United States
Securities and Exchange Commission
Washington, D. C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-27520
SDC International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2583767
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
251 Royal Palm Way Suite 301
Palm Beach, Florida 33480
(Address of principal (Zip code)
executive offices)
Issuer's telephone number (561) 882-9300
Securities registered under Section 12(b) of the Act:
None
Securities registered under Section 12(g) of the Act:
Common Stock, Par value $0.001
(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 5(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that registration was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Common stock, par value $.001 per share: 8,980,774 shares outstanding as of
March 31, 2000.
SDC INTERNATIONAL, INC. and SUBSIDIARY INDEX
PART 1 - FINANCIAL INFORMATION:
ITEM 1 - CONDOLIDATED BALANCE SHEETS
Consolidated Balance Sheets (Unaudited) March 31, 2000
and December 31, 1999 F-1
Consolidated Statements of Operations (Unaudited) for
the three months ended March 31, 2000 and
March 31, 1999 F-2
Consolidated Statements of Stockholders' (Deficiency)
Equity (Unaudited) for the three months ended
March 31, 2000 F-3
Consolidated Statement of Cash Flows (Unaudited) for
the three months ended March 31, 2000 and
March 31, 1999 F-4
Notes to Consolidated Financial Statements F-5 - F-6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION 10
SIGNATURES 11
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, December 31,
2000 1999
(Unaudited)
------------- -------------
ASSETS
Current assets:
Cash $ 43,993 $ 170,893
Inventory 22,906 74,406
Prepaid expenses 15,000
------------- -------------
Total current assets 66,899 260,299
Machinery and equipment, net 4,754 5,153
Cash - restricted 81,243 81,243
Net assets of discontinued subsidiary 87,993 100,362
------------- -------------
$ 240,889 $ 447,057
============= =============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 87,459 $ 203,674
Due to related parties, including accrued
interest of $36,048 and $136,830, and net
of unamortized discount of $35,808 & $102,683 676,412 1,119,518
------------- -------------
Total current liabilities 763,871 1,323,192
------------- -------------
Commitments
STOCKHOLDERS' DEFICIENCY
Common stock $.001 par value, 10,000,000 shares
authorized, 8,980,774 and 7,745,004 shares issued
and outstanding, respectively 8,981 7,745
Additional paid-in capital 16,204,654 14,504,770
Common shares issuable (106,036 and 457,036
shares, respectively) 175,724 918,224
Accumulated deficit (16,925,747) (16,331,098)
Accumulated foreign currency translation adjustment 13,406 24,224
------------- -------------
(522,982) (876,135)
------------- -------------
$ 240,889 $ 447,057
============= =============
See notes to financial statements
F-1
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
------------- -------------
Sales $ 70,240
Cost of sales 67,078
-------------
Gross loss 3,162
-------------
Expenses:
Selling, general and administrative, including
$0 and $497,140 paid by issuance of stock $ 272,008 $ 637,524
Depreciation and amortization 400 12,358
------------- -------------
Total expenses 272,408 649,882
------------- -------------
Loss from operations before interest expense (268,846) (649,882)
Interest expense including amortization of debt discount (323,853) (291,930)
------------- -------------
Loss from continuing operations (592,699) (941,812)
(Loss) income from operations of discontinued subsidiary (1,550) (39,701)
------------- -------------
Net loss $ (594,249) $ (981,513)
============= =============
Net loss per share - Basic and diluted:
Loss from continuing operations $(0.07) $(0.18)
Loss from operations of discontinued subsidiary Nil (0.01)
Net loss $(0.07) $(0.19)
====== ======
Weighted average shares outstanding 8,591,407 5,085,837
============= =============
See notes to financial statements
F-2
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' (Deficiency) Equity
Accumulated
Foreign
Common Stock Additional Common Currency
Par Paid-in Shares Accumulated Translation
Shares Value Capital Payable Deficit Adjustment Totals
----------- ---------- ------------ ----------- -------------- ------------ ----------
Balance - December 31, 1999 7,745,004 $ 7,745 $ 14,504,770 918,224 $ (16,331,098) $ 24,224 $ (876,135)
