SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
-------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from ------- to ----------
Commission file number 33-55254-08
silverzipper.com, inc.
(Exact name of small business issuer as specified in its charter)
Nevada 87-0434286
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1141 South Rogers Circle, Suite 3, Boca Raton, Florida 33487
(Address of principal executive offices)
(561) 443-4379
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No____
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No ____
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: September 30, 2000: 6,507,883
Transitional Small Business Disclosure Format (check one): Yes ____ No X
<PAGE>
silverzipper.com, inc.
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2000 and
1999
Condensed Consolidated Statements of Cash Flow
Nine Months Ended September 30, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or Financial Condition and
Results of Operations
Part II - Other Information
Item 6. Exhibits: 27 Financial Data Schedule
Signatures
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silverzipper.com,inc.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
--------------------------- ---------------------------
A S S E T S
CURRENT ASSETS
<S> <C> <C>
Cash $ 22,510 $ 136,107
Accounts receivable, net 44,111 19,319
Notes receivable 31,600 -
Inventory, net 3,122,670 722,261
Prepaid expenses and other current assets 16,561 9,500
----------------- -----------------
Total Current Assets 3,237,451 887,187
----------------- -----------------
PROPERTY AND EQUIPMENT, NET 89,390 31,298
----------------- -----------------
OTHER ASSETS
Goodwill, net 5,129,244 -
Trademark and organization costs, net 140,687 -
Deposits and other assets 17,489 21,124
----------------- -----------------
5,287,400 21,124
----------------- -----------------
$ 8,614,241 $ 939,609
================= =================
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
CURRENT LIABILITIES
Line of credit $ 38,894 $ -
Accounts payable and accrued expenses:
Merchandise purchases 2,526,258 -
Operating expenses 1,739,100 848,610
Notes payable - related parties 971,211 239,547
Sales returns & allowances - -
Advances under credit facility 1,207,439 1,485,208
----------------- -----------------
Total Current Liabilities 6,482,902 2,573,365
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value: authorized
100,000,000 shares; issued and outstanding
6,507,883 shares at September 30, 2000;
4,040,316 shares at December 31, 1999 6,508 4,040
Additional paid-in-capital 14,347,597 5,981,674
Accumulated deficit (12,222,766) (7,619,470)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY(DEFICIT) 2,131,339 (1,633,756)
----------------- -----------------
$ 8,614,241 $ 939,609
================= =================
See accompanying notes.
</TABLE>
<PAGE>
silverzipper.com, inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Sales, net $ 2,366,696 $ 2,242,325 $ 3,271,109 $ 2,548,253
Cost of goods sold 1,637,955 1,434,138 2,214,766 2,064,380
Provision for inventory - 185,529 -
------------------ ----------------- ----------------- ------------------
1,637,955 1,434,138 2,400,295 2,064,380
------------------ ----------------- ----------------- ------------------
Gross profit 728,741 808,187 870,814 483,873
Operating expenses 935,391 537,316 3,331,425 1,334,832
Loss on impairment of assets - 1,761,319 -
------------------ ----------------- ----------------- ------------------
935,391 537,316 5,092,744 1,334,832
------------------ ----------------- ----------------- ------------------
Operating (loss) income (206,650) 270,871 (4,221,930) (850,959)
------------------ ----------------- ----------------- ------------------
Interest expense, net 237,923 150,841 381,364 377,066
------------------ ----------------- ----------------- ------------------
Loss before income taxes (444,573) 120,030 (4,603,294) (1,228,025)
------------------ ----------------- ------------------ ------------------
Provision for income taxes - - - -
------------------ ----------------- ----------------- ------------------
Net loss $ (444,573) $ 120,030 $ (4,603,294) $ (1,228,025)
================== ================= ================= ==================
Income (Loss) per share:
Basic and diluted ($0.07) $0.04 ($0.81) ($0.42)
Shares used in computation
of basic and diluted
income (loss) per share 6,470,279 3,056,734 5,671,920 2,932,244
See accompanying notes.
