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, 1996
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) 738-9881
(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: 2,204,265 shares outstanding as of
November 30, 1996.
SDC INTERNATIONAL, INC.
INDEX
PART 1 - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
Balance Sheets November 30, 1996 (Unaudited)
and August 31, 1996 F-1
Statements of Operations (Unaudited)
for the three months ended November 30, 1996 and 1995 F-2
Statement of Stockholders' Equity (Unaudited)
for the three months ended November 30, 1996 F-3
Statements of Cash Flows (Unaudited)
for the three months ended November 30, 1996 and 1995 F-4
Notes to Financial Statements F-5 - F-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS F-9 - F-10
PART II - OTHER INFORMATION F-11
SDC INTERNATIONAL, INC.
BALANCE SHEETS
(Unaudited)
November 30, August 31,
1996 1996
ASSETS
Current assets:
Cash - restricted $ 81,686 $ 80,932
Accounts receivable 27,072 -
Inventory 31,310 31,310
Prepaid expenses 6,584 6,584
Notes receivables - stockholder
and related parties - 62,985
Total current assets 146,652 181,811
Machinery and equipment, net 4,127,238 4,204,581
Exclusive agency rights, net 155,509 166,237
Customer list, net 225,000 253,125
Other assets 16,508 29,464
Total assets $ 4,670,907 $ 4,835,218
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 788 $ 3,711
Accounts payable - related party 17,337 -
Accrued expenses 88,763 79,467
Note payable - short term 10,000 -
Due to stockholders 64,702 111,302
Total current liabilities 181,590 194,480
Commitments and contingencies (Note 4) - -
Stockholders' equity:
Common stock $.001 par value, authorized
10,000,000 shares, issued and outstanding
2,204,265 and 2,198,265 shares,
respectively 2,204 2,198
Additional paid-in capital 5,860,010 5,845,016
Accumulated deficit (1,372,897) (1,206,476)
Total stockholders' equity 4,489,317 4,640,738
Total liabilities and stockholders' equity $ 4,670,907 $ 4,835,218
See accompanying notes to financial statements.
SDC INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30,
(UNAUDITED)
1996 1995
Sales $ 27,072 $ 12,089
Cost of goods sold 17,337 4,725
Gross profit 9,735 7,364
Expenses:
Selling, general and administrative 41,758 138,136
Depreciation and amortization 117,152 78,765
Management fees 18,000 18,000
Total expenses 176,910 234,901
Loss from operations before other income
and provision for income taxes (167,175) (227,537)
Other income:
Interest income 754 2,435
Loss before provision for income taxes (166,421) (225,102)
Provision for income taxes - -
Net loss $ (166,421) $ (225,102)
Primary loss per share:
Loss from operations before other income
and provision for income taxes $ (.08) $ (.12)
Provision for income taxes $ - $ -
Net loss $ (.08) $ (.12)
Weighted average number of shares outstanding 2,204,265 1,848,222
See accompanying notes to financial statements
SDC INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
(UNAUDITED)
Additional Total
Common Stock paid-in Accumulated Stockholders'
Shares Amount capital Deficit Equity
Balances at September 1, 1996 2,198,265 $ 2,198 $ 5,845,016 $(1,206,476) $ 4,640,738
Sale of common stock 6,000 6 14,994 - 15,000
Net loss for the three months
ended November 30, 1996 - - - (166,421) (166,421)
Balances at November 30, 1996 2,204,265 $ 2,204 $ 5,860,010 $(1,372,897) $ 4,489,317
See accompanying notes to financial statements.
SDC INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30,
(UNAUDITED)
1996 1995
Cash flows from operating activities:
Net loss $ (166,421) $ (225,102)
Adjustments to reconcile net loss to net
cash used for operating activities:
Amortization and depreciation 117,152 78,765
Decrease (increase) in:
Accounts receivable (27,072) 537,280
Inventory - (12,043)
Other assets 12,000 -
Restricted cash (754) -
Increase (decrease) in:
Accounts payable (2,923) -
Accounts payable - related party 17,337 (372,175)
Accrued expenses 9,296 22,539
Net cash (used for) provided by
operating activities (41,385) 29,264
Cash flows from investing activities:
Acquisition of exclusive agency rights - (150,000)
Proceeds from collection of notes
receivable - related parties 62,985 15,993
Acquisition of customer list - (150,000)
Purchase of machinery and equipment - (1,947)
Other assets acquired - (2,000)
Net cash provided by (used for)
investing activities 62,985 (287,954)
Cash flows from financing activities:
Proceeds from issuance of note payable 10,000 -
Proceeds from stockholder 3,400 -
Proceeds from sale of common stock 15,000 305,100
Costs associated with private placement
memorandum - (71,168)
Repayment of loans from stockholder (50,000) -
Net cash (used for) provided by
financing activities (21,600) 233,932
Net decrease in cash - (24,758)
Cash at beginning of period - 49,677
Cash at end of period $ - $ 24,919
See accompanying notes to financial statements.
