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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
_____________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996 Commission file number 1-12850
THE SLED DOGS COMPANY
(Exact name of small business issuer as specified in its charter)
212 THIRD AVENUE NORTH, SUITE 420
MINNEAPOLIS, MINNESOTA 55401
(Address of principal executive offices)
COLORADO 84-116-8832
State or other Jurisdiction of Incorporation IRS Identification Number
(612) 359-9020
(Small Business Issuer's telephone number including area code)
______________
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01
PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the Company (1) 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 and (2) has been subject to such filing requirements for
the past 90 days. x Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [x]
The issuer's revenues for its most recent fiscal year were $876,803.
The aggregate market value of the Company's common stock held by non-affiliates
of the Company on September 9, 1996 was approximately $11,647,045 computed by
reference to the average of the closing bid and ask prices as quoted by Nasdaq
on that date.
The Company has one class of equity securities outstanding: Common Stock, $.01
par value per share. On September 9, 1996, there were 13,513,212 shares
outstanding.
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THE SLED DOGS COMPANY
FORM 10-KSB ANNUAL REPORT FOR THE YEAR ENDED JUNE 30, 1996
TABLE OF CONTENTS
Page
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PART I 1
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 8
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 9
PART II 9
ITEM 5. MARKET FOR THE COMPANY'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 9
ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
ITEM 7. FINANCIAL STATEMENTS 9
ITEM 8. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 9
PART III 10
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT 10
ITEM 10. EXECUTIVE COMPENSATION 10
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT 10
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 10
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 12
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PART I
ITEM 1. BUSINESS
GENERAL
The Sled Dogs Company (the "Company"), markets, manufactures and
distributes Sled Dogs(TM) brand snow skates and related accessories. Snow
skates are boots with fixed sole plates (resembling skis which are only
slightly longer and wider than the boot) designed to permit travel across snow
using a skating motion or gliding downhill like an alpine skier. Sled Dog snow
skates are the world's first patented performance snow skate and integrate a
comfortable, lightweight, supportive boot and a unique replaceable base. The
Company currently sells four models of Sled Dogs snow skates in unisex sizes
from 3 through 14, with suggested retail prices ranging from $229 to $329 per
pair. The Company also sells accessory products such as gloves, hats,
headbands, vests, jackets and bags.
The Company is pioneering snow skating as a new winter sport. Snow
skating combines the freedom and movements of in-line and ice skating with the
fun, challenge and diversity of alpine and cross country skiing, as well as
snowboarding. No ski poles or bindings are required. The Company believes
that snow skating not only appeals to the new winter sports enthusiast (active
individuals who enjoy the outdoors and are eager to find a winter activity that
is quick and fun to learn) but also will appeal to a broad segment of the
nearly 20 million in-line skaters in the U.S., primarily the 13 million who,
according to the Company's marketing studies, currently do not have a winter
sport of choice. The Company does not market its products and the new sport it
is creating as an alternative for the nearly 9.3 million skiers and 2.2 million
snowboarders in the U.S., although the Company believes that once the sport is
well-established, crossover from skiing and snowboarding will occur.
The Company's long-term objective is to establish snow skating as the
largest participation winter sport and become its leading brand. Also, the
Company plans to diversify its operations by considering the acquisition of
other sporting goods products or businesses, if appropriate opportunities are
presented. The Company, however, does not have any plans, agreements,
understandings or arrangements with respect to any such acquisitions, and there
can be no assurance that the Company will be successful in such diversification
efforts.
HISTORY
The prototype to the snow skate being offered by the Company was developed
by Hannes Jacob, a Swiss citizen. Mr. Jacob filed a U.S. patent application on
his snow skate in 1988, subsequently filing corresponding patent applications
in 20 countries. A number of countries, including the U.S., have granted
patents to Mr. Jacob. Mr. Jacob also registered the trademark "SnowRunner" in
15 countries, including the U.S. In February 1990, Mr. Jacob granted an
exclusive world-wide license to the patented technology and the SnowRunner
trademark to DalBello Sport S.R.L., an Italian company ("DalBello"), which
developed a commercial snow skate and began to market and manufacture snow
skates on a limited basis. In 1991, the predecessor of the Company secured
exclusive U.S. distribution rights for the SnowRunner(R) snow skate from
DalBello.
After one season of product testing, the Company was able to expand its
operations by raising $1,125,000 from the sale of preferred stock. In
September 1993 the Company, through its wholly-owned subsidiary, SnowRunner
(Properties) Inc., acquired from Mr. Jacob the patent rights, trademark rights
and the rights to a manufacturing agreement between Hannes Jacob and DalBello
relating to the snow skates. Other than holding such rights, SnowRunner
(Properties) Inc. is inactive and is expected to remain so. In exchange for
such rights, the Company paid Mr. Jacob $250,000 in cash and granted him a
$4.00 per pair royalty payable until the earlier of June 30, 2003 or the date
on which the Company has paid an aggregate royalty of $2 million to Mr. Jacob.
At the same time that the Company acquired such rights, the Company canceled
the manufacturing agreement with DalBello, DalBello transferred all of the
product-specific
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assets used to manufacture the SnowRunner(R) snow skate to the Company in
exchange for 100,000 shares of the Company's Common Stock plus a payment by
DalBello to the Company of $250,000 and the Company entered into manufacturing
and product development agreements with DalBello pursuant to which DalBello
continues to manufacture snow skates exclusively for the Company. See
"Business - Manufacturing and Sources of Supply."
In March 1994, the Company completed its initial public offering of
1,750,000 shares of common stock, in which it received net proceeds of
$7,101,862.
In November 1995, the Company sold 8,000,000 units (the "Units") in a
private placement, each Unit consisting of one share of common stock and one
warrant to purchase one share of common stock. The price per Unit was $.50.
The Company received net proceeds of $3,421,131 from the sale of the Units.
The Company was originally incorporated in Colorado under the name Snow
Runner (USA), Inc. in April 1991. In June 1991, the Company's name was changed
to Snow Runner Holdings, Inc. The Company was the general partner of Snow
Runner (USA) Ltd., a Colorado limited partnership (the "Partnership"). The
Company's organization was restructured in July 1992. As part of the
restructuring, the limited partners, including Nigel Alexander and Steven
Clarke (the founders of the Company), contributed their limited partnership
interests to the Company in exchange for stock of the Company. The Partnership
then conveyed all of its assets to the Company and the Company assumed all the
liabilities and obligations of the Partnership. The Partnership was
subsequently dissolved in August 1992 and the Company's name was changed to
Snow Runner (USA) Inc. In late 1993, the Company relocated its operations to
Minnesota and, in January 1994, changed its name to SnowRunner, Inc. In
November 1994, the Company changed its name to The Sled Dogs Company, the
Company's current name. The Company's principal executive offices are
currently located at 212 Third Avenue North, Suite 420, Minneapolis, Minnesota
55401. The Company's telephone number is (612) 359-9020.
INDUSTRY BACKGROUND
Snow skates consist of a pair of injection-molded boots with an integrated
base system that permit a person either to travel across the snow using a
skating motion (similar to that used when ice skating or in-line skating), or
to glide downhill like an alpine skier. However, snow skaters do not need skis,
poles or bindings. The sole plates on the Sled Dogs snow skates are shaped to
allow a skater to glide on the snow and have a parallel edge design to provide
control in turning and stopping. Snow skates perform best on well-groomed
alpine ski hills but can be used in other mountain conditions, as well as for
street skating.
Snow skating was introduced as a winter sport in the United States in
1991, and there can be no assurance that snow skating will be accepted as a
winter sport. Nevertheless, the Company believes that alpine skiing,
snowboarding and in-line skating each provide impetus and support for the
emergence of snow skating as a significant new winter sport.
Alpine Skiing/Snowboarding Industry
Until the introduction of the snowboard, the winter sports industry was
dominated by alpine skiing. Skiing has developed over the past fifty years
with four primary elements playing a significant role in its success: (i)
uphill lift capacity evolved from rudimentary rope tows to high speed gondolas
and chair lifts that transport thousands of skiers and, more recently,
snowboarders to the top of a mountain each hour while offering relative safety
and comfort; (ii) greater attention to preparation and grooming of the snow
surface created increased opportunities for acceptable skiing conditions and
provided an increased level of safety; (iii) snowmaking capacity has made it
possible to ski or snowboard even without the cooperation of nature; and (iv)
technological developments have improved the performance and safety of ski
equipment.
Based on statistics available from the Ski Industries of America ("SIA"),
the trade association for manufacturers in the "on-snow" industry, the Company
estimates that nearly $1.4 billion was spent at retail
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on winter sports merchandise during the 1995/1996 season. According to the SIA,
national participation dropped by 18% from approximately 11.3 million
participants in 1990 to approximately 9.3 million participants in 1995.
Over the past ten years, snowboarding has emerged as an alternative to the
more traditional winter sport of alpine skiing and is the fastest growing
segment of the winter sports business. According to the 1995 National Sporting
Goods Association Sports Participation Study, the total number of snowboarding
participants increased from approximately 1.4 million in 1990 to approximately
2.2 million in 1995, an increase of 57%. A snowboard is a single platform on
which a person places his or her feet sideways in fixed bindings. The
snowboard is controlled in a manner similar to a surfboard or skateboard.
Snowboarding is physically challenging and snowboarders tend to be
predominantly young and fit.
The demographics of snowboarders contrast significantly with those of
alpine skiers. The majority of skiers are between the ages of 18 and 40, with
35 as the median age, whereas the majority of snowboarders are in the age range
of 12 to 24 with 20.5 as the median age. Approximately 73% of snowboarders are
male, whereas only 60% of the ski population is male.
Snowboarding was not always widely accepted (7% of alpine ski areas in the
United States in 1985; all but four today in 1996), due in part to the
perception that snowboards were less controllable than skis. Some resistance to
snowboards continues to exist both with ski areas and alpine skiers because of
the view that snowboarders are inconsistent with the traditional image of
skiers and because some who snowboard operate their boards aggressively,
thereby increasing conflict with skiers. Despite whatever problems exist, the
popularity of the snowboard has grown rapidly in recent years and sales of
snowboard-related equipment and clothing represent an increasing percentage of
the overall winter sports market.
In-line Skating Industry
The Company views in-line skaters as a potential key target market for
snow skates. In-line skates are boots with a set of three to five wheels
mounted in a straight line on a light-weight frame attached to the bottom of
each boot. According to America Sports Data, Inc., a national research firm,
in-line skating was one of the fastest growing sports in the United States over
the past five years, having grown from 3 million participants in 1989 to
approximately 20 million in 1995. Annual sales of in-line skates in 1994
approximated 11.9 million pairs in the U.S., compared to 5.8 million pairs in
1993. Approximately 65% of in-line skaters are under the age of 20, and 25
percent are between 20 and 39 years of age.
The Company believes that a significant market opportunity exists to create a
large and new winter snow sport -- snow skating. Because of the continuing
popularity of winter sports, as demonstrated by the size of alpine skiing and
the growth of snowboarding, and the large segment of in-line skaters that do
not currently have a winter sport of choice (a population that also continues
to grow rapidly) and whose skills are readily transferable to those used in
snow skating, management believes that the conditions are ideal for the
emergence of this new winter sport. However, there can be no assurance that
snow skating will ever develop as a significant market opportunity for the
Company.
PRINCIPAL PRODUCTS
Sled Dogs snow skates integrate a comfortable, supportive, yet lightweight
boot with a specially designed replaceable base that allows the skate to glide
downhill over the snow. The construction of the snow skate consists of an
injection molded polyurethane boot shell with a removable nylon dual density
inner boot liner. The metal-edge skate base is mechanically fastened to the
sole, but is easily replaceable when necessary. The Company has recently
introduced the K9, an aggressive all-mountain skate that features a unique
phast system, improved base design and a combination soft/hard boot technology
providing an overall enhanced performance image. The skates are available in
unisex sizes from 3 through 14.
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Sled Dogs snow skates are currently offered in four models with suggested
retail prices ranging from $229 to $329 per pair, featuring attractive colors
and graphics.
Sled Dogs Model Description
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SD 150 Recreational groomed mountain snow skate designed with a
supportive injection molded polyurethane upper with an
extended square heel metal-edge base, providing more stability
and performance. The metal-edge base is made of a
Teflon-polyurethane composite material which affords increased
durability and speed.
SD 250 Groomed mountain to street snow skate with an enhanced
performance upper design and an extended rounded heel
metal-edge base designed for increased maneuverability and
stunt skating.
SD-Half Breed For versatile street to mountain skating, the SD Half Breed
provides supportive injection molded polyurethane upper with
an integrated mid-size v base system.
K-9 Brand new for '97, the K9 is the first snow skate specific
design featuring a cool new look and state of the art
performance features such as broader, longer and
interchangeable bases and a unique phast system.
The 1996/1997 product line also features a line of accessories that
includes fleece headbands, gloves, vests, jackets, a snow skating specific
glove with protective wrist insert, unique bone-shaped skate carrier, skate
bags, Sled Dogs "attitude" and logo T-shirts and baseball style cotton and wool
caps.
As the sport and market grow, the Company intends to develop new products
to meet the snow skater's needs for enhanced performance. Included in these
efforts are expected to be skate bases designed specifically for different
snow conditions and for different user applications. Some examples of possible
applications are cross country, freestyle, high speed downhill, and others.
Since the snow skate boot has different requirements from other skating and
skiing footwear, emphasis will be placed upon the design of boots specific to
this sport. The Company intends to introduce new products as testing is
completed to the Company's satisfaction and funding is available. There can be
no assurance that the Company will succeed in developing such additional
products or that, if developed, they will prove commercially successful.
During fiscal year 1996, the Company spent approximately $316,000 on research
and development.
The Company's snow skate products are warranted for one year. Because
snow skating involves physical activity, injuries may occur. Products
developed, manufactured or sold by the Company may expose the Company to
potential liability to end users of the products. Though the Company intends to
maintain product liability insurance, there can be no assurance that such
insurance can be maintained or, if maintained, will provide adequate coverage
against all potential claims.
MARKETING AND SALES; DISTRIBUTION METHODS
Sled Dogs snow skates are currently distributed by sporting goods
retailers throughout the U.S. and are accepted for use at approximately 300 of
the over 500 U.S. ski areas, many of which also operate rental programs. Each
ski area is asked by the Company to accept snow skating at their facility by
signing a snow skating participation form. Once ski area access is permitted
for snow skaters, season to season approval is not generally required, but
there can be no assurance that snow skating will continue to be accepted at
previously approved facilities.
The Company's marketing strategy is designed to position The Sled Dogs
Company as the leader and pioneer of snow skating, communicating a combination
of tangible and emotional/experiential messages via an aggressive and
integrated program of grassroots/traditional promotion vehicles specifically
geared to the target markets. Initially, the Company will target the new
winter sports enthusiast -- the 13 million in-line skaters who, the Company's
marketing studies indicate, do not have a winter sport, primarily males aged
13-20, followed by males and females aged 18-35, who enjoy the outdoors and who
are eager
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to find a winter activity that is quick and fun to learn and provides a new
sports challenge. The Company uses a number of techniques to promote the Sled
Dogs brand and its products, including the following:
- - The Company began airing its "Yellow Snow: The Ride From Black to White"
storymercial on September 14, 1996 in select broadcast markets, national
cable and regional sports networks.
Developed in conjunction with award-winning infomercial producers TYEE
Productions (Portland, OR) and extreme sport cinematographer Greg Stump,
"Yellow Snow" delivers substantial information about the new sport of snow
skating to the company's 13 to 20 year old, predominantly male, target
market. The 30-minute program combines action-packed snow skating footage
and a music-video style with a comical cast of characters, and spoofs
conventional infomercials even as it demonstrates snow skating's unique
appeal and reinforces its parallels to inline skating. "Yellow Snow" also
tastefully uses "gratuitous" quips of things young viewers love most -
food and the opposite sex.
Williams Television Time (Santa Monica, CA), a leading direct response
advertising agency, is placing the program's initial $1 million media buy
which will run through January 1997. Airings will include ESPN2, VH1, E!,
Comedy Central, Bravo, and many of the nation's top markets including, New
York City, Los Angeles, Chicago, Boston, Denver, Cleveland, Minneapolis,
San Francisco and Seattle. Snow skate enthusiasts and interested
consumers can get a more detailed broadcast schedule by visiting Sled
Dogs' upcoming web site at www.sleddogs.com or by calling the Company
directly at 1-800-SKATE-ON.
- - The Company obtains "free media" through imagination and aggressive public
relations campaigns. Over the past two seasons the Company has received
approximately 150,000 impressions in media ranging from the Wall Street
Journal, the Today Show, GMA, ESPN2, Playboy and some 50 daily newspapers
and 27 national magazines. The Company estimates that equivalent exposure
in paid media would have cost half a million dollars or more.
- - The Company places consumer advertisements in national and niche in-line
skating publications, including retailer locator information.
- - One hundred talented snow skaters called "Top Dogs" have been selected to
serve as company spokespeople, product testers and sport promoters from
around the country.
- - In addition to the nearly 100 ski areas that offer Sled Dogs rental, the
Company will work with in-line skate clubs and other sport promoters in
key markets in an effort to provide trial opportunities via social trips,
lessons and other activities.
