U. S. Securities and Exchange Commission
Washington, D. C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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.)
251 Royal Palm Way Suite 301
Palm Beach, Florida 33480
(Address of principal (Zip code)
executive offices)
Issuer's telephone number (561) 882-9300
Securities registered under Section 12(b) of the Act:
None
<PAGE> 1
Securities registered under Section 12(g) of the Act:
Common Stock, Par value $0.001
(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 5(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that registration was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The aggregate market value of the voting stock on December 31, 1999
(consisting of Common Stock, $0.001 par value per share) held by
non-affiliates was approximately $9,011,404 based upon the average bid
and asked prices for such Common Stock on said date ($1.69), as reported
by a market maker. On such date, there were 7,745,004 shares of the
Registrant's Common Stock outstanding.
<PAGE> 2
Item 1. DESCRIPTION OF BUSINESS
-----------------------
SDC International, Inc., (hereinafter referred to as the
"Company") is a Delaware corporation formed in June, 1994 to
market, sell, and finance Eastern and Central European industrial
products such as diesel generators, co-generation equipment,
electric metering systems, on/off-road trucks, tractors, and
transport equipment such as buses, trolleys, trams, and
airfreight containers. Presently, the Company works to establish
relationships of joint venture or as an acquirer of such
manufacturing companies.
The Company has acted as an exclusive distributor of Skoda Diesel
engines in North, South and Central America, under an exclusive
license from Skoda Diesel, now known as Diesel International,
a.s., ("Diesel"). Diesel products are principally piston
combustion diesel, gas, and bio-gas engines whose applications
include locomotive and stationary engines for the generation and
co-generation of electric power and complete energy for a variety
of purposes. In April 1997, the Company acquired by merger the
Panamanian company representing Tatra, a Czech truck manufacturer
with ISO certification, to market and sell Tatra products in
South and Central America. In August 1997, the Company became
the exclusive North and South American distributor of Metal
Kraft, a.s., a Czech manufacturer of metal pallets and containers
whose customers include Mercedes Benz, BMW, and Volkswagen, and
which, beginning in 1997, offers a line of airfreight cargo
containers. During the final quarter of fiscal 1997, the Company
executed an acquisition agreement with Czech trading company
Motokov International which provided for the Company's
acquisition of the Motokov subsidiary in Bolivia, Skobol, s.a.
Skobol is a thirty-eight 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 acquisition
closed effective September 30, 1997. During 1999, management
reevaluated its Bolivian subsidiary and determined that a
reorganization or disposal of the subsidiary should be planned by
the Company. The sale of Skobol was completed in June 2000. In
early 1998, the Company executed letters of intent and agreements
to purchase Tatra, a.s. However, the Company has not consummated
the Tatra transaction, and continues its efforts toward the
acquisition.
Through its direct involvement in Central and Eastern Europe, the
Company has learned that most manufacturing companies within this
geographic/political area with whom the Company wishes to
transact its business have a shortage of marketing skills and
financial capability. Therefore, the Company has determined that
it should take an internal position within its targeted
manufacturing companies to assure better financial capability and
marketing skills. This planned activity may be as a joint
venture with or an acquisition of such manufacturing companies.
<PAGE> 3
During September, 1999, the mandate issued to Komercni Banka by
Tatra owner Skoda Plzen was canceled after Komercni Banka failed
to conclude the sale of Tatra shares and debt to a strategic
partner for Tatra. The Company was informed that the government
of the Czech Republic, through its state-owned Konsolidacni
Banka, would assume the responsibility for selling of Tatra's
shares and bank debts. During the last quarter of 1999, the
Czech government-owned Konsolidacni Bank took over ownership of
and the process of disposing of Tatra. In early 2000,
Konsolidacni Banka engaged the Czech Revitalization Agency, a
subsidiary of the Konsolidacni Banka, to perform the process of
selling Tatra. A Confidential Memorandum was sent to the Company
regarding the proposed sale, and discussions ensued in mid-2000.
Management believes that the process is being conducted
transparently and professionally, and that the Company has a
reasonable chance of acquiring ownership of Tatra.
The Company, represented by Chairman Ronald Adams, President
Milota Srkal, and strategic Board Advisor General Haig, met in
Prague, Czech Republic, with Prime Minister Milos Zeman, Deputy
Minster of Finance Mladek, Deputy Minister of Foreign Affairs
Hynek Kmonicek, Minister of Defense Jan Vetchy, and Chairman of
Konsolidacni Banka Ziegler. During the meetings, the Company
discussed its plans for Tatra and expressed its determination to
acquire the ownership of Tatra as is being offered by
Konsolidacni Banka and the Revitalization Agency.
In August, 1999, the Company executed an agreement providing for
the Company's acquisition of a majority of shares of Czech
aircraft manufacturer, Moravan, a.s. The agreement, providing
for the issuance of additional shares of Moravan equal to fifty-
five percent of the subsequent outstanding shares, was approved
by the Company's board and by the shareholders of Moravan, a.s.
Under Czech law, such an increase of shares must be registered by
the Commercial Court to be effective, a process which can take an
extended period of time and towards which any third parties may
object. There were objections and there has been no registration
in the Commercial Court. The Company has begun negotiations with
the largest creditor of Moravan to purchase the bank debt of
Moravan on discounted terms. Until such time that the objections
are settled and the Commercial Court registers the new shares,
there is no closing of the acquisition. The Company has no funds
or capital at risk until and unless such a closing occurs.
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.
Diesel International, a.s. (formerly "Skoda Diesel")
----------------------------------------------------
The Company offers a broad range of engines in several sizes and
capacities. The Company's products have application in several
<PAGE> 4
markets including electrical power production and co-generation
systems, locomotive engines, pump stations, direct drives for
industrial engines, oil and gas drilling equipment, and complete
power systems for use in hospitals, factories, commercial and
governmental facilities. The products manufactured by Diesel and
marketed by the Company are especially important in the lesser
developed countries seeking to build infrastructure sufficient to
support economic growth and development.
The Company entered into an exclusive agency agreement with Skoda
Diesel dated April 21, 1994 under which it is appointed as Skoda
Diesel's exclusive agent in North, Central and South America for
the marketing and sale of products of Skoda Diesel. The
agreement provides that for the agreement to be not cancelable by
Skoda Diesel, sales made within the foregoing territory shall be
at least $15,000,000 per year by the close of the sixth year
after execution of the agreement. Because of the Company's focus
on developing joint venture or acquisition projects, neither of
which is currently desired by the Company to be formed with
Diesel, sales efforts by the Company on behalf of Diesel products
has been stopped by the Company for the present time.
Tatra, a.s.
-----------
The Company is the exclusive distributor for Tatra vehicles,
accessories and spare parts for Colombia with the right of first
refusal to become the exclusive distributor for other countries
of South and Central America. The Company became the exclusive
distributor for Tatra through the merger into the Company of
Golden Grove Business, Inc.
On May 18, 1995, Golden Grove Business, Inc., ("GGB") executed an
agreement with Tatra to become an exclusive distributor of Tatra
vehicles, accessories and spare parts in Colombia with the right
of first refusal to become the exclusive distributor for other
countries in Central and South America. In the beginning of
1997, GGB and the Company entered into an agreement providing for
the merger of GGB into the Company. The merger closed on April
24, 1997.
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 carrying 2.5 tons of payload 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. The Tatra design enables
quicker passage over rough terrain with significantly less
vibration than that from more orthodox designs. The swing half
axles together with the central backbone tube system create a
stable base for a superstructure resistant to side oscillation.
