<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 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: 11,749,999 shares of Common
Stock, $.01 par value per share, outstanding as of May 13, 1996.
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THE SLED DOGS COMPANY
FORM 10-QSB QUARTERLY REPORT FOR THE QUARTER ENDED
MARCH 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1996 and June 30, 1995 3
Condensed Consolidated Statements of Operations for the Three and Nine Months ended
March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the Nine Months ended
March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements - March 31, 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
</TABLE>
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1996 June 30,
(Unaudited) 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,115,888 $ 733,586
Accounts receivable, less allowance for doubtful accounts of $226,856
and $175,000 at March 31, 1996 and June 30, 1995, respectively 597,840 326,200
Other receivables 57,288 58,623
Inventories 827,971 704,620
Prepaid expenses and other 502,779 288,391
----------- -----------
Total current assets 3,101,766 2,111,420
Property and equipment, less accumulated depreciation of $418,119 and
$263,093 at March 31, 1996 and June 30, 1995, respectively 461,906 492,800
Patents, less accumulated amortization of $119,506 and $77,480 at
March 31, 1996 and June 30, 1995, respectively 163,186 178,157
----------- -----------
Total assets $ 3,726,858 $ 2,782,377
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 93,358 $ 169,370
Accrued expenses and other liabilities 59,443 89,628
----------- -----------
Total current liabilities 152,801 258,998
Shareholders' equity
Common Stock, $.01 par value
Authorized shares - 50,000,000 at March 31, 1996 and 25,000,000 at
June 30, 1995
Issued and outstanding shares - 11,749,999 at March 31, 1996 and
3,749,999 at June 30, 1995 117,500 37,500
Additional paid-in capital 12,291,874 8,940,743
Accumulated deficit (8,835,317) (6,454,864)
----------- -----------
Total shareholders' equity 3,574,057 2,523,379
----------- -----------
Total liabilities and shareholders' equity $ 3,726,858 $ 2,782,377
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
1
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1996 1995 1996 1995
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 109,138 $ 101,420 $ 985,468 $ 757,541
Cost of goods sold 135,430 68,908 753,930 515,072
----------- ---------- ----------- -----------
Gross margin (26,292) 32,512 231,538 242,469
Costs and expenses:
General and administrative 328,522 262,986 942,994 844,961
Sales and marketing 428,834 412,504 1,400,530 1,431,516
Research and development 101,150 76,689 259,475 186,774
----------- ---------- ----------- -----------
Total costs and expenses 858,506 752,179 2,602,999 2,463,251
----------- ---------- ----------- -----------
Interest and other (income) expense 13,633 (20,318) 8,992 (108,494)
Net loss $ (898,431) $ (699,349) $(2,380,453) (2,112,288)
=========== ========== =========== ===========
Net loss per common share $ (0.08) $ (0.19) $ (0.29) (0.56)
=========== ========== =========== ===========
Weighted average number of common
equivalent shares outstanding 11,749,999 3,749,999 8,171,817 3,749,999
=========== ========== =========== ===========
</TABLE>
See notes to condensed consolidated finanacial statements
2
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,380,453) $(2,112,286)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 217,916 176,764
Loss asset disposal 16,920 -
Noncash interest expense related to warrants 10,000 -
Changes in operating assets and liabilities:
Receivables (270,305) (362,142)
Inventories (123,351) (391,762)
Prepaid expenses (214,388) (105,089)
Accounts payable (76,012) (78,933)
Other accrued expenses (30,187) 30,357
Net cash used in operating activities (2,849,860) (2,843,091)
INVESTING ACTIVITIES
Purchase of short-term investment - (1,527,569)
Purchases of property and equipment (201,338) (302,906)
Acquisition of patents and trademarks (19,631) (47,119)
Proceeds from the sale of property and equipment 32,000 -
Other assets - 4,199
----------- -----------
Net cash used in investing activities (188,969) (1,873,395)
FINANCING ACTIVITIES
Net proceeds from the sale of common stock 3,421,131 -
----------- -----------
Net cash provided by financing activities 3,421,131 -
Net increase (decrease) in cash and cash equivalents 382,302 (4,716,486)
Cash and cash equivalents at beginning of year 733,586 4,909,415
----------- -----------
Cash and cash equivalents at end of period $ 1,115,888 $ 192,929
Interest paid $ 27,231 $ -
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
3
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THE SLED DOGS COMPANY
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 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 March 31, 1996 are not necessarily indicative of the results that
may be expected for the year ended June 30, 1996.
