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, 2001
Commission file number 1-12850
XDOGS, INC.
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Formerly known as XDOGS.COM, INC.
(Exact name of small business issuer as specified in its charter)
126 North Third Street, Suite 407
MINNEAPOLIS, MINNESOTA 55401
----------------------------
(Address of principal executive offices)
Incorporated under the laws of 84-1168832
the State of Nevada I.R.S. Identification Number
(612) 359-9020
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(Small business issuer's telephone number including area code)
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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 X No___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 14,047,306 shares of Common
Stock, $.01 par value per share, outstanding as of February 19, 2002.
XDOGS, INC.
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed balance sheet, December 31, 2001 (unaudited).......................3
Condensed statements of operations for the three months and nine months
ended December 31, 2001 and 2000 (unaudited)...........................4
Condensed statement of shareholders' deficit for the nine months
ended December 31, 2001(unaudited).....................................5
Condensed statements of cash flows for the nine months
ended December 31, 2001 and 2000 (unaudited)...........................6
Notes to condensed financial statements (unaudited)..........................7
2
PART I. Item 1. FINANCIAL INFORMATION
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XDOGS, INC.
CONDENSED BALANCE SHEET
(Unaudited)
December 31, 2001
Assets
Property and equipment, net .................................... 45,579
Other assets ................................................... 350
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$ 45,929
============
Liabilities and Shareholder's Deficit
Current liabilities:
Accounts payable and accrued liabilities ................. $ 789,738
Note Payable ............................................. 210,000
Indebtedness to shareholder .............................. 14,433
Notes payable, related party (Note 2) .................... 617,000
Litigation Liability ..................................... 77,355
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Total current liabilities .. 1,708,526
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Shareholder's deficit:
Preferred stock .......................................... --
Common stock ............................................. 89,730
Additional paid-in capital ............................... 10,424,014
Deferred compensation ..................................... 2,400,327
Accumulated deficit ...................................... (14,576,668)
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Total shareholder's deficit (1,662,597)
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$ 45,929
============
See accompanying notes to condensed financial statements
3
XDOGS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Sales and revenues, net ................................................ $ 36,610 $ 36,870 $ 50,929 $ 140,543
Cost of sales and revenues ............................................. 12,553 17,984 18,566 232,301
----------- ----------- ----------- -----------
Gross profit ..... 24,057 18,886 32,363 (91,758)
Operating expenses:
General and administrative ....................................... 100,538 305,154 559,563 1,604,973
Stock based compensation, related party (Note 2) ................. -- -- 72,900 --
Stock based compensation ......................................... 32,653 841,499 242,883 2,935,494
----------- ----------- ----------- -----------
Total operating expenses ..... 133,191 1,146,653 875,346 4,540,467
----------- ----------- ----------- -----------
Loss from operations ..... (109,134) (1,127,767) (842,983) (4,632,225)
----------- ----------- ----------- -----------
Interest expense ....................................................... (24,646) (28,488) (84,404) (59,358)
Miscellaneous income ................................................... -- 11 -- 1,150
Interest income ........................................................ -- 1,150 -- 5,082
----------- ----------- ----------- -----------
Loss before income taxes ..... (133,780) (1,155,094) (927,387) (4,685,351)
Provision for income taxes ............................................. -- -- -- --
----------- ----------- ----------- -----------
Loss before extraordinary items ..... (133,780) (1,155,094) (927,387) (4,685,351)
Extraordinary Items:
Gain on debt extinguishment ............................................ -- -- -- 39,811
Loss from debt retirement .............................................. -- -- -- (3,076)
----------- ----------- ----------- -----------
Net loss ..... $ (133,780) $(1,155,094) $ (927,387) $(4,648,616)
=========== =========== =========== ===========
Net loss before extraordinary items .................................... $ (0.02) $ (0.33) $ (0.14) $ (1.80)
=========== =========== =========== ===========
Basic and diluted loss per common share ................................ $ (0.02) $ (0.33) $ (0.14) $ (1.79)
=========== =========== =========== ===========
Basic and diluted weighted average
common shares outstanding ........................................ 8,206,143 3,517,964 6,767,376 2,605,985
=========== =========== =========== ===========
See accompanying notes to condensed financial statements
4
XDOGS, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' DEFICIT
(unaudited)
April 1, 2001 through December 31, 2001
Preferred Stock Common Stock Additional Common Stock
----------------- ---------------------- Paid-in Accrued Paid For, But Accumulated
Shares Amount Shares Par Value Capital Compensation Not Issued Deficit Total
