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 September 30, 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.)
3045 North Federal Highway, Ft Lauderdale, Florida 33306
(Address of principal executive offices) (Zip Code)
(561) 882-9300
(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: 4,290,452 shares outstanding as of
September 30, 1998.
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
INDEX
PART 1 - FINANCIAL INFORMATION:
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited)
September 30, 1998 and December 31, 1997 1
Consolidated Statements of Operations (Unaudited)
for the three months ended September 30, 1998
and August 31, 1997 2
Consolidated Statements of Operations (Unaudited)
for the nine months ended September 30, 1998
and August 31, 1997 3
Consolidated Statement of Stockholders' Equity
(Unaudited) for the nine months ended
September 30, 1998 4
Consolidated Statements of Cash Flows (Unaudited)
for the nine months ended September 30, 1998
and August 31, 1997 5
Notes to Consolidated Financial Statements 6 - 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 12 - 15
PART II - OTHER INFORMATION 16
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash $ 143,603 $ 104,997
Cash - restricted 80,960 80,960
Accounts receivable, net 77,749 150,634
Inventory 685,365 437,798
Other current assets 85,736 17,528
Total current assets 1,073,413 791,917
Machinery and equipment, net 3,209,105 3,398,363
Other assets:
Exclusive agency rights, net 160,115 231,524
Customer list, net 18,750 103,125
Deferred offering costs 50,000 50,000
Organizational costs 3,500 6,369
Other assets 165,469 -
Total other assets 397,834 391,018
Total assets $ 4,680,352 $ 4,581,298
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 120,412 $ 67,739
Accounts payable - related party 13,477 13,477
Accrued expenses 96,130 81,207
Note payable - short term 975,000 100,000
Line of credit 499,996 -
Due to stockholder 21,343 15,739
Total current liabilities 1,726,358 278,162
Excess of net assets acquired over cost 498,804 540,804
Commitments and contingencies - -
Stockholders' equity:
Common stock $.001 par value; authorized:
10,000,000 shares; issued and outstanding:
4,404,452 and 2,990,118 shares, respectively 4,290 2,990
Additional paid-in capital 8,496,624 6,853,867
Accumulated deficit (5,874,299) (2,925,233)
Subtotal 2,626,615 3,931,624
Deferred costs (171,425) (169,292)
Total stockholders' equity 2,455,190 3,762,332
Total liabilities and stockholders' equity $ 4,680,352 $ 4,581,298
</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>
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
Sales $ 98,840 $ (207,260)
Cost of goods sold 76,857 (581,780)
Gross profit 21,983 374,520
Expenses:
Selling, general and administrative 675,267 291,863
Depreciation and amortization 176,214 98,674
Stock based consulting and compensation 381,657 171,250
Total expenses 1,233,138 561,787
Loss from operations before other income
and provision for income taxes (1,211,155) (187,267)
Other income (expense):
Interest income - (1,159)
Interest expense (132,664) (2,129)
Loss on disposal of assets - (437,088)
Amortization of excess of net assets
acquired over costs 14,000 -
Foreign currency exchange gain (loss) (21,554) -
Total other income (loss) (140,218) (440,376)
Loss before provision for income taxes (1,351,373) (627,643)
Provision for income taxes - -
Net loss $(1,351,373) $ (627,643)
Loss per share:
Basic and diluted:
Net loss $ (.33) $ (.25)
Weighted average number of shares
outstanding 4,047,286 2,552,151
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
Sales $ 160,777 $ 1,101,247
Cost of goods sold 105,934 680,431
Gross profit 54,843 420,816
Expenses:
Selling, general and administrative 1,315,973 502,803
Depreciation and amortization 436,714 332,977
Stock based consulting and compensation 1,080,521 171,250
Total expenses 2,833,208 1,007,030
Loss from operations before other income
and provision for income taxes (2,778,365) (586,214)
Other income (expense):
Interest income 112 953
Interest expense (153,417) (14,329)
Loss on disposal of assets - (437,088)
Amortization of excess of net assets
acquired over costs 42,000 -
Foreign currency exchange gain (loss) 33,589 -
Total other income (expense) (77,716) (450,464)
