<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1996
Commission file number 1-12850
THE SLED DOGS COMPANY
(Exact name of small business issuer as specified in its charter)
212 3rd Avenue North, Suite 420
Minneapolis, Minnesota 55401
(Address of principal executive offices)
Incorporated under the laws of I.R.S. Identification Number
the State of Colorado 84-1168832
(612) 359-9020
(Small business issuer's telephone number including area code)
_____________________________________
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
_____________________________________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 13,513,193 shares of Common
Stock, $.01 par value per share, outstanding as of February 13, 1997.
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THE SLED DOGS COMPANY
FORM 10-QSB QUARTERLY REPORT FOR THE QUARTER ENDED
DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
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Page
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1996 and June 30, 1996 3
Condensed Consolidated Statements of Operations for the Three and Six Months ended
December 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the Six Months ended
December 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements - December 31, 1996 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-10
Part II - Other Information
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 June 30,
(Unaudited) 1996
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 120,010 $ 653,251
Accounts receivable, less allowance for doubtful accounts of $184,048
and $147,000 at December 31, 1996 and June 30, 1996, respectively 1,010,757 349,354
Other receivables 40,331 34,402
Inventories 1,644,440 694,080
Prepaid expenses 114,613 168,714
---------- ----------
Total current assets 2,930,151 1,899,801
Property and equipment, less accumulated depreciation of $613,365 and
$456,043 at December 31, 1996 and June 30, 1996, respectively 749,520 605,189
Patents, less accumulated amortization of $147,301 and $123,686 at
December 31, 1996 and June 30, 1996, respectively 155,727 159,697
---------- ----------
Total assets $ 3,835,398 $ 2,664,687
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 1,074,833 $ 27,626
Accounts payable 1,388,074 378,678
Accrued expenses and other liabilities 146,102 53,961
---------- ----------
Total current liabilities 2,609,009 460,265
Shareholders' equity
Convertible preferred stock, Series A, $1.00 par value:
Authorized shares - 1,500,000
Issued and outstanding shares - 0 - December 31, 1996
and June 30, 1996 - -
Common Stock, $.01 par value
Authorized shares - 50,000,000
Issued and outstanding shares - 13,513,193 at December 31, 1996 and
11,749,999 at June 30, 1996, respectively 135,132 117,500
Additional paid-in capital 13,596,638 12,291,874
Accumulated deficit (12,505,381) (10,204,952)
---------- ----------
Total shareholders' equity 1,226,389 2,204,422
---------- ----------
Total liabilities and shareholders' equity $ 3,835,398 $ 2,664,687
========== ==========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 4
THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
1996 1995 1996 1995
-------- ------ -------- -------
<S> <C> <C> <C> <C>
Net sales $ 1,329,125 $ 504,866 $ 1,414,428 $ 876,330
Cost of goods sold 926,068 355,035 1,053,424 618,501
--------- --------- --------- ---------
Gross margin 403,057 149,831 361,004 257,829
Costs and expenses:
General and administrative 390,785 340,843 753,093 614,472
Sales and marketing 1,189,110 523,342 1,783,550 971,695
Research and development 50,478 91,829 105,609 158,325
---------- --------- --------- ---------
Total costs and expenses 1,630,373 956,014 2,642,252 1,744,492
Interest expense 25,143 26,886 41,473 36,886
Interest income and other (income)
expense (4,992) (24,924) (22,292) (41,526)
---------- --------- ---------- ----------
Net loss $(1,247,467) $(808,145) $(2,300,429) $(1,482,023)
========== ========= ========== ==========
Net loss per common share $ (0.09) $ (0.09) $ (0.18) $ (0.23)
========== ========= ========== ==========
Weighted average number of common
equivalent shares outstanding $13,153,193 9,054,347 13,143,929 6,402,173
========== ========= ========== =========
</TABLE>
See notes to condensed consolidated financial statements
4
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,300,428) $ (1,482,023)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 186,052 142,521
Loss on asset disposal 666 16,920
Noncash interest expense related to warrants 0 10,000
Changes in operating assets and liabilities:
Receivables (667,332) (525,673)
Inventories (950,360) (128,621)
Prepaid expenses 54,101 39,708
Accounts payable 662,325 113,236
Other accrued expenses 439,212 (26,560)