The Company intends to establish credibility for snow skating by utilizing
concepts from other mainstream sports (such as skiing and in-line skating) to
develop traditional programs incorporating teaching, safety methods and fitness
benefits with sophisticated educational and promotional tools. These include:
- - Entry level teaching progression that enables new snow skaters to learn
the fundamentals of snow skating.
- - Sponsoring Ski Rio, a New Mexico-based winter park, which has opened a
dedicated area for snow skating, Park Sled Dogs.
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- - Publishing and distributing "Slide", a magazine about snow skating which
is the only key resource for consumers and identifies nearly 300 snow
skate friendly areas and related Sled Dogs and sport information.
As it begins the 1996/1997 season, the Company's distribution is carried
out by a combination of independent representatives and salaried
representatives representing 12 regional areas and providing full nationwide
coverage. The entire sales force focuses primarily on ski area rental
departments, general retail and specialty sporting goods stores, both within
and away from ski areas, in accordance with the level of consumer awareness and
demand within each region.
The Company participates annually in the NSGA and the Ski Industries of
America (SIA) trade shows to create increased awareness and build demand from
the sporting goods trade.
The Company is focusing its marketing efforts and resources on building
the sport of snow skating in the United States. The Company expects to expand
to international markets on a case by case basis as international distributors
express interest in using similar techniques as the Company in building the
sport in foreign markets. The Company has distributor relationships in Canada,
Korea and Norway and has recently signed a marketing agreement with Japan Link
for distribution expansion in Japan.
COMPETITION
Other than the Footski(TM) product (as described below), which was
introduced by Footski during the 1993/1994 season, the Company does not believe
any products on the market compete directly with the Sled Dogs snow skate. The
winter recreation business is, however, highly competitive. Indirectly the
Company competes with other winter sports products such as skis and snowboards.
Numerous sporting goods companies involved in alpine ski products, snowboards
and other winter recreation products have significantly greater name
recognition and financial and personnel resources than those of the Company. In
addition, sales of ski equipment, snowboards, snow skates, as well as in-line
skates and other recreational equipment, are generally dependent on
discretionary spending by consumers and the Company must therefore compete with
other industries for the available consumer dollars. If the Company is
successful in creating a new winter sport, it anticipates that other sporting
goods companies will seek entry into this market.
The Footski product is a boot accessory consisting of a simple plastic
runner which can be attached to the bottom of most ski boots and is marketed to
skiers as an alternative product to skis. The Company does not believe that
sales of the Footski product will materially affect its sales because the
Company has chosen a different target market. In addition, the Company
believes its products are more comfortable, of higher quality and provide the
user with more control and versatility.
The Company believes that its U.S. patent covering certain structural
features of the snow skate technology, the quality of the Sled Dogs snow skate,
its emergence as the first company to exhibit a product in the snow skate
market and the experience of its management provide competitive advantages to
the Company.
MANUFACTURING AND SOURCES OF SUPPLY
The Company has entered into a Product Manufacturing Agreement with
DalBello Sport S.R.L. ("DalBello"). DalBello is a privately-owned Italian
company which is a manufacturer of alpine ski boots. The Company has chosen to
rely on DalBello as an independent contractor for manufacturing in order to
minimize its investment in plant and equipment and because DalBello has
considerable experience in injection molding and winter sports product design.
DalBello manufactures the boots, liners and sole plates for certain snow
skates according to the Company's specifications. DalBello and the Company
determine the prices of the products in lira for each
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year by mutual agreement. If at any time, the parties cannot reach an
agreement with respect to product specifications, price or other terms, the
Company may obtain manufacturing from other sources, several of which the
Company has identified. The Company granted DalBello a right of first refusal
to manufacture new or modified snow skate products, whether developed solely by
the Company or jointly with DalBello. If the Company and DalBello cannot agree
upon the specifications, price or other terms relating to such new products,
the Company can obtain competitive manufacturing quotations. If DalBello's
quote is more than 10% higher than a competitive quote received from a
manufacturer in any European country (other than Greece or Portugal), the
Company may use such other manufacturer, subject to DalBello's right to make a
counteroffer. The Agreement provides that during the term of the Agreement and
for one year thereafter, DalBello will not manufacture any snow skate that
competes with any product produced by DalBello under the Agreement. The
Agreement extends through September 2, 1998, with automatic three-year renewals
unless, 12 months prior to a scheduled termination, notice is given by either
party of its intent to terminate the Agreement.
The Company and DalBello have also entered into a Product Development
Agreement, under which DalBello agrees to perform research and development
activities upon the Company's request and pursuant to mutually agreed upon
procedures, schedules and costs. DalBello is given the right of first refusal
to review and discuss each new proposed research and development project of the
Company. If the parties are unable to agree on the relevant terms within 45
days, the Company may contract for development of the project with another
party. With certain exceptions, the Company and DalBello are co-owners of any
products developed under this Agreement. Under this Agreement, DalBello
licensed to the Company its intellectual property relating to snow skates,
provided that the Company is obligated to pay a reasonable royalty (of 2% to
5%) on product cost with respect to product purchased from other manufacturers
utilizing DalBello patented technology. The term and termination provisions of
the Product Development Agreement mirror those of the Product Manufacturing
Agreement. Currently, the Company is engaged in no product development
activities with DalBello.
In the Spring of 1996, subject to the Product Manufacturing Agreement with
DalBello Sport, the Company elected to pursue production of its new K9 model
through Minson Enterprises Co., LTD. ("Minson"), Taipei, Taiwan, R.O.C. Minson
uses molds owned by the Company to produce the K9 boots. No manufacturing
agreement exists between the parties and the quantities and costs for the K9
boots are set by mutual agreement between the parties. Minson is a well known
manufacturer of in-line skates for leading brands in the United States. Minson
has five factories that could have some level of involvement in manufacturing
the K9 snow skate; one located in Taipei, Taiwan and four in Bangkok, Thailand.
The metal-edge bases are produced by Evergreen Molding ("Evergreen") of
Greenville, South Carolina using molds owned by the Company. No manufacturing
agreement exists between the parties and the quantities and costs for the
various sizes are set by mutual agreement between the parties. Evergreen uses
a reaction injection molding process (a low pressure flow molding process),
currently the only injection molding process that the Company knows of that is
capable of manufacturing the base with the metal edges inserted into the mold.
Even though there are a number of reaction injection molding companies in the
U.S., there can be no assurance that any other manufacturer can be located to
produce the metal-edge base in the quantity or at the cost the Company desires
or that the Company can develop an alternative design of a metal-edge product
that can work on its skates.
The components for the Company's K9 phast system are produced by Midwest
Plastics, Inc., St. Paul, Minnesota, a plastics injection molder, using molds
owned by the Company. No manufacturing agreement exists between the parties
and the quantities and costs for the phast system components are set by mutual
agreement between the parties.
The Company's accessories line is produced on a purchase order basis by a
variety of soft goods and hard goods manufacturers around the world. The
Company believes that no single accessory supplier is material to its
operations.
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PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
The Company is the assignee of one U.S. patent, along with corresponding
patents from several other countries, covering structural aspects which are
incorporated into its Sled Dogs snow skates. The Company has also filed U.S.
and foreign patent applications on certain aspects of its new K9 snow skate.
The Company believes that its patent rights are important to its business and
the Company intends to protect them to the fullest extent practicable. No
assurance can be given, however, that the Company's current or future patent
rights will not be successfully challenged or circumvented by competitors or
that the other measures taken by the Company will prevent the effective
competition with its technologies. In addition, the strength of the patent
rights is uncertain and the cost to enforce its patent rights may exceed the
Company's resources.
The Company has registered the marks Sled Dogs, the Sled Dogs logo, Park
Sled Dogs, and SnowRunner with the U.S. Patent and Trademark Office. The
Company has also filed for U.S. trademark registration for the trademarks "The
World is Going to the Dogs," "K9" and "Half Breed." The Sled Dogs Company,
Sled Dogs logo, K9 and SnowRunner marks are also registered (or the subject of
registration applications) in a number of foreign countries. While the Company
is not aware of any conflicting trademark rights owned by other parties, no
assurance can be given that no such rights exist.
With respect to foreign patent and trademark filings of the Company, no
assurance can be given that the Company will secure patent or trademark
registrations in all foreign countries in which applications are now pending or
in which applications are expected to be filed sometime in the future, or that
the Company will maintain all existing applications or registrations.
RESEARCH AND DEVELOPMENT
Expenditures by the Company for research and development activities
amounted to $315,632 in 1996 and $248,582 in 1995.
EMPLOYEES
As of September 9, 1996, the Company had 16 full-time employees, including
eight in sales and marketing and eight in finance and administration. The
Company's employees are not represented by any collective bargaining
organization.
FORWARD-LOOKING STATEMENTS
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Certain
important factors could cause results to differ materially from those
anticipated by some statements made herein. You are cautioned that all
forward-looking statements involve risks and uncertainties. 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.
ITEM 2. PROPERTIES
The Company's current facilities are located in Minneapolis, Minnesota,
and consist of approximately 5,500 square feet of office space. The space is
occupied under a lease which expires in April 1999. Future minimum lease
commitments are $34,444 for the year ending June 30, 1997, $34,924 for the year
ending June 30, 1998 and $34,870 for the year ending June 30, 1999. The
Company's facilities are expected to be sufficient for its needs for fiscal
1997-1999.
8
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of fiscal year 1996.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is incorporated herein by reference to
the section entitled "Common Stock Data" which appears on page 11in the
Registrant's Annual Report to Shareholders for the year ended June 30, 1996.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by Item 6 is incorporated herein by reference to
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which appears on pages 1 to 2 in the
Registrant's Annual Report to Shareholders for the year ended June 30, 1996.
ITEM 7. FINANCIAL STATEMENTS - INCORPORATED BY REFERENCE ANNUAL REPORT
The information required by Item 7 is incorporated herein by reference to
the Financial Statements which appear on pages 3 to 10 in the Registrant's
Annual Report to Shareholders for the year ended June 30, 1996.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
9
<PAGE> 12
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by Item 9 concerning the officers and directors
of the Company is incorporated herein by reference to pages 3 to 4 of the
Registrant's Proxy Statement for its 1996 Annual Meeting of Shareholders which
will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the close of the fiscal year for which
this report is filed.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated herein by reference to
pages 5 to 6 of the Registrant's Proxy Statement for its 1996 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the close of the fiscal year
for which this report is filed.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated herein by reference to
page 2 of the Registrant's Proxy Statement for its 1996 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the close of the fiscal year
for which this report is filed.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in Item 12 is incorporated herein by reference to
page 7 of the Registrant's Proxy Statement for its 1996 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the close of the fiscal year
for which this report is filed.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See "Exhibit Index" immediately following the signatures
on this report on Form 10-KSB.
(b) Reports on Form 8-K. No report on Form 8-K was filed during the last
quarter of fiscal year 1996.
10
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: September 26, 1996 THE SLED DOGS COMPANY "Company"
/s/ John Sundet
-------------------------------------
John Sundet, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Company in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
Signature and Title Date
- ------------------- ----
/s/ John Sundet September 26, 1996
- ------------------------------------------
John Sundet, President,
Chief Executive Officer and
Director (Principal Executive Officer)
/s/ Michael P. Wise September 26, 1996
- ------------------------------------------
Michael P. Wise, Chief Financial Officer, Treasurer and
Secretary (Principal Financial and Accounting Officer)
/s/ Mary Horwath September 26, 1996
- -----------------------------------------
Mary Horwath, Chief Operating Officer and Director
/s/ Rudy A. Slucker September 26, 1996
- -----------------------------------------
Rudy A. Slucker, Director
/s/ David N. Braus September 26, 1996
- -----------------------------------------
David N. Braus, Director
/s/ Hope S. Taitz September 26, 1996
- -----------------------------------------
Hope S. Taitz, Director
/s/ Thomas F. Votel September 26, 1996
- -----------------------------------------
Thomas F. Votel, Director
</TABLE>
11
<PAGE> 14
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
THE SLED DOGS COMPANY
EXHIBIT INDEX TO FORM 10-KSB
For the fiscal year Commission File Number 1-12850
ended June 30, 1996
<TABLE>
<CAPTION>
Exhibit Description Page Number
- ------- ----------- -----------
<S> <C> <C>
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).
4.1 Specimen of Common Stock (Incorporated by reference to Exhibit *
4.1 to Registration Statement on Form SB-2, Registration No.
33-74240C).
10.1 Contract of Sale between Hannes Jacob and Allrounder Idea *
Realization, S.A. and Snow Runner (Properties) Inc. dated
September 3, 1993 (Incorporated by reference to Exhibit 10.1 to
Registration Statement on Form SB-2, Registration No.
33-74240C).
10.2 Payment Agreement between Hannes Jacob and Allrounder Idea *
Realization, S.A. and Snow Runner (Properties) Inc. dated
September 3, 1993 (Incorporated by reference to Exhibit 10.2 to
Registration Statement on Form SB-2, Registration No.
33-74240C).
10.3 Termination and Release Agreement between Hannes Jacob and *
Allrounder Idea Realization, S.A. and Snow Runner (Properties)
Inc. dated September 3, 1993 (Incorporated by reference to
Exhibit 10.3 to Registration Statement on Form SB-2,
Registration No. 33-74240C).
10.4 Assignment, Bill of Sale and Agreement between DalBello Sport *
S.R.L. and Snow Runner (USA), Inc. effective September 3, 1993
(Incorporated by reference to Exhibit 10.4 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.5 Product Manufacturing Agreement between Snow Runner (USA) Inc. *
and DalBello Sport S.R.L. effective September 3, 1993
(Incorporated by reference to Exhibit 10.5 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C> <C>
10.6 Product Development Agreement between Snow Runner (USA) Inc. and *
DalBello Sport S.R.L. effective September 3, 1993 (Incorporated
by reference to Exhibit 10.6 to Registration Statement on Form
SB-2, Registration No. 33-74240C).
10.7 Termination and Release Agreement between DalBello Sport S.R.L. *
and Snow Runner (USA) Inc. effective September 3, 1993
(Incorporated by reference to Exhibit 10.7 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.8 Termination and Release Agreement between DalBello Sport S.R.L. *
and Snow Runner (Properties) Inc. effective September 3, 1993
(Incorporated by reference to Exhibit 10.8 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.9 Inter-company Assignment and Bill of Sale between Snow Runner *
(USA) Inc. and Snow Runner (Properties) Inc. effective September
3, 1993 (Incorporated by reference to Exhibit 10.9 to
Registration Statement on Form SB-2, Registration No.
33-74240C).
10.10 License Agreement between Snow Runner (Properties) Inc. and Snow *
Runner (USA) Inc. effective September 3, 1993 (Incorporated by
reference to Exhibit 10.10 to Registration Statement on Form
SB-2, Registration No. 33-74240C).
10.11 License Agreement between Hannes Jacob and Allrounder *
Realization SA and Snow Runner (USA) Inc. dated June 26, 1992
(Incorporated by reference to Exhibit 10.11 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.12 Amended and Restated Distribution Agreement between Snow Runner *
(USA) Inc. and DalBello Sport S.R.L. dated June 26, 1992
(Incorporated by reference to Exhibit 10.12 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.13 Stock Purchase Agreement between Snow Runner (USA) Inc. and *
HAIFinance Corp. dated July 25, 1992 (Incorporated by reference
to Exhibit 10.13 to Registration Statement on Form SB-2,
Registration No. 33-74240C).
10.14 Assignment and Assumption Agreement between Snow Runner (USA) *
Ltd. and Snow Runner Holdings, Inc. dated July 23, 1992
(Incorporated by reference to Exhibit 10.14 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.15 SnowRunner, Inc. Stock Option Plan effective January 1994 *
(Incorporated by reference to Exhibit 10.15 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.16 Lease between the Company and Midtown Commons dated September *
29, 1993 (Incorporated by reference to Exhibit 10.16 to
Registration Statement on Form SB-2, Registration No.
33-74240C).
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C> <C>
10.17 Lease between the Company and McCann Developments dated *
September 29, 1993 (Incorporated by reference to Exhibit 10.17
to Registration Statement on Form SB-2, Registration No.
33-74240C).
10.18 Shareholder Agreement by and among Snow Runner (USA) Inc., Nigel *
Alexander, Steven Clarke, Harbour Settlement, HAIFinance Corp.
dated July 28, 1992 (Incorporated by reference to Exhibit 10.18
to Registration Statement on Form SB-2, Registration No.
33-74240C).
10.19 Reorganization Agreement by and among Snow Runner (USA) Ltd., *
Snow Runner Holdings, Inc., Nigel Alexander, Steven Clarke and
Harbour Settlement dated July 23, 1992 (Incorporated by
reference to Exhibit 10.19 to Registration Statement on Form
SB-2, Registration No. 33-74240C).
10.20 Amendment to Limited Partnership Agreement by and among Snow *
Runner Holdings, Inc., Nigel Alexander, Steven Clarke and
Harbour Settlement dated July 23, 1992 (Incorporated by
reference to Exhibit 10.20 to Registration Statement on Form
SB-2, Registration No. 33-74240C).
