<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 June 30, 1997
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)
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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
--- ---
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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 August 13, 1997.
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THE SLED DOGS COMPANY
FORM 10-QSB QUARTERLY REPORT FOR THE QUARTER ENDED
JUNE 30, 1997
TABLE OF CONTENTS
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Page
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1997 and March 31, 1997 3
Condensed Consolidated Statements of Operations for the Three Months ended
June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the Three Months ended
June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements - June 30, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 10
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
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<CAPTION>
June 30,
1997 March 31
ASSETS (Unaudited) 1997
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Current assets:
Cash and cash equivalents $ (14,933) $ 11,542
Accounts receivable, less allowance for doubtful accounts of $136,543
and $167,000 at June 30, 1997 and March 31, 1997, respectively 177,269 225,168
Other receivables 2,204 -
Inventories 883,596 940,226
Prepaid expenses 76,672 23,385
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Total current assets 1,124,808 1,200,321
Property and equipment, less accumulated depreciation of $246,137 and
$1,023,125 at June 30, 1997 and March 31, 1997, respectively 329,131 341,769
Patents, less accumulated amortization of $171,328 and $159,253 at
June 30, 1997 and March 31, 1997, respectively 144,131 151,575
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Total assets $ 1,598,070 $ 1,693,665
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 555,029 $ 619,727
Short term notes payable 150,000 -
Accounts payable 1,374,644 1,308,700
Accrued expenses and other liabilities 137,911 458,235
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Total current liabilities 2,217,584 2,386,662
Convertible subordinated debt 623,750 150,000
Shareholders' equity
Convertible preferred stock, Series A, $1.00 par value:
Authorized shares - 1,500,000
Issued and outstanding shares - 0 - June 30, 1997 and March 31, 1997 - -
Common Stock, $.01 par value
Authorized shares - 50,000,000
Issued and outstanding shares - 13,513,193 at June 30, 1997 and
at March 31, 1997, respectively 135,132 135,132
Additional paid-in capital 13,596,661 13,596,638
Accumulated deficit (14,975,057) (14,574,767)
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Total shareholders' equity (1,243,264) (842,997)
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Total liabilities and shareholders' equity $ 1,598,070 $ 1,693,665
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</TABLE>
See notes to condensed consolidated financial statements
3
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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<CAPTION>
Three Months Ended
June 30
1997 1996
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Net sales $ 55,208 $ (108,665)
Cost of goods sold (26,435) 246,787
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Gross margin 81,643 (355,452)
Costs and expenses:
General and administrative 419,040 245,742
Sales and marketing 7,932 724,185
Research and development 16,659 56,127
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Total costs and expenses 443,631 1,026,054
Interest expense 38,338 9,070
Interest income and other (income) expense (36) (20,941)
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Net loss $ (400,290) $(1,369,635)
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Net loss per common share $ (0.03) $ (0.12)
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Weighted average number of common
equivalent shares outstanding 13,153,193 11,749,999
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</TABLE>
See notes to condensed consolidated finanacial statements
4
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THE SLED DOGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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THREE MONTHS ENDED
JUNE 30
1997 1996
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OPERATING ACTIVITIES
Net loss $ (400,290) $ (1,369,635)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 53,212 74,327
Loss on asset disposal - 17,538
Changes in operating assets and liabilities:
Receivables 45,695 271,372
Inventories (12,570) 186,651
Prepaid expenses 15,912 91,443
Accounts payable (53,947) 285,320
Other accrued expenses (200,434) 22,145
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Net cash used in operating activities (552,422) (420,839)
INVESTING ACTIVITIES
Purchases of property and equipment (28,500) (34,482)
Acquisition of patents and trademarks (4,629) (8,116)
Proceeds from the sale of fixed assets - 800
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Net cash used in investing activities (33,129) (41,798)
FINANCING ACTIVITIES
Net proceeds from convertible subordinated debt 473,750 -
Net proceeds from short term notes 150,000 -
Net proceeds from warrants issued 24 -
Payments on line of credit (64,698) -
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Net cash provided by financing activities 559,076 -
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Net decrease in cash and cash equivalents (26,475) (462,637)
Cash and cash equivalents at beginning of year 11,542 1,115,888
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Cash and cash equivalents at end of period $ (14,933) $ 653,251
============ =============
Interest paid $ 25,649 $ 11,258
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</TABLE>
See notes to condensed consolidated financial statements
5
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THE SLED DOGS COMPANY
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
period ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended March 31, 1998.