</TABLE>
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silverzipper.com, inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
--------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (4,603,294) $ (1,220,642)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 154,620 81,654
Common stock issued for compensation 565,308 -
Provision for uncollectable accounts 195,064 -
Provision for inventory obsolescence 185,529 -
Write-down of goodwill 1,761,319 -
Provision for sales returns and allowances 17,586 -
Accrued interest receivable (6,600) -
Other (19,257) -
Change in operating assets and liabilities:
Accounts receivable, net (59,964) 46,812
Inventory (2,595,473) (1,220,436)
Prepaid expenses and other current assets - (30,001)
Accounts payable and accrued expenses 890,490 470,807
Accounts payable suppliers 2,526,258 -
--------------- ---------------
Net cash (used) by operating activities (988,414) (1,871,806)
--------------- ---------------
Cash flows from investing activities:
Purchase of equipment (25,000) (8,759)
--------------- ---------------
Net cash used by investing activities (25,000) (8,759)
--------------- ---------------
Cash flows from financing activities:
Proceeds from private placement of common stock,
net of offering costs 1,734,512 863,679
Cash paid for acquisition (400,000) -
Proceeds from notes payable 352,500 -
Repayment of notes (226,000) (20,000)
(Decrease) increase in advances under credit facility (564,396) 1,252,012
Other 3,201 -
Advances from investors - 75,000
Merger expenses - (225,000)
--------------- ---------------
Net cash provided by financing activities 899,817 1,945,691
--------------- ---------------
Net increase(decrease) in cash (113,597) 65,126
---------------- ---------------
Cash and cash equivalents at beginning of the period 136,107 93,081
--------------- ---------------
Cash and cash equivalents at end of the period $ 22,510 $ 158,207
=============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 150,894 $ 300,913
Conversion of notes payable into common stock $ - $ 950,000
Conversion of notes payable into common stock,
stockholders $ - $ 1,814,018
See accompanying notes.
</TABLE>
<PAGE>
silverzipper.com, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND MANAGEMENT'S PLANS
Basis of Presentation
The accompanying consolidated financial statements of silverzipper.com,
Inc. ("Silverzipper") as of September 30, 2000 and for the nine months and the
three months ended September 30, 2000 and 1999 are unaudited, have been prepared
on a basis consistent with that of the consolidated financial statements for the
year ended December 31, 1999 and, in the opinion of management, include all
adjustments (consisting only of normal and recurring adjustments) necessary for
a fair presentation of financial position and results of operations. Such
financial statements do not include all of the information and footnote
disclosures normally included in audited financial statements prepared in
accordance with generally accepted accounting principles, and should be read in
conjunction with the Company's annual Form10-KSB. The accompanying unaudited
financial statements have been prepared in accordance with the instructions to
Form 10-QSB. The results of operations for the nine and three month periods
ended September 30, 2000 are not necessarily indicative of the results that may
be expected for any other interim period or the full year ending December 31,
2000.
Management's Plans
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplates
continuation of the Company as a going concern. However, the Company has
sustained substantial operating losses in recent years. In addition, the Company
is experiencing difficulty in generating sufficient cash flow to meet its
obligations and sustain its operations. At September 30, 2000, the Company had a
working capital deficit of approximately $3,252,000 and incurred net losses of
approximately $4,603,000 and $3,822,000 for the nine months ended September 30,
2000 and for the year ended December 31, 1999, respectively. The Company had an
accumulated deficit of approximately $12,229,000 at September 30, 2000.
Management expects to incur additional losses for the foreseeable future
and recognizes the need for an infusion of cash to achieve their business plan.
The Company is actively pursing various options which include seeking additional
debt and equity financing. The Company believes it will be able to raise
sufficient funds to achieve its planned business objectives. There can be no
assurance that the Company will be able to obtain any needed additional
financing on commercially reasonable terms. If the Company is unable to obtain
sufficient funds, it may be necessary for the Company to explore other options
which could have a material adverse effect on the Company's business. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classifications of liabilities that may result.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are carried at the lower of cost (first-in, first-out basis) or
market. Inventories consist primarily of finished goods. Costs of inventory
include the apparel manufacturing costs, freight and other costs.
Goodwill
The Company records goodwill as the excess of purchase price over the fair
value of the identified net assets acquired. Goodwill is amortized over its
estimated useful life, generally 20 years. Goodwill amortization expense for the
nine months ended September 30, 2000 was approximately $132,000.
Intangible Assets
Intangible assets acquired through purchase transactions are being
amortized on a straight-line basis over seven years.
