UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[xx]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1997
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.)
2701 W. Oakland Park Boulevard, Ft. Lauderdale, FL 33311
(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: 2,976,818 shares
outstanding as of November 30, 1997.
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
INDEX
PART 1 - FINANCIAL INFORMATION:
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets November 30, 1997 (Unaudited)
and August 31, 1997 1
Consolidated Statements of Operations (Unaudited)
for the three months ended November 30, 1997 and 1996 2
Consolidated Statement of Stockholders' Equity (Unaudited)
for the three months ended November 30, 1997 3
Consolidated Statements of Cash Flows (Unaudited)
for the three months ended November 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5 - 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS (Unaudited)
November 30, August 31,
1997 1997
<S> <C> <C>
Current assets:
Cash $ 201,313 $ 15,199
Cash - restricted 80,960 330,932
Accounts receivable 143,627 -
Inventories 426,688 -
Other current assets 18,188 23,778
Total current assets 870,776 369,909
Machinery and equipment, net 3,419,803 3,489,341
Other assets:
Deferred consulting costs 194,400 -
Exclusive agency rights, net 239,514 263,485
Customer list, net 112,500 140,625
Deferred offering costs 50,000 -
Other assets 19,812 7,643
Total other assets 616,226 411,753
Total assets $ 4,906,805 $4,271,003
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 54,082 $ 53,793
Accrued expenses 86,114 36,467
Notes payable 100,000 215,000
Due to officer 27,739 27,036
Total current liabilities 267,935 332,296
Excess of net assets acquired over costs, net 545,471 -
Commitments and contingencies (Note 6) - -
Stockholders' equity:
Common stock $.001 par value, authorized
10,000,000 shares, issued and outstanding
2,976,818 and 2,639,484 shares, respectively 2,977 2,639
Additional paid-in capital 6,827,130 6,345,643
Accumulated deficit (2,736,708) (2,409,575)
Total stockholders' equity 4,093,399 3,938,707
Total liabilities and stockholders' equity $ 4,906,805 $ 4,271,003
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Sales $ 52,345 $ 27,072
Cost of goods sold 25,494 17,337
Gross profit 26,851 9,735
Expenses:
Selling, general and administrative 232,107 59,758
Depreciation and amortization 122,589 117,152
Total expenses 354,696 176,910
Loss from operations before other income
(expense) and provision for income taxes (327,845) (167,175)
Other income (expense):
Amortization of excess of net assets acquired
over costs 14,000 -
Interest income 3,706 754
Interest expense (12,311) -
Foreign currency exchange loss ( 4,683) -
Total other income (expense) 712 754
Loss before provision for income taxes (327,133) (166,421)
Provision for income taxes - -
Net loss $ (327,133) $ (166,421)
Basic:
Net loss $ (.12) $ (.08)
Weighted average number of shares outstanding 2,790,484 2,204,265
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997
(UNAUDITED)
<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, 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 $43,000 172,334 172 215,328 - 215,500
Issuance of common stock as consideration
for services 165,000 166 266,159 - 266,325
Net loss for the three months ended
November 30, 1997 - - - (327,133) (327,133)
Balances at November 30, 1997 2,976,818 $ 2,977 $ 6,827,130 $(2,736,708) $ 4,093,399
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SDC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (327,133) $ (166,421)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 122,589 117,152
Common stock issued as consideration
for services 12,977 -
Decrease (increase) in:
Accounts receivable - (27,072)
Other current assets 5,590 12,000
Increase (decrease) in:
Accounts payable (9,679) (2,923)
Accounts payable - related party - 17,337
Accrued expenses 49,647 9,296
Net cash (used for) operating activities (146,009) (41,385)
Cash flows from investing activities:
Proceeds from restricted cash account 249,972 (754)
Payment for acquisition of subsidiary (78,000) -
Proceeds from collection of notes receivable
- related parties - 62,985
Net cash provided by investing activities 171,972 62,985
Cash flows from financing activities:
Proceeds from issuance of note payable 100,000 10,000
Proceeds from stockholder 20,703 3,400
Proceeds from private placement memorandum 317,448 15,000
Costs associated with private placement memorandum (43,000) -
Repayment of loans from stockholder (20,000) (50,000)
Repayment of line of credit (215,000) -
Net cash provided by (used for) financing activities 160,151 (21,600)
Net increase in cash 186,114 -
Cash at beginning of period 15,199 -
Cash at end of period $ 201,313 $ -
Schedule of non-cash investing activities:
Excess of net assets acquired over costs in connection
with acquisition of subsidiary $ 559,471
Issuance of common stock pursuant to consulting
agreement $ 194,400 $
</TABLE>
See accompanying notes to 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. 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 financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with
instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management the
interim financial statements include all adjustments
necessary in order to make the financial statements not
misleading. The results of operations for the three
months ended are not necessarily indicative of the
results to be expected for the full year. For further
information, refer to the Company's audited financial
statements and footnotes thereto at August 31, 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 months ended November 30, 1997, amortization
expense amounted to $13,242.
