UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended May 31, 2008
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period to
Commission File Number 333-139773
__________Aussie Soles GroupInc._____________
(Exact name of Small Business Issuer as specified in its charter)
Nevada Pending
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9/F, 600 Lexington Avenue, New York, NY 10022
(Address of principal executive offices) (Postal or Zip Code)
Issuer's telephone number, including area code: 866-585-6068
K-9 Concepts, Inc.,
Rm 933, Block C, Harbourfront Horizon
HungHom Bay, 8 Hung Luen Road, Kowloon
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (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 (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 by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X ]
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 37,483,333 shares of common
stock with par value of $0.001 per share outstanding as of July 15, 2008.
AUSSIE SOLES GROUP INC.
(FORMERLY K-9 CONCEPTS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2008
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AUSSIE SOLES GROUP INC.
(FORMERLY K-9 CONCEPTS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
May 31, August 31,
ASSETS 2008 2007
Current Assets
Cash $81,083 $8,078
Interest receivable (Note 4) 31,218 -
Inventory (Note 3) 197,630 -
Deposit 190,221 -
Notes receivable (Note 4) 525,000 -
1,026,152 8,078
Equipment, net (Note 5) 97,500 -
Intangible assets, net (Note 6) 18,121,046 -
$19,244,698 $8,078
Liabilities And Stocholders' Equity (Deficit)
Current Liabilities
Accounts payable and accrual
liabilities $127,257 $13,500
Due to related party (Note 7) 225,148 -
352,405 13,500
Stockholders' Equity (Deficit)
Common stock (Note 8)
Authorized
100,000,000, par value $0.001
per share
Issued and outstanding:
37,483,333 common shares
(August 31, 2007 - 19,200,000
common shares) 37,483 19,200
Additional paid in capital 20,623,317 6,800
Donated capital 12,000 9,000
Deficit accumulated during the
development stage (1,780,507) (40,422)
18,892,293 (5,422)
$19,244,698 $8,078
The accompanying notes are an integral part of these consolidated financial
statements.
AUSSIE SOLES GROUP INC.
(FORMERLY K-9 CONCEPTS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATION
(UNAUDITED)
Cumulative
From
August
Three Three Nine Nine 25, 2005
Months Months Months Months (Date of
Ended Ended Ended Ended Incepton) to
May 31, May 31, May 31, May 31, May 31,
2008 2007 2008 2007 2008
Expenses
Amortization-
intangible assets $962,179 $- $1,122,542 $- $1,122,542
Amortization-
tangible assets 9,000 - 10,500 - 10,500
Bank charges 280 20 842 107 1,192
Consulting fees 107,134 - 107,134 - 107,134
Filing and transfer
agent fees 3,073 5,000 11,101 5,750 22,699
Interest income (15,887) - (32,218) - (32,218)
Management fees 20,000 1,500 23,000 4,500 32,000
Marketing 236,406 - 238,406 - 240,032
Office 51,912 - 51,912 - 51,912
Professional fees 73,031 2,000 94,612 2,000 109,460
Rent 2,400 - 2,400 - 2,400
Tradeshows 42,570 - 42,570 - 42,570
Travel and
entertainment 64,147 - 67,284 24 70,284
NET LOSS $(1,556,245) $(8,520) $(1,740,085) $(12,381) $(1,780,507)
LOss Per Share-
Basic And Diluted $(0.04) $(0.00) $(0.06) $(0.00)
Weighted Average
Number Of Common
Shares Outstanding-
Basic And Diluted 36,786,775 19,200,000 27,353,954 19,200,000
The accompanying notes are an integral part of these consolidated financial
statements.
AUSSIE SOLES GROUP INC.
