UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1999
Or
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number: 33-55254-08
silverzipper.com, Inc.
(Exact name of registrant as specified in its charter)
NEVADA 87-0434286
(State of Incorporation) (IRS Employer Identification Number)
81 HOLLY HILL LANE, GREENWICH, CONNECTICUT 06830
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code): (203) 661-5959
Securities registered pursuant to Section 12(b)
of the Exchange Act: None Securities registered
pursuant to Section 12(g) of the Exchange Act:
Class A Common Stock, par value $0.001 per share
(Title of Class)
Indicate by check mark whether the registrant (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 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not 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. [ ]
For the fiscal year ended December 31, 1999, registrant's consolidated revenues
were $5,563,557.
On April 12, 2000, the aggregate market value of the outstanding shares of
voting stock held by non-affiliates of the registrant was approximately
$11,298,120.
On April 6, 2000, 5,506,040 shares of the registrant's Class A Common Stock,
$.001 par value were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Description of Business
Formation of the Company
American Sports Group, Inc., a Delaware corporation, was organized in 1998
to exploit the opportunity for significant growth through acquisition in the
sport apparel/accessories and active wear markets and to become an Internet
retailer of this product category. On or about July 1, 1999, American Sports
Group, Inc. acquired all of the outstanding capital stock of Robern Skiwear,
Inc. ("Robern"), a New York corporation founded in 1982, in a transaction
accounted for in a manner similar to a pooling of interests. Robern conducts a
skiwear and snowboard wear business. American Sports Group, Inc. and Robern were
under common control at such time. Also, at or about that time, American Sports
Group, Inc. changed its name to "silverzipper.com", Inc. ("SZIP Delaware").
On or about July 27, 1999, SZIP Delaware entered into a Stock Exchange
Agreement (the "Saber Agreement") with Saber Capital, Inc., a Nevada corporation
("Saber"). SZIP Delaware entered into the Stock Exchange Agreement to "go
public" by its combination with Saber. Under the Saber Agreement, all of the
SZIP Delaware common stock outstanding was exchanged for certain newly issued
shares of Saber common stock. The merger was accounted for as a reverse
acquisition in a manner similar to a pooling of interests.
Saber was incorporated in December 1993. Thereafter, shares of Saber's
Common Stock were publicly distributed for nominal consideration pursuant to a
registration statement under the Securities Act of 1933. The purpose was to
create a publicly owned "shell" entity which would be available for a future
transaction. To the knowledge of SZIP Delaware, Saber had not conducted any
business and had no significant assets or liabilities prior to the signing and
closing of the Saber Agreement.
At the time of the Saber Agreement, SZIP Delaware had 1,470,000 shares of
Common stock outstanding. At such time, Saber had 729,200 shares of Class A
Common Stock ("Common Stock") outstanding. In accordance with the Saber
Agreement, Saber issued 1,470,000 shares of its Common Stock in exchange for the
outstanding Common Stock of SZIP Delaware. As a result, Saber then had 2,199,200
shares of Common Stock outstanding. Shortly after the acquisition, Saber changed
its name to silverzipper.com, Inc. (referred to as the "Company"), and its
trading symbol was changed to SZIP. The Company's common stock is traded on the
Over the Counter Bulletin Board.
The Company's Business Objective
The Company has identified an opportunity to provide a branded e-commerce
delivery platform to complement its "bricks and mortar" sales, and concurrently
consolidate within the sport apparel/equipment/accessory and active wear
industry. The Company's plan is to acquire by merger or purchase respected,
well-managed active wear, sport apparel, sport shoes, equipment and accessory
companies that have established "brands." These recognized brands will be
marketed via the Company's Internet web-site that is being developed by the
Company sport specialties, (snowboarding, skateboarding, surfing, skiing,
biking, in-line skating, rock climbing and mountain climbing) while targeting
the markets of generation "X" and generation "Y."
The executive offices of the Company are located at 81 Holly Hill Lane,
Greenwich, Connecticut 06830, and its telephone number is 203-661-5959.
Acquisition of GreekCentral.com, Inc.
On March 2, 2000, the Company, Silverzipper Internet, Inc., a Florida
corporation ("Silverzipper Internet"), a wholly owned subsidiary and
GreekCentral.com, Inc., a Florida corporation ("GreekCentral.com"), entered into
an Asset Purchase Agreement and consummated the acquisition of substantially all
of the assets of GreekCentral.com by Silverzipper Internet. The primary asset
acquired by Silvezipper Internet was the GreekCentral.com website, including the
URL and related intellectual property.
The GreekCentral.com website is a well-recognized online community and
portal for college life. With a focus on fraternity and sorority affiliation,
GreekCentral.com provides news, music, games, academics, shopping and
interaction. The Company believes that by focusing on a niche target with
grassroots marketing efforts, it has effectively penetrated this audience. These
efforts maintain the loyalty of users, as evidenced by GreekCentral's long user
session lengths and high repeat traffic. The Company plans to operate
GreekCentral.com in its current form, and take advantage of joint marketing and
traffic driving opportunities for the GreekCentral.com and silverzipper.com
websites. In addition, the team from GreekCentral will be responsible for
building, maintaining and marketing the silverzipper.com website which is
scheduled to launch in the Fall of 2000 and can be previewed at
www.silverzipper.com.
The purchase price of the assets purchased by Silverzipper Internet was
550,000 shares of restricted common stock of silverzipper, which shares of
common stock were delivered to GreekCentral.com at the March 2, 2000 closing and
the assumption of $3,000,000 in debt. The purchase price was subject to a
working capital determination based on a specific formula. There was not an
adjustment made to the purchase price at the closing due to the working capital
determination. The purchase price also provides GreekCentral.com a protective
feature which guarantees a $5.00 per share value of the silverzipper common
stock provided as consideration for the GreekCentral.com assets when the common
stock becomes freely tradable either by a valid registration of the common stock
or via Rule 144 of the Securities Act of 1933, as amended. In the event the
market value of the silverzipper common stock is not $5.00 on the day the common
stock is available for resale, then silverzipper shall issue additional shares
of common stock which are necessary to make up any shortfall to the then holders
of the common stock.
Acquisition of Serac
On or about March 21, 2000, the Company acquired, through Serac
Acquisition, Ltd., a wholly owned subsidiary, all of the outstanding capital
stock of Serac Sports, Ltd. ("Serac"), an Alberta, Canada corporation, pursuant
to an Arrangement Agreement dated as of December 30, 1999. Serac is a well
regarded skiing and outdoor clothing company based in Calgary, Alberta, Canada,
with the majority of its sales in the United States. Serac's early product focus
was ski apparel. Product diversification resulted in the introduction of cycling
and running "cross-training apparel." Serac now designs, sources and distributes
outdoor apparel and accessories for major growth sports markets currently
serving the recreational outdoor and ski/snowboard markets in North America from
its Greenwich, Connecticut and Calgary, Alberta locations. In addition, Serac
has introduced its products into Europe through a distribution agreement with
Elho Munich. Serac is a licensee of the W.L. Gore Company and currently supplies
apparel using Gore fabrics to ski resorts and other industries across North
America.
The purchase price for the Serac capital stock acquired by silverzipper is
the sum of $3,000,000 consisting of $400,000 in cash and $2,600,000 in
silverzipper common stock valued, in accordance with the Arrangement Agreement,
at $4.17 per share. By the terms of the Arrangement Agreement, the common stock
is not transferable before March 1, 2001 and additional restrictions may apply
to persons who are "affiliates" of Serac. In addition, silverzipper will have to
provide funding for the payment of certain loans due to former officers and
directors of Serac in the aggregate amount of approximately $300,000. As part of
the closing, the Company became obligated for the payment due by Serac to its
commercial factor. The Company believes that Serac's receivables and inventory
are sufficient to cover that liability.
The Sportswear Market
According to the National Sporting Goods Association (NSGA), sales of
sporting apparel, equipment and accessories totaled $45 billion in 1999. This is
significantly larger than the total U.S. market for either toys or books. While
the total sporting goods category is growing at a rate of 6% annually, the
Internet segment is growing at a robust pace. Forrester Research estimates U.S.
sporting goods online will grow at an annual growth rate of 91% to $4.2 billion
in 2004, and JP Morgan predicts global online sales of $38.2 billion by 2009.
Participatory sports are close to the hearts of Generation "i." (the
"Internet Generation"). These sports are perceived as an authentic way to
communicate with this savvy segment in a language they call their own. Few other
categories have this direct access to the Generation "i" lifestyle.