Loss before provision for income taxes (2,856,081) (1,036,678)
Provision for income taxes - -
Net loss $(2,856,081) $(1,036,678)
Loss per share:
Basic and diluted:
Net loss $ (.80) $ (.43)
Weighted average number of shares outstanding 3,565,517 2,389,048
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 December 31, 1997 2,990,118 $ 2,990 $ 6,853,867 $(2,925,233) $ (169,292) $ 3,762,332
Issuance of common stock in
connection with private placement
memorandum, net of offering costs
of $32,955 169,001 169 220,376 - - 220,545
Issuance of common stock pursuant
to non-qualified stock option plans 680,500 681 969,403 - - 970,084
Issuance of common stock for services 203,333 203 192,806 - - 193,009
Issuance of stock pursuant to loan
agreements 247,500 247 260,172 - (214,949) 45,470
Amortization of deferred costs - - - - 212,816 212,816
Foreign currency translation gains (losses) - - - (92,985) - (92,985)
Net loss for the nine months ended
September 30, 1998 - - - (2,856,081) - (2,856,081)
Balances at September 30, 1998 4,290,452 $ 4,290 $ 8,496,624 $(5,874,299) $ (171,425) $ 2,455,190
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,856,081) $ (1,036,678)
Adjustments to reconcile net loss to net
cash (used for) provided by operating
activities:
Amortization and depreciation 511,945 332,977
Issuance of stock for services 1,208,563 171,250
Loss on disposal of assets - 437,088
Foreign currency translations 92,985 -
Decrease (increase) in:
Accounts receivable 72,885 25,169
Inventory (247,567) 19,310
Other assets (247,744) 18,000
Prepaid expenses - (15,291)
Increase (decrease) in:
Accounts payable 52,673 35,667
Accrued expenses 14,923 (52,297)
Net cash (used for) provided by
operating activities (1,583,388) (64,805)
Cash flows from investing activities:
Decrease (increase) in restricted cash - (249,246)
Acquisition of exclusive agency rights - (123,334)
Purchase of machinery and equipment (14,151) -
Net cash used for investing activities (14,151) (372,580)
Cash flows from financing activities:
Proceeds from issuance of notes payable,
net of repayments 1,409,996 205,000
Advances from (repayments to) stockholder, net 5,604 (37,666)
Proceeds from sale of common stock 253,500 313,558
Cost associated with sale of common stock (32,955) (28,308)
Net cash provided by financing activities 1,636,145 452,584
Net (decrease) increase in cash 38,606 15,199
Cash, at beginning of period 104,997 -
Cash ,at end of period $ 143,603 $ 15,199
Supplemental disclosures of non-cash
flow information:
Cash paid for:
Interest $ 19,581 $ 11,415
Income taxes $ - $ -
Supplemental disclosure of non-cash operating
and financing activities:
Issuance of common stock as consideration
for loans $ 29,925 $ -
Issuance of common stock as repayment of
advance $ 35,000 $ -
Accrual of commissions and expenses on
stock sales $ 32,955 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTE 1 - GENERAL
SDC International, Inc. ("the Company") was incorporated in the state of
Delaware on June 30, 1994. The accompanying financial statements include the
accounts of the Company, and its wholly-owned subsidiary, Skobol, s.a., a
Bolivia corporation. The Company's equipment is located in the Czech
Republic. Effective August 1998, in connection with the Company's planned
acquisition of a significant portion of Tatra, a.s. ("Tatra") (a Czech
Republic corporation), the Company changed its year end from August 31 to
December 31. This change became effective from the last annual reporting
period, August 31, 1997, resulting in a transitional report for the period
September 1, 1997 through December 31, 1997. The Company has previously filed
Form 10-QSB for the quarters ending November 30, 1997, February 28, 1998, May
31, 1998 and June 30, 1998.
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 nine 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 consolidated financial statements and footnotes thereto at August 31,
1997, included in the Company's Form 10-KSB and the Company's unaudited
consolidated financial statements and footnotes thereto at December 31, 1997,
included in the Company's transition report Form 10-QSB, filed with the
Securities and Exchange Commission.
Certain reclassifications have been made to the August 31, 1997 financial
statements in order to conform to the September 30, 1998 presentation.