Concentration of Credit Risk
Financial instruments, which subject the Company to concentrations of
credit risk, consist primarily of holdings of cash and cash equivalents and
accounts receivable. Credit is extended to customers based on an evaluation of
their financial condition and collateral is not required. The Company performs
on-going credit evaluations of its customers and maintains an allowance for
doubtful accounts and sales returns.
Comprehensive Income
The Company complies with the provisions of SFAS No. 130, "Reporting
Comprehensive Income," which requires companies to report all changes in equity
during a period, except those resulting from investment by owners and
distributions to owners, for the period in which they are recognized.
Comprehensive income is the total of net income and all other non-owner changes
in equity (or other comprehensive income) such as unrealized gains or losses on
securities classified as available-for-sale, foreign currency translation
adjustments and minimum pension liability adjustments. Comprehensive and other
comprehensive income must be reported on the face of annual financial
statements. The Company's operations did not give rise to any material items
includable in comprehensive income which were not already in net loss for the
nine months ended September 30, 2000. Accordingly, the Company's comprehensive
loss is the same as its net loss for all periods presented.
Equity Based Compensation
The Company accounts for its employee stock option plans in accordance with
the provisions of Accounting Principles Board Opinion ("APB") No. 25 "Accounting
for Stock Issued to Employees" and related interpretations in accounting for
employee stock options rather than the alternative fair value accounting allowed
by Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for
Stock-Based Compensation." APB No. 25 provides that the compensation expense
related to the Company's employee stock options is measured based on the
intrinsic value of the stock option. SFAS No. 123 requires companies that
continue to follow APB No. 25 to provide a pro-forma disclosure of the impact of
applying the fair value method of SFAS No. 123. The Company accounts for stock
issued to non-employees in accordance with the provisions of SFAS No. 123 and
the Emerging Issues Task Force consensus in Issue No. 96-18 "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."
Basic and Diluted Net Loss Per Share
Basic and diluted loss per share was determined by dividing net loss by the
weighted average common shares outstanding during the period. Basic and diluted
weighted common shares outstanding for the three months and nine months at
September 30, 2000 were 6,470,279 and 5,671,920 respectively.
NOTE 3 - BUSINESS PURCHASES
Greekcentral.com Acquisition
On March 2, 2000, the Company's wholly-owned subsidiary, silverzipper
Internet, Inc. ("silverzipper internet") acquired substantially all of the
assets of GreekCentral.com, a privately held Florida corporation, pursuant to an
asset purchase agreement which was subsequently amended. To consummate the
transaction the Company issued 593,052 shares of restricted common stock and
assumed certain liabilities of GreekCentral.com. The agreement also provides
GreekCentral.com shareholders purchase price protection granting them additional
shares in the event the market value of the shares falls below $5. Once the
shares are no longer subject to 1933 Securities Act restrictions, the former
GreekCentral.com shareholders will be entitled to that number of additional
shares, if any, necessary to maintain their aggregate original purchase price.
The total value of the transaction was approximately $3,261,000 including
approximately $2,800,000 of the Company's shares and approximately $461,000 of
assumed liabilities and other assets. The transaction was accounted for using
the purchase method of accounting.
Under the purchase method of accounting, the assets and liabilities were
recorded based upon the estimated fair value at the date of acquisition. The
Company recorded approximately $3,261,000 in goodwill which is being amortized
over 20 years. The results of GreekCentral.com for the period March 2, 2000
through September 30, 2000 are included in the consolidated statements of
operations for the nine months ended September 30, 2000. Two former executive
officers of GreekCentral.com entered into three-year employment agreements with
the Company. One of the executive officers has been elected to the Board of
Directors of the Company and has been appointed President of the Company.
Serac Sports, Ltd. Acquisition
On or about March 21, 2000, the Company acquired, through its wholly-owned
subsidiary, Serac Acquisition, Ltd., all of the outstanding capital stock of
Serac Sports, Ltd. ("Serac"), a publicly-held Canadian-based company. Under the
terms of the agreement the Company issued 622,010 shares of its restricted
common stock and $400,000 cash. Such shares are not transferable before March
21, 2001. This represented .05612 shares of the Company common stock for each
share of Serac common stock. The total value of the transaction was
approximately $3,800,000 including approximately $672,000 of net liabilities,
which consisted primarily of accounts payable, accrued expenses and notes
payable to former Serac officers. The transaction was accounted for using the
purchase method of accounting.