The trucks are offered in 4 by 4, 6 by 6, and 8 by 8
<PAGE> 5
configurations with a turbocharged eight cylinder diesel engine
with air-to-air intercooler. The transmission is mechanical with
a pneumatic gear shift booster, ten forward and two reverse
speeds of the Tatra design. Tatra has ISO 9000 certification and
Tatra trucks meet all EURO II regulations.
During Tatra's peak production years of the 1980's and early
1990's, the factory produced over 17,000 vehicles per year. In
1998, Tatra produced about 2,800 vehicles, which is an increase
from the lowest production year of 1995 when 2,000 trucks were
produced. Historically, Tatra sold their products domestically
and exported to China, the former Soviet Union, and Europe. The
decrease in sales was attributed to the downturn in the economy
and essentially lower demand for new trucks in the former Soviet
Union and Eastern Europe, all due to the fall of the state's
Communist economy and political system.
The Tatra factory has been struggling with a lack of operating
capital for several years and is burdened with bank credits of
more than US$120,000,000. Tatra revenues in 1999 were
approximately US$172,336,000 compared to US$240,000,000 in 1998.
Tatra reported a loss of approximately US$20,000,000 for 1999.
This financial situation and lack of adequate working capital is
similar to that of most other East European manufacturers who
have had to reorganize to market their products to new markets
and customers after the disintegration of the Communist economic
system.
Moravan Air Containers
----------------------
On August 21, 1997, the Company executed an exclusive agreement
with Metall Kraft, s.r.o., a Czech manufacturer producing metal
pallets, warehouse transportation equipment, and transport cargo
containers, to market and sell all such products in North,
Central and South America. Since that time, Metall Kraft, s.r.o.
liquidated, and in the process assigned the agreement to Moravan,
a.s., with whom the Company conducts its business currently under
the name Moravan Air Containers.
Through privatization, the owners of Moravan Air Containers
purchased, in 1994, the company CSAO, a state owned company which
for several decades produced automobile and truck bodies,
repaired truck bodies and maintained a metal fabrication
facility. During the same year, the company changed its name from
CSAO to Metall Kraft and then transferred the container business
to Moravan Air Containers, who then began manufacturing metal
transport containers. The Moravan Air Containers facility is
slightly more than 300,000 square feet located in an industrial
zone in the southern region of the Czech Republic. Moravan Air
Containers employs 30 workers and holds manufacturing quality
certificate type CZ-10200.
<PAGE> 6
Skobol, s.a. - Bolivia
----------------------
During the final quarter of fiscal 1997, the Company executed an
acquisition agreement with Czech trading company Motokov
International which provided for the Company's acquisition of the
Motokov subsidiary in Bolivia, Skobol, s.a. Skobol is a thirty-
eight 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 acquisition closed
effective September 30, 1997. During 1999, management
reevaluated its Bolivian subsidiary and determined that a
disposal of the subsidiary should be planned by the Company. In
early 2000, the Company executed letters of intent to sell Skobol
and completed the sale in June 2000.
General
-------
In the case of purchase and resale of manufactured products, the
Company is dependent upon certain foreign suppliers for its
products. As such, the Company faces risk of the inability to
obtain products in the event of production problems at these
suppliers due to labor problems, governmental regulations,
working capital deficiencies, political unrest and other problems
which may result in the inability of these suppliers to fulfill
orders of the Company and over which the Company has no control.
In the event these suppliers were unable to fulfill the Company's
orders, it might have to suspend its business until such supply
problems were corrected by the supplier or until alternative
suppliers were located, none of which can be assured.
Additionally, although the Company pays its suppliers in U.S.
Dollars, currency fluctuations may adversely affect the prices
charged by the Company. The Company's sales are made in U.S.
Dollars but currency fluctuations may make its prices non-
competitive to its customers. Due to the Company's newer focus
on joint venture or acquisition projects with such manufacturers,
the Company is dependent upon joint venture or acquisition
agreements being executed, and the ability of the Company to
complete satisfactory due diligence, convert financial
information to United States Generally Accepted Accounting
Principles, and arrange financing for any such transactions
deemed appropriate for the Company. Additionally, there is also
the potential for political instability in the foreign
governments of countries in which the Company conducts its
business, which may result in a loss of the Company's assets
located there.
The Company was formed in 1994 by Skoda Diesel, Double Seal Ring
Company, Inc., and Worth Capital Group (since renamed WCG
Holdings, Inc.) with the view toward introducing and marketing
industrial and transport equipment manufactured in Central and
Eastern Europe. The first arrangement reached by the Company
provided for sales of the Skoda line of engines and related
products in the area of its exclusive license and, also,
globally, where it holds non-exclusive agency rights. Skoda
Diesel, with a long history of quality manufacturing and
<PAGE> 7
technical expertise, combined with Double Seal Ring Company, a
U.S. manufacturer of industrial piston rings which are important
components of all diesel/gas engines, and WCG Holdings, Inc.,
whose business involves international consulting in the areas of
marketing and financing, to form SDC International, Inc.
Item 2. DESCRIPTION OF PROPERTY
-----------------------
The Company has its primary offices at 251 Royal Palm Way, Suite
301, Palm Beach, FL 33480, where corporate, sales and marketing
functions are performed. The offices are inside a six story
facility owned by an unrelated party. In Bolivia, the Company,
through Skobol, s.a., occupies a 6,000 square foot facility owned
by an unrelated party. The annual office rental payments of the
company and its subsidiary total approximately $75,000, and are
on a month to month basis. The Company, through its subsidiary,
SDC Prague, s.r.o., leases an office at Vaclavske nam. 66,
Prague, Czech Republic, for its activities in the Czech Republic.
At the end of the period ending December 31, 1999, the machinery
and equipment of the Company consists of warehouse and office
equipment within its Bolivian subsidiary, Skobol, s.a.. The
machinery and equipment formerly used to manufacture Skoda diesel
engines which was located within the Diesel International factory
in the Czech Republic was abandoned by the Company in 1999. The
Company's focus of its business activities has significantly
changed from selling and distributing other companies' products
to focusing the Company's efforts to acquire Central and East
European manufacturing companies in the transportation equipment
business. U. S. accounting rules required an annual review of
the productive use of such machinery. As a result of the review,
and in light of the Company's business plans, the equipment was
deemed to be non-productive on a future cash flow basis and, in
accordance with the accounting rules related to such machinery
and equipment, the Company had recorded an impairment loss of the
machinery and equipment at Diesel in 1997 in the amount of
$3,467,320. The Company abandoned the equipment in 1999, as it
was of no use to the Company and would not be useful under the
business plans of the Company regarding acquisitions.
The Company believes that its existing offices and related
facilities are adequate for the foreseeable future and that,
depending on additional products and sales, similar and/or
additional offices and locations can be acquired on reasonable
terms.
As of December 31, 1999, approximately 14% of the Company's
assets are located in the Czech Republic, 20% are located in
Bolivia, with the balance in the United States.
<PAGE> 8
Item 3. LEGAL PROCEEDINGS
-----------------
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company did not submit any matters to a vote of the security
holders during its fiscal years ending December 31, 1998 or
December 31, 1999.
PART II
-------
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
------------------------------------------------
The Company's Common Stock was approved on July 29, 1996 by the
National Association of Securities Dealers (NASD) for trading on
the Over-the-Counter Bulletin Board system. The following table
sets forth representative high closing ask and low closing bid
quotes as reported by a market maker, during the period from
January 1, 1999 through December 31, 1999. Bid quotations
reflect prices between dealers, do not include resale mark-ups,
mark-downs or other fees or commissions, and does not necessarily
represent actual transactions.
