UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
or
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-27520
SDC International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2583767
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2065 Montgomery Street, Fort Worth, Texas 76107
(Address of principal executive offices) (Zip Code)
(817) 738-9881
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be
filed by section 13 or 15 (d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [xx] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a
court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Common stock, par value $.001 per share: 3,078,452 shares
outstanding as of February 28, 1998.
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
INDEX
PART 1 - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets February 28, 1998 (Unaudited)
and August 31, 1997 F-1
Consolidated Statements of Operations (Unaudited)
for the three months ended February 28, 1998 and 1997 F-2
Consolidated Statements of Operations (Unaudited)
for the six months ended February 28, 1998 and 1997 F-3
Consolidated Statement of Stockholders' Equity
(Unaudited) for the six months ended February 28, 1998 F-4
Consolidated Statements of Cash Flows (Unaudited)
for the six months ended February 28, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6 - F-10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS F-11 - F-14
PART II - OTHER INFORMATION F-15
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
February 28, August 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash$ 163,573 $ 15,199
Cash - restricted 80,960 330,932
Accounts receivable 153,117 -
Inventory 430,062 -
Other current assets 13,500 23,778
Total current assets 841,212 369,909
Machinery and equipment, net 3,355,429 3,489,341
Other assets:
Exclusive agency rights, net 215,544 263,485
Customer list, net 84,375 140,625
Deferred offering costs 50,000 -
Organizational costs, net 5,732 7,643
Total other assets 355,651 411,753
Total assets$ 4,552,292$ 4,271,003
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$ 70,467 $ 53,793
Accounts payable - related party 73,477 -
Accrued expenses 109,723 36,467
Note payable - short term 105,175 215,000
Due to officer 15,739 27,036
Total current liabilities 374,581 332,296
Excess of net assets acquired over cost, 531,471 -
net
Commitments and contingencies (Note 4)
Stockholders' equity:
Common stock $.001 par value, authorized
10,000,000 shares, issued and outstanding
3,426,952 and 2,639,484 shares,
respectively 3,427 2,639
Additional paid-in capital 7,369,052 6,345,643
Accumulated deficit (3,576,064) (2,409,575)
Sub-total 3,796,415 3,938,707
Deferred costs (150,175) -
Total stockholders' equity, net 3,646,240 3,938,707
Total liabilities and stockholders'
equity $ 4,552,292 $ 4,271,003
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPATION>
February 28, February 28,
1998 1997
<S> <C> <C>
Sales$ 11,393 $ 1,308,507
Cost of goods sold 6,384 1,262,211
Gross profit 5,009 46,296
Expenses:
Selling, general and administrative 257,514 73,997
Depreciation and amortization 116,837 117,151
Stock-based consulting and compensation 467,714 -
Total expenses 842,065 191,148
Loss from operations before other income and provision
for income taxes (837,056) (144,852)
Other income (expense):
Amortization of excess of net assets acquired over
costs 14,000 -
Interest income 14 754
Interest expense (15,050) (376)
Foreign currency exchange loss (1,264) -
Total other income (expense) (2,300) 378
Loss before provision for income taxes (839,356) (144,474)
Provision for income taxes - -
Net loss$ (839,356) $ (144,474)
Loss per common equivalent share:
Basic:
Net loss$ (.26) $ (.07)
Weighted average number of shares outstanding 3,206,318 2,204,265
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
February 28, February 28,
1998 1997
<S> <C> <C>
Sales$ 63,738 $ 1,335,579
Cost of goods sold 31,878 1,279,548
Gross profit 31,860 56,031
Expenses:
Selling, general and administrative 489,621 133,755
Depreciation and amortization 239,426 234,303
Stock-based consulting and compensation 467,714 -
Total expenses 1,196,761 368,058
Loss from operations before other income and provision
for income taxes (1,164,901) (312,027)
Other income (expense):
Amortization of excess costs 28,000 -
Interest income 3,720 1,508
Interest expense (27,361) (376)
Foreign currently exchange loss (5,947) -
Total other income (expense) (1,588) 1,132
Loss before provision for income taxes (1,166,489) (310,895)
Provision for income taxes - -
Net loss$ (1,166,489) $ (310,895)
Loss per common equivalent share:
Basic:
Net loss$ (.39) $ (.14)
Weighted average number of shares outstanding 2,975,290 2,204,265