----------- ----------
Net cash used in operating activities (2,575,764) (1,840,492)
INVESTING ACTIVITIES
Purchases of property and equipment (309,635) (103,889)
Acquisition of patents and trademarks (19,644) (11,026)
Proceeds from the sale of property and equipment 2,200 32,000
Other assets - -
----------- ----------
Net cash used in investing activities (327,079) (82,915)
FINANCING ACTIVITIES
Net borrowings under line of credit 1,047,207 -
Net proceeds from warrants exercised 1,322,395 -
Net proceeds from the sale of common stock - 3,421,131
----------- ----------
Net cash provided by financing activities 2,369,602 3,421,131
Net increase (decrease) in cash and cash equivalents (533,241) 1,497,724
Cash and cash equivalents at beginning of year 653,251 733,586
----------- ----------
Cash and cash equivalents at end of period $ 120,010 $ 2,231,310
=========== ==========
Interest paid $ 24,160 $ 5,043
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements
5
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THE SLED DOGS COMPANY
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
six month periods ended December 31, 1996 are not necessarily indicative of the
results that may be expected for the year ended March 31, 1997.
6
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the consolidated
condensed financial statements and the notes thereto included in Item 1 of this
Quarterly Report, and the financial statements and the notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-KSB for the year
ended June 30, 1996.
RESULTS OF OPERATIONS
NET SALES
The Company's net sales for the second quarter ended December 31, 1996 were
$1,329,125, a 163% increase from the net sales of $504,866 reported for the
same quarter last year. Net sales for the six months ended December 31, 1996
were $1,414,428, a 61% increase from the $876,330 in the comparable period last
year. The increase in net sales results for the second quarter and six month
period can be attributed primarily to the success of the new K9 product and the
significant growth in the retail, direct and international distribution
channels.
COST OF GOODS SOLD AND GROSS MARGIN
Gross margin as a percentage of net sales was 30.3% for the second quarter
ended December 31, 1996 and 25.5% for the six months ended December 31, 1996,
compared to 29.7% and 29.4% for the same periods last year, respectively. The
five point reduction in gross margin from last year's six month period was
primarily due to the increase in fixed costs for manufacturing asset
depreciation and warehouse operations. The Company acquired new production
molds in fiscal 1997 for the K9 product that resulted in the increased
manufacturing asset depreciation. The Company also incurred additional
warehouse expenses due to the increase in inventory in fiscal 1997. The
Company outsources its warehouse operations and is charged on a per unit basis
for shipping, assembly and storage. The Company expects snow skate gross
margins to improve over time as economies of scale are achieved in the
manufacturing process.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from $340,843 for the second
quarter ended December 31, 1995 to $390,785 for the second quarter ended
December 31, 1996, an increase of $49,942 or 15%. General and administrative
expenses increased from $614,472 for the six months ended December 31, 1995 to
$753,093 for the six months ended December 31, 1996, an increase of $138,621 or
23%. The increases from the prior year periods were primarily attributed to:
1) higher salaries and benefits due to one new hire for operations management
and the reclassification of one employee from marketing to administrative; and
2) additional bad debt reserves to accommodate the increase in sales. In
fiscal 1997 and beyond, the Company expects general and administrative expenses
to decrease as a percentage of net sales, if it controls these costs, as its
net sales base increases.
SALES AND MARKETING
Sales and marketing expenses for the second quarter ended December 31, 1996
were $1,189,110, compared to $523,342 for the same period last year, an
increase of $665,768 or 127%. Sales and marketing expenses for the six months
ended December 31, 1996 were $1,783,550, compared to $971,695 for the same
period last year, an increase of $811,855 or 84%. The increases from the prior
year periods were primarily due to the media and selling expenses associated
with the airing of the Company's infomercial "Yellow Snow - The Ride from Black
to White" from mid-September to late December. The Company expects to increase
sales and marketing expenses as necessary to promote increases in net sales
and, therefore, such expenses could vary as a percentage of net sales in the
future.
