-----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, SkjfjezwrF8n30X0lS5nKqU3oqSkvVLl7xAe7tfMDw8CMTxaC9CIMzN8VzfN4wev FZsd7O7pQH0ClfLWzP17DQ== 0000950147-98-001033.txt : 19981216 0000950147-98-001033.hdr.sgml : 19981216 ACCESSION NUMBER: 0000950147-98-001033 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SC&T INTERNATIONAL INC CENTRAL INDEX KEY: 0001000079 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 860737579 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-27382 FILM NUMBER: 98770042 BUSINESS ADDRESS: STREET 1: 15695 NORTH 83RD WAY CITY: SCOTTSDALE STATE: AZ ZIP: 85260 BUSINESS PHONE: 6023689490 MAIL ADDRESS: STREET 1: 15695 NORTH 83RD WAY CITY: SCOTTSDALE STATE: AZ ZIP: 85260 10QSB 1 QUARTERLY REPORT FOR THE QTR ENDED 10/31/98 US SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31,1998. Commission File Number: 0-27382. SC&T INTERNATIONAL, INC. ---------------------------------------------------------- (Exact name of small business as specified in its charter) ARIZONA 86-0737579 - ------------------------------- ----------------------------- (State or other jurisdiction of (IRS Employer Identification) incorporation or organization) 15695 North 83rd Way, Scottsdale, Arizona 85260 ----------------------------------------------- (Address of principal executive offices) (602) 368-9490 ---------------------------------------------------- (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) 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 [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity as of December 8, 1998 latest practicable date: 25,903,684 shares of Common Stock, par value $0.01 per share. Transitional Small Business Disclosure Format (Check one): Yes [X] No [ ] SC&T INTERNATIONAL, INC. AND SUBSIDIARY Page ---- PART I FINANCIAL INFORMATION Item 1 Financial Information Consolidated Balance Sheet as of October 31,1998 3 Consolidated Statements of Operations for the Three Months Ended October 31,1998 and October 31,1997 5 Consolidated Statement of Shareholders' Equity for the Three Months Ended October 31,1998 6 Consolidated Statements of Cash Flows for the Three Months Ended October 31,1998 and October 31,1997 7 Notes to Consolidated Financial Statements 8 Item 2 Management's Discussion and Analysis 10 PART II OTHER INFORMATION Item 1 Litigation 14 Item 2 Change in Securities 14 Item 3 Defaults Upon Senior Securities 14 Item 4 Submission of Matters to a Vote of Security-Holders 14 Item 5 Other Information 15 Item 6 Exhibits & Reports on Form 8-K 15 SIGNATURES 16 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SC&T INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET October 31,1998 ASSETS Current assets: Cash $ 74,997 Receivables 1,962,069 Inventory 1,765,252 Other current assets 340,812 ---------- Total Current Assets 4,143,130 Property and equipment, less accumulated depreciation of $399,574 586,558 Other assets 144,507 ---------- Total Assets $4,874,195 ========== The accompanying notes are an integral part of these consolidated financial statements. 3 SC&T INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET October 31,1998 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,143,519 Common stock payable 103,130 Advances From Factor 399,311 Accounts payable 1,066,650 Accrued expenses 185,434 ------------ Total current liabilities 2,831,394 Commitments and contingencies Deferred Income-Long Term 181,727 Shareholders' equity: Common stock, $0.01 par; authorized 75,000,000 shares; 25,903,684 shares issued and outstanding 259,038 Series A preferred stock, $0.01 par; authorized 5,000,000 shares; 18 shares issued and outstanding Series B preferred stock, $100,000 Stated Value, 15 shares issued and outstanding 1,500,000 Additional paid-in capital 13,252,528 Currency translation (54,275) Accumulated deficit (13,096,217) ------------ Total shareholders' equity 1,861,074 ------------ Total Liabilities and Equity $ 4,874,195 ============ The accompanying notes are an integral part of these consolidated financial statements. 4 SC&T INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended October 31, 1998 and 1997 1998 1997 ---- ---- Net sales $ 1,846,697 $ 1,330,158 Cost of goods sold 1,145,391 1,058,806 ------------ ------------ Gross profit 701,306 271,352 Selling, general and administrative expenses: Payroll and payroll taxes 332,264 408,618 Selling and promotion 376,993 462,586 Office and administrative 241,664 431,569 Research and development 14,663 71,624 Consulting fees 2,548 77,035 Other 4,201 9,381 ------------ ------------ 972,333 1,460,813 ------------ ------------ Loss from operations (271,027) (1,189,461) Other income (expense) Royalty income 112,201 -- Interest income/(expense) (3667) 5,267 ------------ ------------ Income (Loss) before extraordinary items (162,493) (1,184,194) Prior Period Adjustment 230,711 -- ------------ ------------ Net loss $ 68,218 $ (1,184,194) ============ ============ Net loss from operations per common share $ .0 $ (.05) ============ ============ Net loss per common share $ .0 $ (.05) ============ ============ Weighted average common shares outstanding 24,729,695 23,135,273 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. 