-------------------------------------------------------------------------------------------------------------
Balance, April 1, 2001 -- $ -- 4,131,742 $ 41,318 $ 9,442,478 $ 2,400,327 $ 159,839 $ (13,649,281) $ (1,605,319)
Sale of common stock -- -- 2,560,000 25,600 555,150 -- (159,839) -- 417,911
Common stock issued
in exchange
for debt -- -- 1,205,000 12,050 179,458 -- -- -- 191,508
Common stock issued
for services,
related party
(Note 2) -- -- 105,000 1,050 71,850 -- -- -- 72,900
Common stock issued
for services -- -- 983,153 9,831 187,959 -- -- -- 197,790
Common stock returned
and retired -- -- (11,852) (119) (9,881) -- -- -- (10,000)
Net loss for the
nine months ended
December 31, 2001 -- -- -- -- -- -- -- (927,387) (927,387)
------ ------- --------- ---------- ------------ ------------ ---------- ------------ ------------
Balance,
December 31, 2001 -- $ -- 8,973,043 $ 89,730 $ 10,424,014 $ 2,400,327 $ -- $(14,576,668) $ (1,662,597)
====== ======= ========= ========= ============ ============ ========== ============ ============
See accompanying notes to condensed financial statements
5
XDOGS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
December 31,
----------------------------
2001 2000
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Cash flows from operating activities:
Net cash used in operating activities ...................... $ (110,000) $(982,827)
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Cash flows from investing activities:
Equipment purchases .................................................................... -- (13,847)
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Net cash used in investing activities ...................... -- (13,847)
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Cash flows from financing activities:
Advance from officer/shareholder ....................................................... -- 426,000
Proceeds from note payable ............................................................. 10,000 --
Proceeds from sale of common stock ..................................................... 100,000 290,720
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Net cash provided by financing activities ...................... 110,000 716,720
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Net change in cash ........................................................................... -- (279,954)
Cash, beginning of period .................................................................... -- 282,795
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Cash, end of period ...................... $ -- $ 2,841
========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................................................................ $ -- $ --
========== =========
Income taxes ........................................................................ $ -- $ --
========== =========
See accompanying notes to condensed financial statements
6
XDOGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Unaudited Financial Information
The unaudited condensed financial statements presented herein have been prepared
by the Company in accordance with the accounting policies in its annual Form
10-KSB report dated March 31, 2001 and should be read in conjunction with the
notes thereto.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to provide a fair presentation of
operating results for the interim periods presented have been made. The results
of operations for the nine months period ended December 31, 2001 are not
necessarily indicative of the results to be expected for the fiscal year ending
March 31, 2002.
Note 2. Related Party Transactions
During the three months ended June 30, 2001, the Company issued 105,000 shares
of its common stock to two officers and three directors of the Company as
compensation for services provided. The value of the transaction provided is
based on the fair value of the common stock issued. The Company valued the
common stock issued at $72,900 based on the contemporaneous sales of stock to
unrelated third parties.
In addition, the Company issued 240,000 shares of its common stock to Rock Cliff
Development, an affiliate, controlled by a director of the Company, to retire
$24,000 of a $100,000 outstanding note payable. The Company valued the stock
issued at $24,000, the amount of debt retired.
During the three months ended September 30, 2001, the Company issued an
additional 860,000 shares to Rock Cliff Development, to retire the remaining
$76,000 note payable and associated accrued interest payable in the amount of
$16,638. The Company valued the stock issued at $92,638, the amount of debt and
interest payable retired. The $100,000 note payable to Rock Cliff Development
and the associated interest were paid in full as of September 30, 2001.
During the three months ended December 31, 2001, the Company reserved, under its
2001 Compensation Plan, 115,000 shares of common stock for issuance to directors
and employees of the Company in consideration for services performed. The shares
of common stock were subsequently issued in January 2002.
7
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
References in this document to "us," "we," or "the Company" refer to XDOGS,
Inc., its predecessor, and its subsidiary. 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 our other filings
made with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
As of December 31, 2001, we had limited operations with minimal revenues. Due
to general economic conditions and the ensuing downturn in e-commerce and
internet-based businesses generally, we abandoned our prior business plan to
exploit our exclusive distribution rights via the internet and re-focused our
strategy and adopted a traditional wholesale to retail sales distribution model
which we have been implementing since August, 2000.