NOTE 2 - COMMON STOCK OFFERING
In November 1995, the Company closed on the sale of 8,000,000 units (the
"Units") in a private placement, each Unit consisting of one share of common
stock of the Company, $.01 par value per share, and one warrant to purchase one
share of common stock. The warrant is exercisable at a price of $1.00 and for
a period of five years from the closing date. The offering price of the Units
was $.50 per Unit, $4,000,000 in the aggregate, and the Company received net
proceeds of approximately 3.4 million from the sale.
4
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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, 1995.
RESULTS OF OPERATIONS
NET SALES
The Company's net sales for the third quarter ended March 31, 1996 were
$109,138, compared to net sales of $101,420 reported for the same quarter last
year. Net sales for the nine months ended March 31, 1996 were $985,468, an
increase of 30% over the net sales reported for the nine months ended March 31,
1995. The flat sales results for the third quarter can be attributed primarily
to the seasonality of the Company's business. The increase in sales for the
nine months can be attributed to increased unit sales , due to the availability
of the Company's new metal-edge base snow skate products in fiscal 1996.
COST OF GOODS SOLD AND GROSS MARGIN
Gross margin as a percentage of net sales was (24.1%) for the third quarter
ended March 31, 1996 and 23.5% for the nine months ended March 31, 1996,
compared to 32.1% and 32.0% for the same periods last year.
The reduction in gross margin percentage from last year's third quarter to this
year's third quarter was due to higher returns and higher manufacturing asset
depreciation occurring in FY96 third quarter. Returns in FY96 third quarter
were $43,435 higher than FY95 third quarter primarily due to timing (FY95
returns occurred mostly in the fourth quarter). Manufacturing asset
depreciation in FY96 third quarter was $13,567 higher than FY95 third quarter
due to additional tools acquired in FY96.
The reduction in gross margin percentage of 8.6 from the nine months ended
March 31, 1995 to the nine months ended March 31, 1996 was primarily due to the
increased cost of manufacturing metal-edge bases. The cost of a metal-edge
base is more than three times the cost of a polyurethane base. The majority of
snow skates sold in the nine months ended March 31, 1996 contained metal-edge
bases, while the prior year snow skates were sold with polyurethane bases. The
Company expects snow skate gross margins to improve over time as economies of
scale are achieved in the manufacturing process.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from $262,986 for the third
quarter ended March 31, 1995 to $328,522 for the third quarter ended March 31,
1996, an increase of $65,536 or 25%. General and administrative expenses
increased from $844,961 for the nine months ended March 31, 1995 to $942,994
for the nine months ended March 31, 1996, an increase of $98,033 or 12%. The
increase in both periods was primarily due to: 1) Larger allowances booked for
bad debts on the expectation of higher sales; 2) Higher consulting expenses
tied to obtaining an asset-based line of credit (cost was prepaid at June 30,
1995 and amortized over twelve month term of line of credit) and 3) Expenses
incurred in fiscal 1996 relating to the registration of the private placement
of the Company's equity securities that did not occur in fiscal 1995. The
Company expects fiscal 1996 general and administrative expenses to be less than
fiscal 1995 expenses due to savings expected in the last quarter. After fiscal
1996, 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.
5
<PAGE> 8
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - CONTINUED
SALES AND MARKETING
Sales and marketing expenses for the third quarter ended March 31, 1996
were $428,834, compared to $412,504 for the same period last year, an increase
of $16,330 or 4%. Sales and marketing expenses for the nine months ended March
31, 1996 were $1,400,530, compared to $1,431,516 for the same period last year,
a decrease of $30,986 or 2%. The increase for the quarter was primarily due to
an expense reserve established for the potential nonrecoverability of
independent sales representatives' draws against commissions. The decrease for
the nine month period was primarily due to the elimination of the demo van
program in fiscal 1996. It was determined that the fiscal 1995 van program,
which conducted demonstrations at various ski resorts, provided opportunities
for skiers and snowboarders to try the product but not the Company's target
market of in-line skaters without a winter sport. In fiscal 1996, demo events
were coordinated with in-line skate clubs and retailers to ensure individuals
from the Company's target market were identified to participate in such events.
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.