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Stock paid-in Accumulated Deferred Stockholders'
Shares Amount capital Deficit Costs Equity
<S> <C> <C> <C> <C> <C> <C>
Balances at September 1, 1997 2,639,484 $ 2,639 $ 6,345,643 $(2,409,575) $ - $ 3,938,707
Issuance of common stock in
connection with private placement
memorandum, net of offering costs
of $62,817 273,968 274 347,859 - - 348,133
Issuance of common stock pursuant
to the 1997 Non-Qualified Stock
Option Plan 358,500 359 535,880 - (194,400) 341,839
Issuance of common stock for services 155,000 155 139,670 - (13,125) 126,700
Amortization of deferred costs - - - - 57,350 57,350
Net loss for the six months ended
February 28, 1998 - - - (1,166,489) - (1,166,489)
Balances at February 28, 1998 3,426,952 $ 3,427 $7,369,052 $(3,576,064) $(150,175) $ 3,646,240
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
February 28, February 28,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,166,489) $ (310,895)
Adjustments to reconcile net loss to net
cash used for operating activities:
Amortization and depreciation 283,176 234,303
Common stock issued for services 468,539 -
Decrease (increase) in:
Accounts receivable (4,898) (1,323,382)
Inventory (47,484) -
Other assets 1,903 17,999
Increase (decrease) in:
Accounts payable 3,469 (3,711)
Accounts payable - related party 13,477 1,278,726
Accrued expenses 75,432 25,672
Net cash (used for) provided by operating
activities (372,875) (81,288)
Cash flows from investing activities:
Acquisition of subsidiary, net of cash acquired 44,878 -
Acquisition of customer list - 62,985
Purchase of machinery and equipment (5,437) -
Decrease (increase) in restricted cash 249,972 (1,508)
Net cash provided (used for) by investing
activities 289,413 61,477
Cash flows from financing activities:
Proceeds from issuance of note payable 100,000 30,000
Repayment of notes payable (215,000) -
Proceeds from stockholder 60,000 32,500
Proceeds from sale of common stock 410,950 15,000
Costs associated with sale of common stock (62,817) -
Deferred offering costs (50,000) -
Repayment of loans from stockholder (11,297) (50,000)
Net cash provided by financing activities 231,836 27,500
Net increase in cash 148,374 7,689
Cash at beginning of period 15,199 -
Cash at end of period$ 163,573 $ 7,689
Supplemental disclosures:
Interest paid$ 13,436 $ -
Income taxes paid$ - $ -
Supplemental disclosure of non-cash investing
activities:
Issuance of common stock for services $ 207,525 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTE 1 - ORGANIZATION
SDC International, Inc., ("the Company") was incorporated
in the State of Delaware 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. Skoda was formed in Czechoslovakia in
the year 1899.
During April 1997, the Company acquired the outstanding
common stock of Golden Grove Business, Inc., ("GGB"), a
Panama Corporation and subsequently dissolved GGB.
During November 1997, the Company acquired the
outstanding common stock of Skobol, S.A., ("Skobol"), a
Bolivia Corporation.
The Company's machinery and equipment is located in the
Czech Republic.
The accompanying unaudited consolidated financial
statements have been prepared in accordance with
generally accepted accounting principles for interim
financial information and with instructions to Form 10-
QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management the interim consolidated
financial statements include all adjustments necessary in
order to make the consolidated financial statements not
misleading. The results of operations for the three and
six months ended are not necessarily indicative of the
results to be expected for the full year. For further
information, refer to the Company's audited financial
statements and footnotes thereto at August 31, 1997,
included in the Company's Form 10-KSB, filed with the
Securities and Exchange Commission.
NOTE 2 - EXCLUSIVE AGENCY RIGHTS, NET
a) 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 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 after the
execution of the agreement. As consideration for the
purchase of these exclusive agency rights, the Company
issued 51,650 shares of its common stock to Skoda.
b) 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.
<PAGE>
The Company paid Skoda a one-time fee of $50,000 for the
acquisition of such exclusive rights.
NOTE 2 - EXCLUSIVE AGENCY RIGHTS, NET (Cont'd)
b) (Cont'd)
China
i) During the year 1997, sales to China must be in the
amount of at least US $3,000,000.
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 agency rights
from China and Korea are amortized on a monthly basis
over (5) years.
On April 18, 1996, the Company entered into a
modification agreement whereby all such sales levels were
postponed for one year.