Significantly for the Company, sporting apparel has crossed over into
casual, street and even business wear. Snowboard apparel is growing at a much
higher rate than snowboard equipment, due to a strong street appeal to the look.
The snowboard look has easily translated into streetwear. This exposes the
Company to not only participants in the sports we feature, but those who aspire
to the fashion or look of the performance apparel. This expands the Company's
business potential beyond sporting products to all products associated with the
Generation "i" lifestyle.
The Internet
The Internet is an increasingly significant medium for communication,
information and commerce. This provides opportunity for the properly positioned
company with a branded e-commerce platform.
The Target Market: Generation "i"
The combination of Generations "X" and "Y" have been dubbed the Internet
Generation or Generation "i," to reflect the way the Internet has completely
transformed our society, economy, and this demographic group's leadership role
in that shift.
The Medium: The Web
International Data Corporation estimates that there were 97 million Web
users worldwide at the end of 1998 and anticipates this number will grow to
approximately 320 million users by the end of 2002. Forrester Research predicts
these online users will generate $100 billion of e-commerce by 2003.
The unique characteristics of the Internet provide a number of advantages
for online retailers as they have the ability to "display" a larger number of
products than traditional store-based or catalog retailers at a lower cost. In
addition, online retailers are able to frequently adjust their featured
selections, editorial content, shopping interfaces and pricing, providing
significant merchandising flexibility. Perhaps most important, web-based
retailers have the ability to reach targeted audiences across the globe with
communication and offerings catering to their specific interests, thus offering
mass customization.
Sports apparel, shoes, equipment and accessory demographics are
particularly ideal for online distribution. According to a study conducted by
the Leisure Trends Group and reported in the Denver Post, 80% of all skiers and
snowboarders were online by the end of 1998. The same study shows that the
Internet is second only to brochures as a means of delivering ski vacation and
resort information to skiers and snowboarders. For the Generation "X" and "Y"
dominated snowboard market, the Internet is already a principal medium: 95% of
all U.S. college students are estimated to be on the Internet.
The Channel: Direct
"The Company believes that the real winners on the `Net will be firms
that sell their own products directly to consumers."
The Internet is helping transform the distribution channel for the products
we buy. It is propelling a direct revolution that is removing the middlemen from
the supply chain and empowering the end-user. Buyers are now equipped with
product information and the ability to compare offerings easily, which have made
them smarter consumers.
Companies have become more in touch with their consumers, and offer better
value by going direct. However, not every company can go direct to consumers
without alienating the traditional distribution channel.
By having a diversified brand portfolio, and unique brands for each channel
of distribution, silverzipper.com is positioned to maintain our core retail
relationships while offering our consumers authenticity and the advantages of
direct sales.
Growth Strategy
The Company's strategy is to create an interactive online retailing model
for selling branded niche-sports apparel, shoes, equipment, and related
life-style accessories featuring sportswear brands which it plans to acquire.
The Company will attempt to "re-tool" this model to create a branded,
destination site or "vortal" (vertical portal) based on the sport and lifestyle
for each acquired niche sports group, or groups who share target audience
demographics such as mountain biking, snowboarding, skateboarding and surfing.
The Company intends to purchase well regarded, authentic niche sports related
apparel, shoe, equipment and accessory brands, eliminating the redundant support
activities such as distribution, purchasing and financing and market their
products through various Internet websites.
The Company is convinced that the real winners on the Internet will be the
firms that sell their own products directly to the consumer and not those that
become yet another link in the distribution chain. The Company's overall
objective is to maintain a premiere brand in authentic sporting lifestyle
related products, while emphasizing the consumer benefits of our direct
distribution.
The key differentiator that silverzipper.com has is being able to offer
value for money, and being directly in touch with our consumers. Relying merely
on price differentiation will not build a strong brand. With that in mind, the
Company has created a compelling destination and online community. By owning and
leveraging our proprietary brands, the Company will be perceived as having a
deeper understanding of the consumers' view. We're not just business people,
we're team riders, designers and vertical lifestyle enthusiasts. Our website
design team is edgy and irreverent, they live the lifestyle we're targeting. The
Company's site and marketing efforts leverage this authenticity.
Fully encompassing the lifestyle associated with Generation "i" and
sporting apparel and goods, the Company's website has sports-lifestyle related
content presented with a tone of sarcasm and wit, combined with interaction,
animation and graphics. The direct link the consumer has to the brands is
highlighted, offering added value, quality, and authenticity. silverzipper.com
is the cool place that directly links the consumer with the brands' designers,
founders and team riders.
This content is seamlessly integrated into the site's product sales, in
order to drive purchases.
The Company's website, silverzipper.com, is scheduled to launch in Fall
2000. It is currently available for preview at: www.silverzipper.com
Product Lines
Robern
The Company acquired all of the outstanding capital stock of Robern on or
about July 1, 1999, the business of which was established in 1982, and which
designs and distributes snowboard and ski clothing (Drift(R) and Ski Gear(R))
and active wear apparel. Robern offers a complete collection of "sport-specific"
active apparel. With a focus on its ski heritage and "mountain roots", Robern's
designs combine technical and functional features with an eye toward fashion.
Robern products include the following:
Drift(R) Boardwear
This clothing line was introduced in 1992 as an extension of Robern's
traditional "alpine" skiwear business. While alpine wear has relatively slow
growth, snowboarding is expanding rapidly. The overwhelming majority of new
participants on the slopes are young (14-25 years old) and snowboarding.
Drift(R) has very quickly become a presence within the snowboarding industry.
Drift(R) designs, manufactures, and markets several tiers of technical clothing
for male and female customers of all ages. Drift(R) has relationships with
independent designers for forecasting and styling, twenty-plus "team riders" for
technical input and support, and management's eighteen years of skiwear
manufacturing ability results in product that is in fashion.
Since its inception, Drift(R) has grown through controlled distribution.
Drift(R) currently sells to approximately 300 dealers, representing 1,500-1,800
outlets nationally. Distribution is limited to board-specific retailers, select
sporting goods stores and fashion retailers. Due to the multi-tiered nature of
its product offerings, Drift(R) products are sold to fashion retailers such as
Urban Outfitters in Pennsylvania and Pacific Sunwear in California, as well as
specialty snowboard retailers such as Bavarian Village in Illinois and Blades
and Boards in New York. The highest growth in Drift(R)'s account structure has
come from those retailers who have developed on-line businesses, such as
"Delias" in New York, "The House" in Minnesota, and "Cold Fusion" in California.
Ski Gear(R) Skiwear
Robern's skiwear products include basic ski bibs, insulated ski pants and
jackets which are basic, non-high fashion categories for many discount and
sporting goods chain stores under various brand names including Ski Gear(R).
Principal accounts for these products include Walmart, The Sports Authority,
Burlington Coat Factory and Academy.
Robern's relationship with retailers and manufacturers allows the Company
to develop product as specified by the customer. Major retailers such as The
Sports Authority, Wal-Mart, Burlington Coat Factory, Academy, Dick's Sporting
Goods and Pacific Sunwear use this program to retail clothing and accessories
under their own brands.
Serac
The Serac product line consists of high quality, technical and functional
offerings. Serac's outerwear serves cold weather needs of the outdoor
enthusiast. The product design group use leading edge fabrics including
"Gore-Tex", careful placement of ventilation controls and layering systems. Its
ski and snowboard line focuses on "classical design" incorporating technical
features. Rather then rely on the need to be flashy, this blend of tradition and
high tech is what creates the products popularity.
Serac products include the following:
Serac(R) Outerwear/Mountaineering
Serac's outerwear serves cold weather needs of the outdoor enthusiast. The
product design group use leading edge fabrics including "Gore-Tex", careful
placement of ventilation controls and layering systems.
Serac(R) Outerwear/Ski/Snowboard
The focus is on "classical design" incorporating technical features. Rather
then rely on the need to be flashy, this blend of tradition and high tech is
what creates to products popularity.
Serac(R) Sleeping Bags
Serac has developed a state of the art line of synthetic and down bags
which incorporate point of purchase packaging as well as several design
features. This line should enable Serac to generate counter seasonal revenues
while taking advantage of its core "cold weather" expertise.
Serac(R) Back Packs
Serac offers a limited line of backpacks. This line creates both brand
awareness and extension by appealing to the youth/student markets as well as the
user markets of ski, outdoor and trekking apparel.
Internet Marketing
The Company's strategy is to create silverzipper.com as an e-commerce
lifestyle brand for the Generation "i" consumer. Ultimately the Company intends
to transcend sports apparel to include other product areas relevant to the
target market. To achieve our goal we intend to build brand equity for our
online product brands and for the silverzipper.com brand.
