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 quarter ended September 30, 2004
Commission file number: 1-12850
XDOGS, INC.
Formerly known as XDOGS.COM, Inc.
------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
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)
----------
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: 44,938,543 shares of Common
Stock, $.01 par value per share, outstanding as of November 22, 2004.
XDOGS, INC.
FORM 10-QSB
TABLE OF CONTENTS
XDOGS, INC.
INDEX
Part I: FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Condensed balance sheet, September 30, 2004 (unaudited)................... 3
Condensed statements of operations for the six months
ended September 30, 2004 and 2003 (unaudited)........................ 4
Condensed statement of changes in shareholders' deficit for the six
months ended September 30, 2004 (unaudited).......................... 5
Condensed statements of cash flows for the six months
ended September 30, 2004 and 2003 (unaudited)........................ 6
Notes to condensed financial statements (unaudited)....................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 10
Item 3.Controls and Procedures............................................ 12
Part II: OTHER INFORMATION................................................ 12
2
XDOGS, INC.
CONDENSED BALANCE SHEET
September 30, 2004
(Unaudited)
Assets
Current assets:
Cash........................................................ $ 215
-----------
Total current assets........................... 215
Idle equipment, net............................................. 726
-----------
941
===========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts and notes payable:
Accounts payable....................................... $ 151,713
Notes payable, related party (Note 2)................... 229,960
Notes payable, other (Note 4) .......................... 75,000
Accrued expenses........................................... 110,290
Litigation liabilities..................................... 85,926
-----------
Total current liabilities...................... 652,889
-----------
Commitments and contingencies .................................. --
Shareholders' deficit (Note 5):
Preferred stock............................................ 10
Common stock............................................... 46,439
Additional paid-in capital................................. 14,307,155
Retained deficit........................................... (15,005,552)
-----------
Total shareholders' deficit.................... $ (651,948)
-----------
$ 941
===========
See accompanying notes to condensed financial statements
3
XDOGS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative expenses ....... $ 29,187 $ 35,912 $ 58,320 $ 69,772
Stock-based compensation ........................... 6,000 41,000 6,000 41,200
Asset impairment ................................... -- -- -- --
Accounts payable settlement gains .................. -- -- -- (13,300)
------------ ------------ ------------ ------------
Total operating expenses ............ 35,187 76,912 64,320 97,672
------------ ------------ ------------ ------------
Operating loss ..................... (35,187) (76,912) (64,320) (97,672)
Non-operating income (expense):
Interest expense (Note 2) .......................... (7,937) (6,121) (15,874) (11,412)
Other income ....................................... -- -- -- --
Interest income .................................... -- -- -- --
------------ ------------ ------------ ------------
Loss before income taxes ............. (43,124) (83,033) (80,194) (109,084)
Provision (benefit) for income taxes (Note 3) .......... -- -- -- --
------------ ------------ ------------ ------------
Net loss ............................. $ (43,124) $ (83,033) $ (80,194) $ (109,084)
============ ============ ============ ============
Loss attributable to common stock
after preferred stock dividends $ (53,124) $ (93,033) $ (100,194) $ (129,084)
============ ============ ============ ============
Basic and diluted loss per common share ................ $ (000) $ (000) $ (000) $ (000)
============ ============ ============ ============
Basic and diluted weighted average
common shares outstanding .......................... 43,571,876 35,182,210 44,671,115 32,453,162
============ ============ ============ ============
See accompanying notes to condensed financial statements
4
XDOGS, INC.
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
(Unaudited)
Preferred Stock, Series A Common Stock
--------------------------- ---------------------------
Shares Par Value Shares Par Value
------------ ------------ ------------ ------------
Balance, March 31, 2004 ........ 100,000,00 $ 10 42,738,543 $ 42,739
Common stock sales (Note 5) ........................ -- -- 2,500,000 2,500
Common stock issued for consulting services (Note 5) -- -- 1,200,000 1,200
Dividends on preferred stock ....................... -- -- -- --
Net loss, six months ended September 30, 2004 ...... -- -- -- --
------------ ------------ ------------ ------------
Balance, September 30, 2004 ......... 100 $ 10 46,438,543 $ 46,439
============ ============ ============ ============
5
XDOGS, INC.