NOTE 3 - ACQUISITIONS
a) On April 24, 1997, the Company acquired for $120,000 plus
48,000 common shares all the issued and outstanding
common stock of GGB. GGB had acquired an exclusive
agency contract with Tatra a.s. (a Czech Republic truck
manufacturer) to market and sell Tatra's products. The
Company amortized such agency rights over the estimated
remaining useful life of four years. Accordingly, for
the three and six months ended February 28, 1998,
amortization expense amounted to $13,242 and $26,484.
b) On November 18, 1997, the Company acquired 100% of the
common stock of Skobol Joint Stock Company ("Skobol")
from Skobol's parent, Motokov International Joint Stock
Company for $78,000. The acquisition was retroactively
effective to September 1, 1997. The acquisition was
accounted as a purchase with the results of Skobol
included from the acquisition date. Skobol is a
distributor of Czech Republic products within the country
of Bolivia.
The acquisition of Skobol resulted in an excess of net
assets acquired over costs of $559,471 after application
to all non current assets acquired. This amount is being
amortized on a straight-line basis over ten years from
date of acquisition. Accordingly, for the three and six
months ended February 28, 1998, amortization income
amounted to $14,000 and $28,000, respectively.
NOTE 4 - NOTE PAYABLE
a) The Company had two bank lines-of-credit which provided
short-term borrowings up to $220,000. Interest on
advances was payable quarterly at a fixed rate of 4.32%.
The lines-of-credit expired on October 19, 1997 and were
secured by a certificate of deposit amounting to
$250,000. During October 1997, the certificate of
deposit was redeemed and such lines of credit were
repaid.
<PAGE>
b) During October 1997, the Company borrowed $100,000 from
an individual which is payable in 180 days at an interest
rate of 14%. In connection with such borrowing, the
Company issued 15,000 common shares as additional
consideration. See Note 5(c). The issuance of such
shares results in an effective interest rate of 40%. As
of February 28, 1998, the Company had accrued $5,175 of
interest and amortized $8,750 of deferred interest in
relation to this note.
NOTE 5 - STOCKHOLDERS' EQUITY
a) Private Placement Memorandum
On February 24, 1997, the Company commenced and privately
offered pursuant to rule 505, Regulation D, on a best
efforts basis, no more than 500,000 shares of common
stock in a ninety-day period (before extentions) of its
$.001 par value common stock at $1.50 per share before
deducting discounts, commissions and non-accountable
expenses. During the six months ended February 28, 1998,
the Company sold an aggregate of 273,968 shares yielding
net proceeds of $348,133.
b) 1997 Non-qualified stock option plan
On September 5, 1997, the Company established a Non-
Qualified Stock Option Plan ("the Plan") pursuant to
which 750,000 shares of common stock are reserved for
issuance. The option price per share is determined by
the Board of Directors at the time any options are
granted. The Plan is designed to serve as an incentive
for retaining qualified and competent persons who are key
employees, consultants, representative, officers and
directors of the Company. During the three months ended
November 30, 1997 and February 28, 1998, the Company
issued 150,000 and 208,500 shares pursuant to the Plan.
Such shares have been valued at $253,200 and $283,039
representing 75% of the average market value during the
month of issuance as a result of the illiquidity of the
Company's stock. In connection with the issuance of such
shares, the Company recorded $341,839 as stock-based
compensation and the remaining balance amounting to
$194,400 has been recorded as deferred consulting costs
to be amortized on a monthly basis over 12 months.
Accordingly, for the three and six months ended February
28, 1998, amortization expense amounted to $48,600.
c) Deferred interest
In connection with the obtaining of a loan, the Company
issued 15,000 shares of common stock as additional
consideration. Such shares have been recorded at 75% of
the average market value of the stock during the month of
issuance as a result of the illiquidity of the Company's
stock. Accordingly, the Company has recorded deferred
interest of $13,125 which is being amortized over the
term of the loan. For the three and six months ended
February 28, 1998, amortized interest amounted to $8,750.
d) Stock-based consulting
During the three months ended February 28, 1998, the
Company issued 140,000 shares of restricted common stock.
Such shares have been valued at $126,700, representing
50% of the average market value when issued as a result
of the illiquidity of the Company's stock and the
restricted nature of the shares issued.
<PAGE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
a) Lease agreement
The Company leased its administrative office pursuant to
a signed lease agreement commencing July 1, 1995 and
expiring on June 30, 1997. Such leases required monthly
payments of $3,500. Effective December 1996, the Company
terminated this lease whereby a security deposit
amounting to $18,000 was used as part of the cancellation
settlement. Effective January 1, 1997, the Company rents
its executive office on a month to month basis from its
Chief Executive Officer with monthly payments amounting
to approximately $3,000.