7
<PAGE> 8
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - CONTINUED
RESEARCH AND DEVELOPMENT
Research and development expenses decreased from $91,829 for the second quarter
ended December 31, 1995 to $50,478 for the second quarter ended December 31,
1996, a decrease of $41,351 or 45%. Research and development expenses decreased
from $158,325 for the six months ended December 31, 1995 to $105,609 for the
second quarter ended December 31, 1996, a decrease of $52,716 or 33%. The
decreases from the prior year periods were primarily due to the reduction in
development costs for future generation snow skate products versus the costs
incurred in fiscal 1996 developing the new K9 model. The Company expects
research and development expenses to increase if there is demand for
alternative boot and base structures to accommodate different snow skating
styles and venues.
INTEREST EXPENSE
Interest expense for the second quarter ended December 31, 1996 was $25,143,
compared to $26,886 for the prior year period. Interest expense for the six
months ended December 31, 1996 was $41,473, compared to $36,886 for the prior
year period. The increase for the six month period was due to greater usage of
the line of credit this fiscal year versus the prior fiscal year.
INTEREST AND OTHER (INCOME) EXPENSE
Interest and other (income) expense for the second quarter ended December 31,
1996 was ($4,992), compared to ($24,924) for the prior year period. Interest
and other (income) expense for the six months ended December 31, 1996 was
($22,292), compared to ($41,526) for the prior year period. The decreases from
the prior year periods were due to less interest income earned as fiscal 1997
cash balances have been much lower than in fiscal 1996.
NET LOSS
The net loss of $1,247,467 for the second quarter ended December 31, 1996 was
$439,322 greater than the net loss of $808,145 reported for the same period in
the prior year. The net loss of $2,300,429 for the six months ended December
31, 1996 was $818,406 greater than the net loss of $1,482,023 reported for the
same period in the prior year. The increase in losses for both the second
quarter and six months was primarily due to the higher sales and marketing
expenses related to the airing of the Company's infomercial.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended December 31, 1996, the Company's operations used
net cash of $2,575,764, primarily to fund operating losses, receivables and
inventories.
Accounts receivable at December 31, 1996 were $1,010,757 on net sales of
$1,414,428 for the six months ended December 31, 1996. Accounts receivable at
June 30, 1996 were $349,354 on net sales of $876,803 for the year ended June
30, 1996. In conformity with standard payment terms for the winter sports
industry, the Company offers extended dating terms. Payments for merchandise
purchased are generally due between December and March of the winter season.
8
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The $950,360 increase in inventory from June 30, 1996 to December 31, 1996 was
due to inventory purchases made to meet sales projections for the 1996/97
winter season. The Company must commit to inventory purchases at least 90-120
days prior to first customer shipment dates to ensure on-time deliveries from
its foreign suppliers. The Company committed to inventory purchases based on
anticipated higher sales levels than were achieved. The acquisition of excess
K9 inventory for the season has negatively impacted cash flow.
The Company's investing activities for the six months ended December 31, 1996
consisted of capital expenditures of $309,635 that primarily related to
manufacturing molds ($269,980 or 87% of the total), warehouse assembly
equipment ($28,233) and other ($11,421). The Company also spent $19,644 on
additional patents and trademarks. These expenditures were offset by proceeds
of $2,200 received on the sale of warehouse racking.
The Company's financing activities for the six months ended December 31, 1996
provided cash of $2,369,602 consisting of $1,322,395 in net proceeds from the
exercise of 1,763,194 Private Placement Warrants and $1,047,207 in net
borrowings under the Company's line of credit. The Private Placement Warrants
were exercisable at an exercise price of $.75 per share during the period
commencing July 17, 1996 and ending August 30, 1996. Upon the expiration of
such period, the Private Placement Warrants were again exercisable for $1.00
per share. The proceeds from these financing activities were applied to
working capital and other corporate purposes.
As of December 31, 1996, the Company had cash and cash equivalents of $120,010
and working capital of $321,142. The Company has been working to internally
generate additional cash and working capital through the collection of
receivables, sale of excess inventory and rescheduling of payments to
creditors. If these efforts are not successful, the Company's cash position
will continue to decline.