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
(Unaudited)
(Continued)
Additional
Paid-in Accrued Retained
Capital Compensation Deficit Total
------------ ------------ ------------ ------------
Balance, March 31, 2004 ........ $ 14,276,877 $ 90,000 $ 14,974,767 $ (655,141)
Common stock sales (Note 5) ........................ 22,500 -- -- 25,000
Common stock issued for consulting services (Note 5) 5,800 -- -- 6,000
Dividends on preferred stock ....................... -- -- (20,000) (20,000)
Net loss, six months ended September 30, 2004 ...... -- -- (100,194) (100,194)
------------ ------------ ------------ ------------
Balance, September 30, 2004 ......... $ 14,305,177 $ 90,000 $ 14,854,573 $ (744,335)
============ ============ ============ ============
See accompanying notes to condensed financial statements
5(Con't)
XDOGS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
September 30,
--------------------
2004 2003
-------- --------
Net cash (used in) operating activities $(24,842) $(55,045)
-------- --------
Cash flow from financing activities:
Proceeds from sale of common stock ....................... 25,000 44,500
Proceeds from director's loan ............................ -- 84,840
Repayment of litigation debts ............................ -- (85,000)
-------- --------
Net cash provided by financing activities 25,000 44,340
-------- --------
Net change in cash 158 (10,705)
Cash at beginning of period ..................................... 2,015 10,863
-------- --------
Cash at end of period ............................................ 158 158
======== ========
Supplemental cash flow information:
Cash paid for interest .................................... $ 6,598 $ --
======== ========
Cash paid for income taxes ................................ $ -- $ --
======== ========
Noncash investing and financing activities:
Stock issued for retirement of debt and interest ...... $ -- $ --
======== ========
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, 2004 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 six months ended September 30, 2004 are not necessarily
indicative of the results to be expected for the fiscal year ending March 31,
2005.
Note 2: Related Party Transactions
At March 31, 2004, the Company owed an officer two promissory notes totaling
$229,960. The $145,120 note carries a 10 percent interest rate and matured in
June 2004. The $84,840 note also carries a 10 percent interest rate and matured
in July 2004. The Company paid the officer $6,598 for interest expense during
the six months ended September 30, 2004. Accrued interest payable and interest
expense on the notes totaled $5,749 and $5,749, respectively, as of and for the
six months ended September 30, 2004.
The Company accrues wages for its president at $5,000 per month. As of September
30, 2004, the Company has accrued $90,000 in wages for its president.
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 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 4: Notes Payable
On December 2, 2003, the Company received $50,000 from an unrelated third party
in exchange for a promissory note. The note carries a ten percent interest rate
and matures on December 2, 2004. Accrued interest payable and interest expense
on the note totaled $4,187 and $1,250, respectively, as of and for the six
months ended September 30, 2004.
At March 31, 2004, the Company owed a $25,000 promissory note to a shareholder.
The note carries a 15 percent interest rate, matured on December 31, 2002, and
is personally guaranteed by an officer of the Company. The note is in default as
of June 30, 2004. Accrued interest payable and interest expense on the note
totaled $8,694 and $938, respectively, as of and for the six months ended
September 30, 2004.
7
XDOGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 5: Shareholders' Deficit
During the six months ended September 30, 2004, the Company sold 2,500,000
shares of its common stock to an unrelated third-party investor for $25,000, or
$.01 per share.
During the six months ended September 30, 2004, the Company issued a consultant
1,200,000 shares of its common stock, valued at $6,000, in exchange for
consulting services. For financial accounting purposes, the Company valued the
common stock transactions based on the OTCBB quoted market price.