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.
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 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 August 31, 1996, included in the Company's Form
10-KSB, filed with the Securities and Exchange Commission.
NOTE 2 - 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, 1996 and 1995, the Company has recorded amortization expense of
$3,228 and $3,228, respectively.
In October 1995 the Company purchased the exclusive rights to market
and sell Skoda Diesel products into the countries of China and South
Korea The Company paid Skoda a one-time fee of $50,000 for the
acquisition of such exclusive rights in South Korea and a one-time
fee of $100,000 for the acquisition of such exclusive rights in China.
The newly acquired agency rights from China and Korea are being
amortized on a monthly basis over (5) five years. For the three
months ended November 30, 1996 and 1995, the Company recorded
$7,500 and $0, respectively, of amortization expense.
NOTE 3 - NOTES PAYABLE
Pursuant to a promissory note dated October 24, 1996, the
Company borrowed $10,000. The note bears interest at the prime
rate and is payable in 90 days from date of issuance.
NOTE 4 - 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 lease requires monthly payments of $3,500. Effective December,
1996, the Company terminated this lease. 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.
Effective January 1, 1997, the Company entered into a new lease
for a one year term. Such lease requires monthly payments of $3,000.
Included in general and administrative expenses is rent expense which
amounted to $10,500 for the three months ended November 30, 1996 and
1995.
b) 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. For the three months ended November 30, 1996, no payments
were made or are due to such individual.
c) Significant customers and vendors
i) For the three months ended November 30, 1996 and 1995, the
Company had one sale made during each three month period to
unrelated customers which accounted for 100% of the total
sales.
ii) For the three months ended November 30, 1996 and 1995, the
Company purchased 100% of its cost of goods sold from Double
Seal Ring, Inc. ("Double") one of its founding shareholders.
d) Concentration of credit risk
Due to its current limited sales, the Company has a high
concentration of credit risk until such transactions are completed.
The Company is actively seeking sales outside of the United States.
If such sales occur, the revenue and subsequent collections will be
subject to the fluctuations such sales generate, both from currency
and political changes. The Company's machinery and equipment is
located in the Czech Republic. The Company's primary source of
inventory is currently Skoda and as such, it is subject to Skoda's
risks of business and its continued financial health, as well as the
risks associated with foreign businesses, both from currency and
political changes.
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Cont'd)
e) 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 shall result in a finder's fee to Prime of two
percent (2%) of the gross sales price or ten percent (10%) of
the adjusted gross profit resulting from the sales. Such
payments are due 45 days after each quarter-annual calendar
period.
f) Dependence on Skoda
The Company's operations are dependent on Skoda since Skoda is
responsible for the manufacturing of all of the Company's products.
The Company faces risks of the inability to obtain products in the
event of production problems of Skoda due to labor problems,
governmental regulations, working capital deficiencies, political
unrest and other problems which may result in the inability of Skoda
to fulfill orders of the Company.
NOTE 5 - RELATED PARTY TRANSACTION
a) Accounts payable
At November 30, 1996, the Company had accounts payable totalling
$17,337 which was due to Double, one of its founding stockholders.
b) Notes receivables - Stockholder and related parties
From February 1995 to August 1995, the Company made loans at various
terms . As of August 31, 1996 the balance amounted to $62,985,
inclusive of accrued interest, from a shareholder and to entities
which such shareholder is also an officer. Said shareholder is not
an officer or director of the Company. These amounts were repaid
during October 1996.
c) Accrued expenses
Included in accrued expenses at November 30, 1996 and August 31, 1996
is $46,182 and $35,354, respectively of management services which are
owed to an affiliate of the Company's President and Secretary.
d) Due to stockholder
Included in due to stockholder at November 30, 1996 and August 31,
1996 is $18,252 and $18,252, respectively which represents the
balance due an affiliate for the purchase of its customer list and
$46,450 and $93,050, respectively due the Company's President and
Secretary for funds advanced to the Company.
e) Management fees
For the three months ended November 30, 1996 and 1995 the Company
recorded $18,000 and $18,000 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 6 - SUBSEQUENT EVENTS
a) Letter's of intent
(i) The Company entered into a Letter of Intent dated August 23,
1996 with Krizik, a.s. ("Krizik"), a Company organized and
registered in the Slovak Republic, to form a subsidiary to
market, finance and sell Krizik's products (meters and
related products) effective January 1, 1997. As of November
30, 1996, the Company is continuing its negotiations with
Krizik.