(FORMERLY K-9 CONCEPTS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Cumulative
From
August
Nine Nine 25, 2005
Months Months (Date of
Ended Ended Incepton) to
May 31, May 31, May 31,
2008 2007 2008
Cash Flow From
Operating Activities
Net loss $(1,740,085) $(12,381) $(1,813,341)
Non-cash items:
Amortization - intangible
assets 1,122,542 - 1,143,924
Amortization - tangible assets 10,500 - 10,500
Donated services 3,000 4,500 12,000
Changes in non-cash operating
working capital items:
Interest receivable (31,218) - (31,218)
Inventory (14,420) - (14,420)
Deposit (190,221) - (190,221)
Notes receivable net (525,000) - (525,000)
Accounts payable and accrued
liabilities 113,757 - 127,257
Net Cash Used In Operations (1,252,145) (7,881) (1,270,067)
Cash Flows From Financing
Activities
Cash used in acquisition of
Aussie Soles
International LLC (29,998) - (29,998)
Net Cash Used In Investing
Activities (29,998) - (29,998)
Cash Flows From Financing
Activities
Due to related party 225,148 - 225,148
Proceeds from share issuance 600,000 - 626,000
Proceeds from warrant exercise 530,000 - 530,000
Net Cash Provided By Financing
Activities 1,335,148 - 1,1381,148
Increase (Decrease) In Cash 73,005 (7,881) 81,083
Cash, Beginning
Cash, Ending
Supplemental Disclosure Of
Cash Flow INformation:
Cash Paid For:
Interest $- $- $-
Income taxes $- $- $-
Non-Cash Items:
Share issued for acquisition
of Aussie Soles International
LLC (Note 2) $19,504,800 $- $19,504,800
The accompanying notes are an integral part of these consolidated financial
statements.
1. BASIS OF PRESENTATION
Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial statements and in accordance with the rules and
regulations of the Securities and Exchange Commission. They may not include
all information and footnotes required by generally accepted accounting
principles for complete financial statements. However, except as disclosed
herein, there has been no material changes in the information disclosed in
the notes to the financial statements for the year ended August 31, 2007
included in the Company's Form 10-KSB filed with the Securities and Exchange
Commission. The unaudited interim financial statements should be read in
conjunction with those financial statements included in the Form 10-KSB. In
the opinion of Management, all adjustments considered necessary for a fair
presentation, consisting solely of normal recurring adjustments, have been
made. Operating results for the nine months ended May 31, 2008 are not
necessarily indicative of the results that may be expected for the year
ending August 31, 2008.
2. ACQUISITION OF AUSSIE SOLES INTERNATIONAL LLC
On February 15, 2008, the Company acquired 100% of the issued and outstanding
shares of Aussie Soles International LLC ("Aussie Soles"), a private Nevada
company. Aussie Soles is a footwear company in the development stage.
Aussie Soles designs, produces, markets and distributes footwear to the
leisure and industrial markets.
The aggregate purchase price is up to 21,000,000 common shares of the
Company. On February 15, 2008, the closing date of the transaction,
12,900,000 common shares with a fair value of $19,504,800 were issued in
terms of the purchase agreement. The remaining 8,100,000 common shares are
held in escrow and will be issued upon the achievement of the following:
a) No damages claimed by the Company in terms of the purchase
agreement for a period of six months after the closing 2,100,000
date;
b) Signing of Canadian distribution agreement with the Hudson's
Bay Company; 2,000,000
c) Signing of license agreement with a private label; and 2,000,000
d) Registration of utility patents on two new shoe styles. 2,000,000
8,100,000
As of May 31, 2008, none of the milestones above has been achieved. Therefore,
8,100,000 common shares remained in escrow.
The acquisition was accounted for using the purchase method. The estimated
fair values of the assets acquired at the date of acquisition are as follows:
Inventory $183,210
Equipment 108,000
Intellectual Properties (patents, trademarks and domain names) 19,243,588
$19,534,798
The Company incurred legal expenses of $29,998 relating to this acquisition
which was capitalized as part of the net purchase price.
3. INVENTORY
Inventory comprises the following:
May 31, August 31,
2008 2007
----------------------------------------------------------------------------
Shoes held for re-sale $ 197,630 $ -
----------------------------------------------------------------------------
4. NOTES RECEIVABLE
a) On October 30, 2007, the Company loaned $200,000 (Canadian $200,000) to a
company with a common director at an interest rate of 12% per annum,
calculated and payable semi-annually. The note is unsecured and is
repayable on demand. The note is repayable in Canadian dollars.
b) On November 21, 2007, the Company loaned $200,000 to a company with a
common director at an interest rate of 12% per annum, calculated and
payable semi-annually. The note is unsecured and is repayable on demand.
c) On January 15, 2008, the Company loaned $100,000 to a company with a
common director at an interest rate of 12% per annum, calculated and
payable semi-annually. The note is unsecured and is repayable on demand.
d) On February 6, 2008, the Company loaned $25,000 to a company with a common
director at an interest rate of 12% per anum, calculated and payable semi-
annually. The note is unsecured and is repayable on demand.
e) On February 28, 2008, the Company loaned $100,000 to a company with a
common director. The note is unsecured, interest free and is repayable on
demand. This loan has been repaid during the three month ended May 31,
2008
f) At May 31, 2008, the Company has accrued $32,218 in interest on these notes.