10.21 Option Agreement by and between Nigel Alexander and Steven *
Clarke dated July 28, 1992 (Incorporated by reference to Exhibit
10.21 to Registration Statement on Form SB-2, Registration No.
33-74240C).
10.22 Employment Agreement dated January 1, 1994 for John Sundet *
(Incorporated by reference to Exhibit 10.22 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.23 Employment Agreement dated January 1, 1994 for Nigel Alexander *
(Incorporated by reference to Exhibit 10.23 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.24 Employment Agreement dated January 1, 1994 for Mary Horwath *
(Incorporated by reference to Exhibit 10.24 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.25 Employment Agreement dated January 1, 1994 for Steven Clarke *
(Incorporated by reference to Exhibit 10.25 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.26 Loan Agreement by and between Snow Runner (USA), Inc. and *
HAIFinance Corp. dated January 7, 1994 (Incorporated by
reference to Exhibit 10.26 to Registration Statement on Form
SB-2, Registration No. 33-74240C).
10.27 Term Note to HAIFinance Corp. dated January 7, 1994 *
(Incorporated by reference to Exhibit 10.27 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.28 Existing Loans Note to HAIFinance Corp. dated January 7, 1994 *
(Incorporated by reference to Exhibit 10.28 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C> <C>
10.29 Bridge Financing Agreement by and between Snow Runner (USA), *
Inc. and HAIFinance Corp. dated January 7, 1994, with
Registration Rights Agreement (Incorporated by reference to
Exhibit 10.29 to Registration Statement on Form SB-2,
Registration No. 33-74240C).
10.30 Security Agreement dated January 7, 1994 made by Snow Runner *
(USA), Inc. to HAIFinance Corp. (Incorporated by reference to
Exhibit 10.30 to Registration Statement on Form SB-2,
Registration No. 33-74240C).
10.31 Subordinated Promissory Note dated September 16, 1993 to Seaton *
Place Nominees, Ltd. (Incorporated by reference to Exhibit 10.31
to Registration Statement on Form SB-2, Registration No.
33-74240C).
10.32 Amended and Restated Shareholders Agreement dated January 7, *
1994 by and among Snow Runner (USA) Inc., Nigel Alexander,
Steven Clarke, Harbour Settlement, HAIFinance Corp.
(Incorporated by reference to Exhibit 10.32 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.33 Credit and Security Agreement dated June 30,1995 between the *
Company and Norwest Credit, Inc.
10.34 Revolving Note for $2,000,000 dated June 30, 1995 between the *
Company and Norwest Credit, Inc.
10.35 Patent and Trademark Security Agreement dated June 30, 1995 *
between the Company and Norwest Credit, Inc.
10.36 Consulting Agreement with Douglas Ellenoff dated January 1, 1995. *
10.37 Consulting Agreement with Stephen C. Martin dated January 1, *
1995.
10.38 Market Representative Agreement, dated July 24, 1996, between
the Company and Japan Business Link, Inc.
10.39 Agency Services Agreement, dated July 26, 1996, between the
Company and Williams Television Time, Inc.
10.40 Telesales Service Agreement, dated August 12, 1996, between the
Company and Icon Health & Fitness, Inc.
10.41 Agreement, dated September 18, 1996, between the Company and
Distribution Systems and Services Corporation
13 Portions of 1996 Annual Report to Shareholders
21 List of Subsidiaries (Incorporated by reference to Exhibit 21 to Registration *
Statement on Form SB-2, Registration No. 33-74240C).
</TABLE>
15
<PAGE> 18
23.2 Consent of Ernst & Young LLP
---------------------
* Incorporated by reference to a previously filed exhibit or report.
16
<PAGE> 1
EXHIBIT 10.38
MARKET REPRESENTATIVE AGREEMENT
EFFECTIVE DATE: ____________ ____, 19___
PARTIES:
The Sled Dogs Company
212 Third Avenue North, Suite 420
Minneapolis, MN 55401
Fax No. (612)359-9017 (the "Company")
______________________________
______________________________
______________________________
Fax No._______________________ ("Representative")
RECITALS:
A. The Company engages in the business of manufacturing and marketing the
Sled Dogs Company snow skate and other products under the trademark Sled
Dogs(R).
B. Representative desires to be appointed as a market representative of
the Company to set up a distribution network to solicit sales of the Company's
products within a certain geographical territory identified on Exhibit B hereto
(the "Territory").
AGREEMENT:
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Designation as Representative.
a. Appointment. Subject to the terms and conditions of this
Agreement, the Company hereby appoints Representative as its exclusive
agent to set up a distribution network to solicit orders for the export
sale of the products listed on Exhibit A attached hereto (the "Products")
to importers within the Territory.
b. Modification and Discontinuance of Products. The Company
reserves the right to discontinue any Product or Product line or to
modify any Product without incurring any liability to Representative. The
parties may, from time to
<PAGE> 2
time, mutually agree to add additional products or product lines to
Exhibit A.
c. Exclusivity. The Company agrees to not itself sell or solicit
the sale of, or authorize any third party the right to sell or solicit the
export sale of, the Products to distributors or retailers in the Territory
except as expressly provided in Section 14.c. below. The Representative
shall be responsible for servicing and training any such distributors
located in the Territory.
2. Company Responsibilities.
a. Promotional Materials. The Company shall furnish to
Representative at no cost reasonable quantities of Product sales
literature and materials in English, if available, for Representative's
use in soliciting sales of the Products. Representative and/or its
distributors will be responsible for the cost of translating materials
into Japanese.
b. Samples. The Company will provide two full sample sets
for Japan (hard and soft goods) to be used solely for sales
presentation purposes and shall not be sold, rented or leased by
Representative to any third party. Additional Product samples can be
purchased, if available, at Company's sample cost.
c. Marketing Programs.
(1) Sled Dogs Kennel Club: The Representative will be
responsible for translating and printing the SD Kennel Club "warranty
form" and will provide a minimum of 3,500 to Company thirty (30) days
before order shipment to insert in all Japan shipments. Representative
and/or its Distributors have the option to translate and print the Sled
Dogs Owner's Manual. The Company will provide the disk containing this
information upon request. The Representative will provide to the Company
on a regular basis translated SD Kennel Club membership names and
addresses. The Company will have sixty (60) days in which to fulfill SD
Kennel Club members with a standard U.S. membership package.
Responsibilities for SD Kennel Club will be reviewed at renewal.
(2) Retail Merchandising Support: The Company will provide two
sample set of all retail merchandising support items and the
Representative and/or its Distributors will have the option to either
purchase at cost as available or to reproduce at a consistent U.S.
quality. Such materials include: Banners/Signage, Skate Holders,
Consumer Brochures, Stickers and Posters. The Company will provide a
safety master of completed Point-of-purchase Video for Japanese
2
<PAGE> 3
duplication as well as specifications, art and disk for other
merchandising reproduction upon request. The Representative and/or its
Distributors will be responsible for all shipping costs related to
delivery of Retail Merchandising Materials.
d. The Company will provide to Representative the right to purchase
up to ten percent (10%) of its distributor(s)' invoiced revenue in Sled
Dogs product, to be used for promotional purposes, at defined promotional
prices which will be at a discount to current standard export prices.
3. Representative Responsibilities. Representative agrees to perform the
following duties at its own expense.
a. Representative will serve as Company's liaison to the territory
distributors. Representative will:
(1) Directly handle all communications and translations
to/from the territory. Including all marketing, promotional and
selling materials.
(2) Respond to all other territory market inquiries generated
in the U.S. or territory.
(3) Assist in handling all logistics including air and ocean
freight and custom's issues.
(4) Coordinate and present to Company sales estimates from
distributor(s) in the territory.
(5) Receive and confirm to/from all orders out of the
territory.
(6) Secure payment from Territory distributor(s) per mutually
agreed to terms.
(7) Develop licensing opportunities for Company trademark,
logo, and image subject to Section 8 of this Agreement.
(8) Monitor and assist enforcement of all agreements with
distributor(s) and licensees in the territory.
(9) Actively develop media exposure and special events for
Company.
(10) Develop the sport of snow skating in the territory with
the direct assistance of Company, distributor(s), and media.
3
<PAGE> 4
(11) Work to establish sport credibility through JSSA (Japan
Snow Skating Assoc.) and a Sled Dogs Japan Kennel Club.
(12) Assist Company in determining pricing and product
positioning in the market.
(13) Provide Company with periodic, detailed reports on market
developments, including calendars outlining Representative's needs
and expectations.
(14) Supervise and monitor all advertising in the market.
(15) Identify unauthorized import and distribution of product
into the territory.
b. Representative will establish distribution networks
satisfactory to the Company and will secure distributor agreements by no
later than January 1, 1997.
c. Prices and Terms. Representative shall solicit orders from
distributor(s) for the Products in the Territory quoting only such
current prices, terms and conditions as are authorized by the Company in
writing from time to time. All orders shall be promptly forwarded
to the Company for acceptance or rejection by the Company in its sole
discretion which acceptance will not be unreasonably withheld. All order
forms which Representative uses in soliciting orders for the Products
shall be consistent with those supplied by the Company. Representative
agrees to assist in the preparation, negotiation and arrangement for
execution by potential distributors in the Territory of all documents as
the Company may reasonably request.
d. Extension of Credit to Customers. Representative shall
make reasonable inquiries and reasonably determine that distributors are
creditworthy before forwarding the distributors' orders for the
Products to the Company. The Company shall make all final credit
decisions. Representative shall secure and forward to the Company such
credit data or financial information of any distributor or potential
distributor as requested by the Company. Representative will reasonably
assist the Company in its collection efforts when requested.
Representative has no authority and shall not collect or retain any
portion of the purchase for any Products.
e. Product Representations and Warranties. Neither
Representative nor its employees or agents or distributors
4
<PAGE> 5
shall make any Representation or warranty with respect to the Products
except those specifically set forth in written materials and product
literature provided by the Company.
f. Promotion. Representative shall use its best efforts to
establish a distribution network to promote the acceptance and sale of,
and to solicit inquiries and orders for, the Products in the Territory.
g. Customer Complaints. Representative agrees to immediately
report to the Company any customer complaints and, at the Company's
request, investigate and report on any customer complaints concerning
Products sold within the Territory.
h. Noncompetition. During the term of this Agreement
Representative agrees to not, directly or indirectly, solicit the sale
of, or purchase for resale any other snow skate product or any other
product that competes with the Products in the Territory. Representative
agrees to secure from each of its employees and agents written
noncompetition agreements in the form attached hereto as Exhibit C before
an employee or agent undertakes to perform any of Representative's
obligations under this Agreement. Representative shall promptly forward
a copy of such executed agreement to the Company.
i. Written Reports. Representative shall supply to the Company,
from time to time when requested by the Company, accurate written reports
including but not limited to forecasting the sale of the Products in the
Territory and Representative's promotional efforts relating thereto on a
timely basis.
j. Recall. In the event of a recall of any of the Products,
Representative will cooperate fully with the Company effecting such a
recall, including without limitation, promptly contacting any
distributors which the Company desires be contacted during the course of
any such recall and promptly communicating to such distributors the
information the Company may desire be transmitted to such distributors.
i. Laws and Regulations. Representative shall conform to all
applicable laws and regulations and to the highest business ethics in
performing its obligations in accordance with the terms of this
Agreement.
4. Meetings and Trade Shows.
a. Sales Meetings. The Company shall conduct from time to time
meetings to be held in conjunction with a major
5
<PAGE> 6
trade event. The cost of conducting such meetings shall be paid for by
the Company and all other costs associated therewith, including travel,
food and lodging expenses, shall be paid by Representative.
b. Key Trade Shows. Representative will participate in key trade
shows held within the Territory and is responsible for all related costs.
5. Quota. Representative shall set up a distribution network to solicit
sales of the Products in the Territory which result in Net Sales Revenue to the
Company during the periods and in the amounts set forth on Exhibit D attached
hereto (the "Quota"). For purposes of this Agreement, "Net Sales Revenue"
shall mean the gross export sales price invoiced by the Company to the
distributor(s) for the sale of the Products less sales taxes or other taxes,
costs of shipment and allowances. The Company will offer export sales pricing
to distributors that will equal the Company's wholesale pricing less a discount
to be determined in the range of zero to twenty percent (0-20%). If
Representative fails to meet the Quota for any specified period for any
specified Product, the Company shall have the right to terminate this Agreement
as provided in Section 13.b. herein.
6. Future Quotas. The parties agree to negotiate in good faith to
establish Quotas for any future period during the term of this Agreement that
is not established in Exhibit D at the time of execution of this Agreement or
any product which is added to the list of Products set forth on Exhibit A after
execution of this Agreement. Either party shall have the right to terminate
this Agreement by delivery of written notice to the other party, if the parties
are unable to establish Quotas, for any future period during the term of this
Agreement or to amend the existing Quota because of the addition of a product
to Exhibit A, for a period of thirty (30) days after the end of the last
established Quota period or after the addition of a product to Exhibit A.
7. Commissions.
a. Calculation. As the sole and entire compensation for performing
Representative's obligations under and during the term of this Agreement,
the Company shall pay Representative an amount equal to the difference
between the Company's wholesale pricing and the Net Sales Revenue (as
defined in Section 5) generated from Products sold in the Territory to
Representative's distributors, subject to adjustment as provided in
subparagraph b below (the "Commission"). In no way shall the sum of
Representative's Commission and distributor's export sales pricing
discount exceed twenty percent (20%) of the Company's wholesale pricing.
6
<PAGE> 7
b. Payment and Adjustment. The Commissions shall be paid to
Representative by placement in the mails of a Company check within thirty
(30) days of receiving letter of credit settlement with respect to
commissionable Net Sales Revenues invoiced by the Company. The Company
reserves the right to adjust Representative's Commissions by subtracting
from the commission check any Commissions previously paid to
Representative on Products which are returned by distributors and on
Products which a distributor fails to make payment within thirty (30)
days after the payment due date.
c. Amendment. Commissions may be amended at the time of annual quota
review by the mutual written agreement of the Company and the
Representative.
8. Trademarks, Patents and Use of Name. Representative acknowledges that
the Company is not by this Agreement granting any right or License whatsoever
to Representative to use any trademarks, patent rights or proprietary data
relating to any of the Products which the Company may have or may secure in the
future. Representative agrees not to use the Company's name, any other similar
name or any other trademark of the Company except to indicate that
Representative is an authorized market representative of the Company in
letterhead or other media approved in writing by the Company prior to their use
or dissemination.
9. Confidential Information. During the term of this Agreement and at all
times thereafter, Representative agrees to hold in strictest confidence any
confidential or proprietary information of the Company, including, without
limitation, product designs, manufacturing methods, financial information,
sales techniques, marketing plans or proposals, existing or potential customer
lists and all other customer information ("Confidential Information").
Representative agrees to never disclose any Confidential Information, make it
accessible to any person or use it in any way for Representative's own or
anther's benefit. Representative shall not permit the Confidential Information
to be used in competition with the Company. Representative agrees to refrain
from such acts and omissions which would reduce the value of the Confidential
Information to the Company.
7
<PAGE> 8
10. Independent Contractor.
a. Relationship. Representative is and shall remain an independent
contractor and is not and shall not be deemed to be an employee, joint
venturer, partner or franchisee of the Company for any purpose
whatsoever. Accordingly, Representative shall be exclusively responsible
for the manner in which it performs its duties under this Agreement and
for the profitability or lack thereof of its activities under this
Agreement. All financial obligations associated with Representative's
business are the sole responsibility of Representative. Representative
does not have, and shall not represent itself as having, any right or
authority to obligate or bind the Company in any manner whatsoever.
b. Employee Obligations. Representative shall be solely responsible
to its own employees for any compensation due them and for compliance
with all applicable laws with respect to workmen's compensation,
withholding taxes, unemployment compensation, social security payments,
and any other charges against compensation imposed by any governmental
authority as to Representative's own employees.
11. Indemnification By Representative. Representative shall indemnify and
hold the Company harmless from any and all loss, damage, liability, cost or
expense (including reasonable attorneys' fees and expenses) which the Company
may suffer or incur as a result of any act or omission by Representative or any
of its agents or employees which violates this Agreement or as a result of any
claim for breach of warranty regarding the Products based upon a defect caused
by any act or omission by Representative, or its employees or agents or as a
result of any third party claim for personal injury damage, economic loss or
other damage, caused by or arising out of the use, demonstration or repair of
the Products proximately caused by or resulting from the willful act or
negligence of Representative, its employees or agents.
12. Indemnification By Company. Company shall indemnify and hold the
Representative harmless from any and all loss, damage, liability, cost or
expense (including reasonable attorney's fees and expenses) which the
Representative may suffer or incur as a result of any act or omission by
Company or any of its agents or employees which violates this agreement or as a
result of any claim for breach of warranty regarding the Products based upon a
defect caused by any act or omission by Company, or its employees or agents or
as a result of any third party claim for personal injury damage, economic loss
or other damage, caused by or arising out of the use, demonstration or repair
of the Products proximately caused by or resulting from the willful act or
negligence of Company, its employees or agents.
