<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
Commission file number 1-12850
THE SLED DOGS COMPANY
(Exact name of small business issuer as specified in its charter)
212 3rd Avenue North, Suite 420
Minneapolis, Minnesota 55401
(Address of principal executive offices)
Incorporated under the laws of I.R.S. Identification Number
the State of Colorado 84-1168832
(612) 359-9020
(Small business issuer's telephone number including area code)
_____________________________________
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
_____________________________________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 13,513,193 shares of Common
Stock, $.01 par value per share, outstanding as of November 13, 1996.
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THE SLED DOGS COMPANY
FORM 10-QSB QUARTERLY REPORT FOR THE QUARTER ENDED
SEPTEMBER 30, 1996
TABLE OF CONTENTS
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Page
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1996 and June 30, 1996 3
Condensed Consolidated Statements of Operations for the Three Months ended
September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the Three Months ended
September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements - September 30, 1996 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 10
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
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<CAPTION>
September 30
1996 June 30,
ASSETS (Unaudited) 1996
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 698,633 $ 653,251
Accounts receivable, less allowance for doubtful accounts of $139,000
and $147,000 at September 30, 1996 and June 30, 1996, respectively 218,094 349,354
Other receivables 61,732 34,402
Inventories 878,163 694,080
Prepaid expenses 479,235 168,714
------------------- ------------------
Total current assets 2,335,857 1,899,801
Property and equipment, less accumulated depreciation of $517,456 and
$456,043 at September 30, 1996 and June 30, 1996, respectively 824,458 605,189
Patents, less accumulated amortization of $135,380 and $123,686 at
September 30, 1996 and June 30, 1996, respectively 155,926 159,697
------------------- ------------------
Total assets $ 3,316,241 $ 2,664,687
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 418,562 $ 378,678
Accrued expenses and other liabilities 271,277 53,961
Line of credit 152,546 27,626
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Total current liabilities 842,385 460,265
Shareholders' equity
Convertible preferred stock, Series A, $1.00 par value:
Authorized shares - 1,500,000
Issued and outstanding shares - 0 - September 30, 1996 and June 30, 1996
Common stock, $.01 par value: - -
Authorized shares - 50,000,000
Issued and outstanding shares - 13,513,193 and 11,749,999 September 30, 1996
and June 30, 1996, respectively 135,132 117,500
Additional paid-in capital 13,596,637 12,291,874
Accumulated deficit (11,257,913) (10,204,952)
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Total shareholders' equity 2,473,856 2,204,422
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Total liabilities and shareholders' equity $ 3,316,241 $ 2,664,687
=================== ==================
</TABLE>
See notes to condensed consolidated financial statements
3
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
Three Months Ended
September 30
1996 1995
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Net sales $ 85,303 $ 371,464
Cost of goods sold 127,356 263,466
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Gross margin (42,053) 107,998
Costs and expenses:
General and administrative 362,307 273,629
Sales and marketing 594,440 448,353
Research and development 55,133 66,494
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Total costs and expenses 1,011,880 788,476
Interest expense 16,329 10,000
Interest income and other (income) expense (17,300) (16,600)
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Net loss $ (1,052,962) $ (673,878)
============= ==============
Net loss per common share $ (0.08) $ (0.18)
============= ==============
Weighted average number of common
equivalent shares outstanding 12,774,665 3,749,999
============= ==============
</TABLE>
See notes to condensed consolidated financial statements
4
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,052,962) $ (673,878)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 78,223 71,243
Loss on asset disposal 666 -
Noncash interest expense related to warrants - 10,000
Changes in operating assets and liabilities:
Receivables 103,930 (270,953)
Inventories (184,083) (277,397)
Prepaid expenses (310,521) 98,058
Accounts payable 39,884 486,640
Other accrued expenses 217,316 (49,935)
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Net cash used in operating activities (1,107,547) (606,222)
INVESTING ACTIVITIES
Purchases of property and equipment (288,664) (49,731)
Acquisition of patents and trademarks (7,922) (7,453)
Proceeds from the sale of fixed assets 2,200 -
Other assets - -
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Net assets used in investing activities (294,386) (57,184)
FINANCING ACTIVITIES
Net proceeds from warrants exercised 1,322,395 -
Net borrowings under line of credit 124,920 -
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Net cash provided by financing activities 1,447,315 -
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Net increase (decrease) in cash and cash equivalents 45,382 (663,406)
Cash and cash equivalents at beginning of year 653,251 733,586
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Cash and cash equivalents at end of period $ 698,633 $ 70,180
============ ===============
Interest paid $ 9,753 $ -
============ ===============
</TABLE>
See notes to condensed consolidated financial statements
5
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THE SLED DOGS COMPANY
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
period ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ended March 31, 1997.