NOTE 2 - EXCLUSIVE AGENCY RIGHTS, NET
On April 21, 1994, one of the founding shareholders executed an exclusive
agency representation letter agreement as agent of the Company with Diesel,
a.s. (formerly Skoda Diesel, a.s.) ("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 exclusively, it must generate annual gross sales with in the
territory of at least $15,000,000 at the close of its sixth year, (April
1999), after the execution of the agreement. As consideration for the
purchase of these exclusive agency rights, the Company has issued 51,650
shares of its 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 exclusively agency rights at $64,563 which is being
amortized on a straight-line basis over 5 years. As a result, for each of the
nine months ended September 30, 1998 and August 31, 1997, the company recorded
amortization expense of $9,684.
In October 1995 the Company purchased the exclusive rights to market and sell
Skoda products into the countries of China and South Korea based upon the
following terms:
South Korea
i) During the year 1997, sales to South Korea must be in the amount of
least $2,400,000.
ii) During the year 1998, sales to South Korea must be in the amount of
$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.
<PAGE>
NOTE 2 - EXCLUSIVE AGENCY RIGHTS, NET (Cont'd)
China
i) During the year 1997, sales to China must be in the amount of at least
$3,000,000.
ii) During the year 1998, sales to China must be in the amount of at least
$4,500,000.
iii) During the year 1999, sales to China must be in the amount of at least
$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 five years. For each of the nine months ended September
30, 1998 and August 31, 1997, the company has recorded $22,500 in amortization
expense.
On April 18, 1996, the Company entered into a modification agreement whereby
all such sales levels were postponed for one year.
NOTE 3 - NOTES 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.
b) During October 1997, the Company borrowed $100,000 from an individual
which is payable in 180 days (which has been extended) at an interest rate of
14%. In connection with such borrowing, the Company issued 15,000 common
shares as additional consideration. See Note 4(c). The issuance of such
shares results in an effective interest rate of 40%. The note was repaid
during April and September 1998. As of September 30, 1998, the Company had
amortized $13,125 of deferred interest in relation to this note.
c) During June 1998, the Company borrowed $100,000 from a shareholder which
is payable in 90 days at an interest rate of 14% per annum. In connection
with such borrowing, the Company issued 20,000 common shares as additional
consideration. The issuance of such shares results in an effective interest
rate of 154%. As of September 30, 1998, the Company had accrued $4,650 of
interest and recorded $30,000 of additional consideration in relation to this
note.
d) During June 1998, the Company borrowed $100,000 from a shareholder which
is payable in 180 days at an interest rate of 14% per annum. In connection
with such borrowing, the Company issued 15,000 common shares as additional
consideration. See Note 4(c). The issuance of such shares results in an
effective interest rate of 40%. As of September 30, 1998, the Company had
accrued $4,650 of interest and amortized $8,551 of deferred interest in
relation to this note.
e) During July 1998, the Company borrowed $25,000 from a shareholder which
is payable in 180 days at an interest rate of 14% per annum. As of September
30, 1998, the Company had accrued $583 of interest in relation to this note.
f) During August 1998, the Company borrowed $125,000 from each of two
shareholders which is payable in 180 days at an interest rate of 14% per
annum. In connection with such borrowing, the Company issued each shareholder
31,250 common shares as additional consideration. See Note 4(c). The issuance
of such shares results in an effective interest rate of 68%. As of September
30, 1998, the Company had accrued $2,917 of interest and amortized $11,229 of
deferred interest in relation to each note.
<PAGE>
NOTE 3 - NOTES PAYABLE (Cont'd)
g) During August 1998, the Company borrowed $350,000 from a shareholder
which is payable in 180 days at an interest rate of 14% per annum. In
connection with such borrowing, the Company issued 125,000 common shares as
additional consideration. See Note 4(c). The issuance of such shares results
in an effective interest rate of 91%. As of September 30, 1998, the Company
had accrued $8,167 of interest and amortized $44,917 of deferred interest in
relation to this note.
h) During September 1998, the Company borrowed $150,000 from a shareholder
which is payable in 180 days at an interest rate of 14% per annum. As of
September 30, 1998, the Company had accrued $1,750 of interest in relation to
this note.
