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 December 31, 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
--- ---
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 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 February 13, 1997.
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THE SLED DOGS COMPANY
FORM 10-QSB QUARTERLY REPORT FOR THE QUARTER ENDED
DECEMBER 31, 1997
TABLE OF CONTENTS
Page
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1997 and March 31, 1997 3
Condensed Consolidated Statements of Operations for the Nine Months ended
December 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the Nine Months ended
December 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements - December 31, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9
Part II - Other Information
Item 1. Legal Proceedings 10
Item 3. Defaults on Senior Securities 10
Item 6. Exhibits and Reports on Form 8-K 10
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31
1997 1997
ASSETS (Unaudited)
---------------- ----------------
Current assets:
Cash and cash equivalents $ 6,096 $ 11,542
Accounts receivable, less allowance for doubtful accounts of $133,250
and $167,000 at December 31, 1997 and March 31, 1997, respectively 37,092 225,168
Other receivables 4,072 -
Inventories 845,655 940,226
Prepaid expenses 80,551 23,385
---------------- ----------------
Total current assets 973,466 1,200,321
Property and equipment, less accumulated depreciation of $301,629 and
$1,023,125 at December 31, 1997 and March 31, 1997, respectively 260,054 341,769
Patents, less accumulated amortization of $195,953 and $159,253 at
December 31, 1997 and March 31, 1997, respectively 120,775 151,575
---------------- ----------------
Total assets $ 1,354,295 $ 1,693,665
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 694,149 $ 619,727
Short term notes payable 150,000 -
Accounts payable 1,309,984 1,308,700
Accrued expenses and other liabilities 236,978 458,235
---------------- ----------------
Total current liabilities 2,391,111 2,386,662
Convertible subordinated debt 1,017,500 150,000
Shareholders' equity
Convertible preferred stock, Series A, $1.00 par value:
Authorized shares - 1,500,000
Issued and outstanding shares - 0 - December 31, 1997 and March 31, 1997 - -
Common Stock, $.01 par value
Authorized shares - 50,000,000
Issued and outstanding shares - 13,513,193 at December 31, 1997 and
at March 31, 1997, respectively 135,132 135,132
Additional paid-in capital 13,596,693 13,596,638
Accumulated deficit (15,786,141) (14,574,767)
---------------- ----------------
Total shareholders' equity (2,054,316) (842,997)
---------------- ----------------
Total liabilities and shareholders' equity $ 1,354,295 $ 1,693,665
================ ================
See notes to condensed consolidated financial statements
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
December 31 December 31
1997 1996 1997 1996
-------------- -------------- -------------- --------------
Net sales $ 91,351 $ 1,329,125 $ 156,914 $ 1,305,763
Cost of goods sold 55,356 926,068 119,000 1,300,211
-------------- -------------- -------------- --------------
Gross margin 35,995 403,057 37,914 5,552
Costs and expenses:
General and administrative 241,789 390,785 993,452 979,071
Sales and marketing 20,407 1,189,110 89,777 2,507,735
Research and development 4,365 50,478 31,415 181,501
-------------- -------------- -------------- --------------
Total costs and expenses 266,561 1,630,373 1,114,644 3,668,307
Interest expense 47,534 25,143 134,680 50,542
Interest income and other (income) expense 0 (4,992) (35) (43,233)
-------------- -------------- -------------- --------------
Net loss $ (278,100) $ (1,247,467) $ (1,211,375) $ (3,670,064)
============== ============== ============== ==============
Net loss per common share $ (0.02) $ (0.11) $ (0.09) $ (0.31)
============== ============== ============== ==============
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 finanacial statements
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5
THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
December 31
1997 1996
-------------- --------------
Operating activities
Net loss $ (1,211,375) $ (3,670,064)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 155,748 260,380
Loss on asset disposal 963 18,204
Changes in operating assets and liabilities:
Receivables 184,004 (395,960)
Inventories 25,372 (763,709)
Prepaid expenses 12,033 145,544
Accounts payable 1,284 947,645
Other accrued expenses (221,259) 461,354
-------------- --------------
Net cash used in operating activities (1,053,230) (2,996,606)
Investing activities
Purchases of property and equipment (41,645) (339,729)
Acquisition of patents and trademarks (5,899) (27,760)
Proceeds from the sale of fixed assets 3,350 (1,400)
-------------- --------------
Net cash used in investing activities (44,194) (368,889)
Financing activities
Net proceeds from convertible subordinated debt 867,500 -
Net proceeds from short term notes 150,000 -
Net proceeds from warrants issued 56 1,322,410
Draws on line of credit 74,422 1,047,207
-------------- --------------
Net cash provided by financing activities 1,091,978 2,369,617
-------------- --------------
Net decrease in cash and cash equivalents (5,446) (995,878)
Cash and cash equivalents at beginning of year 11,542 1,115,888
-------------- --------------
Cash and cash equivalents at end of period $ 6,096 $ 120,010
============== ==============
Interest paid $ 77,594 $ 51,676
============== ==============
See notes to condensed consolidated financial statements
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THE SLED DOGS COMPANY
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 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
nine month periods ended December 31, 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 December
31, 1997 and December 31, 1996.
