U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended June 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the transition period from _____________to_______________
Commission file number: 1-12850
XDOGS, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Nevada 84-1168832
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
126 North Third Street, Suite 407
Ninneapolis, Minnesota 55401
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (612) 359-9020
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date:
Outstanding at June 30, 2003
---------------------------------
31,360,543
$.001 par value common stock
Transitional Small Business Disclosure Format (Check one) Yes [ ] No [X]
XDOGS, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements............................................... 3
ITEM 2. Management Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 4
ITEM 3. Controls and Procedures............................................ 6
PART II--OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................. 6
ITEM 2. Changes in Securities and Use of Proceeds.......................... 7
ITEM 3. Defaults Upon Senior Securities.................................... 7
ITEM 4. Submission of Matters to a Vote of Security Holders................ 7
ITEM 5. Other Information.................................................. 7
ITEM 6. Exhibits and Reports on Form 8-K................................... 7
2
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
XDOGS, INC.
CONDENSED FINANCIAL STATEMENTS
UNAUDITED
June 30, 2003
INDEX
Page
____
Balance Sheet................................................. F-1
Condensed Statements of Operations (Unaudited)................ F-2
Condensed Statements of Cash Flows (Unaudited)................ F-3
Notes to Condensed Financial Statements (Unaudited)........... F-4
3
XDOGS, INC.
CONDENSED BALANCE SHEET
June 30, 2003
(Unaudited)
Assets
Equipment, net..................................................$ 1,721
Idle equipment, net............................................. 3,304
-----------
$ 5,025
===========
Liabilities and Shareholders' Deficit
Current liabilities:
Bank overdraft................................................$ 120
Accounts and notes payable:
Accounts payable............................................ 154,212
Notes payable, related party (Note 2)....................... 145,120
Notes payable, other........................................ 25,000
Accrued interest payable to related party (Note 2)............ 4,354
Accrued expenses.............................................. 65,418
Litigation liabilities........................................ 170,926
----------
Total current liabilities.............................. 565,150
----------
Commitments and contingencies................................... -
Shareholders' deficit (Note 5):
Preferred stock............................................... 10
Common stock.................................................. 31,366
Additional paid-in capital.................................... 13,874,887
Accrued compensation.......................................... 204,063
Retained deficit.............................................. (14,670,451)
-----------
Total shareholders' deficit............................ (560,125)
-----------
$ 5,025
===========
See accomanying notes to condensed financial statements
F-1
XDOGS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
--------------------
2003 2002
---- ----
Operating expenses:
Selling, general and administrative expenses.... $ 33,860 $ 67,385
Stock-based compensation........................ 200 30,000
Asset impairment................................ - 25,080
Accounts payable settlement gains............... (13,300) -
--------- ----------
Total operating expenses................. 20,760 122,465
--------- ----------
Operating loss........................... (20,760) (122,465)
Non-operating income (expense):
Interest expense (Note 2)....................... (5,291) (20,091)
Other income.................................... - -
Interest income................................. - -
--------- ----------
Loss before income taxes................. (26,051) (142,556)
Provision (benefit) for income taxes (Note 3)..... - -
--------- ----------
Net loss................................. $ (26,051) $ (142,556)
========= ==========
Basic and diluted loss per common share........... $ (0.00) $ (0.01)
========= ==========
Basic and diluted weighted average common
shares outstanding............................... 31,360,543 11,050,543
========== ==========
See accomanying notes to condensed financial statements
F-2
XDOGS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
June 30,
--------------------
2003 2002
---- ----
Net cash (used in) operating activities $ (10,863) $ (193,562)
--------- ----------
Cash flow from financing activities:
Net proceeds from sale of common stock........ - 42,538
--------- ----------
Net cash provided by financing activities - 42,538
--------- ----------
Net change in cash (10,863) (151,024)
Cash at beginning of period....................... 10,863 158,016
--------- ----------
Cash at end of period............................. $ - $ 6,992
========= ==========
Supplemental cash flow information:
Cash paid for interest........................ $ - $ -
========= ==========
Cash paid for income taxes $ - $ -
========= ==========
Noncash investing and financing activities:
Stock issued for retirement of debt
and interest................................ $ - $ 524,795
========= ==========
See accomanying notes to condensed financial statements
F-3
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, 2003 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 three months ended June 30, 2003 are not necessarily
indicative of the results to be expected for the fiscal year ending March 31,
2004.
