incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. ELEVENTH. A director or officer of the corporation shall not be personally liable to the corporation or its stockholders for damages for breach of fiduciary duty as a director or officer, expect for liability (i) for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or (ii) under NRS 78.300. If the Nevada General Corporation Law is amended after approval by the stockholders of this article to authorize corporate action further eliminating or limiting the personal liability of directors or officers, then the liability of a director or officer of the corporation shall be eliminated or limited to the fullest extent permitted by the Nevada General Corporation Law, as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. SIXTH: The Board of Directors at a meeting duly called and held on March 22, 1999 adopted the foregoing resolutions by unanimous vote. The holders of 73.78% of the outstanding Common Stock of the corporation (and of all shares of the corporation entitled to vote) approved and adopted the above resolutions setting forth the amendments to and restatement of the Articles of Incorporation by written consent dated April 16, 1999. Accordingly the amendments were adopted in accordance with the provisions of Sections 78.390 and 78.403 of the Nevada General Corporation Law. IN WITNESS WHEREOF, New Generation Foods, Inc. has caused its corporate seal to be hereunto affixed and the Amendment and Restatement of the Articles of Incorporation to be signed by its President and Assistant Secretary on this ____ day of April, 1999. _________________________ ______________________ Jerome S. Flum, President Lawrence Fensterstock, Assistant Secretary CERTIFICATE OF COMPLIANCE WITH NEVADA REVISED STATUTES 78.390 AND 78.403 STATE OF NEW YORK ) SS: COUNTY OF NASSAU ) On this 22 day of April, 1999, the undersigned, Jerome S. Flum and Lawrence Fensterstock, President and Assistant Secretary, respectively, of the corporation described in and who executed the within instrument, entitled "Amended and Restated Articles of Incorporation of New Generation Foods, Inc." on behalf of the corporation therein named, appear and certify as follows: (1) that they executed the within instrument pursuant to the corporation's By-Laws and pursuant to a resolution which was duly adopted by the board of directors of the corporation at a meeting duly called and held on March 22, 1999 at which all directors were present; (2) the amendments, as set forth in the within instrument, were adopted by written consent dated April 16, 1999, pursuant to the provisions of the By-Laws of the corporation and of Section 78.320 of the Nevada Revised Statutes ("NRS"), of the holders of 73.78% of the outstanding shares of Common Stock of the corporation (which was the only class of equity shares of the corporation outstanding and entitled to vote at such date; (3) pursuant to the corporation's By-Laws, notice of the action by written consent was mailed by United States Mail, postage prepaid, on April 20, 1999, to each other stockholder of the corporation, either beneficially or of record, which would have been entitled to notice of or to vote at a meeting of the stockholders called to consider such resolution; (4) the affidavits of such mailing have been filed with the corporate records of the corporation. _______________________ __________________________ Jerome S. Flum Lawrence Fensterstock STATE OF NEW YORK ) SS: COUNTY OF NASSAU ) On this ____ day of April, 1999, before me, ________________, a Notary Public in and for the County of Nassau and State of New York, residing therein, duly commissioned and sworn, personally appeared Jerome S. Flum and Lawrence Fensterstock, known to me to be the President and Assistant Secretary, respectively, of the corporation described in and who executed the within instruments on behalf of the corporation therein named, and acknowledged to me that such corporation executed the within instrument pursuant to its By-Laws and resolutions of its board of directors and stockholders. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal in the County of Nassau the day and year in this certificate first above written. ____________________ Notary Public EX-10.J 3 LETTER AGREEMENT EXHIBIT 10-J CREDITRISKMONITOR.COM, INC. 2001 Marcus Avenue Lake Success, NY 11042-1011 May 17, 1999 Flum Partners c/o Jerome S. Flum 9 Dunham Road Scarsdale, New York 10583 Gentlemen: As you know, CreditRiskMonitor.com, Inc. (formerly known as New Generation Foods, Inc.), a Nevada corporation (the "Corporation"), has various federal income tax attributes, including up to approximately $13.9 Million of net operating loss (NOL) carryforwards as of December 31, 1998, expiring in varying amounts through 2018 (the "Tax Attributes"). The Board of Directors believes that these Tax Attributes constitute a valuable asset of the Corporation. To the extent the Corporation generates taxable income over the next nineteen years, and is able to utilize its Tax Attributes to offset future federal income taxes on its taxable income, funds not needed to pay such tax become available to fund the Corporation's expanded operations and for stockholder distributions. Section 382 of the Internal Revenue Code limits the amount of a company's NOL carryforwards which can be applied against its earnings after an "ownership change" occurs. Generally, such a limit is determined, with respect to the amount of NOL carryforward to which the limit applies, by multiplying the company's value at the time of the ownership change by the published long-term tax exempt interest rate. The resulting amount is the maximum that can be offset by NOL carryforwards in any one year if an ownership change has occurred. If, however, an ownership change occurs and during the following 2-year period, the Corporation does not continue its historic business, no NOL carryforwards would be available. Since the acquisition of CreditRisk Monitor constituted a change in the Corporation's historic food business, if an ownership change in the Corporation were to occur within the next two years, no NOL carryforwards would be available. An ownership change occurs if there has been an "owner shift" -- a more than 50 percentage point increase in stock ownership involving "5-percent shareholders" over the lowest percentage of stock of the loss corporation owned by such shareholders at any time during the testing period (generally, the prior 3 years). For this purpose, in general, shareholders that are not 5-percent shareholders are aggregated and treated as a single 5-percent shareholder. The Corporation believes that no owner shifts or ownership changes had occurred prior to its 1998 Private Placement. Such Private Placement, however, resulted in a sale of approximately 23% of the outstanding Common Stock to approximately 25 investors who are, as a group, a "5-percent shareholder". Hence, the private placement constitutes an "owner shift" of approximately 23%. If subsequent transactions were to occur involving 5-percent shareholders within the applicable three-year testing period following the Private Placement, or any subsequent three-year testing period, an "ownership change" could occur which could cause the loss or limitation of the Corporation's available NOL carryforwards, pursuant to Section 382. Under Section 382, options and warrants to purchase equity securities are "counted" in the determination of "owner-shifts" only when exercised. The Corporation has provided and will provide that all such options and warrants granted and to be granted to employees, brokers and others may not be exercised for at least three years from the closing of the Private Placement. In order to insure to the extent feasible that no inadvertent "owner shift" will occur which, when aggregated with the 23% owner shift presently outstanding, or other existing, proposed or future owner shifts during an applicable testing period, could result in an "ownership change", the Board of Directors had considered the adoption of amendments to its Articles of Incorporation and By-Laws which would have provided in general that no purchase or other acquisition, sale or other disposition of stock of the Corporation could be made without the approval of the Board of Directors. Requests for Board approval would be made in writing and Transfers made without Board approval would be null and void, thereby enabling the Board to reverse or cancel a transfer, such as a trade made in the over the counter market, if it determined that the purchaser was a 5-percent shareholder and an "owner shift" would have occurred, before new certificates are issued by the Transfer Agent. The Board of Directors is seriously concerned, however, that these proposed amendments to the Articles of Incorporation and By-Laws, which would give the Board the authority to reverse stock trades made in the public market, could limit the marketability of the Corporation's publicly-traded common stock and in turn depress the Corporation's market value. Accordingly, it has proposed an alternative pursuant to which only Flum Partners would agree to restrict the shares owned by them, including shares which may be distributed in the future by Flum Partners to its partners. As you know, at the date hereof, Flum Partners owns 73.78% of the outstanding common stock of the Corporation. To the Corporation's knowledge, there is no other holder of 5% or more of the Corporation's stock. Accordingly, in consideration of the foregoing, and in order to assist the Corporation to preserve its Tax Attributes for the benefit of its shareholders and to maintain and increase the market value of the Corporation's Common Stock, Flum Partners and the Corporation have agreed as follows: 1. Certain Transfers Prohibited. (a) Except as otherwise permitted under this Agreement, without the prior written authorization of the Board of Directors of the Corporation (the "Board"), neither Flum Partners nor any limited or general partner of Flum Partners who receives shares of stock of the Company upon a distribution by Flum Partners (each a "Person"), shall (i) purchase or otherwise acquire any shares of stock of the Corporation from the Corporation, or (ii) sell, transfer or otherwise dispose of, or purchase or acquire in any manner whatsoever, whether voluntarily or involuntarily, by operation of law or otherwise any shares of stock of the Corporation. Each Person who purports to purchase, acquire, sell, transfer or dispose of stock as described in (i) or (ii) above is each hereinafter called a "Restricted Holder" and any such purchase, acquisition, sale, transfer or disposition is hereinafter called a "Transfer". (b) For purposes of this Agreement, "stock" of the Corporation shall include any class of common stock of the Corporation, including without limitation the common stock, par value $0.01 per share, and such other classes of stock or other securities treated as "stock" under Section 382 of the Internal Revenue Code of 1986, as amended, including any additional or successor legislation which limits the availability of the Corporation's Tax Attributes and the applicable regulations issued from time to time thereunder (collectively the "Code"). Whenever a reference in this Agreement is made to a specific Section of the Code, such reference shall be deemed to include any other Section thereof issued in substitution or replacement therefor. (c) The restrictions contained in this Section are for the purpose of reducing the risk that certain changes in stock ownership may jeopardize the preservation of the Corporation's Tax Attributes. In connection therewith, and to provide for the effective policing of these restrictions, a Person who proposes to Transfer shares of stock shall request in writing, prior to the date of the proposed Transfer (a "Request"), that the Board review the proposed Transfer and authorize or not authorize the proposed Transfer pursuant to Section 3 hereof. A Request shall be mailed or delivered to the President of the Corporation at the Corporation's principal place of business or telecopied to the Corporation's telecopier number at its principal place of business. Such Request shall include (i) the name, address and telephone number of the Restricted Holder, (ii) a description of the shares of stock proposed to be Transferred by or to the Restricted Holder, (iii) the date on which the proposed Transfer is expected to take place, (iv) the name, if known, of the proposed transferee of the stock to be transferred to the Restricted Holder, and (v) a request that the Board authorize, if appropriate, the Transfer pursuant to Section 3 hereof and inform the Restricted Holder of its determination regarding the proposed Transfer. Within five business days of receipt by the President of a Request, a meeting of the Board shall be held to determine whether to authorize the proposed Transfer described in the Request under Section 3 hereof. The Board shall conclusively determine whether to authorize the proposed Transfer, and shall immediately cause the Restricted Holder making the Request to be informed of such determination. 