The latest from The Undervalued Dog....
Up 3 cents on 1.2 million shares, buyer beware
SC & T International, Inc. (OTC BB, SCTI)
Recent Price: $0.20/share
Daily Average Volume: 205 K
98 EPS: $0.11/share (loss)
Estimated 1999 EPS:$0.30/share*
Trailing PE:0.66
52-week Range: $0.04-1.34/share
Outstanding Shares: 22.94 M
Floating Shares: 19.14 M
Profit Margin: 20%
1998 revenues: $7.5 M
Estimated 1999 revenues: $20.3 M**
SEC reporting:Yes
* Estimated operation EPS will be $0.09/share, the jury award (finally
settled at $1.825 million) and annual loyalties ($3 million) from its
patented technology will add another $0.21.
** 1999 estimated operating revenues will be $15.5 million, the jury
award and annual loyalties will be $4.825 million.
SCTI is extremely bullish. Tendencies for prices to continue to
advancing are extreme at 95-100% with a short term (3-12 months)
upside potential of $0.75 and a long term (12-24 months) upside
potential of $2.00.
BUSINESS SUMMARY AND CORPORATION BACKGROUND: SCTI was formed in June
1993. The Company develops and markets accessory and peripheral
products for the computer and video game industries under its PLATINUM
SOUND and PER4MER registered trademarks. The Company's products
include sub-woofer, speaker and sound enhancement systems (for PC's
and PC gaming systems), a PC volume controller, and a line of PC and
Video Game arcade racing wheels for SEGA, Nintendo, Sony Playstation
and IBM-PC's. The Company's multimedia keyboards line has been
discontinued, in favor of a second generation product targeted at the
corporate market. This second generation, features an enhanced Voice
Recognition product, has been completed and has been introduced into
the market. The company segregates its products into two distinctive
product categories. The sound products are marketed under the Platinum
Sound brand name, while the companies racing wheel and other input
device accessories are marketed under the PER4MER brand name. The
Company's sound products include sub-woofer, sound enhancement
systems, and a broad line up of headphones, microphones, and amplified
speaker systems. The PER4MER line consists of racing wheel products,
designed for all IBM PC's, SEGA, Nintendo and Sony Playstation game
consoles. This line also includes game controller devices, Volume
Controllers, and a new Voice Recognized keyboard, targeted to the
Corporate market. The Company focuses on the multimedia, interactive,
communications and the video gaming segments of the PC and consumer
electronics industry. The company develops technology to furnish
one-step, integrated solutions for the PC, MAC and Video Game user.
The market for electric gaming hardware and software has become huge
with great potential for growth around the world in the past decade.
According to the estimations from the Consumer Electronics
Manufacturers Association and Interactive Digital Software
Association, worldwide gaming software industry sales were $15 billion
in 1997, including North American $5.3 billion, Europe 4.8 billion and
Asia 4.9 billion. By the year of 2000, the sales will top $23
billion. The Company markets its products to the retail video game,
OEM, and corporate segments internationally, through a combination
of direct sales personnel, independent sales representatives, and
its wholly owned US, European and Asian subsidiaries. SCTI has a
substantial untapped market potential worldwide. It is the opinion of
management that the introduction of their Ultimate Per4Mer Racing
products and Plantinum Sound speaker products coupled with planned new
product introductions throughout 1998 will enable SCTI to position
itself for continued sales growth in its core business. SCTI's
products are currently sold in over 20 countries, including the United
States, Belgium, Germany, France, Italy, Finland, Holland,
Switzerland, Turkey, the United Kingdom, Argentina, Brazil, Spain,
Hong Kong, Canada, and Russia.
RECENT DEVELOPMENTS AND ANALYSIS: SCTI recently received a U.S.
patent for its Multimedia Keyboard Technology. This also involved a
legal battle with Maxiswitch, Silitek and Lite-On Peripherals, which
SCTI prevailed on in May of 1997 with a $3 million award. This patent
will now allow SCTI to demand royalties from other keyboard
manufacturers who market this technology. Three that are currently
known are NMB Technologies, Maxiswitch and Silitek. The company
believes that over the next 3-5 years that most corporations will
utilize this form of keyboard in some way shape or form. The above
companies are in the process of being contacted by attorneys. SCTI,
under its ULTIMATE Per4mer brand, just introduced its Force Feed Back
racing to the US marketplace the week of February 16th. This is the
latest buzz word for the PC and Gaming platform. The first two US
retailers for the product are Computer City and Babbage's Etc.