Under the purchase method of accounting, the assets and liabilities were
recorded based upon the estimated fair value at the date of acquisition. The
Company recorded approximately $3,780,000 in goodwill, which is being amortized
over 20 years. The results of Serac for the period March 21, 2000 through
September 30, 2000 are included in the consolidated statements of operations for
the nine months ended September 30, 2000.
NOTE 4 - PRIVATE PLACEMENTS
In the first quarter of 2000 the Company sold, pursuant to a Confidential
Offering Memorandum dated January 3, 2000, 486,571 shares of common stock at
$3.50 per share. The Company realized approximately $1,533,000 after issuance
costs of approximately $201,000.
On May 31, 2000 the Company sold, pursuant to a stock purchase agreement,
("the Agreement") 333,334 shares of restricted common stock in the aggregate
amount of approximately $500,000 to an investor. The investor was also granted
preemptive rights to purchase its pro rata share of any new securities, defined
as shares issued in financing transactions only and excludes shares issued for
existing debt, assets or shares of another company or for shares, warrants, or
options granted to employees, consultants and others providing services to the
Company. The investor has the right to appoint a member to the advisory board
and one member to the board of directors. The advisory board member has the
right to receive notice and attend regular directors' meetings as a non-voting
member. Under the agreement, the investor or its affiliates shall make available
a credit facility up to $4,300,000. The Company is responsible for all fees
related to the credit facility. In addition, the investor will receive a fee of
2.25% per month on the full amount of any letters of credit issued until paid in
full. The investor also has the exclusive right of first refusal to provide
letters of credit for the Company's production orders. Other provisions of the
Agreement required the investor to satisfy a $22,514 payable, provide a
protective provision granting the investor equal rights and preferences for any
financing under $3,000,000, and prohibits assignment of the Agreement without
mutual consent of the parties. The investor also controls certain manufacturers
with which the Company has contracted to provide inventory. The total amount
purchased from the affiliated manufacturers was $673,000 through September 30,
2000.
In May 2000, the Company entered into consulting agreements with a
financial services firm and its affiliate (the "Firm"). The Firm will provide
many services which include seeking out potential investors, developing
strategic partnerships, and identifying opportunities. The terms of the
agreement include warrants for the right to purchase 1,000,000 shares of common
stock at $0.10 per share. Further, the Company has agreed to pay $20,000 per
month and a seat on the board of directors for the term of the contract. The
Company has accepted a loan from the Firm in the amount of $125,000. The note
has a one year term with interest accruing at 12%. As of September 30, 2000, the
principal balance of $125,000 remained outstanding. In September 2000 the
Company accepted a non-interest bearing loan from the Firm in the amount of
$50,000. This loan was repaid in full on November 1, 2000.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company is obligated under certain notes payable to several current
and former officers, directors and employees. The notes aggregate approximately
$970,000 including accrued interest of approximately $20,000. Some of the notes
have matured at September 30, 2000, with the remaining notes maturing on or
before June 30, 2001. New payment terms for these loans are being negotiated.
The notes, some of which are secured, bear interest ranging from 8 to 15 per
cent per annum.
The Company is also obligated to certain shareholders in the aggregate
amount of approximately $278,000 in connection with legal fees and certain
reimbursable costs.
The Company is also obligated under several employment and consulting
agreements with certain current and former employees. The agreements include
terms ranging from 12 to 36 months and provide approximately $600,000 in annual
compensation subject to certain conditions.
During the nine months ended September 30, 2000 consulting agreements
amounting to approximately $380,000 were paid in the Company's stock.
During the nine months ended September 30, 2000 the Company issued
approximately 180,000 shares of restricted common stock to its President for
services performed. The Company recognized approximately $269,000 of
compensation expense related to this transaction.
The Company also granted 50,000 shares of restricted common stock to its
Chief Financial Officer for services performed. The Company recognized
approximately $25,000 of compensation expense related to this transaction.
The Company's President has agreed to make certain collateral available to
the Company under an agreement dated September 25, 2000. Under the agreement,
the collateral will be used to secure additional advances under the Company's
credit facility. At September 30, 2000, outstanding advances pursuant to the
arrangement totaled $50,000. The Company has executed interest bearing notes to
the President for advances up to $290,000.