The Company plans to combine online vehicles, traditional media, event
sponsorships, promotions, and public relations to increase brand awareness for
both the silverzipper.com brand and our product brands.
silverzipper.com's anticipated click and mortar business model will be a
key asset in developing a cost effective marketing campaign that we anticipate
will drive Generation "i" people to our website.
Using promotional activities, word-of-mouth networks, magazines, giveaways
and local activities, silverzipper.com will seek to establish our brands as
edgy, authentic, and "on the scene."
Grassroots Events and Promotional Activity
The Company is planning a grass roots marketing campaign directed at target
consumer events to maximize exposure with a minimal expense. Happenings such as
ESPN's Winter X games, US Surfing Championships, and ASA Pro In-line Skating
Tour, provide potential avenues for the Company to gain exposure. We plan to
sponsor celebrities and events and we anticipate that distributing promotional
items for the spectators will help create the desired awareness for
silverzipper.com.
To keep repeat traffic coming to our site and to encourage new visitors, we
are focusing on our contests and giveaways. Currently, the Company's preview
website offers a weekly prize drawing for items like Serac ski jackets.
SZIPhead Affiliate Program
We intend to create a "SZIPhead Affiliate Program." SZIPheads will receive
a commission on every purchase that they drive to the site. Using e-mail links,
banners on their websites, business cards, and "silverzipper coins" imprinted
with the SZIPhead's unique affiliate code, these fans of silverzipper.com can
become selling agents for the Company.
Outstanding Collateral Materials
silverzipper.com is developing outstanding collateral materials to give
away as part of the website launch and ongoing marketing. As an Internet
company, we plan to target a "net-savvy" audience.
Co-Branded Wearable Advertising
The Company's ability to easily and cost-effectively source all varieties
of sporting apparel allows us to create silverzipper.com branded apparel and
accessories. Including hats, backpacks, t-shirts, jackets, and more, these
"wearable billboards" are giveaways for the Company's numerous promotional
activities and events.
Public Relations
Management believes a complete marketing campaign requires a comprehensive
public relations objective. With the acquisition of GreekCentral.com,
silverzipper.com gains a team experienced in leveraging both consumer and trade
press.
Sourcing
The Company presently obtains products from high quality, lower cost Asian
suppliers. All goods are produced to order, at a fixed cost, on a contract
basis. The Company assumes no variable manufacturing cost exposure. The
following description is expected to also apply to sourcing for products of
companies that may be acquired by the Company.
Currently the Company uses a small number of factories located in China,
Hong Kong, Macao, Taiwan and Korea. Communication is maintained with the
factories by e-mail, facsimile and telephone. Each factory is visited by
management twice a year, and factory representatives periodically visit the
Company's offices. In addition, the Company has agents in each country who
monitor production, quality control and timely delivery. These agents work on a
fixed, percentage basis.
Finished goods are shipped by vessel, in full containers, to a public
warehouse in California. All shipments from the factories are made in
"prepacks", a carton containing an assortment of sizes and colors, by style,
according to customer orders. Because of this, as goods are received at the
warehouse, they are efficiently re-routed to customers.
Transactions with Asian suppliers are denominated in United States dollars.
Purchase orders with certain suppliers may contain pricing adjustment clauses
that identify a certain range of currency translation rates. Currency rate
fluctuations outside the expected range are identified and the price paid to the
supplier in United States dollars is increased or decreased accordingly. Any
weakening of the United States dollar in relation to relevant foreign currencies
may result in increased costs to the Company. In addition, a significant
weakening of the United States dollar could result in a refusal of Asian
suppliers, whose transactions are denominated in United States dollars, to honor
their supply arrangements. Although no such refusals have occurred in the past,
no assurance can be given that such refusals will not occur in the future. The
Company's arrangements with its manufacturers and suppliers are subject to the
risks of doing business abroad, including risks associated with economic or
political instability, including war and revolution, and those related to import
tariffs, duties and quotas.
The Company has no long-term agreements with its suppliers for the purchase
of products. Each purchase order is negotiated separately. Purchase orders are
placed on an annual basis and are intended to cover the substantial portion of
the Company's requirements for the forthcoming selling season. Supplemental
orders are placed during the selling season to cover additional needs. The
Company is not committed to purchase and the suppliers are not committed to sell
products beyond those that are the subject of each individual purchase order.
The Company has continuing relationships with its suppliers that it
believes are satisfactory. The Company believes that the number and geographical
diversity of its suppliers will enable it to continue to obtain sufficient
quantity of products in conformity with its requirements. However, if a
significant number of suppliers become unable or unwilling to continue to
produce apparel or to meet delivery schedules, the Company's operations could be
materially disrupted, especially over the short term.
Seasonality
The ski wear and snowboard wear business is highly seasonal. Orders are
placed by customers between January and March. The Company then places its
orders with suppliers in April. Shipment by its suppliers of their principal
orders begins in August and continues until December or later. Payment to the
Company commences in October and continues into February or March of the
following year. Because seasonal sales result in irregular cash flows, the
Company is required to maintain greater short-term financing arrangements than
would be necessary if sales were spread more evenly throughout the year.
Sales by Representatives and the Company's Dependence on Major Customers
The Company now uses manufacturers' representative organizations in United
States for its distribution of Robern products. These representatives have
exclusive territories and are prohibited from carrying competing lines. Some
representatives carry complimentary lines, such as ski and snowboard
accessories, gloves, goggles, etc. Compensation is on a commission basis,
ranging from 3% to 7%. The Company's largest accounts are handled directly by
its management.
During its fiscal year ended December 31, 1999, the Company (not including
Serac) had approximately 400 active accounts, teo of which represented
approximately 40% each of total sales volume for such year.
Competition
The Company's product lines are subject to intense competition. The Company
believes its supplier system, including pricing, and its designs, brand name
recognition, designs and high quality should permit it to compete effectively.
Many of the Company's competitors have manufacturing capacity, experience
and financial resources that are greater than those of the Company. Such
competitors have the funding to develop consumer advertising campaigns to
stimulate demand for their brand name products. The Company must compete with
numerous manufacturers of "moderate" priced snowboard and "budget" priced ski
wear, although many have lower sales volumes than the Company. The Company also
competes with manufacturers of "moderate" and "high end" ski wear. The dominant
companies in the industry include Columbia, North Face, Burton, Quicksilver,
Patagonia Hilly - Hansen and Marmot.
Trademarks
The Company has four trademarks registered with the United States Patent
and Trademark Office, namely Drift(R), Ski Gear(R), Serac(R) and
GreekCentral.com(R). There can be no assurance that any of the Company's
trademarks will be adequately protected against infringement or that the Company
will not be found in some manner to be infringing on another party's mark, any
of which could adversely affect the Company's business.
Employees
The total number of persons (including executive officers) employed by the
Company as of December 31, 1999 was seven. An additional 13 employees were added
with the acquisition of Serac and GreekCentral. None of the employees are
covered by a collective bargaining agreement. Management believes that its
relationship with its employees is good.
Credit Facilities
The Company has an ongoing financing agreement with a lender providing for
a line of credit (the "Line of Credit"). This is the Company's sole source of
working capital debt at this time. Borrowings under the Line of Credit may be by
cash advances, letters of credit and payment due on presentation of documents.
Interest is payable on the outstanding balance at a rate of 3% in excess of the
prime commercial lending rate in effect from time to time. At December 31, 1999,
the lender was owed approximately $1,100,000.
The borrowings are secured by liens on substantially all of the assets of
the Company. Under the agreement, the Company is prohibited from selling or
pledging any of its assets without the lender's consent.
Under the factoring provisions, the lender guarantees the face amount of
certain receivables accepted by it. The Company pays the lender a base factoring
fee of 1.5% on all receivables. The lender assumes the credit risk for the
guaranteed receivables and the Company retains the collection risks associated
with customer disputes, claims, returns and any causes other than the customer's
financial inability to pay. Since lending is asset based, the amount of credit
is limited by the value attributed to orders/inventory and to the collateral
available to supplement the difference between the valuation of inventory and
its cost (usually 60%).
The lender also may terminate the Line of Credit on 30 days' notice given
at any time and immediately without notice in the event of a default by the
Company of any of its material obligations. In the event of such default, the
lender would be entitled to foreclose on its liens covering the Company's
assets, which would materially adversely affect the Company's operations and its
ability to continue in business.
The agreement restricts the Company, without the lender's consent, from
paying dividends and/or distributions to the stockholders.