NOTE 4 - 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 extensions) of its $.001 par
value common stock at $1.50 per share before deducting discounts, commissions
and non-accountable expenses. During the nine months ended September 30, 1998,
the Company sold an aggregate of 169,001 shares yielding net proceeds of
$220,545.
b) 1997 Non-qualified stock option plan
On September 5, 1997, the Company established a Non-Qualified Stock Option
Plan ("the 97 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 97 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 and nine months ended September 30, 1998, the
Company issued 150,000 and 600,000 shares pursuant to the 97 Plan. Such
shares have been valued at $225,000 and $846,581 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 has recorded $846,581 as stock-based compensation for the
nine months ended September 30, 1998. Amortization of deferred costs for the
three and nine months ended September 30, 1998, in relation to stock issued
previously under the 97 plan, amounted to $48,600 and $97,200, respectively.
c) Deferred interest
In connection with the obtaining of loans (Note 3(b), 3(d), 3(f) and 3(g)),
the Company issued 15,000; 15,000; 62,500 and 125,000, shares of common stock,
respectively, as additional consideration. Such shares have been recorded at
50% 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; $12,825; $67,374 and $134,750,
respectively, which is being amortized over the term of the loans. For the
three and nine months ended September 30, 1998, amortized interest amounted to
$73,788 and $89,050.
d) Stock-based consulting
During the nine months ended September 30, 1998, the Company issued 203,333
shares of restricted common stock for consulting services. Such shares have
been valued at $193,009 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. 63,333 shares of common stock valued
at $66,309 were issued for services during the three months ended September
30, 1998.
<PAGE>
NOTE 4 - STOCKHOLDERS' EQUITY (Cont'd)
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 management
agreement of three years. Accordingly, for each of the nine months ended
September 30, 1998 and August 31, 1997, the Company recorded amortization
expense amounting to $84,375.
f) Notes payable
During the nine months ended September 30, 1998, the Company issued 35,000
shares of restricted common stock in repayment of an advance by a shareholder
and 10,000 shares of restricted common stock as consideration for extension of
the due date of a note payable. Such shares have been valued at the amount of
the advance of $35,000 and at $10,470, 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.
g) 1998 Non-qualified stock option plan
During July 1998, the Company established a second Non-Qualified Stock Option
Plan ("the 98 Plan") pursuant to which 300,000 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 98 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 and nine months ended September 30, 1998, the
Company issued 80,500 shares pursuant to the 98 Plan. Such shares have been
valued at $123,502 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 has recorded $123,502
as stock-based compensation for the nine months ended September 30, 1998.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
a) Lease agreement
The Company leases its administrative office pursuant to signed lease
agreement commencing July 1, 1995 and expiring on June 30, 1997. Such lease
required monthly payments of $3,500. Effective December 1996, the Company
terminated this lease. Prior to July 1, 1995 the Company maintained its
administrative office on a month to month basis, free of charge at the office
of Worth. Worth is an entity which the Chairman of the Company is also a 50%
shareholder. Effective January 1, 1998, the Company entered into a new lease
for a one year term. Such lease requires monthly payments of $2,000.
Included in general and administrative expenses is rent expense which amounted
to $9,958 and $16,733 for the three months ended September 30, 1998 and August
31, 1997, respectively and $38,226 and $46,520 for the nine months ended
September 30, 1998 and August 31, 1997, respectively.
b) Significant customers and vendors
For the nine months ended August 31, 1997, the Company purchased 100% of its
cost of goods sold from two of its founding stockholders, Skoda and Double
Seal Ring Company ("Double"). During the nine months ended September 30,
1998, the Company had sales to Skoda of $14,275 and purchases from Double of
$13,159. No other sales or purchases were made from Skoda or Double during the
nine months ended September 30, 1998.
<PAGE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Cont'd)
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 Tatra and as such, it is subject to
Skoda's & Tatra's risks of business and their 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 for a period of three years. Pursuant to such agreement,
the individual shall devote such time, attention and efforts to management
services as may be reasonably required by the Company and Worth. The Company
and Worth will pay such individual an amount equal to twenty-five percent
(25%) of the gross profit from sales made by the Company. Such payments are
payable monthly after the collection of receivables from said sales. There
are no amounts currently payable under this agreement.
e) 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. Due to the current progress of negotiations with
potential strategic partners, this offering is postponed by management.
f) 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.
g) Dependence on Skoda and Tatra
The Company's operations are largely dependent on Skoda and Tatra since Skoda
and Tatra are responsible for the manufacturing of much of the Company's
products. The Company faces risks of the inability to obtain products in the
event of production problems of Skoda or Tatra due to labor problems,
governmental regulations, working capital deficiencies, political unrest and
other problems which may result in the inability of Skoda or Tatra to fulfill
orders of the Company.