8
<PAGE> 9
13. Term. This Agreement shall commence as of the Effective Date set
forth on the first page of this Agreement and shall remain effective through
April 30, 1997, unless terminated earlier pursuant to the terms of Section 13.
This Agreement may only be renewed after the expiration of its original term
for additional terms, the length of which will be determined by the mutual
written agreement of the Company and Representative.
14. Termination.
a. Breach of Agreement. Either party may terminate this Agreement
by delivery of written notice to the other party if the other party
breaches any of the terms and conditions of this Agreement; provided,
however, if the breach is curable such notice shall not be effective
unless and until such breach remains uncured for a period of sixty (60)
days after delivery of such notice.
b. Change in Management. The Company may terminate this Agreement
at any time effective upon delivery of written notice to Representative
if the general management, ownership, or control of the Representative
changes in any material way without the Company's prior written consent.
c. Insolvency. Either party may terminate this Agreement effective
immediately upon delivery of written notice to the other party, if the
other party (i) ceases to actively conduct its business, (ii) files a
voluntary petition for bankruptcy or has filed against it an involuntary
petition for bankruptcy, (iii) becomes unable to pay its debts as they
become due, (iv) makes a general assignment for the benefit of its
creditors or (v) applies for the appointment of a receiver or trustee for
substantially all of its property or assets or permits the appointment of
any such receiver or trustee who is not discharged within thirty (30)
days of such appointment.
d. Failure to Agree on Future Quota . Either party may terminate
this Agreement by delivery of written notice to the other party if they
are unable to agree on future quotas as provided under Section 6 herein.
9
<PAGE> 10
15. Effect of Termination.
a. Return of Confidential Information. Upon expiration or
termination of this Agreement, Representative shall immediately cease
soliciting orders for the Products and using the Company's trademark(s),
and shall, within ten (10) days after request by the Company, return to
the Company all Product literature and materials and all documents or
copies thereof containing any Confidential Information of the Company.
b. Payment Obligations. The Company shall promptly pay when due any
Commission owing to Representative, subject to Section 7 of this
Agreement, for orders of the Products solicited by Representative in the
Territory and shipped and invoiced to distributors by the Company prior
to the effective date of expiration or termination. The Company shall
also promptly pay when due any Commission owing to Representative for
orders confirmed and accepted by the Company prior to the effective date
of expiration or termination, and shipped and invoiced within sixty (60)
days of the effective date of expiration or termination.
c. Sales By Company. During any termination notification period
required under this Agreement or as required under any applicable law or
statute, the Company shall have the right to directly contact and sell
the Products to distributors in the Territory. The Company agrees,
however, to pay to Representative Commissions on any order for Products
solicited by the Company which is submitted by a distributor prior to the
effective termination date of this Agreement, in accordance with the
provisions of Section 7.
d. Nonsolicitation. For a period of six (6) months after expiration
or termination of this Agreement for whatever reason, Representative will
not attempt to divert or interfere with the development of any business
of the Company by soliciting, contacting or communicating with any
person, firm or organization to whom Representative or its employees or
agents, solicited to sell Products during the year preceding termination
of Representative's appointment as an authorized market representative
of the Company for the purpose of selling or soliciting the sale of any
product which competes with the Products.
10
<PAGE> 11
16. General Provisions.
a. Notices. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed
to have been duly given (i) when received if delivered by hand, telecopy
or telegram, or (ii) two (2) days after placement with a reputable
overnight carrier, or (iii) three (3) days after deposit, if placed in
the mail for delivery by registered or certified mail, return receipt
requested, postage pre-paid, and addressed to the appropriate party at
the addresses set forth on the first page hereof. If either party should
change its address, such party shall give written notice to the other
party of the new address in the manner set forth above, but any such
notice shall not be effective until received by the addressee.
b. Entire Agreement. This Agreement, together with the Exhibits
attached hereto, constitutes the entire Agreement between the parties and
supersedes any and all prior and contemporaneous oral or written
understandings between the parties relating to the subject matter hereof.
c. Modification or Waiver. No purported amendment, modification or
waiver of any provision hereof shall be binding unless set forth in a
writing signed by both parties (in the case of amendments and
modifications) or by the party to be charged thereby (in the case of
waivers). Any waiver shall be limited to the circumstance or event
specifically referenced in the written waiver document and shall not be
deemed a waiver of any other term of this Agreement or of the same
circumstance or event upon any recurrence thereof.
d. Assignment. Representative shall not assign, transfer or sell
all or any part of its rights or delegate any of its obligations
hereunder, by operation of law or otherwise, without the prior written
consent of the Company. This Agreement shall be binding upon and inure
to the benefit of any successor or assignee of the Company and of any
permitted successors and assigns of Representative as provided above.
e. LIMITATION OF REMEDY. THE COMPANY SHALL HAVE NO LIABILITY TO ANY
PERSON FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY
DESCRIPTION, WHETHER ARISING OUT OF WARRANTY OR OTHER CONTRACT,
NEGLIGENCE OR OTHER TORT, OR OTHERWISE.
f. Governing Law. This Agreement shall be deemed to have been made
in the State of Minnesota and shall be governed by, and construed and
enforced in accordance with, the laws of
11
<PAGE> 12
the State of Minnesota which laws shall prevail in the event of any
conflict of law.
17. Arbitration.
a. Disputes Submitted to Arbitration. Any dispute, claim or
controversy arising out of or relating to this Agreement, including any
disputes relating to the formation of this Agreement and any claims of
fraud in the inducement (a "Dispute"), shall be submitted to binding
arbitration conducted pursuant to the provisions of this Agreement and
the commercial arbitration rules of the American Arbitration Association
("AAA"), unless such AAA rules are inconsistent with the provisions of
this Agreement. Even though the arbitrator(s) shall apply the AAA rules,
the arbitration shall not be conducted by the AAA.
b. Appointment of Arbitrator(s). The case shall be submitted to a
single arbitrator who shall be a retired state or federal judge or an
attorney who has practiced business litigation for at least ten (10)
years. Each party shall submit a list of three (3) arbitrators to the
other party within ten (10) days after the initiating party has delivered
a written notice to the other party demanding arbitration of the Dispute.
From the combined list, the parties shall mutually agree on the
arbitrator. Should the parties be unable to agree on the choice of an
arbitrator within thirty (30) days after delivery of the written notice
demanding arbitration, the arbitration shall be conducted by a panel of
three (3) arbitrators. Each party shall choose one arbitrator within ten
(10) after the expiration of the above thirty (30) day period and the two
selected shall choose a third arbitrator within five (5) days after their
appointment.
c. Location/Remedies/Fees/Enforcement . The site of the
arbitration shall be in the state of Minnesota at a time and location
designated by the arbitrator(s). Either party may apply to any court
having jurisdiction hereof and seek injunctive relief so as to maintain
the status quo until such time as the arbitration award is rendered or
the Dispute is otherwise resolved. Each party shall be responsible for
its own costs and expenses of the arbitration and the costs and
fees of the arbitrator(s) shall be borne equally between the parties.
The decision of the arbitrator(s) shall be final and accorded full faith
and credit and entitled to recognition and enforcement by the federal and
state courts of the United States.
12
<PAGE> 13
The parties hereto have caused this Agreement to be executed by their duly
authorized representatives to be effective as of the day and year first above
written.
______________________________
(the "Representative")
By____________________________
Its_________________________
THE SLED DOGS COMPANY
(the "Company")
By____________________________
Its_________________________
13
<PAGE> 14
List of Exhibits
Exhibit Title
- ------- -----
A Products
B Territory
C Employee Noncompetition Agreement
D Quota
14
<PAGE> 15
Exhibit A To
Market Representative Agreement
Dated_______________, 19___
Products
1. Sled Dogs (TM) snow skates and related accessories.
2. End of List.
______________________________ ______________________________________
Initials/Company Initials/Representative
15
<PAGE> 16
Exhibit B To
Market Representative Agreement
Dated_______________, 19___
Territory
1. Japan.
2. End of List.
______________________________ _______________________________________
Initials/Company Initials/Representative
16
<PAGE> 17
Exhibit C To
Market Representative Agreement
Dated___________, 19___
Form Noncompetition and Nonsolicitation Agreement
In consideration of his/her/its engagement by Representative, the
undersigned, an employee or agent of Japan Link, Inc. ("Representative"), does
hereby agree that during the term of the Market Representative Agreement
between Representative and The Sled Dogs Company ("the Company") dated
_______________, 19___ (the "Agreement") and so long as the undersigned is an
employee or agent of Representative, the undersigned shall not, directly or
indirectly, solicit the sale of or sell in the Territory any product that
competes with any of the Products.
In addition, for a period of three (3) months from the effective date of
expiration or termination of the Agreement or from the effective date of
termination of employment or engagement by Representative, whichever occurs
first, the undersigned agrees to not to attempt to divert or interfere with the
development of any business of the Company by soliciting, contacting or
communicating with any person, firm or organization to whom Representative or
the undersigned solicited the sale of the Products during the year preceding
the date triggering this obligation for the purpose of soliciting the sale of
or selling a product which competes with any of the Products.
______________________________
__________________(Print Name)
Date Signed:__________________
17
<PAGE> 18
Exhibit D To
Market Representative Agreement
Dated ______________, 19___
Quota
Representative shall solicit the sale of Products resulting in Net Sales
Revenue (as defined in Section 5) during the periods as set forth below.
Period Net Sales Revenue
------ -----------------
Effective date of agreement $300,000
to April 30, 1997.
______________________________ _____________________________________
Initials/Company Initials/Representative
18
<PAGE> 1
[WILLIAMS TELEVISION TIME INCORPORATED LOGO]
EXHIBIT 10.39
AGENCY SERVICES AGREEMENT
This Agreement, made this 26th day of July 1996, by and between Sled Dogs
Company, with its principal office at 212 Third Avenue North, Suite 420,
Minneapolis, MN 55401 ("Client") and Williams Television Time, Inc., a
California corporation with its principal office at 3130 Wilshire Blvd., Fourth
Floor, Santa Monica, CA 90403 ("Williams").
The parties hereto agree as follows:
1) GENERAL DEFINITIONS
Throughout this Agreement, the words and phrases defined below have the
following meanings and are hereby incorporated herein by reference:
1.1 ADVERTISEMENTS. Advertisements mean any and all direct response
commercials, now existing or later developed by Client to advertise, sell,
market, distribute or otherwise promote the product, service and the like now
known as the Sled Dog and which is sold, distributed or marketed by Client.
1.2 BOOKINGS. Bookings mean media placements for Client's Advertisements on
broadcast, satellite, television, cable stations and in other media outlets.
1.3 GROSS MEDIA COST. Gross Media Cost means the net invoice amount due to
and charged by media outlets and/or representatives, agencies, brokers,
vendors, syndicators working in connection therewith for Bookings plus the
industry-standard agency commission equal to 15%. The only exceptions are for
per inquiry (PI) and guaranteed bookings where Client pays a set gross pay out
rate.
1.4 WILLIAMS' COMMISSION(S). Williams' Commission(s) means 15% of the Gross
Media Cost.
1.5 COST OF BOOKINGS. Cost of Bookings means the actual amount paid to
broadcast, satellite, television, cable outlets as well as representatives,
agencies, brokers, vendors, syndicators working in connection therewith for
Client's Bookings plus Williams' Commissions.
1.6 REPORTS. Reports mean the regular computer response reports normally
generated by Williams for clients, samples of which are attached hereto as
Exhibit A.
1.7 TERRITORY. Territory means the United States and Canada.
2) WILLIAMS' SERVICES
2.1 MEDIA BUYING SERVICES. Client hereby engages Williams as Client's
exclusive agency to negotiate, purchase, arrange and otherwise facilitate all
Bookings for Client's Advertisements in the Territory. It being understood and
agreed that:
(i) Williams shall endeavor to select the Bookings it deems appropriate
using guidelines and criteria mutually established by Client and
Williams; and
(ii) Williams' performance is subject to best efforts; and
(iii) Williams shall endeavor to purchase, arrange and otherwise
facilitate the Bookings Williams selects for Client's Advertisements
in the Territory; and
(iv) Williams' obligation to perform the above is conditioned on having
sufficient Client funds on hand; and
(v) Williams reserves the right to cancel Bookings or suspend or refrain
from booking any Advertisement for any good-faith reason.
INITIALS MH 1
<PAGE> 2
2.2 APPROVAL OF BOOKINGS SERVICES. As noted in Section 2.1(ii) above,
Williams agrees to consult and confer with Client on an ongoing basis to
discuss media buying strategy. Client understands and acknowledges that it is
not possible to secure prior approval over any or all Bookings prior to
invoicing Client for such because to secure the best possible rates and times,
Williams endeavors to secure the best Bookings possible. This requires quick
turn-arounds and in most cases, no advance approvals.
2.3 CANCELLATION OF BOOKINGS. Williams shall endeavor to cancel any
Bookings requested by Client but Client acknowledges that it is very unlikely
that any refund can be obtained for such cancellation requested that falls
less than 4 weeks prior to the scheduled Booking date. If Client gives Williams
less than 4 weeks' advance notice of any cancellation, Williams has no
liability what-so-ever if Williams is unable to cancel such Booking and/or
obtain a refund or reschedule the time for Client. Client shall be obligated to
pay for the full amount of the Cost of Bookings of such air time. Williams
shall only refund or credit Client for any refund Williams actually receives
from any television station, less any amount due Williams.
2.4 REPORT SERVICES. Williams shall perform certain reporting services for
Client. Such consists of collecting the number or orders, upsells, inquiries
and the like generated from Client's Advertisements and allocating such
information to the appropriate Bookings. The results of this reporting service
will be reflected in the Reports to be sent to Client not more than twice per
week and on a normal business day selected by Williams.
2.5 NATURE OF AGREEMENT. Client hereby acknowledges that Williams is
supplying a service to Client. Williams is not providing, selling or
transferring a product.
2.6 ADDITIONAL SERVICES. Williams agrees to provide the following additional
services to Client:
(i) Coordination and duplication of Advertisement broadcast and viewing
tapes;
(ii) Mailing, delivery and coordinating transit of Advertisement
broadcast and viewing;
(iii) Confirmation of spot air time through a monitoring service such as
Vericheck or BDS;
(iv) Specialized computer reports and/or electronic transmission of
standard Reports; and
(v) Other services to be mutually agreed to in writing.
Services 2.6(i), 2.6(ii) and 2.6(iii) shall be invoiced by Williams at cost
plus the 15% Commission. The cost of the services described in Section 2.6(iv)
and 2.6(v) will be established on a case by case basis and invoiced by Williams
accordingly. If either of the services of 2.6(i) or 2.6(ii) are billed directly
to Client from a third party vendor/supplier, Williams' Commission shall be
omitted.
3) PAYMENT FOR SERVICES
3.1 COST OF BOOKINGS. At the outset, Williams will invoice Client for an
amount equal to the Gross Media Cost of 4 weeks of projected Bookings ("Advance
Bookings Payment"). This Advance Bookings Payment is due 14 days prior to the
first date contained in the related Bookings. Williams shall estimate the Gross
Media Cost amount of 4 weeks of projected Bookings by using Client's then
existing budgets, response rates, market conditions and the like. The Advance
Bookings Payment is held by Williams against the actual Cost of Bookings that
occur within a 4 week period and must be maintained at that 4 week level to
secure Williams' performance under this Agreement. Williams will then invoice
Client for the actual Bookings following the last day of broadcast week ending
Sunday. This weekly invoice reflects, to the best of Williams' knowledge:
(i) a summary of the Bookings that aired and the related Cost of
Bookings (the "Estimated Week's Cost");
(ii) the Advance Bookings Payment received to date less the Estimated
Week's Cost;
(iii) any applicable credits, debits, reconciliations and the like; and
(iv) the required payment due to bring the Advance Bookings Payment to
the required 4 week projection of the cost of the Estimated
Bookings (the "Balance Amount").
INITIALS MH 2
<PAGE> 3
The Balance Amount is due and must be paid by Client within 7 days from invoice
date. Further, when actual Bookings invoices are received by Williams from
various media outlets, Williams shall reconcile such with the Advance Bookings
Payments, Estimated Week's Cost and the Balance Amount and bill or credit
Client for differences between the actual payments made by Client and the
actual Cost of Bookings. This process is generally completed within
approximately 120 days following the end of each broadcast month. Credits, if
any, shall be first applied to future Bookings, or if appropriate, refund any
amounts received in excess of the total Cost of Bookings. Any additional
charges shall be paid by Client within 7 days of the invoice date. The results
of this procedure may give rise to additional charges or credits. Any disputed
or discrepancy Bookings will be treated as true and accurate Bookings on
Williams invoices until such time as Williams resolves such. Williams hereby
agrees to use its good faith and reasonable efforts to resolve such. However
during this process Client shall have no right to withhold any Cost of
Bookings whatsoever.
3.2 ADDITIONAL SERVICES. Williams shall invoice Client for the cost of
the Additional Services plus Williams' Commissions on a regular basis. Client
shall pay the amount shown due within 7 days of Williams' invoice date (the
"Additional Service Payment").