5 SC&T INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY For the Three Months Ended October 31,1998 Common Stock Preferred Stock Additional ------------------- --------------- Paid-in Shares Amount Shares Amount Capital ------ ------ ------ ------ ------- Balance at April 30,1998 23,153,684 $231,536 188 $1,500,002 $13,280,028 Preferred stock issuance costs -- -- -- -- -- Issuance of common stock 2,750,000 27,500 -- -- -- Preferred stock conversion -- -- 155 (2) -- Currency translation -- -- -- -- -- Net loss -- -- -- -- -- ---------- -------- --- ---------- ----------- Balance at July 31,1998 25,903,684 $259,037 33 $1,500,000 $13,280,028 ========== ======== === ========== =========== Treasury Stock -------------- Currency Accumulated Shares Amount Translation Deficit Balance at April 30,1998 -- $ -- $ 58,782 $(13,254,736) Preferred stock issuance costs -- -- -- -- Issuance of common stock -- -- -- -- Preferred stock conversion -- -- -- -- Currency translation -- -- (4507) -- Net loss -- -- -- 68,218 --- ---- -------- ------------ Balance at July 31,1998 -- -- $ 54,275 $(13,186,518) === ==== ======== ============ The accompanying notes are an integral part of these consolidated financial statements. 6 SC&T INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended October 31,1998 and 1997 1998 1997 ---- ---- Cash flows from operating activities: Net Profit (loss) $ 68,218 $(1,184,194) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 51,915 46,788 (Increase) decrease in accounts receivable (712,688) (663,050) Decrease in allowance for doubtful accounts 36,316 (Increase) decrease in inventories (24,037) 498,440 (Increase) decrease in advances on purchases of inventory (Increase)decrease in other current assets (24,063) Loan amortization 2438 Increase in prepaid expenses (164,377) Increase in other assets (612) Increase (Decrease) in accounts payable 896,213 (377,551) Increase (Decrease)n accrued expenses (115,027) 126,129 --------- ----------- Net cash used in operating activities 217 (1,539,359) --------- ----------- Cash flows from investing activities: Purchase of property and equipment 63,478 (87,313) Development costs 8071 (95,498) Loans to related parties -- -- --------- ----------- Net cash used in investing activities 71,549 (182,811) --------- ----------- Cash flows from financing activities: Currency translation Net borrowings under line of credit agreement Principal payments on short-term debt Principal payments on long-term debt Proceeds from note payable, related party Net repayments on related party loans Net borrowings on notes payable, bank Preferred stock issuance costs Repayments to factor (10,297) 0 --------- ----------- Net cash (used in)provided by financing activities (10,297) 0 --------- ----------- Net (decrease)increase in cash 61,469 (1,722,170) Cash, beginning of period 13,528 1,867,874 --------- ----------- Cash, end of period $ 74,997 $ 145,704 ========= =========== The accompanying notes are an integral part of these consolidated financial statements. 7 SC&T INTERNATIONAL, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited) 1. Interim financial reporting: The accompanying unaudited Consolidated Financial Statements for SC&T International, Inc. (the "Company") have been prepared in accordance with the generally accepted accounting principles for interim financial information and the 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, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for the periods presented have been made. The results of operations for the three month period ended October 31,1998 is not necessarily indicative of the operating results that may be expected for the entire fiscal year ending April 30,1999. Reclassification: Certain prior period amounts have been reclassified to conform to the current period presentation. 