In order to extend the ability of the Company to finance sales, the
principal stockholders have arranged for the deposit of certain financial assets
as collateral with the lender and have given certain personal guarantees. (See
"Certain Transactions.") The Company will not be able to substantially increase
sales unless it can substantially increase the funds available from its lender,
obtain an enlarged credit facilities or restructure operations to provide a more
constant and less seasonal cash flow.
Item 1. This Form 10-KSB contains forward-looking statements which involve
risks and uncertainties. When used herein, the words "anticipate," "believe,"
"estimate," and "expect" and similar expressions as they relate to the Company
or its management are intended to identify such forward-looking statements
within the meaning of Private Securities Litigation Reform Act of 1995. These
statements are subject to numerous risks and uncertainties that could cause
actual results, performance and achievement to differ materially from those
described or implied in the forward-looking statements, and reported results
should not be considered an indication of future performance. Those potential
risks and uncertainties include without limitation; the need for us to implement
and execute our internet strategy, the development of our products and markets,
the development of alternative products and technologies by third parties, the
uncertainty of the future economic environment, and the uncertainty of market
acceptance and demand for the Company's products in the future.
The Company's actual results, performance or achievements could differ
materially from the results expressed in or implied by these forward-looking
statements.
Item 2. Description of Property : The Company's principal offices and
showroom are located in an approximately 3,000 square foot leased premises in
Greenwich, CT at a cost of $75,000 per year expiring on January 31, 2003. Serac,
a wholly owned subsidiary of the Company, leases 900 square feet of office space
in Greenwich, CT at an annual cost to the Company of $30,000 and this lease
expires on January 31, 2003.
Item 3. Legal Proceedings
The Company is not a party to any pending litigation, nor, to its
knowledge, is any litigation threatened.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters
The Company's Common Stock has been listed on the Over the Counter Bulletin
Board since April 21, 1999. Until September 7, 1999, it was quoted under the
symbol SBCL, and since then, has been quoted under the symbol SZIP.
High Low
Bid
April 21, 1999 to
June 30, 1999 $ * $ *
--- ----
July 1, 1999 to
September 30, 1999 $ * $ *
--- ----
October 1, 1999 to
December 31, 1999 $5.25 $2.25
*Quotes are unavailable for these periods.
The closing price of the Company's Common Stock on the Over the Counter
Bulletin Board on April 6, 2000 was $3.00 per share. The Company had
approximately 762 stockholders of record as of such date.
The Company has not paid cash dividends on any shares of its Common Stock
and the Company's Board of Directors intends to continue this policy for the
foreseeable future. In addition, the Company's agreement with its lender
prohibits it from paying any dividends to stockholders.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Background
On July 27, 1999, Saber Capital, Inc. (a Nevada corporation) (the
"Company"), pursuant to a Stock Exchange Agreement, issued 2,095,000 of its
authorized and unissued shares of common stock in exchange for 100% of the
issued and outstanding common stock of silverzipper.com, Inc., a Delaware
corporation ("silverzipper Delaware"). On August 30, 1999, the Board of
Directors of the Company amended its Articles of Incorporation to change the
name of the Company to silverzipper.com, Inc. (a Nevada corporation).
silverzipper Delaware was organized in 1998 by the principal shareholders of
Robern Skiwear, Inc. ("Robern") for the purpose of acquiring branded sport
apparel and accessory companies and to market their products online via the
Internet. Robern designs and markets snowboard clothing, skiwear ("Drift" and
"Ski Gear"), and active wear apparel. Effective July 1, 1999, Robern became a
wholly-owned subsidiary of silverzipper Delaware.
For purposes of these financial statements, the Company and its wholly
owned subsidiaries, silverzipper Delaware and Robern, are combined for all
periods.
Fiscal Year 1999 as Compared to Fiscal Year 1998
Net sales for the year ended December 31, 1999 were $5,564,000 as compared
with net sales of $6,689,000 for the year ended December 31, 1998, an decrease
of $1,125,000, or 17%. The decrease in net sales was primarily due to the
unseasonably warm weather conditions throughout the country. Given the
demographics of the end-user of the Company's products, management has
determined that a shift from its traditional selling focus to an internet
retailing model will significantly enhance its growth opportunities. Further,
management believes that by diversifying through the acquisition of other
companies in the sports apparel and accessories business will serve to
"weather-proof" the Company.
Cost of sales in 1999 was $379,000, or 79% of sales as compared with cost
of sales in 1998 of $4,979,000 (74% of sales). This was due primarily to the
stronger demand of its lower margin "Ski Gear" product line versus its higher
margin "Drift" line.
Operating expenses during the 1999 period were $3,022,000 (54% of sales) as
compared with operating expenses of $2,388,000 during 1998 (36% of sales), an
increase of $635,000. During 1999, the Company incurred organization,
development and overhead expenses consisting primarily of payroll and legal fees
incurred to assemble an experienced senior management team, identify candidate
companies which fit the criteria for its consolidation strategy, and exploring
strategic alliances for its internet strategy and website development. During
the year ended December 31, 1999, the Company incurred costs of $236,000 in
development costs for its website. for an anticipated launch during the second
quarter of 2000.
Interest expense for year ended December 31, 1999 was $490,000 as compared
with interest expense of $717,000 for 1998, a decrease of $227,000. The decrease
was due primarily to the Company's ability to effect a private placement of its
common stock which allowed it to place less reliance on its commercial lender.
In addition, during 1998, the Company raised through a private placement
$1,000,000 of 10% unsecured promissory notes to finance its developmental
activities. As of August 31, 1999, pursuant to an exchange offer, holders of an
aggregate $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 at an exercise price of $2.50 per share. Further,
stockholders of the Company's Robern Skiwear, Inc. subsidiary exchanged for
$1,814,018 of 8% loans outstanding at June 30, 1999 into 400,000 shares of the
common stock of the Company. These factors should positively impact interest
expense in future periods.
The net loss for year ended December 31, 1999 was $3,171,000 ($1.03 per
share), compared with a loss of $1,395,000 ($.49 per share) for the year ended
December 31, 1998, due to the factors described above.
Fiscal Year 1998 as Compared to Fiscal Year 1997
Net sales for the year ended December 31, 1998 were $6,689,000 as compared
with net sales of $8,526,000 for the year ended December 31, 1997, a decrease of
$1,837,000, or 22%. The decrease in net sales was primarily due to the Company's
shift in distribution from an emphasis on sport chain stores to specialty board
shops for the "Drift" snowboard line as well as unseasonably warm weather
conditions throughout the country.
Cost of sales in 1998 was $4,979,000, or 74% of sales, compared with cost
of sales in 1997 of $5,930,000 (70% of sales). The increase of cost of sales as
a percentage of sales is due to the proportionate increase in sales of the lower
margin "Ski Gear" product line as compared to the higher margin "Drift" line.
Operating expenses during 1998 were $2,388,000 (36% of sales) as compared
with operating expenses of $1,921,000 during 1997 (23% of sales), an increase of
$467,000. This increase is due primarily to American Sports Group, Inc.'s
organization, development and overhead expenses totaling $797,000. These
expenses consisted primarily of payroll and legal fees incurred to assemble an
experienced senior management team, identify candidate companies which fit the
criteria for its consolidation strategy, and exploring strategic alliances for
its internet strategy. These expenses were partially offset by decreases in
expenses realized as a result of the current year's revenue decrease along with
the reallocation of certain overhead costs to American Sports Group.
Net interest expense for the year ended December 31, 1998 was $717,000 as
compared with net interest expense of $659,000 for the year ended December 31,
1997, an increase of $58,000. During 1998, the Company raised through a private
placement $1,000,000 of 10% unsecured promissory notes to finance the
developmental activities of ASG. Interest expense on this borrowing in 1998
aggregated $73,000.
Net loss was for the year ended December 31, 1998 was $1,395,000 ($.49 per
share), compared with a profit of $16,000 for the year ended December 31, 1997
($.01 per share) due to the factors described above.
Liquidity and Capital Resources
The Company has historically suffered from a shortage of working capital.
In addition to conducting its operations with funds provided by commercial
lenders, the Company was required to pay notes related to its acquisition and
relied on loans made by the stockholders and collateral deposited by the
stockholders.
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.
Item 7. Financial Statements
The Financial Statements and Notes thereto are set forth beginning at page
F-1 [?] of this Report.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosures
The Company did not engage Smith & Company as its independent accountants
for its audit for the year ended December 31, 1999. During the past three years,
Smith & Company did not issue a report on the Company's financial statements
that either contained an adverse opinion or a disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope or accounting principles.