2. Effect of Unauthorized Transfer. Any Transfer attempted to be made in violation of this Agreement will be null and void. In the event of an attempted or purported Transfer involving a sale or disposition of stock by a Restricted Holder in violation of this Agreement, the Restricted Holder shall remain the owner of such stock. In the event of an attempted or purported Transfer involving the purchase or acquisition by a Restricted Holder in violation of this Agreement, the Corporation shall be deemed to be the exclusive and irrevocable agent for the transferor of such stock. The Corporation shall be such agent for the limited purpose of returning the stock to the transferor or consummating a sale of such stock to a Person who is determined to be a permitted transferee hereunder (an "eligible transferee"), which may include, without limitation, the transferor, as the Corporation may elect. The record ownership of the subject stock shall remain in the name of the transferor until the stock has been returned to the transferor or sold by the Corporation or its assignee, as agent, to an eligible transferee. The Corporation shall be entitled to assign its agency hereunder to any person or entity including, but not limited to, the intended transferee of the stock, for the purpose of returning the stock to the transferor or effecting a permitted sale of such stock. Neither the Corporation, as agent, nor any assignee of its agency hereunder, shall be deemed to be a shareholder of the Corporation nor be entitled to any rights of shareholders of the Corporation, including, but not limited to, any right to vote such stock or to receive dividends or liquidating distributions in respect thereof, if any (collectively "Shareholder Rights"), but the Corporation or its assignee shall only have the right to return the stock to the transferor or to sell and transfer such stock on behalf of and as agent for the transferor to another person or entity; provided, however, that a Transfer to such other person or entity may not violate the provisions of this Agreement. All Shareholder Rights with respect to such stock shall remain with the transferor. The intended transferee shall not be entitled to any Shareholder Rights with respect to such stock. In the event of a permitted sale or transfer, whether by the Corporation or its assignee, as agent, the Corporation shall have no obligation to collect or cause to be collected any proceeds of such sale or transfer, such proceeds regardless of whom collected shall be applied first to reimburse the Corporation or its assignee, as agent, for any expenses incurred by the Corporation acting in its role as the agent for the sale of such stock, second to the extent of any remaining proceeds, to satisfy any and all commissions, margin expenses or other transaction costs incurred by or on behalf of the transferor, and the remainder, if any, to the original transferor. No Person precluded from effecting the transfer of Stock pursuant to the provisions of this Agreement shall have any claim against the Corporation or any assignee of its agency hereunder, or their respective officers, directors or employees. 3. Authorization of Transfer of Stock by a Restricted Holder. The Board shall authorize a Transfer by a Restricted Holder, or to a Restricted Holder, if, in the sole discretion and judgment of the Board, it determines that the Transfer will not jeopardize the Corporation's preservation of its Tax Attributes pursuant to Code Section 382, or is otherwise in the best interests of the Corporation. In deciding whether to approve any proposed Transfer of stock by or to a Restricted Holder, the Board may seek the advice of counsel with respect to the Corporation's preservation of its Tax Attributes pursuant to Code Section 382 and may request all relevant information from the Restricted Holder with respect to all stock owned directly or through attribution (as determined under Code Section 382) by such Restricted Holder. 4. Permitted Transfers. Notwithstanding Section 1 hereof, a Restricted Holder shall have the right to Transfer any stock of the Corporation provided that the following conditions are satisfied: (a) the Transfer of such stock by the Restricted Holder will not constitute an "owner shift" as determined under Section 382 of the Code and the Restricted Holder delivers to the Corporation, together with its Request for approval of the Transfer, a certificate of the General Partner or other principal of the Restricted Holder to such effect; and (b) upon request of the Corporation, at least ten business days prior to any such Transfer, the Restricted Holder delivers a reasoned opinion of counsel for such Restricted Holder, which opinion and which counsel each shall be reasonably satisfactory to the Board, that such Transfer will not result in an owner shift as determined under Section 382 of the Code. The reasonable fees and expenses of such counsel shall be paid or reimbursed by the Corporation. 5. Legend on Certificates. All certificates for shares of stock heretofore or hereafter issued by the Corporation to any Person shall conspicuously bear the following legend: The Shares represented by this Certificate are subject to restrictions contained in an Agreement dated May 17, 1999 (the "Agreement") among Flum Partners, Jerome S. Flum and the Corporation which prohibit the sale, transfer, disposition, purchase or acquisition of any stock, as that term is defined in Section 382(k)(6) of the Internal Revenue Code of 1986, as amended (the "Code"), of the Corporation without the authorization of the Board of Directors of the Corporation (the "Board of Directors"), if that sale, transfer, disposition, purchase or acquisition would jeopardize the Corporation's preservation of its federal income tax attributes pursuant to Section 382 of the Code. The Corporation will furnish without charge to the holder of record of this certificate a copy of the Agreement, containing the above-referenced restrictions on transfer of stock upon written request to the Corporation at its principal place of business. 