HERE'S A GOOD DD REPORT ON SPGK
SPORTS GROUP INTERNATIONAL, INC.
SYMBOL: SPGK (OTC-BB) SHARES ISSUED: 14 MILLION
CURRENT PRICE: $3.375 SHARES IN FLOAT 6.3 MILLION
TRADING RANGE: $2.50 - $3.75 WEB SITE: sportsgroupintl.com
THE COMPANY
Sports Group International, (SPGK) derives revenues from two
businesses. First, SPGK, has an exclusive North American license with
Spalding Sports to market and distribute a line of sports drinks using
the Spalding name. SPGK's current customer list reflects such customers
as Wal-Mart, Sam's Club, Costco Warehouses, Kroger Food Stores, and many
others. Second, Surf City has 110 locations that are either company
owned or franchised. SPGK had system-wide sales of approximately $20
million in 1998.
SPGK - PRODUCT
For today's savvy consumer, a product must look good; taste great, must
be nutritionally sound and competitively priced. SPGK, the exclusive
licensee of Spalding Sports Worldwide, has blended these four elements
to introduce a product line under the Spalding Sports Drinks name that
is right for today's marketplace. The primary business of SPGK is the
production and marketing of a variety of sports drinks under the
Spalding name. Spalding is the largest sporting goods manufacturer in
the world with annual sales of approximately one billion dollars. SPGK
does not manufacture its sports drink products but uses independent
co-packers (“bottlers”) to prepare, bottle, and warehouse the product
line. Research has shown that beverages like Spalding Sports Drink are
ideal for rapid fluid absorption. The Company already has in its
“locker room” athletes like Clyde Drexler, Kiki Vandeweghe, Bill Walton,
Larry Holmes, Joe Namath, Dorothy Hamill and others who are current
stockholders available for promotions and endorsements. According to
Beverage World in 1997 the Fruit Beverage, Sports Drink and Bottled
water markets accounted for over $12 billion in retail sales.
SURF CITY
Surf City owns two wholly owned subsidiaries, Surf City Squeeze
Franchise Corporation, a franchiser of retail smoothie stores under the
Surf City brand name, and Kona Coast Provisions, Inc. Throughout the
United States, 110 Surf City Squeeze retail smoothie stores operate
either under a franchise or license agreement or are owned by Surf City.
According to Entrepreneur Magazine, February edition, the juice bar
sector is among the hottest franchise businesses in the U.S. The stores
are located primarily in regional malls or health clubs. In today's
active world where energy and nutrition are highly salable products with
a rapidly expanding market, Surf City sells delicious nutritional fruit
smoothies, vitamins, herbs, sports nutrition, energy and diet products.
In addition they've added nutritious low-fat snacks that appeal to their
already diverse clientele. A Surf City store is essentially two
businesses in one. They have the opportunity to sell great tasting
nutritional fruit smoothies (fast-food) and all the latest nutritional
products (retail). Combined, these two concepts give Surf City stores a
broad customer appeal and a firm grip on the $17 billion plus health and
nutrition industry. Who are Surf City customers? The demographics are
impressive and potentially boast strong appeal in all major spending
groups:
- body builders and aerobics fans
- young mothers and professionals
- teenagers and thirty somethings
- health conscious seniors and weight loss consumers of all ages
THE MANAGEMENT
Kevin A. Blackwell, Chairman and President, began his professional
career with owning and operating a sporting goods store in Spokane, WA.
Upon moving to Phoenix, AZ several years later, he opened his first
juice bar operation in a chain of health clubs. By 1987, he had taken
the blended fresh fruit smoothie concept into the Regional Mall arena.
Mr. Blackwell, President and CEO of Surf City Squeeze Acquisition, Inc.,
has been building and operating Surf City concept locations for 12
years. Surf City Squeeze has in excess of 110 retail smoothies
nationwide.
