U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended August 31, 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 (Zip code)
executive offices)
Registrant's telephone number (817) 738-8636
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001
(Title of class)
<PAGE>
Check whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(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 [ ] No [X]
Check if no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and
no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB. [ ]
The aggregate market value of the voting stock on August
31, 1996 (consisting of Common Stock, $0.001 par value per
share) held by non-affiliates was approximately $2,321,427
based upon the average bid and asked prices for such Common
Stock on said date ($3.50), as reported by a market maker. On
such date, there were 2,198,265 shares of the Registrant's
Common Stock outstanding.
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
SDC International, Inc., (hereinafter referred to as the
"Company") is a Delaware corporation formed in June, 1994. It
currently acts as an exclusive distributor of Skoda engines in
North, South and Central America, China, and South Korea, under
an exclusive agency agreement purchased from Skoda Diesel, a.s.
("Skoda"). Skoda 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. Skoda Diesel's name was changed during 1996 to
"Diesel, a.s.", and the product tradename remains "Skoda
Diesel". Also, the Company has plans and is in negotiations to
market and sell manufactured industrial products of other
companies located within Eastern Europe.
The Company offers for sale a broad range of engines in
several sizes and capacities. Its products have application in
several markets including electrical power production and co-
generation systems, locomotive engines, pump stations, direct
drives for industrial engines, oil and gas drilling equipment,
and full power systems for use in hospitals, factories,
commercial and governmental facilities. The products
manufactured by Skoda and marketed by the Company are
especially important in the lesser developed countries seeking
to build infrastructure sufficient to support economic growth
and development.
The Company entered into an exclusive agency agreement
with Skoda dated April 21, 1994 under which it is appointed
Skoda's exclusive agent in North, Central and South America for
the marketing and sale of products of Skoda. The agreement
provides that for the agreement to be not cancellable by Skoda,
sales made within the foregoing territory shall be at least
$15,000,000 during the fifth year after execution of the
agreement. The Company, also, has an agreement as the agent of
Skoda Diesel for the countries of China and South Korea. During
1996, a twelve month extension for all agreements between Skoda
and the Company was issued, thereby extending the April 20,
1999 agreement provisions to April 20, 2000.
Together with soliciting purchasers of its products, the
Company's technical personnel work closely with the potential
distributors as well as with end users, their engineers, and
<PAGE>
consultants to design the appropriate system to best address
specific needs. The Company is the intermediary between the
Skoda factory and the customer, facilitates the delivery of the
equipment by processing the necessary documentation involved in
the importation of heavy equipment, arranges customer financing
and leasing of the equipment, and arranges for proper service
and technical support needed for the equipment's operation.
Skoda, a manufacturer of heavy industrial engines and
machinery, was formed in Czechoslovakia in 1899, and is one of
the founding shareholders of the Company. Until recently
privatized, Skoda was owned and controlled by the State and,
from 1945 when Czechoslovakia came under control of Russia and
the Communist Party, Skoda's products were made and distributed
primarily into communist-controlled countries in Eastern Europe
and the U.S.S.R.
Despite its domination and control by the Communists after
World War II, and through its privatization in 1991, Skoda has
maintained a high standard of technical expertise and design in
its product line. The emerging markets, especially those with-
in Central and South America, areas of the Company's primary
concentration, seek electrical power systems, generating, and
co-generating equipment as that offered by the Company, and the
Company believes it will remain competitive so long as its
production wage rates remain stable relative to those of its
competitors, whose production rates are much higher. Products
of the Company match the technical expertise and versatility of
competitors, while offering substantially lower costs. The
Company's products meet all known regulations in the areas of
its sales. The Company employs five persons, two full-time.
Until new products of other manufacturers are marketed by
the Company, the Company is dependent upon Skoda Diesel for its
products. As such, the Company faces risk of the inability to
obtain products in the event of production problems at 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 and over which the Company has no control. In the
event Skoda was unable to fulfill the Company's orders, the
Company might have to suspend its business until such supply
problem was corrected by Skoda or alternative suppliers were
located, none of which can be assured. Although the Company
pays Skoda in U.S. dollars, currency fluctuations may adversely
affect the prices Skoda charges the Company. The Company's
sales are made in U.S. dollars but currency fluctuations may
make its prices non-competitive to its customers. Also, the
<PAGE>
Company's competition includes companies larger than and with
greater resources than those of the Company. There is also the
potential for legal and political instability in the Czech
Republic which may result in a loss of the Company's assets
located there.
The Company was formed by Skoda Diesel, Double Seal Ring
Company, Inc., and Worth Capital Group, Inc., now known as WCG
Holdings, Inc.) with the view toward introducing and marketing
the Skoda line of engines and related products in the area of
its exclusive agency agreement and, also, globally, where it
holds non-exclusive agency rights. Skoda, with a long history
of quality manufacturing and technical expertise, combined with
Double Seal Ring Company, a U.S. manufacturer of industrial
piston rings which are important components of all diesel/gas
engines, and Worth Capital Group, whose business involves world
wide marketing sales and financing of a variety of products, to
form SDC International, Inc.