Calendar period Low bid High ask
--------------- ------- --------
January, 1999 - March, 1999 0.87 2.37
April, 1999 - June, 1999 2.00 3.87
July, 1999 - September, 1999 1.75 3.50
October, 1999 - December, 1999 1.06 2.75
As of December 31, 1999, there were approximately 300 holders of
record of the Company's Common Stock, although the Company
believes that there are approximately 200 additional beneficial
owners of shares of Common Stock held in street name. As of
December 31, 1999, the number of shares of Common Stock
outstanding of the Company was 7,745,004.
The Company has paid no dividends and has no present plan to pay
dividends. Payment of future dividends will be determined from
time to time by its board of directors, based upon its future
earnings (if any), financial condition, capital requirements and
other factors. The Company is not presently subject to any
contractual or similar restriction on its present or future
ability to pay such dividends.
<PAGE> 9
Item 6. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AS
COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
In 1997, the Company consummated a merger with the Panamanian
company Golden Grove Business ("GGB"), which was the Central and
South American distributor for Czech heavy-duty truck
manufacturer Tatra. The merger agreement provided for the
acquisition of one-hundred percent of the outstanding shares of
GGB to be acquired by the Company for 48,000 shares of restricted
common stock of the Company, along with the investment of
approximately $120,000 into GGB. 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 an air cooled diesel engine and a
solid central backbone tube with swing half axles, both features
being unique features of the Tatra truck. Tatra has ISO 9000
certification and Tatra trucks meet all EURO II regulations.
During the fourth quarter of 1997, the Company established a
subsidiary known as SDC - Prague, s. r. o., in the Czech
Republic. SDC Prague will represent SDC International, Inc., in
its business operations within the Czech Republic.
By the close of the fiscal year 1997, a final agreement had been
executed with Metall Kraft, Ltd., a Czech manufacturer which
provides its products to Mercedes Benz, Volvo, BMW and other well
known companies. The agreement establishes the Company as the
exclusive distributor for airfreight cargo containers for all
airline companies in North and South America. There were no sales
under this agreement during the years ended December 31, 1998 and
1999.
During the final quarter of fiscal 1997, the Company executed an
acquisition agreement with Czech trading company Motokov
International which provided for the Company's acquisition of the
Motokov subsidiary in Bolivia, Skobol, s.a. Skobol is a thirty-
eight 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 acquisition closed
effective September 30, 1997. During 1999, management
reevaluated its Bolivian subsidiary, which has not progressed as
well as planned. The basic reason the Company acquired the
Bolivian operation was to establish an entity for the sale of
used Tatra trucks, a procedure which would be necessary in order
to arrange a leasing program for new Tatra trucks, assuming the
acquisition of Tatra by the Company would be completed. At the
time of the acquisition, the economy of neighboring country
Brazil, was very positive. However, shortly after the
acquisition, the economy of Brazil deteriorated and, therefore,
<PAGE> 10
caused economic hardship for Bolivia, as Bolivia had always been
very dependent upon the economic benefits of a positive Brazilian
economy. Because the Tatra acquisition has not been concluded,
because of the Brazil economic deterioration, and because the
performance of the subsidiary without the Tatra program was still
in a loss situation, management determined that plans to dispose
of the subsidiary would be necessary and, in early year 2000, the
Company executed an letter of intent to sell the subsidiary and
the sale was completed in June 2000.
During most of fiscal year ending December 31, 1999, the Company
increased its active pursuit of a joint venture or acquisition,
specifically of Czech truck manufacturer, Tatra, a.s. During the
first half of 1998, the Company signed contracts to purchase
43.5% of Tatra from Skoda Plzen, a.s. (a separate company than
Skoda Diesel), and signed a simultaneously exerciseable contract
with Komercni bank to acquire 90 million USD of Tatra's senior
secured debt. Due to the eventual refusal of the Chairman of
Skoda Plzen to execute the final sales agreement, the planned
acquisition was not consummated. The Company elected not to
litigate because Skoda Plzen's primary bank announced that it
would take over the Tatra shares and debt and find a suitable
acquisition partner for Tatra. The Company believed that this
process would yield more favorable results for the Company rather
than litigating against Skoda Plzen for its failure to perform.
Shortly thereafter, Komercni Banka reached an agreement with
Skoda Plzen for the bank to sell Skoda Plzen's shares in Tatra
along with the bank debts of Tatra. The Company met with the
appropriate officials of the bank on several occasions, and
submitted its firm and binding offer for the Tatra shares and
selected debts of Tatra. However, after several months, the bank
failed to complete a sale and the mandate issued by Skoda Plzen
to the bank to divest of the shares and debt was canceled.
During the last quarter of 1999, the Czech government-owned
Konsolidacni Bank took over ownership of and the process of
disposing of Tatra. In early 2000, Konsolidacni Banka engaged
the Czech Revitalization Agency, a subsidiary if the Konsolidacni
Banka, to perform the process of selling Tatra. A Confidential
Memorandum was sent to the Company regarding the proposed sale,
and discussions ensued in mid-2000. Management believes that the
process is being conducted transparently and professionally, and
that the Company has a reasonable chance of acquiring ownership
of Tatra.
There can be no assurances that any of the matters discussed
above will come to fruition or will result in positive results
for the Company.
Operating expenses for 1999 were less than in 1998 due primarily
to less issuance of common stock for services rendered. Total
operating expenses were: $3,206,696 for the twelve month period
ending December 31, 1999 compared to $3,673,064 for the twelve
<PAGE> 11
month period ending December 31, 1998. Non-cash expense items as
depreciation and amortization and the payment for additional
consulting services accounted for more than sixty-seven percent
(67%) of the expenses for 1999 compared to seventy-three (73%) of
the expenses for the twelve month period ending December 31,
1998. The Company's net losses from continuing operations for
the twelve months ended December 31, 1999 and the twelve month
period ending December 31, 1998 include certain non-cash charges
as follows:
<TABLE>
<CAPTION>
twelve months ending twelve months ending
12-31-99 12-31-98
-------------------- --------------------
<S> <C> <C>
Depreciation and Amortization $ 39,823 $ 49,039
Amortization of debt discount 1,344,698 1,087,761
Loss on impairment of agency rights 50,975
Issuance of common stock as
consideration of services 2,110,679 2,422,902
------------ -------------
TOTAL NON-CASH CHARGES $ 3,546,175 $ 3,559,702
</TABLE>
Accordingly, the Company's actual twelve month 1999 cash loss
from continuing operations before the above charges amounted to
approximately $1,178,306 and $1,306,616, for the twelve month
period ending December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for the Company's operating activities for the
twelve month fiscal year 1999 amounted to $720,724 whereas the
net cash used for operating activities for the twelve month
period ending December 31, 1998 amounted to $1,733,877. Net cash
provided (+) by financing activities in 1999 was $850,677
compared to $1,734,170 for the twelve month period ending
December 31, 1998. Net cash used (-) for investing activities in
1999 was $711 compared to $5,694 for the twelve month period
ending December 31, 1998. Total cash on hand as of December 31,
1999 was $170,893 compared to $41,651 as of December 31, 1998.
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 new sources of 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. The Company had total liabilities as of
December 31, 1999, of $1,323,192. However, approximately
$1,197,518 of the liabilities of the Company, including accrued
compensation, were due to certain shareholders. With considering
these liabilities to certain shareholders as being non-current,
<PAGE> 12
the Company would have a positive net working capital of
approximately $134,625 as of December 31, 1999. Subsequent to
December 31, 1999, shareholders holding debt in the amount of
$625,000 principal converted all of their debt plus accrued
interest into 739,770 shares of restricted common stock.
