SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
-------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from ------- to ----------
Commission file number 33-55254-08
silverzipper.com, inc.
(Exact name of small business issuer as specified in its charter)
Nevada 87-0434286
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1141 South Rogers Circle, Suite 3, Boca Raton, Florida 33487
(Address of principal executive offices)
(561) 443-4379
(Issuer's telephone number)
Saber Capital, Inc.
(Former name, former address
and former fiscal year, if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No ____
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: August 16, 2000: 6,449,833
Transitional Small Business Disclosure Format (check one): Yes ____ No X
<PAGE>
silverzipper.com, inc.
<TABLE>
<CAPTION>
PAGE
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Part I - Financial Information
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets
June 30, 2000 (Unaudited)
Consolidated Statements of Operations
Six and Three Months Ended June 30, 2000 and 1999 (Unaudited)
Condensed Consolidated Statements of Cash Flow
Six Months Ended June 30, 2000 and 1999 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis or Financial Condition and Results of Operations
Part II - Other Information
Item 6. Exhibits: 27 Financial Data Schedule
Signatures
</TABLE>
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silverzipper.com, inc.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
-------- ------------
A S S E T S
CURRENT ASSETS
Cash $ 172,315 $ 136,107
Accounts receivable, net 214,531 19,319
Notes receivable 25,000 -
Inventory, net 227,090 722,261
Prepaid expenses and other current assets 15,318 9,500
---------- ----------
Total Current Assets 654,254 887,187
---------- ----------
PROPERTY AND EQUIPMENT, NET 87,544 31,298
---------- ----------
OTHER ASSETS
Goodwill, net 5,214,485 -
Trademark and organization costs, net 140,687 -
Deposits and other assets 17,488 21,124
---------- ----------
5,372,660 21,124
---------- ----------
$6,114,458 $ 939,609
========== ==========
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,203,722 $ 848,610
Notes payable - related parties 919,146 239,547
Advances under credit facility 1,456,386 1,485,208
---------- -----------
Total Current Liabilities 3,579,254 2,573,365
---------- -----------
---------- -----------
COMMITMENTS AND CONTINGENCIES
---------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value: authorized
100,000,000 shares; issued and outstanding
6,449,833 shares at June 30, 2000; 4,040,316
shares at December 31, 1999 6,450 4,040
Additional paid-in-capital 14,306,945 5,981,674
Accumulated deficit (11,778,191) (7,619,470)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY(DEFICIT) 2,535,204 (1,633,756)
----------- -----------
$ 6,114,458 $ 939,609
============ ===========
See accompanying notes.
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silverzipper.com, inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales, net $ 435,321 $ 452,984 $ 904,454 $ 706,198
----------- ----------- ----------- -----------
Cost of goods sold 266,835 165,791 576,808 630,242
Provision for inventory obsolescence 185,529 - 185,529 -
----------- ----------- ----------- -----------
452,364 165,791 762,337 630,242
----------- ----------- ----------- -----------
Gross profit (loss) (17,043) 287,193 142,117 75,956
Operating expenses 1,835,414 900,926 2,317,075 1,204,718
Write-down of goodwill 1,761,319 - 1,761,319 -
---------- ----------- ----------- -----------
3,596,733 900,926 4,078,394 1,204,718
---------- ----------- ----------- -----------
Operating loss (3,613,776) (613,733) (3,936,277) (1,128,762)
---------- ----------- ----------- ----------
Interest expense 145,083 113,178 222,444 211,910
---------- ----------- ----------- ----------
Loss before income taxes $(3,758,859) $ (726,911) $ 4,158,721) $(1,340,672)
----------- ----------- ----------- -----------
Provision for income taxes - - - -
----------- ----------- ----------- -----------
Net loss $(3,758,859) $ (726,911) $ (4,158,721) $ (1,340,672)
=========== =========== ============ ============
Loss per share:
Basic ($0.62) ($0.26) ($0.79) ($0.48)
Diluted ($0.46) ($0.26) ($0.51) ($0.48)
Weighted-average number
of shares outstanding
Basic 6,032,193 2,824,200 5,266,238 2,824,200
Diluted 8,116,173 2,824,200 8,232,525 2,824,200
</TABLE>
See accompanying notes.