NOTE 2 - NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted by the Company on
March 31, 1998. At that time, the Company will be required to change the
method currently used to compute net loss per share and to restate all prior
periods. There is no impact expected as a result of applying FASB Statement
No. 128 on the calculation of net loss per share for quarters ended June 30,
1997 and June 30, 1996.
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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 March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had no availability under its asset-based
line of credit with Norwest Credit, Inc. ("NCI"). The line of credit bears
interest at prime plus 4%, had a maximum borrowing level of $2 million and
expired June 30, 1997. The Company has signed a Forbearance Agreement with
NCI. The Forbearance Agreement states that NCI is willing to forbear from
exercising its rights and remedies as a secured creditor (the line of credit is
secured by all of the Company's assets) until the earlier of September 30,
1997, failure by the Company to perform its obligations under this Forbearance
Agreement, or the occurrence of any Event of Default under its Loan Agreement
with NCI other than those existing and known to NCI on June 30, 1997. The
Forbearance Agreement further states that all amounts due under the Loan
Agreement shall become due and payable on October 1, 1997. If not paid by
October 1, 1997, then, at NCI's option, the Company will begin self liquidating
the assets of the Company pursuant to a Liquidation Agreement, or turn over to
NCI, immediately upon demand by NCI, all property of the Company pursuant to a
Repossession and Occupancy Agreement. At August 8, 1997, the Company was in
default of the Forbearance Agreement regarding certain payments to NCI. At
June 30, 1997, the Company was in default of the Loan Agreement regarding the
minimum book net worth covenant which increases the rate of interest by two
percentage points. At June 30, 1997, there were outstanding borrowings under
the line of $555,029 that also included an overdraft amount of $274,821 (i.e.,
borrowings in excess of available collateral). The Company is currently
pursuing alternative sources of asset-based lines of credit. However, there
can be no assurances that an asset-based line of credit will be obtained.
As of this date, the Company has secured approximately $750,000 of its $1.5
million private loan unit offering. Each unit of the offering consists of a
$50,000 convertible subordinated secured promissory note and a warrant to
purchase 100,000 shares of common stock at $.0625 per share. The notes are
convertible into common stock of the Company at $.0625 per share. In the event
this offering is not successfully completed, the Company will be required to
cease operations. Even if the Company raises the maximum proceeds in this
offering, the Company will require significant additional capital in order to
continue operations. The Company is exploring other financing alternatives
such as the exercise of existing warrants through a discount exercise price and
the completion of a shareholder rights offering. There can be no assurance the
Company will be able to obtain such capital.
The Company continues to work on generating additional cash and working capital
internally through the collection of existing receivables and sales of
excess/obsolete inventory. The Company also has taken many steps to conserve
cash such as: 1) Rescheduling payments to the majority of its creditors
allowing new capital to be used for moving the business forward into the
1997/1998 season; 2) Reducing headcount from 16 to 10 and 3) Significantly
reducing fiscal 1998 planned expenses. The Company is behind in its
rescheduled payments to creditors. The Company has reached settlement
agreements with four major creditors that require specific payments on specific
dates. The Company is behind in its payments to all four of these creditors.
The Company's cash and cash equivalents were $(14,933) at June 30, 1997,
compared to $11,542 at March 31, 1997, a decrease of $26475. The Company's
working capital position at June 30, 1997 was a negative $1,092,776. During
the three months ended June 30, 1997, The Company's operations used net cash of
$552,422, primarily to fund operating losses and accounts payable.
<PAGE> 8
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company's investing activities for the three months ended June 30, 1997
consisted of capital expenditures of $28,500 for manufacturing molds for the
1997/1998 season. The Company also spent $4,629 on additional patents and
trademarks.
The Company's financing activities for the three months ended June 30, 1997
provided cash of $559,076 that consisted of $473,750 in net proceeds from the
convertible loan unit offering and $150,000 from short term notes, offset by
$64,698 in payments on the Company's line of credit.
RESULTS OF OPERATIONS
NET SALES
The Company's net sales for the first quarter ended June 30, 1997 were $55,208,
compared to net sales of $(108,665) reported for the same quarter last year.
