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, 2005
Commission file number 1-12850
Avalon Oil & Gas, Inc.
Formerly known as XDOGS, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
7000 Flour Exchange Building
310 Fourth Avenue South
Minneapolis, Minnesota 55415
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(Address of principal executive offices)
Nevada 84-1168832
------------------------------ ---------------------
(State or other jurisdiction of I.R.S.
incorporation or organization) Identification Number
(612) 359-9020
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(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: 172,048,543 shares of Common
Stock, $.001 par value per share, outstanding as of February 16, 2005.
AVALON OIL AND GAS, INC.
INDEX
Part I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Page
----
Item 1. Financial Statements
Condensed balance sheet, December 31, 2005 (unaudited)..................... 3
Condensed statements of operations for the three and nine months
ended December 31, 2005 and 2004 (unaudited).......................... 4
Condensed statements of cash flows for the nine months
ended December 31, 2005 and 2004 (unaudited).......................... 5
Notes to condensed financial statements (unaudited)........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 10
Item 3.Controls and Procedures............................................. 13
Part II: OTHER INFORMATION.................................................. 13
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
AVALON OIL AND GAS, INC.
CONDENSED BALANCE SHEET
December 31, 2005
(Unaudited)
Assets
Cash $ 20,041
Accounts Receivable - Other 5,985
Prepaid expenses 89,333
------------
Total Current Assets 115,359
------------
Total Assets $ 115,359
============
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable:
Accounts payable, related party (Note 2) $ 15,971
Accounts payable, other 154,038
Notes payable 22,513
Accrued liabilities 25,895
Accrued compensation 31,500
Accrued dividends payable 10,000
------------
Total current liabilities 259,917
------------
Commitments and contingencies --
Shareholders' deficit (Note 4):
Preferred stock 500,000
Common stock 119,659
Additional paid-in capital 14,673,352
Retained deficit (15,437,569)
------------
Total shareholders' deficit (144,558)
------------
$ 115,359
============
See accompanying notes to condensed financial statements
Page 3
AVALON OIL AND GAS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------------- --------------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
Operating expenses:
Selling, general and administrative expenses $ 55,195 $ 17,284 $ 135,574 $ 69,382
Stock-based compensation 16,667 -- 32,667 22,000
------------- ------------- ------------- -------------
Total operating expenses 71,862 17,284 168,241 91,382
------------- ------------- ------------- -------------
Operating loss (71,862) (17,284) (168,241) (91,382)
Interest expense:
Related party -- (5,749) (6,049) (17,247)
Other (5,762) (2,188) (6,097) (6,563)
------------- ------------- ------------- -------------
Loss before income taxes (77,624) (25,221) (180,387) (115,192)
Provision (benefit) for income taxes -- -- -- --
------------- ------------- ------------- -------------
Net loss $ 77,624 $ (25,221) $ (180,387) $ (115,192)
============= ============= ============= =============
Loss attributable to common stock
after preferred stock dividends $ (87,624) $ (35,221) $ (210,387) $ (145,192)
============= ============= ============= =============
Basic and diluted loss per common share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
Basic and diluted weighted average
common shares outstanding 102,099,847 47,105,210 93,340,725 45,705,210
============= ============= ============= =============
See accompanying notes to condensed financial statements
Page 4
AVALON OIL AND GAS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
December 31,
----------------------------
2005 2004
--------- --------
Net cash provided(used) in operating activities $(139,010) $(28,980)
--------- --------
Cash flow from investing activities:
Additions to oil and gas properties -- --
--------- --------
Net cash used in investing activities -- --
--------- --------
Cash flow from financing activities:
Proceeds from sale of common stock 109,000 29,000
Payments on notes payable (8,000) --
Proceeds from issuance of note payable (Note 2) 58,000 --
--------- --------
Net cash provided by financing activities 159,000 29,000
--------- --------
Net change in cash 19,990 20
Cash at beginning of period 51 22
--------- --------
Cash at end of period $ 20,041 $ 42
========= ========
Supplemental cash flow information: Cash paid during the period for:
Interest $ -- $ 6,598
========= ========
Income taxes $ -- $ --
========= ========
See accompanying notes to condensed financial statements
Page 5
AVALON OIL AND GAS, 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, 2005 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 ended December 31, 2005 are not necessarily
indicative of the results to be expected for the fiscal year ending March 31,
2006.