Issuance of common stock in
connection with loan
agreements 145,000 145 218,705 218,850
Issuance of common stock in
repayment of short-term loan 739,770 740 739,030 739,770
Issuance of common stock 351,000 351 742,149 (742,500) 0
Comprehensive loss:
Foreign currency translation
adjustment (10,818) (10,818)
Net loss for the period (594,649) (594,649)
----------
Total comprehensive loss (605,467)
----------- ---------- ------------ ----------- -------------- ------------ ----------
Balance - March 31, 2000 8,980,774 $ 8,981 $ 16,204,654 $ 175,724 $ (16,925,747) $ 13,406 $ (522,982)
=========== ========== ============ =========== ============== ============ ==========
See notes to financial statements
F-3
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss $ (594,649) $ (981,513)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 400 12,358
Amortization of debt discount 66,875 154,396
Expenses paid by issuance of stock 218,850 519,391
Beneficial conversion feature of
convertible notes 0 68,380
Loans in excess of loss from operations
of discontinued subsidiary 1,550 39,701
Changes in:
Inventory 51,500 (7,712)
Security deposits 0 20,000
Prepaid expenses 15,000 0
Accounts payable and accrued expenses (116,215) 65,426
Accrued interest 38,992 47,564
------------ ------------
Net cash used in operating activities (317,697) (62,009)
------------ ------------
Cash flows from financing activities:
Proceeds of loans from related parties 203,000 26,500
Repayment of loans from related parties (12,203)
------------ ------------
Net cash provided by financing activities 190,797 26,500
------------ ------------
Net (decrease) increase in cash (126,900) (35,509)
Cash, beginning of period 170,893 41,651
------------ ------------
Cash, end of period $ 43,993 $ 6,142
============ ============
Supplemental disclosure of noncash investing and
financing activities:
Issuance of common stock issuable $ 742,500
Issuance of common stock in payment of loan
payable to stockholder $ 739,770 $ 270,028
See notes to financial statements
F-4
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Financial Statements
March 31, 2000
NOTE A - THE COMPANY AND BASIS OF PREPARATION
The accompanying financial statements include the accounts of SDC
International, Inc., (the "Company") and its wholly-owned subsidiaries
SDC Prague, s.r.o. and Skobol, s.a. ("Skobol") after elimination of all
significant intercompany transactions and balances. The Company was
incorporated in the State of Delaware in 1994, and acquired an exclusive
agency agreement from Diesel International, a.s. (formerly known as
Skoda Diesel, a.s.) ("Diesel") which permitted the Company to sell a
broad range of Diesel's products, including diesel engines and power
generating sets. Diesel, which was formed in what is now the Czech
Republic, was one of the founding stockholders of the Company.
During the year ended August 31, 1997, as a result of financial
difficulties encountered by Diesel, the Company discontinued selling
Diesel's products. During November 1997, the Company acquired the
outstanding common stock of Skobol, a Bolivian Corporation, which is a
distributor within the country of Bolivia of products manufactured in
the Czech Republic. In December 1999, the Company's Board of Directors
adopted a plan to dispose of the subsidiary and, accordingly, the
subsidiary has been accounted for as a discontinued operation in the
accompanying financial statements. During the period ended March 31,
2000, the Company has been attempting to acquire entities in the Czech
Republic and has been incurring expenses in connection therewith.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-QSB.
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 the interim
consolidated financial statements include all adjustments necessary in
order to make the consolidated financial statements not misleading. The
results of operations for the three months ended are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the Company's audited financial statements and
footnotes thereto at December 31, 1999, included in the Company's Form
10-KSB, filed with the Securities and Exchange Commission.
NOTE B - DUE TO RELATED PARTIES
[1] Line-of-credit:
During June 1998, the Company obtained an unsecured $500,000 line of
credit from a stockholder with an interest rate of 14% per annum.
