1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997
Commission file number 1-12850
THE SLED DOGS COMPANY
(Exact name of small business issuer as specified in its charter)
212 3rd Avenue North, Suite 420
Minneapolis, Minnesota 55401
(Address of principal executive offices)
Incorporated under the laws of I.R.S. Identification Number
the State of Colorado 84-1168832
(612) 359-9020
(Small business issuer's telephone number including area code)
_____________________________________
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No __
_____________________________________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 13,513,193 shares of Common
Stock, $.01 par value per share, outstanding as of November 13, 1997.
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THE SLED DOGS COMPANY
FORM 10-QSB QUARTERLY REPORT FOR THE QUARTER ENDED
SEPTEMBER 30, 1997
TABLE OF CONTENTS
Page
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1997 and March 31, 1997 3
Condensed Consolidated Statements of Operations for the Six Months ended
September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the Six Months ended
September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements - September 30, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 10
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
1997 March 31
ASSETS (Unaudited) 1997
-------------- -----------
Current assets:
Cash and cash equivalents $ 7,875 $ 11,542
Accounts receivable, less allowance for doubtful accounts of $132,388
and $167,000 at September 30, 1997 and March 31, 1997, respectively 69,868 225,168
Other receivables 3,789 -
Inventories 854,936 940,226
Prepaid expenses 71,057 23,385
------------ ------------
Total current assets 1,007,525 1,200,321
Property and equipment, less accumulated depreciation of $285,807 and
$1,023,125 at September 30, 1997 and March 31, 1997, respectively 302,606 341,769
Patents, less accumulated amortization of $183,615 and $159,253 at
September 30, 1997 and March 31, 1997, respectively 133,521 151,575
------------ ------------
Total assets $ 1,443,652 $ 1,693,665
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 536,148 $ 619,727
Short term notes payable 150,000 -
Accounts payable 1,306,060 1,308,700
Accrued expenses and other liabilities 216,411 458,235
------------ ------------
Total current liabilities 2,208,619 2,386,662
Convertible subordinated debt 1,011,250 150,000
Shareholders' equity
Convertible preferred stock, Series A, $1.00 par value:
Authorized shares - 1,500,000
Issued and outstanding shares - 0 - September 30, 1997 and March
31, 1997 - -
Common Stock, $.01 par value
Authorized shares - 50,000,000
Issued and outstanding shares - 13,513,193 at September 30, 1997 and
at March 31, 1997, respectively 135,132 135,132
Additional paid-in capital 13,596,693 13,596,638
Accumulated deficit (15,508,042) (14,574,767)
------------ ------------
Total shareholders' equity (1,776,217) (842,997)
------------ ------------
Total liabilities and shareholders' equity $ 1,443,652 $ 1,693,665
============ ============
See notes to condensed consolidated financial statements
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4
THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
Net sale $ 10,355 $ 85,303 $ 65,563 $ (23,362)
Cost of goods sold 90,079 127,356 63,644 374,143
------------ ----------- ----------- -----------
Gross margin (79,724) (42,053) 1,919 (397,505)
Costs and expenses:
General and administrative 332,624 362,307 751,663 588,286
Sales and marketing 61,439 594,440 69,370 1,318,625
Research and development 10,391 55,133 27,050 131,023
------------ ----------- ----------- -----------
Total cost and expense 404,454 1,011,880 848,083 2,037,934
Interest expense 48,807 16,329 87,146 25,399
Interest income and other (income) expense 0 (17,300) (35) (38,241)
------------ ----------- ----------- -----------
Net loss $ (532,985) $(1,052,962) $ (933,275) $(2,422,597)
============ =========== =========== ===========
Net loss per common share $ (0.04) $ (0.09) $ (0.07) $ (0.21)
============ =========== =========== ===========
Weighted average number of common
equivalent shares outstanding 13,153,193 11,749,999 13,153,193 11,749,999
============ =========== =========== ===========
See notes to condensed consolidated financial statements
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5
THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30
1997 1996
-------- --------
OPERATING ACTIVITIES
Net loss $ (933,275) $ (2,422,597)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 105,170 152,550
Loss on asset disposal - 18,204
Changes in operating assets and liabilities:
Receivables 151,511 375,302
Inventories 16,090 2,568
Prepaid expenses 21,527 (219,078)
