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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 2000
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-20865
ZeroPlus.com, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1929282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12800 Middlebrook Road, Suite 400, Germantown, MD 20874
(Address of principal executive offices) (Zip Code)
(301) 601-8700
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report.)
Check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
periods 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
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The number of shares of the Registrant's common stock, $.01 par value
per share, outstanding as of August 2, 2000 was 10,463,974.
Transitional small business disclosure format (check one):
YES NO X
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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Page
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Item 1. Consolidated Financial Statements (Unaudited)
Accountants' Review Report...................................................................... 3
Consolidated Balance Sheets as of June 30 and March 31, 2000.................................... 4
Consolidated Statements of Operations for the three months ended June 30, 2000 and 1999......... 5
Consolidated Statements of Cash Flows for the three months ended June 30, 2000 and 1999......... 6
Consolidated Statements of Stockholders' Equity as of June 30, 2000............................. 7
Notes to Consolidated Financial Statements...................................................... 8
Item 2. Management's Discussion and Analysis Or Plan of Operations....................................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................................ 12
Signatures............................................................................................... 13
</TABLE>
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Board of Directors
ZeroPlus.com, Inc.
We have reviewed the accompanying consolidated balance sheet of ZeroPlus.com,
Inc. (a Delaware Corporation) as of June 30, 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for the
three-month periods ended June 30, 2000 and 1999. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of March 31, 2000, and the related statements of
operations, stockholders' equity and cash flows for the year then ended (not
presented herein), and in our report dated May 25, 2000, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed balance sheet as of March
31, 2000 is fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
Grant Thornton LLP
Vienna, Virginia
August 2, 2000
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<PAGE>
ZEROPLUS.COM, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 2000 MARCH 31, 2000
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(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,777,908 $ 3,497,936
Short-term investments 4,959,123 6,296,637
Accounts receivable 135,668 55,308
Prepaid expenses and other 436,057 191,414
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TOTAL CURRENT ASSETS 8,308,756 10,041,295
DEPOSITS AND OTHER ASSETS 36,835 37,947
INVESTMENTS 10,000 993,750
PROPERTY AND EQUIPMENT, NET 840,922 695,169
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$ 9,196,513 $ 11,768,161
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable--trade $ 584,499 $ 494,679
Notes Payable, current 32,850 31,884
Accrued liabilities 928,101 943,587
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TOTAL CURRENT LIABILITIES 1,545,450 1,470,150
LONG TERM DEBT 143,353 151,937
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TOTAL LIABILITIES 1,688,803 1,622,087
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares
Authorized, 10,463,974 and 10,459,307 shares outstanding
at June 30 and March 31, 2000, respectively 104,640 104,593
Treasury Stock (10,500) (10,500)
Additional paid-in capital 40,859,798 40,835,830
Retained deficit (33,446,228) (30,783,849)
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TOTAL STOCKHOLDERS' EQUITY 7,507,710 10,146,074
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$ 9,196,513 $ 11,768,161
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</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
ZEROPLUS.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
<TABLE>
<CAPTION>
JUNE 30
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2000 1999
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<S> <C> <C>
SALES
Products $ -- $ 1,843
Services 102,051 155,861
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Total sales 102,051 157,704
COST OF PRODUCT SOLD AND SERVICE PROVIDED
Products -- 584
Inventory writedown -- 575,078
Services 143,024 97,739
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Total cost of product sold and service provided 143,024 673,401
GROSS PROFIT (LOSS) (40,973) (515,697)
OPERATING EXPENSES
General and administrative 793,643 1,287,716
Selling and marketing 1,528,273 243,995
Restructuring costs -- 1,134,922
Research and development 380,752 390,574
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LOSS FROM OPERATIONS (2,743,641) (3,572,904)
OTHER INCOME (EXPENSE)
Other expenses (52,027) (47,225)
Interest income 133,289 57,859
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LOSS BEFORE INCOME TAXES (2,662,379) (3,562,270)
INCOME TAX PROVISION -- --
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NET LOSS $ (2,662,379) $ (3,562,270)
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LOSS PER SHARE-BASIC AND DILUTED $ (.25) $ (.43)
