-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HDTYwqkBnxSZHfaYUNlX4cbEO7e7sTCzGUO1VHn5BKm9J82bg1HUKT89JYPb+U/W 8HEG20peSrmK+pFgtIORcg== 0000943440-98-000011.txt : 19980325 0000943440-98-000011.hdr.sgml : 19980325 ACCESSION NUMBER: 0000943440-98-000011 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980324 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SDC INTERNATIONAL INC \DE\ CENTRAL INDEX KEY: 0001005841 STANDARD INDUSTRIAL CLASSIFICATION: ENGINES & TURBINES [3510] IRS NUMBER: 752583767 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-27520 FILM NUMBER: 98571664 BUSINESS ADDRESS: STREET 1: 2701 W OAKLAND PARK BLVD CITY: FT LAUDERDALE STATE: FL ZIP: 33311 BUSINESS PHONE: 5618829300 10QSB 1 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. 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 SDC INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
ASSETS (Unaudited) November 30, August 31, 1997 1997 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
See accompanying notes to financial statements. SDC INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 30, (UNAUDITED)
1997 1996 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
See accompanying notes to financial statements. SDC INTERNATIONAL, INC. AND SUBSIDIARY STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997 (UNAUDITED)
Additional Total Common Stock paid-in Accumulated Stockholders' Shares Amount capital Deficit Equity 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
See accompanying notes to financial statements. SDC INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED NOVEMBER 30, (UNAUDITED)
1997 1996 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 $
See accompanying notes to financial statements. 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. 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. 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. 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. 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. 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 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. 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. 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 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. 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. 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) EX-27 2
5 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. 3-MOS AUG-31-1997 NOV-30-1997 282,273 0 143,627 0 426,688 870,776 3,419,803 0 4,906,805 267,935 0 0 0 2,977 4,090,422 4,906,805 52,345 52,345 25,494 25,474 341,673 0 12,311 (327,133) 0 (327,133) 0 0 0 (327,133) (.12) 0
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