Negative cash flows from the Company's pursuit of a joint venture
or acquisition are anticipated to continue until the Company has
concluded a joint venture or acquisition, if any can be
concluded, and then only if suitable financing of any such joint
venture or acquisition is received by the Company. The Company
acknowledges that there can be no assurance that it will be able
to obtain capital or financing at the time of any such joint
venture or acquisition. In the event 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 of its $0.001 par value common stock at prices of
$1.00 to $2.00 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. During
the years ended December 31, 1999 and 1998, the Company sold
25,000 and 292,833 shares.
In September, 1997, the Company established its 1997 Non-
Qualified Stock Option Plan ("The Plan") pursuant to which
750,000 shares of common stock are reserved for issuance. In
July, 1998, the Company established its 1998 Non-Qualified Stock
Option Plan ("The Plan") pursuant to which 500,000 shares of
common stock were reserved for issuance. The option price per
share shall be determined by the Board of Directors at the time
any options are granted. The Plans are 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 December 31, 1999, options
for 1,067,036 of the aggregate 1,250,000 shares had been issued,
all of which had been exercised.
The Company's products are sold in US dollars and the Company
does not believe currency exchange rates or current inflation
rates will have a significant effect on sales or profitability.
Item 7. FINANCIAL STATEMENTS
--------------------
Please see the attached Financial Statements
<PAGE> 13
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
------------------------------------------------
Effective May 31, 1999, Registrant changed its certifying
accountant from Scarano & Tomaro, to Richard A. Eisner & Company,
LLP, New York City. By mutual agreement with the former
accountant, Registrant decided it was in the best interest of the
Registrant to engage an accountant with the professional
resources necessary to meet the needs of the Registrant in its
international operations, business plan, and pending acquisition
of a foreign corporation. Accordingly, the former accountant did
not stand for reelection. The former accountant's reports for
the last two years contain no adverse opinion or disclaimer of
opinion nor is there any disagreement with the former accountant.
The decision to change accountants and the selection of Richard
A. Eisner & Company, LLP, was recommended and approved by the
Registrant's Board of Directors.
PART III
--------
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
----------------------------------------------------------
The Directors, Executive Officers, Promoters, and Control Persons
of the Company, with a brief description, are as follows:
Name Age Position
---- --- --------
Ronald A. Adams 49 Chairman, Chief Executive Officer and
Director
Milota K. Srkal 55 President, Chief Operating Officer
and Director
Henry S. Green, Jr. 67 Secretary and Director
Directors Adams and Green were originally elected in 1994.
Director Srkal was appointed in 1998 to fill the vacancy of
Jindrich Dolezal, former Chairman of Skoda Diesel, a.s. All
directors hold office until the next annual meeting of
stockholders or until their successors are elected and qualify.
Vacancies on the Board of Directors may be filled by the
remaining directors. Officers are elected annually, and serve at
the discretion of the Board of Directors. There are no family
relationships between or among any officers or directors of the
Company.
Ronald A. Adams is the Chairman, Chief Executive Officer and a
Director of the Company. From 1986 through 1996, he served as
President of Worth Capital Group and as Financial Advisor to
Double Seal Ring Company and, from 1994 to 1996, as Financial
<PAGE> 14
Advisor to Skoda Diesel, both entities being among the founding
shareholders of the Company. For the 14 years prior to 1986, Mr.
Adams was Chief Executive Officer of Haltom Manufacturing
Company, engaged in manufacturing of corporate recognition items.
He attended the University of Oklahoma and graduated from Texas
Christian University, where he performed post-graduate studies.
Mr. Adams devotes substantially all of his business time to the
Company.
Milota K. Srkal is the President, Chief Operating Officer and a
Director of the Company. Mr. Srkal was President and Founder of
GGB, the Tatra distributor within certain countries of Central
and South America which merged into SDC in 1997. Prior to
founding GGB, Mr. Srkal was associated with Frederic R. Harris,
Inc., an international construction and management firm. He
served as its Senior Vice President until resigning to found GGB.
Mr. Srkal devotes substantially all of his business time to the
Company.
Henry S. Green, Jr., is the Secretary of the Company. Mr. Green
is the President of Double Seal Ring Company where he has been
employed since 1955. The company, founded in 1931, manufactures
industrial piston rings as those used in diesel and gas
generating sets, which is the product of Skoda and the Company.
He is a graduate of the Business Administration School at
Oklahoma State University and attended the United States Naval
Command School.
Due to business relationships between the Company, Skoda Diesel,
and/or Double Seal, of which two directors of the Company are
officers, there may be potential for conflict of interest. The
Company is aware of such potential and believes that any
transactions resulting from these relationships would be on terms
similar to those available from outside parties.
During 1999, the Company established an Advisory Board which may
advise the Board of Directors, from time to time, on corporate
matters. These advisors are not employees or officers of the
Company. Each of the Advisors is a shareholder of the Company.
The Advisors appointed are as follows, with a brief description
of each:
General Alexander Haig, Jr. is a former White House Chief of
Staff, the former Allied Supreme Commander of NATO, the former
President and CEO of United Technologies, Inc., and served as
United States Secretary of State under President Ronald Reagan.
General Haig is, also, on the board of America On Line, MGM
Grand, and MGM United Artists.
Mr. Dennis K. Pawley, former Executive Vice President of
DaimlerChrysler, an SDC shareholder and Strategic Board Advisor,
has 34 years' experience as an executive with General Motors,
Mazda and Chrysler. He recently resigned and took early
retirement as the Executive Vice President of Manufacturing and
Labor Relations at DaimlerChrysler, AG.
<PAGE> 15
Mr. Richard Donnelly, who recently retired as President of
General Motors Europe, has joined SDC International's management
team. Mr. Donnelly had responsibility for GM's vehicle business
in Europe with annual revenues of $25 billion, 80,000 employees
producing in 11 countries and selling 1.9 million vehicles
annually in 42 countries throughout Western, Central and Eastern
Europe. He was Chairman of GM's European Strategy Board and has
been a Director of Saab (Sweden), Isuzu (Japan) and of ACEA, the
European automobile manufacturers association headquartered in
Brussels.
Harbour and Associates, Inc., an SDC shareholder and acquisition
partner, is a prominent Detroit-based manufacturing and
management firm specializing in improving quality, productivity
and profitability of car and truck manufacturing plants. Their
client list includes BMW, Ford Motor Company, DaimlerChrysler,
General Motors Corporation, Fiat, S.P.A., Nissan Motor
Corporation, Toyota Motor Corporation and many others. Harbour
is, also, the publisher of the "Harbour Report", the recognized
analysis report of manufacturing in the American automotive
industry and which is the industry benchmark for international
comparisons and analyses of productivity, capacity utilization
and plant profitability. Harbour and Associates is represented
on the Company's Advisory Board by Ronald Harbour, its President.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers
and directors, and persons who beneficially own more than 10% of
a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than 10% shareholders are
required by Exchange Act regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its
review of the copies of such forms received by it, or written
representations from certain reporting persons that no Form 5 was
required for such persons, the Company believes that, other than
as disclosed below, during the fiscal year ending December 31,
1999, all filing requirements applicable to officers, directors
and greater than 10% beneficial owners were complied with.
Item 10. EXECUTIVE COMPENSATION
----------------------
The Company's Chairman and President both received compensation
in the form of management fees amounting to $156,000 each during
the fiscal year 1999, plus normal and reasonable automobile and
medical insurance reimbursements.