Accounts payable (2,640) 325,204
Other accrued expenses (241,825) 239,458
------------- --------------
Net cash used in operating activities (883,442) (1,528,389)
INVESTING ACTIVITIES
Purchases of property and equipment (41,645) (318,758)
Acquisition of patents and trademarks (6,307) (16,038)
Proceeds from the sale of fixed assets - (1,400)
------------- --------------
Net cash used in investing activities (47,952) (336,196)
FINANCING ACTIVITIES
Net proceeds from convertible subordinated debt 861,250 -
Net proceeds from short term notes 150,000 -
Net proceeds from warrants issued 56 1,322,410
Payments on line of credit (83,579) 124,920
------------- --------------
Net cash provided by financing activities 927,727 1,447,330
------------- --------------
Net decrease in cash and cash equivalents (3,667) (417,255)
Cash and cash equivalents at beginning of year 11,542 1,115,888
------------- --------------
Cash and cash equivalents at end of period $ 7,875 $ 698,633
============= ==============
Interest paid $ 53,361 $ 26,533
============= ==============
See notes to condensed consolidated financial statements
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THE SLED DOGS COMPANY
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
six month periods ended September 30, 1997 are not necessarily indicative of
the results that may be expected for the year ended March 31, 1998.
NOTE 2 - NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted by the Company on
March 31, 1998. At that time, the Company will be required to change the
method currently used to compute net loss per share and to restate all prior
periods. There is no impact expected as a result of applying FASB Statement
No. 128 on the calculation of net loss per share for quarters ended September
30, 1997 and September 30, 1996.
NOTE 3 - BANKRUPTCY FILING
On November 5, 1997 the Company filed for protection under Chapter 11 of the
United States Bankruptcy Code.
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following information should be read in conjunction with the consolidated
condensed financial statements and the notes thereto included in Item 1 of this
Quarterly Report, and the financial statements and the notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-KSB for the year
ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
On November 5, 1997 the Company filed for protection under Chapter 11 of the
United States Bankruptcy Code. This filing permitted the Company to obtain
Debtor In Possession (DIP) financing from Norwest Business Credit, Inc.
(Norwest) The Company obtained $150,000 in DIP financing from Norwest on
November 12, 1997. These funds will allow the company to implement a
direct-sales program that is targeted at its primary market of aggressive
in-line skaters, at significantly lower prices than in past years. In the
past, The Company sold its proprietary snow skates through big-box sporting
goods retailers and advertised our skates on the infomercial "Yellow Snow".
This direct sales program will be significantly less expensive and specifically
target 75,000 prospective buyers. The DIP financing from Norwest will enable
the Company to fill orders previously the Company had been unable to ship, due
to the Company's financial condition.
On October 15, 1997, the Company terminated Chief Financial Officer Michael P.
Wise.
On October 21, 1997, Rudy Slucker and David Braus resigned as Directors of the
Company. The Company is actively searching for a new director.
As of September 30, 1997, the Company had no availability under its
asset-based line of credit with Norwest Credit, Inc. ("NCI"). The line of
credit bears interest at prime plus 4%, had a maximum borrowing level of $2
million and expired June 30, 1997. The Company has signed a Forbearance
Agreement with NCI. The Forbearance Agreement states that NCI is willing to
forbear from exercising its rights and remedies as a secured creditor (the line
of credit is secured by all of the Company's assets) until the earlier of
September 30, 1997, failure by the Company to perform its obligations under
this Forbearance Agreement, or the occurrence of any Event of Default under its
Loan Agreement with NCI other than those existing and known to NCI on June 30,
1997. The Forbearance Agreement further states that all amounts due under the
Loan Agreement shall become due and payable on October 1, 1997. At September
30, 1997, the Company was in default of the Loan Agreement regarding the
minimum book net worth covenant which increases the rate of interest by two
percentage points. At As of September 30, 1997, there were outstanding
borrowings under the line of $536,148 that also included an overdraft amount of
$286,148 (i.e., borrowings in excess of available collateral).