<PAGE>
silverzipper.com, inc.
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
2000 1999
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,158,721) $(1,340,672)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 88,614 54,921
Common stock issued for compensation 524,598 -
Provision for uncollectable accounts 159,981 -
Provision for inventory obsolescence 185,529 -
Write-down of goodwill 1,761,319 -
Change in operating assets and liabilities:
Accounts receivable, net (48,148) 87,923
Inventory 438,698 623,994
Prepaid expenses and other current assets (750) (78,661)
Accounts payable and accrued expenses (78,042) 161,672
Other assets (10,003) -
Notes receivable (25,000) -
----------- -----------
Net cash (used) by operating activities (1,161,925) (490,823)
----------- -----------
Cash flows from investing activities:
Purchase of and equipment (73,428) (8,112)
----------- -----------
Net cash used by investing activities (73,428) (8,112)
----------- -----------
Cash flows from financing Activities:
Proceeds from sale of common stock 1,734,512 -
Cash paid for acquisition (400,000) -
Proceeds from notes payable 421,000 400,000
Repayment of notes (226,000) (20,000)
(Decrease) increase in advances under credit facility (257,951) 321,145
----------- -----------
Net cash provided by financing activities 1,271,561 701,145
----------- -----------
Net increase in cash 36,208 202,210
----------- -----------
Cash and cash equivalents at beginning of the period 136,107 93,081
----------- -----------
Cash and cash equivalents at end of the period $ 172,315 $ 295,291
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 150,894 $ 199,410
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
NOTE 1 - BASIS OF PRESENTATION AND MANAGEMENT'S PLANS
Basis of Presentation
The accompanying consolidated financial statements silverzipper.com Inc.
("silverzipper") as of June 30, 2000 and for the six months and the three months
ended June 30, 2000 and 1999 are unaudited, have been prepared on a basis
consistent with that of the consolidated financial statements for the year ended
December 31, 1999 and in the opinion of management, include all adjustments
(consisting only of normal and recurring adjustments) necessary for a fair
presentation of financial position and results of operations. Such financial
statements do not include all of the information and footnote disclosures
normally included in audited financial statements prepared in accordance with
generally accepted accounting principles and should be read in conjunction with
the Company's annual Form10-KSB. The accompanying unaudited financial statements
have been prepared in accordance with the instructions to Form 10-QSB. The
results of operations for the six and three month periods ended June 30, 2000
are not necessarily indicative of the results that may be expected for any other
interim period or the full year ending December 31, 2000.
Management's Plans
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
sustained substantial operating losses in recent years. In addition, the Company
is experiencing difficulty in generating sufficient cash flow to meet its
obligations and sustain its operations. At June 30, 2000, the Company had a
working capital deficit of approximately $2,900,000, and incurred net losses of
approximately $4,159,000 and $3,822,000 for the six months ended June 30, 2000,
and for the year ended December 31, 1999, respectively. The Company had an
accumulated deficit of approximately $11,778,000 at June 30, 2000.
Management expects to incur additional losses for the foreseeable future
and recognizes the need for an infusion of cash to achieve their business plan.
The Company is actively pursing various options which include seeking additional
debt and equity financing. The Company believes it will be able to raise
sufficient funds to achieve its planned business objectives. There can be no
assurance that the Company will be able to obtain any needed additional
financing on commercially reasonable terms. If the Company is unable to obtain
sufficient funds, it may be necessary for the Company to explore other options,
which could have a material adverse effect on the Company's business. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classifications of liabilities that may result.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are carried at the lower of cost (first-in first-out basis) or
market. Inventories consist primarily of finished goods. Costs of inventory
include the apparel manufacturing costs, freight and other costs.
Goodwill
The Company records goodwill as the excess of purchase price over the fair
value of the identified net assets acquired. Goodwill is amortized over its
estimated useful life, generally 20 years. Goodwill amortization expense for the
year ended June 30, 2000 was approximately $66,000.
Intangible Assets
Intangible assets acquired through purchase transactions are being
amortized on a straight-line basis over 7 years.