During the period of its engagement there were no disagreements between the
Company and Smith & Company on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope and procedure, which
disagreement, if not resolved to the satisfaction of Smith & Company, would have
caused them to make reference to the subject matter of the disagreement in
connection with its opinion.
PART III
Item 9. Directors and Executive Officers
Directors, Executive Officers and Key Employees
The following table sets forth certain information concerning each of
the current executive officers, directors and key employees of the Company. The
Company's directors and officers are elected to serve in such capacities until
the earlier to occur of the election and qualification of their respective
successors or until their respective deaths, resignations or removals. The
Company has not paid any compensation to any person for serving as a director.
<TABLE>
<S> <C> <C>
Name Age(1) Positions
- - --------------------------------------------------------------------------------------------
Paul E. Palmeri 53 Chairman, CEO and Acting Chief
Financial Officer
Richard Bernstein 45 Vice President, Secretary and Director
</TABLE>
In addition to the above, the Company's key employees include William
McCabe, who is responsible for the Company's "brick and mortar" sales of
products, and Adam P. Runsdorf, who is responsible for the Company's internet
sales operations.
Paul E. Palmeri
Mr. Palmeri has been a chairman of the Company since August, 1999 and has
over 25 years experience in the design, production, and sales of apparel. Prior
to joining the Company, Mr. Palmeri was a principle of Robern Skiwear, a company
that he acquired in 1988 and in 1991, completed an initial public offering. From
1985 to 1988, Mr. Palmeri traded futures and options on futures for his own
account on the floor of the New York Mercantile Exchange. Mr. Palmeri is also a
Certified Public Accountant and has a Bachelor of Science degree in Business
Administration from the University of Dayton.
Richard Bernstein
Mr. Bernstein has been an officer and director of the Company since August,
1999. Mr. Bernstein was the Vice President of Sales of Robern Skiwear, Inc.
since May 1989, and was responsible for sales, customer relations, distribution
and management information services. From 1983 to 1989, Mr. Bernstein was a
sales manager for Robern International, a predecessor of Robern Skiwear, Inc.,
and was responsible for sales, distribution and United States Customs
compliance. Mr. Bernstein received a Bachelor of Science degree in Molecular
Biology from the University of Colorado.
William McCabe
Mr. McCabe has been an employee of the Company since March, 2000. Prior to
joining the Company, he was the President of Serac Sports, Ltd. Mr. McCabe has
more than 25 years of experience in the areas of design, product sourcing and
manufacturing and has been with the Company since March 2000. Mr. McCabe was a
principal with Arthur Kahn Textiles, Difini Golf, Tsunami Sportswear and Sun Ice
Limited. He also founded the technical outerwear division of Sport Haley Golf.
Adam P. Runsdorf
Mr. Runsdorf has been with the Company since March 2000. Adam Runsdorf is
responsible for guiding silverzipper.com's Internet strategy and website
development. This includes spearheading the Company's acquisitions of Internet
brands, content sites and vortals. Mr. Runsdorf is a member of the Company's
Board of Directors. Mr. Runsdorf was the founder of GreekCentral.com and has
been actively involved in the college market and the startup, management and
growth of several businesses in the past ten years. Prior to the web's
emergence, Mr. Runsdorf was the founder, owner and president of Greek Central,
Inc., a national retail and mail-order company specializing in the sale of
collegiate fraternity and sorority regalia until its sale in 1992. Mr. Runsdorf
is currently involved as a principal in several Internet business ventures
including Box of Brands, Inc. and Biogen Natural Health Maintenance Company. Mr.
Runsdorf attended Rutgers College and received a Bachelor of Arts degree in
Economics.
Item 10. Executive Compensation
The following table sets forth certain information with respect to the
annual compensation of the Company's officers for three years ended December 31,
1999:
Summary Compensation Table
<TABLE>
<S> <C> <C> <C> <C> <C>
Name of Individual Stock Long-Term
and Principal Position Year Salary Bonus Compensation Compensation
- - ---------------------------- ---------- ------------- ---------------- ------------------- ------------------
Paul E. Palmeri 1999 94,231 - - -
Chairman and CEO 1998 165,000 - - -
1997 227,000 - - -
Richard Bernstein 1999 41,346 - - -
Vice President and 1998 165,000 - - -
Secretary 1997 227,000 - - -
Frank Lipiro 1999 134,423 - - -
President 1998 160,000 - - -
1997 - - - -
</TABLE>
**See "Principal Stockholders" for information on an option granted to Mr.
Palmeri.
Limited Liability of Directors and Executive Officers
The Certificate of Incorporation of the Company provides that the Company
shall indemnify to the fullest extent permitted by Nevada law any person whom it
may indemnify thereunder, which includes directors, officers, employees and
agents of the Company. Such indemnification (other than as ordered by a court)
shall be made by the Company only upon a determination that indemnification is
proper in the circumstances because the individual met the applicable standard
of conduct. Advances for such indemnification may be made pending such
determination. In addition, the Certificate of Incorporation provides for the
elimination, to the extent permitted by Nevada law, of personal liability of
directors to the Company and its stockholders for monetary damages for breach of
fiduciary duty as directors.
Insofar as indemnification for liabilities may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer of
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company, will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy, as expressed in the Act, and
will be governed by the final adjudication of such issue.
Incentive Stock Option Plan
The Board of Directors adopted the 1999 Incentive Stock Option Plan under
Section 422 of the Internal Revenue Code, which was then approved by the
stockholders. A total of 500,000 shares were authorized to be issued under the
1999 Plan. The 1999 Plan expires in 2009 and no additional options may be issued
after such date.
The following summary provides a description of the significant provisions
of the 1999 Plan. Such summary is qualified in its entirety by reference to the
full text of the 1999 Plan.
Eligibility to participate in the 1999 Plan is limited to employees of the
Company and its subsidiaries. The term of an option will not exceed 10 years.
Options will not be transferable except upon death and, in such event,
transferability will be effected by will or by the laws of descent and
distribution.
Options which are granted by the Board of Directors under the 1999 Plan are
subject to the following limitations: (i) options may not be granted at less
than 100% of fair market value at the time of grant, (ii) options granted to
employees who own more than 10% of the Company's outstanding Common Stock will
be granted at not less than 110% of the fair market value for a term of five
years, and (iii) the aggregate market value of the Common Stock for which
options are exercisable during any calendar year by an individual is limited to
$100,000.
No disposition of Common Stock received upon exercise of options shall be
made within two (2) years from the date of grant of the option nor within one
(1) year after the exercise.
The 1999 Plan provides that the payment of the exercise price of options
shall be in cash or in shares of the Company's Common Stock of equivalent value.
An option granted under the 1999 Plan may not be exercised unless, at the
time of exercise, the optionee is then in the Company's employ (with certain
exceptions) and has completed at least twelve (12) months of continuous
employment with the Company from the date of grant of the option.
In the event of any future recapitalization, reorganization, split-up or
consolidation of shares, the number of shares and exercise price shall be
proportionately adjusted.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following sets forth, as of April 10, 2000, the ownership with respect
to each person known to own beneficially more than 5% of the Common Stock
outstanding as of the date of this Memorandum, and the officers and directors of
the Company, individually and as a group.
<PAGE>
<TABLE>
<S> <C> <C>
Name and Address of Number of Shares Percent of Outstanding
Beneficial Owner Beneficially Owned Common Stock
Paul E. Palmeri (1)
145 Turtle Back Road
New Canaan, CT 06840 850,000 15.4%
Richard Bernstein
166 Whitney Lane
Richborough, PA 18954 490,000 8.9%
Stanton Bernstein
10405 Canoe Brook Circle
Boca Raton, FL 33498 400,000 7.3%
All Officers and Directors
as a group (2 persons) 1,340,000 24.3%
- - ------------------------------
</TABLE>
(1) Does not reflect on option granted to Paul E. Palmeri to purchase
350,000 shares of Common Stock at $.10 per share which shall become exercisable
upon the occurrence of any one or more of the following: if the market price of
the Common Stock for thirty consecutive trading days exceeds two times the
offering price; the sale of all or substantially all of the assets of the
Company or a change in control of the Company. Also does not reflect an option
granted to Paul E. Palmeri to purchase 300,000 shares of Common Stock at $5.00
per share exercisable 100,000 shares in 2001, 100,000 shares in 2002 and 100,000
shares in 2003, or upon the merger of the Company in which it is not the
survivor or the sale by the Company of substantially all of its assets.