3.3 PAYMENT DEADLINE. The date on which any Advance Bookings Payment,
Balance Payment and Additional Service Payment is due is hereafter referred to
as a "Deadline" for this Agreement's purposes. If Client fails to pay any
invoiced amount by a Deadline, Williams has the right, at its option, to
suspend further performance, cancel all Bookings, terminate this Agreement,
hold Client strictly accountable or any combination of the above.
4) CLIENT'S RESPONSIBILITIES
4.1 ADVERTISEMENTS. Upon request, Client agrees to immediately provide the
necessary advertising materials, commercials, masters, and related
documentation required to clear, broadcast or publish the Advertisements on
media outlets, and/or market, sell advertise or otherwise distribute Client's
products in the Territory. Such documentation includes, but is not limited to,
talent and testimonial releases, testing and product certifications, support
material verifying product and advertising claims, proof that Client's
Advertisements have been self-certified according to NIMA guidelines, and the
like.
4.2 ORDER FULFILLMENT. Client shall maintain sufficient product
inventory on hand in the Territory in order to fulfill the expected response
for Client's Bookings. Client shall immediately inform Williams of any actual
or anticipated shortages.
4.3 CONFIDENTIALITY. Client shall only use all or any part of the
information, results and data received or generated from Williams' activities
related to this Agreement for its own, internal purposes and only to the extent
that such is needed to conduct its marketing efforts directly related to
Williams' service activities. Client shall not disclose any such information to
any other person or entity (and especially its domestic advertising agencies)
without Williams' express written consent. As such, Client agrees to keep any
and all information received strictly confidential and take all steps necessary
to maintain such confidential status.
4.4 PAYMENT. Client shall adhere to any and all Payment Deadlines contained
herein. Williams reserves the right to strictly enforce any and all Payment
Deadlines.
4.5 CERTIFICATION. Client shall self-certify its Advertisements pursuant
to relevant NIMA International guidelines. Williams shall provide such
guidelines to Client at Client's request. Further, Client hereby appoints
Williams as Client's agent to complete the self-certification requirement on
Client's sole behalf should Client fail to complete the requirement on its own
and Williams deems it necessary. Such appointment only relates to the
self-certification process and does not confer an agent status on Williams for
any other purpose. Client understands that Williams shall receive reimbursement
for all costs incurred in completing the self-certification process on Client's
behalf. Client shall cooperate with Williams to accomplish such and immediately
execute any and all documents, affidavits, oaths and the like reasonably
required by NIMA and/or Williams. Client understands Williams' right to
self-certify any Advertisements is discretionary and not an affirmative
obligation.
INITIALS MH 3
<PAGE> 4
5) REPRESENTATIONS AND WARRANTIES
5.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each party hereby represents and
warrants that:
(i) it has the right and ability to enter into this Agreement;
(ii) the performance of the obligations assumed herein will not infringe,
interfere or impair and third parties intellectual or proprietary
rights; and
(iii) it will abide by the terms herein contained.
5.2 CLIENT'S REPRESENTATIONS AND WARRANTIES. Client hereby represents and
warrants that:
(i) it has secured and owns any and all necessary rights to the
Advertisements free and clear of any superior or conflicting rights;
(ii) the publication, broadcast and exploitation of the Advertisements
will not constitute false advertising, infringe any third party's
rights or violate laws, rules or customs;
(iii) Client's products are and will remain merchantable and fit for the
purpose intended;
(iv) Client shall secure necessary telemarketing, fulfillment,
order-processing, customer service and similar marketing services
necessary to conduct its business in a first-class manner;
(v) Client's Advertisements have been self-certified according to NIMA
guidelines.
(vi) during this Agreement's term and for a period of twenty-four months
immediately following thereafter, Client shall not hire any active
or former Williams employee; or directly or indirectly solicit,
recruit or encourage any Williams employee or agent to leave their
employment or terminate their business relationship with Williams;
(vii) it will defend, indemnify and hold Williams and its employees,
shareholders, directors, officers, affiliates, and the like, as well
as each and every television station or media outlet publishing an
Advertisement harmless against, from and for any and all claims,
actions, costs, fees, expenses (including reasonable attorneys'
fees) that may arise out of or relate to this Agreement, any
representation or warranty contained herein, any publication or
broadcast of any Advertisement or Client's breach or alleged breach
of the any of the foregoing provided that Williams has no right to
indemnity if such a claim results from Williams' intentional
misconduct; and
(viii) it will, during the Agreement's term, procure and maintain product
liability insurance covering its products in the Territory in an
amount equal to that normally carried by other similarly situated
companies. In no event can this policy be less than $1,000,000 per
occurrence and $1,000,000 in aggregate. Client must list Williams as
an additional, named insured on this policy and furnish proof of
this inclusion within 30 days of its execution of this Agreement.
Client's carrier must have a rating of AA or better in the Best
Insurance Guide.
6) TERM AND TERMINATION
This Agreement has a 365 day term commencing upon the full execution and
automatically renews for additional 365 day terms; provided, however, that
either party may terminate this Agreement without cause by giving the other
party written notice 60 days prior to the effective termination date.
Additionally, either party may terminate this Agreement immediately if the
other party breaches any material term of this Agreement and such material
breach remains uncured for a period of 30 days, as determined by the notifying
party's reasonable satisfaction, after the party allegedly in breach has
received written notice of the other's objection. Williams may terminate this
Agreement immediately if Client fails to meet any Deadline.
7) ATTORNEYS' FEES
If any action at law or equity is brought to enforce or interpret this
Agreement's terms or the underlying relationship, the prevailing party in such
an action is entitled to recover its attorneys' fees, court fees and related
costs from the losing party in addition to any other relief to which the
prevailing party may be entitled.
INITIALS MH 4
<PAGE> 5
8) NOTICES
Any and all notices required by this Agreement must be in writing and must be
sent by hand messenger, certified or registered mail, first class mail with
return receipt requested or overnight mail. Any such notice will be deemed
delivered when actually signed for or received. All notices shall be sent to
the party's address set forth herein which can be changed by written notice to
the other party.
9) RELATIONSHIP
Nothing contained in this Agreement creates a partnership, joint venture or
similar business relationship between Client and Williams. Williams is acting
solely as Client's independent service provider. Each party agrees not to act
in any way that contradicts this status.
10) ENTIRE AGREEMENT
This writing contains all of the terms and provisions of the agreement between
Client and Williams with respect to their agency/client relationship. As such,
the language, terms and conditions replace, supersede and exclude any and all
prior agreements, understandings, negotiations and discussions, whether oral or
written.
11) WAIVER
Either party's failure to enforce any of their respective rights hereunder
shall not constitute a waiver of the same. A waiver, consent to or approval of
any act must be in writing. Any waiver, consent to or approval of any act shall
not be deemed to waive or render unnecessary consent to or approval of any
subsequent act, or a waiver of the party's right to hold the other liable for
any loss or damage resulting therefrom.
12) AMENDMENTS
This Agreement may only be changed, altered or modified by a writing actually
signed by an authorized officer of the party against whom enforcement of the
modification, change or alteration is sought.
13) ILLEGALITY AND SECTION HEADINGS
Nothing contained in this Agreement requires the commission of any act,
charging of any prices or fees, or the payment of any compensation which is
contrary to the express provisions, laws or policies of the United States,
California or any other body in the Territory. If such a conflict exists
between this Agreement and any such provision, law or policy (as determined by
an appropriate court or governmental body), the latter will prevail and the
term or terms in this Agreement affected will be curtailed to the extent (but
only to the extent) necessary to remove such conflict. As so modified, this
Agreement shall remain in full force and effect. The section headings appearing
herein are used for convenience only and are not a part of this Agreement.
14) CHOICE OF LAW, FORUM AND VENUE
This Agreement will be fully executed in the Santa Monica, California with the
parties' performance occurring within Santa Monica's boundaries. As such, this
Agreement will be interpreted under California's internal laws. Any
controversies must be resolved in California using the appropriate courts
located in Los Angeles county.
INITIALS MH
5
<PAGE> 6
15) REMEDIES
Client's sole remedy, if any, against Williams is limited to recovery of its
proven out-of-pocket expenses. In no event will Williams ever be liable to
Client for any consequential, incidental, punitive, special or exemplary damages
claimed or actually suffered by Client as a result of or in connection to
Williams' performance of any of the obligations herein assumed, lack of
performance, negligence or breach. Further, in no event will Williams ever be
liable to Client under any legal or equitable theory for any damages, expenses
or losses suffered by Client resulting from the acts or omissions of any
television station or any other third party or by reason of any act, delay or
omission of Williams outside its direct control.
16) SURVIVAL
This Agreement's Sections 4.3, 5.2(v), 5.2(vi), 7, 8, 10, 11, 12, 13, 14, 15
and 19 survive this Agreement's termination or expiration.
17) DUE AUTHORIZATION
Each party represents that the individual executing this Agreement on its
behalf's is fully authorized to bind their respective entities without
additional approval.
18) FORCE MAJEURE
Either party shall be relieved of their materials obligations, except for
payment of amounts due, in the event that they are prevented from performing
because of any act or circumstance beyond their reasonable control. Such acts
or circumstances mean labor disputes, fires, earthquakes, wars, civil
uprisings, floods, national calamities, break down of machines, regulations,
laws, strikes, transportation delays and the like.
19) CONSTRUCTION
This Agreement's terms and conditions were freely negotiated. Williams drafted
the Agreement for the convenience of the parties only. As such, the language
shall be interpreted without regard to any rule, law or presumption requiring
the language to be construed, interpreted or applied against Williams.
After fully reading and reviewing the above the parties sign this Agreement
with the intent to be legally bound by the terms herein contained.
Sled Dog Company
By: Mary Horwath
------------------------------------
Name: Mary Horwath
----------------------------------
Title: Chief Operating Officer
---------------------------------
Williams - Williams Television Time, Inc.
By: Michelle Cardinal
------------------------------------
Name: Michelle Cardinal
----------------------------------
Title: Vice President of Client Services
---------------------------------
6
<PAGE> 1
EXHIBIT 10.40
TELESALES SERVICES AGREEMENT
This TELESALES SERVICES AGREEMENT ("Agreement") is made and entered
into this 12 day of August, 1996 by and between ICON HEALTH & FITNESS, INC.
d/b/a TELESOURCE (hereinafter referred to as "TeleSource") and THE SLED DOG
COMPANY, 212 Third Avenue North, Suite 420, Minneapolis, Minnesota 55401
(hereinafter referred to as "Company") and is based upon the following.
RECITALS:
A. Company is in the business of manufacturing and marketing various
products to its customer.
B. TeleSource has the resources and ability to contact prospective
customers by telephone and to assist in the marketing of Company's products.
C. Company desires to retain TeleSource, and Telesource desires to be
retained by Company, to perform telesales services for the Company.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, and other good and valuable consideration, the receipt and sufficiency
of which is acknowledged, Company and Consultant agrees as follows:
ARTICLE I.
TELESALES SERVICES
1.01. Telesales. The Company hereby retains TeleSource to perform,
and TeleSource hereby agrees to perform, telesales services on behalf of
Company. TeleSource shall use its own facilities and personnel to make
telephone sales on behalf of Company. TeleSource shall devote such resources as
are reasonably necessary to accomplish the goals and objectives of Company with
regards to the telesales services rendered hereunder.
1.02. Company Responsibilities. The Company shall be responsible for
providing the following:
a. Sales Leads. The Company shall be responsible for providing
TeleSource with sales leads and list of potential customers who have
expressed an interest in purchasing Company's products (the "Sales
Leads"). The Company shall provide names, phone numbers and all other
relevant and pertinent information necessary to contact the prospective
customer with the sales proposal. Company shall be solely
<PAGE> 2
2
responsible for preparing and creating the Sales Leads listings.
b. Script. The Company shall provide TeleSource with a script (the
"Script") which TeleSource shall use in the telesales services it renders
for Company. Company represents and warrants that all Scripts it shall
provide to TeleSource will be in compliance with federal and state law and
otherwise suitable for the purpose for which they will be utilized. All
Scripts submitted by Company to TeleSource shall be subject to TeleSource's
approval, which shall not be unreasonably withheld. TeleSource shall not be
required to utilize any Script that TeleSource has not previously reviewed
and approved.
c. Shipment of Products. Company shall be solely responsible for
shipping all products sold through TeleSource's telesales efforts from
Company's own facilities directly to the customer. Company shall inform
TeleSource as to its shipping capabilities and shipping information shall
be set forth in the Script provided by Company so that TeleSource can
accurately inform customers as to the date they can expect shipment.
d. Indemnification. Company hereby agrees to indemnify and hold
TeleSource harmless from and against all claims, damages, losses, actions,
suits, proceedings, demands, assessments, costs and expenses (including
specifically, but without limitation, reasonable attorney's fees and
expenses of investigation) arising from or relating to the performance of
TeleSource's duties hereunder including, but not limited to, statements and
representations made to customers in reliance upon the Script or other
information provided by Company, or arising due to product quality issues,
customer list issues, shipping issues, or any other issue for which Company
is responsible. In the event that TeleSource is made a party to any suit,
action, claim, governmental investigation, or any other proceeding, due to
TeleSource's performance under this Agreement, Company hereby agrees to
defend TeleSource against any such action, and pay the full cost of
defense, including attorney fees and costs. TeleSource shall notify Company
immediately in the event of any such action or proceeding and shall tender
the defense to the Company as soon as possible after receiving notice
thereof.
1.03. TeleSource's Responsibilities. TeleSource shall take the Sales
Leads and Script provided by Company and shall contact the persons whose names
appear on said lists in an effort to market the products of Company to such
customers. TeleSource shall strictly adhere to the Script provided by Company
in connection with all contacts it has with customers. TeleSource shall make no
representations or warranties relative to Company's products other than as are
contained in the Script provided by Company.
<PAGE> 3
3
1.04. Orders and Reports. All orders obtained by TeleSource will be
transmitted to Company's order processing center (as directed by Company) on a
daily basis. TeleSource will also provide Company with a client memo setting
forth daily call activity. This report will include completed calls, number of
products sold, call penetration, customers with no interest, and customers who
have already purchased.
1.05. Confidentiality. All calling records and reports will be held
confidential by TeleSource. All Sales Leads, Scripts, and other records
received by TeleSource from Company will remain the property of Company, and
TeleSource shall not disclose or release the same to any third party without
the Company's written consent.
1.06. Non-Exclusive Services. Company understands that TeleSource is
involved with the marketing of various products in addition to the products
marketed by the Company, and that the telesales services provided by TeleSource
are not exclusive services. TeleSource shall remain free to market the products
of other companies throughout the term of this Agreement.
ARTICLE II.
COMPENSATION
2.01. Compensation. Company shall pay TeleSource compensation at
either an hourly rate or a commission rate as more fully set forth on Exhibit
"A" attached hereto and incorporated herein by this reference.
2.02. Non-Refundable Deposit. Prior to the commencement of services
hereunder, Company shall pay TeleSource a non-refundable deposit (the
"Deposit") in the amount shown on Exhibit "A". This Deposit shall be credited
to the final invoice issued to Company. If this Agreement is terminated by
Company prior to the time TeleSource earns the full amount of the Deposit, then
TeleSource shall retain any balance. If TeleSource terminates this Agreement
before the Deposit is earned by TeleSource, then TeleSource shall return the
unearned portion thereof.
2.03. Billing. TeleSource shall bill Company for the telesales
services provided by TeleSource hereunder on a weekly basis. Company agrees to
pay all statements billed by TeleSource within fifteen (15) days from the date
of billing.
2.04. Nonpayment of Fees. In the event that Company fails to make
timely payment of the TeleSource invoices, TeleSource shall have the right to
suspend the services provided on behalf of Company indefinitely until Company's
bill has been paid in full. TeleSource shall have the right to charge interest
at the monthly rate of 1.5% on any unpaid bill after its due date, and Company
shall pay such interest in connection with, and as a condition to
<PAGE> 4
4
TeleSource accepting, late payments. TeleSource shall not be in breach of this
Agreement for failing to perform services at any time in which Company is
delinquent in the payment of its account. In the event that TeleSource is
forced to collect any unpaid account balance, Company shall be liable for any
collection costs, including attorney's fees incurred by TeleSource in
connection with collecting the account, whether by legal action or otherwise.
ARTICLE III.
TERMINATION
3.01. Termination By Either Party. Either party may terminate this
Agreement at any time by delivering to the other party written notice of
termination not later than thirty (30) days prior to the date of such
termination. In the interim, either party may curtail all calling activity at
any time if either party deems it desirable to do so.
ARTICLE IV.
MISCELLANEOUS
4.01. Remedies. Upon breach of the terms of this Agreement, the
non-defaulting party shall have all available remedies to which it may be
entitled by law.
4.02. Waiver. A wavier by any party of any provision, whether in
writing or by course of conduct or otherwise, shall be valid only in the
instance for which it is given, and shall not be deemed a continuing waiver of
said provision, nor shall it be construed as a waiver of any other provision.
4.03. Paragraph Headings. The paragraph headings of this Agreement
are inserted only for convenience and in no way define, limit or describe the
scope or intent of this Agreement nor affect its terms and provisions.