Skoda Diesel, a.s., founded in 1899 in the Czechoslovakia,
has produced hundreds of diesel locomotives and thousands of
diesel and gas engines. Its products meet or exceed the most
demanding technical requirements. Among the shareholders of
Skoda Diesel is Skoda Plzen, a.s., one of the largest producers
of steam and turbine generating systems in the world. With
Skoda's impressive lineage and with the reputation of the Czech
Republic as one of the foremost industrial nations of the
world, the Company's sales efforts are greatly enhanced.
Double Seal Ring Company, Inc., is a privately held Texas
manufacturer of industrial piston rings. For more than eighty
years, Double Seal has worked with and supplied its products to
global manufacturers and rebuilders in the diesel and gas
engine marketplace. Its customers include many of the major
U.S. industrial, co-generation facility and international
petroleum corporations. The company will be well served in its
sales efforts by having Double Seal's reputation and long
standing contacts within the diesel marketplace.
Worth Capital Group, Inc., now known as WCG Holdings,
Inc., is a financial and technical services company with
experience in petrochemical, natural gas, steel facilities and
in international trading. More importantly, Worth and its
affiliates have conducted business in more than thirty nations
and have worked with many of the world's largest industrial
corporations. Finally, Worth has experience and knowledge in
and of projects in conjunction with the World Bank, the Inter-
American Development Bank, the European Bank for Reconstruction
<PAGE>
and Development, the Asia Development Bank, and others, and is
currently registered with the World Bank system.
Upon its organization, the Company acquired in exchange
for 448,350 shares of its Common Stock (representing
approximately 23% of its outstanding shares) several hundred
pieces of machinery and equipment which is to be utilized in
the Skoda factory in Prague, Czech Republic, to manufacture the
products as those sold by the Company. See "Item 2-Properties".
Accordingly, approximately 90% of the Company's assets are
located in the Czech Republic with the balance being located in
the United States. It is anticipated that revenues will result
from sales to customers in North, Central and South America,
China, South Korea, as well as in Eastern European nations.
Item 2. DESCRIPTION OF PROPERTY
The Company has its primary office and warehouse facility
at 2065 Montgomery Street, Fort Worth, Texas, where sales and
engineering functions are performed. The offices are inside a
50,000 square foot manufacturing facility owned by Double Seal
Ring Company. The executive office of the Company is located
in Palm Beach, Florida. The total annual lease payments the
company pays are approximately $60,000, being $42,000 for the
Florida location, $18,000 for the Texas location, and expiring
June, 1997. The office of the Company in the Czech Republic is
within the Skoda Diesel property, which is a 3,000,000 square
foot manufacturing facility. The Company's office and
manufacturing space at that location is on a rent-free basis,
and that is the location of the Company's machinery and
equipment.
The machinery and equipment of the Company consists of
several hundred pieces of production machines, tools, and
fixtures, ranging from tables to large scale milling and
grinding systems. All machinery and equipment is located in
the Czech Republic and is in good working condition. A full
listing of the machinery and equipment is included in the
Exhibits to the Company's Registration Statement on Form 10-SB.
The Company believes that its existing offices and related
facilities are adequate for the foreseeable future and that,
depending on additional products and sales, similar and/or
additional offices and locations can be acquired on reasonable
terms.
<PAGE>
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of the
security holders during its fiscal year ending August 31, 1996.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock was approved on July 29,
1996 by the National Association of Securities Dealers (NASD)
for trading on the Over-the-Counter Bulletin Board system.
The following table sets forth representative high and low
closing bid quotes as reported by a market maker, during the
period from July 29, 1996 through August 31, 1996. Bid
quotations reflect prices between dealers, do not include
resale mark-ups, mark-downs or other fees or commissions, and
does not necessarily represent actual transactions.
Calendar period Low High
July 29-August 31, 1996 $3.00 $5.50
As of August 31, 1996, there were approximately 272 holders
of record of the Company's Common Stock, although the Company
believes that there are approximately 100 additional beneficial
owners of shares of Common Stock held in street name. As of
August 31, 1996, the number of shares of Common Stock
outstanding of the Company was 2,198,265.
The Company has paid no dividends and has no present plan
to pay dividends. Payment of future dividends will be
determined from time to time by its board of directors, based
upon its future earnings (if any), financial condition, capital
<PAGE>
requirements and other factors. The Company is not presently
subject to any contractual or similar restriction on its
present or future ability to pay such dividends.
Item 6. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During most of fiscal year ending August, 1996, the
Company continued with its development plans. The Company's
Regulation D - Rule 504 Offering of common stock was completed
during the fiscal year. 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 received orders of more than $1,000,000 during
the last quarter of fiscal year 1996, and these orders should
be shipped in 1997 fiscal year. The Company posted performance
bonds in the amount of $80,000 for orders and furnished $24,000
of component inventory for orders in work. During 1996, the
Company presented its initial Registration Statement Form 10SB
to the United States Securities and Exchange Commission and the
filing was accepted. Also, during 1996, the Company's shares
of common stock were approved for trading on the Over-the-
Counter market of the National Association of Securities
Dealers (NASD).