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.
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, such lines of credit were
repaid.
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.
<PAGE>
NOTE 5 - STOCKHOLDERS' EQUITY
a) 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 three months ended November 30,
1997, the Company sold an aggregate of 172,334 shares
yielding net proceeds of $274,448.
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. As of November 30, 1997, the
Company issued 150,000 shares pursuant to the Plan. Such
shares have been valued at $253,200 representing 75% of the
average market value during the month of issuance as a
result of the liquidity of the Company's stock. In
connection with the issuance of such shares, the Company
received $58,800 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.
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
President with monthly payments amounting to
approximately $3,000.
Included in general and administrative expenses is rent
expense which amounted to $9,434, and $10,500 for the
three months ended November 30, 1997 and 1996.
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.
<PAGE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Cont'd)
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.
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.
<PAGE>
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 President and shareholder advances funds to
or on behalf of the Company. As of November 30, 1997,
$27,739 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
President with monthly payments amounting to
approximately $3,000.
d) Management fees
For the three months ended November 30, 1997 and 1996,
the Company recorded $30,000 of management fees paid to
its President.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is now the Central and South American distributor
for Czech heavy-duty truck manufacturer TATRA. During the quarter
ending November 30, 1997, the Company opened its representative
office in Bogota, Colombia, and appointed its initial service
center for service and warranty work on Tatra Trucks. TATRA, a.s.,
is a Czech manufacturer of on/off-road heavy duty 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, or Cummins Diesel. TATRA
has ISO 9000 certification and TATRA trucks meet all EURO II
regulations.
During the quarter ending November 30, 1997, the Company continued
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 August, 1997, the final agreement was executed with Metall
Kraft, Ltd., a Czech manufacturer which provides containers for
Mercedes Benz, Volvo, BMW and other well known companies. The
agreement establishes the Company as the exclusive distributor for
Metall Kraft's newly licenses airfreight cargo containers for all
airline companies in North and South America. During the quarter
ending November 30, 1997, Metall Kraft, Ltd., acquired a similar
company located in Switzerland and Germany, and subsequently moved
the acquired facilities to the Metall Kraft factory in the Czech
Republic. Upon completion of this move, the existing certification
for FAA use will become effective, so that the Company can begin
its marketing efforts of Metall Kraft air cargo containers within
North and South America.
During the quarter ending November 30, 1997, the Company completed
its acquisition of the Bolivian company, 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. The subsidiary's financial statements are
consolidated with those of the Company.
The Company has temporarily suspended its plans to sell and finance
inventories of Slovakian manufacturer Krizik, a.s. In order to
proceed with such sales and financing activities, the Company needs
to arrange additional financing. In the meantime, management has
pursued other opportunities which may result in more immediate
benefit to the Company. The Company continues its Regulation D
<PAGE>
Rule 505 offering of its common stock which provides for raising of
a total of $750,000 maximum for the Company. The Five Year Growth
Plan was completed in August 1997 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.
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
distributed and technical workshops were held at the factory of
Skoda Interdiesel in Prague, Czech Republic. The Board of
Directors studied proposals and opportunities for multilateral
product trading of industrial and consumer products between Eastern
Europe, United States and South America. Samples of the Company's
products were sent to several locations.
At the close of the quarter ending November 30, 1997, the
Company was negotiating for a possible acquisition of Skoda
Interdiesel's operations. Management and shareholder control of
Skoda Diesel changed in 1996, and the Company believes that if an
acquisition can be made on terms favorable to the Company, any
potential negative effects of the management and shareholder
changes of 1996 will be eliminated and the Company could exert
total control over this supplier. Management continues to work
closely with the management in place at Skoda Interdiesel and
relationships with most of the continuing management remain very
good. 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 records revenue when products are shipped. During the
quarter ending November 30, 1997, the Company shipped $52,345 and
realized a gross profit from those sales of $26,851. These sales
were made by the subsidiary Skobol, s.a. Management believes sales
and deliveries 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 November 30, 1997,
were more than in the quarter ending November 30, 1996, due
primarily to the expansion of management and the development of
additional product lines needed in order to enhance future growth
and revenues of the Company. 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,
the acquisition of Skobol, s.a., and, also, due to the extensive
discussions and negotiations in the Czech Republic regarding the
possible acquisition of Skoda Interdiesel.