Note 6: Letter of Intent
On June 1, 2004, the Company signed a non-binding letter of intent to acquire
the business and operations of Legion Media Partners, ("LMP"), a Los Angeles,
California based financier and distributor of theatrical motion pictures and
television programming on a world-wide basis. Under the terms of the LOI, the
Company planned to issue shares of its common stock to the shareholders of LMP
in exchange for either (a) all of the issued and outstanding capital stock of
LMP, or (b) all of the assets necessary for, used in or useful to LMP's
operations. The Company and LMP contemplated a one-for-one share exchange with
the shareholders of LMP receiving seventy-three percent (73%) of the new entity.
The LOI subsequently expired and the Company decided not to proceed with the
proposed acquisition.
8
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
As of September 30, 2004, 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.
9
Acquisition Strategy
On June 1, 2004 we signed a non-binding Letter of Intent to acquire the
business and operations of LMP, a Los Angeles, CA based financier and
distributor of theatrical motion pictures and television programming in both
traditional and new media formats on a world-wide basis XDOGS (or a newly formed
subsidiary of XDOGS formed for the purpose of the Transaction also referred to
herein as XDOGS) will issue and deliver to LMP shares of its duly authorized
common stock free and clear of all liens, claims and encumbrances in exchange
for either (a) all of the issued and outstanding capital stock of LMP (the "LMP
Stock"), or (b) all of the assets (whether tangible or intangible) necessary
for, used in or useful to LMP's operations (the "LMP Assets"). Upon closing of
the Transaction, XDOGS would acquire the LMP Stock or the LMP Assets free and
clear of all claims, liens or encumbrances of any kind except for those
liabilities of LMP which, after completion of due diligence, XDOGS expressly
agrees to assume (the "Assumed Liabilities"). LMP, or its stockholders as the
case may be, would remain responsible for all other liabilities. XDOGS and LMP
contemplate a one for one share exchange, with LMP shareholders receiving
seventy-three percent (73%) of the new entity. The Letter of Intent expired on
August 15, 2004 and the parties were not able to negotiate a Stock Purchase
Agreement per the terms and conditions as summarized above, and we decided not
to pursue any additional discussions with LMP.
Management has resumed its search for a satisfactory acquisition and is
devoting all of its time and resources to that goal. There can be no assurance
that we will find a satisfactory acquisition candidate or consummate a
transaction, or if consummated, that the combined operations will be successful
or profitable.
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 Six Months ended September 30, 2004
As of September 30, 2004, we had $215 cash on hand, total assets of $941,
and outstanding liabilities of $652,889. We did not generate any revenues during
the six month period ending September 30, 2004. During this period, our selling,
general, and administrative expenses were $64,320, and our interest expense was
$15,874. We experienced a net loss before income taxes of $80,194 for the six
month period ending September 30, 2004.
10
LIQUIDITY AND CAPITAL RESOURCES
We have very little cash. Our cash and cash equivalents were $241 on
September 30, 2004, compared to $158 on September 30, 2003. As a result of
having little cash, we met our liquidity needs through the issuance of our
common shares for cash.
For the six months ended June 30, 2004, we sold 2,500,000 shares of common
stock for $25,000, as compared to 44,500 for the six months ended September 30,
2003.
During the six months ended September 30, 2004, we used no cash in
investing activities. Our financing activities for this period provided cash of
$25,000.
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.
During the period ended September 30, 2004, we used $24,785 in operating
activities and had 25,000 in financing activities.
Subsequent Events
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 an 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.
PART 1 - 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
11
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. We are currently negotiating with
Mr. Furst to settle this judgment.
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. Mr.
Carlson is now paid in full.
We also have various matters pending alleging nonpayment for services and
aggregating not more than $25,000.
ITEM 2. - CHANGES IN SECURITIES
a. None.
b. None.
12
c. Recent Sales of Unregistered Securities. During the three months ended
June 30, 2004, we sold 2,500,000 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 June 2, 2004 Signing of Letter of Intent to acquire Legion Media, Inc.
(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)
13
Exhibit
Number Description Page
- ------ ----------- ----
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 Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
* Incorporated by reference to a previously filed exhibit or report.
14
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
-------------------------------
Kent Rodriguez
Chief Executive Officer
Chief Financial and
Accounting Officer