<PAGE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Cont'd)
h) Line of Credit
During the June 1998, the Company obtained an unsecured $500,000 line of
credit from a shareholder with an interest rate at fourteen percent (14%) per
annum. Principal and interest are payable on December 18, 1998. If the
Company is not able to pay such principal and interest when due, the principal
balance of the line of credit and any outstanding accrued interest may be
converted into common stock at the rate of $1 per share. The amount
outstanding at September 30, 1998 under this agreement is $499,996. As of
September 30, 1998, the Company had accrued interest in the amount of $11,442
in connection with this line of credit.
NOTE 6 - RELATED PARTY TRANSACTIONS
a) Acquisition of exclusive agency rights
In October 1995, the Company purchased the exclusive rights to market and sell
Skoda products into the countries of China and South Korea. In consideration
for these rights the Company paid Skoda $150,000.
b) Accounts payable
At September 30, 1998, the Company had accounts payable totaling $13,477 which
was due to Double Seal Ring Company, one of its founding shareholders.
c) Due to officer
The Company's Chief Executive Officer and shareholder advances funds to or on
behalf of the Company. As of September 30, 1998, $50,839 was owed to such
officer. Such advances are non-interest bearing and due on demand.
d) Management fees
For the nine months ended September 30, 1998 and August 31, 1997, the Company
recorded $262,480 and $54,000 respectively for management fees and travel
allowance to the Chief Executive Officer and the President.
e) Rent Expense
Effective January 1, 1998, the Company rents its executive office on a month
to month basis from its Chief Executive Officer with monthly payments
amounting to approximately $2,000.
NOTE 7 - SUBSEQUENT EVENTS
a) Acquisition
During July 1998, the Company entered into a letter of intent to purchase
43.5% of the Czech truck manufacturer, Tatra a.s., for approximately $13.6
million. In addition, the Company will purchase Tatra's senior secured loan
from the bank holding such note, with an approximate balance of $89.5 million,
for approximately $30 million. Both agreements are anticipated to close on or
before March 31, 1999.
There is no assurance that the transaction will be completed since the Company
must obtain sufficient capital to complete the acquisition, thus, no pro forma
financial information has been presented. The following information is from
Tatra's audited financial statements. Tatra had sales of approximately $290
million for the year ended December 31, 1997. At December 31, 1997, Tatra had
total assets of approximately $230 million.
<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. 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 September 30, 1998, there was minimal activity in
the Company's 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 September 30, 1998, the Company continued 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 an 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 canceled 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.
At the close of the quarter ending September 30, 1998, the Company continued
exploring a possible acquisition of Skoda's Diesel a.s. operations.
Management and shareholder control of Diesel a.s. (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 a.s. 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.
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 September 30, 1998, the
Company shipped $98,840 and realized a gross profit from those sales of
$21,983. These sales were made by both the Company and its 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.
<PAGE>
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
Operating expenses for the quarter ending September 30, 1998 were more than in
the quarter ending August 31, 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 acquisitions of Diesel a.s. and Tatra a.s.
Total expenses for the quarter ending September 30, 1998 were $1,233,138 and
$561,787 for the quarter ending August 31, 1997. Non-cash expenses as
deprecation and amortization and payment for consulting services accounted for
$557,871 or more than forty-five (45%) of the expenses during the quarter
ending September 30, 1998. During the quarter ending September 30, 1998,
expenses increased due to the increased activity level of corporate and
product acquisition plans and related activities. The Company's net loss of
$1,351,373 for the quarter ending September 30, 1998, includes certain
non-cash charges as follows:
Depreciation and amortization $ 176,214
Issuance of common stock as
consideration for interest expense 89,212
Issuance of common stock as
consideration for services 381,657
Total non-cash charges $ 647,083
Accordingly, the Company's cash loss before the above charges amounted to
approximately $704,290.
