UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[xx] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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.)
2065 Montgomery Street, Fort Worth, Texas 76107
(Address of principal executive offices) (Zip Code)
(817) 738-8636
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [xx] 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: 1,874,740 shares outstanding as of
November 30, 1995.
SDC INTERNATIONAL, INC.
INDEX
PART 1 - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
Balance Sheets (Unaudited) November 30, 1995
and August 31, 1995 F-1
Statements of Operations (Unaudited) for the
three months ended November 30, 1995 and 1994 F-2
Statement of Stockholders' Equity (Unaudited) for
the three months ended November 30, 1995 F-3
Statements of Cash Flows (Unaudited) for the
three months ended November 30, 1995 and 1994 F-4
Notes to Financial Statements F-5 - F-10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS F-11 - F-12
PART II - OTHER INFORMATION F-13
SDC INTERNATIONAL, INC.
BALANCE SHEETS
(Unaudited)
November 30, August 31,
1995 1995
ASSETS
Current assets:
Cash $ 24,919 $ 49,677
Accounts receivable - 537,280
Inventory 12,043 -
Prepaid expense 6,400 6,400
Notes receivables - stockholder and related parties 61,007 77,000
Due from related party 12,500 12,500
Total current assets 116,869 682,857
Machinery and equipment, net 4,396,428 4,469,064
Exclusive agency rights, net 198,422 51,650
Other assets 185,230 34,184
Total assets $ 4,896,949 $ 5,237,755
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - related party $ 4,725 $ 376,900
Accrued expenses 74,088 51,549
Due to stockholder 36,196 36,196
Total current liabilities 115,009 464,645
Commitments and contingencies (Note 5) - -
Stockholders' equity:
Common stock $.001 par value, authorized
10,000,000 shares, issued and outstanding
1,874,740 and 1,752,700 shares respectively 1,875 1,753
Additional paid-in capital 5,351,486 5,117,676
Accumulated deficit (571,421) (346,319)
Total stockholders' equity 4,781,940 4,773,110
Total liabilities and stockholders' equity $ 4,896,949 $ 5,237,755
See accompanying notes to financial statements.
SDC INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30,
(UNAUDITED)
1995 1994
Sales $ 12,089 $ -
Cost of goods sold 4,725 -
Gross profit 7,364 -
Expenses:
Selling, general and administrative expenses 234,901 3,228
Total expenses 234,901 3,228
Loss from operations before other income and provision
for income taxes (227,537) (3,228)
Other income:
Interest income 2,435 -
Loss before provision for income taxes (225,102) (3,228)
Provision for income taxes - -
Net loss $ (225,102) $ (3,228)
Primary loss per share:
Loss from operations before other income & provision
for income taxes $ (.12) $ Nil
Provision for income taxes $ - $ -
Net loss $ (.12) $ Nil
Weighted average number of shares outstanding 1,848,222 1,400,000
See accompanying notes to financial statements
SDC INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1995
(UNAUDITED)
Additional Total
Common Stock paid-in Accumulated Stockholders'
Shares Amount capital Deficit Equity
Balances at September 1, 1995 1,752,700 $1,753 $5,117,676 $(346,319) $4,773,110
Issuance of common stock in connection
with private placement memorandum, net
of offering costs of $71,168 122,040 122 233,810 - 233,932
Net loss for the three months ended
November 30, 1995 - - - (225,102) (225,102)
Balances, November 30, 1995 1,874,740 $1,875 $5,351,486 $(571,421) $4,781,940
See accompanying notes to financial statements.