Interim financial data presented herein are unaudited.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies as of December 31,
2005:
Nature of Operations
The Company is raising funds to purchase oil and gas producing properties.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Basis of Accounting
The Company's financial statements are prepared using the accrual
method of accounting. Revenues are recognized when earned and expenses when
incurred.
Uninsured Cash Balances
The Company maintains its cash balances at several financial institutions.
Accounts at the institutions are insured by the Federal Deposit Insurance
Corporation up to $100,000. Periodically, the Company's cash balances are in
excess of this amount.
Accounts Receivable
Receivables are recorded at the estimate of amounts due based upon the
terms of the related agreements.
Management periodically assesses the Company's accounts receivable and
establishes an allowance for estimated uncollectible amounts. Accounts
determined to be uncollectible are charged to operations when that determination
is made.
Page 6
AVALON OIL AND GAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Earnings per Common Share
Statement of Financial Accounting Standards ("SFAS") 128, Earnings Per Share,
requires presentation of "basic" and "diluted" earnings per share on the face of
the statements of operations for all entities with complex capital structures.
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted during the period.
Dilutive securities having an antidilutive effect on diluted earnings per share
are excluded from the calculation.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets, including tax loss and credit carryforwards, and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Deferred income tax expense represents the change during the
period in the deferred tax assets and deferred tax liabilities. The components
of the deferred tax assets and liabilities are individually classified as
current and non-current based on their characteristics. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.
Recently Issued Accounting Standards
Inventory Costs - an amendment of ARB No. 43
In November 2004, the FASB issued SFAS No. 151, Inventory Costs - an
amendment of ARB No. 43, Chapter 4. Statement No. 151 requires that certain
abnormal costs associated with the manufacturing, freight, and handling costs
associated with inventory be charged to current operations in the period in
which they are incurred. The financial statements are unaffected by
implementation of this new standard.
Revision of SFAS No. 123, Share-Based Payment
In December 2004, the FASB issued a revision of SFAS No. 123, Share-Based
Payment. The statement establishes standards for the accounting for transactions
in which an entity exchanges its equity investments for goods and services. It
also addresses transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity instruments.
The statement does not change the accounting guidance for share-based payments
with parties other than employees. The statement is effective for the quarter
beginning January 1, 2006. The Company does not expect this statement to have a
material effect on its reporting.
Accounting for Exchanges of Non-monetary Assets-amendment of APB Opinion No. 29
In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary
Assets-amendment of APB Opinion No. 29. Statement 153 eliminates the exception
to fair value for exchanges of similar productive assets and replaces it with a
general exception for exchanged transactions that do not have a commercial
substance, defined as transactions that are not expected to result in
significant changes in the cash flows of the reporting entity. This statement is
effective for exchanges of non-monetary assets occurring after September 15,
2005. The Company does not expect this statement to have a material effect on
its reporting.
Page 7
AVALON OIL AND GAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20
and FASB Statement No. 3
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3.
Statement 154 requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. The statement is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. The Company does
not expect this statement to have a material effect on its reporting.
Note 3: RELATED PARTY TRANSACTIONS
Accounts Payable
- ----------------
As of September 30, 2005, the Company owed an officer $15,971 for general and
administrative expenses paid on behalf of the Company. This liability is
included in the accompanying condensed financial statements as "Accounts
payable, related party".
Promissory Notes
- ----------------
As of March 31, 2005, the Company owed an officer two promissory notes totaling
$229,960. The $145,120 note carried a 10 percent interest rate and matured in
June 2004. The $84,840 note also carried a 10 percent interest rate and matured
in July 2004. Accrued interest payable on the notes totaled 22,996 at June 29,
2005. On June 29, 2005, the officer transferred the rights to the debts and the
debts were subsequently cancelled in exchange for 16,000,000 shares of the
Company's common stock on June 29, 2005.