Concentration of Credit Risk
Financial instruments, which subject the Company to concentrations of
credit risk, consist primarily of its holdings of cash and cash equivalents and
accounts receivable. Credit is extended to customers based on an evaluation of
their financial condition and collateral is not required. The Company performs
on-going credit evaluations of its customers and maintains an allowance for
doubtful accounts and sales returns.
Comprehensive Income
The Company complies with the provisions of SFAS No. 130, "Reporting
Comprehensive Income", which requires companies to report all changes in equity
during a period, except those resulting from investment by owners and
distributions to owners, for the period in which they are recognized.
Comprehensive income is the total of net income and all other non-owner changes
in equity (or other comprehensive income) such as unrealized gains or losses on
securities classified as available-for-sale, foreign currency translation
adjustments and minimum pension liability adjustments. Comprehensive and other
comprehensive income must be reported on the face of annual financial
statements. The Company's operations did not give rise to any material items
includable in comprehensive income, which were not already in net loss for the
six months ended June 30, 2000. Accordingly, the Company's comprehensive loss is
the same as its net loss for all periods presented.
Equity Based Compensation
The Company accounts for its employee stock option plans in accordance with
the provisions of Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" and related interpretations, in
accounting for employee stock options rather than the alternative fair value
accounting allowed by Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation". APB No. 25 provides that the
compensation expense related to the Company's employee stock options is measured
based on the intrinsic value of the stock option. SFAS No. 123 requires
companies that continue to follow APB No. 25 to provide a pro-forma disclosure
of the impact of applying the fair value method of SFAS No. 123. The Company
accounts for stock issued to non-employees in accordance with the provisions of
SFAS No. 123 and the Emerging Issues Task Force consensus in Issue No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services."
Basic and Diluted Net Loss Per Share
Basic loss per share was determined by dividing net loss by the weighted
average common shares outstanding during the period. Diluted earnings per share
was determined by dividing net loss by diluted weighted average shares
outstanding. Basic weighted common shares outstanding for the three months and
six months at June 30, 2000 were 6,032,193 and 5,266,238 respectively. Weighted
average common equivalent shares outstanding for the three months and six months
June 30, 2000 were 2,083,980 and 2,966,287 respectively. Diluted weighted
average shares outstanding do not include 320,000 common equivalent shares at
June 30, 2000, as their effect would be anti-dilutive.
NOTE 3 - BUSINESS PURCHASES
Greekcentral.com Acquisition
On March 2, 2000, the Company's wholly owned subsidiary, silverzipper
Internet, Inc. ("silverzipper internet") acquired substantially all of the
assets of GreekCentral.com, a privately held Florida corporation, pursuant to an
asset purchase agreement which was subsequently amended. To consummate the
transaction the Company issued 582,713 shares of restricted common stock and
assumed certain liabilities of GreekCentral.com. The agreement also provides
GreekCentral.com shareholders purchase price protection granting them additional
shares in the event the market value of the shares falls below $5. Once the
shares are no longer subject to 1933 Securities Act restrictions, the former
GreekCentral.com shareholders will be entitled to that number of additional
shares, if any, necessary to maintain their aggregate original purchase price.
The total value of the transaction was approximately $3,261,000 including
approximately $2,800,000 of the Company's shares and approximately $461,000 of
assumed liabilities and other assets. The transaction was accounted for using
the purchase method of accounting.
Under the purchase method of accounting, the assets and liabilities were
recorded based upon the estimated fair value at the date of acquisition. The
Company recorded approximately $3,261,000 in goodwill which is being amortized
over twenty years. The results of GreekCentral.com for the period March 2, 2000
through June 30, 2000 are including in the consolidated statements of operations
for the six months ended June 30, 2000. Two former executive officers of
GreekCentral.com entered into three-year employment agreements with the Company.
One of the executive officers has been elected to the Board of Directors of the
Company and has been appointed President of the Company.
Serac Sports, Ltd. Acquisition
On or about March 21, 2000, the Company acquired, through its wholly owned
subsidiary, Serac Acquisition, Ltd. all of the outstanding capital stock of
Serac Sports, Ltd. ("Serac"), a publicly-held Canadian-based company. Under the
terms of the agreement the Company issued 622,010 shares of its restricted
common stock and $400,000 cash. Such shares are not transferable before March
21, 2001. This represented .05612 shares of the Company common stock for each
share of Serac common stock. The total value of the transaction was
approximately $3,800,000 including approximately $672,000 of net liabilities,
which consisted primarily of accounts payable, accrued expenses and notes
payable to former Serac officers. The transaction was accounted for using the
purchase method of accounting.
