U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
Commission File Number: 0-27382.
SC&T International, Inc.
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(Exact name of small business as specified in its charter)
Arizona 86-0737579
----------------- -------------------
(State or other jurisdiction of (IRS Employer Identification)
incorporation or organization)
3837 E. LaSalle Street, Phoenix, Arizona 85040
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(Address of principal executive offices)
(602) 470-1334
---------------------------
(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) 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 X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 5,186,093 shares of Common
Stock, par value $0.01 per share.
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
1
<PAGE>
SC&T INTERNATIONAL, INC.
------------------------
AND SUBSIDIARY
--------------
Page
Part I Financial Information
Item 1 Financial Information
Consolidated Balance Sheet as of September 30, 1996 3
Consolidated Statements of Operations for the Three Months
Ended September 30, 1996 and September 30, 1995 5
Consolidated Statement of Shareholders' Equity for the Three
Months Ended September 30, 1996 6
Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 1996 and September 30, 1995 7
Notes to Consolidated Financial Statements 9
Item 2 Management's Discussion and Analysis 15
Part II Other Information
Item 1 Litigation 19
Item 2 Change in Securities 19
Item 3 Defaults Upon Senior Securities 19
Item 4 Submission of Matters to a Vote of Security-Holders 19
Item 5 Other Information 19
Item 6 Exhibits & Reports on Form 8-K 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SC&T INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 1996
ASSETS
Current assets:
Cash, including $49,625 of restricted cash $ 7,634,391
Receivables (Note 2) 1,262,503
Inventory (Note 3) 2,151,420
Other current assets 148,924
-----------
Total current assets 11,197,238
Product development costs, less accumulated amortization of $34,147 305,147
Property and equipment, less accumulated depreciation of $123,479 423,685
Other assets 75,678
-----------
$12,001,748
===========
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
SC&T INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, bank (Note 4) $ 86,413
Accounts payable 846,840
Accrued expenses 145,179
------------
Total current liabilities 1,078,432
------------
Commitments and contingencies (Note 5) --
Shareholders' equity:
Common stock, $0.01 par; authorized 25,000,000 shares;
5,386,093 shares issued and 5,186,093 shares
outstanding (Note 7) 53,861
Series A preferred stock, $0.01 par; authorized 5,000,000
shares; 1,018 shares issued and outstanding (Note 8) 10
Additional paid-in capital 15,087,730
Treasury stock - at cost, 200,000 shares (Note 6) (29,415)
Currency translation (35,701)
Accumulated deficit (4,153,169)
------------
Total shareholders' equity 10,923,316
------------
$ 12,001,748
============
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
SC&T INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1996 and 1995
1996 1995
----------- -----------
Net sales $ 1,727,947 $ 1,037,707
Cost of goods sold 1,178,717 645,006
----------- -----------
Gross profit 549,230 392,701
Selling, general and administrative expenses:
Payroll and payroll taxes 229,062 159,803
Selling and promotion 262,893 114,230
Office and administrative 149,432 113,845
Research and development 33,013 4,951
Development cost amortization 26,974 27,144
Consulting fees 36,653 23,677
Other 79,080 77,485
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817,107 521,135
----------- -----------
Loss from operations (267,877) (128,434)
Other income (expense):
Interest income 95,655 --
Interest expense (17,642) (63,771)
----------- -----------
Loss before income tax (189,864) (192,205)
Income tax expense -- --
----------- -----------
Net loss $ (189,864) $ (192,205)
=========== ===========
Net loss from operations per common share $ (0.05) $ (0.03)
=========== ===========
Net loss per common share $ (0.04) $ (0.05)
=========== ===========
Weighted average common shares outstanding 4,961,564 3,797,199
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SC&T INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Three Months Ended September 30, 1996
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional Treasury Stock
------------------ ---------------- paid-in -------------------- Currency Accumulated
Shares Amount Shares Amount capital Shares Amount translation deficit
--------- ------- ----- ----- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 5,085,415 $50,854 1,051 $ 11 $15,097,557 (200,000) $(29,415) $(23,271) $(3,963,305)
Preferred stock issuance costs (20,570)