On June 6, 2005, a shareholder loaned the Company $8,000 for working capital in
exchange for a promissory note. The note carries a 15% interest rate and matures
on September 1, 2005. The note was paid off in December 2005.
Preferred Stock
- ---------------
The 100 shares of Series A Preferred Stock, issued to an officer/director as
payment for $500,000 in promissory notes, are convertible into the number of
shares of common stock sufficient to represent 40 percent of the fully diluted
shares outstanding after their issuance. The Series A Preferred Stock pays an
eight percent (8%) dividends. The dividends are cumulative and payable
quarterly. The Series A Preferred Stock carries liquidating preference, over all
other classes of stock, equal to the amount paid for the stock plus any unpaid
dividends. The Series A Preferred Stock provides for voting rights on an "as
converted to common stock" basis.
During the nine months ended December 31, 2005, the Company incurred $30,000 in
preferred stock dividends of which $26,667 was paid in cash. Preferred dividends
for the three months ended September 30, 2005 totaled $10,000. As of December 1,
2005, the Company owed the officer $10,000 in accrued dividends.
The holders of the Series A Preferred Stock have the right to convert each share
of preferred stock into a sufficient number of shares of common stock to equal
40% of the then fully-diluted shares outstanding. Fully diluted shares
outstanding is computed as the sum of the number of shares of common stock
outstanding plus the number of shares of common stock issuable upon exercise,
conversion or exchange of outstanding options, warrants, or convertible
securities.
In accordance with the requirements of EITF 98-05 "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios" any discount resulting from allocations of proceeds to the
beneficial conversion features is analogous to a dividend and would be
recognized as a return to the preferred shareholders as of the date of vesting
(July 12, 2002). The Company does not believe this conversion feature qualifies
as a derivative instrument as defined in FASB 133 "Accounting for Derivative
Instruments and Hedging Activities" paragraph 12.
Stock-Based Compensation
- ------------------------
During the nine months ended December 31, 2005, the Company issued its directors
750,000 shares of its common stock for directors' fees. The transactions were
recorded at the quoted market price of the stock on the date of issuance. The
services, valued at $7,500, are included in the accompanying financial
statements as "Stock-based compensation". The Company also issues 4,400,000
shares valued at $110,000 to an officer for compensation expense.
During the nine months ended December 31, 2005, the Comany also issued 350,000
of stock valued at $3,500 for consulting services.
Accrued Wages
- -------------
Prior to May 31, 2005, the Company accrued wages for its president at a rate of
$5,000 per month. On May 31, 2005, the Company signed a new employment agreement
with its president, which increases the compensation to $7,000 per month. During
the three months ended December 31, 2005, the president's compensation totaled
$21,000. As of December 31, 2005, the Company owed the president $31,500 in
accrued compensation.
Page 8
AVALON OIL AND GAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 4: INCOME TAXES
The Company records its income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The Company incurred net operating losses for all
periods presented resulting in a deferred tax asset, which was fully allowed
for; therefore, the net benefit and expense resulted in $-0- income taxes.
Note 5: SHAREHOLDERS' EQUITY
During May 2005, the Company issued 100,000 shares of its common stock in
exchange for consulting services. The value of the stock issued, $.01 per share,
was recorded at fair value based on the stock's quoted market price on the date
of issuance. The $1,000 in services is included in the accompanying condensed
financial statements as "Stock-based compensation".
Effective July 19, 2005, the Company's shareholders approved an increase in the
Company's authorized common shares from 200,000,000 to 1,000,000,000. In
addition, the Company's name was changed from Xdogs, Inc. to Avalon Oil and Gas,
Inc.
On September 12, 2005, the Company issued 720,000 share of its common stock in
exchange for consulting services. The value of the stock issued, $.025 per
share, was recorded at fair value based on the stock's quoted market price on
the date of of the consulting agreement.
In November of 2005 the Company sold 5,000,000 shares of common stock at $0.01
per common share for a total of $50,000 less $1,000 of legal expenses related to
the sale.