NOTE 3 - BANKRUPTCY FILING
On November 5, 1997, the Company filed for protection under Chapter 11 of
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 its 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 the Company previously had been unable to ship, due
to the Company's financial condition.
As of December 31, 1997, there were outstanding borrowings under the line of
credit from Norwest of $694,149 that also included an overdraft amount of
$38,382 (i.e., borrowings in excess of available collateral).
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 steps to conserve cash
such as: 1) Reducing headcount from 10 to 5, and 2) Significantly reducing
fiscal 1998 planned expenses.
The Company's cash and cash equivalents were $6,096 on December 31, 1997,
compared to $11,542 on March 31, 1997, a decrease of $5,446. The Company had a
working capital deficit of $1,417,645 at December 31, 1997. During the nine
months ended December 31, 1997, the Company's operations used net cash of
$1,053,230, primarily to fund operating losses and accounts payable.
For the nine months ended Decembere 31, 1997, the Company used cash of $44,194,
to purchase property and equipment, in its investing activities.
The Company's financing activities for the nine months ended December 31, 1997,
provided cash of $1,091,978 consisted of $867,500 in net proceeds from the
convertible loan unit offering and $74,422 in Debtor In Possession Financing on
the Company's line of credit.
The Company expects to file a reorganization plan with the United States
Bankruptcy Court on or before February 28, 1998.
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RESULTS OF OPERATIONS
NET SALES
The Company's net sales for the third quarter ended December 31, 1997 were
$91,351, a 93% decrease from the net sales of $1,329,125 reported for the same
quarter last year. Net Sales for the nine months ended December 31, 1997 were
$156,914, a 88% decrease from the $1,305,763 in the comparable period last
year. The decrease in sales results for the third quarter can be attributed to
a change from retail to direct sales strategy due to the lack of cash flow
needed for retail sales terms and independent representatives required to carry
out the retail distribution. The decrease in sales results for the nine month
period is attributed primarily to the reason stated above. The Company expects
net sales to increase as a result of anticipated international distributor
agreements, in addition to the on-going direct consumer liquidation campaign.
COST OF GOODS SOLD AND GROSS MARGIN
Gross margin as a percentage of net sales was 39% for the third quarter ended
December 31, 1997 compared to 30% for the quarter ended December 31, 1996. The
increase is due to direct consumer liquidation campaign sales of product
previously written-down to virtually no cost. Gross margin as a percentage of
net sales was 24% for the nine months ended December 31, 1997 compared with 4%
for the same period in 1996. Gross margin for the nine month period ended
December 31, 1996 included returns exceeding sales in the first three months,
resulting in negative sales for the first three months, a cost of goods sold
adjustment of $250,000 to reserve for inventory obsolescence, and virtually
100% retail sales which carry a lower gross margin than direct sales. Gross
margin for the nine month period ended December 31, 1997 was mostly made-up of
sales through the direct consumer liquidation campaign of product previously
written down. The Company expects gross margin as a percentage of sales to
decrease due to the influx of international orders which carry a lower gross
margin.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the third quarter ended December 31,
1997 were $241,789 compared to $390,785 for the quarter ended December 31,
1996, a decrease of $148,996 or 38%. General and administrative expenses for
the nine month period ended December 31, 1997 were $993,452 compared to
$979,071 for the nine month period ended December 31, 1996. The decrease for
the quarter is due to a reduction in headcount and investor relation expenses.
The increase for the nine 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 expense controls and creative sales to reduce general and
administrative expenses as a percentage of net sales.
SALES AND MARKETING
Sales and marketing expenses decreased from $1,189,110 for the quarter ended
December 31, 1996 to $20,407 for the quarter ended December 31, 1997, a
decrease of $1,168,703 or 98%. Sales and marketing expenses decreased from
$2,507,735 for the nine months ended December 31, 1996 to $89,777 for the nine
months ended December 31, 1997, a decrease of $2,417,958 or 96%. Both decreases
were due to the elimination of the one-time production expense for the
infomercial "Yellow Snow;" and the reduction in the number of employees and
related salary expense. The Company expects to minimize sales and marketing
expenses in fiscal 1998 by utilizing its 75,000 person data base with direct
response mailings.