Item 12. Certain Relationships and Related Transactions
Paul E. Palmeri and Richard Bernstein (the "Principal Stockholders") have
personally guaranteed the indebtedness to the Company's lender, and have
deposited varying amounts of collateral with such lender, including collateral
belonging to Stanton Bernstein, the father of Richard Bernstein (the aggregate
amount of which is now approximately $1,350,000). Neither Principal Stockholder
has been compensated as such for such guarantees or deposits.
Following the formation of the Company, the following shares of Common
Stock were issued for $.001 per share to the following persons: in exchange for
their interests in Robern and /or SZIP-Delaware: Paul E. Palmeri, 225,000 shares
and Richard Bernstein, 225,000 shares. See "Principal Stockholders."
The Principal Stockholders had loaned funds to the Company from time to
time on an unsecured basis, with 8% per annum demand notes, to meet certain of
the Company's cash flow requirements, and such loans aggregated approximately
$1,814,000 at July 1, 1999. The Principal Stockholders then assigned such loans
to Stanton Bernstein, in satisfaction of the loans made by him to the Principal
Stockholders. Stanton Bernstein then exchanged such loans for 400,000 shares of
Common Stock. See "Principal Stockholders."
Item 13. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed as part of this Annual Report are
listed below.
<TABLE>
<S> <C>
Exhibit No. Description
1 Arrangement Agreement by and among silverzipper, Serac
Acquisition, Ltd., and Serac Sports, Ltd. dated December 30, 1999
2 Asset Purchase Agreement dated March 2, 2000
4.1 Form of Crisafulli Warrant
10.1 McCabe Employment Agreement dated March 15, 2000
10.2 Crisafulli Consulting Agreement dated March 15, 2000
10.3 Employment Agreement of Brett Jaffy dated March 2, 2000
10.4 Employment Agreement of Adam P. Runsdorf dated March 2, 2000
10.5 Employment Agreement of Paul E. Palmeri dated March 1,
10.6 Non-Qualified Stock Option Agreement of Paul E. Palmeri
dated August 1, 1999
</TABLE>
(b) Reports on Form 8-K
1. On August 6, 1999, the Company filed Form 8-K reporting the
acquisition of silverzipper.com, Inc., a Delaware
corporation.
2. On August 9, 1999, the Company filed Form 8-K/A amending
certain typographical errors contained on Form 8-K filed
August 6, 1999.
3. On October 6, 1999, the Company filed Form 8-K/A (Amendment
No. 2) furnishing the financial information required on
Item 7 to Form 8-K filed August 6, 1999.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, 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 E. Palmeri
-------------------
Paul E. Palmeri
Chief Executive Officer
Chief Financial Officer
Date: April 13, 2000
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: April 13, 2000 By: /s/ Paul E. Palmeri
-------------------
Paul E. Palmeri
Chairman of the Board of Directors
Date: April 13, 2000 By: /s/ Richard Bernstein
---------------------
Richard Bernstein
Director
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Index
<TABLE>
<S> <C>
Page
Independent Auditor's Report F-1
Independent Auditor's Report F-2
Consolidated Balance Sheet as of December 31, 1999 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Deficit for the
Years Ended December 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
<PAGE>
F-2
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
silverzipper.com, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of
silverzipper.com, Inc. and Subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides 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
silverzipper.com, Inc. and Subsidiaries as of December 31, 1999, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company is experiencing
difficulty in generating sufficient cash flow to meet its obligations and
sustain its operations. At December 31, 1999, the Company had a working capital
deficit of approximately $1,686,000, a stockholders' deficit of approximately
$1,634,000 and has incurred a net loss of approximately $3,822,000 and
$1,395,000 for the years ended December 31, 1999 and 1998, respectively. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans as to these matters are also described in Note
1. These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ MAHONEY COHEN & COMPANY, CPA, P.C.
New York, New York
March 17, 2000 (except for Note 12,
the paragraph relating to the
acquisition of Serac, which the
date was March 21, 2000)
F-3
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Consolidated Balance Sheet
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 136,107
Accounts receivable, net 19,319
Inventory 722,261
Prepaid expenses and other current assets 9,500
----------------
Total current assets 887,187
Furniture and fixtures 73,533
Less: Accumulated depreciation 42,235
Property and equipment, net 31,298
Other assets 21,124
----------------
$ 939,609
================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Due to factor $ 1,485,208
Accounts payable 615,004
Accrued expenses 233,606
Due to stockholders 152,047
Notes payable 87,500
----------------
Total current liabilities 2,573,365
Commitments and contingencies
Stockholders' deficit: Class A common stock, $.001 per value:
Authorized - 100,000,000 shares
Issued and outstanding - 4,040,316 shares 4,040
Additional paid-in capital 5,981,674
Accumulated deficit (7,619,470)
----------------
Total stockholders' deficit (1,633,756)
----------------
$ 939,609
================
See acompanying notes.
</TABLE>
<PAGE>
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Consolidated Statements of Operations
For the Years Ended December 31, 1999 and 1998
<TABLE>
<S> <C> <C>
1999 1998
--------------- --------------
Net sales $ 5,563,557 $ 6,688,920
Cost of goods sold 4,379,244 4,978,951
--------------- --------------
Gross profit 1,184,313 1,709,969
Selling, general and administrative expenses 3,673,476 2,387,601
Loss on impairment of assets 842,436 -
--------------- --------------
4,515,912 2,387,601
--------------- --------------
Operating loss (3,331,599) (677,632)
Interest expense 489,940 717,441
--------------- -------------
Net loss $ (3,821,539) $ (1,395,073)
=============== =============
Loss per share - basic and diluted $ (1.28) $ (.63)
=============== =============
Weighted average number of shares
outstanding 2,994,319 2,199,200
=============== =============
See accompanying notes.
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
silverzipper.com, Inc. and Subsidiary, Robern Skiwear, Inc.
New York, NY
We have audited the accompanying balance sheet of silverzipper.com, Inc.
and subsidiary, Robern Skiwear, Inc. as of December 31, 1998 and the related
statement of operations, deficit and cash flows for the year then eneded. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of silverzipper.com, Inc. and
Subsidiary, Robern Skiwear, Inc. as of December 31, 1998 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/
Kelly, Welde & Co.
September 23, 1999
F-5
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Consolidated Statements of Stockholders' Deficit
<TABLE>
<S> <C> <C> <C>
Additional
Common Par Paid-In
Shares Value Capital
Balance, December 31, 1997, as previously reported 1,000,000 $ 1,000 $ 1,000
Exchange of common stock due to reverse acquisition
in a manner similar to a pooling of interests
1,470,000 1,470 498,998
---------- --------- ---------
Balance, December 31, 1997, as restated 2,470,000 2,470 499,998
Net loss - - -
---------- --------- ---------
Balance, December 31, 1998 2,470,000 2,470 499,998
Issuance of common stock in exchange for stockholder loan 400,000 400 1,813,618
Issuance of common stock and warrants in exchange for notes (Note 8) 380,000 380 949,620
- - -
Issuance of stock options - - 665,000
Issuance of common stock as finders fees 244,236 244 351,756
Issuance of common stock 225,000 225 324,775
Issuance of common stock, net of offering costs of $56,000
(Note 8) 571,880 572
- 1,347,656
Issuance of common shares in exchange for services 20,000 20 28,980
Net loss - - -
---------- --------- ---------
Balance, December 31, 1999 4,040,316 $ 4,040 $5,344,674
========== ========= ==========
See accompanying notes.