As of this date, the Company has secured approximately $812,500 of its $1.5
million private loan unit offering. Each unit of the offering consists of a
$50,000 convertible subordinated secured promissory note and a warrant to
purchase 100,000 shares of common stock at $.0625 per share. The notes are
convertible into common stock of the Company at $.0625 per share.
The Company continues to work on generating additional cash and working capital
internally through the collection of existing receivables and sales of
excess/obsolete inventory. The Company also has taken many steps to conserve
cash such as: 1) Rescheduling payments to the majority of its creditors
allowing new capital to be used for moving the business forward into the
1997/1998 season; 2) Reducing headcount from 10 to 5 and 3) Significantly
reducing fiscal 1998 planned expenses
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company's cash and cash equivalents were $7,875 on September 30, 1997,
compared to $(14,933) on June 30, 1997, an increase of $22,808. The Company's
working capital position at September 30, 1997 was a negative $1,201,094.
During the three months ended September 30, 1997, The Company's operations
used net cash of $331,020 primarily to fund operating losses and accounts
payable.
The Company's investing activities for the three months ended September 30,
1997 consisted of capital expenditures of $ $11,250 for a K-9 skate retro-fit
tool for the 1997-1998 season. The Company also spent $3,573, on additional
patents and trademarks.
The Company's financing activities for the three months ended September 30,
1997, provided cash of $368,651 consisted of $387,500 in net proceeds from the
convertible loan unit offering, offset by $18,881 in payments on the Company's
line of credit.
RESULTS OF OPERATIONS
NET SALES
The Company's net sales for the second quarter ended September 30, 1997 were
$10,355, a 88% decrease from the net sales of $85,503 reported for the same
quarter last year. Net Sales for the six months ended September 30, 1997 were
$65,563, a 136% increase from the $(23,362) in the comparable period last year.
The decrease in sales results for the second quarter can be attributed to the
lack of a independent representatives required to carry out the retail
distribution, and insufficient capital required to repair the roughly
twelve-thousand K9 inventory units. The increase in sales results for the six
month period is attributed primarily to the liquidation of obsolete inventory
and the substantial amount of returns that occurred in the six month period
ended September 30, 1996 versus the same period ended September 30, 1997. The
Company expects net sales to significantly increase as the result of an
aggressive direct consumer liquidation campaign.
COST OF GOODS SOLD AND GROSS MARGIN
Gross margin as a percentage of net sales was (769.9%) for the second quarter
ended September 30, 1997 compared to (43.3%) and for the quarter ended
September 30, 1996. A comparison of gross margin as a percentage of net sales
for the six months ended September 30, 1997 to the same period in 1996 is not
meaningful due to the adjustments made in the six month period ended September
30, 1996. Gross margin for the six month period ended September 30, 1996
included returns exceeding sales, resulting in negative sales for the period,
combined with a cost of goods sold adjustment of $250,000 to reserve for
inventory obsolescence.
The lack of sales in the quarter ended September 30, 1997 compared with same
quarter in 1996 caused the unfavorable variance in gross margin as a percentage
of net sales. The Company expects the gross margin as a percentage of sales to
approach, but not exceed 0%, due to a direct consumer liquidation campaign
which will cover product costs but not fixed costs.
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS - CONTINUED
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the second quarter ended September 30,
1997 were $332,624 compared to $362,307 for the quarter ended September 30,
1996, a decrease of $29,683, or 8%. General and administrative expenses for
the six month period ended September 30, 1997 were $751,663 compared to
$588,286 for the six month period ended September 30, 1996. The decrease for
the quarter is due to a reduction in salaries and investor relation expenses.