Included in general and administrative expenses is rent
expense which amounted to $7,807 and $9,500 for the
three months ended February 28, 1998 and 1997,
respectively and $17,241 and $37,681, for the six months
ended February 28, 1998 and 1997, respectively.
b) 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 Tatra and as
such, it is subject to their risks of business and their
continued financial health, as well as the risks
associated with foreign businesses, both from currency
and political changes.
c) 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 generated by such individual in Eastern
Europe. Such payments are payable monthly after the
collection of receivables from such sales. There are no
amounts currently payable under this agreement.
d) 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. There
are no amounts currently due under this agreement.
<PAGE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Cont'd)
e) Dependence on Skoda and Tatra
The Company's operations are dependent on Skoda and Tatra
since Skoda is responsible for the manufacturing of all
of the Company's products and Tatra for making available
sufficient inventory. The Company faces risks of the
inability to obtain products in the event of production
problems due to labor problems, governmental regulations,
working capital deficiencies, political unrest and other
problems which may result in the inability of Skoda and
Tatra to fulfill orders of the Company.
f) Letter of intent
On October 10, 1997, the Company signed a Letter of
Intent with an underwriter to proceed on a "Firm
Commitment" basis with a secondary offering of the
Company's Common Stock and redeemable Warrants ("the
Warrants"). The Company will offer 1,000,000 shares of
common stock and 1,000,000 Warrants. The 1,000,000
shares and Warrants will be offered to the public at a
price of $6.00 per share and $.125 per Warrant,
respectively. The total gross offering amounts to
$6,125,000.
Each Warrant, which is redeemable in 60 months, entitles
the holder thereof to purchase one share of Common Stock
at 120% of the offering price of Common shares. The
warrant may be redeemed by the Company at $.10 each after
the common shares have traded at 150% of the offering
price of the common shares for 10 consecutive days.
NOTE 7 - RELATED PARTY TRANSACTIONS
a) Acquisition of exclusive agency rights
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.
b) Due to officer
The Company's Chief Executive Officer and shareholder
advances funds to or on behalf of the Company. As of
February 28, 1998, $15,739 was owed to such officer.
Such advances are non interest bearing and due on demand.
c) Rent Expense
Effective January 1, 1997, the Company rents its
executive office on a month to month basis from its Chief
Executive Officer with monthly payments amounting to
approximately $3,000.
d) Management fees
For the three months ended February 28, 1998 and 1997,
the Company recorded $26,000 and $18,000, respectively,
of management fees paid to its Chief Executive Officer.
For the six months ended February 28, 1998 and 1997, the
Company recorded $56,000 and $36,000, respectively, of
management fees paid to its Chief Executive Officer.
<PAGE>
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is the Central and South American distributor
for Czech heavy-duty truck manufacturer TATRA. During
the quarter ending February 28, 1998, the company
provided training at the Tatra factory for its initial
service center for service and warranty work on Tatra
trucks. TATRA, a.s., is a Czech manufacturer of on/off-
road heavy trucks. The factory was founded in 1850 and
in 1898 the first truck was manufactured. The factory
continued development and innovations of its vehicle and
today produces a truck with the an air cooled diesel
engine and a solid central backbone tube with swing half
axles, both features being unique features of the TATRA
truck. Engines are manufactured by TATRA, Deutz, Detroit
Diesel or Cummins Diesel. TATRA has ISO 9001
certification and TATRA trucks meet all EURO II
regulations.
During the quarter ending February 28, 1998, the Company
completed the registration process of its division, SDC
Prague, s.r.o., in the Czech Republic. SDC Prague plans
to market and sell electrical generating and co-
generating equipment using the components of East
European manufacturers.
During the quarter ending February 28, 1998, the Company
began rebuilding the inventories of its Bolivian
subsidiary, SKOBOL, s.a., formerly the subsidiary of
Czech trading company Motokov International. Skobol is
a thirty-seven year old distributor of Czech products
within Bolivia, and the Company plans to use this
subsidiary as its base to expand throughout that region
of South America with the other Czech products offered by
the Company. The new subsidiary provided and excess of
$559,471 of net assets acquired over the cost of the
acquisition. Skobol operated at a small loss during this
period as the products are being expanded and Skobol is
reintroducing itself to the marketplace as a continuing
supplier of Czech products. The subsidiary's financial
statements are consolidated with those of the Company.