The Company discussed at considerable length the
possibility of acquiring Skoda Diesel's operations, but no
final negotiations or decisions have taken place. Management
and shareholder control of Skoda Diesel changed in 1996, and
the Company has no certain feel as to what effect these changes
might have on the operations of the Company. Management
continues to work closely with the management in place at Skoda
Diesel and relationships with most of the continuing management
remain very good. Discussions and negotiations continue with
<PAGE>
two other East European manufacturers of industrial products
which should be synergistic with the Company's present products
and markets. Overall, fiscal year 1996 was less than expected
regarding the beginning of meaningful sales and revenues, but
fiscal 1996 was much more than expected in terms of furthering
market and product development activities of the Company.
However, 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.
Operating expenses for 1996 were considerably more than in
the initial operating year of 1995. Expenses categories as
legal, accounting, travel, and filing fees for securities
matters increased due to the filing of the Registration
Statement, the certified audit, the application for NASD
trading, and the extensive and lengthy discussions in Prague
regarding the possible acquisition of Skoda Diesel as well as
the meetings necessary to establish marketing plans with Skoda
Diesel. By the end of the fiscal year, these expenses were
declining, as many of them are either one-time or extraordinary
by nature and should not occur in such amounts in the future.
However, no projection can be made with certainty for the
future.
Total expenses were $490,961 in 1995 and $874,384 in 1996,
which indicates an increase of $383,423. However, depreciation
and amortization increase in 1996 over 1995 was $414,708.
Therefore, operating expenses decreased in 1996. Non-cash
expense items as depreciation and amortization accounted for
more than one-half of the expense amount for 1996. During the
fourth quarter of 1996, operating expenses decreased slightly
and management feels that fixed operating expenses will be
lower again for 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for the Company's operating activities for the
fiscal year 1996 amounted to $297,298 whereas the net cash used
for operating activities for 1995 amounted to $219,816. Net
cash provided (+) by financing activities in 1996 was $576,000
compared to $396,000 in 1995. Net cash used (-) for investing
activities in 1996 was $329,000 compared to $126,000 in 1995.
Therefore, cash on hand at the end of the year 1996 was $80,000
and was restricted compared to $50,000 for 1995, which was not
restricted. 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
<PAGE>
Company will be required to obtain additional financing or equity
capital. There is no assurance that such financing or equity
capital will be available. The Company had a working capital
deficiency as of August 31, 1996, of $12,669. However,
approximately $111,000 of the liabilities of the Company was due
to the President of the Company or an affiliate of the President.
With considering this liability as being non-current, the Company
would have a positive working capital of approximately $98,000
rather than a working capital deficiency.
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 purchase 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.
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.
Item 7. FINANCIAL STATEMENTS
Please see the attached Financial Statements.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
The Directors, Executive Officers, Promoters, and Control
Persons of the Company, with a brief description, are as
follows:
Name Age Position
Ronald A. Adams 45 President and Director
Henry S. Green, Jr. 64 Secretary and Director
Jindrich Dolezal 51 Director
Each director was originally elected in 1995. All directors
hold office until the next annual meeting of stockholders or
until their successors are elected and qualify. Vacancies on
the Board of Directors may be filled by the remaining
directors. Officers are elected annually, and serve at the
discretion of the Board of Directors. There are no family
relationships between or among any officers or directors of the
Company.
Ronald A. Adams is the President and a Director of the Company.
From 1986 through 1996, he served as President of Worth Capital
Group and as Financial Advisor to Double Seal Ring Company and,
from 1994 to 1996, as Financial Advisor to Skoda Diesel, both
entities being among the founding shareholders of the Company.
He has been involved in providing financial and trade services
to a variety of clients within the United States, Caribbean,
Bulgaria and Czech Republic. For the 14 years prior to 1986,
Mr. Adams was Chief Executive Officer of Haltom Manufacturing
Company, engaged in manufacturing of corporate recognition
items. He attended the University of Oklahoma and graduated
from Texas Christian University, where he performed post-
graduate studies. Mr. Adams devotes substantially all of his
business time to the Company.
Henry S. Green, Jr., is the Secretary of the Company. Mr.
Green is the President of Double Seal Ring Company where he has
been employed since 1955. The company, founded in 1931,
manufactures industrial piston rings as those used in diesel
and gas generating sets, which is the product of Skoda and the
<PAGE>
Company. He is a graduate of the Business Administration
School at Oklahoma State University and attended the United
States Naval Command School.