Under the purchase method of accounting, the assets and liabilities were
recorded based upon the estimated fair value at the date of acquisition. The
Company recorded approximately $3,780,000 in goodwill, which is being amortized
over twenty years. The results of Serac for the period March 21, 2000 through
June 30, 2000 are included in the consolidated statements of operations for the
six months ended June 30, 2000.
NOTE 4 - PRIVATE PLACEMENTS
In the first quarter of 2000 the Company sold, pursuant to a Confidential
Offering Memorandum dated January 3, 2000, 486,571 shares of common stock at
$3.50 per share. The Company realized approximately $1,533,000 after issuance
costs of approximately $171,000.
On May 31, 2000 the Company sold, pursuant to a stock purchase agreement,
("the Agreement") 333,334 shares of restricted common stock in the aggregate
amount of approximately $500,000 to an Investor. The Investor was also granted
preemptive rights to purchase its pro rata share on any new securities defined
as shares issued in financing transactions only and excludes shares issued for
existing debt, assets or shares of another company or for shares, warrants, or
options granted to employees, consultants and others providing services to the
Company. The Investor has the right to appoint a member to the advisory board
and one member to the board of directors. The advisory board member has the
right to receive notice and attend regular directors' meetings as a non-voting
member. Under the agreement the Investor or its affiliates shall make available
a credit facility up to $4,300,000. The Company is responsible for all fees
related to the credit facility. In addition, the Investor will receive a fee of
2.25% per month on the full amount of any letters of credit issued until paid in
full. The Investor also has the exclusive right of first refusal to provide
letters of credit for the Company's production orders. Other provisions of the
Agreement required the Investor to satisfy a $22,514 payable, provide a
protective provision granting the Investor equal rights and preferences for any
financing under $3,000,000 and prohibits assignment of the Agreement without
mutual consent of the parties.
In May 2000, the Company entered into a one-year consulting agreement with
a financial services firm (the"Firm"). The Firm will provide many services which
include seeking out potential investors, developing strategic partnerships, and
identifying opportunities. The terms of the agreement include warrants for the
right to purchase 1,000,000 shares of common stock at $0.10 per share. Further,
the Company has agreed to pay $20,000 per month and a seat on the board of
directors for the term of the contract. The Company has accepted a loan from the
Firm in the amount of $125,000. The note has a one-year term with interest
accruing at 12%. As of June 30, 2000, the principal balance of $125,000 remained
outstanding.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company is obligated under certain notes payable to several current and
former officers, directors and employees. The notes aggregate approximately
$919,000 including accrued interest of approximately $77,000. Some of the notes
have matured at June 30, 2000, with the remaining notes maturing on or before
June 30, 2001. New payment terms for these loans are being negotiated. The
notes, some of which are secured, bear interest ranging from 8 to 15 per cent
per annum.
The Company is also obligated to certain shareholders in the aggregate
amount of approximately $278,000 in connection with legal fees and certain
reimbursable costs.
The Company is also obligated under several employment and consulting
agreements with certain current and former employees. The agreements include
terms ranging from 12 to 36 months and provide in excess of approximately
$600,000 in annual compensation subject to certain conditions.
During the six months ended June 30, 2000 consulting agreements amounting
to approximately $380,000 were paid in the Company's stock.
During the six months ended June 30, 2000 the Company issued approximately
180,000 shares of restricted common stock to its President for services
performed. The Company recognized approximately $269,000 of compensation expense
related to this transaction.
NOTE 6 - OPTIONS AND WARRANTS
On March 2, 2000 nonqualified options to purchase 530,000 shares of the
Company's common stock at an exercise price of $2.50 were granted to certain
employees of GreekCentral.com pursuant to their employment agreements. These
options were granted at or below estimated fair market value at the date of
acquisition by silverzipper and vest over a 36-month period.