SDC INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30,
(UNAUDITED)
1995 1994
Cash flows from operating activities:
Net loss $ (225,102) $ (3,228)
Adjustments to reconcile net loss to net
cash used for operating activities:
Amortization and depreciation 78,765 3,228
Common stock issued as consideration for services -
Changes in operating assets and liabilities:
Decrease in accounts receivable 537,280 -
Increase in inventory (12,043) -
(Decrease) in accounts payable - related party (372,175) -
Increase in accrued expenses 22,539 -
Net cash provided by operating activities 29,264 -
Cash flows from investing activities:
Purchase agency rights (150,000) -
Repayment of loans from related parties 15,993 -
Purchase of machinery and equipment (1,947) -
Acquisition of customer list (150,000) -
Other assets acquired (2,000) -
Net cash (used for) investing activities (287,954) -
Cash flows from financing activities:
Proceeds from private placement memorandum 305,100 -
Costs associated with private placement memorandum (71,168) -
Net cash provided by financing activities 233,932 -
Net (decrease) increase in cash (24,758) -
Cash at beginning of period 49,677 -
Cash at end of period $ 24,919 -
Supplemental disclosure of non-cash investing
activities:
Issuance of 51,650 shares of common stock for
consideration of exclusive agency rights $ - $ 64,563
Issuance of 448,350 shares of common stock in
connection with contribution of machinery
and equipment $ - $ 4,469,064
See accompanying notes to financial statements.
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1995
(UNAUDITED)
NOTE 1 - GENERAL
SDC International, Inc. ("the Company") was incorporated in the
state of Delaware on June 30, 1994 for the purpose of developing
and marketing an exclusive license acquired from Skoda Diesel a.s.
("Skoda") to sell a broad range of Skoda's products which are
primarily comprised of piston combustion diesel engines whose
applications include locomotive and stationary engines for the
generation and co-generation of electric power.
In September 1994, the Company issued 1,400,000 shares of its common
stock to its three founding shareholders. Of the total 1,400,000
shares issued, 500,000 and 400,000 shares were issued to Worth
Capital Group Holding ("Worth"), Double Seal Ring Company
("Double"), respectively, as founding shareholders, and 448,350
shares were issued to Skoda as consideration for the contribution of
machinery and equipment. Also in September 1994, 51,650 shares were
issued to Skoda in connection with the purchase of the exclusive
agency rights. The machinery and equipment is located in the Czech
Republic. Skoda, one of the founding shareholders of the Company
was formed in Czechoslovakia in the year 1899 and manufactures heavy
equipment and diesel engines.
The accompanying unaudited 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 financial statements include all adjustments necessary in
order to make the financial statements not misleading. The results
of operations for the three months ended is 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 August 31, 1995, included in
the Company's Form 10-SB, filed with the Securities and Exchange
Commission.
NOTE 2 - NOTES RECEIVABLE - STOCKHOLDER AND RELATED PARTIES
From February 1995 to August 1995, the Company has made various
loans to a stockholder and to entities whereby such stockholder is
an Officer/Director with the following terms:
i) Secured demand note of $40,000 to an entity dated
February 1995, bearing interest at 10% per annum.
The note is secured by 60,000 shares of the debtor's
common stock and is due on or before February 8,
1996. The balance includes $3,235 of accrued
interest. $ 25,642
ii) Unsecured demand note of $24,000 to an entity dated
April 1995. The note bears interest at 10% per
annum and is due on February 28, 1996. The balance
includes $1,365 of accrued interest. 25,365
iii) Unsecured demand note of $10,000 to a stockholder.
The note is non-interest bearing and is due on
demand. 10,000
$ 61,007
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1995
(UNAUDITED)
NOTE 3 - EXCLUSIVE AGENCY RIGHTS, NET
On April 21, 1994, one of the founding shareholders executed an
exclusive agency representation letter agreement as agent of the
Company with Skoda pursuant to which the Company was appointed as
Skoda's exclusive sales agent in North, South and Central America
with the exception of the country of Peru. In connection with this
agreement, the Company is obligated to furnish Skoda with all
inquiries from potential purchasers and may not execute any
contracts or other agreements on Skoda's behalf without its written
consent. Skoda must provide the Company with all information and
materials normally associated with the sales effort, including
catalogues, product literature and descriptions, price lists and
the technical expertise and consultation of its staff, if necessary.
In order for the Company to maintain its exclusivity, it must
generate annual gross sales within the territory of at least
$15,000,000 at the close of the fifth year (April, 1999) after the
execution of the agreement. As consideration for the purchase of
these exclusive agency rights, the Company has issued 51,650 shares
of it's common stock to Skoda. Such stock has been assigned a value
of 50% of the private offering per share price of $2.50.