Principal and interest were payable on December 8, 1998. The
agreement provided that the principal balance of the line-of-credit
and any outstanding accrued interest may be converted into common
stock at $1.00 per share. By agreement with the stockholder, the due
date was extended to December 31, 1999. During the three months
ended March 31, 2000, the line-of-credit totaling $500,000 and
accrued interest amounting to $114,110 were repaid by the issuance of
614,110 shares of common stock. Interest expense on the line-of-
credit amounted to $15,173 during the three months ended March 31,
2000. In addition, 216,000 shares of common stock issuable in
connection with an extension agreement (previously valued at
$465,534) were issued during the three months ended March 31, 2000.
F-5
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Financial Statements
March 31, 2000
NOTE B - DUE TO RELATED PARTIES (CONTINUED)
[2] Loans from stockholders:
During the three months ended March 31, 2000, the Company borrowed
and additional $203,000 from stockholders under notes which are
repayable in 180 days, at a stated interest rate of 14% per annum.
Interest accrued on these notes at March 31, 2000 amounted to
$36,048. Interest expense on the notes during the three months ended
March 31, 2000 and March 31, 1999, amounted to $23,819 and $30,064,
respectively. During the period ended March 31, 2000, a note payable
totaling $100,000 and accrued interest of $25,660 were repaid by the
issuance of 125,660 shares of common stock. In connection with
borrowings during the three months ended March 31, 2000 and extension
agreements of loans previously outstanding, 145,000 shares of common
stock valued at $$218,850 were issued. Also during the three months
ended March 31, 2000, 145,000 shares of common stock issuable in
connection with an extension agreement (previously valued at
$276,750) were issued. During the period subsequent to March 31,
2000, holders of notes with outstanding principal balances of
$100,000 converted their notes, together with accrued interest, into
shares of common stock and holders of notes with outstanding
principal balances of $550,000 extended the repayment of their loans
to January 20, 2001. During the three months ended March 31,
2000, amortization of debt discount amounted to $66,875.
NOTE C - STOCKHOLDERS' EQUITY
[1] As of March 31, 2000, the Company has outstanding warrants to
purchase a total of 180,000 shares of common stock at exercise
prices of $2.00 and $2.50 per share, of which 130,000 expire in
2000 and 50,000 expire in 2003. These warrants had been issued to
consultants during 1998.
NOTE D - COMMITMENTS AND OTHER COMMENTS
[1] Lease agreement:
Effective January 1, 1997, the Company rents its executive office on
a month to month basis from its Chief Executive Officer ("CEO".)
Rent expense under the arrangement amounted to $6,000 and $3,000
during the three months ended March 31, 2000 and 1999, respectively.
Included in general and administrative expenses is rent expense for
the above and other rentals which totaled $7,803 and $6,953 for the
three months ended March 31, 2000 and 1999, respectively.
[2] Finder's fee agreement:
On May 20, 1996, the Company entered into a finder's fee agreement
with Prime Charter, Ltd ("Prime") for a period of ten years,
renewable for additional five-year periods. Pursuant to such
agreement, any sales to entities introduced to the Company by Prime
results in a finder's fee to Prime of two percent of the gross sales
price or ten percent of the adjusted gross profit resulting from the
sales. Such payments are due 45 days after each quarter-annual
calendar period. As of March 31, 2000, no amounts were due under
this agreement.
[3] Executive compensation:
For the three months ended March 31, 2000 and 1999, respectively, the
Company incurred management fees of $39,000 and $39,000, payable to
its Chief Executive Officer.
For the three months ended March 31, 2000 and 1999, respectively, the
Company incurred management fees of $39,000 and $39,000 to its
President.
F-6
Item 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SDC International, Inc., (hereinafter referred to as the "Company") is a
Delaware corporation formed in June, 1994 to market, sell, and finance Eastern
and Central European industrial products such as diesel generators,
co-generation equipment, electric metering systems, on/off-road trucks,
tractors, and transport equipment such as buses, trolleys, trams, and
airfreight containers. Because of a lack of working capital condition
within the manufacturers of such equipment, the products could not be delivered
in an acceptable time period to the customers of the Company. Therefore, in
1998, the Company redirected its efforts toward acquiring certain manufacturers
of the products, provided that the quality and global market potential was
deemed significant by the Company. Presently, the Company works to establish
relationships of joint venture or as an acquirer of such manufacturing
companies.