On March 21, 2000 nonqualified options to purchase 360,000 shares of the
Company's common stock at an exercise price of $2.00 per share were granted to
certain shareholders and employees of Serac pursuant to their employment
agreements. These options were granted at or below estimated fair market value
at the date of acquisition by silverzipper and vest over an 18 to 36 month
period.
At June 30, 2000 total nonqualified options outstanding were 1,640,000 at a
weighted average exercise price of $1.91 with a weighted average remaining
contractual life of 30 months. 0ptions vest over varying time periods ranging
from 12 to 36 months. During the six months ended June 30, 2000 no options were
repriced. At June 30, 2000 no options were excercisable.
At June 30, 2000 total warrants outstanding were 2,595,000. The warrants
were issued under similar terms as described above.
For the six months ended June 30, 2000, the Company issued 230,000 options
and 350,000 warrants relating to employment agreements.
Had compensation costs for the Company's options been determined consistent
with SFAS 123, the net loss would have been significantly increased for the six
months ended June 30, 2000.
NOTE 7 - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company has no significant off-balance-sheet concentration of credit
risk such as foreign currency exchange contracts or other hedging arrangements.
Financial instruments that subject the Company to credit risk are accounts
receivable. Two customers represented greater than 10% of net revenues in the
six months ended June 30, 2000, and 4 customers represented more than 40% of the
Company's total net revenues for the six months ended June 30, 2000.
The Company does not require collateral from its customers. Its credit
policy is in accordance with normal industry trade and credit terms. Credit
losses relating to the Company's customers have not been significant.
NOTE 8 - CREDIT FACILITIES
May 31, 2000 the Company established a credit facility with a shareholder
affiliate ("facilitator"). Under the arrangement, the facilitator establishes
letters of credit to the Company's contract manufacturers. The Company, which is
not obligated directly under the letters of credit, compensates the facilitator
at the rate of 2.25% per month of the original letter of credit amount until
paid in full plus related fees.
The Company also has an arrangement with an asset-based lender whereby it
sells with limited recourse its receivables for a 1-1/2 % fee. The asset-based
lender also provides advances for working capital under various credit
facilities at prime plus 3% from time to time.
The Company has assigned its proceeds from the sale of its receivables to
the facilitator in payment for outstanding loan balances.
NOTE 9 - IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS No. 121"), long-lived assets are evaluated for possible
impairment through a review of undiscounted expected future cash flows. The
carrying value of a long-lived asset is considered impaired if the sum of the
undiscounted expected future cash flows is less than the carrying amount of that
asset. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived assets.
In connection with the acquisition of GreekCentral.com, Inc. the Company
paid and assumed liabilities aggregating approximately $3,261,000 in excess of
the fair market value of the assets acquired and recorded such excess as
goodwill. Applying the criteria established under SFAS 121, the carrying value
of this goodwill was reviewed to determine if the facts and circumstances, such
as significant declines in sales, earnings and cash flows, or material adverse
changes in the business climate, suggest that such assets may be impaired due to
adverse market conditions. The Company concluded, during the three months ended
June 30, 2000 that some of the GreekCentral goodwill was impaired. Accordingly,
a write down of approximately $1,761,000 recognized for the three months ended
June 30, 2000.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases its Boca Raton office premises on a month to month basis
from an entity affiliated with the Company's President. The monthly rental
is $3,000 per month net of a sublease. The Company also leases certain
other office space with terms up to 36 months. The Company's current
monthly lease expense is approximately $5,000, net of sublet income. Rental
expense for office space was approximately $77,000 for the six months ended
June 30, 2000.
(b) Legal
The Company is involved in claims and lawsuits that are generally
incidental to its business. The Company is vigorously contesting all such
matters and believes that their ultimate resolution will not have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three-Month Period Ended June 30, 2000 and 1999
Net sales for the three months ended June 30, 2000 were $435,321 as compared
with net sales of $452,984 for the three months ended June 30, 1999, a decrease
of $17,663, or 4%. The decrease in net sales was primarily due to higher than
expected returns for the period. This was attributable to a single batch of
substandard product. Notwithstanding returns, in-season reorders have increased
during this time. Orders have also increased due to the acquisition of Serac.
Management believes that diversifying through the acquisition of other companies
in the sports apparel and accessories business that are not winter related, will
serve to "weather-proof" the Company.