Accordingly, the Company has valued such exclusive agency rights at
$64,563 (51,650 x $1.25) which will be amortized on a monthly basis
over five (5) years. For the three months ended November 30, 1995,
the Company has recorded amortization expense of $3,228.
During October 1995 the Company purchased the exclusive rights to
market and sell Skoda products into the countries of China and South
Korea based upon the following terms:
South Korea
i. During the year 1996, sales to South Korea must be in the
amount of at least $2,400,000.
ii. During the year 1997, sales to South Korea must be in the
amount of at least $3,600,000.
iii. Each year thereafter, sales to South Korea must be in the
amount of at least $5,000,000.
The Company paid Skoda a one-time fee of $50,000 for the acquisition
of such exclusive rights.
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1995
(UNAUDITED)
NOTE 3 - EXCLUSIVE AGENCY RIGHTS, NET (Cont'd)
China
i. During the year 1996, sales to China must be in the amount of
at least US $3,000,000.
ii. During the year 1997, sales to China must be in the amount of
at least US $4,500,000.
iii. During the year 1998, sales to China must be in the amount of
at least US $6,000,000.
The Company paid Skoda a one-time fee of $100,000 for the
acquisition of such exclusive rights.
NOTE 4 - STOCKHOLDERS' EQUITY
a) Issuance of common stock for services
In conjunction with services provided to the Company, 180,000 shares
of common stock were issued to various parties during July 1995 as
consideration for consulting services rendered. At the time of
issuance, the stock was being privately offered at $2.50 per
share pursuant to the Company's private placement memorandum. Such
shares have been recorded at an assigned value equal to fifty
percent (50%) of the private offering of $2.50 per share.
In connection with recording the above transactions, the Company
recorded a consulting expense in the amount of $225,000 and
additional paid-in capital has been increased by $224,820 which
represents the excess of the fair market value of the related stock
issued over par.
b) Issuance of common stock for contribution of machinery and equipment
During September 1994, pursuant to the founding stockholder's
agreement, Skoda simultaneously contributed machinery and equipment
with an appraised value of $4,469,064 in exchange for 448,350 shares
of the Company's common stock. As a result, the Company increased
additional paid-in capital by $4,468,616 which represents the excess
of the assigned value of the machinery and equipment over the par
value of the common stock.
c) Issuance of common stock for exclusive agency rights
During September 1994, the Company issued 51,650 shares of its $.001
par value common stock to one of its founding shareholders, Skoda,
as consideration for the Company obtaining the rights to act as an
exclusive sales agent in North, South and Central America except for
Peru. Such shares have been assigned a value of 50% (fifty percent)
of the private offering share price of $2.50 per share.
Accordingly, the Company has valued such rights at $64,563 (51,650
x $1.25) which will be amortized on a monthly basis over five (5)
years. The Company has recorded amortization expense of $3,228 for
the three months ended November 30, 1995.
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1995
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY (Cont'd)
d) Confidential private placement memorandum
On June 1, 1995, the Company commenced and privately offered on a
best efforts basis 400,000 shares of its $.001 par value common
stock at $2.50 per share before deducting discounts and
commissions and non-accountable expenses aggregating up to 13% of
the gross offering price which is payable by the Company to
members of the National Association of Securities Dealers, Inc.
("NASD"), financial advisors, purchaser representatives, and
individuals legally entitled to receive such commissions. Such
offering of securities was for a period of sixty (60) days unless
extended by the Company for additional thirty (30) day extensions.
As of August 31, 1995 the Company sold 172,700 shares resulting in
gross proceeds of $431,750 before expenses of $71,848 which
includes discounts and commissions, non-accountable expenses and
other direct costs associated with the offering. The Company has
elected to extend this offering.
For the three months ended November 30, 1995, the Company sold an
additional 122,040 shares of its $.001 par value common stock
resulting in net proceeds of $233,932 after deducting offering costs
of $71,168 which comprised of discount and commissions, non
accountable expenses and other direct costs associated with the
offer.