The Company has acted as an exclusive distributor of Skoda Diesel engines in
North, South and Central America, under an exclusive license from Skoda Diesel,
now known as Diesel International, a.s., ("Diesel"). Diesel products are
principally piston combustion diesel, gas, and bio-gas engines whose
applications include locomotive and stationary engines for the generation and
co-generation of electric power and complete energy for a variety of purposes.
In April 1997, the Company acquired by merger the Panamanian company
representing Tatra, a Czech truck manufacturer with ISO certification, to
market and sell Tatra products in South and Central America. In August
1997, the Company became the exclusive North and South American distributor
of Metal Kraft, a.s., a Czech manufacturer of metal pallets and containers
whose customers include Mercedes Benz, BMW, and Volkswagen, and which offers
a line of airfreight cargo containers. In early 1998, the Company executed
letters of intent and agreements to purchase Tatra, a.s. However, due to
changes within the organization of the seller of Tatra, which were beyond
the control of the Company, the transaction has not been consummated, and
the Company continues its efforts toward the Tatra acquisition. Tatra is a
Czech manufacturer of on/off-road heavy duty trucks. The factory was
founded in 1850 and in 1898 the first truck was manufactured. The factory
continued development and innovations of its vehicle and today produces a truck
with the an air cooled diesel engine and a solid central backbone tube with
swing half axles, both features being unique features of the Tatra truck.
Tatra has ISO 9001 certification and Tatra trucks meet all Euro II
regulations.
Through its direct involvement in Central and Eastern Europe, the Company has
learned that most manufacturing companies within this geographic/political area
with whom the Company wishes to transact its business have a shortage of
marketing skills and financial capability. Therefore, the Company has
determined that it should take an internal position within its targeted
7
manufacturing companies to assure better financial capability and marketing
skills. This planned activity may be as a joint venture with or an acquisition
of such manufacturing companies.
During the quarter ending March 31, 2000, the Company executed a
Confidentiality Agreement with Investicni A Postovni Banka, which is the
creditor bank to Moravan and which was the party in the Czech Commercial Court
which objected to the Moravan share increase attempted by the Company during
1999. The Agreement provides for the negotiation of the Company's possible
acquisition of the Moravan debt held by the bank. During 1999, the Company had
executed an agreement providing for the Company's acquisition of a majority of
shares of Czech aircraft manufacturer, Moravan, a.s. The agreement, providing
for the issuance of additional shares of Moravan equal to fifty-five percent of
the subsequent outstanding shares, was approved by the Company's board and by
the shareholders of Moravan, a.s. Under Czech law, such an increase of shares
must be registered by the Commercial Court to be effective, a process which can
take an extended period of time and towards which any third parties may object.
There were objections and there has been no registration in the Commercial
Court. The Company has begun negotiations with the largest creditor of Moravan
to purchase the bank debt of Moravan on discounted terms. Until such time that
the objections are settled and the Commercial Court registers the new shares,
there is no closing of the acquisition. The Company has no substantive funds
or capital at risk until and unless such a closing occurs.
During the last quarter of 1999, the Czech government-owned Konsolidacni Bank
took over ownership of and the process of disposing of Tatra. During the
quarter ending March 31, 2000, Konsolidacni Banka engaged the Czech
Revitalization Agency, a subsidiary if the Konsolidacni Banka, to perform the
process of selling Tatra. A Confidential Memorandum was sent to the Company
regarding the proposed sale, and discussions have subsequently begun with
various parties in the Czech Republic which are connected with Tatra and its
sale process. Management believes that the process is being conducted
transparently and professionally0, and that the Company has a reasonable chance
of acquiring ownership of Tatra.
There can be no assurances that any of the matters discussed above will come to
fruition or will result in positive results for the Company.