<PAGE>
Total expenses for the quarter ending November 30 were
$176,910 in 1996 and $354,676 in 1997. Non-cash expense items as
depreciation and amortization and payment for consulting services
accounted for more than thirty-eight percent (38%) of the expenses
during the quarter ending November 30, 1997. During the quarter
ending November 30, 1997, expenses increased due to the increased
activity level of corporate and product acquisition plans and
related activities. The Company's net loss of $327,133 for the
quarter ending November 30, 1997, includes certain non-cash charges
as follows:
Depreciation and Amortization $ 122,589
Issuance of common stock as
consideration of services 12,977
__________
TOTAL NON-CASH CHARGES $ 135,566
Accordingly, the Company's cash loss before the above charges
amounted to approximately $191,567.
During the three months ending November 30, 1997, as compared to
the three months ending November 30, 1996, operating expenses were
approximately $172,350 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
month period ending November 30, 1997, were; amortization &
depreciation $122,589; office rent $9,434; management compensation
& salary $30,000; travel & lodging $33,788; consulting $85,826;
legal and accounting $8,384; office supplies $5,339; maintenance
and repairs $12,566; marketing $35,720; wages $23,076; and
telephone $6,839. Operating expense categories which exceeded
$5,000 for the three month period ending November 30, 1996 were:
amortization & depreciation $117,152: office rent $10,500;
management compensation & salary $18,000; and travel & lodging
$11,638.
LIQUIDITY AND CAPITAL RESOURCES
At the end of November, 1997, the Company's working capital is
$602,841. Net cash used for the Company's operating activities
for the quarter ending November 30, 1997 amounted to ($146,009)
whereas the net cash used for operating activities for the quarter
ending November 30, 1996 amounted to ($41,385). Net cash provided
(+) by financing activities in the quarter ending November 30, 1997
was $160,151 compared to ($21,600) for the quarter ending November
30, 1996. Net cash provided for by investing activities during the
quarter ending November 30, 1997 was $171,972 compared to $62,985
for the quarter ending November 30, 1996. Therefore, total cash at
the end of the quarter ending November 30, 1997 was $201,313
compared to none ($0.00) at the end of the quarter ending November
30, 1996. During the quarter ending November 30, 1997, all bank
debt, amounting to $220,000, was retired.
<PAGE>
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 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.
On February 24, 1997, the Company commenced and privately offered a
second private placement memorandum pursuant to Rule 505 of
Regulation D, on a best efforts basis, of no more than 500,000
shares of common stock in a ninety-day period (before extensions)
of its $0.001 par value common stock at a price of $1.50 per share
before deducting 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 NASD, financial advisors,
purchaser representatives, and individuals legally entitled to
receive such commissions. By the end of the quarter ending
November 30, 1997, the Company had issued an aggregate of 362,452
shares.
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 retaining qualified and competent persons who are key
employees, consultants, representatives, officers and directors of
the corporation. As of November 30, 1997, 150,000 shares had been
issued under such Plan. See Notes to Financial Statements, Note 5
(b).
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 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 $0.125 per warrant, respectively. The total
<PAGE>
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 common shares. The warrant 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.
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.
<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:
(b) The Registrant filed the following Forms 8-K during this
reporting period.
Form 8-K dated January 13, 1998 reporting Items 2. and 7.
<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
March 16, 1998 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 March 16, 1998
Ronald A. Adams, Director and
President (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, Statement of Cash Flows and Notes thereto
incorporated 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> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> NOV-30-1997
<CASH> 282,273
<SECURITIES> 0
<RECEIVABLES> 143,627
<ALLOWANCES> 0
<INVENTORY> 426,688
<CURRENT-ASSETS> 870,776
<PP&E> 3,419,803
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,906,805
<CURRENT-LIABILITIES> 267,935
<BONDS> 0
0
0
<COMMON> 2,977
<OTHER-SE> 4,090,422
<TOTAL-LIABILITY-AND-EQUITY> 4,906,805
<SALES> 52,345
<TOTAL-REVENUES> 52,345
<CGS> 25,494
<TOTAL-COSTS> 25,474
<OTHER-EXPENSES> 341,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,311
<INCOME-PRETAX> (327,133)
<INCOME-TAX> 0
<INCOME-CONTINUING> (327,133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (327,133)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