Jindrich Dolezal is a Director of the Company. Mr. Dolezal has
been the Chairman and Managing Director of Skoda Diesel, a.s.,
since 1993. He has extensive professional experience in South
America as well as throughout Eastern Europe. Mr. Dolezal is a
member of the Czech traveling delegation led by Czech President
Vaclav Havel and Prime Minister Klaus and is a past member of
the Engineering Faculty at CVUT (university) in Prague, where
he received his graduate degree in Specialization Economy and
Management (Ing.) He was director of South American operations
for Transakta Ltd. from 1989-1993 and was Commercial Director
of Elektrosignal Ltd. in 1993 and a director of RDP Group from
1994 to date.
Due to business relationships between the Company, Skoda,
and Double Seal, of which two directors of the Company are
officers, there may be potential for conflict of interest.
The Company is aware of such potential and believes that any
transactions resulting from these relationships would be on
terms similar to those available from outside parties.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's
officers and directors, and persons who beneficially own more
than 10% of a registered class of the Company's equity
securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than
10% shareholders are required by Exchange Act regulations to
furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms
received by it, or written representations from certain
reporting persons that no Form 5 was required for such persons,
the Company believes that, other than as disclosed below,
during the fiscal year ending August 31, 1996, all filing
requirements applicable to officers, directors and greater than
10% beneficial owners were complied with.
<PAGE>
Item 10. EXECUTIVE COMPENSATION
The Company's President received compensation solely in
the form of management fees amounting to $72,000 during the
fiscal year. There is no other plan or non-plan executive
compensation paid and there is no contract for payment of
salary to any person. There is no directors' compensation.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table contains information as of August 31,
1996, as to the number of Shares of Common Stock which is
beneficially owned by (i) each person or entity known by the
Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each person who is a Director of the
Company, and (iii) all persons as a group who are Directors
and Officers of the Company, and as to the percentage of the
outstanding Shares held by said individuals or entities. There
is only one class of security of the Company, Common Stock.
Title of Class: Common Equity Shares
Name and Address Number of Shares Percentage(1)
Skoda Diesel, a.s.
Krizova 1018
150 05 Praha 5
Czech Republic 500,000 22.7
WCG Holdings, Inc.
160 Woodbridge Road
Palm Beach, Florida 33480 500,000 22.7
Double Seal Ring Company, Inc.
2065 Montgomery Street
Fort Worth, TX 76107 400,000 18.2
M. Robert Walker and
Woodbury Capital Management, Inc.
1300 Veterans Memorial Highway
Hauppauge, NY 11788 135,000 6.1
<PAGE>
Ronald A. Adams 500,000 (2) 22.7
Henry S. Green, Jr. 400,000 (3) 18.2
Jindrich Dolezal 500,000 (4) 22.7
All Officers & Directors
as a Group (2), (3) and (4) 1,400,000 63.7
Footnotes:
(1) Based on 2,198,265 shares outstanding. Does not
include 40,000 Common Stock Purchase Warrants
outstanding.
(2) Owned by WCG Holdings, Inc. Mr. Ronald A. Adams,
President of the Company, is an affiliate of WCG
Holdings, Inc.
(3) Owned by Double Seal Ring Company, Inc. Mr. Henry S.
Green, Jr., Secretary of the Company, is an affiliate
of Double Seal Ring Company, Inc.
(4) Owned by Skoda Diesel, a.s. Mr. Jindrich Dolezal is
an affiliate of Skoda Diesel. a.s.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1994, the Company issued 1,400,000 shares of
its Common Stock to its founding shareholders. Of the total
1,400,000 shares issued, 500,000 and 400,000 shares were issued
to WCG Holdings, Inc. and to Double Seal Ring Company, Inc.,
respectively, and were valued at par value of $0.001 per share.
Also during September 1994, pursuant to the founding share-
holders' agreement and notarized Bill of Sale and Transfer,
Skoda contributed machinery and equipment with an independently
certified appraised value of $4,469,064 in exchange for 448,350
shares of the Company's common stock. Additionally, effective
April 21, 1994, the Company executed an exclusive agency
agreement with Skoda, pursuant to which the Company obtained
the right to act as Skoda's exclusive agent in North, Central
and South America, and as a non-exclusive agent throughout the
remainder of the world. In consideration of these rights, the
Company issued 51,650 shares of its common stock to Skoda
Diesel, a.s. ($1.25 per share). According to the appraisal
dated April 10, 1995, and according to the audited Financial
Statements of the Company, the machinery and equipment consists
of the following types and amounts:
<PAGE>
Production machinery $ 1,571,362
Production equipment 1,465,372
Tools and fixtures 1,432,330
$ 4,469,064
============
According to notarized documents from Skoda Diesel, the
financial statements of Skoda Diesel reflected the current
depreciated value of this machinery and equipment as being
$6,334,000 on the historical cost basis (see Financial
Statement).
The machinery and equipment contributed by Skoda
represents approximately 17% of Skoda's total machinery and
equipment. Such machinery and equipment was appraised by Ing.