<PAGE> 16
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
---------------------------------------------------
The following table contains information as of December 31, 1999,
as to the number of Shares of Common Stock which is beneficially
owned by (i) each person or entity known by the Company to own
beneficially more than 5% of the Company's Common Stock, (ii)
each person who is a Director of the Company, and (iii) all
persons as a group who are Directors and Officers of the Company,
and as to the percentage of the outstanding Shares held by said
individuals or entities. There is only one class of security of
the Company, Common Stock.
Title of Class: Common Equity Shares
<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage
---------------- ---------------- ----------
<S> <C> <C>
Diesel International, a.s.
c/o P. O. Box 2186
Palm Beach, FL 33480 500,000 6.5
WCG Holdings, Inc.
1530 N. Lake Way
Palm Beach, FL 33480 500,000 6.5
Emanon Partners
c/o Schaenen Capital Management
200 Park Avenue #3900
New York, NY 10166 834,972 10.8
Double Seal Ring Company, Inc., et al
2065 Montgomery Street
Fort Worth, TX 76107 400,000 5.2
Ronald A. Adams (2) 550,000 7.1
Henry S. Green, Jr. (3) 400,000 5.2
Milota K. Srkal 550,000 7.1
All Officers & Directors
as a Group (2) and (3) 1,500,000 19.4
------------------------
</TABLE>
Footnotes:
(1) Based on 7,745,004 shares outstanding.
<PAGE> 17
(2) Includes shares owned by WCG Holdings, Inc. and/or Mr.
Ronald A. Adams, Chairman of the Company and an affiliate
of WCG Holdings, Inc.
(3) Owned by Double Seal Ring Company, Inc. and its two
major shareholders. Mr. Henry S. Green, Jr.,
Secretary of the Company, is an affiliate of Double
Seal Ring Company, Inc.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
In September 1994, the Company issued 1,400,000 shares of its
Common Stock to its founding shareholders. Of the total
1,400,000 shares issued, 500,000 and 400,000 shares were issued
to WCG Holdings, Inc. and Double Seal Ring Company, Inc. and were
valued at par value of $.001 per share. Also during September
1994, pursuant to the founding shareholders' agreement, Skoda
contributed machinery and equipment with an independently
certified appraised value of $4,469,064 in exchange for 448,350
shares of the Company's common stock ($9.97 per share).
Additionally, effective April 21, 1994, the Company executed an
exclusive agency agreement with Skoda, pursuant to which the
Company obtained the right to act as Skoda's exclusive agent in
North, Central and South America, and as a non-exclusive agent
throughout the remainder of the world. In consideration of these
rights, the Company issued 51,650 shares of its common stock to
Skoda Diesel, a.s. ($1.25 per share).
The Company has purchased items from Double Seal Ring Company, a
shareholder, and has sold these items to non-related parties as
well as to Skoda Diesel, also a shareholder. Such transactions
were less than $50,000, and a gross profit was made by the
Company. The Company believes that the costs and prices for such
transactions were the same as those which would be afforded to
non-related parties, and that all transactions were at arms-
length.
The Company's Chairman has served as a Financial Advisor to Skoda
Diesel and Double Seal, and is a majority beneficial shareholder
of WCG Holdings, Inc. The Company's President served as the
President of GGB, the Central and South American distributor for
Tatra, a.s., which the Company purchased by merger in 1997.
During the periods ending December 31, 1998 and December 31,
1999, the Company's Chairman has loaned up to $93,050 and $9,641
to the Company. As of December 31, 1999, the Company owed the
Chairman $59,075 and the President $83,614.
<PAGE> 18
Item 13. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Please see the attached Financial Statements
(b) Exhibits: (filed with original and previous filings)
(1) (Articles) Certificate of Incorporation -
incorporated by reference into Exhibit 15 (b)(1)
on Registrant's Form 10SB file number 0-27520.
(2) By-Laws of the Company - incorporated by
reference into Exhibit 15 (b) (2) on Registrant's
Form 10SB file number 0-27520.
(3) Material Contracts
(a) Shareholder Agreement - incorporated by
reference into Exhibit 15 (b) (4) (a) on
Registrant's Form 10SB file number 0-27520.
(i) "Expert's Opinion-
Certified Appraisal - incorporated by
reference into Exhibit 15 (b) (4) (a) (i)
on Registrant's Form 10SB file number 0-
27520.
(ii) Bill of Sale and Transfer - incorporated
by reference into Exhibit 15 (b) (4) (a)
(ii) on Registrant's Form 10SB file number
0-27520.
(b) Exclusive Agency Agreement - incorporated by
reference into Exhibit 15 (b) (4) (b) on
Registrant's Form 10SB file number 0-27520.
(c) Agreement to Merge Golden Grove Business, Inc.
into SDC International, Inc., dated January
31, 1997 between SDC International, Inc., and
Golden Grove Business, Inc.
(d) Exclusive Agency Agreement dated August 21,
1997, between Metall Kraft, s.r.o., and SDC
International, Inc.
(e) Purchase and Sale Agreement dated 18th day of
November, 1997 between SDC International, Inc.
and Motokov International, joint stock company.
<PAGE> 19
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Exchange
Act, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Palm
Beach, Florida, on the 27th day of March, 2000.
SDC International, Inc.
(Registrant)
By:/s/Ronald A. Adams
Ronald A. Adams, Chairman
Pursuant to the requirements of the Exchange Act, this report has
been signed below by the following persons on behalf of the Registrant in
the capacities, on the dates indicated, and as representing a majority of
the Board of Directors.
Date: 7-27-00 /s/Ronald A. Adams
Ronald A. Adams, Director
and Chairman (Principal
Executive Officer and
Principal Financial Officer)
Date: 7-27-00 /s/Henry S. Green, Jr.
Henry S. Green, Jr., Director
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
SDC International, Inc.
Palm Beach, Florida
We have audited the accompanying consolidated balance sheet of
SDC International, Inc. and subsidiary (the "Company") as of
December 31, 1999 and the related consolidated statements of
operations, stockholders' (deficiency) equity and cash flows for
the years ended December 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above
present fairly, in all material respects, the consolidated
financial position of SDC International, Inc. and subsidiary as
of December 31, 1999, and the consolidated results of their
operations and their consolidated cash flows for the years ended
December 31, 1999 and 1998, in conformity with generally
accepted accounting principles.