Note 2: Related Party Transactions
The Company accrued, but did not pay an officer $15,000 for the three months
ended June 30, 2002. During the three months ended June 30, 2003, the Company
owed an officer $145,120 in promissory notes. Interest expense and accrued
interest payable on the notes totaled $4,354 at June 30, 2003.
Note 3: Income Taxes
The Company records its income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The Company incurred net operating losses during
the three months ended June 30, 2003 resulting in a deferred tax asset, which
was fully allowed for; therefore, the net benefit and expense resulted in $-0-
income taxes.
Note 4: Debt Settlements
During the three months ended June 30, 2003, the Company settled various
payables and accruals for less than the historic value of the liabilities. As
a result of these settlements, the Company recognized a gain totaling $13,300,
which is included in the accompanying condensed financial statements as Accounts
Payable Settlement Gains.
Note 5: Shareholders' Deficit
During the three months ended June 30, 2003, the Company issued a consultant
10,000 shares of its common stock, valued at $200, in exchange for consulting
services. For financial accounting purposes, the Company valued the common
stock transactions based on the OTCBB quoted market price.
F-4
XDOGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 6: Subsequent Events
During July 2003, the Company sold 1,000,000 shares of its common stock for
$10,000.
On July 25, 2003, the Company's president advanced the Company $86,840, which
was used to repay a legal settlement.
On August 7, 2003, the Company signed a non-binding letter of intent to acquire
the business and operations of Katherine Baumann, LLC ("KB"), a Beverly Hills
based, California Limited Liability Company and designer of specialty women's
handbags. The Company has a ninety day option to acquire 25 percent of KB's
fully-diluted capital stock for $250,000, payable in cash. It is contemplated
that simultaneous with the exercise of the option and payment of the $250,000,
the Company and KB shall execute an agreement and plan of merger, pursuant to
which the Company would be the surviving corporation. Following the merger, the
prior shareholders of KB would own approximately 75 percent of the Company's
fully-diluted common stock, resulting in a change in control.
F-5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS AND PLAN OF OPERATION
As of June 30, 2003, we had no operations other than paying past debts and
seeking merger or acquisition candidates, which activities generated no
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 seller of specialty action sports hard goods and related
apparel which we have been implementing since August, 2000. We expect to
continue to generate significant losses and without additional funding through
private placements of our Common Stock, which cannot be guaranteed, it is highly
unlikely that we can continue to operate. As a result, we have been focusing on
a plan of operation entailing a strategic acquisition or acquisitions.
Acquisition Strategy
Subsequent Event
On August 7, 2003, we signed a non-binding letter of intent to acquire the
business and operations of Kathrine Baumann, LLC ("KB"), a Beverly Hills based,
California Limited Liability Company and designer of specialty women's handbags.
We obtained a ninety day option to acquire a maximum of 25% of the fully-diluted
capital stock of the Company, in consideration of the sum of $250,000, payable
in cash (the "Option Price"). In full consideration of the Option, XDGI shall
pay for the audit of the financial statements of the Company, as contemplated
below. The Deposit shall be used solely for the purpose of paying accounting
fees required to effect the "Merger" transaction described herein. The Option
shall expire, if not fully exercised, ninety (90) days following the Execution
Date. It is contemplated that simultaneous with the exercise of the Option and
payment of the $250,000 Option Price, the Company and Kathrine Baumann (the
"Principal") shall execute an agreement and plan of merger with XDGI and anewly
formed California merger subsidiary of XDGI ("Mergerco") pursuant to which
the Company and Mergerco shall be merged, with the Company as the surviving
corporation of the Merger. In consideration for the Merger, the Principal or
her designees shall receive seventy-five (75%) percent of the fully-diluted
capital stock of XDGI, with the remaining twenty-five (25%) percent to be owned
by the existing stockholders of XDGI. If we complete the merger, we will
establish a seven-person board of directors, four of whom will be nominated by
Ms. Baumann, one of whom will be Mr. Rodriguez and two of whom will be
independent directors. The transaction is subject to negotiation of a
definitive merger agreement and completion of our due diligence investigation
of KB's business and assets. We cannot assure that we will obtain the required
funds for the option deposit sum, successfully negotiate and consummate the
merger or ever be profitable.