Vladimir Sefrna, an authorized expert named by the Czech
Ministry of Justice on June 16, 1988 under Order No. Z-2005-88.
Such appraisal included listing of each item appraised,
verification of each such item from the books and records of
Skoda, physical survey of each item and an expressed opinion as
to the fair market value thereof in U.S. dollars based upon the
official exchange rate. Appraisals are not guaranties of value.
The Company has made secured and unsecured short-term
loans at various terms amounting to $89,500 to non-affiliated
entities of which one of the Company's minority shareholders is
an officer and shareholder. Said minority shareholder is not
an officer or director of the Company. Such loans have been
paid in full with the exception of one loan in the amount of
$12,500 which has since been written-off as uncollectible.
The Company has purchased items from Double Seal Ring
Company, a shareholder, and has sold these items to Skoda
Diesel, also a shareholder. Such transactions were less than
$50,000, and a gross profit was made by the Company. The
Company believes that the costs and prices for such transac-
tions were the same as those which would be afforded to non-
related parties, and that all transactions were at arms-length.
Included in accrued expenses at August 31, 1996 is $35,354
of management services owed to the Company's President. For the
year ended August 31, 1996, the Company recorded $72,000 for
management fees to the Company's President. The Company's
President has served as a Financial Advisor to Skoda and Double
Seal, and is a 50% beneficial shareholder of Worth Capital
Group. The Company's President has loaned $93,050 to the
Company which is non-interest bearing and due on demand.
<PAGE>
Item 13. FINANCIAL STATEMENTS AND EXHIBITS
(a) Please see the attached Financial Statements
(b) Exhibits: (filed with Form 10-SB and referenced
herein)
(1) (Articles) Certificate of Incorporation
(2) By-Laws of the Company
(3) Instruments defining rights of holders
(4) Material Contracts
(a) Shareholder Agreement
(i) "Expert's Opinion-Certified Appraisal
(ii) Bill of Sale and Transfer
(b) Exclusive Agency Agreement
<PAGE>
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.
February 21, 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 February 21, 1997
Ronald A. Adams, Director and
President (Principal Executive
Officer and Principal Financial
Officer)
/s/Henry S. Green, Jr. February 21, 1997
Henry S. Green, Jr., Director
SDC INTERNATIONAL, INC.
FINANCIAL STATEMENTS
August 31, 1996
<PAGE>
SDC INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
Page
number
Independent auditors' report F-1
Balance sheet F-2
Statements of operations F-3
Statement of stockholders equity F-4
Statements of cash flows F-5
Notes to financial statements F-6 - F-14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
SDC International, Inc.
We have audited the accompanying balance sheet of SDC International, Inc.
(the "Company") as of August 31, 1996 and the related statements of
operations, stockholders' equity and cash flows for the years ended August
31, 1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of
the Company as of August 31, 1996, and the results of its operations and
cash flows for the years ended August 31, 1996 and 1995 in conformity with
generally accepted accounting principles.
Scarano & Lipton, P.C.
Mitchel Field, New York
January 3, 1997
<PAGE>
SDC INTERNATIONAL, INC.
BALANCE SHEET
AUGUST 31, 1996
ASSETS
Current assets:
Cash - restricted $ 80,932
Inventory 31,310
Notes receivables - stockholder and related parties 62,985
Prepaid expenses 6,584
Total current assets 181,811
Machinery and equipment, net 4,204,581
Exclusive agency rights, net 166,237
Customer list, net 253,125
Other assets 29,464
Total assets $ 4,835,218
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,711
Accrued expenses 79,467
Due to stockholders 111,302
Total current liabilities 194,480
Commitments and contingencies (Note 10) -
Stockholders' equity:
Common stock $.001 par value, authorized 10,000,000 shares,
issued and outstanding 2,198,265 2,198
Additional paid-in capital 5,845,016
Accumulated deficit (1,206,476)
Total stockholders' equity 4,640,738
Total liabilities and stockholders' equity $ 4,835,218
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
SDC INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31,
1996 1995
<S> <C> <C>
Sales $ 45,456 $ 537,280
Cost of goods sold 36,142 395,638
Gross profit 9,314 141,642
Expenses:
Selling, general and administrative expenses 349,860 189,227
Depreciation and amortization 431,443 16,734
Management fees 72,000 60,000
Issuance of common stock as consideration
for consulting services (Note 8a) 21,081 225,000
Total expenses 874,384 490,961
Loss from operations before other income and provision
for income taxes (865,070) (349,319)
Other income:
Interest income 4,913 3,000
Loss before provision for income taxes (860,157) (346,319)
Provision for income taxes - -
Net loss $ (860,157) $ (346,319)
Primary loss per share:
Loss from operations before other income and provision
for income taxes $ (.42) $ (.21)
Provision for income taxes $ $ -
Net loss $ (.42) $ (.21)
Weighted average number of shares outstanding 2,059,639 1,653,775
</TABLE>
See accompanying notes to financial statements
<PAGE>
SDC INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
<TABLE>
<CAPTION>
Additional Total
Common Stock paid-in Accumulated Stockholders'
Shares Amount capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balances at September 1, 1994 - $ - $ - $ - $ -