/s/Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
New York, New York
June 23, 2000
With respect to Note K
June 30, 2000
<PAGE> F-1
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1999
ASSETS
Current assets:
Cash $ 170,893
Inventory 74,406
Other current assets 15,000
------------
Total current assets 260,299
Fixed assets, net 5,153
Cash - restricted 81,243
Net assets of discontinued subsidiary 100,362
------------
$ 447,057
============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 203,674
Due to related parties, including accrued
interest of $136,830, net of unamortized
discount of $102,683 1,119,518
------------
Total current liabilities 1,323,192
------------
Commitments (Note J)
STOCKHOLDERS' DEFICIENCY
Common stock $.001 par value, 10,000,000
shares authorized, 7,745,004 shares issued
and outstanding 7,745
Additional paid-in capital 14,504,770
Common shares issuable (457,036 shares) 918,224
Accumulated deficit (16,331,098)
Accumulated foreign currency translation
adjustment 24,224
------------
(876,135)
------------
$ 447,057
============
See notes to financial statements
<PAGE> F-2
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Sales $ 221,959
Cost of sales 245,716
-------------
Gross loss (23,757)
-------------
Expenses:
Selling, general and administrative, including
$2,110,679 and $2,422,902 paid by issuance
of stock 3,115,898 $ 3,624,025
Loss on impairment of agency rights 50,975
Depreciation and amortization 39,823 49,039
------------- -------------
Total expenses 3,206,696 3,673,064
------------- -------------
Loss from operations before interest expense (3,230,453) (3,673,064)
Interest expense, including amortization of
debt discount of $1,344,698 and $1,087,761 (1,494,028) (1,193,254)
------------- -------------
Loss from continuing operations (4,724,481) (4,866,318)
Loss from operations of discontinued subsidiary (57,099) (158,776)
------------- -------------
Net loss $ (4,781,580) $ 5,025,094)
============= =============
Per share - basic and diluted:
Loss from continuing operations $ (0.68) $ (1.30)
Loss from operations of discontinued subsidiary (0.01) (0.04)
------- -------
Net loss $ (0.69) $ (1.34)
======= =======
Weighted average shares 6,886,629 3,738,147
========= =========
</TABLE>
See notes to financial statements
<PAGE> F-3
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' (Deficiency) Equity
<TABLE>
<CAPTION>
Accumulated
Common Stock Foreign
---------------- Addt'l Common Currency
Par Paid-in Shares Accumulated Translation Unamortized
Shares Value Capital Payable Deficit Adjustment Compensation Total
--------- ------ ---------- ------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1998 2,990,118 $2,990 $ 6,844,992 $ (6,524,424) $ 12,146 $ (152,350) $ 183,354
Issuance of common stock in
connection with private placement
memorandum, net of offering costs
of $91,000 292,833 293 258,986 259,279
Issuance of common stock as
additional consideration in
connection with loan agreements 228,033 228 473,912 474,140
Issuance of common stock to
consultants and employees for
services 1,125,933 1,126 2,087,126 2,088,252
Issuance of common stock in
repayment of short-term loan 35,000 35 34,965 35,000
Issuance of warrants to
consultants for services 182,300 182,300
Beneficial conversion feature
related to notes and other
amounts payable 688,392 688,392
Common shares (54,000) issuable
in connection with extension of
loan $ 70,875 70,875
Amortization of compensation costs 152,350 152,350
Comprehensive loss:
Foreign currency translation
adjustment 21,260 21,260
Net loss for the year ended December
31, 1998 (5,025,094) (5,025,094)
----------
Total comprehensive loss (5,003,834)
--------- ------ ----------- -------- ------------ ----------- ------------ ----------
Balance - December 31, 1998 4,671,917 4,672 10,570,673 70,875 (11,549,518) 33,406 0 (869,892)
Issuance of common stock in
connection with private placement
memorandum 25,000 25 49,975 50,000
Issuance of common stock as
additional consideration in
connection with loan agreements 179,000 179 328,635 328,814
Issuance of common stock to
consultants and employees for
services 1,144,191 1,144 2,109,535 2,110,679
Issuance of common stock in
repayment of short-term loans
and accrued interest 1,724,896 1,725 1,303,094 1,304,819
Beneficial conversion feature
related to modification of
outstanding loans 142,858 142,858
Common shares (377,000) issuable
in connection with extension
of loans 821,313 821,313
Common shares (26,036) issuable
in connection with exercise of
options 26,036 26,036
Comprehensive loss:
Foreign currency translation
adjustment (9,182) (9,182)
Net loss for the year ended December
31, 1999 (4,781,580) (4,781,580)
----------
Total comprehensive loss (4,790,762)
--------- ------ ----------- -------- ------------ ----------- ------------ ----------
Balance - December 31, 1999 7,745,004 $7,745 $14,504,770 $918,224 $(16,331,098) $ 24,224 $ 0 $ (876,135)
========= ====== =========== ======== ============ =========== ============ ===========
</TABLE>
See notes to financial statements
<PAGE> F-4
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,781,580) $ (5,025,094)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 39,823 49,039
Amortization of debt discount 1,344,698 1,087,761
Expenses paid by issuance of stock 2,110,679 2,422,902
Loans to discontinued subsidiary in excess of
loss from its operations (15,026) (21,724)
Loss on disposal of fixed assets 8,501
Loss on impairment of agency rights 50,975
Changes in:
Inventory 228,817 (299,850)
Security deposits 48,894 (48,894)
Prepaid expenses and other current assets 625
Accounts payable and accrued expenses 115,774 15,347
Accrued interest 127,721 86,011
------------ ------------
Net cash used in operating activities (720,724) (1,733,877)
------------ ------------
Cash flows from investing activities:
Purchase of fixed assets (6,122)
(Decrease) increase in restricted cash (711) 428
------------ ------------
Net cash used in investing activities (711) (5,694)
------------ ------------
Cash flows from financing activities:
Proceeds of loans from related parties 859,641 1,789,287
Repayment of loans to related parties (85,000) (334,396)
Proceeds from exercise of options 26,036
Proceeds from sale of stock, net 50,000 279,279
------------ ------------
Net cash provided by financing activities 850,677 1,734,170
------------ ------------
Net increase (decrease) in cash 129,242 (5,401)
Cash, beginning of period 41,651 47,052
------------ ------------
Cash, end of period $ 170,893 $ 41,651
============ ============
Supplemental cash flow disclosure:
Cash paid for interest $ 19,862 $ 19,581
Supplemental disclosure of noncash investing
and financing activities:
Issuance of common stock as consideration
in connection with stockholder loans $ 328,814 $ 474,140
Issuance of common stock in payment of
stockholder loans $ 1,304,819 $ 35,000
Common stock issuable in connection with
extension of stockholder loans 821,313 70,875
</TABLE>
See notes to financial statements
<PAGE> F-5
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Financial Statements
December 31, 1999 and 1998
NOTE A - THE COMPANY AND BASIS OF PREPARATION
The accompanying financial statements include the accounts of SDC
International, Inc., (the "Company") and its wholly-owned
subsidiary Skobol, s.a. ("Skobol") after elimination of all
significant intercompany transactions and balances. The Company
was incorporated in the State of Delaware in 1994, and acquired an
exclusive agency agreement from Diesel International, a.s.
(formerly known as Skoda Diesel, a.s.) ("Diesel") which permitted
the Company to sell a broad range of Diesel's products, including
diesel engines and power generating sets. Diesel, which was formed
in what is now the Czech Republic, was one of the founding
stockholders of the Company. During 1997, as a result of financial
difficulties encountered by Diesel, the Company discontinued
selling Diesel's products.
During November 1997, the Company acquired the outstanding common
stock of Skobol, a Bolivian Corporation, which is a distributor
within the country of Bolivia of products manufactured in the Czech
Republic. On June 30, 2000, the Company sold the subsidiary and,
accordingly, the subsidiary has been accounted for as a
discontinued operation in the accompanying financial statements
(see Note K).
During the years ended December 31, 1999 and 1998, the Company has
been attempting to acquire or joint venture with manufacturing
entities in Central and Eastern Europe and has been incurring
expenses in connection therewith (see Note C).
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the
accompanying financial statements, the Company has incurred
recurring net losses and as of December 31, 1999, has a working
capital deficiency and a stockholders' deficiency. On March 2,
2000, amounts due to related parties amounting to $751,070 at
December 31, 1999 were converted into common stock (see Note G).
On April 10, 2000, the Company sold 400,000 shares of common stock
at $.50 per share for aggregate proceeds of $200,000. In addition,
subsequent to December 31, 1999 through June 23, 2000 the Company
obtained $203,000 of proceeds from loans payable to stockholders.
Continuation of the Company as a going concern is dependant upon
(i) the Company achieving profitable operations through
acquisitions or joint ventures which requires obtaining financing
and (ii) obtaining debt and/or equity financing to fund operating
expenses to be incurred until an acquisition or joint venture is
consummated. Management anticipates any additional financing
required to fund operating expenses to be incurred through
December 31, 2000 or repay outstanding loans which are not
converted into common stock will be obtained from existing
stockholders. However, there is no assurance that the Company can
obtain required financing, make any acquisitions or joint ventures
or that profitable operations can be achieved.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Restricted cash:
Restricted cash represents collateral under a performance bond
posted as a condition of the agency agreement with Diesel and
is scheduled to be released to the Company in 2002 upon
expiration of the bond.