Further roll-outs will continue in April. The company has over 10,000
of its Up-300 on back order at present (retail price: $199.99). This
number will explode once the retail industry is aware the product is
shipping. SCTIs racing wheel assortment, which totals 6 models, is
larger than any other competitor in this category. SCTI plans the
introduction of four new products that include sound products and game
controller devices in 1998. Its newest product, under the Per4mer
brand name, is internally code named Air Jordan. The company believes
it will revolutionize the game controller category around the world.
Planned introduction for Air Jordan is June 15th. The project is on
target for a planned release. SCTI has negotiated a worldwide license
agreement with Sega Entertainment to supply the company with software
racing titles from there hottest selling racing games, convened to the
Force Feed Back protocol compatible to its UP-300. Sega will also
convert all racing titles to be compatible for the Per4mer race wheel.
SCTI will also bundle numerous titles with its UP-300 and other
Per4mer race models. SCTI has also entered into a license agreement
with Mattel for the use of its Mattel Hot Wheels logo, and the Kyle
Petty # 44 NASCAR race identification. Mattel represents one of the
strongest worldwide logos for ages 6-16. The company expects a steady
increase in revenues due to this alliance.
In 1998, SCTI intends to open up distribution alliances-networks
serving the South American and Asian marketplaces. With a consumer
market of over 2.5 billion people, the company feels that revenues for
its products exist in these markets. The company expects to have more
than $40 million of sale revenues in Asian market by the year of 2000.
Current U.S. based retail and catalogue customers of the company
include, but are not limited to; Best Buy, Babbages, Data Vision, PC
Connections, Egghead Software, Fry's Electronics, The Good Guy's,
Costco Wholesale, Tiger Direct and Micro Warehouse, Inc. SCTI's OEM
customer for CD ROM audio cables is Dell Computer Corporation.
In order to control the operation and manufacturing costs, SCTI has
appointed Richard W. Elwood to the position of Director of Finance and
Operations. Mr. Elwood was previously a Divisional Controller for
Eaton Corporation, a Fortune 100 company, Mr. Elwood's twenty-five
years of financial and operations expertise is what SCTI requires to
direct its internal cost cutting and restructuring efforts. The
company believes that future results will have a heavy focus on
profitability and shareholder value. Mr. Elwood is a seasoned
professional with an outstanding track record of accomplishments. His
management expertise will greatly assist SCTI's efforts in this
regard.
The company has had a troubled past, including misguided management,
lawsuits, losses and deletion from NASDAQ. These tragedies can be an
opportunity to its future shareholders. First, recognition of
non-reoccurring expenses in 1997, in conjunction with effective cost
controls implementation in 1998 will greatly assist SCTIs efforts
towards profitability of 1998 and years to come. Second, large NOL
($10 million) will allow SCTI not be paying taxes for next five years.
This tax benefit alone will add extra EPS $0.10 for next five years.
Third, most shareholders own SCTI at much higher prices, offering
little resistance on the upside if there is any. Fourth, the company
has no long-term debt and has $5 million hard cash ($0.22/share).
According to management, April 1, 1998 is the new beginning with new
management, new products, new growth, new business plan and a new
vision. Fiscal 1999 (starting at April 1, 1998) will be the first
year since the company's inception that it will be going into the
Christmas 1998 selling season with a full assortment of current
products. SCTI's nine different SKU's are more than all of the
competition (CH Products, InterAct, Thrustmaster, and MadCatz). This
strongly favors robust sales for SCTI. New products under the
category Per4mer Racing Wheels will represent 80% of the company's
revenue during fiscal 1999. New products being introduced according
to management will generate higher gross margins which will allow SCTI
to achieve estimated revenue and earnings for fiscal 1999 and 2000.
The company is also filing the paper work with SEC and its expected
that SCTI will be relisted on NASDAQ in August, 1998.
Technical analysis indicates that SCTI gradually rose to a high of
$1.34 in July, 1997 from its bottom of $0.21 in December, 1996. Last
October, SCTI was delisted from NASDAQ due to the delay of 10-K
submission by its accounting firm. After that, SCTI has sunk as low
as $0.04 from the area of $0.75 when it was listed on NASDAQ. Its
Relative Strength is neutral while its On Balance Volume indicates its
shares are under extremely heavy accumulation (more than 16 million
shares have been traded in the past two weeks or so, ratio of buy to
sell has been 4:1).
The company will have special board and shareholder meetings on April
14, 1998. In the meetings, the company will announce three major
moves. First, the company will initiate a stock buy-back program up
to 5 million shares (22% of outstanding shares, remember they have
some cash to spend); Second, the company will work with several stock
brokerage houses for supporting SCTI when it is relisted on NASDAQ.
Third, the company consider to have a merger with a private company.
With these recent developments, we rate SCTI as a strong buy because
it has very little downside risk while the upside potential could be
huge. Important |