In addition to above, the Company has authorized the issuance of
40,000 common stock purchase warrants to be sold to NASD members who
may offer and sell the Company's shares. Each warrant will entitle
the register holder to purchase one (1) share of common stock at
$3.00 per share subject to adjustment for a period of three (3)
years beginning April 1, 1996. As of November 30, 1995 no warrants
have been issued.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
a) Lease agreement
The Company leases its administrative office pursuant to signed
lease agreement commencing July 1, 1995 and expiring on June 30,
1997. Such leases require monthly payments of $3,500. Prior to
July 1, 1995 the Company maintained its administrative office on
a month to month basis, free of charge at the office of Worth.
Worth is an entity which the President of the Company is also a
50% shareholder.
Years ended August 31,
1996 $31,500
1997 35,000
$66,500
Included in general and administrative expenses is rent expense
which amounted to $10,500 for the three months ended November 30,
1995.
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1995
(UNAUDITED)
NOTE 6 - RELATED PARTY TRANSACTIONS
a) Accounts payable
At November 30, 1995, the Company had accounts payable totalling
$4,725 which was due to Skoda, one of its founding stockholder.
b) Notes receivables - Stockholder and related parties
From February 1995 to August 1995, the Company made loans at
various terms (See Note 2 for additional information). At
November 30, 1995 the notes amounted to $61,007, inclusive of
accrued interest, to a shareholder and to entities which such
shareholder is also an officer. Said shareholder is not an officer
or director of the Company.
c) Due from related party
During April and May 1995, the Company advanced a total of $12,500
to an entity which a stockholder of the Company is also an officer.
Said shareholder is not an officer or director of the Company. Such
loan is non interest bearing and it is due on demand. As of
November 30, 1995, such advances have not been repaid.
d) Acquisition of machinery and equipment
During September 1994, pursuant to the Company's founding
shareholder's agreement, Skoda contributed machinery and equipment
with an appraised value of $4,469,064 in exchange for 448,350 shares
of the Company's common stock.
e) Acquisition of exclusive agency rights
On April 21, 1994, the Company executed an exclusive agency
agreement with one of its founding shareholders, Skoda, pursuant to
which the Company obtained the right to act as Skoda's exclusive
sales agent in North, South and Central America with the exception
of the country of Peru. In consideration for the purchase of these
rights, the Company issued 51,650 shares of it's common stock to
Skoda.
During October 1995 the Company executed another exclusive agency
agreement with Skoda pursuant to which the Company obtained the
rights to act as Skoda's agent in China and Korea. In
consideration for the purchase of these rights, the Company paid
Skoda $150,000. (See Note 3 for additional information).
f) Accrued expenses
Included in accrued expenses at November 30, 1995 is $29,750 of
management services which is owed to an affiliate of the Company's
President and Secretary and $23,338 which represents the balance
due an affiliate for the purchase of it's customers list.
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED NOVEMBER 30, 1995
(UNAUDITED)
NOTE 6 - RELATED PARTY TRANSACTIONS (Cont'd)
g) Due to stockholder
Pursuant to the founding shareholder agreement entered on April 21,
1994, Double has agreed to advance funds to the Company for working
capital not to exceed $50,000. As of November 30, 1995 the Company
borrowed $36,196, which is non-interest bearing and due on demand.
h) Management fees
For the three months ended November 30, 1995 the Company recorded
$15,000 and $3,000, respectively, for management fees and travel
allowance to Worth, a founding stockholder. The Company's
President and Secretary is a 50% shareholder of Worth.
NOTE 7 - SUBSEQUENT EVENT
a) Acquisition of assets
Pursuant to a purchase agreement dated December 2, 1995 between the
Company and Worth, the Company acquired certain assets comprising of
supplier lists, customer lists, accounts, records, and sample
inventories necessary for the operations of Worth's Product Trading
Division.