Issuance of common stock 9,166 92 13,657
Preferred stock conversion 291,512 2,915 (33) (1) (2,914)
Currency translation (12,430)
Net loss (189,864)
--------- ------- ----- ----- ----------- -------- -------- -------- -----------
Balance at September 30, 1996 5,386,093 $53,861 1,018 $ 10 $15,087,730 (200,000) $(29,415) $(35,701) $(4,153,169)
========= ======= ===== ===== =========== ======== ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
SC&T INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (189,864) $ (192,205)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 50,534 72,600
(Increase) decrease in accounts receivable (531,423) 215,083
Decrease in allowance for doubtful accounts -- (36,000)
Increase in inventories (98,325) (231,346)
(Increase) decrease in advances on purchases of
inventory (621,014) 45,521
Increase in other current assets (73,981) (53,849)
Increase in other assets (38,902) (43,437)
Decrease in accounts payable (246,971) (318,533)
(Decrease) increase in accrued expenses (65,404) 37,407
----------- -----------
Net cash used in operating activities (1,815,350) (504,759)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (217,560) (12,876)
Development costs (122,113) (43,157)
Loans to related parties 9,374 --
----------- -----------
Net cash used in investing activities (330,299) (56,033)
----------- -----------
Cash flows from financing activities:
Currency translation (12,430) --
Net borrowings under line of credit agreement 7,885 --
Principal payments on short-term debt (5,556) --
Principal payments on long-term debt (1,266) (6,253)
Proceeds from note payable, related party -- 875,000
Net repayments on related party loans (29,166) --
Net borrowings on notes payable, bank -- 95,227
Preferred stock issuance costs (20,570) --
Repayments to factor (121,368) (197,174)
----------- -----------
Net cash (used in)provided by financing activities (182,471) 766,800
----------- -----------
Net (decrease)increase in cash (2,328,120) 206,008
Cash, beginning of period 9,962,511 289,707
----------- -----------
Cash, end of period $ 7,634,391 $ 495,715
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE>
SC&T INTERNATIONAL, INC.
AND SUBSIDIARY
Supplemental Disclosure of Cash Flow Information
1996 1995
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Interest paid $ 17,642 $ 63,771
Supplemental Information of Noncash Investing and Financing Activities
On September 12, 1995, the Company issued 87,500 shares of Common Stock
associated with short-term bridge financing raised with a private placement of
8% Subordinated Debentures (Note 7).
The accompanying notes are an integral part of these consolidated
financial statements.
8
<PAGE>
SC&T INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1. Interim financial reporting:
The accompanying unaudited Consolidated Financial Statements for SC&T
International, Inc. (the "Company") have been prepared in accordance with the
generally accepted accounting principles for interim financial information and
the 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, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations, and cash flows for the periods
presented have been made. The results of operations for the three month period
ended September 30, 1996 is not necessarily indicative of the operating results
that may be expected for the entire fiscal year ending June 30, 1997. These
financial statements should be read in conjunction with the Company's Form
10-KSB filed with the Securities Exchange Commission on September 27, 1996.
Reclassification:
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. Receivables:
Receivables at September 30, 1996 consist of the following:
Trade accounts receivable $1,233,374
Related party (Note 6) 55,129
Allowance for returns and doubtful accounts (26,000)
----------
$1,262,503
==========
3. Inventory:
Inventory at September 30, 1996 consists of the following:
Finished goods $1,398,377
Advances on purchases of inventory 808,407
Reserve for obsolescence (55,364)
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$2,151,420
==========
9
<PAGE>
SC&T INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
3. Inventory, Continued:
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method. Advances on purchases of
inventory are for inventory currently being manufactured or anticipated to be
manufactured in the near future. Reserve for obsolescence exists due to
continual changes in the consumer electronic products industry.
4. Notes payable, bank:
Notes payable, bank consist of the following:
The Company has a line of credit with a bank in $ 24,056
Arizona secured by a CD. The line of credit is used
to back international letters of credit issued to
factories that manufacture the Company's products.