6. Transfer to Partners of Flum Partners. Notwithstanding the restrictions contained above, Flum Partners may distribute shares of stock of the Corporation to its partners, in proportion to their partnership interests, upon prior written notice to but without the consent or approval of the Board, provided that (a) each partner receiving such shares shall agree in writing to be bound by the restrictions contained in this Agreement with respect to any Transfer by such partner of the shares so received, and (b) all certificates issued to such partner shall bear the restrictive legend set forth above. 7. Termination. The restrictions set forth in this Agreement (a) may be terminated at any time by action of the Board of Directors, (b) shall terminate on the first anniversary of the date of execution hereof (the "Effective Date"), or any subsequent anniversary date the Effective Date if extended as hereinafter provided, unless the Corporation and the holders of 70% of the shares of stock of the Corporation then owned by Flum Partners or distributed to and then owned by the partners of Flum Partners, shall agree in writing to extend such termination date for an additional one year period, and (c) shall terminate at such time as the Corporation no longer has at least $100,000 in Tax Attributes which could be terminated or limited by a Transfer of the shares of stock owned by Flum Partners or the partners of Flum Partners. Upon any such termination, the Corporation shall direct the transfer agent to remove the legend described above from the applicable share certificates upon request of the holder. 8. Registration Rights. In consideration of the agreements of Flum Partners contained herein, the Corporation agrees to provide to Flum Partners and the partners of Flum Partners to whom shares of stock of the Corporation may be distributed by Flum Partners certain "piggyback" registration rights with respect to their shares of stock of the Corporation, upon the terms set forth in Exhibit "A" annexed hereto and made a part hereof. 9. Miscellaneous. This Agreement (a) shall be binding upon and inure to the benefit of the parties hereto, their respective legal representatives, successors and assigns, (b) contains the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations among the parties with respect thereto, (c) may not be modified or amended or any of its provisions waived except by an instrument in writing duly executed by the party or parties to be charged, (d) may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same instrument, and (e) shall be governed by and construed in accordance with the laws of the State of New York (other than with respect to matters solely involving Nevada corporate law) without regard to principles of conflicts of laws. Please execute this letter where indicated below to signify your agreement with the foregoing. Very truly yours, CREDITRISKMONITOR.COM, INC. By: ______________________________ Lawrence Fensterstock Senior Vice President ACCEPTED AND AGREED AS OF THIS ____ DAY OF MAY, 1999 FLUM PARTNERS By: Jerome S. Flum, General Partner REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 17, 1999, by and among CREDITRISKMONITOR.COM, a Nevada corporation (the "Company"), and Flum Partners (the "Investor"). W I T N E S S E T H : WHEREAS, the Investor owns 3,797,128 of shares of Common Stock (as hereinafter defined) of the Company; and WHEREAS, the Company desires to induce the Investor to enter into an Agreement restricting the transfer of the Investor's shares of Common Stock; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties intending to be legally bound hereby agree as follows: 1. Certain Definitions. As used in this Agreement, unless the context otherwise requires the following terms shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock, par value $.01 per share, of the Company. "Effectiveness Period" shall be as defined in Section 3. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Holder" shall mean the Investor and any other Person holding shares to whom the rights under this Agreement have been transferred in accordance with Section 10. "Person" any individual, corporation, association, partnership, limited liability company, trust or estate, organization, business, government or agency or political subdivision thereof or any other entity. The terms "register", "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean the expenses so described in Section 5. "Registration Statement" shall mean any registration statement of the Company which registers any of the Investor's Common Stock pursuant to the provisions of this Agreement, including the prospectus, amendments and supplements to such registration statement, ncluding post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Selling Expenses" shall mean the expenses so described in Section 5. 2. Required Registration. If the Company at any time proposes to register any of its securities under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except in connection with the registration of the shares of Common Stock issued in the Company's 1998 Private Placement or with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Investor's Common Stock for sale to the public or any successors to any such forms), each such time it will give written notice to the Investor of its intention in this regard. Upon the written request of the Investor received by the Company within 30 days after the giving of any such notice by the Company, to register [at least 10%] of the Investor's Common Stock (which request shall state the intended method of disposition thereof), the Company will use its best efforts to cause such Stock as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company. In the event that any registration pursuant to this Section 2 shall be, in whole or in part, an underwritten public offering of Common Stock, the number of shares of the Investor's Common Stock to be included in such an underwriting shall be reduced, if and to the extent that the managing underwriter thereof shall be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold by the Company therein. 