4.04. Governing Law. This Agreement, and all matters relating hereto,
including any matter or dispute arising out of the Agreement, shall be
interpreted, governed, and enforced according to the laws of the State of Utah,
and the parties consent to the jurisdiction of the First Judicial District
Court in the County of Cache, State of Utah to resolve such disputes.
4.05. Amendments. This Agreement may be amended at any time upon
unanimous agreement of the parties, which amendment(s) must be reduced to
writing and signed by all parties in order to become effective.
<PAGE> 5
5
4.06. Entire Agreement. This Agreement constitutes and represents the
entire agreement of the parties with respect to the subject matter hereof, and
all other prior agreements, covenants, promises and conditions, verbal or
written, between these parties are incorporated herein. No party has relied upon
any other promise, representation or warranty, other than those contained
herein, in executing this Agreement.
4.07. Attorney's Fees. In the event that any party shall be in default or
breach of this Agreement, said party shall be liable to pay all reasonable
attorney's fees, court costs and other related collection costs and expenses
incurred by the non-defaulting or non-breaching party in protecting its rights
hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE SLED DOG COMPANY
By Mary Horwath
-----------------------------------------
Its COO
-------------------------------------
COMPANY
ICON HEALTH & FITNESS, INC. d/b/a
TELESOURCE
By James Miller
-----------------------------------------
Its Sales Director
-------------------------------------
TELESOURCE
<PAGE> 6
EXHIBIT "A"
TeleSource's compensation shall be as follows:
Compensation:
(Check those that apply)
_____ a. Commission __________% of gross sales
_____ b. Commission $_________ per unit of product sold.
_____ c. Hourly Rate $_________ per hour per TeleSource
employee.
_XX__ d. Other
If Telesource Closes 12% or Less = 17.5% Commission
If Telesource Closes 12.1% or Above = 20% Commission
Deposit: $1,000.00
<PAGE> 1
EXHIBIT 10.41
AGREEMENT
This Agreement, made this September 18, 1996, is between The Sled Dogs
Company ("Supplier"), with its principal place of business at 212 Third Avenue
North, Suite 420, Minneapolis, MN 55401and Distribution Systems & Services
Corporation (DSS), with its principal place of business at 4440 Round Lake Road
West, P.O. Box 64116, St. Paul, Minnesota 55164.
WITNESSETH:
WHEREAS, Supplier desires to engage DSS to perform the work described in
this Agreement under terms and conditions of this Agreement; and
WHEREAS, DSS desires to perform the work described in this Agreement for
Supplier under the terms and conditions of this Agreement;
NOW, THEREFORE, for and in consideration of these premises, the mutual
covenants and promises hereinafter contained, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto do hereby agree as follows.
1. DEFINITIONS. For the purpose of this Agreement, the following words
and phrases shall have the definitions set forth below:
(a) "Agreement" shall mean this document;
(b) "Customer(s)" shall mean all customers who order Supplier's
Products directly from Supplier pursuant to this contract;
(c) "Product(s)" shall mean the Products listed in Exhibit A.
2. SCOPE OF WORK.
(a) Except as provided in paragraph 2(b), DSS agrees to furnish and
pay for all labor, supervision, taxes, equipment, supplies, and other
related expenses necessary to perform the following duties:
(i) Set up and maintain a finished goods warehouse and product
shipment operation for all Products, Product samples and POP
materials. This includes, but is limited to, the following:
(1) Provide a location for the finished goods
warehousing and product shipment operation;
<PAGE> 2
(2) Receive Products shipped from Supplier or its
manufacturing vendors, verify that the quantity received
equals the quantity indicated on the bill of lading, inspect
the Products for damage, make timely claims for shortages and
damaged goods to carriers or vendors on Supplier's behalf,
report any discrepancies or damage to Supplier and hold the
Products in inventory. DSS to maintain acceptable real-time
record of receipts to forty-eight (48) hours;
(3) Use reasonable efforts to store safely all Products
received and to protect the Products from loss or damage;
(4) Pack and ship ordered Products, Product samples and
POP materials using carriers hired by DSS and approved by
Supplier within a maximum of seventy-two (72) hours of order
receipt at DSS unless specified by Customer. List of
carriers will be provided to Supplier for prior written
approval;
(5) Forward any freight bills to Supplier from carriers
for payment by Supplier;
(ii) Organize and maintain an order processing department,
which includes the following:
(1) Provide a location for the order processing
department;
(2) Receive and process all orders for Products, Product
samples and POP materials;
(3) Prepare a bill of lading for each order using bill
of lading forms supplied by DSS, formatted to Supplier's
specifications or as provided by Supplier;
(iii) Organize and maintain an assembly department for snow
skates, bases and packaging.
(b) Supplier will furnish and pay for the following services,
personnel, equipment and supplies:
(i) Pallets, cartons and packing material as needed;
(ii) Provide proof of insurance coverage as required in
Section 13 hereof.
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3. ADDITIONAL WORK. If Supplier requests DSS to perform any work DSS
considers to be beyond the scope of work described in Section 2(a) above
("Additional Work"), DSS shall have the right to accept or reject such request.
In the event that Supplier shall request that DSS perform work pursuant to
this Agreement which DSS believes constitutes Additional Work, then before
performing the work in question, DSS shall notify Supplier in writing that it
believes the work in question to constitute Additional Work. Upon receipt of
such notice, Supplier will evaluate the work in question and inform DSS in
writing whether it believes the work constitutes Additional Work. If Supplier
agrees that the work in question constitutes Additional Work, then Supplier and
DSS shall negotiate the amount which DSS will be compensated for its
performance of the Additional Work. If Supplier does not agree that the work
in question constitutes Additional Work, then the questions of whether the
contemplated work constitutes Additional Work shall be submitted to binding
arbitration as herein provided and DSS will proceed with the work.
4. PAYMENT.
(a) In consideration for performance of the duties specified in this
Agreement, Supplier agrees to pay DSS in accordance with the fee schedule
in Exhibits B & C;
(b) The compensation to be paid to DSS as provided for in Section
4(a), shall be due and payable by Supplier in full within fifteen (15)
days of Suppliers' receipt of the bill. DSS will bill Supplier for
services on the 30th/31st of each month.
(c) DSS may, at its discretion, limit services provided under this
Agreement if Supplier's accounts payable to DSS become more than
forty-five (45) days past due, and DSS advises Supplier, in writing, of
intent to limit services and in what manner. If Supplier's past due
accounts payable to DSS are in dispute, DSS and Supplier will submit the
dispute to binding Arbitration and DSS will continue to provide full
scope of work service. If Supplier elects arbitration, then Supplier
will deposit disputed amount in escrow account in a mutually agreeable
bank or savings institution to be disbursed upon the decision in
accordance with arbitrator's instructions.
(d) Supplier hereby acknowledges and agrees that pursuant to Minn.
Stat. Section 336.7-209, DSS shall have a warehouse lien on all goods
stored by DSS for any and all charges and expenses owing under this
Agreement, whether such charges and expenses were incurred in relation to
goods in the possession of DSS at the time the lien is enforced or
incurred in relation to goods no longer in the possession of DSS at the
time the lien is enforced.
5. RISK OF LOSS.
(a) DSS is responsible for the safe handling and safekeeping of
Products delivered to the warehouse location provided by DSS. Except as
provided in Section 5(b) below, if more than one half (1/2) of one
percent (1%) of the Products received by DSS during any three month
quarter during the Agreement term are lost, stolen, and/or damaged,
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<PAGE> 4
then DSS agrees to reimburse Supplier for the value of the Products in
excess of this amount on the following terms:
(i) The quantities of Products lost stolen and/or damaged
shall be calculated when Supplier receives each physical inventory
report from DSS;
(ii) For the purpose of calculating the value of the Products
which are lost, stolen and/or damaged, Supplier shall use the
acquisition cost (as defined in Exhibit A and as periodically
amended) of each Product. If loss or damage is in excess of (.5%)
of warehoused goods, DSS will be responsible for cost of goods so
lost, stolen, or damaged at Supplier cost;
(iii) DSS agrees to pay Supplier all amounts under this
section within thirty (30) days after receipt of an invoice; and
(iv) DSS shall comply with Supplier's instructions concerning
the disposition of damaged Products.
(b) Supplier agrees to insure, at its own expense, all Products of
Supplier in DSS' possession, for their full value against perils
customarily covered under fire and extended coverage insurance with a
vandalism and malicious mischief endorsement. DSS shall not be
responsible for any damage to or destruction of the Products in DSS'
possession resulting from perils customarily covered by fire and extended
coverage insurance. If such damage or destruction occurs, Supplier
agrees that it will rely solely upon its policies of insurance, and all
claims against DSS arising out of such damage or destruction including
any right of subrogation by Supplier's insurance carrier, are hereby
waived by Supplier. Supplier also agrees that it will bring no action
against DSS, its agents or employees for any claim arising out of such
damage or destruction of any Products. Supplier agrees to provide DSS
with a certificate of insurance containing the restriction that the
policy may not be terminated or canceled without thirty (30) days' prior
written notice to DSS. DSS agrees to notify Supplier of any loss or
damage to Products within forty-eight (48) hours of discovery, and record
such damage and take all possible steps to minimize additional damage.
(c) DSS agrees to insure, at its own expense, all premises,
equipment, supplies, and all other things furnished by DSS for their full
value against perils customarily covered under fire and extended coverage
insurance with a vandalism and malicious mischief endorsement. Supplier
shall not be responsible for any damage to or destruction of the
premises, equipment, supplies, or all other things furnished by DSS
resulting from perils customarily covered by fire and extended coverage
insurance. If such damage or destruction occurs, DSS agrees that it will
rely solely upon its policies of insurance and all other claims against
Supplier arising out of such damage or destruction, including any right
of subrogation by DSS' insurance carrier, are hereby waived by DSS. DSS
also agrees that it will bring no action against Supplier, its agents or
employees for any claim arising out of
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<PAGE> 5
such damage to or destruction of the premises, equipment, supplies or
other things furnished by DSS for whatever reason or cause.
(d) Nothing contained herein shall be construed as making DSS liable
for any claim arising out of the manufacture, safety or design of the
Product or as absolving Supplier from its responsibility to indemnify DSS
and hold DSS harmless as provided in Section 12 hereof.
6. INSPECTION. At any time during normal working hours after giving DSS
reasonable prior notification, Supplier may inspect the warehouse locations
provided by DSS and any work in progress, and audit any records, files, and
financial transactions which DSS is obligated to maintain under this Agreement.
7. SUPPLIER/DSS IDENTIFICATION. DSS will use reasonable efforts to
structure all communication to the Supplier's Customers in such a manner as to
remain transparent to the Customer. This will include telephone communication,
correspondence, invoicing and any other Customer communication that the
Supplier deems necessary
8. CONFIDENTIALITY.
(a) Each party understands and acknowledges that Confidential
Information will be disclosed to it while it is performing this
Agreement. "Confidential Information" means information not generally
known to the public and proprietary to a party, including but not limited
to, trade secret information about processes, Products, research,
development, manufacture purchasing, accounting, engineering, marketing,
merchandising, selling, leasing, servicing, financing, business systems,
techniques, and operations, and information concerning the contents of
this Agreement, the identities of Customers and the sales and shipments
made to Customers. Except as required to perform this Agreement, both
parties agree not to use or disclose any Confidential Information during
the term of the Agreement or thereafter. Upon termination of this
Agreement, all records and any other items which disclose or embody
Confidential Information, including all copies, will be returned to the
party which owns the Confidential Information.
(b) Each party's obligations under this section do not, however,
apply to any information which:
(i) Is in the public domain at the time the party learns of
it, or becomes publicly known through no wrongful act of that
party; or
(ii) Is in the public domain at the time the party learns of
it, or becomes publicly known through no wrongful act of that
party; or
(iii) Is received by a party from a third party which had a
lawful right to disclose it to that party; or
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<PAGE> 6
(iv) Is used or disclosed by a party with the prior written
approval of the other party; or
(v) Is compelled to be disclosed by the courts or any
governmental agency.
9. OWNERSHIP OF PROPERTY. DSS acknowledges that the Products delivered to
DSS and all documents received and created by DSS while performing work under
this Agreement (including, but not limited to, equipment as defined in Exhibit
A, orders, bills of lading, invoices, correspondence, reports, files, and
records) are the property of Supplier. DSS agrees to execute a UCC-1 financing
statement (to be filed by Supplier in the office(s) of the appropriate
Secretary of State) as an acknowledgment that such property in the care,
custody, and control of DSS is owned by Supplier. DSS shall not sell,
transfer, or remove this property from DSS' location(s) except to Customers in
the ordinary course of business or upon written instruction from Supplier.
At the termination of this Agreement, DSS shall promptly return all of the
property owned by Supplier to Supplier. If Supplier wishes to prepare the
property for shipment and remove the property, then Supplier shall have the
right to peaceably enter DSS' location(s) during normal business hours to
prepare and remove the property. Upon reasonable request by Supplier, DSS
shall prepare the property for shipment and return the property to Supplier at
Supplier's expense.
10. DSS EMPLOYEES. DSS agrees to maintain such work force as it deems
appropriate to perform the work specified under this Agreement. DSS
acknowledges that no workers' compensation insurance, unemployment insurance,
pension plans, health insurance, life insurance or other benefits and
protections made available to employees of Supplier will apply to DSS employees
and agents, and that Supplier will not withhold from the monies it pays DSS any
money for state and federal income taxes, social security taxes, unemployment
tax, workers' compensation taxes, or any other payroll taxes owed by DSS to the
government except if an appropriate government agency places a lien at Supplier
against DSS for f'unds owed the government.
DSS agrees that Ron Cramer, as an employee of The Sled Dogs Co., will work
on DSS' premises as a liaison during the transition period to ensure an orderly
move and start up at DSS. DSS will evaluate Ron as a prospective employee and
notify Mike Wise no later than November 30, 1996 regarding DSS' intentions for
offering or not offering Ron employment.
Furthermore, DSS agrees to credit Supplier $6.50 per hour that Ron is
punched in at DSS' warehouse up to 40 hours per week. This payment schedule
will begin with the first week that production starts at DSS (scheduled July
15, 1996) and will be reviewed after eight weeks. There must be active
production or order fulfillment activity at DSS for Ron to be punched in on the
DSS time clock.
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<PAGE> 7
11. LIENS. Except as provided in Section 15(d) and Section 4d, DSS agrees
to use its best efforts to prevent any lien, claim of lien or other encumbrance
from being asserted against Supplier or Supplier's property.
12. INDEMNIFICATION. Supplier will indemnify and hold harmless DSS and
its directors, officers, agents and employees, from any loss, claim, liability,
and expense (including reasonable attorney's fees and other expenses of
litigation) with respect to claims based on Products including product
liability.
13. INSURANCE.
(a) DSS agrees to obtain and maintain at all times throughout the
term of this Agreement the following Insurance:
(i) Comprehensive General Liability Insurance with limits
totaling at least One Million Dollars ($1,000,000.00) per
occurrence for property damage. DSS will not be required to insure
Products in DSS' warehouse - this is the obligation of Supplier;
(ii) Workers Compensation with limits as, required by law; and
(iii) Employers' Liability Insurance, with a minimum limit of
One Million Dollars ($1,000,000.00) per accident.
(b) Supplier will purchase and maintain Product Liability Insurance
of at least One Million Dollars ($1,000,000.00) naming DSS and Scholls,
Inc. as additional insured's and Vendors.
(c) The terms used in Section 13 above to specify the required
insurance are to be interpreted according to ordinary usage in the
insurance industry. The policies obtained and maintained to provide the
specified insurance must provide that the required coverages and limits
cannot be canceled or changed without at least thirty (30) days prior
written notice to Supplier or DSS.
(d) Both parties will provide each other insurance certificates
showing compliance with the insurance specifications stated in Section
13(a) and (b) above. Supplier will also provide DSS with a copy of the
endorsement(s) which add DSS and Scholls as additional insured's and
Vendors of Supplier.
14. LIMITATION OF LIABILITIES. EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
IN SECTION 5 (RISK OF LOSS) AND SECTION 12 (INDEMNIFICATION), NEITHER PARTY
SHALL, UNDER ANY CIRCUMSTANCES, BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL
OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS,
REVENUE OR BUSINESS) RESULTING FROM OR IN ANY WAY RELATED TO THIS AGREEMENT OR
THE
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<PAGE> 8
TERMINATION OR NONRENEWAL OF THIS AGREEMENT OR ARISING OUT OF OR ALLEGED TO
HAVE ARISEN OUT OF BREACH OF THIS AGREEMENT OR BREACH OF ANY PURCHASE ORDERS
ACCEPTED PURSUANT TO THIS AGREEMENT. This exclusion applies, regardless of
whether such damages are sought based on breach of warranty, breach of
contract, negligence, strict liability in tort, or any other legal theory.
This exclusion does not apply to claims for personal injury by a third party.
15. TERM: TERMINATION.
(a) The term of this Agreement shall commence on September 1, 1996
and shall continue for one (1) year. Thereafter, the term of this
Agreement shall be automatically extended for additional twelve (12)
month periods unless terminated in writing by either party at least l 80
days prior to the end of the original period or any additional period, as
the case may be.