Cost of sales for the three months ended June 30,2000 was $266,835, or 61%
of sales as compared with cost of sales for the three months ended June 30, 1999
of $165,791 or 37% of sales, an increase of $101,044, or 61%. This was due
primarily to the purchase of substantially discounted closeout inventory during
the second quarter of 1999. However, due to the high demand for these garments,
the Company managed to sell the product at full price. The Company also provided
for inventory obsolescence by a charge of $185,529, to cost of goods sold for
the three month period ended June 30, 2000.
Operating expenses during the three months ended June 30, 2000 were
$1,835,415 (422% of sales) as compared with operating expenses of $900,926
during the three months ended June 30, 1999 (199% of sales), an increase of
$934,489. This increase was primarily due to the Company incurring additional
expenses in connection with the startup of the Company's internet operations and
additional overhead as a result of the Company's recent acquisitions.
Interest expense for the three months ended June 30,2000 was $145,083
compared with interest expense of $113,178 for the three months ended June 30,
1999, an increase of $31,905. The increase was due primarily to the increase in
the lending rate charged by the Company's commercial lenders and interest
accruing on notes payable.
The Company expensed $1,761,319 of goodwill related to an acquisition which
occurred during the first quarter of 2000. This revaluation of goodwill is
primarily due to unfavorable market conditions specifically as it affected
internet companies.
The net loss for the three months ended June 30, 2000 was $3,758,859
compared with a loss of $726,911 for the three months ended June 30, 1999, an
increase of $3,031,948, due primarily to the factors described above.
Results of Operations - Six-Month Period Ended June 30, 2000 and 1999
Net sales for the six months ended June 30, 2000 were $904,454 as compared with
net sales of $706,198 for the six months ended June 30, 1999, an increase of
$198,256, or 28%. The increase in net sales was primarily due to the acquisition
of Serac. The late 1999/2000 winter selling season also helped in producing
larger than anticipated in-season orders. Further, management believes that
diversifying through the acquisition of other companies in the sports apparel
and accessories business that are not winter related, will serve to
"weather-proof" the Company.
Cost of sales for the six months ended June 30, 2000 was $576,808, or 64%
of sales as compared with cost of sales for the six months ended June 30, 1999
of $630,242 or 89% of sales. During the first quarter of 1999, the Company
liquidated a large stock of obsolete inventory to a customer at cost. This was
partially offset by improvements in cost of goods sold in the second quarter of
1999, as noted above. The Company also provided for inventory obsolescence by a
charge of $185,529, to cost of good sold for the period ended June 30, 2000.
Operating expenses during the six months ended June 30, 2000 were
$2,317,075 (256% of sales) as compared with operating expenses of $1,204,718
during the six months ended June 30, 1999 (170% of sales), an increase of
$1,112,357. This increase was primarily due to the Company incurring additional
expenses in connection with its internet operations and additional overhead as a
result of the Company's recent acquisitions.
Interest expense for the six months ended June 30, 2000 was $222,444
compared with interest expense of $211,910 for the quarter ended June 30, 1999,
an increase of $10,534. This was due primarily to the increase in the lending
rate charged by the Company's commercial lenders as well as interest accrued on
notes payable.
The Company also wrote-down $1,761,319 of goodwill related to an
acquisition which occurred during the first quarter of 2000. This revaluation of
goodwill is primarily due to unfavorable market conditions specifically related
to internet companies.
The net loss for the six months ended June 30, 2000 was $4,158,721 ($0.79
per share), compared with a loss of $ 1,340,672 ($0.48 per share) for the six
months ended June 30, 1999, due to the factors described above.
Liquidity and Capital Resources
As a result of continuing losses, the Company has been unable to fund its cash
needs through cash generated by operations. Contributing to this situation is
the cyclical nature of the business, as well as expenses related to the start-up
of internet operations. The Company's liquidity shortfalls from operations
during the six months ended June 30, 2000 have been funded through several
transactions with its principal shareholders and with the Company's credit
facility, as well as through collateral posted by principal shareholders to
support the Company's over advance from the credit facility.