5. EQUIPMENT
Equipment comprises the following:
May 31, August 31,
2008 2007
Accumulated
Cost Amortization Net Book Value
Shoe Moldings $108,000 $10,500 $97,500 $-
Equipment is amortized over a three year period on a straight-line basis.
6. INTANGIBLE ASSETS
Intangible assets comprise the following:
May 31, August 31,
2008 2007
Accumulated
Cost Amortization Net Book Value
Patent,
trademarks,
designs and
domain
names $19,243,588 $1,122,542 $18,121,046 $-
Intangible assets are amortized over a five year period on a straight-line
basis.
7. RELATED PARTY TRANSACTIONS
g) The Company recognized donated services by the director of the Company for
2007 management fees, valued at $500 per month, totaling $3,000 for the
six month period ended May 31, 2008.
h) The company paid the President of the Company management fees of $5,000
per month, totaling $20,000 for the period of February 2008 to May 31,
2008.
i) The Company has a balance owing to a director of the Company in the amount
of $200,000 as at May 31, 2008 (August 31, 2007: $nil). The amount due to
the director is unsecured, interest free and has no fixed term of
repayment.
j) During the quarter the President of the paid expenses on behalf of the
Company of $25,148. The advance from the President is unsecured, interest
free and have no fixed term of repayments.
8. COMMON STOCK
a) On December 20, 2007, the Company completed three for one (3:1) forward
stock split of its common shares. All share and per share information in
these financial statements has been retro-actively restated for all
periods presented to give effect to this stock split.
b) During the nine month period ended May 31, 2008, the Company completed a
private placement of 1,500,000 units of its common stock at a price of
$0.40 per unit. Each unit consists of one common share of the Company's
common stock and one warrant. Each warrant is exercisable into one share
of the Company's common stock at an exercise price of $0.60 per warrant,
for a period of two years.
c) On February 15, 2008, the Company issued 12,900,000 of its common shares
for the acquisition of 100% of the issued and outstanding shares of Aussie
Soles International LLC (See Note 2).
d) During the nine month period ended May 31, 2008, the Company issued
883,333 common shares for warrant exercised at the price of $0.60 per
warrant for total proceeds of $530,000.
9. INCOME TAXES
At May 31, 2008, the Company had accumulated non-capital loss carry-forwards
of approximately $1,447,781, which are available to reduce taxable income
in future taxation years. These losses begin to expire in 2025 after a carry
forward period of 20 years. Due to the uncertainty of realization of these
losses carry-forwards, a full valuation allowance has been provided for this
deferred tax asset.
Forward-Looking Statements
This Form 10-QSB includes "forward-looking statements" within the meaning of
the "safe-harbor" provisions of the Private Securities Litigation Reform Act of
1995. Such statements are based on management's current expectations and are
subject to a number of factors and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements.
All statements other than historical facts included in this Form, including
without limitation, statements under "Plan of Operation", regarding our
financial position, business strategy, and plans and objectives of management
for the future operations, are forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results
to differ materially from our expectations include, but are not limited to,
market conditions, competition and the ability to successfully complete
financing.
ITEM 2. PLAN OF OPERATION
On February 15 2008, we entered into an exchange agreement with Aussie Soles
International LLC, an early stage leisure footwear company. In consideration of
the acquisition of a 100% equity interest in Aussie Soles, the Company will
issue up to 21 million shares of its common stock, subject to certain escrow
conditions and corporate milestones to be met by the principal of Aussie Soles.
The combined enterprise intends to build the brand, "Aussie Soles{trademark}"
into a globally known brand of footwear and accessories for the fashion, surf,
travel, and medical industries. The combined enterprise intends to accomplish
its objectives by designing and marketing a complete line of reasonably priced
casual footwear and related accessories for all seasons, by co-branding its
products with high-visibility partners, and through patent and related
intellectual property protection.