In December of 2005 the Company sold 5,000,000 shares of common stock at $0.01
per common share for a total of $50,000 less $1,000 of legal expenses related to
the sale.
Note 6: STOCK PURCHASE AGREEMENT
On October 14, 2005, the Company entered into a stock purchase agreement with
two investor groups. The investors have agreed to purchase a total of 32,000,000
shares of the Company's common stock for a total consideration of $832,000. As
of December 31, 2005, the capital contribution had not been received and the
stock was held in escrow pending receipt of the funds by the Company.
Note 7: Earnings Per Share
SFAS 128 requires a reconciliation of the numerator and denominator of the basic
and diluted earnings per share (EPS) computations. The following securities were
not included in the calculation of diluted earnings per share because their
effect was antidilutive.
For the three and nine months ended December 31, 2005, dilutive shares do not
include outstanding warrants to purchase 2,500,000 shares of common stock at an
exercise price of $0.01 because the effects were antidilutive.
The following reconciles the components of the EPS computation:
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------------------------------------------
For the three months ended December 31, 2005:
Net loss $ (77,624)
Preferred stock dividends (10,000)
-----------
Basic EPS loss available to common shareholders $ (87,624) 102,099,847 $ (0.00)
--------
Effect of dilutive securities:
None -- --
----------- ----------
Diluted EPS loss available to common shareholders $ (87,624) 102,099,847 $ (0.00)
=========== =========== ========
For the three months ended December 31, 2004:
Net loss $ (25,221)
Preferred stock dividends (10,000)
-----------
Basic EPS loss available to common shareholders $ (35,221) 47,105,210 $ (0.00)
--------
Effect of dilutive securities:
None -- --
----------- -----------
Diluted EPS loss available to common shareholders $ (35,221) 47,105,210 $ (0.00)
=========== =========== ========
For the nine months ended December 31, 2005:
Net loss $ (180,387)
Preferred stock dividends (30,000)
-----------
Basic EPS loss available to common shareholders $ (210,387) 93,340,725 $ (0.00)
--------
Effect of dilutive securities:
None -- --
----------- ----------
Diluted EPS loss available to common shareholders $ (210,387) 93,340,725 $ (0.00)
=========== =========== ========
For the nine months ended December 31, 2004:
Net loss $ (115,192)
Preferred stock dividends (30,000)
-----------
Basic EPS loss available to common shareholders $ (145,192) 45,705,210 $ (0.00)
--------
Effect of dilutive securities:
None -- --
----------- -----------
Diluted EPS loss available to common shareholders $ (145,192) 45,705,210 $ (0.00)
=========== =========== ========
Page 9
PART 1 ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This report contains "forward-looking" statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are based on
certain assumptions and describe our future plans, strategies and expectations.
They are generally identifiable by use of the words "believe", "expect",
"intend", "anticipate", "estimate", "project" or similar expressions. These
statements are not guarantees of future performance, events or results and
involve potential risks and uncertainties. Accordingly, actual performance,
events or results may differ materially from such forward-looking statements. We
undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
Factors that could cause actual results to differ materially from current
expectations include, but are not limited to, changes in general economic
conditions, changes in interest rates, legislative and regulatory changes, the
unavailability of equity and debt financing, unanticipated costs associated with
our potential acquisitions, expanding a new line of business, ability to meet
competition, loss of existing key personnel, ability to hire and retain future
personnel, our failure to manage our growth effectively and the other risks
identified in this filing or our other reports filed with the U.S. Securities
and Exchange Commission. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements.
The following information should be read in conjunction with the 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 AND PLAN OF OPERATION
On May 23, 2005, the Company signed a Letter of Intent to acquire an eighty
percent (80%) Net Revenue Interest in certain oil and gas leasehold interests
located primarily in the Montgomery County, Kansas and certain oil field
equipment, (the "Assets") from Mid-Continent Investments, Inc. ("MCI").
On May 23, 2005, the Company named Thomas M. Day and Charles Gregoire de
Rothschild to serve on The Company's Board of Directors until the next
shareholder meeting.