Issuance of common stock upon initial
capitalization of Company and
contribution of machinery and equipment 1,348,350 1,348 4,468,616 - 4,469,964
Issuance of common stock
as consideration for purchase of exclusive
agency rights 51,650 52 64,511 - 64,563
Issuance of common stock in connection with
private placement memorandum, net of offering
costs of $71,848 172,700 173 359,729 - 359,902
Issuance of common stock as consideration for
consulting services 180,000 180 224,820 - 225,000
Net loss for the year ended August 31, 1995 - - - (346,319) (346,319)
Balances at August 31, 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 $177,546 278,700 278 518,926 - 519,204
Issuance of common stock in connection
with acquisition of customer list 150,000 150 187,350 - 187,500
Issuance of common stock as consideration for
consulting services 16,865 17 21,064 - 21,081
Net loss for the year ended August 31, 1996 (860,157) (860,157)
Balances at August 31, 1996 2,198,265 $ 2,198 5,845,016 $(1,206,476) $ 4,640,738
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
SDC INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR YEARS ENDED AUGUST 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (860,157) $ (346,319)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 431,443 16,734
Common stock issued as consideration for services 21,081 225,000
Bad debt expense 12,500 -
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 537,280 (537,280)
Decrease (increase) in inventories (31,310) -
Decrease (increase) in other receivables (500) -
Increase in cash deposits, restricted (80,432) -
Decrease (increase) in prepaid expense (184) (6,400)
Increase (decrease) in accounts payable (373,189) 376,900
Increase in accrued expenses 46,170 51,549
Net cash used for operating activities (297,298) (219,816)
Cash flows from investing activities:
Advances to related parties - (12,500)
Loans to related parties - (77,000)
Repayment of loans to related parties 14,015 -
Acquisition of exclusive agency rights (150,000) -
Acquisition of customer list (150,000) -
Purchase of machinery and equipment (43,353) -
Other assets acquired - (37,105)
Net cash used for investing activities (329,338) (126,605)
Cash flows from financing activities:
Proceeds from related party 92,950 36,196
Proceeds from private placement memorandum 696,750 431,750
Costs associated with private placement memorandum (177,546) (71,848)
Repayment of loans from related party (35,195) -
Net cash provided by financing activities 576,959 396,098
Net (decrease) increase in cash (49,677) 49,677
Cash at beginning of period 49,677 -
Cash at end of period $ - $ 49,677
Supplemental disclosure of non-cash financing 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
Issuance of 150,000 shares of common stock for
acquisition of customer list $ 187,500 $ -
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
NOTE 1 - ORGANIZATION
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 agency agreement
acquired from Diesel, a.s. (formerly known as 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 stockholders. Of the total
1,400,000 shares issued, 500,000 and 400,000 shares were issued
to WCG Holding, Inc. (formerly know as Worth Capital Group,
("Worth"), Double Seal Ring Company ("Double"), respectively,
as founding stockholders, and 448,350 shares were issued to
Skoda as consideration for the contribution of machinery and
equipment. The machinery and equipment is located in the
Czech Republic. Also during September 1994, 51,650 shares
were issued to Skoda in connection with the purchase of the
exclusive agency rights. (See Notes 8a and 8b for additional
information).
Skoda, one of the founding stockholders of the Company was
formed in Czechoslovakia in the year 1899 and manufactures
heavy equipment and diesel engines.
The Company's President is also a 50% shareholder of Worth.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Inventory
Inventory is valued at the lower of cost or market on a
specific identification basis. Inventory consists primarily
of sample generators which are sold as a component of the
Company's products.
b) Machinery and equipment
Machinery and equipment are recorded at cost. Depreciation is
computed using the straight line method over the estimated
useful lives of the assets which is as follows:
Machinery and equipment 5-15 years
Computer software 3 years
Computers 5 years
Maintenance and repairs are charged to expense as incurred
(See Note 4).
<PAGE>
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
c) Exclusive agency rights
Exclusive agency rights relate to agency rights acquired from
Skoda. The Company intends to market Skoda's products
throughout China, South Korea, North, South and Central
America on an exclusive basis with the exception of Peru.
Such rights are being amortized on a monthly basis over an
estimated useful life of five years. (See Note 5 for
additional information).
d) Customer list
Customer list include payments and issuance of stock for the
acquisition of certain assets comprising of supplier lists and
customer lists. The customer list is being amortized on a
monthly basis over its estimated useful life of three years.
e) Income taxes
The Company accounts for income taxes in accordance with
statement of financial accounting standards No. 109 "Accounting
for Income Taxes" which requires the use of the "liability
method" of accounting for income taxes. Accordingly, deferred
tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of
assets and liabilities, using enacted tax rates in effect for
the year in which the differences are expected to reverse.