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WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 10,461,186 8,269,640
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
ZEROPLUS.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
<TABLE>
<CAPTION>
JUNE 30
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2000 1999
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<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,662,379) $(3,562,270)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation and amortization 98,502 164,033
Stock-based compensation 3,581 13,822
Non-Cash Restructuring Costs -- 1,710,000
(Increase) Decrease in accounts receivable (80,360) 241,720
Decrease in inventory -- 8,556
(Decrease) Increase in prepaid expenses, deposits and other assets (243,531) 3,090
Increase (Decrease) in accounts payable and accrued liabilities 66,716 (191,055)
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NET CASH USED IN OPERATING ACTIVITIES (2,817,471) (1,612,104)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (244,255) (152,137)
Proceeds received from short term securities at maturity 2,331,264 1,843,376
Investment in long term instruments (10,000) --
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,077,009 1,691,239
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CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 20,434 165,512
Payments of common stock subscriptions receivable -- 23
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NET CASH PROVIDED BY FINANCING ACTIVITIES 20,434 165,535
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (720,028) 244,670
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,497,936 1,760,627
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,777,908 $ 2,005,297
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SUPPLEMENTAL DISCLOSURES:
Income Taxes Paid $ -- $ --
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Interest Paid $ -- $ --
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</TABLE>
The accompanying notes are an integral part of these statements.
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ZEROPLUS.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------
Additional Total
No. of Paid in Treasury Retained Stockholders
Shares Amount Capital Stock Deficit Equity
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 2000 10,459,307 $ 104,593 $ 40,835,830 $ (10,500) $(30,783,849) $ 10,146,074
Issuance of common stock
Associated with:
Stock Option exercises 4,667 47 20,387 -- -- 20,434
Stock-based compensation -- -- 3,581 -- -- 3,581
Net loss -- -- -- -- (2,662,379) (2,662,379)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 2000 10,463,974 $ 104,640 $ 40,859,798 $ (10,500) $(33,446,228) $ 7,507,710
------------ ------------ ------------ ------------ ------------ ------------
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</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
ZEROPLUS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of ZeroPlus.com, Inc. (the "Company"), which was incorporated in
January 1995 and its wholly-owned subsidiaries. Such statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the regulations of the Securities and
Exchange Commission; accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation (consisting of normal recurring accruals) have
been included. The consolidated results of operations for the quarter ended June
30, 2000 are not necessarily indicative of the results for the fiscal year
ending March 31, 2001. The accompanying unaudited financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31,
2000.
NOTE B--DEBT FACILITY
On June 25, 1999, the Company signed a two year promissory note for a
$1,000,000 line of credit facility that is secured by investments, receivables
and fixed assets of the Company. As of June 30, 2000, the Company has not drawn
on the line. The debt facility expires on May 31, 2001.
NOTE C--NON-QUALIFIED STOCK OPTION PLAN
At June 30, 2000, the Company had three stock-based compensation plans.
As permitted under generally accepted accounting principles, grants under those
plans are accounted for following APB Opinion No. 25 (APB 25) and related
interpretations. Accordingly, only the compensation cost associated with grants
to non-employees or non-directors of the Company have been recognized in the
amount of $3,581 for the three months ended June 30, 2000. All options granted
to employees are non-compensatory for financial statement purposes, under the
provisions of APB 25 and related interpretations.
NOTE D--INCOME TAXES
The Company has generated net operating losses since its inception. At
June 30, 2000, the Company recorded a valuation allowance in an amount equal to
the deferred tax asset due to the uncertainty of generating future taxable
income.
NOTE E--CONCENTRATION
Approximately 98% of the Company's accounts receivable balance at June
30, 2000 were from one customer, and approximately 98% of the Company's sales
for the three months ended June 30, 2000, were from one customer.
NOTE F--COMMITMENTS
The Company has entered into agreements with various Internet-related
firms, whereby the Company pays a fixed scheduled payment over time in return
for online advertising. Expense is recognized for these programs in the period
in which the advertising is performed. At June 30, approximate future
advertising commitments are as follows:
Year ending March 31,
<TABLE>
<S> <C>
2001 (9 months) ......................................... $541,833
2002..................................................... $500,000
2003..................................................... $500,000
</TABLE>
Payments made for the three month period ended June 30, 2000 totalled $ 926,166.