The growth in the casual footwear industry has been well-documented. The casual
and comfortable design and its affordable pricing seem to be attributing
factors to consumer demand. We believe that the holed clog success story is
reflective of a larger market dynamic that is shifting towards casual yet
innovative designs that are affordable. We believe that this will create an
opportunity for new entrants into this market, including smaller market
participants such as ourselves.
As we phase out of the business line involving the distribution of shower heads
and related accessories, our business is now primarily devoted to the
manufacture and wholesale of innovative casual footwear for men, women, and
children. Aussie Soles{trademark} are made from a patented closed cell polymer
foam, which we refer to as Auslite, that is chemical and UV resistant, fade and
crack resistant, and bacteria and odor resistant. With massaging innersoles and
ventilation on the top and side of the shoe, the result is a light and
comfortable clog which we believe consumers will find to be both lighter and
more comfortable than existing brands. In Australia, Aussie Soles{trademark}-
branded footwear products are sold in over 500 domestic retail outlets.
Since our business combination with Aussie Soles, we have commenced the
development of the logistics, distribution and marketing infrastructure
underlying our intent to build up critical mass acceptance of Aussie
Soles{trademark} footwear and other accessory products globally, outside of the
Australian market. During and post the quarter ended May 31 2008, our initial
marketing efforts, focused primarily in the Western parts of Canada, have led
to initial purchase orders and intents for our Aussie Soles{trademark}-branded
footwear products in excess of $140,000., representing in excess of 70
individual retail storefronts and a couple of big box retailers with locations
throughout Canada. Post the quarter end, we now also sell our footwear products
directly to consumers through our website, www.aussiesoles.com.
To date, we have conducted limited marketing or advertising outside of
attending trade shows. We believe that initially our attendance at tradeshows
will serve as a critical platform for the unveiling and launching of our
brand of products and will serve as an important source of pre-season
orders. We are pursuing a strategy of having both established and break out
celebrities, including sports figures, in the United States and Canada wear our
shoes, which we believe will help our grassroots efforts to grow brand
awareness. We are also pursuing co-branding initiatives with certain
sporting teams or leagues in the United States and Canada, commencing with our
licensing arrangement with the Canadian Football League. Initially, we expect
to build product and brand awareness and generate sales growth through
grassroots efforts and a limited marketing budget. Those efforts will
include: trade shows, word of mouth, public relations efforts promoting our
products in various trade publications and media outlets, and use
of our website, www.aussiesoles.com, to build awareness of our brand.
Our trademarks, trade names, copyrights, trade secrets and patent designs are
valuable and integral to our business. To this extent, prior to our business
combination and during the quarter, we have registered Aussie Soles{trademark}
and Relax Ya FeetTM as trademarks in Australia, Switzerland, China, Germany,
Spain, France, UK, Italy, Japan, Singapore, the USA, Hong Kong, Canada,
Benelux, New Zealand and Russia. Our Snuggs {trademark} brand is registered as
a trademark in Australia, Hong Kong, Benelux, New Zealand and Russia. We have
also registered as a trademark our formula of closed-cell polymer foam called
Auslite{trademark} in Australia, Switzerland, China, Germany, Spain, France,
UK, Italy, Japan, Singapore, USA. Our other registered trademarks are Aussie
Snuggs{trademark}, Aussie Souls{trademark}, The Suffer{trademark}, Kids
Klogs{trademark}, Clinics{trademark} 1 and 2, Chief{trademark},
Starfish{trademark}, Resorts{trademark}, Marine{trademark}.
Our plan is to hire regional sales personnel and enter into agreements with
distributors covering certain territories or geographies in order to effect
sales and render product support as necessary.
We have one full time employee, our President and CEO, Craig Taplin. Our Lead
Designer Steve Francis, a contract employee but will join us on a full-time
basis once our product business can justify his full-time effort.
We intend to retain one full-time sales person in the next six months, as well
as an additional full-time sales person in the six months thereafter. These
individuals will be independent contractors compensated solely in the form of
commission based upon sales they arrange.