The Company has cancelled its plans to sell and finance
inventories of Slovakian manufacturer Krizik, a.s.,
because the Company has developed similar opportunities
with companies with whom SDC has existing relationships
and which are located within the Czech Republic where the
Company conducts most if its business activities.
The Company concluded its Regulation D Rule 505 offering
of its common stock which provided a gross total of
$740,000 for the Company. The Five Year Growth Plan
which was completed in August 1997 has been updated to
reflect the positive developments of the prior six months
and management is exploring different sources of
additional capital and reviewing different methods of
obtaining additional capital for the Company in order to
execute its five year plan.
At the close of the quarter ending February 28, 1998, the
Company continued negotiating for a possible acquisition
of Skoda's Diesel International operations. Management
and shareholder control of Diesel International (formerly
Skoda Diesel) changed in 1996, and the Company believes
that if an acquisition can be made on terms favorable to
the Company, potential negative effects of the management
and shareholder changes of 1996 will be eliminated and
the Company could exert total control over this supplier.
SDC management continues to work with the management in
place at Diesel International and relationships with
management are satisfactory. Discussions continue with
two other East European manufacturers of industrial
products which should be synergistic with the Company's
present products and markets.
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.
<PAGE>
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company has devoted substantial time and effort to
negotiating and arranging strategic alliances with major
Czech manufacturers rather than devoting its time to
beginning its marketing and sales development. It is
felt that the most efficient use of time and resources
will be with the proper product mix for entering new
markets. Therefore, the Company's revenues to date are
primarily the result of orders received by the Company
rather than the results of marketing efforts by the
Company. The Company records revenue when products are
shipped. During the quarter ending February 28, 1998,
the Company shipped $11,393 and realized a gross profit
from those sales of $5,009. These sales were made by the
new subsidiary Skobol, s.a. Management believes sales by
Skobol will increase as its reorganization of its
operations is completed and new inventories are provided.
However, Company sales and shipments will continue to be
sporadic until a more steady flow of orders exist, and
until the marketing efforts for larger items, such as
electrical generating sets and trucks, can come to
fruition.
Operating expenses for the quarter ending February 28,
1998, were more than in the quarter ending February 28,
1997, due primarily to the expansion of management,
development of additional product lines needed in order
to enhance future growth and revenues of the Company, and
the continuing negotiations for major strategic alliances
which often times include paid professional advisors such
as attorneys and accountants. Expense categories such as
legal, accounting, travel, and costs and expenses for
securities matters increased due to the fact that the
Company is a fully reporting 12 (g) company, due to the
planned acquisition of new product lines, and due to the
extensive discussions and negotiations in the Czech
Republic regarding future strategic alliances and the
possible acquisition of Diesel International.
Total expenses for the quarter ending February 28 were
$191,148 in 1997 and $842,065 in 1998. Non-cash expenses
as deprecation and amortization and payment for
consulting services accounted for $584,551 more than
sixty-nine percent (69%) of the expenses during the
quarter ending February 28, 1998. During the quarter
ending February 28, 1998, expenses increased due to the
increased activity level of corporate and product
acquisition plans and related activities. The Company's
net loss of $839,356 for the quarter ending February 28,
1998, includes certain non-cash charges as follows:
Depreciation and amortization$ 116,837
Issuance of common stock as
consideration of services 467,714
Total non-cash charges$ 584,551
Accordingly, the Company's cash loss before the above
charges amounted to approximately $254,805.
<PAGE>
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
During the three months ending February 28, 1998, as
compared to the three months ending February 28, 1997,
operating expenses were approximately $201,517 higher.
Management expects operating expenses (non-depreciation
and non-amortization), to remain at this approximate
level for the near future due to the level of
negotiations and expansion discussions taking place
presently. Operating expense categories which exceeded
$5,000, for the three months period ending February 28,
1998, were; Amortization and depreciation $116,837;
Office rent $7,807; Management compensation and salary
$116,080; Travel and lodging $45,902; Consulting $19,190;
Legal and accounting $23,700; Telephone $13,635; and
Consulting costs paid by issuance of stock $467,714.
Operating expense categories which exceeded $5,000 for
the three month period ending February 28, 1997 were;
Amortization and depreciation $117,151; Office rent
$10,000; Management compensation and salary $18,000;
Travel and lodging $9,904; and Telephone $5,425.