Current income taxes are based on the respective periods
taxable income for Federal and State income tax reporting
purposes.
f) Statements of cash flows
For purposes of the statements of cash flows, the Company
considers all highly liquid accounts with an original maturity
of three months or less as cash equivalents.
g) Net loss per share
In calculating primary loss per share, the Company uses the
weighted average number of common stock outstanding during the
respective periods.
h) Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
i) Fair value disclosure as of August 31, 1996
The carrying value of cash, inventory, notes receivable,
accounts payable and accrued expenses are a reasonable
estimate of their fair value.
<PAGE>
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
j) Revenue recognition
Sales are recognized when products are shipped.
NOTE 3 - NOTES RECEIVABLE - STOCKHOLDER AND RELATED PARTIES
From February 1995 to August 1995, the Company made various
loans to a stockholder and to entities whereby such stockholder
is an Officer and/or 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 $6,578 of accrued Interest. $ 28,985
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. 24,000
iii)Unsecured demand note of $10,000 to a
stockholder. The note is non-interest
bearing and is due on demand. 10,000
Such loans were fully repaid during October 1996.
$ 62,985
NOTE 4 - MACHINERY AND EQUIPMENT
Machinery and equipment at August 31, 1996 consisted of the
following:
Production machinery $ 1,571,362
Production equipment 1,465,372
Tools and Fixtures 1,444,757
Other 30,926
4,512,417
Less: Accumulated depreciation (307,836)
$ 4,204,581
During September 1994, pursuant to the founding stockholder'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. As a result, the Company
increased additional paid-in capital by $4,468,616 which
represents the excess of the appraised value of the machinery
and equipment over the par value of the common stock.
<PAGE>
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
NOTE 5 - EXCLUSIVE AGENCY RIGHTS, NET
On April 21, 1994, one of the founding stockholders 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 sixth year (originally, the
fifth year) after the execution of the agreement. Such
agreement was extended for an additional year until April
2000. As consideration for the purchase of these exclusive
agency rights, the Company 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. As a result, for
the years ended August 31, 1996 and 1995, the Company
recorded amortization expense of $12,912 for each year and
additional paid-in capital was increased by $64,511 as of
August 31, 1995, which represents the excess of the assigned
value of the rights over par.
In October 1995 the Company purchased the exclusive rights to
market and sell Skoda Diesel products into the countries of
China and South Korea based upon the following terms:
South Korea
i) During the year 1997, sales to South Korea must be in the
amount of at least $2,400,000.
ii) During the year 1998, 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.
China
i) During the year 1997, sales to China must be in the amount
of at least US $3,000,000.
<PAGE>
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
NOTE 5 - EXCLUSIVE AGENCY RIGHTS, NET (Cont'd)
China (Cont'd)
ii) During the year 1998, sales to China must be in the amount
of at least US $4,500,000.
iii)During the year 1999, 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.
The newly acquired agency rights from China and Korea will be
amortized on a monthly basis over (5) years. For the year
ended August 31, 1996 the company has recorded $22,500 in
amortization expense.
NOTE 6 - ACCRUED EXPENSES
Accrued expenses consisted of the following at August 31, 1996:
Management fees $ 35,354
Professional fees 44,113
$ 79,467
Included in accrued expenses at August 31, 1996 is $35,354 of
fees which is owed to the Company's President.
NOTE 7 - INCOME TAXES
The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes".
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to
differences between the financial and tax basis of assets and
liabilities. The deferred tax assets and liabilities
represent the future tax return consequences of these
temporary differences, which will either be taxable or
deductible when the assets and liabilities are recovered or
settled.
<PAGE>
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
NOTE 7 - INCOME TAXES (Cont'd)
At August 31, 1996, the company has net operating loss
carryforwards for tax purposes of $1,896,195
expiring in the years 2009 and 2010. These carryforwards
result in a deferred tax asset at August 31, 1996 of $701,592
computed using a combined Federal and State corporate tax
rate of approximately 37% after accounting for the state income
tax benefit. The Company also has a deferred tax liability
of $255,939 resulting from the difference between book and
tax differential in deprecation and amortization.
Accordingly, the net deferred tax asset at August 31, 1996
is $445,653.
At August 31, 1996, a 100% valuation allowance, in the
amount of $445,653 has been recorded against the net
deferred tax asset since management could not determine
that it was "more likely than not" that the benefits of the
deferred tax asset would be realized.
NOTE 8 - STOCKHOLDERS' EQUITY
a) 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.
b) 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
stockholders, 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 were assigned
a value of 50% (fifty percent) of the private offering share
price of $2.50 per share. Accordingly, the Company valued such
rights at $64,563 (51,650 x $1.25) which are being amortized
on a monthly basis over five (5) years. As a result, for the
year ended August 31, 1996 and 1995, the Company recorded
amortization expense of $12,912 for each year and additional
paid in capital was increased by $64,511 at August 31, 1995,
which represents the excess of the assigned value of the
related stock issued over par.