The Company has a line of credit due on demand with a
bank in Belgium at a variable rate of interest of
approximately 11.5%. Borrowings under the line of
credit are collateralized by substantially all of the
assets of the Belgian subsidiary. 28,057
The Company has a second line of credit with a bank
in Belgium at a variable rate of interest that
fluctuates based on the transaction. The bank
advances approximately 93% of the specific invoices.
Repayment is due 10 days after the due date of the
accounts receivable invoice. Borrowings under this
line of credit are collateralized by substantially
all of the assets of the Belgian subsidiary. 34,300
----------
$ 86,413
==========
5. Commitments and contingencies:
Operating leases:
The Company leases an office and warehouse from an unrelated third
party under an operating lease which expires in August 1997. Under the lease,
the monthly rental is approximately $4,900, and the Company is responsible for
certain expenses. In October 1996, the Company purchased approximately 1.24
acres of land located at the Scottsdale Airpark in Scottsdale, Arizona. The
Company is negotiating an agreement to build warehouse facilities and executive
offices on this site.
10
<PAGE>
SC&T INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
5. Commitments and contingencies, Continued:
The Company leased its office location in Belgium through April 30,
1996 from a former director, who was a shareholder and owned 50% of the building
where the office was located, for a monthly rental of approximately $3,700. The
Company exercised its cancellation rights described in the lease and relocated
to a temporary facility, effective May 1, 1996. As of September 1, 1996, the
Belgian office relocated to Gent, Belgium. The new operating lease provides for
a monthly rental rate of approximately $1,600 per month, with a 60 day
cancellation clause effective after December 31, 1996.
The Company leases a corporate apartment from an unrelated third party
under an operating lease which expires December 31, 1996. Under the lease, the
monthly rental is approximately $700, and the Company is responsible for certain
expenses.
The Company leases office equipment under three operating leases
requiring monthly payments of approximately $500. The leases expire in January
1997, November 1997, and November 1998.
Future minimum rental payments required under operating leases that
have initial or remaining noncancellable lease terms in excess of one year as of
September 30, 1996 are as follows:
1997 $ 69,000
1998 3,000
1999 1,000
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$ 73,000
==============
Total rental expenses for the three months ended September 30, 1996 and
September 30, 1995 were approximately $19,900 and $ 25,900, respectively.
Promotional Programs:
In October 1996, SC&T Racing Enterprises, Ltd. entered into a $605,000
agreement to sponsor a Formula Atlantic Team in the 1997 Player's Toyota Series
races. The Company intends to use the racing team to promote its products and
increase brand awareness throughout the 1997 selling season.
Pending or threatened litigation:
The Company, from time to time, is a party to various legal proceedings
which are incidental to its business. In the opinion of management, the ultimate
resolution of these proceedings will not have a materially adverse affect on the
Company's financial position or results of operations.
11
<PAGE>
SC&T INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
5. Commitments and contingencies, continued:
The Company is currently suing a competitor, who competes in the same
industry. Any potential benefit of this lawsuit is not reflected in these
financial statements.
Inventory:
At September 30, 1996, the Company has outstanding purchase commitments
for inventory acquisitions of approximately $ 4,284,000. The Company has
advanced funds against the purchase commitments totaling $808,000.
6. Related party transactions:
Related party receivables:
The Company has a related party receivable from its President, who is
also a shareholder. The note receivable bears interest at 8.25% annually. The
repayment terms provide for 36 principal payments of $500 per month, with a
balloon payment of $33,814 plus interest due at the end of the term. The
receivable balance was $42,400 at September 30, 1996, of which $6,000 is current
and $36,400 is long-term.
The Company also advances funds to employees for traveling purposes.
These advances are due on demand and are non-interest bearing. The balance at
September 30, 1996 was approximately $12,400.
Treasury stock:
In June 1996, the Company entered into a separation and settlement
agreement with the former General Director of the Belgian subsidiary, whereby
the former General Director resigned as an officer, director, and employee of
the Company. Under the terms of the agreement, the former General Director
received $29,415. In addition, the former General Director forfeited 200,000
shares of common stock of the Company owned by him on the date of the agreement.