LIQUIDITY AND CAPITAL RESOURCES
At the end of February, 1998, the Company's working
capital is $466,631. Net cash used for the Company's
operating activities for the quarter ending February 28,
1998 amounted to $226,866 whereas the net cash used for
operating activities for the quarter ending February 28,
1997 amounted to $39,903. Net cash provided (+) by
financing activities in the quarter ending February 28,
1998 was $71,685 compared to $49,100 for the quarter
ending February 28, 1997. Net cash provided for (used
by) investing activities during the quarter ending
February 28, 1998 was $117,441 compared to $(1,508) for
the quarter ending February 28, 1997. Therefore, total
cash at the end of the quarter ending February 28, 1998
was $163,573 compared to none $15,194 at the end of the
quarter ending February 28, 1997. During the quarter
ending February 28, 1998, all corporate debt amounted to
$120,914.
Management is evaluating its current and projected cash
needs to determine if its current financial situation
will be sufficient to meet such needs. If the Company
continues according to its present plans and without
modification, the Company will be required to obtain
additional financing or equity capital. Management is
actively exploring possible sources of additional capital
and is reviewing possible methods to obtain such
additional capital, as needed. There is no assurance
that such financing or capital will be available.
Negative cash flows from the Company's operating
activities are anticipated to continue until the Company
has established its distributors within its sales
territories, nas 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 is unable
to provide needed revenues to finance its ongoing
operating or if the Company does not receive additional
capital, there could be a severe adverse impact on the
Company's future operations.
On September 5, 1997, the Company established a Non-
Qualified Stock Option Plan ("The Plan") pursuant to
which 750,000 shares of common stock are reserved for
issuance. The option price per share shall be determined
by the Board of Directors at the time any options are
granted. The Plan is designed to serve as an incentive
for retainage qualified and competent persons who are key
employees, consultants, representatives, officers and
directors of the corporation. As of February 28, 1998,
358,500 shares had been issued under such Plan. See
Notes to financial statements, Note 5(b).
<PAGE>
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
On October 10, 1997, the Company signed a Letter of
Intent with an underwriter to proceed on a "Firm
Commitment" basis with a secondary offering of the
Company's common stock and redeemable warrants ("the
Warrants"). The Company plans to offer 1,000,000 shares
and warrants will be offered to the public at a price of
$6.00 per share and $0.125 per warrant, respectively.
The total gross offering amounts to $6,125,000. The
Company, if necessary, will effect a reverse stock split
in order to complete the secondary offering at a price of
at least $6.00 per share. Each warrant, which is
redeemable within 60 months, entitles the holder thereof
to purchase one share of common stock at 120% of the
offering price of the common shares. The warrants may be
redeemed by the Company at $0.10 each after the common
shares have traded at 150% of the offering price of
common shares for ten consecutive days. Due to the
current progress of negotiations with potential strategic
partners, this offering is postponed by management.
The Company' products are sold in US dollars and the
Company does not believe currency exchange rates or
current inflation rates will have a significant effect on
sales or profitability. Although the Company maintains
a bank account in Czech currency within the Czech
Republic for paying local expenses, the amount on deposit
in such account is usually small and, therefore,
fluctuation in the currency exchange rates should not
have a significant effect on the Company.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
ITEM 2 - Changes in Securities:
None
ITEM 3 - Defaults Upon Senior Securities:
None
ITEM 4 - Submission of Matters to a Vote of Security Holders:
None
ITEM 5 - Other Information:
None
ITEM 6 - Exhibits and Reports on Form 8-K:
None
<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.
BY:/s/Ronald A. Adams
July 7, 1998 Ronald A. Adams, Chief Executive
Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
/s/Ronald A. Adams July 7, 1998
Ronald A. Adams, Director and
Chief Executive Officer (Principal
Executive Officer and Principal
Financial Officer)
<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
incorporaed in Part I, Item 1. of this Form 10-QSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> FEB-28-1998
<CASH> 163,573
<SECURITIES> 0
<RECEIVABLES> 153,117
<ALLOWANCES> 0
<INVENTORY> 430,062
<CURRENT-ASSETS> 841,212
<PP&E> 3,355,429
<DEPRECIATION> 116,837
<TOTAL-ASSETS> 4,552,292
<CURRENT-LIABILITIES> 374,581
<BONDS> 0
0
0
<COMMON> 3,427
<OTHER-SE> 3,646,240
<TOTAL-LIABILITY-AND-EQUITY> 4,552,292
<SALES> 11,393
<TOTAL-REVENUES> 11,393
<CGS> 6,384
<TOTAL-COSTS> 6,384
<OTHER-EXPENSES> 842,065
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15,050)
<INCOME-PRETAX> (839,356)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (839,356)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> 0
</TABLE>