[2] Inventory:
Inventory, which at December 31, 1999 consists of one truck and
related parts acquired from Tatra (see Note E[4]), is stated at
the lower of cost (determined on a first-in, first-out basis)
or market.
<PAGE> F-6
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Financial Statements
December 31, 1999 and 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[3] Long-lived assets:
Fixed assets are recorded at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful
lives of the assets as follows:
Computer software 3 years
Computer equipment 5 years
Leasehold improvements 5 years
Agency rights, are recorded at cost and were being amortized on a
straight-line basis over the four-year period of the agency agreement
(see Note E).
Fixed assets and agency rights are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
may not be recoverable. In conducting such review, the estimated
future undiscounted cash flows associated with the asset are compared
to the asset's carrying amount to determine if a write down is
required. If such cash flows are less than the asset's carrying
amount, the asset is written down to estimated fair value.
[4] Net loss per share:
In calculating basic and diluted net loss per share, the Company uses
the weighted average-number of common shares outstanding plus common
shares issuable principally in connection with the extension of loans
during the respective years. No shares issuable upon exercise of
outstanding warrants have been included in the computation of diluted
net loss per share as their effect is anti-dilutive (see Note I[3]).
[5] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
[6] Fair value:
The carrying value of cash, accounts receivable, accounts payable,
and amounts due to related parties approximates fair value.
[7] Revenue recognition:
Revenue, which consists of sales of trucks acquired from Tatra is
recognized when products are shipped. Sales in 1999 consisted of
shipments to three customers located in the Czech Republic,
representing 50%, 25% and 25% of sales revenue.
[8] Comprehensive income:
The Company adopted the provision of SFAS N0. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial
statements. Comprehensive income, as defined, includes all changes in
equity (net assets) during a period from non-owner sources.
Comprehensive loss for 1999 and 1998 consists of the net loss and the
income or loss from foreign currency translation.
<PAGE> F-7
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Financial Statements
December 31, 1999 and 1998
NOTE C - ACQUISITION AGREEMENT
In August 1999, an agreement was entered into with Moravan, a.s., an
aircraft manufacturer in the Czech Republic, whereby the Company agreed
to acquire Moravan common shares representing a 55% interest for
640,000,000 Kopecs or approximately $17,800,000 based on the exchange
rate in effect at December 31, 1999, payable 30% at closing with the
balance within twelve months thereof. Closing of the agreement is
subject to registering the shares to be issued to the Company in
Commercial Court as required by Czech law, a process which can take an
extended period of time and towards which any third parties may object.
Objections have been raised by third parties. As of June 23, 2000, the
objections have not been settled and the shares have not been
registered.
NOTE D - FIXED ASSETS
Fixed assets consist of the following at December 31, 1999:
Computer and software $ 5,436
Leasehold improvements 2,550
--------
7,986
Less accumulated depreciation (2,833)
--------
$ 5,153
========
Depreciation expense amounted to $1,597 and $10,819 for the years ended
December 31, 1999 and 1998, respectively.
During September 1994, the Company issued 448,350 shares of common stock
to Diesel as consideration for the contribution of machinery and
equipment valued by an appraisal and for book purposes at $4,469,064.
The machinery and equipment, formerly used in the manufacture of diesel
engines, is located in the Czech Republic in the Diesel facilities. As
a result of the financial difficulties of Diesel, the status and future
use of the machinery and equipment, which is no longer in service, was
uncertain. Further, the Company had no facilities that could be used to
house the machinery and equipment. As a result, during 1997, the
Company recorded a loss on impairment of the machinery and equipment in
the amount of $3,467,320, representing the remaining undepreciated
balance. During 1999, the Company abandoned the machinery and equipment
and accordingly wrote off the cost ($4,013,183) of the remaining
equipment ($468,308 had been written off in prior years) against the
related accumulated depreciation and valuation allowance previously
recorded.
NOTE E - AGENCY RIGHTS
On April 24, 1997, the Company acquired for 48,000 common shares valued
at $36,000 all the issued and outstanding common stock of Golden Grove
Business, Inc. ("GGB"), a Panama corporation, whose sole asset was an
exclusive agency contract with Tatra, a.s. ("Tatra"), a Czech truck
manufacturer, to market and sell Tatra's products in Columbia with the
right of first refusal to become the exclusive distributor for other
countries in South and Central America. GGB was merged into the Company
and the Company assumed GGB's liabilities amounting to $116,903 at the
date of the merger. The Company was amortizing such agency rights over
an estimated useful life of four years. As the Company does not
anticipate generating future sales sufficient to recover the remaining
unamortized balance of the agency rights, the Company has recorded a
loss on impairment of the agency rights in 1999 in the amount of $50,975
representing the remaining unamortized balance at December 31, 1999.
<PAGE> F-8
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Financial Statements
December 31, 1999 and 1998
NOTE F- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
Accounts payable $ 25,674
Compensation 78,000
Professional fees 100,000
----------
$ 203,674
==========
NOTE G - DUE TO RELATED PARTIES
[1] Line-of-credit:
During June 1998, the Company obtained an unsecured $500,000 line of
credit from a stockholder with a stated interest rate of 14% per
annum. Principal and interest were payable on December 8, 1998. The
agreement provided that the principal balance of the line-of-credit
and any outstanding accrued interest may, at the stockholder's
option, be converted into common stock at $1.00 per share. The
conversion price of the line of credit agreement ($500,000) was less
than the aggregate market price ($1,140,600) of the common stock
obtainable on conversion on the date of the agreement. In connection
therewith, debt discount of $500,000 related to the beneficial
conversion feature, limited to the proceeds of the line of credit,
was charged to operations for the year ended December 31, 1998 with a
corresponding credit to additional paid-in capital. By agreement with
the stockholder, the maturity date of the agreement was extended to
December 31, 1999. In connection therewith, the Company agreed to
issue 54,000 common shares quarterly until maturity. This resulted
in additional interest expense of $394,875 and $70,875 for the years
ended December 31, 1999 and 1998, respectively. As of December 31,
1999, 216,000 common shares were issuable under such agreement. As of
December 31, 1999, outstanding borrowings under the line-of-credit
amounted to $500,000 and accrued interest amounted to $98,941.
Interest expense during the years ended December 31, 1999 and 1998
amounted to $547,563 and $599,816, respectively, including additional
interest referred to above. The Company's effective interest rate
for borrowings under the agreement, including the beneficial
conversion feature, amounted to 80% and 258% during 1999 and 1998,
respectively. On March 2, 2000, the outstanding balance under the
credit line, together with accrued interest, was converted to 614,110
shares of common stock.