Expense recognized in the three month period ended June 30, 2000 was
approximately $822,500.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
This information should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
consolidated financial statements and notes contained in the our Annual Report
on Form 10-KSB for the fiscal year ended March 31, 2000.
RESULTS OF OPERATIONS
NET SALES
Sales for the first quarter ended June 30, 2000 were approximately
$102,100, a decrease of 35% over the approximately $157,700 recorded for the
corresponding quarter of 1999. The revenue decrease was due to a shift in focus
from sales of our Telecom 2000 products to our business model based on a
comprehensive strategy of making voice and telephony functions easily available
at common entry points to digital data networks. Through the end of the first
quarter ended June 30, 2000, we have recorded minimal sales from this strategy.
The services sales for the quarter ended June 30, 2000, were primarily from one
customer.
GROSS PROFIT
Gross profits for the first quarter ended June 30, 2000 were
approximately ($41,000), compared to the approximately ($515,700) for the
corresponding quarter of 1999. The negative gross profit for the quarter ended
June 30, 2000 was due primarily to infrastructure costs associated with our
network buildout and increased customer support costs as we expand our user
base. For the prior year's corresponding quarter, the negative gross profit was
attributed to an inventory writedown as part of our restructuring efforts, which
refocuses the Company's operating model based on a comprehensive strategy of
making voice and telephony functions easily available at common entry points to
digital data networks.
OPERATING EXPENSES
Selling and marketing expenses for the first quarter ended June 30,
2000, were approximately $1,528,300, an increase of 526% over the approximately
$244,000 recorded for the corresponding quarter of 1999. The dollar increase in
these expenses over the prior year reflected increased spending for
advertising-related programs and marketing alliances as we build the
ZeroPlus.com brand and aggressively market ZeroPlus.com services.
General and administrative expenses for the first quarter ended June
30, 2000, were approximately $793,600, a decrease of 38% over the approximately
$1,287,700 recorded for the corresponding quarter of 1999. Personnel related
expenses associated with the restructuring of the Company in fiscal 2000
primarily accounted for the higher level of general and administrative expenses
in the quarter ended June 30, 1999 as compared to June 30, 2000.
During the quarter ended June 30, 1999, we recorded a restructuring
charge of approximately $1,710,000, which included a provision for reductions in
the carrying value of accounts receivable of $317,000, inventory of $575,000
(charged to cost of products sold and services provided in the accompanying
financial statements), capitalized software of $400,000 and the accrual of
expenses of $418,000 related our exit from network gateway equipment activities.
The restructuring effort, a refinement of our previously announced "niche"
strategy, refocused the Company's operating model based on a comprehensive
strategy of making voice and telephony functions easily available at common
entry points to digital data networks.
Research & development expenses for the first quarter ended June 30,
2000, were approximately $380,800, a 3% decrease over the approximately $390,600
recorded for the corresponding quarter of 1999. The slight decrease in
expenditures for research and development is due to a reduction in consulting
fees incurred in the current year's quarter.
OTHER INCOME (EXPENSE)
In the first quarter ended June 30, 2000, the Company's other income
and expenses included interest income of approximately $133,300, which increased
over the approximately $57,900 for the corresponding quarter in 1999 as the
result of increased cash balances invested in short-term securities.
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OTHER
IMPACT OF INFLATION
The Company does not believe that inflation has had a material adverse
effect on sales or income during the past several years. Increases in supplies
or other operating costs may adversely affect the Company's operations; however,
the Company believes it may increase prices of its products and systems to
offset increases in costs of goods sold or other operating costs.
SEASONALITY
Based our experience to date, we believe that our future operating
results may be subject to quarterly variations based on a variety of factors,
but seasonal changes in the weather should have little or no effect.
LIQUIDITY AND CAPITAL RESOURCES
In the three months ended June 30, 2000, we used approximately
$(2,817,500) in cash flows from operating activities, compared to approximately
$(1,612,100) for the corresponding period of 1999.