NOTE 6 - OPTIONS AND WARRANTS
On March 2, 2000 nonqualified options to purchase 530,000 shares of the
Company's common stock at an exercise price of $2.50 were granted to certain
employees of GreekCentral.com pursuant to their employment agreements. These
options were granted at or below estimated fair market value at the date of
acquisition by silverzipper and vest over a 36-month period.
On March 21, 2000 nonqualified options to purchase 360,000 shares of the
Company's common stock at an exercise price of $2.00 per share were granted to
certain shareholders and employees of Serac pursuant to their employment
agreements. These options were granted at or below estimated fair market value
at the date of acquisition by silverzipper and vest over an 18 to 36 month
period.
At September 30, 2000 total non-qualified and qualified options outstanding
were 1,815,000 at a weighted average exercise price of $1.54 with a weighted
average remaining contractual life of 38 months. Options vest over varying time
periods ranging from 12 to 36 months. During the nine months ended September 30,
2000 no options were repriced. At September 30, 2000 no options were
excercisable.
At September 30, 2000 total warrants outstanding were 2,135,000. The
warrants were issued under similar terms as described above.
For the nine months ended September 30, 2000, the Company issued, 1,165,000
options relating to the employment agreements and 1,160,000 warrants.
Had compensation costs for the Company's options been determined consistent
with SFAS 123, the net loss would have been significantly increased for the nine
months ended September 30, 2000.
NOTE 7 - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company has no significant off-balance-sheet concentration of credit
risk such as foreign currency exchange contracts or other hedging arrangements.
Financial instruments that subject the Company to credit risk are accounts
receivable. Two customers represented greater than 10% of net revenues in the
nine months ended September 30, 2000, and four customers represented more than
40% of the Company's total net revenues for the nine months ended September 30,
2000.
The Company does not require collateral from its customers. Its credit
policy is in accordance with normal industry trade and credit terms. Credit
losses relating to the Company's customers have not been significant.
NOTE 8 - CREDIT FACILITIES
The Company was indebted under a line of credit to a commercial lender in
the amount of approximately $286,000 at September 30, 2000. The line was used to
finance operations, and bears interest at prime plus 2%. The line is payable
from the sales proceeds of the Company's receivables from sales generated by its
Serac subsidiary.
May 31, 2000 the Company established a credit facility with a shareholder
affiliate ("facilitator"). Under the arrangement, the facilitator establishes
letters of credit for the Company's contract manufacturers. The Company, which
is not obligated directly under the letters of credit, compensates the
facilitator at the rate of 2.25% per month of the original letter of credit
amount until paid in full plus related fees.
The Company also has an arrangement with an asset-based lender whereby it
sells with limited recourse its receivables for a 1-1/2 % fee. The asset-based
lender also provides advances from time to time for working capital under
various credit facilities at prime plus 3%. The Company has realized $143,166 of
proceeds from the sale, with recourse, of its receivables for the nine months
ended September 30, 2000. Amounts netted against the credit facility
representing sales, with recourse, of the Company's receivables totaled $143,166
at September 30, 2000.
The Company has assigned its proceeds from the sale of its receivables to
the facilitator in payment for outstanding loan balances.
NOTE 9 - IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS No. 121"), long-lived assets are evaluated for possible
impairment through a review of undiscounted expected future cash flows. The
carrying value of a long-lived asset is considered impaired if the sum of the
undiscounted expected future cash flows is less than the carrying amount of that
asset. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived assets.
In connection with the acquisition of GreekCentral.com, Inc. the Company
paid and assumed liabilities aggregating approximately $3,261,000 in excess of
the fair market value of the assets acquired and recorded such excess as
goodwill. Applying the criteria established under SFAS 121, the carrying value
of this goodwill was reviewed to determine if the facts and circumstances, such
as significant declines in sales, earnings and cash flows, or material adverse
changes in the business climate, suggest that such assets may be impaired due to
adverse market conditions. The Company concluded, during the three months ended
September 30, 2000 that some of the GreekCentral goodwill was impaired.
Accordingly, a write down of approximately $1,761,000 recognized for the three
months ended June 30, 2000.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases its Boca Raton office premises on a month to month
basis from an entity affiliated with the Company's President. The
monthly rental is $3,000 per month net of a sublease. The Company also
leases certain other office space with terms up to 36 months. The
Company's current monthly lease expense is approximately $5,000, net of
sublet income. Rental expense for office space was approximately
$134,000 for the nine months ended September 30, 2000.