The increase for the six month period is attributable to one-time legal fees
and investment banking commissions associated with the convertible private loan
unit offering. In fiscal 1998 and beyond, the Company expects general and
administrative expenses to decrease as a percentage of net sales, if it
controls these costs, and if its net sales base increases.
SALES AND MARKETING
Sales and marketing expenses decreased from $594,440 for the quarter ended
September 30, 1996 to $61,439 for the quarter ended September 30, 1997, a
decrease of $533,001, or 90.%. Sales and marketing expenses decreased from
$1,318,625 for the six months ended September 30, 1996 to $69,370 for the six
months ended September 30, 1997, a decrease of $1,249,255 or 95%. Both
decreases were due to the elimination of the one-time production expense for
the infomercial "Yellow Snow;" and the reduction in staff of four employees.
The Company expects to minimize sales and marketing expenses in fiscal 1998 to
conserve operating capital.
RESEARCH AND DEVELOPMENT
Research and development expenses for the quarter ended September 30, 1997 were
$10,391, compared to $55,133 for the quarter ended September 30, 1996, a
decrease of $44,742, or 81%. Research and development expenses for the six
months ended September 30, 1997 were $27,050 compared to $131,023 for the
quarter ended September 30, 1996, a decrease of $103,973 or 79%. The decrease
from the prior year quarter and six month period was due to a reduction in
development costs for future generation snow skate products versus the costs
incurred in fiscal 1996 developing the new K9 model. The Company expects
research and development expenses to increase if there is demand for
alternative boot and base structures to accommodate different snow skating
styles and venues.
INTEREST EXPENSE
Interest expense for the first quarter ended September 30, 1997 was $48,807,
compared to $16,329 for the quarter ended September 30, 1996, an increase of
$32,478. Interest expense for the six months ended September 30, 1997 was
$87,146 compared to $25,399 for the six months ended September 30, 1996, an
increase of $61,747. The increase was due to the balance outstanding on the
line of credit, and the accrued interest on the convertible debt this fiscal
year versus the prior fiscal year.
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS - CONTINUED
INTEREST AND OTHER (INCOME) EXPENSE
Interest and other (income) expense for the first quarter ended September 30,
1997 was $0, compared to $(17,300) for the quarter ended September 30, 1996, a
decrease of $17,300. Interest and other (income) expense for the six month
period ended September 30, 1997 was $(35), compared to $(38,241) for the six
month period ended September 30, 1996, a decrease of $38,206. The decreases
from the prior year quarter and six month period were due to less interest
income earned as cash balances during the quarter and six month period ended
September 30, 1997 were much lower than the cash balances during the quarter
and six month period ended September 30, 1996.
NET LOSS
The net loss of $532,985 for the second quarter ended September 30, 1997 was
$519,977 better than the net loss of $1,052,962 reported for the same period in
the prior year. The net loss of $933,275 for the six month period ended
September 30, 1997 was $1,489,322 better than the net loss of $2,422,597
reported for the same six month period in the prior year. The improvement in
net loss for the quarter and six month period was primarily due to the
elimination of certain non-recurring expenses incurred in last year's quarter
(the "Yellow Snow" infomercial production expense and a provision for inventory
obsolescence) and a reduction in operating expenses.
Forward-looking statements contained in this Form 10-QSB are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. All forward-looking statements involve risks and uncertainties. Certain
important factors could cause results to differ materially from those
anticipated by some statements made in this Form 10-QSB. Among the factors
that could cause results to differ materially are the following: lack of
availability of financing; inability to control costs or expenses;
manufacturing and distribution problems; and lack of market acceptance of the
Company's products. Reference is also made to the risk factors contained in
the Company's Registration Statement on Form S-3 (No. 33-80875), which are
incorporated herein by reference.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
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SIGNATURE
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 hereunto duly authorized.
THE SLED DOGS COMPANY
Dated: November 14, 1997
/s/ Kent Rodriguez
---------------------------------------
Kent Rodriguez, Chairman and Chief Executive Officer
(Principal Executive Officer)