We therefore expect to incur the following costs in the next 12 months in
connection with our business operations:
Marketing costs: $200,000
General administrative costs: $250,000
Total: $450,000
In addition, we anticipate spending an additional $50,000 on administrative
fees. Total expenditures over the next 12 months are therefore expected to be
$500,000.
During the nine months ended May 31 2008, the Company completed the sale of
$600,000 in the private placement of its securities at $0.40 per Unit on a pre-
share split basis. Each Unit consisted of one pre-split share of the Company's
common stock and one common share purchase warrant (a "Warrant"). Each Warrant
is exercisable into one pre-split share of Common Stock at a pre-split exercise
price of US$0.60 per Warrant Share, for a period of two years. The private
placement is intended to finance potential acquisition and working capital
requirements, including administrative expenses and costs incurred in
connection with our review of potential projects. Although upon the completion
of the private placement financing and the exercise of the underlying share
purchase warrants, we will have sufficient funds for any immediate working
capital needs, additional funding will be required in the form of equity
financing from the sale of our common stock. However, we do not have any
arrangements in place for any future equity financing.
If we are unable to raise the required financing, we will be delayed in
conducting our business plan.
Our ability to generate sufficient cash to support our operations will be based
upon our sales staff's ability to generate sales. We expect to accomplish this
by securing a significant number of sales with large and small retailers and by
retaining suitable salespersons with experience in the retail sales sector.
RESULTS OF OPERATIONS FOR PERIOD ENDING MAY 31, 2008
We earned interest income of $15,887 in the three-month period ended MAY 31,
2008. During the same period, we incurred operating expenses of $1,572,132
consisting of amorization expenses of $971,179, filing and transfer agent fees
of $3,073, professional fees of $73,031, consulting fees of $107,134,
management fees of $20,000, marketing fees of $236,406, office expenses
of $54,312, tradeshow expenses of $42,570, travel and entertainment of
$64,147 and bank charges of $280.
At MAY 31 2008, we had assets of $19,244,6984 consisting of $81,083 in cash, a
notes receivable of $525,000, inventory of $197,630, inventory deposit of
$190,221, interest receivable of $32,218, equipment of $97,500 and $18,121,046
in intangible assets. We had current accounts payable and accrued
liabilities of $127,257 and $225,148 due to a related party as of MAY 31, 2008.
We have not attained profitable operations and are dependent upon obtaining
financing to pursue our business plan. For these reasons our auditors believe
that there is substantial doubt that we will be able to continue as a going
concern.
ITEM 3 CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS
We evaluated the effectiveness of our disclosure controls and procedures as of
MAY 31, 2008. This evaluation was conducted by Craig Taplin, our chief
executive officer and principal accounting officer.
Disclosure controls are controls and other procedures that are designed to
ensure that information that we are required to disclose in the reports we file
pursuant to the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported.
LIMITATIONS ON THE EFFECTIVE OF CONTROLS
Our management does not expect that our disclosure controls or our internal
controls over financial reporting will prevent all error and fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
but no absolute, assurance that the objectives of a control system are met.
Further, any control system reflects limitations on resources, and the benefits
of a control system must be considered relative to its costs. These limitations
also include the realities that judgments in decision-making can be faulty and
that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of a control. A
design of a control system is also based upon certain assumptions about
potential future conditions; over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a cost-
effective control system, misstatements due to error or fraud may occur and may
not be detected.
CONCLUSIONS
Based upon their evaluation of our controls, Craig Taplin, our chief executive
officer and principal accounting officer, has concluded that, subject to the
limitations noted above, the disclosure controls are effective providing
reasonable assurance that material information relating to us is made known to
management on a timely basis during the period when our reports are being
prepared. There were no changes in our internal controls that occurred during
the quarter covered by this report that have materially affected, or are
reasonably likely to materially affect our internal controls.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding. Management is not
aware of any threatened litigation, claims or assessments.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
31.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Reports on Form 8-K
During and subsequent to the quarter ended May 31 2008, we filed the
following current report on Form 8-K:
1. On April 7, 2008, we filed a current report on Form 8-K disclosing that
we have appointed Mr. Craig Taplin as President and Chief Executive
Officer of the Company, in place of Mr. Albert Au, who will continue to
serve as a director on the Company's Board of Directors.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
July 15, 2008
Aussie Soles Group Inc.
/s/ Craig Taplin
------------------------------
Craig Taplin, President