As of June 30, 2000 the Company maintained a working capital deficit of
approximately $2,925,000. This includes approximately $919,000 of Notes Payable
with payment terms due within one year of June 30, 2000. Management is currently
negotiating with individual note-holders to extend the terms of these
instruments. Management expects the working capital deficit to improve with the
shipping of approximately $8,600,000 of the current season's pre-booked orders.
Additionally, management believes that diversifying through acquisitions of
non-winter related sports apparel and accessory businesses would mitigate the
cyclical nature of our business.
Pursuant to a Confidential Offering Memorandum dated January 3, 2000 the
Company issued 486,571 shares of common stock to investors for net proceeds
after offering expenses aggregating approximately $1,533,000.
On May 31, 2000, the company entered into an agreement with an affiliate to
issue 333,334 shares of common stock for proceeds of approximately $500,000.
This investor currently provides manufacturing as well as financial services to
the Company.
During the quarter ended June 30, 2000, the Company entered into a one-year
consulting agreement with a financial services firm (the "Firm"). The Firm will
provide many services which include seeking out potential investors, developing
strategic partnerships, and identifying growth opportunities. The terms of the
agreement include warrants for the right to purchase 1,000,000 shares of common
stock at $0.10 per share. Further, the Company has agreed to pay a fee of
$20,000 per month and grant the Firm a seat on the board of directors for the
term of the contract. On May 31, 2000, the Company accepted a loan from the Firm
in the amount of $125,000 with a one-year term and interest accruing at 12%. As
of June 30, 2000, the principal balance of $125,000 remained outstanding on the
loan.
At December 31, 1999, the Company had a deficit in working capital of
$1,687,000. In addition, at December 31, 1999, the Company had a deficit in net
worth of $1,634,000, indicating a continuing requirement for equity financing.
The Company is dependent on a line of credit from its commercial lender. The
line of credit is asset based and, accordingly, is limited, requiring principal
stockholder guarantees and collateralization. The line of credit is secured by
substantially all of the assets of the Company and is terminable on 30 days'
notice. The principal stockholders and their affiliates have pledged
approximately $1,300,000 in collateral with the Company's lender.
During 1999, pursuant to a Confidential Offering Memorandum dated July 1,
1999, the Company issued 380,000 shares of common stock to investors for net
proceeds after offering expenses aggregating approximately $1,348,000. In
addition, the Company issued 225,000 shares to investors who had advanced
$400,000 to silverzipper Delaware in April and May, 1999. These investors also
received $75,000 of promissory notes bearing interest at 10% per annum, due
October 31, 1999. Of this amount, $37,500 was repaid, with the remaining $37,500
due upon demand.
During 1998, the Company raised $1,000,000 through a private offering of
its 10% promissory notes (the "Notes"). The proceeds were used to fund the
development expenses of the Company, which consisted primarily of payroll and
legal fees incurred to assemble a management team, identify candidate companies
which fit the criteria for its consolidation strategy, and exploring strategic
alliances for its internet strategy. Pursuant to the terms of the offering, the
Notes bore interest at the rate of 10% per annum, payable quarterly, and were
due at the earlier of the closing of an initial public offering of the Company's
securities, or December 31, 1999. As of August 31, 1999, pursuant to an exchange
offer, holders of an aggregate of $950,000 of notes payable exchanged their
notes for consideration of 380,000 shares of common stock of the Company and
warrants to purchase an additional 380,000 shares of common stock at an exercise
price of $2.50 per share.
The Company is highly dependent upon an equity infusion in order to achieve
its goals of industry consolidation, forging strategic alliances with key
e-commerce companies and executing is marketing strategy. There can be no
assurance of obtaining substantial additional equity financing. In the absence
additional equity and/or debt financing, the Company can maintain, and/or expand
sales only by obtaining improved payment terms from the Company's suppliers and
customers. There is no assurance such effort would be successful and if the same
is successful, may well carry with them additional expenses in the form of
higher supplier prices and larger customer discounts, which would adversely
affect profitability.
PART II - OTHER INFORMATION
Item 6. Exhibits
A. Exhibits: 27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
silverzipper.com, Inc.
By:/s/ Paul Palmeri
--------------------
Paul Palmeri
Chief Executive Officer
By:/s/Adam Singer
--------------------
Adam Singer
Chief Financial Officer
Date: August 21, 2000