Upon compliance with the terms of the agreement, 25,000 shares of common stock
may be issued to the former General Director.
Employment agreement:
In September 1995, the Company entered into an employment agreement
with its President, who is also a shareholder, for a period of five years. The
agreement provides for an annual salary of $104,000 and contains certain
provisions regarding the repurchase of the President's stock and guaranteed
salary payments.
12
<PAGE>
SC&T INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
6. Related party transactions, Continued:
Short-term bridge financing:
In December 1995, the Company used approximately $1,875,000 of the
proceeds from its initial public offering to repay two short-term bridge
financing arrangements with shareholders and all accrued interest associated
with the debt.
7. Issuance of common stock:
In August and September of 1996, 33 shares of preferred stock were
converted into 291,512 shares of common stock. At the conversion price on
October 23, 1996, excluding the effect of 8% accretion, an additional 24,238,095
shares of common stock are issuable upon conversion of the remaining 1,018
shares of Series A Preferred Stock subject to a vote of shareholders to increase
the Company's authorized share capital.
In January 1996, the Company issued 67,500 Redeemable Common Stock
Purchase Warrants for which the Company received cash of approximately $6,750.
During the quarter ended December 31, 1995, the Company completed a
public offering of Common Stock. The Company received net proceeds of
approximately $3,615,000 and issued a total of 900,000 shares of Common Stock.
The Company also issued 450,000 Redeemable Common Stock Purchase
Warrants. Each Warrant represented the right to purchase one-half share of
Common Stock at a price of $7.00 per share, subject to adjustment under certain
circumstances. The Warrants expire three years from December 1995. Each warrant
is immediately exercisable. The Warrants are redeemable by the Company for $0.05
per Warrant upon 30 days notice mailed within 20 days after the closing bid
price of the Common Stock has equaled or exceeded $8.00 per share for a period
of 20 consecutive trading days. The Company received cash of approximately
$45,000 for the Purchase Warrants.
In October 1995, the Company increased its authorized share capital to
25,000,000 shares of common stock and authorized 5,000,000 shares of preferred
stock.
During the quarter ended September 30, 1995, the Company completed a
private placement for short-term bridge financing of 8% Subordinated Debentures,
due at the earlier of September 30, 1996, or upon completion of the offering.
The Company issued 87,500 shares of Common Stock at $1.00 per share to obtain
the short-term bridge financing.
In September 1995, the President was issued 15,822 shares of Common
Stock at a value of $1.00 per share for past services provided to the Company.
13
<PAGE>
SC&T INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
8. Issuance of preferred stock:
In June 1996, the Company issued 1,051 shares of Series A Preferred
Stock, $0.01 par value per share, for $10,000 per share with an accretion rate
of 8% per annum up to the date of conversion. The Company received net proceeds
of approximately $9,669,000 for the 1,051 shares. The shares may be converted to
Common Stock at a conversion price which shall be the lesser of $7.75 per share
or 85% of the average closing bid price of the Company's Common Stock for the
ten trading days preceding the conversion date. The Series A Preferred Stock is
converted as follows: one-third of the shares of Series A Preferred Stock on or
subsequent to August 20, 1996; one-third of the shares on or subsequent to
September 19, 1996; and the remaining shares on or subsequent to October 19,
1996. All conversions are subject to the Company's right of redemption.
The Series A Preferred Stock will bear no dividends and have no voting
rights except as otherwise required by Arizona statute.
Upon dissolution of the Company the holders of Series A Preferred Stock
are entitled to distributions in the sum of the original Series A issue price
for each outstanding share, plus 8% of the original Series A issue price per
annum since purchase. At any time commencing 12 months and one day after the
last closing date, the Company shall have the right to redeem any or all of the
Series A Preferred Stock subject to certain conditions set forth in the
Certificate of Designation.