3. Registration Procedures. In connection with the Company's registration obligations under Section 2 hereof, the Company shall use its reasonable best efforts to effect such registration to permit the sale of the Investor's Common Stock in accordance with the method or methods of disposition thereof intended by the Investor and pursuant thereto the Company shall as expeditiously as practicable: a. prepare and file with the Commission a Registration Statement on any appropriate form under the Securities Act available for the sale of the Investor's Common Stock by the Investor with the intended method or methods of distribution thereof, and use its reasonable best efforts to cause such Registration Statement to become effective and remain effective as provided herein. b. prepare and file with the Commission such amendments and post-effective amendments to such Registration Statement as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period (as hereinafter defined); cause the related prospectus to be amended or supplemented by any required amendment or prospectus supplement, and as so amended or supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act with respect to the disposition of the Investor's Common Stock covered by such Registration Statement during the applicable period in accordance with the methods of disposition intended by the Investor set forth in such Registration Statement as so amended or in such prospectus as so amended or supplemented. c. furnish to the Investor such number of copies of the Registration Statement and of each amendment and supplement thereto (in each case including exhibits) and the prospectus included therein (including each preliminary prospectus) and any other prospectus filed under Rule 424 or Rule 430 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents (in each case including all exhibits) as the Investor reasonably may request; d. use its reasonable best efforts to register or qualify the Investor's Common Stock covered by the Registration Statement under the securities or "blue sky" laws of such jurisdictions as the Investor reasonably shall request and to keep such registrations or qualifications in effect for so long as such registration statement remains in effect, and to take such other action as may be reasonably necessary or advisable to enable the Investor to consummate the disposition in such jurisdiction of the securities owned by the Investor; provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; e. use its reasonable best efforts (i) to list all securities covered by the Registration Statement on any securities exchange on which any of such securities is then listed or (ii) in the event such securities are not so listed to have the Investor's Common Stock qualified for inclusion on The NASDAQ National Market, if such securities are then so qualified or (iii) in the event such securities are not so listed or qualified, to have such securities qualified for inclusion on the Nasdaq System; f. immediately notify the Investor at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the receipt of any stop order or thereafter of a proceeding for such purpose or of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and at the request of the Investor promptly prepare to furnish to the Investor a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; g. use all reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Investor's Common Stock for sale in any jurisdiction, at the earliest practicable moment. h. notify the Investor, if participating in such registration, promptly after it shall receive notice thereof, (i) of the time when the Registration Statement has become effective or a supplement to any prospectus forming a part of the Registration Statement has been filed and (ii) of any request by the Commission for the amending or supplementing of such prospectus or Registration Statement; i. make available for inspection by the Investor, and any attorney, accountant or other agent retained by the Investor, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by the Investor underwriter, attorney, accountant or agent in connection with such registration statements; j. otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, and will furnish to the Investor at least two business days prior to the filing thereof a copy of any amendment or supplement to the Registration Statement and shall not file any thereof which do not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder; and k. provide and cause to be maintained a transfer agent for all of the Investor's Common Stock covered by the Registration Statement and a CUSIP number for all such Stock, in each case not later than the effective date of the Registration Statement. For purposes of Section 3(a) and 3(b), the period of distribution of the Investor's Common Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of the Investor's Common Stock in any other registration shall be deemed to extend until the earlier of the sale of all of the Investor's Common Stock covered thereby or 120 days after the effective date thereof (the "Effectiveness Period"); provided, however, that the Company shall not be required, in order to comply with the provisions of Sections 3(a) and 3(b), except in the case of a continuous shelf registration pursuant to Rule 415 as promulgated under the Securities Act, to prepare and file financial statements through a period later than the last period reflected in its financial statements in a registration statement which has been declared effective by the Commission and is the subject of the rights being exercised by the Investor. The Company may require the Investor, and the Investor agrees, to furnish to the Company such information regarding the distribution of the Investor's Common Stock as the Company may, from time to time, reasonably request in writing and the Company may exclude from such registration the Common Stock of the Investor if the Investor unreasonably fails to furnish such information within a reasonable time after receiving such request. The Investor agrees promptly to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by the Investor not misleading. Any sale of any Common Stock by the Investor pursuant to a Registration Statement shall constitute a representation and warranty by the Investor that the information relating to such holder and its plan of distribution is as set forth in the prospectus delivered by the Investor in connection with such disposition, that such prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to the Investor or its plan of distribution and that such prospectus does not as of the time of such sale omit to state any material fact relating to the Investor or its plan of distribution necessary to make the statements in such prospectus, in the light of the circumstances under which they were made, not misleading. The Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) hereof, the Investor will forthwith discontinue disposition of its Common Stock covered by the applicable Registration Statement or prospectus until the Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) hereof, or until it is advised in writing by the Company that the use of the applicable prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such prospectus. 