As of December 31, 2001, we had current assets of $-0- and total assets of
$45,929.
As of December 31, 2001, we had current liabilities of $1,708,526. For the
three months ended December 31, 2001, we had $36,610 in revenues and $12,553 in
cost of goods sold. We had a total net loss of $133,780, which was a net loss of
$0.02 per share. This compares with $36,870 in revenues and $17,984 in cost of
goods sold for the three months ended December 31, 2000 and a total net loss of
$1,155,094, or a net loss of $.33 per share.
Our plan for the fiscal year ended March 31, 2002 is to continue our development
as a traditional wholesale to retail seller of specialty action sports hard
goods and related apparel. While we anticipate generating some minimal revenues
during the fiscal year ended March 31, 2002, we do not expect to be profitable
during this period. We are also looking for a significant partner to either
enter into a joint venture, merge into us or to acquire us. No material
discussions have occurred to date.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents were $-0- on December 31, 2001, compared to $2,841
on December 31, 2000. For the three months ended December 31, 2001, there was no
net change to our cash. During the nine months ended December 31, 2001, we used
$110,000 for general working capital and $-0- for investing activities, compared
to $982,827 and $13,847, respectively, for the nine months ended 2000.
For the nine months ended December 31, 2001, financing activities generated
$110,000, $100,000 of which was from the sale of common stock, compared to
$716,720 for the same period in 2000, of which $290,720 was from the sale of
common stock and $426,000 was advanced by an affiliate.
Since August 2000, we had been developing our business plan to reflect the
changing environment of retail and wholesale sales. We intended to raise
additional capital during fiscal year 2001, but were unable to locate additional
funding. Our ability to continue operations is highly dependent upon our ability
to obtain immediate additional financing, generate revenues from operations, and
align ourself with a third party through a joint venture, merger or other
extraordinary transaction, none of which can be guaranteed. Our current cash and
cash equivalents are not sufficient to meet our business plan objectives. Unless
additional funding is located, it is highly unlikely that we can continue to
operate. Ultimately, our success is dependent upon our ability to generate
revenues from operations and to achieve profitability which is dependent upon a
number of factors including acceptance in the U.S. of European products and an
increase in consumer spending for non-essential goods. There is no assurance
that even with adequate financing, we will generate revenues and be profitable.
8
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; LACK OF MARKET ACCEPTANCE
OF THE COMPANY'S PRODUCTS; A STAGNATE OR SLOWING ECONOMY; AND INABILITY TO
GENERATE REVENUES.
PART II - OTHER INFORMATION
ITEM 1.- LEGAL PROCEEDINGS
Mr. Henry Furst filed a complaint against us in the U.S. District Court for the
District of Minnesota, alleging that the Company breached its contractual
obligations to him and seeking $144,000 in damages. The parties subsequently
negotiated a settlement whereby the Company agreed to pay Mr. Furst $94,000 in
installments and executed a confession of judgment in favor of Mr. Furst for
that amount. The Company has failed to pay Mr. Furst in accordance with the
settlement agreement. Approximately $20,000 of the confession of judgment has
been executed upon.
Millennium Holdings Group, Inc. filed a complaint against us in the State Court
of Palm Beach County, Florida alleging breach of contract, slander and lost
opportunity damages arising out of a contract dispute. This case was recently
dismissed with prejudice.
On or about March 14, 2000, the Company's former adviser consultant, Stephen
Carlson, loaned the Company $100,000. We executed a note in favor of Mr.Carlson
which required payment in full on December 31, 2000. We are in default and Mr.
Carlson on March 9, 2001, initiated a legal action against us in the District
Court of Hennepin County to collect the loan. The parties have reached a
negotiated settlement. We also granted to Mr. Carlson options to purchase 60,000
shares of Common Stock, all of which are not-in-the money and issued Mr. Carlson
120,000 shares of Common stock in October 2000 for past, present and future
services.
On November 29, 2000, Berghaus Ltd., informed the Company it would continue its
distribution upon payment of $120,000 in three installments with the first
installment due March 1, 2001. The Company has not made the first payment and we
no longer sell Berghaus products.
ITEM 2.- CHANGES IN SECURITIES.
a. None
b. None
c. The Company issued an aggregate of 1,000,000 shares of common stock at
$.10 per share to four accredited investors for total proceeds of
$100,000. In issuing these securities, the Company relied upon the
exemption from registration under Section 4(2) of the Securities Act of
1933 and Regulation D.
d. None
ITEM 3.- DEFAULTS ON SENIOR SECURITIES. None
ITEM 4.- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
ITEM 5.- OTHER INFORMATION. None.