<PAGE> 7
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following information should be read in conjunction with the consolidated
condensed financial statements and the notes thereto included in Item 1 of this
Quarterly Report, and the financial statements and the notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-KSB for the year
ended June 30, 1996.
RESULTS OF OPERATIONS
NET SALES
The Company's net sales for the first quarter ended September 30, 1996 were
$85,303, compared to net sales of $371,464 reported for the same quarter last
year. The decrease in sales results for the first quarter can be attributed
primarily to late product deliveries from suppliers. The Company expected
sales to grow by approximately 50% over fiscal 1996's first quarter based on
the volume of open orders entering the quarter. Entering the second quarter of
fiscal 1997, the supplier delivery problem has been remedied and we expect to
show significant growth in net sales for the first six months of fiscal 1997
compared to the first six months of fiscal 1996.
COST OF GOODS SOLD AND GROSS MARGIN
Gross margin as a percentage of net sales was (49.3%) for the first quarter
ended September 30, 1996, compared to 29.1% for the same period last year.
The negative gross margin percentage for this year's first quarter was
primarily due to product gross margin not exceeding the fixed costs for
manufacturing asset depreciation and warehouse operations. Product gross margin
percentage before fixed costs was 41.2%. Had the Company achieved net sales
results approaching its open order volume entering the quarter, the gross
margin percentage would have approximated last year's first quarter gross
margin percentage.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from $273,629 for the first
quarter ended September 30, 1995 to $362,307 for the first quarter ended
September 30, 1996, an increase of $88,378 or 32%. The increase was primarily
attributed to: 1) higher salaries and benefits due to one new hire for
operations management and the reclassification of one employee from marketing
to administrative; and 2) higher investor relations expenses for the "Yellow
Snow - The Ride from Black to White" ("Yellow Snow") Infomercial Premiere, a
PC-based road show presentation and local road show expenses. In fiscal 1997
and beyond, the Company expects general and administrative expenses to decrease
as a percentage of net sales, if it controls these costs, as its net sales base
increases.
SALES AND MARKETING
Sales and marketing expenses for the first quarter ended September 30, 1996
were $594,440, compared to $448,353 for the same period last year, an increase
of $146,087 or 33%. The increase over the prior year quarter was primarily due
to the following new marketing initiatives: 1) the infomercial "Yellow Snow;"
2) the Company's web site on the Internet; and 3) "Slide" the only magazine
dedicated to the sport of snow skating. The Company expects to increase sales
and marketing expenses as necessary to drive increases in net sales results,
and therefore, such expenses could vary as a percentage of net sales in the
future.
<PAGE> 8
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS - CONTINUED
RESEARCH AND DEVELOPMENT
Research and development expenses decreased from $66,494 for the first quarter
ended September 30, 1995 to $55,133 for the first quarter ended September 30,
1996, a decrease of $11,361 or 17%. The decrease for the quarter was primarily
due to a reduction in development costs for future generation snow skate
products versus the costs incurred in fiscal 1996 developing the new K9(TM)
model. The Company expects research and development expenses to increase when
necessary as the sport of snow skating expands and there is demand for
alternative boot and base structures to accommodate different snow skating
styles and venues.
INTEREST EXPENSE
Interest expense for the first quarter ended September 30, 1996 was $16,329,
compared to $10,000 for the prior year period. The increase was due to greater
usage of the line of credit this fiscal year versus the prior fiscal year.
INTEREST AND OTHER (INCOME) EXPENSE
Interest and other (income) expense for the first quarter ended September 30,
1996 was virtually the same as the prior year period.
NET LOSS
The net loss of $1,052,962 for the first quarter ended September 30, 1996 was
$379,084 greater than the net loss of $673,878 reported for the same period in
the prior year. The increase in loss for the quarter was due to the lower
sales volume and the higher operating expenses related to new operations and
marketing initiatives.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended September 30, 1996, the Company's operations used
net cash of $1,107,547, primarily to fund operating losses, inventories and
prepaid expenses (primarily inventory down payments and infomercial media
costs).
Accounts receivable at September 30, 1996 were $218,094 on net sales of $85,303
for the three months ended September 30, 1996. Accounts receivable at June 30,
1996 were $349,354 on net sales of $876,803 for the year ended June 30, 1996.