As of December 31, 1996, the Company had approximately $58,000 available under
its asset-based line of credit with a commercial bank. The line of credit
bears interest at prime plus 4.0%, has a maximum borrowing level of $2 million
and expires in June 1997. The line of credit is secured by substantially all
of the Company's assets, requires the Company to maintain certain financial
ratios and restricts the payment of dividends. At December 31, 1996 the
Company was in default of the minimum book net worth covenant which increases
the rate of interest by two percentage points. There were outstanding
borrowings under the line of $1,074,833 as of December 31, 1996.
Minson Enterprises Co., LTD ("Minson") has commenced a legal proceeding against
the Company and is seeking payment for product delivered in the amount of
$435,000. The Company is currently in the process of attempting to negotiate a
repayment plan with Minson. Because the legal proceeding and the related
negotiations are in the initial stages, the effect on the liquidity of the
Company cannot be determined at this time. Part II, Item 1 of this report on
Form 10-QSB contains additional information on this matter.
Results of the Company's infomercial have been mixed. The infomercial was
effective in creating consumer leads and demand at the retail level but it did
not generate the expected direct sales. While the Company believes the results
of the infomercial will benefit the Company longer term, the short term effect
has been lower than expected direct sales, which have negatively impacted cash
flow. In addition, the Company's excess inventory has adversely affected cash
flow. These factors have caused the Company to require additional cash to
continue to fund operations. The Company will also require significant funding
for fiscal 1998 operations. The Company is presently pursuing several
different financing alternatives to meet short term operating needs and meet
its future growth requirements. If the Company is unable to obtain short term
or long term funding, the Company will be materially adversely affected and may
be forced to curtail its operations.
9
<PAGE> 10
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Forward-looking statements contained in this Form 10-QSB are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. All forward-looking statements involve risks and uncertainties. Certain
important factors could cause results to differ materially from those
anticipated by some statements made in this Form 10-QSB. Among the factors
that could cause results to differ materially are the following: lack of
availability of financing; 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.
10
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 22, 1997, Minson Enterprises Co., LTD ("Minson") filed a
Summons and Complaint against The Sled Dogs Company in the United States
District Court for the District of Minnesota seeking payment of approximately
$435,000 for merchandise provided to the Company. The merchandise the Company
ordered from Minson was shipped on a staggered basis from Taiwan and Thailand
to Minneapolis commencing on or about August 15, 1996. The last shipment was
made on or about November 23, 1996. The merchandise the Company ordered from
Minson was invoiced over the period of time from October 21, 1996 through
December 19, 1996. Between September 6, 1996 and January 17, 1996 the Company
had paid Minson for a portion of the cost and in December 1996 the Company
notified Minson of defective merchandise and requested credits for those
defects in an amount exceeding $40,000. The Company has filed an answer
disputing the amount Minson claims is due and the Company and Minson are
currently attempting to negotiate a repayment schedule.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Form 8-K
None
11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE SLED DOGS COMPANY
Dated: February 13, 1997
/s/ John Sundet
______________________________________________________
John Sundet, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Michael P. Wise
______________________________________________________
Michael P. Wise, Chief Financial Officer
(Principal Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 120,010
<SECURITIES> 0
<RECEIVABLES> 1,235,136
<ALLOWANCES> 184,048
<INVENTORY> 1,644,440
<CURRENT-ASSETS> 2,930,151
<PP&E> 1,362,885
<DEPRECIATION> 613,365
<TOTAL-ASSETS> 3,835,398
<CURRENT-LIABILITIES> 2,609,009
<BONDS> 0
0
0
<COMMON> 135,132
<OTHER-SE> 1,091,257
<TOTAL-LIABILITY-AND-EQUITY> 3,835,398
<SALES> 1,414,428
<TOTAL-REVENUES> 1,414,428
<CGS> 1,053,424
<TOTAL-COSTS> 2,642,252
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,473
<INCOME-PRETAX> (2,300,429)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,300,429)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,300,429)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> 0
</TABLE>