(b) Legal
The Company is involved in claims and lawsuits that are generally
incidental to its business. The Company is vigorously contesting all
such matters and believes that their ultimate resolution will not have
a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
The Company has been named defendant in a lawsuit with a former
employee. The former employee is claiming damages resulting from
alleged violations of an employment agreement. The Company is
vigorously contesting the matter and believes its ultimate resolution
will not have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
The Company is obligated under indemnification agreements with certain
officers and directors to reimburse them for any costs incurred in
connection with any liability or expense resulting from the performance
of their duties under their employment agreements.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Month Period Ended September 30, 2000 and 1999
Net sales for the three months ended September 30, 2000 were $2,366,696 as
compared with net sales of $2,242,325 for the three months ended September 30,
1999, an increase of $124,371, or 6%. Increased sales were primarily
attributable to large orders from our national retail customers for private
label and "SKI GEAR" brands as well as the Company's ability to expedite those
orders due to the consolidation of our warehousing facility. Not reflected in
the three month period ended September 30, 2000 were sales of 2001/2002 season
"SERAC" garments, as they are due to ship during the fourth quarter. Management
expects sales to be significantly influenced by the inclusion of Serac orders
for the remainder of the year. The Company's sales continue to be highly
seasonal in nature and believes that diversifying through the acquisition of
other companies in the sports apparel and accessories business that are not
winter related, will serve to mitigate this situation.
Cost of sales for the three months ended September 30, 2000 was $1,637,956,
or 69% of sales as compared with cost of sales for the three months ended
September 30, 1999 of $1,434,138 or 64% of sales, an increase of $203,818, or
14%. This was primarily due to a shift in the timing of orders related to the
"SKI GEAR" line. This shift changed the current quarter's sales mix from higher
margin "DRIFT" goods to lower margin "SKI GEAR" items. This is due to the
ability of the Company to take advantage of relationships with national retail
chains to increase and expedite sales orders for our high volume value goods.
Further, Management expects gross margins to improve as current purchase
commitments expire, and synergies are realized with the Company's new overseas
suppliers.
Operating expenses during the three months ended September 30, 2000 were
$935,391 (40% of sales) as compared with operating expenses of $537,316 during
the three months ended September 30, 1999 (24% of sales), an increase of
$398,075, or 74%. This increase was primarily due to additional expenses
incurred in connection with fees paid to professionals and consultants related
to the acquisitions of Serac Sports, Ltd and GreekCentral.com and additional
overheads. Also, included in these expenses are one-time charges related to
closing of offices in an effort to consolidate the Company's operations into a
single location.
Interest expense for the three months ended September 30,2000 was $237,923
compared with interest expense of $150,842 for the three months ended September
30, 1999, an increase of $87,081, or 58%. Primarily, the growth in the current
year's pre-booked orders required a substantial increase in letters of credit
required to finance manufacturing. The increase is further attributable to
interest accruing on acquisition-related debt.
The net loss for the three months ended September 30, 2000 was $444,573
compared with a net income of $120,030 for the three months ended September 30,
1999, an decrease of $564,603, due primarily to the factors described above.
Results of Operations - Nine Month Period Ended September 30, 2000 and 1999
Net sales for the nine months ended September 30, 2000 were $3,271,109 as
compared with net sales of $2,548,253 for the nine months ended September 30,
1999, an increase of $722,856, or 28%. The increase in net sales was primarily
due to the acquisition of Serac. Due to the late 1999/2000 winter selling
season, larger than anticipated in-season reorders were realized during the
first quarter of 2000. Much of the sales increase during this time was due to
sales of Serac inventory remaining from the 1999/2000 season. Not reflected in
the nine month period ended September 30, 2000 were sales of 2001/2002 season
"SERAC" garments, as they are due to ship during the fourth quarter. Increased
sales were further attributable to large orders from our national retail
customers for private label and "SKI GEAR" brands as well as the Company's
ability to expedite our orders due to the consolidation of our warehousing
facility, as noted above. The Company continues to be highly seasonal in nature
and believes that diversifying through the acquisition of other companies in the
sports apparel and accessories business that are not winter related, will serve
to mitigate this situation.
Cost of sales for the nine months ended September 30, 2000 was $2,400,293,
or 73% of sales as compared with cost of sales for the nine months ended
September 30, 1999 of $2,064,380 or 81% of sales. During the first quarter of
1999, the Company liquidated a large stock of obsolete inventory to a customer
at our cost. This was partially offset by improvements in sales mix during the
third quarter 1999, as noted above.