In conformity with standard payment terms for the winter sports industry, the
Company offers extended dating terms. Payments for merchandise purchased are
generally due between December and March of the winter season. The accounts
receivable balance at September 30, 1996 contained some balances from the prior
fiscal year. These carryover balances can be attributed to customers being
unable to pay for product as they experienced poor snow conditions (primarily
west coast) and/or poor sell-through of the product. The Company has put the
majority of these customers on payment plans that reduce their balances to zero
by November/December 1996. The payment plans have provided these customers the
opportunity to sell fiscal 1996 product inventory early this winter season and
then remit amounts owed to the Company.
<PAGE> 9
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The increases in inventory and prepaid expenses from June 30, 1996 to September
30, 1996 were primarily due to inventory purchases for the season and
infomercial media buys (four week advance required).
The Company's investing activities for the three months ended September 30,
1996 consisted of capital expenditures of $288,664 that primarily related to
manufacturing molds ($266,480 or 92% of the total) and warehouse assembly
equipment ($22,184). The Company also spent $7,922 on additional patents and
trademarks. These expenditures were offset by proceeds of $2,200 received on
the sale of warehouse racking.
The Company's financing activities for the three months ended September 30,
1996 provided cash of $1,447,315 that consisted of $1,322,395 in net proceeds
from the exercise of 1,763,194 Private Placement Warrants and $124,920 in net
borrowings under the Company's line of credit. The Private Placement Warrants
were exercisable at an exercise price of $.75 per share during the period
commencing July 17, 1996 and ending August 30, 1996. Upon the expiration of
such period, the Private Placement Warrants were again exercisable for $1.00
per share. The proceeds from these financing activities were applied to
working capital and other corporate purposes.
As of September 30, 1996, the Company had cash and cash equivalents of
$698,633, working capital of $1,493,472, and approximately $61,550 available
under its asset-based line of credit with a commercial bank. The line of
credit bears interest at prime plus 4.0%, has a maximum borrowing level of $2
million and expires in June 1997. The line of credit is secured by
substantially all of the Company's assets, requires the Company to maintain
certain financial ratios and restricts the payment of dividends. There were
outstanding borrowings under the line of $152,546 as of September 30, 1996.
During the initial test period for the Company's infomercial, results indicated
that direct sales generated by the infomercial would be lower than expected.
However, the test period also indicated that the infomercial was very
effective in creating consumer leads and demand at the retail level. While the
Company believes the initial results of the infomercial will benefit the Company
longer term, the short term effect will be lower than expected direct sales,
which have a negative impact on cash flow. Direct sales positively impact cash
flow as the Company receives payment of the full retail price within a few days
after completion of the sale. The change in expected direct sales results will
cause the Company to require additional cash to fund operations prior to the end
of the 96/97 winter selling season. The Company is presently pursuing several
different financing alternatives to meet short term operating needs and meet its
future growth requirements.
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:
inability to control costs or expenses; manufacturing and distribution
problems; and lack of market acceptance of the Company's products. Reference
is made to the risk factors contained in the Company's Registration Statement
on Form S-3 (No. 33-80875), which are incorporated herein by reference.
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Form 8-K
A Form 8-K was filed September 11, 1996 to report the change in the
Company's fiscal year end from June 30 to March 31 of each year.
A Form 8-K was filed August 20, 1996 to report the Company's year
end results for fiscal 1996.
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE SLED DOGS COMPANY
Dated: November 13, 1996
/s/ John Sundet
------------------------------------------------------
John Sundet, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Michael P. Wise
------------------------------------------------------
Michael P. Wise, Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 698,633
<SECURITIES> 0
<RECEIVABLES> 418,826
<ALLOWANCES> 139,000
<INVENTORY> 878,163
<CURRENT-ASSETS> 2,335,857
<PP&E> 1,341,914
<DEPRECIATION> 517,456
<TOTAL-ASSETS> 3,316,241
<CURRENT-LIABILITIES> 842,385
<BONDS> 0
0
0
<COMMON> 135,132
<OTHER-SE> 2,338,724
<TOTAL-LIABILITY-AND-EQUITY> 3,316,241
<SALES> 85,303
<TOTAL-REVENUES> 85,303
<CGS> 127,356
<TOTAL-COSTS> 1,011,880
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,329
<INCOME-PRETAX> (1,052,962)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,052,962)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,052,962)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> 0
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