This quarter historically has contained the least amount of revenue due to the
seasonality of the business. The increase in sales results for the first
quarter can be attributed primarily to two sales of obsolete inventory and the
considerable amount of returns that occurred in the quarter ended June 30, 1996
versus the quarter ended June 30, 1997.
COST OF GOODS SOLD AND GROSS MARGIN
A comparison of gross margin as a percentage of net sales is not meaningful due
to the adjustments made in the respective quarters. Gross margin for the
quarter ended June 30, 1996 was ($355,452) as product returns exceeded sales,
resulting in negative sales for the quarter, combined with a cost of goods sold
adjustment of $250,000 to reserve for inventory obsolescence. Gross margin for
the quarter ended June 30, 1997 was $81,643 as sales consisted of obsolete
product that had previously been reserved for (i.e., therefore no cost was
recognized), combined with a $60,000 reduction in product costs due to a
settlement with a supplier.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the first quarter ended June 30, 1997
were $419,040, compared to $245,742 for the quarter ended June 30, 1996, an
increase of $173,298, or 71%. The increase was due to one-time legal fees and
investment banking commissions associated with the convertible private loan
unit offering. In fiscal 1998 and beyond, the Company expects general and
administrative expenses to decrease as a percentage of net sales, if it
controls these costs, and if its net sales base increases.
SALES AND MARKETING
Sales and marketing expenses for the first quarter ended June 30, 1997 were
$7,932, compared to $724,185 for the same period last year, a decrease of
$716,253, or 99%. The decrease from the prior year quarter was due to the
elimination of the one-time production expense for the infomercial "Yellow
Snow;" and the reduction in staff of four employees. The Company expects to
minimize sales and marketing expenses in fiscal 1998 to conserve operating
capital.
<PAGE> 9
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 for the quarter ended June 30, 1997 were
$16,659, compared to $56,127 for the quarter ended June 30,1996, a decrease of
$39,468, or 70%. The decrease from the prior year quarter was due to a
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 first quarter ended June 30, 1997 was $38,338,
compared to $9,070 for the quarter ended June 30, 1996, an increase of $29,268.
The increase was due to the balance outstanding on the line of credit this
fiscal year versus the prior fiscal year.
INTEREST AND OTHER (INCOME) EXPENSE
Interest and other (income) expense for the first quarter ended June 30, 1997
was $(36), compared to $(20,941) for the quarter ended June 30, 1996, a
decrease of $20,905. The decrease from the prior year quarter was due to less
interest income earned as cash balances during the quarter ended June 30, 1997
were much lower than the cash balances during the quarter ended June 30, 1996.
NET LOSS
The net loss of $400,290 for the first quarter ended June 30, 1997 was $969,345
better than the net loss of $1,369,635 reported for the same period in the
prior year. The improvement in net loss for the quarter was primarily due to
the elimination of certain non-recurring expenses incurred in last year's
quarter ( the "Yellow Snow" infomercial production expense and a provision for
inventory obsolescence) and a reduction in operating expenses.
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 also 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.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Form 8-K
A Form 8-K was filed June 19, 1997 to report that the Company was
delisted from the Nasdaq SmallCap Market.
A form 8-K was filed August 7, 1997 to report the Company's first
quarter results for fiscal 1998 and announce a new director; and to
report that the Company had signed a Forbearance Agreement with
Norwest Credit, Inc., its asset-based lender.
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE SLED DOGS COMPANY
Dated: August 13, 1997
/s/ Kent Rodriguez
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Kent Rodriguez, Chairman
(Principal Executive Officer)
/s/ Michael P. Wise
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Michael P. Wise, Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<PERIOD-TYPE> 3-MOS
<CASH> (14,933)
<SECURITIES> 0
<RECEIVABLES> 313,812
<ALLOWANCES> 136,543
<INVENTORY> 883,596
<CURRENT-ASSETS> 1,124,808
<PP&E> 576,268
<DEPRECIATION> 246,137
<TOTAL-ASSETS> 1,598,070
<CURRENT-LIABILITIES> 2,217,584
<BONDS> 623,750
<COMMON> 135,132
0
0
<OTHER-SE> (1,378,396)
<TOTAL-LIABILITY-AND-EQUITY> 1,598,070
<SALES> 55,208
<TOTAL-REVENUES> 55,208
<CGS> (26,435)
<TOTAL-COSTS> 443,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,338
<INCOME-PRETAX> (400,290)
<INCOME-TAX> 0
<INCOME-CONTINUING> (400,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (400,290)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