RESEARCH AND DEVELOPMENT
Research and development expenses increased from $76,689 for the third quarter
ended March 31, 1995 to $101,150 for the third quarter ended March 31, 1996, an
increase of $24,461 or 32%. Research and development expenses increased from
$186,774 for the nine months ended March 31, 1995 to $259,475 for the nine
months ended March 31, 1996, an increase of $72,701 or 39%. The increase for
the quarter and the nine month period was due to more effort put forth on
developing future generation snow skate products such as the K9 model for the
96/97 winter season. 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 AND OTHER (INCOME) EXPENSE
Interest and other (income) expense for the third quarter ended March 31, 1996
was $13,633, compared to ($20,318) for the prior year period. Interest and
other (income) expense for the nine months ended March 31, 1996 was $8,992,
compared to ($108,494) for the prior year period. The decrease for both
periods was due to the reduction in interest income received by the Company on
cash available and the incurrence of interest expense on the asset-based line
of credit.
NET LOSS
The net loss of $898,431 for the third quarter ended March 31, 1996 was
$199,082 greater than the net loss of $699,349 reported for the same period in
the prior year. The net loss of $2,380,453 for the nine months ended March 31,
1996 was $268,165 greater than the net loss of $2,112,288 reported for the same
period in the prior year. The increase in loss for the quarter and the nine
month period was primarily due to slightly higher operating expenses, lower
interest income and the incurrence of interest expense.
6
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended March 31, 1996, the Company's operations used net
cash of $2,849,860, primarily to fund operating losses, receivables,
inventories and prepaid expenses.
Accounts receivable at March 31, 1996 were $597,840 on net sales of $985,468
for the nine months ended March 31, 1996. Accounts receivable at June 30, 1995
were $326,200 on net sales of $808,082 for the year ended June 30, 1995. In
conformity with standard payment terms for the winter sports industry, the
Company offers extended dating terms. Payments for merchandise purchased are
generally not due until the end of the winter selling season. The accounts
receivable balance at March 31, 1996 contained some balances from the prior
fiscal year. These carryover balances can be attributed to customers being
offered extended dating into this season as many of them first received product
during the last year's winter season rather than prior to the start of such
season, which resulted in limited time to sell the product through at retail.
In addition, many of these customers ordered metal-edge base accessories that
were critical to their sell through success but did not receive them due to
manufacturing and quality problems. The extended dating terms provided these
customers the opportunity to sell the product through at retail this winter
season.
The Company's investing activities for the nine months ended March 31, 1996
consisted of capital expenditures of $201,338 that primarily related to
manufacturing tools ($127,453 or 63% of the total), a new trade show booth
($48,800) modifications to the snow skating simulation deck ($10,129) and
warehouse and office equipment ($14,956). The Company also spent $19,631 on
additional patents and trademarks. These expenditures were offset by proceeds
of $32,000 received on the sale of five demo vans.
The Company's financing activities for the nine months ended March 31, 1996
provided $3,421,131 in net proceeds from the sale of 8,000,000 units (the
"Units") in a private placement of equity on November 1, 1995. The Units
consisted of one share of common stock, $.01 par value per share, and one
warrant to purchase one share of common stock. The offering price of the Units
was $.50 per Unit and $4.0 million in the aggregate.
As of March 31, 1996, the Company had cash and cash equivalents of $1,115,888,
working capital of $2,948,965, and approximately $720,000 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 1996. 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 no outstanding borrowings
under the line as of March 31, 1996. The Company expects its current cash and
working capital will be sufficient to fund cash flows for operating activities
through the end of fiscal 1996. The Company is presently pursuing an increase
in the maximum inventory borrowing level and a renewal of the one year term
under the asset-based line of credit for fiscal 1997. The Company also
anticipates that it will require additional financing in fiscal 1997, in
addition to the line of credit, to fund expected sales growth. The Company
expects that such additional financing would be necessary only during the
season to finance inventory purchases and would be paid off when receivables
are collected at the end of the season.
7
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
8
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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: May 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)
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,115,888
<SECURITIES> 0
<RECEIVABLES> 881,984
<ALLOWANCES> 226,856
<INVENTORY> 827,971
<CURRENT-ASSETS> 3,101,766
<PP&E> 880,025
<DEPRECIATION> 418,119
<TOTAL-ASSETS> 3,726,858
<CURRENT-LIABILITIES> 152,801
<BONDS> 0
0
0
<COMMON> 117,500
<OTHER-SE> 3,456,557
<TOTAL-LIABILITY-AND-EQUITY> 3,726,858
<SALES> 985,468
<TOTAL-REVENUES> 985,468
<CGS> 753,930
<TOTAL-COSTS> 2,602,999
<OTHER-EXPENSES> 8,992
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,380,453)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,380,453)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> 0
</TABLE>