As for consideration for such assets, the Company has agreed to pay
$150,000 and issue 150,000 shares of its $.001 par value common
stock. Such stock has been assigned a value of 50% of the private
offering per share price of $2.50. Accordingly, the Company has
valued such assets at a total of $337,500 comprising of $150,000 in
cash and $187,500 of common stock. As of November 30, 1995, the
Company has paid $126,662 of a total of $150,000 to Worth. Such
amount is included in other assets.
b) Non-competition agreement
On December 15, 1995, the Company entered into a non-competition
agreement with Worth. Pursuant to such agreement, Worth shall not
engage in any business in competition with the business carried on
by the Company for a period of three years. As compensation for
its agreement not to compete, Worth shall be paid a fee of $10 in
addition to other consideration payable under the purchase
agreement as discussed above.
c) Management agreement
On December 15, 1995 the Company and Worth entered into a management
agreement with an individual for a period of three years. Pursuant
to such agreement, the individual shall devote such time, attention
and efforts to management services as may be reasonably required by
the Company and Worth. The Company and Worth will pay such
individual an amount equal to twenty-five percent (25%) of the gross
profit from sales made by the Company. Such payments are payable
monthly after the collection of receivables from said sales.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the three month period ended November 30, 1995, the Company had
limited revenues of approximately $12,089. The Company remained in its
developmental stage and continued its Regulation D Rule 504 Offering.
Market research continued and lists of potential distributors for the
Company's products were compiled and studied by management. Updated
industry reports from various United States Embassies were received and
reviewed. Marketing brochures were prepared and printed and technical
workshops and meetings were held at the factory of Skoda Diesel in
Prague, Czech Republic. The Board of Directors studied proposals and
opportunities for multilateral product trading and established a product
trading division for the purpose of engaging in trade of industrial and
consumer products between Eastern Europe, United States and South
America. Samples of the Company's products were sent to several
locations. The Company entered into an exclusive agency agreement with
Skoda Diesel for the sale of its products within China and South Korea.
Consideration for this agency rights acquisition was $150,000.
Costs of goods sold for the three month period ended November 30, 1995 was
approximately 39% of sales. Management believes that Costs of Goods Sold
in the future will be a substantially higher percentage because the
limited revenue of this period was from product lines for resale which had
a very high gross margin but which will comprise only approximately 20% of
the future revenues of the Company.
Operating expenses for the period ended November 30, 1995 were
approximately $234,901. Management expects expenses to decrease once the
Company completes its developmental stage and begins the sale of products,
thereby eliminating many one-time expenses related to the research and
establishment of its markets. Operating expenses categories which
exceeded $5,000 for the period were: Amortization & Depreciation
$78,765; Freight for sample/products $26,639; Office rent $11,052;
Consulting $20,745; Legal & Accounting $26,487; Compensation & Salary
$18,000; Travel & lodging $20,358; Outside marketing services $8,904;
and Telephone & Facsimile $5,890.
Because the Company had not commenced operations during the quarter ending
11-30-94, there are no quarterly comparisons.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for the Company's investing activities for the three month
period ended November 30, 1995 was approximately $287,954. Management is
evaluating its current and projected cash needs compared to its continuing
financing activities to determine if such financing activities will be
sufficient to meet such needs. If the Company continues according to its
present plans, the Company will be required to obtain additional
financing or equity capital. There is no assurance that such financing or
equity capital will be available.
Positive cash flows from the Company's operating activities was due to the
fact that the Company was able to collect their receivables timely. It is
not anticipated to continue until the Company has established its
distributors within its sales territories, has received and shipped
orders, and has collected payment for such orders. The Company
acknowledges that there can be no assurance that it will be able to obtain
capital or financing until the time of such payment is received or that
such capital or financing will be available. In the event the Company is
unable to provide needed revenues to finance its ongoing operations or if
the Company does not receive additional capital, there could be a severe
adverse impact on the Company's future operations.
LIQUIDITY AND CAPITAL RESOURCES (Cont'd.)
Net cash provided by financing activities for the three months ended
November 30, 1995 was approximately $233,932. This increase in net cash
was attributable to the issuance of common stock. The Company collected
approximately $17,500 on its Notes Receivable from stockholders (non
officer or director) during the period ended November 30, 1995, and the
Company expects to continue the orderly liquidation of its Notes
Receivable.
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.
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
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.
SDC INTERNATIONAL, INC.
(Registrant)
Dated: May 22, 1996 By:/S/Ronald A. Adams
Ronald A. Adams, President
& principal financial officer