On June 17, 2005, the Board of Directors and a majority of the Company's
shareholders approved an amendment to our Articles of Incorporation to change
the Company's name to Avalon Oil & Gas, Inc., and to increase the authorized
number of shares of our common stock from 200,000,000 shares to 1,000,000,000
shares, par value of $0.001.
Page 10
On July 22, 2005, we changed our name from XDOGS, Inc., to Avalon Oil and Gas,
Inc., to reflect our acquisition, and we closed the transaction and delivered
85,000,000 shares of our common stock to MCI in anticipation of receipt of an
assignment transferring ownership of the Assets.
On August 29, 2005 we acquired a one hundred percent (100%) working interest
seventy-eight percent (78%) net revenue interest in 2,400 acres located in
Canadian County, Oklahoma ("The Oklahoma Properties"), from Sooner Trend Leasing
LLC, payable by delivering 48,000,000 authorized, but previously un-issued,
shares of the Company's common stock.
On December 20, 2005, the Company elected Kent Rodriguez, Douglas Barton and
Thad Kaplan to serve on The Company's Board of Directors until the next
shareholder meeting, by less than unanimous written consent in lieu of taking
such action at an annual meeting of stockholders.
As of January 25, 2006, the Company had not received an assignment of the
Assets, and we sent a letter to our transfer agent canceling the 85,000,000
shares that were issued and delivered to MCI, for failure of consideration.
Further, the Company has notified MCI that we no longer intend to acquire the
Assets.
On February 13, 2005, the Company returned The Oklahoma Properties to Sooner
Trend Leasing LLC, and sent a letter to our transfer agent canceling the
48,000,000 shares of stock issued to Sooner Trend Leasing LLC.
Acquisition Strategy
We plan to acquire oil and gas producing properties with a combination of cash,
debt, and equity. All of these properties will have proven reserves, generate
immediate cash flow, provide low risk, in-field drilling locations and expand
production within a proven oil and gas field. We will aggressively develop these
low cost/low risk properties and rapidly enhance shareholder value.
We currently are evaluating two oil and gas producing properties.
We plan to raise additional capital during the coming fiscal year, but currently
have not identified additional funding sources. Our ability to continue
operations is highly dependent upon our ability to obtain immediate additional
financing, or generate revenues from the acquired oil and gas leasehold
interest, none of which can be guaranteed. 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
our acquired oil and gas leasehold interest, and to achieve profitability, which
is dependent upon a number of factors, including general economic conditions and
the sustained profitability resulting from the operation of the acquired oil and
gas leasehold. There is no assurance that even with adequate financing or
combined operations, we will generate revenues and be profitable.
Page 11
Financing Activities
We have been funding our obligations through the issuance of our Common Stock
for services rendered or for cash in private placements. The Company may seek
additional funds in the private or public equity or debt markets in order to
execute its plan of operation and business strategy. There can be no assurance
that we will be able to attract capital or obtain such financing when needed or
on acceptable terms in which case the Company's ability to execute its business
strategy will be impaired.
Operations for Three Months ended December 31, 2005
As of December 31, 2005 we had $20,041 in cash, total assets of $115,359, and
outstanding liabilities of $259,917.
We did not generate any revenues during the three month period ending December
31, 2005. During this period, our selling, general, and administrative expenses
were $55,195, as opposed to $17,284 for the same three month period ending
December 31, 2004. Our stock-based compensation expense for the three month
period ending December 31, 2004 was $16,667. We did not have any stock-based
compensation expense for the three month period ending December 31, 2004. During
the three month period ending December 31, 2005 our interest expense was $5,762
as opposed to $7,937 for the same three month period ending December 31, 2004.
We experienced a net loss before income taxes of $77,624 for the three month
period ending December 31, 2005, as opposed to $25,221 for the three month
period ending December 31, 2004.
Operations for the Nine Months Ended December 31, 2005
We had no net sales for this period. During this period, our selling, general,
and administrative expenses were $135,574, as opposed to $69,382 for the same
nine month period ending December 31, 2004. Our stock-based compensation expense
for the nine month period ending December 31, 2005 was $32,667, as opposed to
22,000 for the same nine month period ending December 31, 2004.