The Company has devoted substantial of its time and effort to negotiating the
acquisition of Tatra,a. s., and arranging strategic alliances related for Tatra
rather than devoting its time to beginning its marketing and sales development.
Therefore, the Company's revenues to date are primarily the result of orders
received by the Company rather than the result of marketing efforts by the
Company. The Company records revenue when products are shipped. During the
quarter ending March 31, 2000, the Company shipped $70,240.
8
Operating expenses for the quarter ending March 31, 2000, were $377,474
less than in the quarter ending March 31, 1999. Total expenses for the quarter
ended March 31 were $272,408 in 1999 and $649,882 in 1998. Non-cash expenses
as depreciation and amortization, payment of interest by issuance of stock were
$286,125 during the quarter ending March 31, 2000. The Company's net loss of
$594,649 for the quarter ending March 31, 2000, includes certain non-cash
charges as follows:
Depreciation and amortization $ 400
Amortization of debt discount 66,875
Issuance of common stock as
consideration of services 218,850
-------
TOTAL NON-CASH CHARGES $ 286,125
Accordingly, the Company's cash loss before the above charges amounted to
approximately $308,524, which includes discontinued operations.
During the three months ending March 31, 2000, as compared to the three months
ending March 31, 1999, operating expenses were approximately $377,474 lower.
Management expects operating expenses (non-depreciation and non-amortization),
to remain at this approximate level for the near future due to the level of
negotiations and expansion discussions taking place presently. Operating
expense categories which exceeded $5,000, for the three month period ending
September 30, 1999, were; amortization & depreciation rents $7,803; management
compensation & salary $78,000; travel & lodging $20,757; consulting $69,150;
legal and accounting $22,497; telephone $12,620; and financial consulting
$30,000.
LIQUIDITY AND CAPITAL RESOURCES
At the end of March 2000, the Company's net working capital deficit is
($696,972). However, when considering shareholder loans to be long term debt,
the actual net working capital deficit is $(20,560). Net cash used for the
Company's operating activities for the quarter ended March 31, 2000 amounted to
$317,697, whereas the net cash used for operating activities for the quarter
ended March 31, 1999 amounted to $62,009. Net cash provided (+) by financing
activities in the quarter ended March 31, 2000 was $190,797 compared to $26,500
for the quarter ended March 31, 1999. Therefore, total cash at the end of the
quarter ended March 31, 2000 was $43,993 compared to $6,142 at the end of the
quarter ended March 31, 1999.
Management is evaluating its current and projected cash needs to determine if
its current financial situation will be sufficient to meet such needs. If the
Company continues according to its present plans and without modification, the
Company will be required to obtain additional financing or equity capital.
Management is actively exploring possible sources of additional capital and is
reviewing possible methods to obtain such additional capital, as needed. There
is no assurance that such financing or capital will be available at the time
when such capital may be needed.
9
Negative cash flows from the Company's pursuit of a joint venture or
acquisition are anticipated to continue until the Company has reached
agreement, if any can be reached, providing for a joint venture or acquisition
and then only if suitable financing of any such joint venture or acquisition is
received by the Company. The Company acknowledges that there is no assurance
that it will be able to obtain suitable capital or financing at the time of any
such joint venture or acquisition. In the event the Company does not receive
additional capital, there could be a severe adverse impact on the Company's
future operations.
The Company's products are sold in US dollars and the Company does not believe
currency exchange rates or current inflation rates will have a significant
effect on sales or profitability. Although the Company maintains a bank account
in Czech currency within the Czech Republic for paying local expenses, the
amount on deposit in such account is usually small and, therefore, fluctuation
in the currency exchange rates should not have a significant effect on the
Company.
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings:
None
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 Reports on Form 8-K:
None
10
SIGNATURES
In accordance with section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
SDC INTERNATIONAL, INC.
BY:/s/Ronald A. Adams
Ronald A. Adams, Chairman
July 30, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/Ronald A. Adams July 30, 2000
Ronald A. Adams, Director and Chairman
(Principal Executive Officer and Principal
Financial Officer)
11