We also are exploring and evaluating the feasability of other acquisition
candidates in addition to Kathrine Baumann. There can be no assurance that any
acquisition candidate will be acquired, or if acquired that the combined
operations will be successful or profitable.
4
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 Quarter ended June 30, 2003
_________________________________________
As of June 30, 2003, we had no cash on hand, total assets of $5,025, and
outstanding liabilities of $565,151. We did not generate any revenues during
the three month period ended June 30, 2003. During this period, our selling,
general, and administrative expenses were $33,860, our interest expense was
$5,291 and our stock-based consulting and compensation expense relating to stock
issued for services was $200. We experienced a net loss before income taxes of
$26,051 for the three month period ended June 30, 2003. During the period, we
able to settle various payables and accruals for less than their historic value,
and we recognized a gain totaling $13,300.
LIQUIDITY AND CAPITAL RESOURCES
During the period ended June 30, 2003, we used $10,863 in operating activities,
and had no investing activities or financing activities.
Subsequent Events
We have been able to meet our liquidity needs through the issuance of our common
shares for cash or for services rendered. In July of 2003, we issued 1,000,000
shares of our Common Stock in private placement for proceeds of $10,000.
Additionally, our president advanced the Company $86,840, which was used to
repay a legal settlement.
We plan to raise additional capital during the coming 12 months, but currently
have not identified 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 Kathrine Baumann, LLC or
another acquisition candidate, none of which can be guaranteed. Unless
additional funding is identified, 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 any acquisition candidate 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.
5
ITEM 3. Controls and Procedures
(a) Evaluation of Disclosure Controls & 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.
(b) Changes in Internal Control over Financial Reporting.
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 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 failed to pay Mr. Furst in accordance with this
settlement agreement. During the year ended March 31, 2002, we paid Mr. Furst
a total of $22,363 in interest and principal.
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 were in
default on March 9, 2001, and Mr. Carlson initiated a legal action against us in
the District Court of Hennepin County, MN to collect the loan. We also granted
to Mr. Carlson options to purchase 60,000 shares of Common Stock, all of which
were not-in-the money. In November 2001, we entered into a settlement agreement
with Mr. Carlson whereby we agreed to pay him $125,000 over time and on or
before June 30, 2002 and secured our obligation with our President's personal
assets. During fiscal year 2002, we paid Mr. Carlson $45,000 and owed him
approximately $80,000. On July 25, 2003, the Company's president advanced the
Company $86,840, which was used to retire the amount owed on the settlement to
Mr. Carlson and is now paid in full.
In October 2001, Gage Marketing Services filed an action against us in the U.S.
District Court for the District of Minnesota alleging nonpayment for services.
Pursuant to a settlement agreement in January 2002, we agreed to pay Gage
Marketing Services $4,000 in February 2002 to settle this dispute. The
settlement was paid during the year ended March 31, 2003.
We also have various matters pending alleging nonpayment for services and
aggregating not more than $25,000.
6
ITEM 2. Changes in Securities and Use of Proceeds.
There have been no changes in securities during this reporting period.
ITEM 3. Defaults Upon Senior Securities.
We incurred no defaults upon senior securities during this reporting period.
ITEM 4. Submission of Matters to a Vote of Security Holders.
On April 19, 2003, we filed a Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934, wherein we were seeking the approval from a
majority of our shareholders to amend our Articles of Incorporation to increase
the number of authorized shares of Common Stock to 200,000,000. Management
asked for this approval by the solicitation of written consents in lieu of a
Meeting of Stockholders. The matter was approved and on May 6, 2003, we filed
a Certificate of Amendment to Articles of Incorporation.
ITEM 5. Other Information.
None
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(b) Form 8-K
1. Filed May 6, 2003, Notice of action by majority stockholders to Amend
Articles of Incorporation
2. Filed August 7, 2003, Notice of signing of Letter of Intent to acquire
Kathrine Baumann, LLC.
SIGNATURES
In accordance with 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.
(Registrant)
/s/Kent Rodriguez
_______________________
Kent Rodriguez
President
Date: September 19, 2003