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RESEARCH AND DEVELOPMENT
Research and development expenses for the quarter ended December 31, 1997 were
$4,365, compared to $50,478 for the quarter ended December 31, 1996, a decrease
of $46,113, or 91%. Research and development expenses for the nine months
ended December 31, 1997 were $31,415 compared to $181,501 for the nine months
ended December 31, 1996, a decrease of $150,086 or 83%. The decrease from the
prior year quarter and nine 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(TM) 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 third quarter ended December 31, 1997 was $47,534
compared to $25,143 for the quarter ended December 31, 1996, an increase of
$22,391. Interest expense for the nine months ended December 31, 1997 was
$134,680 compared to $50,542 for the nine months ended December 31, 1996, an
increase of $84,138. The increase was due to the increased balance outstanding
on the line of credit, and accrued interest on the convertible debt this
fiscal year versus the prior fiscal year.
INTEREST AND OTHER (INCOME) EXPENSE
Interest and other (income) expense for the third quarter ended December 31,
1997 was $0, compared to $(4,992) for the quarter ended December 31, 1996, a
decrease of $4,992. Interest and other (income) expense for the nine month
period ended December 31, 1997 was $(35), compared to $(43,233) for the nine
month period ended December 31, 1996, a decrease of $43,198. The decreases from
the prior year quarter and nine month period were due to less interest income
earned as cash balances during the quarter and nine month period ended December
30, 1997 were much lower than the cash balances during the quarter and nine
month period ended December 31, 1996.
NET LOSS
The net loss of $278,100 for the third quarter ended December 31, 1997
represents a $969,367 improvement over the net loss of $1,247,467 reported
for the same period in the prior year. The net loss of $1,211375 for the nine
month period ended December 31, 1997 represents a $2,458,689 improvement over
the net loss of $3,670,064 reported for the same nine month period in the prior
year. The improvement in net loss for the quarter and nine 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 1 - LEGAL PROCEEDINGS
On November 5, 1997, The Sled Dogs Company filed for protection under Chapter
11 of the United States Bankruptcy Code.
This Bankruptcy Case entitled In re: The Sled Dogs Company, United States
Bankruptcy Court File Number 97-47641 RLK. The matter is on file at the United
States Courthouse in Minneapolis, MN.
ITEM 3 - DEFAULTS ON SENIOR SECURITIES
The Legal Proceedings described in Item 1 constituted a default on the $355,000
in Senior Secured Notes sold by the Company in 1997. The amount in default
includes the principal amount of the of the senior secured notes plus accrued
interest in the amount of $18,717.
The Legal Proceedings described in Item 1 constituted a default on the $812,500
in Convertible Subordinated Debentures sold by the Company, in 1997. The
amount in default includes the principal amount of the debentures plus accrued
interest in the amount of $57,515.41.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
b. Reports on Form 8-K, filed on November 21, 1997.
(i) This report included information as to Item 3, Item 5, and Item 6.
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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: February 16, 1998
/s/ Kent Rodriguez
-----------------------------------------------------
Kent Rodriguez, Chairman and Chief Executive Officer
(Principal Executive Officer)
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of earliest event to report: October 21, 1997
The Sled Dogs Company
(Exact name of registration as specified in charter)
Colorado 1-12850 84-116-88322
- -------------------------------------------------------------------------------
(State of other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
212 Third Avenue North, Suite 420, Minneapolis, MN 55401
- --------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (612) 359-9020
--------------
- -------------------------------------------------------------
(Former name or former address, if changed since last report)
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Item 3. Bankruptcy or Receivership.
On November 5, 1997, The Sled Dogs Company filed for protection under Chapter
11 of the United States Bankruptcy Code.
The Bankruptcy Case Number is 97-47641 RLK, and is on file at the United States
Courthouse in Minneapolis, MN.
Item 5. Other Events.
On October 15, 1997, The Sled Dogs Company terminated Chief Financial Officer,
Michael P. Wise.
Item 6. Resignations of Registrant's Directors.
On October 21, 1997, David N. Braus resigned as a Director of The Sled Dogs
Company.
On October 21, 1997, Rudy A. Slucker resigned as a Director of The Sled Dogs
Company.
The Sled Dogs Company markets, manufacturers and distributes Sled Dogs brand
snow skates and related accessories, and is pioneering snow skating as a winter
sport for inline skaters. The Sled Dogs Company has developed the world's
first patented snow skate that integrates a comfortable, supportive boot and a
unique replaceable base allowing the skate to glide down hill and over snow.
Forward looking statements contained in this release are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Certain important factors could cause results to differ materially from those
anticipated by some statements made in this release. You are cautioned that
all forward-looking statements involve risks and uncertainties. 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE SLED DOGS COMPANY
Dated: November 21, 1997 By: /s/ Kent A. Rodriguez
----------------------------------------
Kent A. Rodriguez
Chairman and Chief Executive Officer