4. Suspension of Registration Requirement. Notwithstanding anything to the contrary set forth in this Agreement, the Company's obligation under this Agreement to use reasonable best efforts to cause the Registration Statement and any filings with any state securities commission to be made or to become effective or to amend or supplement the Registration Statement shall be suspended in the event and during such period pending negotiations relating to, or consummation of, a transaction or the occurrence of an event that would require additional disclosure of material information by the Company in the Registration Statement or such filing, as to which the Company has a bona fide business purpose for preserving confidentiality or which renders the Company unable to comply with SEC requirements (such circumstances being hereinafter referred to as a "Suspension Event") that would make it impractical or unadvisable to cause the Registration Statement or such filings to be made or to become effective or to amend or supplement the Registration Statement, but such suspension shall continue only for so long as such event or its effect is continuing (the "Suspension Period"). The Company shall be entitled to exercise the rights set forth in this Section 4 an unlimited number of times but in no event will the Company's obligation under this Agreement to use reasonable best efforts to cause the Registration Statement and any filings with any state securities commission to be made or to become effective or to amend or supplement the Registration Statement be suspended for more than 90 consecutive days or for more than an aggregate of 120 days in any twelve (12) month period. The Company shall promptly notify the Holders of the existence of any Suspension Event. 5. Expenses. All expenses incurred by the Company in complying with Sections 2 and 3, including, without limitation, all registration and filing fees, printing expenses, duplicating, word processing, messenger and delivery expenses, fees and disbursements of counsel for the Company and independent public accountants for the Company, fees and expenses (including counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents and registrars and costs of insurance and reasonable fees and disbursements of one counsel for the Investor a "due diligence" examination of the Company and a review of all related documents, but excluding (i) any compensation of regular employees of the Company which shall be paid in any event by the Company and (ii) Selling Expenses, are called "Registration Expenses". All discounts and selling commissions and other expenses of the Investor, including attorneys' fees, applicable to the sale of the Investor's Common Stock are called "Selling Expenses". The Company will pay all Registration Expenses in connection with all registration statements under Sections 2 and 3. All Selling Expenses in connection with each registration statement under Section 2 or 3 shall be borne by the Investor. 6. Indemnification and Contribution. a. In the event of a registration or qualification of any of the Investor's Common Stock under the Securities Act pursuant to the provisions of this Agreement, the Company shall and hereby does indemnify and hold harmless the Investor thereunder, its legal counsel and accountants and each underwriter of the Investor's Common Stock thereunder and each other Person, if any, who controls the Investor or underwriter within the meaning of the Securities Act and Exchange Act laws, against any losses, claims, damages or liabilities, joint or several, to which the Investor's Common Stock, legal counsel, accountant, underwriter or controlling Person may become subject under the Securities Act, the Exchange Act, State securities laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which the Investor's Common Stock was registered under the Securities Act and any preliminary prospectus or final prospectus or summary prospectus or other document contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any violation by the Company of any federal, State or common law rule or regulation applicable to the Company in connection with any such registration or qualification and the Company, and will reimburse the Investor, each such legal counsel or accountant, each such underwriter and each such controlling Person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in reliance upon and in conformity with information furnished by the Investor, any such underwriter or any such controlling Person in writing duly executed by such seller or underwriter, as the case may be, specifically stating that it is for use in such registration statement or prospectus. b. In the event of a registration of any of the Investor's Common Stock under the Securities Act pursuant to the provisions of this Agreement, the Investor will to the extent permitted by law indemnify and hold harmless the Company, each Person, if any, who controls the Company within the meaning of the Securities Act and the Exchange Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each Person who controls any underwriter within the meaning of the Securities Act and the Exchange Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling Person may become subject under the Securities Act, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which the Investor's Common Stock was registered under the Securities Act pursuant to the provisions of this Agreement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such officer, director, underwriter and controlling Person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Investor will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to the Investor, as such, furnished in writing to the Company duly executed by the Investor stating that it is specifically for use in such registration statement or prospectus; provided, further, that the liability of each seller hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense which is equal to the proportion that the public offering price of the shares sold by the Investor under such registration statement bears to the total public offering price of all securities sold thereunder, but not in any event to exceed the net proceeds received by the Investor from the sale of its Common Stock covered by such registration statement. c. Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section 6 and shall only relieve it from any liability which it may have to such indemnified party under this Section 6 if and to the extent the indemnifying party is actually prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 6 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. No indemnifying party, in defense of any such action, shall, except with the consent of each indemnified party, consent to the entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving, by the claimant or plaintiff, to such indemnified party of a release from all liability in respect to such action. d. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 6 is for any reason held to be unavailable from the Company to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense (including any investigation, legal and other expense incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company from persons other than the indemnified parties, such as Persons who control the Company within the meaning of the Securities Act or the Exchange Act, officers of the Company who signed the registration statement and directors of the Company, who may also be liable for contribution) in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and of the indemnified party, on the other hand, in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. For purposes of this Section 6(d), each Person, if any, who controls, within the meaning of the Securities Act or the Exchange Act, any indemnified party shall have the same rights to contribution as such indemnified party, and each Person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, each officer of the Company who shall have signed the registration statement and each director of the Company shall have the same rights to contribution as the Company. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section 6(d), notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties from whom contribution may be sought shall not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise than under this Section 6(d). The provisions of Section 6 shall survive the termination of this Agreement and the registration of all of the Investor's Common Stock. 7. Changes in Common Stock. a. If, and as often as, there is any change in the Common Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Common Stock as so changed. b. The Company will not effect or permit to occur any combination or subdivision of shares which would materially adversely affect the ability of the Investor to include its Common Stock in any registration of its Common Stock contemplated by this Agreement or the marketability of the Investor's Common Stock under any such registration. 8. Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Investor's Common Stock to the public without registration (but in no way reducing the rights of the Investor hereunder relating to such registrations) so long as the Common Stock of the Company shall continue to be registered pursuant to the requirements of Section 12 of the Exchange Act, and until that date that is two years (or for such other time period as shall be specified in Rule 144(k) as the holding period required for termination of certain restrictions on sales of restricted securities by persons other than affiliates) from the Closing Date, the Company agrees at its cost and expense to use its reasonable best efforts to: a. make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; b. file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; c. furnish to the Investor, forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of such Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as the Investor may reasonably request in availing itself of any rule or regulation of the Commission allowing the Investor to sell any of its Common Stock without registration; and d. furnish to the Investor, in the event that the Investor is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act, promptly upon written request from the Investor, such information as may be required under Rule 144A for delivery to any prospective purchaser of the Investor's Common Stock in order to permit the Investor to avail itself of the benefits of the exemptions under the Securities Act afforded by such Rule. 9. Additional Rights of the Investor. If any registration statement of the Company refers to the Investor by name or otherwise as the Holder of any securities of the Company, then the Investor shall have the right to require (a) the insertion therein of language, in form and substance reasonably satisfactory to the Investor, to the effect that the holding by the Investor of the Common Stock does not necessarily make the Investor a "controlling person" of the Company within the meaning of the Securities Act and is not to be construed as a recommendation by the Investor of the investment quality of the Company's debt or equity securities covered thereby and that such holding does not imply that the Investor will assist in meeting any future financial requirements of the Company, or (b) in the event that such reference to the Investor's Common Stock by name or otherwise is not required by the Securities Act or any rules and regulations promulgated thereunder, the deletion of the reference to the Investor. 10. Transfer or Assignment of Registration Rights. The rights to cause the Company to register the Investor's Common Stock granted to the Investor by the Company under Section 2 or 3 may be transferred or assigned by the Investor to a transferee or assignee of any of the Investor's Common Stock, provided that (except in the case of transfers to affiliates) the Company is given written notice by the Investor at the time of or within a reasonable time after said transfer or assignment, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned, and provided further that the transferee or assignee of such rights assumes the obligations of the Investor under this Agreement. 