(ii) The Company has entered in to a Letter of Intent dated
December 3, 1996 with Golden Grove Business, Inc. ("GGB") to
merge GGB, and its operations as the authorized agent
for Tantra, a.s. in Central and South America, and the
Caribbean, into the Company.
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT PLANS
Negotiations with Krizik, a.s., are continuing. Krizik is an ISO9000
certified manufacturer of electrical flow meters and related devices,
located in Slovak Republic. The negotiations are based upon the binding
Letter of Intent signed by Krizik and SDC providing for the marketing,
sales, and order/inventory financing to be provided by SDC. If an
agreement is finalized, revenues are estimated to be $15,000,000 to
$18,000,000 per year, for the fiscal year beginning September, 1997.
Discussions with GGB, Inc., the exclusive South American distributor of
Czech-made TATRA heavy duty trucks continue. It is planned that SDC will
acquire GGB, thereby acquiring the marketing rights to TATRA products, as
well as acquiring marketing and management personnel experienced in that
marketplace.
Restructuring changes of marketing and some management personnel within
Skoda have caused SDC to delay its marketing activities. SDC must await
new marketing information and product prices before proceeding to
develop its own market programs. This delay, though possibly positive
in the long-term, has a negative effect upon SDC's operations in the
short term.
There can be no assurances that any of the matters discussed above will
result in positive results for the Company.
RESULTS OF OPERATIONS
Three months ended November 30, 1996 as compared to three months ended
November 30, 1995
For the three month period ended November 30, 1996, the Company reported
revenues of $27,072. The Company has received conditional orders from
Skoda customers totalling approximately $1,300,000; however, these orders
have not been shipped. The Company has posted $80,000 of performance
bonds for orders received. Discussions have been made and are continuing
with sources for export and sales financing which could help the Company
develop its markets and customers. The Company is discussing with Skoda,
a.s., the Czech company which controls Skoda, possibilities of expanding
markets and products on a global non-exclusive basis rather than
only on the exclusive North and South America territory currently in
effect. This would allow the Company to market the products in response
to inquiries received from other territories.
Costs of goods sold for the three month period ended November 30, 1996
was approximately 64% of sales. Management believes that costs of goods
sold in the future may be at this percentage which is deemed acceptable
for this type of sales transactions, i.e., purchase and resale of spare
parts.
Operating expenses for the three month period ended November 30 1996 were
approximately $176,910. Operating expenses in the quarter ended November
30, 1996, without including amortization and depreciation, decreased
approximately 60% compared to the same operating expenses during the
previous first quarter ending November 30, 1995. Management does not
expect operating expenses (non-depreciation and non-amortization) to
continue to decrease. Operating expense categories which exceeded
$5,000, for the three month period ending November 30, 1996 were;
amortization & depreciation $117,152; office rent $10,500; compensation
& salary $18,000; travel & lodging $11,638; and stock related costs of
$8,197.
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Cont'd)
Three months ended November 30, 1996 as compared to three months ended
November 30, 1995 (Cont'd)
Operating expenses for the period ended November 30, 1995 were $234,901.
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.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for the Company's operating activities for the three
month period ended November 30, 1996 was approximately $41,000. Net cash
provided by the Company's investing activities for the three month period
ended November 30, 1996 was approximately $63,000. 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, 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.
Negative cash flows from the company's operating activities are
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
may encounter difficulties in financing the purchases of inventory
necessary to complete 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.
Net cash used for financing activities for the three month period ended
November 30, 1996 was approximately $21,600. This decrease in net cash
was attributable to the payment on a loan from stockholder of
$50,000 and proceeds from notes payable to related and unrelated
parties of $13,400 and sale of common stock of $15,000.
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 Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SDC INTERNATIONAL, INC.
May 13, 1997 BY:/s/Ronald A. Adams
Ronald A. Adams, President
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 May 13, 1997
Ronald A. Adams, Director and
President (Principal Executive
Officer and Principal Financial
Officer)
/s/Henry s. Green, Jr. May 13, 1997
Henry S. Green, Jr., Director