ITEM 6.- EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits - See attached Exhibit List.
No reports on Form 8-K were filed during the fiscal quarter ended
December 31, 2001.
9
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.
XDOGS, INC.
Dated: February 19, 2002
/s/ Kent Rodriguez
----------------------------------------------------
Kent Rodriguez, President and Chief Executive Officer
(Principal Executive Officer)
10
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
XDOGS, INC.
EXHIBIT INDEX TO FORM 10-QSB
For the fiscal quarter ended December 31, 2001
Commission File Number 1-12850
Exhibit Description Page Number
- ------- ----------- -----------
3.1 Restated Articles of Incorporation (Incorporated by *
reference to Exhibit 3.1 to Registration Statement on
Form SB-2, Registration No. 33-74240C).
3.2 Restated Bylaws (Incorporated by reference to Exhibit 3.2 *
to Registration Statement on Form SB-2, Registration No.
33-74240C).
3.3 Articles of Incorporation for the State of Nevada. *
(Incorporated by reference to Exhibit 2.2 to Form 10-KSB
filed February 2000)
3.4 Articles of Merger for the Colorado Corporation and the *
Nevada Corporation (Incorporated by reference to Exhibit
3.4 to Exhibit 3.4 to Form 10-KSB filed February 2000)
3.5 Bylaws of the Nevada Corporation (Incorporated by *
reference to Exhibit 3.5 to Form 10-KSB filed February
2000)
4.1 Specimen of Common Stock (Incorporated by reference to *
Exhibit 4.1 to Registration Statement on Form SB-2,
Registration No. 33-74240C).
10.1 Contract of Sale between Hannes Jacob and Allrounder Idea *
Realization, S.A. and Snow Runner (Properties) Inc. dated
September 3, 1993 (Incorporated by reference to Exhibit
10.1 to Registration Statement on Form SB-2, Registration
No. 33-74240C).
10.2 License Agreement between Snow Runner (Properties) Inc. *
and Snow Runner (USA) Inc. effective September 3, 1993
(Incorporated by reference to Exhibit 10.10 to
Registration Statement on Form SB-2, Registration No.
33-74240C).
10.3 License Agreement between Hannes Jacob and Allrounder *
Realization SA and Snow Runner (USA) Inc. dated June 26,
1992 (Incorporated by reference to Exhibit 10.11 to
Registration Statement on Form SB-2, Registration No.
33-74240C).
10.4 Amended and Restated Distribution Agreement between Snow *
Runner (USA) Inc. and DalBello Sport S.R.L. dated June
26, 1992 (Incorporated by reference to Exhibit 10.12 to
Registration Statement on Form SB-2, Registration No.
33-74240C). Registration No. 33-74240C).
10.5 Reorganization Agreement by and among Snow Runner (USA) *
Ltd., Snow Runner Holdings, Inc., Nigel Alexander,
Steven Clarke and Harbour Settlement dated July 23, 1992
(Incorporated by reference to Exhibit 10.19 to
Registration Statement on Form SB-2, Registration No.
33-74240C).
10.6 Credit and Security Agreement dated June 30,1995 between *
the Company and Norwest Credit, Inc.
10.7 Revolving Note for $2,000,000 dated June 30, 1995 between *
the Company and Norwest Credit, Inc.
10.8 Patent and Trademark Security Agreement dated June 30, *
1995 between the Company and Norwest Credit, Inc.
10.9 Agreement with Berghaus Limited dated (Incorporated by *
reference to Exhibit 10.42 to Form 10-KSB filed February
2000)
10.10 Agreement with Oxbow, S.A. dated January 24, 2000 *
(Incorporated by reference to Exhibit 10.43 to Form 10-KSB
filed July 13, 2000).
10.11 Agreement with Gaastra International Sportswear, B.V. *
(Incorporated by reference to Exhibit 10.43 to Form 10KSB
filed July 13, 2000).
10.12 Incentive Compensation and Employment Agreement for Kent *
A. Rodriguez (Incorporated by reference to Exhibit 10.12 to
Form 10-KSB/A filed August 20, 2001).
10.13 2001 Compensation Plan (Incorporated by reference to *
Exhibit 10.1 to Form S-8 filed January 14, 2002).
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* Incorporated by reference to a previously filed exhibit or report.