9. Significant customers:
There were two significant customers which accounted for approximately
17% and 23% of the Company's total revenues for the three months ended September
30, 1996. The Company had one significant customer which accounted for
approximately 25% of the company's total revenues for the three months ended
September 30, 1995. The accounts receivable balance for these customers totaled
approximately $384,660 and $112,125 at September 30, 1996 and 1995 respectively.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
SC&T International, Inc. (the "Company") was formed in June 1993. The
Company develops and markets accessory and peripheral products for the
multimedia, interactive, and communication segments of the PC industry. The
Company's products include fully-integrated multimedia stereo keyboards, CD-ROM
storage systems, various after market equalizer/amplifiers, sound enhancement
products, sub-woofer sound systems, PC volume controllers, CD-ROM audio cables,
and a line of PC and video arcade racing wheels for SEGA, Nintendo, Sony
Playstation and IBM-PC's.
Since July 1993, the Company's monthly revenue has grown from
approximately $8,000 to approximately $718,000 in September, 1996. On December
31, 1994, the Company purchased SC&T Europe, a marketing and distribution
company located in Antwerp, Belgium. Revenue from SC&T Europe represented 29% of
the Company's consolidated revenue for the three months ended September 30,
1996. SC&T Europe's revenue from products other than the Company's products
represented approximately 11% of the Company's consolidated revenue for the
three months ended September 30, 1996.
Despite the expansion in the number of customers and the corresponding
increase in revenue since commencing operations, the Company's total operating
expenses have exceeded revenue, resulting in a net loss of approximately
$189,800 for the three months ended September 30, 1996. The Company's primary
costs are for research and development, tooling for new products, inventory,
trade shows, and selling and promotion activities. The Company expects these
costs to increase in connection with the anticipated expansion of sales. In
addition, operating results may be influenced by factors such as the demand for
the Company's products, the timing of new product introductions by both the
Company and its competitors, pricing by both the Company and its competitors,
inventory levels, the Company's ability to develop and market new products, the
Company's ability to manufacture its products at high quality levels and at
commercially reasonable costs, the timing and levels of sales and marketing
expenditures, and general economic conditions.
15
<PAGE>
Results of Operations of the Company for the Three-Month Periods Ended September
30, 1996 and 1995
Net Sales
Net sales for the three months ended September 30, 1996 increased to
approximately $1,728,000 or approximately $690,000 more than net sales for the
three months ended September 30, 1995. In addition, the Company has a backlog of
orders totaling approximately $1,347,000 at September 30, 1996, and
approximately $1,633,000 as of November 6, 1996. In comparison, the Company had
no backlog of orders as of September 30, 1995. This increase resulted from a
variety of factors, including growing acceptance of the Company's products in
the marketplace, a broadening of the Company's distribution channels and the
expansion of the Company's overall product lines. Approximately $184,000 of the
Company's net sales during the three months ended September 30, 1996 represents
sales by SC&T Europe of products other than the Company's products.
Gross Profit
The Company's gross profit percentage decreased from 38% for the three
months ended September 30, 1995 to 32% for the three months ended September 30,
1996. Gross profit margins are affected by several factors, including the mix of
sales between the Company's products, which typically sell at gross profit
margins ranging from 25% to 40%. The Company anticipates that new products will
initially sell at higher profit margins. However, there can be no assurance that
such margins will be maintained over the life of the product.
Payroll and Payroll Taxes
The Company's payroll and payroll tax expense increased from
approximately $160,000 in the three months ended September 30, 1995 to
approximately $229,000 in the three months ended September 30, 1996, or
approximately 43%. Although the total dollar amount increased, payroll and
payroll tax expense decreased as a percentage of sales, from 15% for the three
months ended September 30, 1995 to 13% for the three months ended September 30,
1996. The Company is required to employ a base staff of qualified personnel to
maintain its operations.
Selling and Promotion
The Company's selling and promotion expenses increased from
approximately $114,000 in the three months ended September 30, 1995 to
approximately $263,000 in the three months ended September 30, 1996, or a
increase of approximately 131%. This represents an increase in selling and
promotion expenses, as a percentage of sales from 11% for the three months ended
September 30, 1995 to 15% for the three months ended September 30, 1996. A
portion of these expenses were utilized to continue promoting and creating
packaging for new products in addition to exhibiting the Company's products at
several trade shows, in an effort to expand their brand name awareness and
market penetration.