Cash provided by investing activities totalled approximately $2,077,000
for the three months ended June 30, 2000 as compared to approximately $1,691,200
provided by investing activities for the corresponding period of 1999. The main
component of that investing activity was the redemption of short-term securities
of approximately $2,331,300, as well as continued expenditures for equipment of
approximately $244,000, the majority of which related to the refinement of our
operating model described above.
Cash provided by financing activities totalled approximately $20,400
compared to approximately $165,500 for the corresponding period in 1999. These
amounts were the result of stock option exercises. We have access to a
$1,000,000 credit line secured by investments, fixed assets and receivables, but
did not borrow against that line of credit during the three months ended June
30, 2000.
We expect to continue to make significant investments in the future to
support our overall growth. Currently, we anticipate that ongoing operations
will be financed primarily from net proceeds of Broadwing Inc.'s 1999
investment, our 1998 private placement, warrant exercises, our line of credit
facility, and from internally generated funds. We presently have a line of
credit, investments, and cash and cash equivalents on hand and believe that
these will be sufficient to meet short-term cash requirements as needed.
However, while operating activities have provided and may provide cash in
certain periods, to the extent that we have experienced or will experience
growth, our operating and product development activities have used and may use
cash and consequently, such growth may require us to obtain additional sources
of financing. While to date we have not arranged to obtain additional capital to
meet possible future cash requirements, we recognize that we may need to do so
in the future. We can give no assurance that unforeseen events may not require
more working capital than we currently have at our disposal, or that we will be
able to obtain financing from additional sources.
FUTURE OPERATING RESULTS
The preceding paragraphs and the following discussion include
forward-looking statements regarding our future financial position and results
of operations. Actual financial position and results of operations may differ
materially from these statements. All such statements are qualified by the
cautionary statements set forth in our most recent Annual Report on Form 10-KSB,
as amended, under Part I, Item 1, "Forward Looking and Cautionary Statements"
and Part II, Item 6, under "Risk Factors", as well as the following statements.
We intend to continue to enhance and expand product and service
offerings in order to maintain our competitive position and meet the increasing
demands for service quality, capacity and competitive pricing. Also, the
introduction of new products and services will require significant marketing and
promotional expenses that we may incur before we begin to receive the related
revenue. However, we believe that the value and sales potential of our
ZeroPlus.com product line outweighs the risk of continued operating losses.
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We believe that our revenues will grow as we continue to deliver new
ZeroPlus.com products that make voice and telephony functions easily available
at common entry points to digital data networks. Our business strategy is to
expand our revenues to include significant fees from selling fee-based
ZeroPlus.com consumer services (including fees for PC-to-phone, phone-to-PC and
phone-to-phone calls, as well as fees for enhanced services) and e-commerce
services and the sale of Internet advertising. We can neither assure you that we
will be able to do this or that this strategy will be profitable. Currently our
revenues are primarily generated from telecommunications services not associated
with Internet telephony. Those services for one customer generated approximately
98% of our total revenues in the first quarter ended June 30, 2000.
We do not expect revenue growth to occur ratably in the near term.
Revenue growth, if any, in fiscal 2001 will depend to a large extent on the
timing and success of the various marketing alliances and new product
development and acceptance.
Because of these and other uncertainties affecting our future operating
results, past performance should not be considered to be a reliable indicator of
future performance. The use of historical trends to anticipate results or trends
in future periods may be inappropriate. In addition, our participation in a
highly dynamic industry may result in significant volatility in the price of our
common stock.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Description
None
(b) Since the end of its most recent fiscal year on March 31, 2000,
ZeroPlus.com, Inc. has filed the following reports on Form 8-K:
<TABLE>
<CAPTION>
Date of Report Item Reported
<S> <C>
August 14, 2000 Item 5 - Other Events
August 2, 2000 Item 5 - Other Events
July 6, 2000 Item 5 - Other Events
May 26, 2000 Item 5 - Other Events
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ZeroPlus.com, Inc.
(Registrant)
DATE: August 14, 2000 /s/ Donald J. Shoff
----------------------------------
Donald J. Shoff
Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
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