During the three months ending September 30, 1998, as compared to the three
months ending August 31, 1997, general and administrative expenses were
approximately $383,404 higher. Management expects general and administrative
expenses to remain at this approximate level for the near future due to the
level of negotiations and expansion discussions taking place presently.
LIQUIDITY AND CAPITAL RESOURCES
At the end of September 1998, the Company's had a working capital deficit of
$652,945. Net cash used for the Company's operating activities for the
quarter ending September 30, 1998 amounted to $(952,483) whereas the net cash
used for operating activities for the quarter ending August 31, 1997 amounted
to $(156,558). Net cash provided by financing activities in the quarter
ending September 30, 1998, was $1,061,417 compared to $252,011 for the quarter
ending August 31, 1997. Net cash provided for (used by) investing activities
during the quarter ending September 30, 1998, was $(4,494) compared to
$372,580 for the quarter ending August 31, 1997. Therefore, total
unrestricted cash at the end of the quarter ending September 30, 1998 was
$143,603 compared to $15,199 at the end of the quarter ending August 31,
1997. During the quarter ending September 30, 1998 all corporate debt
amounted to $1,496,339.
<PAGE>
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
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, 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 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 "97 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 97 Plan is
designed to serve as an incentive to retain qualified and competent persons
who are key employees, consultants, representatives, officers and directors of
the corporation. As of September 30, 1998, all authorized shares had been
issued under the 97 Plan.
During the quarter ended September 30, 1998, the Company established a
Non-Qualified Stock Option Plan (the "98 Plan") pursuant to which 500,000
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 98 Plan is designed to serve as an incentive to retain qualified
and competent persons who are key employees, consultants, representatives,
officers and directors of the corporation.
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>
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
During June 1998, the Company obtained an unsecured $500,000 line of credit
from a shareholder with an interest rate at fourteen percent (14%) per annum.
The Company may borrow from the credit line up to $35,714 in any one week.
Principal and interest are payable on December 18, 1998. If the Company is not
able to pay such principal and interest when due, the principal balance of the
line of credit and any outstanding accrued interest may be converted into
common stock at the rate of $1 per share. As of September 30, 1998, the
Company has been advanced a total of $499,996 and has accrued interest in the
amount of $11,442.
During July 1998, the Company entered into a letter of intent to purchase
43.5% of the Czech truck manufacturer, Tatra a.s., for approximately $13.6
million. In addition, the Company will purchase Tatra's senior secured loan
from the bank holding such note, with an approximate balance of $89.5 million,
for approximately $30 million. Both agreements are anticipated to on or before
March 31, 1999.
There is no assurance that the transaction will be completed since the Company
must obtain sufficient capital to complete the acquisition. The following
information is from Tatra's audited financial statements. Tatra had sales of
approximately $290 million for the year ended December 31, 1997. At December
31, 1997, Tatra had total assets of approximately $230 million.
<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, hereunto
duly authorized.
SDC INTERNATIONAL, INC.
BY:/s/Ronald A. Adams
Ronald A. Adams, President
November 24, 1998
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacitates and on
the dates indicated.
/s/Ronald A. Adams November 24, 1998
Ronald A. Adams, Director and President
(Principal Executive Officer and Principal
Financial Officer)
/s/Henry S. Green November 24, 1998
Henry S. Green, Jr., Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from Balance Sheet,
Statement of Operations, Statement of Cash Flows and Notes thereto incorporated
in Part I of this Form 10Q-SB and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 143,603
<SECURITIES> 0
<RECEIVABLES> 77,749
<ALLOWANCES> 0
<INVENTORY> 685,365
<CURRENT-ASSETS> 1,073,413
<PP&E> 4,060,124
<DEPRECIATION> (851,019)
<TOTAL-ASSETS> 4,680,352
<CURRENT-LIABILITIES> 1,726,358
<BONDS> 0
0
0
<COMMON> 4,290
<OTHER-SE> 8,496,624
<TOTAL-LIABILITY-AND-EQUITY> 4,680,352
<SALES> 160,777
<TOTAL-REVENUES> 160,777
<CGS> 105,934
<TOTAL-COSTS> 105,934
<OTHER-EXPENSES> 2,833,208
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153,417
<INCOME-PRETAX> (2,856,081)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,856,081)
<EPS-PRIMARY> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