[2] Loans from stockholders:
During 1998 and 1999, the Company borrowed $1,186,500 and $850,000,
respectively, from stockholders under notes which are repayable in
periods ranging from 90 to 180 days, at a stated interest rate of 14%
per annum. Of the 1998 borrowings, notes for $950,000 were
convertible into common shares at either (i) 70% of market value,
(ii) $1.00 per common share or (iii) in the event of default. The
conversion price of $350,000 principal amount of such notes issued in
1998 was less than the aggregate market price ($538,352) of the
common stock obtainable on the dates the notes were issued. In
connection therewith, debt discount of $188,392 related to the
beneficial conversion feature was charged to operations for the year
ended December 31, 1998 with a corresponding credit to additional
paid-in capital. At maturity in January 1999, two such notes with
aggregate principal balances of $250,000 had their maturity dates
extended to July 1999. In connection therewith, their conversion
terms were modified to provide for conversion into common shares at
50% of market value from 70% of market value. The aggregate market
price of the common stock obtainable on conversion at the date of
modification amounted to $500,000. In connection therewith, debt
discount of $142,858 related to the modification of the beneficial
conversion feature was charged to operations for the year ended
December 31, 1999 with a corresponding credit to additional paid-in
capital. During 1999, holders of notes with outstanding principal
balances of $1,225,000 converted their notes, together with accrued
interest of $79,819, into 1,724,896 shares of common stock.
<PAGE> F-9
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Financial Statements
December 31, 1999 and 1998
NOTE G - DUE TO RELATED PARTIES (CONTINUED)
[2] Loans from stockholders: (continued)
As of December 31, 1999, outstanding balances payable under the notes
amounted to $585,375, together with accrued interest of $37,885. On
March 2, 2000, holders of notes with outstanding principal balances
of $125,000 converted their notes, together with accrued interest
into 157,277 shares of common stock.
In connection with these borrowings, during the years ended
December 31, 1999 and 1998, the Company issued to the stockholders,
as additional consideration, 179,000 and 228,033 shares of common
stock valued at $328,814 and $474,140, respectively. In addition,
during 1999, in connection with the extension of the maturity of
certain loans the Company agreed to issue 215,000 additional common
shares valued at $426,438 in connection with these borrowings. Such
shares had not been issued at December 31, 1999 and are included in
common shares payable on the accompanying balance sheet. Such
amounts have been accounted for as debt discount. The Company's
effective rate for these borrowings, including debt discount, ranged
from 14% to 402%, during 1999 and 14% to 214% during 1998. During
the years ended December 31, 1999 and 1998, interest expense on the
notes amounted to $704,140 and $576,873, respectively, including
amortization of debt discount.
NOTE H - INCOME TAXES
Deferred tax assets represent the future tax return consequences of net
operating loss carryforwards and differences between the financial
statement and tax bases of assets.
At December 31, 1999, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $15,711,000 expiring in
the years 2009 through 2019.
As of December 31, 1999, deferred tax assets consist of the following:
Deferred tax assets:
Net operating loss carryforwards $ 5,342,000
Excess of book basis over tax
basis of unamortized debt discount (35,000)
Valuation allowance (5,307,000)
------------
Net deferred tax asset $ 0
============
At December 31, 1999, a valuation allowance has been provided to
offset the deferred tax assets since management could not determine
that it was more likely than not that the benefit of the deferred tax
assets would be realized. Increases in the valuation allowance
amounted to $1,844,000 and $1,403,000 during the years ended
December 31, 1999 and 1998, respectively. As a result of the changes
in ownership resulting from the various sales and issuances of stock,
the Company may be unable to utilize some or substantially all of its
previously available net operating loss carryforwards in accordance
with the provisions of Section 382 of the Internal Revenue Code.
NOTE I - STOCKHOLDERS' EQUITY
[1] During the years ended December 31, 1999 and 1998, the Company sold,
pursuant to rule 505, Regulation D, an aggregate of 25,000 and
292,833 common shares yielding proceeds net of offering costs of
$50,000 and $259,279, respectively.
<PAGE> F-10
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Financial Statements
December 31, 1999 and 1998
NOTE I - STOCKHOLDERS' EQUITY (CONTINUED)
[2] On September 5, 1997, the Company established a Nonqualified Stock
Option Plan (the "97 Plan") pursuant to which 750,000 shares of
common stock are reserved for issuance. On October 29, 1998, the
Company established a second Nonqualified Stock Option Plan (the "98
Plan") pursuant to which 500,000 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 and 98
Plans are designed to serve as an incentive for retaining qualified
and competent persons who are key employees, consultants,
representatives, officers and directors of the Company.
During the years ended December 31, 1999 and 1998, the Company
granted to consultants and employees options to purchase 26,036 and
891,000 common shares, respectively. The options, which had exercise
prices of $1.00 (1999) and $0 (1998), were exercised immediately upon
grant. The market value of the common shares on the date of grant,
in excess of the exercise price, amounting to $0 (1999) and
$1,622,258 (1998) were charged to expense. As of December 31, 1999,
no options were outstanding under the plans.
[3] As of December 31, 1999, the Company has outstanding warrants to
purchase a total of 180,000 shares of common stock at exercise prices
of $2.00 and $2.50 per share, of which 130,000 expire in 2000 and
50,000 expire in 2003. These warrants had been issued to consultants
during 1998.
NOTE J - COMMITMENTS AND OTHER COMMENTS
[1] Lease agreement:
The Company leases its executive office on a month to month basis
from its Chief Executive Officer. Rent expense under the arrangement
amounted to $24,000 and $27,000 during the years ended December 31,
1999 and 1998, respectively.
Included in general and administrative expenses is rent expense for
the above and other rentals which totaled $33,074 and $47,718 for the
years ended December 31, 1999 and 1998, respectively.
[2] 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
results in a finder's fee to Prime of two percent of the gross sales
price or ten percent of the adjusted gross profit resulting from the
sales. Such payments are due 45 days after each quarter-annual
calendar period. As of December 31, 1999, no amounts were due under
this agreement.
[3] Executive compensation:
For the years ended December 31, 1999 and 1998, respectively, the
Company incurred management fees of $156,000 and $156,000, payable to
its Chief Executive Officer.
For the years ended December 31, 1999 and 1998, respectively, the
Company incurred management fees of $156,000 and $181,000 to its
President.
<PAGE> F-11
SDC INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Financial Statements
December 31, 1999 and 1998
NOTE K - DISCONTINUED OPERATIONS
On November 18, 1997, the Company acquired 99.9% of the common stock of
Skobol for $78,000. Skobol is a Bolivian corporation, which imports and
sells at retail in Bolivia, light transportation and other equipment
which is manufactured in the Czech Republic. On December 21, 1999, the
Board of Directors of the Company authorized the sale of Skobol and on
June 30, 2000, the Company sold its shares in Skobol in exchange for a
$150,000 note payable in three installments of $50,000 on June 30, 2001,
2002 and 2003 plus interest at 6%. Accordingly, the results of
operations of Skobol, which are included in the accompanying financial
statements, are shown as discontinued operations. In addition, the
assets and liabilities of Skobol are reflected in the balance sheets as
net assets of discontinued subsidiary.
The excess ($126,283) of the fair value of the net current assets
acquired over the cost of acquisition is being amortized on a straight-
line basis over 60 months. Amortization of such excess amounted to
$25,260 in both 1999 and 1998.
Assets and liabilities related to Skobol at December 31, 1999 follows:
Cash $ 17,730
Receivables 1,622
Inventory 213,466
Other current assets 14,030
----------
Total assets 246,848
Accounts payable and accrued expenses (a) (79,143)
Excess of value of net assets acquired
over cost of acquisition (67,343)
----------
Net assets of discontinued subsidiary $ 100,362
==========
(a) Excludes amounts due to Company of $252,625
Net sales of Skobol amounted to $155,305 and $199,989 in the years ended
December 31, 1999 and 1998, respectively.
The functional currency of Skobol is its local currency. Accordingly,
the subsidiary's operations are translated at average exchange rates
during the period, and assets and liabilities are translated at end-of-
period rates. Translation adjustments are included as a separate
component of stockholders' deficiency. Gains and losses on currency
transactions denominated in other than the local Bolivian currency are
reflected in operations.
<PAGE> F-12