</TABLE>
<TABLE>
<S> <C> <C>
Accumulated Total
Deficit
Balance, December 31, 1997, as previously reported $ (2,000) $ -
Exchange of common stock due to reverse acquisition
in a manner similar to a pooling of interests
(2,400,858) (1,900,390)
------------ -----------
Balance, December 31, 1997, as restated (2,402,858) (1,900,390)
Net loss (1,395,073) (1,395,073)
------------ -----------
Balance, December 31, 1998 (3,797,931) (3,295,463)
Issuance of common stock in exchange for stockholder loan - 1,814,018
Issuance of common stockand warrants in exchange for notes (Note 8) - 950,000
Shares cancelled - -
Issuance of stock options - 352,000
Issuance of common stock as finders fees - 352,000
Issuance of common stock - 325,000
Issuance of common stock, net of offering costs of $56,000
1,347,656 - 1,348,228
Issuance of common shares in exchange for services - 29,000
Net loss - -
------------ -----------
- - - (3,184,539) (3,184,539)
Balance, December 31, 1999 $ (6,982,470) $(1,633,756)
============ ============
</TABLE>
See accompanying notes
<PAGE>
F-6
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998
<TABLE>
<S> <C> <C>
1999 1998
---------------- -----------------
Cash flows from operating activities:
Net loss $ (3,821,539) $ (1,395,073)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 85,377 106,921
Common stock issued for finders fees and services 381,000 -
Issuance of stock options 665,000 -
Loss on impairment of assets 842,436 -
Change in assets and liabilities:
Accounts receivable, net 82,089 79,910
Inventory 46,543 256,033
Prepaid expenses and other current assets 68,573 (67,292)
Accounts payable 353,365 203,833
Accrued expenses 108,873 17,420
Due to Stockholders 152,047
---------------- ----------------
Net cash used in operating activities (1,036,236) (798,248)
---------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment (19,759) (24,554)
Purchase of other assets (16,357) -
---------------- ----------------
Cash used in investing activities (36,116) (24,554)
---------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of
offering costs 1,673,228 -
Proceeds from private placement of promissory notes - 1,000,000
Decrease in due to factor (575,350) (140,922)
Repayment of acquisition note payable - (164,993)
Net repayment of notes payable - stockholders (20,000) (173,566)
Advances from investors 75,000 -
Repayment of investor advances (37,500) -
--------------- ----------------
Net cash provided by financing activities 1,115,378 520,519
--------------- ----------------
Net increase (decrease) in cash and cash equivalents (carried forward) $ 43,026 $ (302,283)
--------------- -----------------
</TABLE>
See accompanying notes.
<PAGE>
F-7
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Consolidated Statements of Cash Flows (Concluded)
For the Years Ended December 31, 1999 and 1998
<TABLE>
<S> <C> <C>
1999 1998
-------------------- -----------------
Net increase (decrease) in cash and cash equivalents (brought forward) $ 43,026 $ (302,283)
Cash and cash equivalents beginning of year 93,081 395,364
-------------------- -----------------
Cash and cash equivalents end of year $ 136,107 $ 93,081
==================== =================
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest $ 509,470 $ 701,442
==================== =================
Supplemental Schedule of Non-Cash Investing and Financing Activities
Issuance of common stock and warrants in exchange for note
$ 950,000 $ -
==================== =================
Issuance of common stock in exchange for stockholder loan $ 1,814,018 $ -
==================== =================
</TABLE>
See accompanying notes.
<PAGE>
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Notes to Consolidated Financial Statements
F-8
Note 1 - The Company
silverzipper.com, Inc. (a Nevada Corporation) (the "Company" or
"silverzipper") designs, arranges for the manufacture and markets a range of
skiwear and snowboard apparel for wholesale distribution throughout the United
States and Canada.
The Company was organized in 1998 as American Sports Group, Inc. ("ASG"), a
Delaware corporation, by certain stockholders of Robern Skiwear, Inc.
("Robern"). In 1999, ASG acquired the outstanding shares of common stock of
Robern, in a transaction accounted for in a manner similar to a pooling of
interests. In June 1999, ASG changed its name to silverzipper.com, Inc. ("SZIP")
On July 27, 1999, Saber Capital, Inc. (a Nevada corporation), pursuant to a
Stock Exchange Agreement, issued 1,470,000 of its authorized and unissued shares
of common stock in exchange for 100% of the issued and outstanding common stock
of SZIP. The merger was accounted for as a reverse acquisition in a manner
similar to pooling of interests. In connection with the acquisition of Saber
Capital, Inc., SZIP paid a brokerage fee of $225,000 which was charged to
selling, general and administrative expenses. In addition, the Company issued
244,236 shares of common stock having a value of $352,000 as finders' fees. On
August 30, 1999, the Board of Directors amended its Articles of Incorporation to
change the name of Saber Capital, Inc. to silverzipper.com, Inc.
Basis of Presentation and 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 December 31, 1999, the Company had a
working capital deficit of approximately $1,686,000, a stockholders' deficit of
approximately $1,634,000 and has incurred a net loss of approximately $3,822,000
and $1,395,000 for the years ended December 31, 1999 and 1998, respectively.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern.
<PAGE>
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Notes to Consolidated Financial Statements
F-9
Note 1 - The Company (Continued)
Basis of Presentation and Management's Plans (Continued)
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 pursuing 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 through
private placements. 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
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All intercompany balances and significant
intercompany transactions have been eliminated.
Revenue Recognition
The Company recognizes revenue from apparel sales at the time the
merchandise is shipped.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
<PAGE>
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Notes to Consolidated Financial Statements
F-10
Note 2 - Summary of Significant Accounting Policies (Continued)
Inventory
Inventory consists of finished goods and is stated at the lower of cost
(first-in, first-out method) or market.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major
additions and betterments are capitalized. Maintenance and repairs are charged
to operations as incurred. Depreciation of property and equipment is computed by
the straight-line method over the assets' estimated useful lives ranging from
five to seven years. Upon sale or retirement of property and equipment, the
related cost and accumulated depreciation are removed from the accounts and any
gain or loss is reflected in operations.
Income Taxes
The Company accounts for income taxes using the liability method. Deferred
income taxes are measured by applying enacted statutory rates to net operating
loss carryforwards. Deferred tax assets are reduced, if necessary, by a
valuation allowance for any tax benefits which are not expected to be realized.
Basic and Diluted Loss Per Share
The Company has elected to disclose loss per share as if it had adopted
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), giving effect to the merger discussed in Note 1. Under SFAS 128,
companies that are publicly held or have complex capital structures are required
to present basic and diluted earnings per share ("EPS") on the face of the
income statement. SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS and, if applicable, diluted EPS. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted and the resulting
additional shares are dilutive because their inclusion decreases the amount of
EPS. The effects on loss per share of the Company's outstanding options are
antidilutive and therefore not included in the calculation of the weighted
average number of common shares outstanding.
<PAGE>
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Notes to Consolidated Financial Statements
F-11
Note 2 - Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments
The Company applies the provisions of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("SFAS 107"). SFAS 107 requires all entities to disclose the fair value of
financial instruments, both assets and liabilities recognized and not recognized
on the balance sheet, for which it is practicable to estimate fair value. SFAS
107 defines fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
At December 31, 1999, management believes the fair value of all financial
instruments approximated carrying value.
Stock-Based Compensation
The Company applies the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
which requires entities to recognize as expense over the vesting period the fair
value as of the date of grant of all stock awards. Alternatively, SFAS No. 123
allows entities to apply the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations, and to provide pro forma net income and pro forma net income
per share disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to apply the provisions of APB Opinion No. 25, under which
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price, and provide
the pro forma disclosure provisions of SFAS No. 123 in its annual financial
statements.
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 (see Note
4).
Advertising Expenses
Advertising expenses are charged to operations in the period in which they
are incurred. Advertising expenses for the years ended December 31, 1999 and
1998 were approximately $24,000 and $18,000, respectively.
<PAGE>
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Notes to Consolidated Financial Statements
F-12
Note 3 - Major Customer
The Company's apparel sales are made primarily in the United States. Its
customers are generally comprised of sporting goods and specialty store chains.
During 1999 and 1998, approximately 40% and 28%, respectively, of net sales were
made to two customers.
Note 4 - Loss on Impairment of Assets
In connection with the acquisition of Robern, the Company acquired
$1,498,305 of pre-existing intangible assets consisting of excess of cost over
net assets acquired, trademarks and patterns, and a non-compete agreement. These
assets have been amortized using the straight line method over their estimated
lives of fifteen years. Applying the criteria established by SFAS 121, the
carrying value of these assets 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. The Company concluded, during the fourth quarter of 1999, that
the Robern intangible assets were impaired. Since impairment was indicated as a
result of such reviews, the Company has compared the undiscounted cash flows of
the business to the book value of these assets. Accordingly, a loss of $842,436
was recognized during the year ended December 31, 1999.
Note 5 - Due to Factor
The Company has an ongoing financing agreement with a lender providing for
a line of credit with maximum borrowings thereunder determined at the sole
discretion of the lender. Borrowings under the line of credit may be by cash
advances, letters of credit and payment due on presentation of documents.
Interest is payable on the outstanding cash advance balance at the rate of 3%
over the prime rate. At December 31, 1999, the prime rate was 8.5%.
Under the factoring provisions, the lender guarantees the face amount of
certain receivables purchased by it, in exchange for the payment to the lender
of a factoring fee of 1.5% on all receivables. The lender assumes the credit
risk for the guaranteed receivables other than customer disputes, claims,
returns, etc. at December 31, 1999 approximately $368,000 of receivables were
subject to recourse.
The lender may terminate the line of credit on 30 days notice or
immediately if an event of default occurs.