11. "Market Stand-Off" Agreement". The Investor agrees, if requested by the Company and an underwriter of Common Stock (or other securities) of the Company, not to sell publicly any Common Stock (or other securities) of the Company held by it, other than securities included in the underwriting, without the consent of such underwriter, during the one hundred eighty (180) day period following the effective date of a registration statement of the Company filed under the Securities Act, provided that: a. such agreement only applies to the first such registration statement of the Company including securities to be sold on its behalf to the public in an underwritten offering which shall commence after the Effectiveness Period; and b. all other holders of one (1%) percent or more of the outstanding Common Stock of the Company (calculated on a fully-diluted basis) and all officers and directors of the Company enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of said one hundred eighty (180) day period. 12. Miscellaneous. a. The Company has not entered, as of the date hereof, and shall not enter, on or after the date of this Agreement, any agreement with respect to its securities which is inconsistent with the rights granted to the Investor in this Agreement. b. The provisions of this Agreement, including the provisions of this sentence, may not be amended (other than the last sentence of Section 12(h), modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of the Investor. c. All notices, requests, consents and other communications hereunder shall be in writing and shall be mailed by certified or registered mail, return receipt requested, postage pre-paid, or by nationally recognized overnight courier addressed as follows: (i) if to the Company, at 2001 Marcus Avenue, Suite 290W, Lake Success, New York 11042, (ii) if to the Investor, at the most current address given by the Investor to the Company in accordance with the provisions of this Section 12(c), or to such other address as any party may have furnished to the other parties in writing in accordance herewith. d. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the conflict of laws principles thereof. e. No failure to exercise and no delay in exercising, on the part of the Company or the Investor of any right, power or privilege granted under this Agreement shall operate as a waiver of such right, power, or privilege. No single or partial exercise by the Company or the Investor of any right, power or privilege granted under this Agreement shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Agreement are cumulative and are not exclusive of any rights or remedies provided by law. f. If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. g. The Company will maintain, or will cause its registrar and transfer agent to maintain, a register with respect to the Investor's Common Stock in which all transfers of the Investor's Common Stock of which the Company has received notice will be recorded. The Company may deem and treat the person in whose name the Investor's Common Stock are registered in such register of the Company as the owner thereof for all purposes, including, without limitation, the giving of notices under this Agreement. h. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall insure to the benefit of the Investor. The Company may not assign its rights or obligations hereunder without the prior written consent of the Investor. i. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements relating to the subject matter of this Agreement. j. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument and it shall not be necessary in making proof of this Agreement to account for more than one such counterpart. k. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. l. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the prevailing party, as determined by the court, shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. m. Each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things reasonable necessary, proper or advisable under applicable law, and execute and deliver such documents and other papers, as may be required to carry out the provisions of this Agreement and the other documents contemplated hereby and consummate and make effective the transactions contemplated hereby. n. This Agreement and the obligations of the parties hereunder shall terminate at the end of the Effectiveness Period, except for any liabilities or obligations under Sections 5, 6 and 8 above, each of which shall remain in effect in accordance with its terms. IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be executed as of this 17th day of May, 1999. CREDITRISKMONITOR.COM By:____________________________________ Name: Jerome S. Flum Title: Chairman and President By:____________________________________ Name: Jerome S. Flum Title: General Partner Flum Partners This page shall constitute a counterpart copy of the Registration Rights Agreement, dated as of ____________, 199_, by and among CreditRiskMonitor.Com Inc. and Flum Partners. EX-11 4 STATEMENTS REGARDING COMPUTATION OF PER SHARE CREDITRISKMONITOR.COM, INC. AND SUBSIDIARIES Net Loss Per Share Net loss per share - basic is computed by dividing net loss less dividends on preferred stock by the weighted average number of shares of common stock outstanding during each year. Net loss per share - diluted is computed by dividing net income by the weighted average number of shares of common stock and the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The computation excludes the effect of dilutive potential securities (convertible preferred stock, options and warrants) because their inclusion would have had an antidilutive effect. Loss Per Share Computation For the Years Ended December 31, 1999 and 1998 1999 1998 ---- ---- Net loss applicable to common stock $ (1,252,698) $ (23,439) ============ ========= Basic average common shares outstanding 5,341,129 399,830 ============ ========= Net loss per share - basic and dilutive $ (0.23) $ (0.06) ============ ========= EX-21 5 SUBSIDIARIES OF CREDITRISKMONITOR.COM, INC. EXHIBIT 21 SUBSIDIARIES OF CREDITRISKMONITOR.COM, INC. STATE OF % OF OWNERSHIP NAME INCORPORATION CREDITRISKMONITOR.COM, INC. ---- ------------- --------------------------- Spicer's International, Inc. Nevada 100% NGF Services, Inc. New York 100% EX-27 6 FDS --
5 0000315958 CREDITRISKMONITOR.COM, INC. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1,422 0 608 33 0 2,013 379 62 4,534 1,388 0 0 0 53 2,048 4,534 1,259 1,259 687 2,359 137 0 82 (1,253) 0 (1,253) 0 0 0 (1,253) (0.23) (0.23)
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