Dean Miller, CEO and Director, has 23 years experience in the retail
supermarket business with several organizations including Megafoods
Stores, Inc. At the time of his retirement in 1995 he was President of
Megafoods which has grown to 70 stores and has revenues of $800 million.
Mr. Miller has been President of the Company since 1997.
Ernest M. “Kiki” Vandeweghe, III, Director, was a Rhodes Scholar
Nominee and earned a B.Sc. from UCLA. Kiki played 13 years in the
National Basketball Association (1980-1993), where he was a two-time
NBA All Star, a two-time NBA Scoring champion, and an NBA Top Three
Point shooter. He was a founder of Advantage Life Products in 1986, a
health care and exercise product company. Kiki sold his interest in
1992 after a successful public offering. In 1995 Mr. Vandeweghe formed
what is now known as Sports Group International, Inc.
THE .COM PLAY (E-COMMERCE)
On February 23, 1999, Intel's management stated that by the year 2002
they anticipate a BILLION ON-LINE users worldwide and that E-Commerce
transactions will be in excess of ONE TRILLION DOLLARS. That's about
two years away. SPGK currently has a web-site. Please visit the site
at sportsgroupintl.com, where you will notice that the
E-commerce section is currently under construction. In conversations
with management, it has learned that SPGK will be initiating a major
launch of their web-site promoting the E-commerce aspect of their
business in the very near future. The Internet is about as close to a
state of competitive perfection as one could achieve. Thanks to the
Internet, store's products and their inventory are simply a mouse click
away and as a result the barrier to competition is virtually
nonexistent.
LIVE WEB AUCTION SITE
This web-site is dedicated to a LIVE sports memorabilia auction.
Unlike Ebay, U-bid,I-bid where you place a bid and wait up to a week or
more to see if your bid was accepted, this site will be a live auction
where you will immediately know if you have won the bid. Imagine
yourself on-line seeing Michael Jordan holding a jersey and hearing,
“Congratulations you are now the proud owner of my jersey.”
Furthermore, the site will be constructed so that prior to the auction
SPGK will host a live chat with legends of the sports world and other
exciting promotional events. With SPGK's roster of athletes, sport
legends and celebrities shareholders you can just imagine the
possibilities.
VALUATION
The question of course is valuation. Let's say for the moment that we
assign no value to the Internet portion of the business. In our opinion
this is not the correct assumption because it seems that all you have to
say is that you are somehow associated with the internet and your stock
price increases dramatically. During the past few months we've
witnessed Barron's having branded both Federal Express and Novell as
.com plays and this event led to higher stock prices. It is the
anticipation of phenomenal profits that drives valuation higher. If we
assume the .COM portion of SPGK is worth zero, then what are we left
with? As we previously mentioned, SPGK operates in a $12 billion market
and Surf City operates in a $17 billion market - a combined market of
$29 billion. If on an assumption, the company was to simply capture *
of 1 percent of this market within the next 12-18 months, then that
would equate to approximately $75 million in revenue. According to the
Company, if they were to generate revenue of $75 million they would have
net income of approximately $7.35 million. There are currently 14
million shares outstanding (6.3 million shares in the float). If you
take the $7.35 million in net income and divide that by the 14 million
shares outstanding, you would arrive at $0.52 earnings per share.
According to Market Guide the beverage industry (non-alcoholic)
currently trades at an average multiple of approximately 44 times
earnings. If SPGK were simply to trade at one-half the industry average
multiple that would imply a STOCK PRICE of approximately $11 PER SHARE.
Based on today's closing bid price of $3.00 these assumptions would
imply an approximate 380 PERCENT INCREASE!
SUMMARY
In the world of sports, there are a thousand wannabees for every true,
bona fide champ. Now in a business filled with pretenders you'll find
one of the most trusted and recognizable names in sporting goods to add
a line of sports drinks to their portfolio. SPGK markets Spalding
Sports Drink and has a classic opportunity to capitalize in a rapidly
expanding industry using a major brand name along with very powerful
marketing partners. For these reasons and these stated above, we think
SPGK could be a big winner.
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