Borrowings under the aforementioned facility are secured by liens on
substantially all of the Company's assets and personal guarantees of certain of
the stockholders. In addition, collateral has been pledged by certain of the
Company's stockholders. Under the agreement, the Company is prohibited from
selling or pledging any of its assets or pay dividends without the lender's
consent.
<PAGE>
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Notes to Consolidated Financial Statements
F-13
Note 5 - Due to Factor (Continued)
The Company was indebted to the factor at December 31, 1999 as follows:
<TABLE>
<S> <C>
Factor advances $ 3,562,851
Accounts receivable (2,406,245)
----------------
1,156,606
Allowance for chargebacks (328,602)
----------------
Net due to factor $ 1,485,208
================
Note 6 - Notes Payable
Debt offering(a) $ 50,000
Note payable - investor(b) 37,500
----------
$ 87,500
</TABLE>
(a)During 1998, Robern raised $1,000,000 through a private offering of its
10% promissory notes (the "Notes"). The proceeds were used to provide working
capital and to fund the development expenses of the Company. 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. Effective as
of August 31, 1999, pursuant to an exchange offer, holders of an aggregate
$950,000 of notes payable exchanged their notes for consideration of 380,000
restricted shares of the common stock of the Company and warrants to purchase an
additional 380,000 shares at an exercise price of $2.50 per share, expiring five
years from the date of the warrant. The remaining $50,000 of Notes was repaid in
January 2000.
(b) Represents an advance from an investor, payable on demand, bearing
interest at 10% per annum.
Note 7 - Related Party Transactions
From time to time, the principal stockholders of the Company have made
advances to the Company, generally for working capital purposes. The principal
stockholders then assigned such loans to another stockholder in satisfaction of
loans made by him to the principal stockholders. The notes were unsecured and
bore interest at the rate of 8% per annum. As of July 27, 1999, these notes
which totaled $1,814,018 were exchanged for 400,000 shares of common stock of
the Company.
At December 31, 1999, due to stockholders represents non-interest bearing
advances that are due on demand.
<PAGE>
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Notes to Consolidated Financial Statements
F-14
Note 8 - Private Placement of Common Stock
During the fiscal year ended December 31, 1999, pursuant to a
Confidential Offering Memorandum, the Company issued 571,880 restricted shares
of common stock for net proceeds of $1,348,228 after offering expenses
aggregating approximately $56,000.
Note 9 - Income Taxes
At December 31, 1999, the Company had a U.S. federal net operating loss
carryforward of approximately $1,615,000 expiring through 2019. The Company has
established a valuation allowance with respect to these federal and state
carryforwards. The difference between the statutory rate of 34% and the
Company's effective tax rate of 0% is due to an increase in the valuation
allowance. The valuation allowance increased by 662,000 during the year ended
December 31, 1999.
Deferred tax assets:
Net operating loss carryforwards $ 662,000
Valuation allowance (662,000)
Net deferred tax assets $____________
Note 10 - Stock Option Plan
In 1999, the Board of Directors and the stockholders of the Company
approved a Stock Option Plan (the "1999 Plan") which provides for the granting
of options to purchase up to 500,000 shares of common stock, pursuant to which
key employees, directors and consultants are eligible to receive incentive
and/or non-qualified stock options. The exercise period and price of options
granted under the 1999 Plan are determined by the Board of Directors. The
exercise price for incentive stock options must not be less than the fair market
value of the shares of common stock on the date of the grant, except that the
exercise price of options granted to a stockholder owning more than 10% of the
outstanding capital stock may not be less than 110% of the fair value of the
common stock at date of grant. There are no options outstanding pursuant to the
1999 plan. There are no options outstanding pursuant to the 1999 plan.
On August 1, 1999, the Company granted its Chairman and CEO a non-qualified
option to purchase up to 350,000 shares of the Company's common stock at a
purchase price of $.10 per share. The option is excersiable upon certain events
related to the market value of the Company's common stock, business
combinations, and a change in control of the Company, and expires on July 31,
2006. The fair value of such options, amounting to $665,000, has been charged to
selling, general and admininstrative expenses during the year ended December 31,
1999.
<PAGE>
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Notes to Consolidated Financial Statements
F-15
Note 11 - Commitments and Contingencies
Leases
At December 31, 1999, the Company was obligated under non-cancellable
leases for office and showroom space aggregating approximately $393,000. These
leases contain provisions for increases due to increased maintenance costs and
taxes. Rent expense was $114,000 and $98,000 for the years ended December 31,
1999 and 1998, respectively. Future minimum lease payments are as follows:
Year Ending
December 31,
2000 $ 162,000
2001 153,000
2002 78,000
------------
$ 393,000
Minimum rentals due under a sublease will aggregate $90,000 and $93,000 in
2000 and 2001, respectively.
Note 12 - Subsequent Events
Private Placements
Through March 2000, the Company issued 466,571 restricted shares of common
stock pursuant to a Confidential Offering Memorandum. Net proceeds after
offering costs aggregated approximately $1,534,000.
Acquisition of GreekCentral.com, Inc.
On March 2, 2000, the Company, Silverzipper Internet, Inc., a Florida
corporation ("Silverzipper Internet"), a wholly-owned subsidiary, and
GreekCentral.com, Inc., a Florida corporation ("GreekCentral.com"), entered into
an Asset Purchase Agreement and consummated the acquisition of substantially all
of the assets of GreekCentral.com by Silverzipper Internet for 550,000 shares of
restricted common stock of the Company. The purchase price also provides
GreekCentral.com a protective feature which guarantees a $5.00 per share value
of the silverzipper common stock provided as consideration for the
GreekCentral.com assets when the common stock becomes freely tradable either by
a valid registration of the common stock or via Rule 144 of the Securities Act
of 1933, as amended. In the event the market value of the silverzipper common
stock
<PAGE>
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Notes to Consolidated Financial Statements
F-16
Note 12 - Subsequent Events (Continued)
Acquisition of GreekCentral.com, Inc. (Continued)
is not $5.00 on the day the common stock is available for resale, then
silverzipper shall issue additional shares of common stock which are necessary
to make up any shortfall to the then holders of the common stock. silverzipper
is under no obligation to register the common stock issued to GreekCentral.com.
The primary asset acquired by Silverzipper Internet was the greekcentral.com
website, including the URL and related intellectual property.
Acquisition of Serac
On March 21, 2000, the Company acquired, through Serac Acquisition,
Ltd., a wholly-owned subsidiary, all of the outstanding capital stock of Serac
Sports, Ltd. ("Serac"), pursuant to an Arrangement Agreement dated as of
December 30, 1999. Serac is a skiing and outdoor clothing company based in
Calgary, Alberta, Canada, with the majority of its sales in the United States.
Serac has also introduced its products into Europe through a distribution
agreement with Elho Munich. Serac is a licensee of the W.L. Gore Company and
currently supplies apparel using Goretex fabrics to ski resorts and other
industries across North America.
The purchase price for the Serac capital stock was the sum of $3,000,000,
consisting of $400,000 in cash and $2,600,000 in common stock valued, in
accordance with the Arrangement Agreement, at $4.17 per share. By the terms of
the Arrangement Agreement, the common stock is not transferable before March 1,
2001 and additional restrictions may apply to persons who are "affiliates" of
Serac. In addition, silverzipper will have to provide funding for the payment of
certain loans due to former officers and directors of Serac in the aggregate
amount of approximately $300,000. As part of the closing, the Company became
obligated for the payment due by Serac to its commercial factor.
<PAGE>
silverzipper.com, Inc. and Subsidiaries
(formerly Saber Capital, Inc.)
Notes to Consolidated Financial Statements
F-17
Note 12 - Subsequent Events (Continued)
Employment Agreement with Chairman of the Board
On March 1, 2000, the Company entered into an employment agreement with its
Chairman and CEO, expiring on December 31, 2002. The agreement provides for an
annual base salary of $150,000, an incentive payment for completed acquisitions,
an annual performance bonus as determined by the Board of Directors and an
option to purchase 300,000 shares of the Company's common stock at a per share
price of $5.00, with a three year vesting schedule.
Note 13 - Fourth Quarter Adjustments
During the fourth quarter, the Company: (a) concluded that the Robern
intangible assets were impaired and, accordingly, a loss of approximately
$842,000 was recognized; (b) provided a charge to selling, general and
administrative expenses of $665,000 due to the recording of the fair value of
stock options; and (c) provided a charge to selling, general and administrative
expenses for $225,000 and $352,000 for a brokerage fee and finders' fees,
respectively, relative to the acquisition of Saber Capital, Inc.