2. Common Stock: On October 22, 1997, the Company's shares of common stock, which was traded under the symbol SCTI, were delisted from the Nasdaq Small cap market. This action was taken as a direct result of the Company's failure to meet the filing requirement as stated in marketplace Rule 4310(c)(14). The failure to meet the filing requirement was the result of the untimely resignation of the Company's accounting firm, Toback & Company. The Company has complied with all reporting requirements in a timely manner since retaining Evers & Company in October, 1997. The company has completed and filed its 10K report for the year ended April 30,1998. The company has entered into agreements with the holders of 99% of the Series A Preferred Stock hereby all of their shares of Series A Preferred Stock are tendered for conversion at a fixed conversion price of $1.00 per share ( the "Fixed Conversion "). The holders of Series A Preferred Stock waive all other conversion rights which they may have pursant to any agreement. In addition to the fixed conversion price, the holders of the Series A Preferred Stock will also receive warrants to purchase one-third of the number of shares which they receive pursant to the Fixed Conversion price at a price of $1.75 per share subject to ordinary anti-dilution provisions ( the "Warrant Shares"). The Company did not have an adequate nimber of authorized shares to cover the warrants, employee stock options and the remaining preferred shareholders. In order to allow the Company to have sufficient shares for these transactions, the President of the Company retuned 1,648,444 of his shares to the Company. Subsequent to year end, the Board of Directors approved the issuance of 15 shares of Series B Preferred Stock at $100,000 stated value per share to the President in exchange for 1,500,000 shares of common stock returned. The preferred shares are convertible into common stock at the rate of 12 shares for every $1 of face value of the Series B Preferred stock. In addition, the President received $150,000 in cash for the additional 148,444 shares returned. The transaction has been retroactively applied to the 1998 financial statements. Mr. Copland and his affiliates have indicated they intend to convert the Series B Preferred stock into common stock. 8 SC&T INTERNATIONAL, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited) The conversion is expected to be completed in December, 1998. Mr. Copland and his affiliates will be issued a total of 18,000,000 common shares. 3. Proxy Appproval In July, 1998 shareholders of the Company approved two motions. The first, to increase the number of authorized shares by 50,000,000 bringing the total to 75,000,000. The second motion approved was to authorize a reverse split. Management's current intent is not to reverse the stock until the Company' share price has increased and the Company reaches profitability. At this time the Company has not set a date for a reverse split, but does not expect a reverse split before the Company's fourth quarter of fiscal 1999 or until such time as the common share value has improved. 4. Commitments and Contingencies Operating leases: In October 1996, the Company purchased approximately 1.24 acres of land located at the Scottsdale Airpark in Scottsdale, Arizona. The Company completed construction of approximately 12,000 square feet of warehouse space and approximately 6,000 square feet of executive office space in April 1997. The Company has subsequently sold the building on June 30, 1997 and effective July 1, 1997 leased the building back from the buyer. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in this report on form 10SB that are not purely historical are forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934, including statements regarding the Companiy's "expectaions," "anticipation," "intentions," "beliefs," or "strategies," regarding the future. Forward-looking statements include statements regarding revenue, margins, expenses and earnings analysis for the remainder of the fiscal year 1999 and thereafter; future products or product development strategy; and liquidity and anticipated cash needs and availability. All forward looking statements included in this document are based on information available to the Company on the date of this report, and the Company assunes no obligation to update any such forward-looking statement. It is important to note that the Company's actual results could differ materially from those in such forward-looking statements. OVERVIEW SC&T International, Inc. (the "Company") 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 and its AIR RACER trademark. The Company's products include sub-woofer and speaker sound enhancement systems, headphone & microphone accessory items, PC volume controllers, and the largest assortment of PC and video arcade racing wheels and game controller products for Nintendo, Sony Playstation and IBM-PC's. SC&T,s Per4mer line has expanded and now comprises products that