16
<PAGE>
Office and Administration
The Company's office and administrative expenses increased from
approximately $114,000 in the three months ended September 30, 1995 to
approximately $149,000 in the three months ended September 30, 1996, or
approximately 31%. However, as a percentage of net sales, office and
administrative expenses decreased from 11% for the three months ended September
30, 1995 to 9% for the three months ended September 30, 1996. A portion of this
reduction is due to the Company's continued efforts to reduce operating
overhead.
Research and Development
Expenditures for research and development increased from approximately
$5,000 in the three months ended September 30, 1995 to approximately $33,000 for
the three months ended September 30, 1996. The Company's expenditures for
research and development vary from period to period depending upon the number of
products under development and the stage of the development and vary as a
percentage of sales depending upon sales achieved in that period.
Development Cost Amortization
Development cost amortization remained constant at approximately
$27,000 for the three months ended September 30, 1995 and September 30, 1996.
Development cost amortization represents amortization of costs associated with
development of new products. Such costs are amortized over a 12 month period
commencing with the first sale of the product.
Consulting Fees
Expenditure for consulting fees increased from approximately $24,000
for the three months ended September 30, 1995 to $37,000 for the three months
ended September 30, 1996, or approximately 54%.
Net Loss
As a result of the factors described above, the Company's loss from
operations increased from approximately $128,000 in the three months ended
September 30, 1995 to approximately $268,000 in the three months ended September
30, 1996. However, the Company's net loss decreased from approximately $192,000
in the three months ended September 30, 1995 to approximately $190,000 in the
three months ended September 30, 1996.
Net Loss Per Share
Net loss per share from operations increased from $0.03 for the three
months ended September 30, 1995 to $0.05 for the three months ended September
30, 1996.
Net loss per share decreased from $0.05 for the three months ended
September 30, 1995 to $.04 for the three months ended September 30, 1996. The
improvement in net loss per share is due primarily to an increase in interest
income, a decrease in interest expense, and the effect of additional shares of
17
<PAGE>
Net Loss Per Share, continued
common stock issued in connection with the Company's private placements and
initial public offering in December 1995 and June 1996, respectively.
Liquidity and Capital Resources
As a result of the Company's initial public offering, and its private
placement of Series A Preferred Stock in June 1996, the Company's working
capital improved to approximately $10,119,000 at September 30, 1996. The Company
is required to pay the costs of stocking inventory before the Company receives
orders and payment from its customers. Typically, the Company's customers do not
pay the Company for its products until approximately 60 days following delivery
and billing. As a result, the receipt of cash from operations typically lags
substantially behind the payment of the costs for purchase and delivery of the
Company's products.
Through July 1996, the Company financed operations by factoring its
United States receivables. Historically, the Company's European subsidiary
financed operations through a line of credit of approximately $182,000
denominated in Belgian francs. In addition, to raise funds to meet its expenses,
the Company obtained inventory financing in April and May 1995 for an aggregate
of $1,000,000, completed a private placement in April 1995 of $1,500,000 for
2,000,000 shares of Common Stock, completed a private placement in September
1995 of $875,000 of 8% Subordinated Debentures. In December 1995, the Company
used approximately $1,875,000 of the $4,500,000 gross proceeds of its initial
public offering to repay the inventory financing and the 8% Subordinated
Debentures. In June 1996 the Company received gross proceeds of $10,510,000 for
an issuance of 1,051 shares of Series A Preferred Stock. The preferred
shareholders earn 8% accretion per annum up to the date of conversion. The
Company is currently negotiating to establish a revolving line of credit for
it's U.S. operations.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM I. LITIGATION
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
19
<PAGE>
SIGNATURES
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated.
Signature Capacity Date
--------- -------- ----
SC&T INTERNATIONAL, INC.
/s/ James L. Copland President, Treasurer, November 12, 1996
- ------------------------- Chairman of the Board
James L. Copland and Chief Executive Officer
/s/ Timothy J. Stocker Vice President of Finance November 12, 1996
- -------------------------
Timothy J. Stocker
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