(i) Supplier agrees to the following exit fee schedule which
is actionable if Supplier terminates this Agreement without cause:
Exit Before: Exit Fee:
------------ ----------
1-l -97 $7,500
7-1-97 $4,500
1-1-98 $2,000
Exit fees must be paid in full prior to inventory withdrawal.
(b) Notwithstanding the language of Section 15(a), this Agreement
may be terminated with cause by either of the parties in the event of a
material breach by the other party of its obligations under this
Agreement. Any party intending to terminate under this section shall
give written notice of its intention to the other party, stating its
rationale and giving a detailed description of the cause. The notice
shall be sent registered or certified mail, return receipt requested.
The party giving notice shall grant the other party thirty (30) days in
which to remedy the cause for termination. During this period to cure,
the parties shall make a good-faith effort to assist one another to
remedy the breach. If the breach is not remedied by the end of the
period to cure, then the Agreement shall be terminated effective as of
the last day of the period to cure.
(c) This Agreement may be terminated without cause by Supplier at
any time during the extended term of the Agreement by giving DSS written
notice, sent registered or certified mail, return receipt requested, at
least ninety (90) days prior to the desired date of termination.
(d) Notwithstanding the restriction on liens contained in Section 11
hereof, as of the date of receipt of a notice of termination, DSS is
hereby granted a lien on Products in its possession for all amounts due
on the date of termination under this Section.
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<PAGE> 9
(e) This Agreement may be terminated without cause by DSS at any
time during the extended term by giving Supplier written notice, sent
registered or certified mail, return receipt requested, at least ninety
(90) days prior to the desired date of termination.
(f) Termination of this Agreement shall not terminate any financial
obligations or debts incurred under this Agreement or any obligation to
pay in the event of a termination without cause or any liens created
hereby. The confidentiality provisions of Section 8 and the
indemnification provisions contained in Section 12 shall survive the
termination of this Agreement.
16. NOTICE.
(a) Except as otherwise expressly provided herein, any notice given
under the terms of this Agreement will be in writing and will he deemed
duly given when delivered personally or when sent by registered or
certified U.S. Mail to the address specified herein or to such other
address specified in writing. A notice so sent will be deemed to have
been received on the next business day subsequent to mailing.
Notice to DSS: DISTRIBUTION SYSTEMS &
SERVICES CORPORATION
4440 Round Lake Road West
P.O. Box 64116
St. Paul, MN 55164
Attention: Tim Scholl
Mike Connelly
Notice to Supplier: THE SLED DOGS COMPANY
212 Third Avenue North
Suite 420
Minneapolis, MN 55401
Attention: Michael Wise
17. EXCLUSIVITY. During the term of this Agreement, Supplier agrees that
it will not use any other company to provide the services DSS is obligated to
perform under this Agreement with respect to the sale of the specified line of
Products to Customer. Upon notice of termination, this paragraph shall become
non-effective.
18. FORCE MAJEURE. If the performance of any of the duties provided in
this Agreement other than the payment of funds is prevented, restricted, or
interfered with by reason of fire, earthquake, or other casualty or accident;
inability to procure raw materials, power or supplies (for reasons other than
DSS' negligence or fault or failure to order timely); war or other violence;
any law, order, proclamation, regulation, ordinance, demand or requirement of
any government agency, court or intergovernmental body; or any other act or
condition whatsoever beyond the reasonable control of the parties hereto; then
the party so affected, upon giving notice to the other party, shall be excused
from such performance to the extent of such prevention, restriction or
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interference; provided that the party so affected shall use its best effort as
to avoid or remove such causes of nonperformance and shall continue performance
hereunder with the utmost dispatch whenever such causes are removed.
19. ARBITRATION. Any disagreement or dispute arising under this Agreement
between the parties may be submitted by either party to binding arbitration in
St. Paul, Minnesota, under the rules of the American Arbitration Association
then in effect. Upon written notice of demand for arbitration of any matter
relating to this Agreement the party receiving such notice shall be deemed to
have agreed to such arbitration, and such matter shall no longer be subject to
the jurisdiction of any court, except to enter judgment of any decision of the
arbitrator.
20. INDEPENDENT CONTRACTOR. DSS warrants and agrees that in all
transactions relating to this Agreement it is an independent contractor. This
Agreement does not and will not be construed to create a partnership or joint
venture between the parties. Neither party shall have any authority to
obligate or to otherwise act as representative of, or agent for, the other
party for any purpose, and neither party shall make any representation or hold
itself out as having such authority.
21. ASSIGNMENT. Neither party shall assign this Agreement nor any rights,
benefits, or duties under this Agreement without the prior written consent of
the other party not to be unreasonably withheld.
22. MISCELLANEOUS.
(a) No change, amendment or modification of this Agreement shall be
effective unless it is reduced to writing and signed by both parties.
(b) This Agreement constitutes the entire agreement between the
parties relating to the matters set forth herein and supersedes all prior
agreements, whether written or oral, and all other communications between
the parties relating to the subject matter of this Agreement and shall
prevail over any contradictory terms and conditions in any purchase
order, acceptance, acknowledgment or other standard forms used by the
parties in performing this Agreement.
(c) No waiver of any breach of this Agreement will be construed as a
continuing waiver or consent to any subsequent breach of the Agreement.
(d) This Agreement will be construed in accordance with the laws of
the State of Minnesota, and the parties to this Agreement agree to submit
to the jurisdiction of the Courts of the State of Minnesota.
(e) This Agreement will be binding upon and inure to the benefit of
the parties' respective successors and assigns.
10
<PAGE> 11
(f) In the event any provision of this Agreement is held to be
illegal or unenforceable for any reason, the validity or enforceability
of the remaining provisions will not be affected.
(g) Section headings are provided for convenience only. They do not
modify or effect the meaning of any provision herein and will not serve
as a basis for interpretation or construction of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE SLED DOGS COMPANY DISTRIBUTION SYSTEMS & SERVICES
CORPORATION
By /s/ Michael P. Wise By /s/ R. Scholl
-------------------------- ----------------------
Its CFO Its President
--------------------- ------------------
11
<PAGE> 12
EXHIBIT A
EQUIPMENT ON DSS PREMISES OWNED BY THE SLED DOGS CO.
12
<PAGE> 13
EXHIBIT B
SERVICE AND ASSOCIATED COSTS
BASIC SERVICES PRICING
- ----------------------
Inbound pallet handling $4.50
Outbound pallet handling $4.50
Pallet build per carton $0.20
Pallet shrink per pallet $1.75
Full case pick $0.50
Break case pick $0.50
UPS shipment preparation $2.50
LTL shipment preparation $5.00
Storage per cube per month $0.22
- - Min handling charge per order - $2.50.
- - ASSEMBLY:
--------
DSS will provide assembly services as needed for Supplier.
Initially, assembly charges will be $14.00 per hour.
After 30 days, Supplier and DSS will agree on piece rates
for assembly where applicable.
- - The above costs do not include a one-time start-up fee of
$2,500.
- - Miscellaneous labor rate $14.00 per hour.
13
<PAGE> 14
EXHIBIT C
DSS DIRECT TO CONSUMER PRICING
FOR THE SLED DOGS COMPANY
I. PRODUCT FULFILLMENT
* Per full case pick $ 1.20
* Per break case pick $ 1.20
- Product fulfillment prices assume UPS or RPS delivery and
include up to three pieces of literature, packing slip, seal,
UPS/RPS label, manifest and shipping process.
- Shipping costs and materials not included in these prices.
- Minimum billing of either $2.40 per order, $150 per batch or
$4,000 per month.
II. PRODUCT STORAGE
* Per cubic foot per month $ .22
III. LEAD/LITERATURE FULFILLMENT
* Fold, insert (up to 3 pieces), seal and address $ .25
- Shipping costs and materials not included
- $.25 prices assumes bulk preparation of standard mailings.
- Custom mailings $.50 each.
IV. CUSTOMER SERVICE
* Process phone, mail or fax inquiries regarding
credits, shipments, tracking and correction of
customer files $ 2.50
* Process returns - rate per hour $14.00
V. DATA TRANSMISSION
* Rate per line $ .02
14
<PAGE> 1
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS:
I. MANAGEMENT DISCUSSION 1
II. CONSOLIDATED STATEMENTS OF OPERATIONS 3
III. CONSOLIDATED BALANCE SHEETS 4
IV. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 5
V. CONSOLIDATED STATEMENTS OF CASH FLOWS 6
VI. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
REPORT OF INDEPENDENT AUDITORS 10
THE SLED DOGS COMPANY VI
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
The Company's net sales for the fiscal year ended June 30, 1996 were $876,083,
an increase of 9% over the net sales of $808,082 reported for fiscal 1995. The
increase in sales 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. The accessory product line accounted for approximately 11% of net sales
for fiscal 1996. The Company believes sales for fiscal 1996 were negatively
impacted by difficulty in converting consumer demand into retailer demand and
developing strategic retail relationships. The Company has added a new
director of sales and increased the number of, and quality of, sales
representatives for fiscal 1997 to ensure the Company has the best
representation developing the right strategic retail relationships.
In general, wholesale sales of winter recreation products are seasonal, with
most wholesale sales activity occurring during the third and fourth calendar
quarters. In the future, the Company expects most shipments of snow skate
products to follow this seasonal pattern.
COST OF GOODS SOLD AND GROSS MARGIN
Gross margin as a percentage of net sales was 14% for fiscal 1996
(before considering the provision for inventory obsolescence of $250,000),
compared to 22% for fiscal 1995. The reduction in gross margin from fiscal
1995 to fiscal 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 fiscal 1996
contained metal-edge bases, while all snow skates sold in the prior year had
polyurethane bases. The Company expects fiscal 1997 gross margin to improve
over fiscal 1996 due to the impact of direct-to-consumer sales and the offering
of the Company's new K9(TM) snow skate. Longer term, the Company is committed
to achieving gross margins in the forty plus percent range.
OPERATING EXPENSES
Total operating expenses for fiscal 1996 were $3,629,051, an increase of
$433,669, or 14%, over operating expenses of $3,195,382 for fiscal 1995.
General and administrative expenses for fiscal 1996 were $1,188,705, compared
to $1,287,073 for fiscal 1995, a decrease of $98,368 or 8%. The decrease was
primarily due to a reduction in bad debt expense. In the future, the Company's
goal is to control its general and administrative expenses so they decrease as
a percentage of net sales.
Sales and marketing expenses for fiscal 1996 were $2,124,714, compared to
$1,659,731 for fiscal 1995, an increase of $464,983 or 28%. The increase in
sales and marketing expenses was primarily due to the production expense
associated with the Company's storymercial that began airing in September 1996.
The Company expects to increase sales and marketing expenses as necessary to
promote increases in net sales results and, therefore, such expenses could vary
as a percentage of net sales in the future.
Research and development expenses for fiscal 1996 were $315,632, compared to
$248,582 for fiscal 1995, an increase of $67,050 or 27%. The increase was due
to increased development activities for future generation snow skate products,
such as the K9(TM) model, for the 1996/1997 winter season. The Company expects
research and development expenses to increase if the
sport of snow skating expands and demand develops for alternative boot and base
structures to accommodate
different snow skating styles and venues.
INTEREST EXPENSE AND INCOME
Interest expense for fiscal 1996 was $80,935 compared to $351 for fiscal 1995.
Interest income and other (income) expense for fiscal 1996 was ($83,813),
compared to ($116,153) for fiscal 1996. The increase in interest expense was
due to the Company utilizing its asset-based line
of credit to meet working capital needs. The decrease in interest income was
due to less cash on hand during fiscal 1996 compared to fiscal 1995.
1 THE SLED DOGS COMPANY
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $653,251 at June 30, 1996,
compared to $733,586 at June 30, 1995, a decrease of $80,335. During fiscal
1996, the Company's operations used net cash of $3,108,463, primarily to fund
operating losses.
Prepaid expenses were $168,714 at June 30, 1996, a decrease of $119,677 over
June 30, 1995. The decrease was primarily due to the timing of expenses and
the elimination of certain one-time expenses from fiscal 1995 to fiscal 1996.
Accounts payable at June 30, 1996 were $378,678 compared to $169,370, an
increase of 209,308 or 124%. The increase was primarily due to costs
associated with completion of the storymercial production (65%) and the
remainder due to timing of expenses.
Capital expenditures during fiscal 1996 totaled $425,682 and primarily related
to manufacturing tools for the new K9(TM) skate and new line of bases ($317,315
or 75% of the total), a trade show booth, office leasehold improvements and
warehouse and office equipment. The Company also spent $27,747 on additional
patents and trademarks.
To finance operations and capital expenditures, the Company sold 8,000,000
units (the Units) in November 1995, each Unit consisting of one share of common
stock and one warrant to purchase one share of common stock (see note 3 of
Notes to Consolidated Financial Statements). The sale price per Unit was $.50.
The Company received aggregate net proceeds of $3,421,131 from the sale of the
Units.
In August 1996, the Company received proceeds of approximately $1.3
million from the exercise of warrants issued in the November 1995 private
placement. The private placement warrant holders were allowed to exercise their
warrants at $.75 per share versus $1.00 per share during the period July 15 to
August 30, 1996. The Company believes this additional capital, combined with
the one year renewal of its $2 million asset-based line of credit from a local
bank, will provide sufficient working capital to fund its planned operations
for the 1996/1997 winter season. However, if any unforeseen events occur, the
Company's cash position could be negatively impacted. The Company's external
auditors have included an explanatory paragraph in the Report of Independent
Auditors with regards to the Company's ability to continue as a going concern
as the realization of its assets and orderly satisfaction of its liabilities
are dependent on gaining greater market acceptance of its products. If the
Company is unable to gain sufficient market acceptance of its products,
additional funds from outside sources will be necessary to fund operations.
Moreover, additional capital resources will be necessary in fiscal 1998 to fund
anticipated growth. The Company continues to explore financing alternatives to
meet any unforeseen capital needs in fiscal 1997 and meet its future growth
requirements.
Forward-looking statements contained in this Annual Report are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Certain important factors could cause results to differ
materially from those anticipated by some statements made in this Annual
Report. You are cautioned that all forward-looking statements involve risks
and uncertainties. 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS 2
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
THE SLED DOGS COMPANY
We have audited the accompanying consolidated balance sheets of The Sled Dogs
Company as of June 30, 1996 and 1995, and the related consolidated statements
of operations, changes in shareholders' equity and cash flows for each of the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material mis-statement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Sled Dogs
Company at June 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the years then ended, in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company's recurring
losses from operations and accumulated deficit raise substantial doubt about
its ability to continue as a going concern. The financial statements do not
include any adjustment that might result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Minneapolis, Minnesota
August 2, 1996
<PAGE> 5
THE SLED DOGS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended June 30
1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 876,803 $ 808,082
Cost of goods sold 1,000,718 628,888
----------------------------------------------
Gross margin (123,915) 179,194
Costs and expenses:
General and administrative 1,188,705 1,287,069
Sales and marketing 2,124,714 1,659,731
Research and development 315,632 248,582
----------------------------------------------
3,629,051 3,195,382
Interest expense 80,935 351
Interest income and other (income) expense (83,813) (116,153)
----------------------------------------------
Loss applicable to common stock $(3,750,088) $(2,900,386)
=======================================================================================================================
Net loss per common share $ (.41) $ (.77)
=======================================================================================================================
Weighted average number of common and common
equivalent shares outstanding 9,061,474 3,749,999
=======================================================================================================================
</TABLE>
See accompanying notes.
3 THE SLED DOGS COMPANY
<PAGE> 6
THE SLED DOGS COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
June 30
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 653,251 $ 733,586
Accounts receivable, less allowance for doubtful accounts of
$147,000 and $198,000 at June 30, 1996 and 1995, respectively 349,354 326,200
Other receivables 34,402 58,623
Inventories 694,080 704,620
Prepaid expenses 168,714 288,391
------------------------
1,899,801 2,111,420
Property and equipment:
Furniture 128,999 73,247
Computer equipment 78,743 80,397
Vehicles 63,708 129,856
Manufacturing assets 743,529 427,144
Warehouse equipment 19,056 10,070
Leasehold improvements 27,197 35,179
Accumulated depreciation (456,043) (263,093)
------------------------
605,189 492,800
Patents, less accumulated amortization of $123,686 and $77,480
at June 30, 1996 and 1995, respectively 159,697 178,157
------------------------
Total assets $2,664,687 $2,782,377
==============================================================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 378,678 $ 169,370
Accrued expenses and other liabilities 53,961 89,628
Line of credit 27,626 --
------------------------
460,265 258,998
Shareholders' equity:
Convertible preferred stock, Series A, $1.00 par value:
Authorized shares - 1,500,000
Issued and outstanding shares-0-June 30, 1996 and 1995 - -
Common stock, $.01 par value:
Authorized Shares - 50,000,000
Issued and outstanding shares - 11,749,999 and 3,749,999 June 30, 1996 and 1995, respectively 117,500 37,500
Additional paid-in capital 12,291,874 8,940,743
Accumulated deficit (10,204,952) (6,454,864)
------------------------
Total shareholders' equity 2,204,422 2,523,379
------------------------
Total liabilities and shareholders' equity $2,664,687 $2,782,377
==============================================================================================================================
</TABLE>
See accompanying notes.