During the nine month period ending December 31, 2005 our interest expense was
$12,146 as opposed to $23,810 for the same nine month period ending December 31,
2004. We experienced a net loss before income taxes of $180,387 for the nine
month period ending December 31, 2005, as opposed to $115,192 for the nine month
period ending December 31, 2004.
LIQUIDITY AND CAPITAL RESOURCES
We have very little cash. Our cash and cash equivalents were $20,041 on December
31, 2005, compared to $42 on December 31, 2004. As a result of having little
cash, we met our liquidity needs through the issuance of our common shares for
cash or for services rendered.
For the nine months ended December 31, 2005, we issued 720,000 shares of our
common stock, valued at $16,000, for consulting services, and sold 11,100,000
shares of common stock for $110,000.
Page 12
During the nine months ended December 31, 2005, we used no cash in investing
activities. Our financing activities for this period provided cash of $159,000
as compared to $29,000 for the same period in 2004.
We need to raise additional capital during the coming fiscal year, but currently
have not located additional funding. Our ability to continue operations is
highly dependent upon our ability to obtain immediate additional financing, or
generate revenues from a combined operation with an acquisition candidate, none
of which can be guaranteed. 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 a combined operation with one of our
acquisition candidates and to achieve profitability, which is dependent upon a
number of factors, including the sustained profitability of the operations of
these candidates. There is no assurance that even with adequate financing or
combined operations, we will generate revenues and be profitable.
PART I - ITEM 3. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, Kent Rodriguez, our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the design and operation of our disclosure controls and procedures pursuant to
Rule 13a-15b under the Securities Exchange Act of 1934. Based on his review of
our disclosure controls and procedures, Mr. Rodriguez has concluded that our
disclosure controls and procedures are effective in timely alerting him to
material information relating to us that is required to be included in our
periodic SEC filings. Further, there were no significant changes in the internal
controls or in other factors that could significantly affect these controls
after the evaluation date and the date of this report.
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 we breached our contractual obligations to
him and seeking $144,000 in damages. The parties subsequently negotiated a
settlement whereby we agreed to pay Mr. Furst $94,000 in installments and
Page 13
executed a confession of judgment in favor of Mr. Furst for that amount. During
the year ended March 31, 2002, we paid Mr. Furst a total of $22,363 in interest
and principal. The Company settled this Judgment with Mr. Furst on February 18,
2005.
We also have various matters pending alleging nonpayment for services and
aggregating not more than $25,000
ITEM 2. - UNREGISTERED SALES OF EQUITY SECURITIES
a. None.
b. None.
c. Recent Sales of Unregistered Securities. During the nine months ended
December 31, 2005, we sold 11,100,000 shares of our Common Stock. We
relied on Section 4 (2) of the Securities Act of 1933, as amended, for
the issuance of these securities.
d. None.
ITEM 3. - DEFAULTS UPON 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.
(a) Form 8-K
1. Filed November 15, 2005, regarding Changes In Registrant's Certifying
Accountant.
2. Filed January 26, 2006, regarding cancellation of 85,000,000 shares
issued to Mid-Continent Investments.
3. Filed February 13, 2006, regarding cancellation of 48,000,000 shares
issued to Sooner Trend Leasing LLC.
Page 14
(b) Exhibits
Exhibit
Number Description Page
- ------ ----------- ----
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 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).
4.2 Certificate of Designation of Series and *
Determination of Rights and Preferences of
Series A Convertible Preferred Stock
(Incorporated by reference to Exhibit 4.2 to
Form 10-KSB filed July 12, 2002.)
10.1 Incentive Compensation and Employment *
Agreement for Kent A. Rodriguez
(Incorporated by Reference to Exhibit 10.12
of our Form 10-KSB filed July 20, 2001)
31 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
* Incorporated by reference to a previously filed exhibit or report.
Page 15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
XDOGS, INC.
By: /s/ Kent Rodriguez
- -------------------------------
Date: February 21, 2006
Kent Rodriguez
Chief Executive Officer
Chief Financial and Accounting Officer
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