<PAGE>
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
NOTE 8 - STOCKHOLDERS' EQUITY (Cont')
c) Confidential private placement memorandum
On June 1, 1995, the Company commenced and privately offered,
pursuant to Rule 504 Regulation D on a best efforts basis,
no more than 400,000 shares in a twelve month period of its
$.001 par value common stock at $2.50 per share before
deducting discounts, commissions and non-accountable
expenses. These expenses aggregate 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. During the
fifteen months ended August 31, 1996, the Company sold an
aggregate of 451,400 shares.
In addition to the above, the Company 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 August 31, 1996 no warrants have been issued.
d) Issuance of common stock for consulting services
During the years ended August 31, 1996 and 1995, in conjunction
with services provided to the Company, 16,865 and 180,000
shares of common stock were issued to various parties, 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.
e) Issuance of common stock for acquisition of customer list
Pursuant to a purchase agreement dated December 2, 1995 between
the Company and an unrelated party, the Company acquired
certain assets comprising of supplier and customer lists. As
consideration for such assets, the Company paid $150,000 and
issued 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
valued such assets at a total of $337,500 comprising of
$150,000 in cash and $187,500 of common stock. Management has
elected to amortize such assets over the life of the non-
competition agreement of three years. Accordingly, for the
year ended August 31, 1996, the Company recorded amortization
expense amounting to $84,375.
<PAGE>
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
NOTE 9 - RELATED PARTY TRANSACTIONS
a) Notes receivables - Stockholder and related parties
From February 1995 to August 1995, the Company made loans at
various terms (See Note 3 for additional information) to a
stockholder and other entities of which such stockholder is
also an officer. The balance due on these loans as of August
31, 1996 were $62,985. Such notes were paid in full during
October 1996.
b) Acquisition of machinery and equipment
During September 1994, pursuant to the Company's founding
stockholder'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.
c) Acquisition of exclusive agency rights
On April 21, 1994, the Company executed an exclusive agency
agreement with one of its founding stockholders, 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. (See
Note 5 for further information).
In October 1995, the Company purchased the exclusive rights
to market and sell Skoda Diesel products into the countries
of China and South Korea. In consideration for these
rights the Company paid Skoda $150,000. (See Note 5 for
further information).
d) Accrued expenses
Included in accrued expenses at August 31, 1996 is $35,354 of
management fees which are owed to the Company's President.
e) Due to stockholders
As of August 31, 1996, of the total due to stockholders
amounting to $111,302, $93,050 represents advances made by
the company's President. The remaining balance amounting
to $18,252 represents the balance owed to Worth for the
acquisition of customer list. Such advances are not
interest bearing and are due on demands. The Company's
President is a 50% shareholder of Worth.
f) Management fees
For the years ended August 31, 1996 and 1995 the Company
recorded $72,000 and $60,000 respectively for management
fees to the Company's President.
<PAGE>
NOTE 9 - RELATED PARTY TRANSACTIONS (Cont'd)
g) Lease agreement
The Company leases its administrative offices and warehouse
space from Worth. (See Note 10a for further information).
NOTE 10 - 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 of which
the President of the Company is also a 50% stockholder.
Under such lease agreement, the Company is required to make
future lease payments amounting to $35,000.
Included in general and administrative expenses is rent
expense which amounted to $55,784 (which included
approximately $13,784 of additional rent for facilities the
Company leases in Forth Worth, Texas on a month to month
basis) and $7,000 for the years ended August 31, 1996 and 1995.
b) Significant customers and vendors
i) For the year ended August 31, 1995, the Company had one
sale made during August, 1995 to an unrelated customer
which accounted for 100% of the total sales.
ii)For the years ended August 31, 1996 and 1995, the Company
purchased 100% of its cost of goods sold from two of its
founding stockholders, Skoda and Double.
c) 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.
d) Management agreement
On December 15, 1995 the Company and Worth entered into a
management agreement with an individual in Eastern Europe 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 compensate such
individual an amount equal to twenty-five percent (25%) of
the gross profit from sales made by the Company in Eastern
Europe. Such payments are payable monthly after the collection
of receivables from such sales.
<PAGE>
SDC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
NOTE 10 - 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.
NOTE 11 - 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.
(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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statements of Cash Flows and Notes thereto
incorporated in Part II, Item 7 of this Form 10-KSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001005841
<NAME> SDC INTERNATIONAL INC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 80,932
<SECURITIES> 62,985
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 31,310
<CURRENT-ASSETS> 6,584
<PP&E> 4,653,407
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,835,218
<CURRENT-LIABILITIES> 194,480
<BONDS> 0
0
0
<COMMON> 2,198
<OTHER-SE> 4,638,540
<TOTAL-LIABILITY-AND-EQUITY> 4,835,218
<SALES> 45,456
<TOTAL-REVENUES> 45,456
<CGS> 36,142
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 869,471
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (860,157)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (860,157)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> 0
</TABLE>