Operating expenses during the nine months ended September 30, 2000 were
$3,331,427(102% of sales) as compared with operating expenses of $1,334,833
during the nine months ended September 30, 1999 (52% of sales), an increase of
$1,996,594. This increase was primarily due to the Company incurring additional
expenses in connection with it's internet operations and additional overhead as
a result of the Company's recent acquisitions.
Interest expense for the nine months ended September 30, 2000 was $381,364
compared with interest expense of $377,066 for the nine months ended September
30, 1999, an increase of $4,298. The increase was due primarily to the increase
in the lending rate charged by the Company's commercial lender, increasing
letter of credit requirements and interest accruing on notes payable. These
interest charges were offset by a decrease in the balance due to the Company's
credit facility.
The Company also wrote-down $1,761,319 of goodwill related to an
acquisition which occurred during the first quarter of 2000. This revaluation of
goodwill is primarily due to unfavorable market conditions specifically related
to internet companies.
The net loss for the nine months ended September 30, 2000 was $4,603,294
($0.81 per share), compared with a loss of $ 1,228,025 ($0.42 per share) for the
nine months ended September 30, 1999, due to the factors described above.
Liquidity and Capital Resources
As a result of continuing losses, the Company has been unable to fund its
cash needs through cash generated by operations. Contributing to this situation
is the seasonal nature of the business, as well as expenses related to the
development of internet operations. The Company's liquidity shortfalls from
operations during the nine months ended September 30, 2000 have been funded
through several transactions with its principal shareholders and with the
Company's credit facility.
As of September 30, 2000 the Company maintained a working capital deficit
of approximately $3,252,365. This includes approximately $971,211 of Notes
Payable with payment terms due within one year of September 30, 2000. Management
is currently negotiating with individual note-holders to further extend the
terms of these instruments. Management expects the working capital deficit to
improve upon the shipping of the current season's remaining orders.
Additionally, management believes that diversifying through acquisitions of
non-winter related sports apparel and accessory businesses would mitigate the
seasonal nature of our business.
Pursuant to a Confidential Offering Memorandum dated January 3, 2000 the
Company issued 486,571 shares of common stock to investors for net proceeds
after offering expenses aggregating approximately $1,533,000.
On May 31, 2000, the company entered into an agreement with an affiliate to
issue 333,334 shares of common stock for proceeds of approximately $500,000.
This investor currently provides manufacturing as well as financial services to
the Company.
During the quarter ended September 30, 2000, the Company entered into a
one-year consulting agreement with a financial services firm (the "Firm"). The
Firm will provide many services which include seeking out potential investors,
developing strategic partnerships, and identifying growth opportunities. The
terms of the agreement include warrants for the right to purchase 1,000,000
shares of common stock at $0.10 per share. Further, the Company has agreed to
pay a fee of $20,000 per month and grant the Firm a seat on the board of
directors for the term of the contract. On May 31, 2000, the Company accepted a
loan from the Firm in the amount of $125,000 with a one-year term and interest
accruing at 12%. As of September 30, 2000, the principal balance of $125,000
remained outstanding on the loan. On August 17, 2000, the Company accepted an
additional loan from the Firm in the amount of $50,000. The principal balance of
the loan was unpaid as of September, 30, 2000.
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 an asset based lender. The
line of credit which is secured by the Company's accounts receivable 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 $1,800,000 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 or other such
transaction in order to achieve its goals of industry consolidation and
executing is marketing strategy. There can be no assurance of obtaining
substantial additional equity financing. In the absence additional equity and/or
debt financing, the Company can maintain, and/or expand sales only by obtaining
improved payment terms from the Company's suppliers and customers. There is no
assurance such effort would be successful and if the same is successful, may
well carry with them additional expenses in the form of higher supplier prices
and larger customer discounts, which would adversely affect profitability.
PART II - OTHER INFORMATION
Item 6. Exhibits
A. Exhibits: 27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
silverzipper.com, Inc.
By:/s/ Adam P. Runsdorf
--------------------
Adam P. Runsdorf
President
By:/s/ Adam R. Singer
--------------------
Adam R. Singer
Chief Financial Officer
Date: November 19, 2000