CONSOLIDATED FINANCIAL STATEMENTS 4
<PAGE> 7
THE SLED DOGS COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE ADDITIONAL TOTAL
COMMON STOCK PREFERRED STOCK PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 3,749,999 $37,500 - $- $8,895,743 $(3,554,478) $5,378,765
Expense related to
warrants issued in
connection with
services rendered - - - - 45,000 - 45,000
Net loss (2,900,386) (2,900,386)
-----------------------------------------------------------------------------------------
Balance at June 30, 1995 3,749,999 37,500 - - 8,940,743 (6,454,864) 2,523,379
Common Stock issued
in private
placement, net of
offering costs 8,000,000 80,000 - - 3,341,131 - 3,421,131
Expense related to
warrants issued in
connection with
services rendered - - - - 10,000 - 10,000
Net loss - - - - - (3,750,088) (3,750,088)
-----------------------------------------------------------------------------------------
Balance at June 30, 1996 11,749,999 $117,500 - $- $12,291,874 $(10,204,952) $2,204,422
=========================================================================================
</TABLE>
See accompanying notes.
5 THE SLED DOGS COMPANY
<PAGE> 8
THE SLED DOGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,750,088) $ (2,900,386)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 299,242 258,615
Noncash expense related to warrants issued 10,000 45,000
Loss on asset disposals 27,458 8,887
Changes in operating assets and liabilities:
Receivables (23,154) (145,893)
Other receivables 24,221 (41,587)
Inventories 10,540 (680,390)
Prepaid expenses 119,677 (217,892)
Accounts payable 209,308 (154,338)
Other accrued expenses (35,667) 74,888
-------------------------------------
Net cash used in operating activities (3,108,463) (3,753,096)
INVESTING ACTIVITIES
Purchase of short-term investment - (1,527,569)
Purchases of property and equipment (425,682) (372,732)
Acquisition of patents and trademarks (27,747) (52,501)
Proceeds from sale of property and equipment 32,800 2,500
Sale of short-term investment - 1,527,569
-------------------------------------
Net cash used in investing activities (420,629) (422,733)
FINANCING ACTIVITIES
Net proceeds from sale of common stock 3,421,131 -
Net borrowings under line of credit 27,626 -
-------------------------------------
Net cash provided by financing activities 3,448,757 -
-------------------------------------
Net increase (decrease) in cash and cash equivalents (80,335) (4,175,829)
Cash and cash equivalents at beginning of year 733,586 4,909,415
-------------------------------------
Cash and cash equivalents at end of year $ 653,251 $ 733,586
===========================================================================================================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 80,935 $ 351
</TABLE>
See accompanying notes.
CONSOLIDATED FINANCIAL STATEMENTS 6
<PAGE> 9
THE SLED DOGS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. ORGANIZATION & SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND
DESCRIPTION OF BUSINESS
The Company was incorporated in Colorado in 1991 as SnowRunner (USA), Inc. and
served as a general partner in a limited partnership that was engaged in the
distribution and marketing of SnowRunner snow skates. In July 1992, the limited
partnership was dissolved and all assets and liabilities of the limited
partnership were conveyed to the Company. The limited partners contributed
their partnership interests to the Company in exchange for voting common stock
of the Company. Following the restructuring, the name of the Company was
changed to SnowRunner (USA) Inc. In January 1994, the name was changed to
SnowRunner, Inc, and in November of 1994 the name was changed to The Sled Dogs
Company. The Company sells its products throughout the United States, Canada,
Korea, Japan and Norway.
CONSOLIDATION
The financial statements include the accounts of the Company and its
wholly-owned subsidiary, SnowRunner (Properties) Inc., which was established
and incorporated in April 1993. The subsidiary was inactive in fiscal 1996 and
1995.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.
INVENTORIES
Inventories consist exclusively of finished goods and are stated at the lower
of cost (first-in, first-out) or market. Included in the June 30, 1996 and 1995
balances are $52,760 and $319,850, respectively, which represent
prepayments to suppliers for inventory for the upcoming winter season.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using a
straight-line method over the estimated useful lives of the assets which range
from three to six years.
INTANGIBLE ASSETS
Intangible assets (patents and organization costs) are stated at cost and are
amortized on a straight-line basis over 60 months. The carrying value of
intangible assets will be reviewed if the facts and circumstances suggest that
it may be impaired. If this review indicates that intangible assets will not be
recoverable, as determined based on the undiscounted cash flows over the
remaining amortization period, the Company's carrying value of the intangible
assets will be reduced by the estimated shortfall of cash flows.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income taxes are provided for temporary differences between financial reporting
and tax bases of assets and liabilities.
NET LOSS PER SHARE
Net loss per common share for the years ended June 30, 1996 and 1995 is based
on the weighted average number of common shares outstanding and does not
include any common stock equivalents as they are anti-dilutive.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred. Advertising expenses
were approximately $568,300 and $147,800 in 1996 and 1995, respectively.
7 THE SLED DOGS COMPANY
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and related interpretations in accounting
for its stock options. Under APB 25, when the exercise price of stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company has not determined the impact of the new statement
on its financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
2. GOING CONCERN
Net losses since the Company's inception have resulted in an accumulated deficit
balance of $10,204,952 at June 30, 1996. The Company's ability to continue
as a going concern and the realization of its assets and orderly satisfaction of
its liabilities are dependent on obtaining additional funds from outside sources
and generating sufficient working capital from operations.
Subsequent to June 30, 1996, the Company has raised an additional $1.3 million
through the exercise of 1,763,213 outstanding warrants. The Company believes
that this additional capital, along with cash generated from operations during
fiscal 1997, will be sufficient to meet its cash requirements for fiscal 1997.
However, there can be no assurance that the Company will be able to generate
enough cash from operations to fund its ongoing capital requirements.
3. COMMON STOCK
In November 1995, the Company sold 8,000,000 units (the "Units") in a private
placement, each Unit consisting of one share of common stock and one warrant to
purchase one share of common stock. The price per Unit was $.50. The Company
received net proceeds of $3,421,131 from the sale of the units.
The warrants issued are exercisable at $1.00 per share and expire November 1,
2000. They may be redeemed, at the option of the Company, upon notice, at the
price of $.01 per warrant, provided that the last sales price of the Company's
common stock has been at least $2.50 on each of the twenty consecutive trading
days ending on the third business day prior to the date on which notice of
redemption was given.
The Company also issued to the investment banking firm and certain individuals,
upon completion of the private placement, unit purchase options ("UPOs") to
purchase 890,000 Units at $.55. Each UPO consists of one share of common stock
and one warrant to purchase one share of common stock at $1.00. The UPOs become
exercisable on November 1, 1996 and expire November 1, 2000.
4. STOCK OPTIONS AND WARRANTS
On July 25, 1992, the Company adopted the SnowRunner, Inc. Stock Option Plan
which was amended in January 1994 (the "Plan"). Under the Plan, the Company has
reserved 1,660,000 shares of common stock for issuance to key employees and
others as either incentive based options or non-qualified options. Under the
Plan, incentive stock options may be granted at prices not less than the fair
market value of the Company's common stock at the grant date. Non-qualified
options may be granted at prices less than the fair market value of the
Company's common stock. The options are outstanding for ten years following the
date of grant.
The following table summarizes the option transactions under the Plan for the
years ended July 30, 1996 and 1995:
<TABLE>
<CAPTION>
NON-
INCENTIVE QUALIFIED TOTAL PRICE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding as of June 30, 1994 477,059 45,000 522,059 $.30 - $2.69
Granted 30,000 10,000 40,000 .30 - 1.63
----------------------------------------------------
Outstanding as of
June 30, 1995 507,059 55,000 562,059 .30 - 2.69
Granted 873,000 60,000 933,000 1.00 - 2.69
Canceled (47,000) - (47,000) 1.00 - 2.69
----------------------------------------------------
Outstanding as of June 30, 1996 1,333,059 115,000 1,448,059 $.30 - $2.69
====================================================
</TABLE>
CONSOLIDATED FINANCIAL STATEMENTS 8
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has also issued warrants in connection with loan agreements and
with debt and equity offerings to purchase shares of common stock. Warrant
activity is summarized as follows:
<TABLE>
<CAPTION>
WARRANTS
OUTSTANDING
AND PRICE PER EXPIRATION
EXERCISABLE SHARE DATE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at June 30, 1994 575,000 $0.30 - 7.60 1999
Warrants granted 110,000 0.44 - 1.50 2000-2005
----------
Balance at June 30, 1995 685,000 0.30 - 7.60 1999 - 2005
Warrants granted 8,000,000 1.00 2000
----------
Balance at June 30, 1996 8,685,000 $0.30 - 7.60 1999 - 2005
=============================================
</TABLE>
5. INCOME TAXES
At June 30, 1996, the Company has accumulated a net operating loss of
approximately $9,300,000 which may be used to reduce future taxable income
through 2011. A valuation allowance has been recognized to completely reserve
for the deferred tax assets related to the loss carryforwards. The reserve has
been established because of the uncertainty of future taxable income which is
necessary in order to realize the benefits of the net operating loss
carryforwards.
The Company's ability to utilize these carryforwards to offset future taxable
income is subject to certain restrictions under Section 382 of the Internal
Revenue Code in the event of certain changes in the equity ownership of the
Company. The Company's initial public offering resulted in a change in equity
ownership under Section 382. The Company believes that the sale of common stock
in November 1995 will result in an additional ownership change under Section
382.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. Components of the Company's
deferred tax assets are:
<TABLE>
<CAPTION>
JUNE 30
1995 1996
- -----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowances $ 89,000 $ 82,000
Net operating loss carryforward 3,405,000 2,131,100
-----------------------------
Total deferred tax assets 3,494,000 2,213,100
Less valuation allowance (3,494,000) (2,213,100)
-----------------------------
Net deferred tax assets $ - $ -
=============================
</TABLE>
6. COMMITMENTS
The Company leases its warehouse space under an operating lease that expires in
1996. The Company leases its office space under an operating lease that expires
in 1999. The leases each contain renewal options for additional three year
periods. Operating expenses, including maintenance, utilities, real estate
taxes and insurance, are paid by the Company. Rent expense was $57,273 and
$51,162 for the years ended June 30, 1996 and 1995, respectively.
Future minimum lease commitments as of June 30, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 34,444
1998 34,924
1999 34,870
--------
Net deferred tax assets $104,238
========
</TABLE>
7. ACQUISITION OF INTELLECTUAL PROPERTY RIGHTS AND RELATED MANUFACTURING ASSETS
In September 1993, the Company acquired all the manufacturing assets and
intellectual property rights related to the SnowRunner snow skates for a net
consideration of 100,000 shares of the Company's common stock.
As additional consideration for the acquisition of the intellectual property
rights, the Company has an obligation to pay a royalty of $4.00 per pair of
snow skates sold. The royalties are payable annually on June 30 of each year.
The royalties cease automatically on the earlier of: (1) the date on which the
Company has paid an aggregate of $2,000,000 or (2) June 30, 2003.
In conjunction with the acquisition of all the manufacturing assets and
intellectual property rights, the Company entered into long-term agreements for
manufacturing and product development with DalBello Sport S.R.L. ("Dal Bello").
Both agreements have a term of five years and may be terminated upon written
notice. The manufacturing agreement provides for certain rights of first
refusal to DalBello but allows the Company free access to other suppliers if
arrangements acceptable to both parties cannot be negotiated. In the event that
the Company does purchase products from other suppliers, the product
development agreement provides for royalty payments of not less than 2 percent
or more than 5 percent to be made to DalBello if such products utilize DalBello
owned patents. After any termination of this agreement, DalBello shall pay the
Company a royalty of not less than 2 percent or more than 5 percent of sales of
products which utilize a patent of the Company.
9 THE SLED DOGS COMPANY
<PAGE> 12
EXHIBIT 23.2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LOAN AGREEMENTS
In June of 1995, the Company secured a $2,000,000 revolving line of credit with
a bank that was renewed in June of 1996 and expires in June of 1997. Borrowing
capability under the line of credit is based on the eligibility of the
Company's accounts receivable and inventory per the Credit and Security
Agreement. The line bears an interest rate of prime plus 4% and is secured by
accounts receivable, inventories, equipment and general intangibles. The
outstanding balance was $27,626 at June 30, 1996.
In connection with establishing the line of credit in fiscal 1995, the Company
issued warrants to purchase 80,000 shares of common stock at exercise prices
ranging from $.44 to $1.50. The Company determined the value of the warrants to
be $40,000. This amount was fully amortized during fiscal 1996. In addition,
the Company agreed to pay an individual a total of $40,000 for assistance in
securing the line of credit. This amount was also amortized during fiscal 1996.
9. MAJOR CUSTOMER
During the year ended June 30, 1996, net sales from two customers
represented 16% and 15% of total net sales. The amount due from one customer
represented 22% of total accounts receivable at June 30, 1996.
10. SUBSEQUENT EVENT
In July and August 1996, the Company raised an additional $1.3 million from the
exercise of 1,763,213 outstanding warrants.
CONSOLIDATED FINANCIAL STATEMENTS 10
<PAGE> 13
THE SLED DOGS COMPANY
DIRECTORS AND OFFICERS
DIRECTORS
DAVID N. BRAUS
General Counsel
HAIFinance
(Commercial finance company)
Vienna, Virginia
MARY L. HORWATH
Chief Operating Officer
RUDY A. SLUCKER
President and Chief Executive Officer
Strategic Marketing and
Sales Corporation
(Sales and marketing consulting
company)
South Orange, New Jersey
JOHN SUNDET
President and Chief Executive Officer
HOPE S. TAITZ
Managing Partner
Catalyst Partners L.P.
(Money management firm)
New York, New York
THOMAS F. VOTEL
President and Chief Executive Officer
Ergodyne
(Ergonomic products and accessories company)
St. Paul, Minnesota
OFFICERS
JOHN SUNDET
President and Chief Executive Officer
MARY L. HORWATH
Chief Operating Officer
MICHAEL P. WISE
Chief Financial Officer, Treasurer,
and Secretary
INVESTOR INFORMATION
CORPORATE HEADQUARTERS
212 Third Ave. N
Suite 420
Minneapolis, Minnesota 55401
612/359-9020
INDEPENDENT AUDITORS
Ernst & Young LLP
Minneapolis, Minnesota
CORPORATE COUNSEL
Leonard Street & Deinard
Minneapolis, Minnesota
TRANSFER AGENT & REGISTRAR
Norwest Bank Minnesota
161 North Concord Exchange
South St. Paul, Minnesota 55075
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders will be held Thursday, November 7, 1996 at
3:30 p.m. at the Hendrickson Photography/Umland Studio, Colonial Warehouse, 212
Third Ave. N, Suite 305, Minneapolis, MN 55401.
FORM 10-KSB
The Company will provide a copy of its most recent annual report on Form
10-KSB, as filed with the Securities and Exchange Commission, to any
shareholder requesting a copy. Inquiries should be directed to the Secretary
at the Corporate Headquarters address above.
COMMON STOCK DATA
The common stock of The Sled Dogs Company is traded on the NASDAQ Small-Cap
Market under the symbol SNOW and on the Boston Stock Exchange under the symbol
SNW. The price ranges per share shown in the table below are the highest and
lowest prices as quoted by the NASDAQ Small-Cap Market for the periods shown.
These prices include interdealer prices, without retail markup, markdown or
commissions, and do not always represent transactions with the public.
Fiscal year ended June 30, 1996
High Low
First Quarter 2.94 .44
Second Quarter 2.94 1.00
Third Quarter 2.00 .75
Fourth Quarter 1.25 .69
Fiscal year ended June 30, 1995
High Low
First Quarter 2.13 .75
Second Quarter 1.63 .53
Third Quarter 1.00 .38
Fourth Quarter .75 .38
As of September 9, 1996 the Company had 344 holders of record of its common
stock. The Company believes that there are approximately 2,825 beneficial
owners of the common stock who hold securities of the Company in street name.
DIVIDEND POLICY
The Company has not declared or paid a cash dividend on its Common Stock and
currently intends to retain earnings for use in the operation and expansion of
its business and therefore does not anticipate paying any cash dividends in the
foreseeable future.
TRADEMARKS
K9(TM), Sled Dogs(R) and SnowRunner(R) are trademarks of The Sled Dogs Company.
11 THE SLED DOGS COMPANY
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-80875) of The Sled Dogs Company and in the related Prospectus
of our report dated August 2, 1996, with respect to the consolidated financial
statements of The Sled Dogs Company incorporated by reference in this Annual
Report (Form 10-KSB) for the year ended June 30, 1996.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
September 25, 1996
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<CASH> 653,251
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<RECEIVABLES> 349,354
<ALLOWANCES> 147,000
<INVENTORY> 694,080
<CURRENT-ASSETS> 1,899,801
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<COMMON> 117,500
<OTHER-SE> 2,086,922
<TOTAL-LIABILITY-AND-EQUITY> 2,664,687
<SALES> 876,803
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