offer Force Feed Back, Optical and Tilt technologies. It has also successfully launched its Air Racer controller, an innovative item which is a racing wheel, fight yoke and game controller, all in one. SC&T plans to take a very aggressive positioning for its line of Per4mer products in 1999. The Company's multimeda keyboards line has been discontinued in favor of a second generation product targeted at the corporate market. This second generation product, which, features an enhanced Voice Recognition product, has been completed, but at this time has not been introduced into the market. However, the Company is entering into license agreements with other keyboard manufacturers which will provide SC&T with additional income from the U.S.technology patents it holds for this technology. The Company continues to reduce operating costs, while increasing both its distribution base and gross margins on products sold. Over the past 2-3 months, new an improved retail and reseller alliances have been made both by the Company's North American and European operations. SC&T Is very optimistic about adding many more customers and increasing the number of products currently sold by these customers. The Company's Chairman is also planning a more active role in the Company's global sales operations, which SC&T hopes will increase the number of customers for the Company. On December 31, 1994, the Company purchased SC&T Europe, a marketing and distribution company located in Antwerp, Belgium. The Company, in an effort to reduce its European operating costs, consolidated its European distribution operations into one central facility located in the United Kingdom, in May 1997. The Company formed SC&T Europe Limited, located in Portsmouth England. The Belgium office was closed in August, 1998. All current marketing and distribution operations, including a United Kingdom domestic sales force, is now being handled out of the United Kingdom operations. The expansion in the number of customers and the corresponding increase in revenue since commencing operations, the Company's total revenue exceed operating expenses revenue, resulting in a net profitof approximately $68,000 10 for the three months ended October 31,1998. The Company's primary costs are for research and development, tooling for new products, inventory, trade shows, and selling and promotion activities. Although these expenses were kept to a minimum during the quarter, the Company expects these costs to increase at a reduced rate when compared to the expected rate of increase in sales. In addition, operating results may be influenced by factors such as the demand for the Company's products, the timing of new product introductions by both the Company and its competitors, pricing by both the Company and its competitors, inventory levels, the Company's ability to develop and market new products, the Company's ability to manufacture its products at high quality levels and at commercially reasonable costs, the timing and levels of sales and marketing expenditures, and general economic conditions. Operating results of the Company for the thre month period ended October 31,1998 and 1997. NET SALES Net sales for the three months ended October 31,1998 increased $516,000 or 39% compared to the three months ended October 31,1997. The sales increase is attributed to the Company,s new product Air Racer introduced in September. GROSS PROFIT The Company's gross profit percentage for the three months ended October 31,1998 was $701,000 or 38% in contrast to a gross profit of 20% for the quarter ended July 31,1997. Gross profit margins are affected by several factors, including the product mix between the Company's products. Typically, products sell at gross profit margins ranging from 20% to 40%. The Company anticipates that new products will initially sell at higher gross profit margins. However, there can be no assurance that higher margins will be maintained over the life of the product. PAYROLL AND PAYROLL TAXES The Company's payroll and payroll tax expense decreased from approximately $409,000 for the three months ended October 31,1997 to approximately $332,000 for the three months ended October 31, 1998, or approximately 19%. Substantial cost decreases were made in health insurance, executive salaries, and relocation costs. SELLING AND PROMOTION The Company's selling and promotion expenses decreased from approximately $463,000 for the three months ended October 31,1997 to approximately $377,000 for the three months ended October 31,1998, or a decrease of approximately 18%. This represents an decrease in selling and promotion expenses, as a percentage of sales from 35% for the three months ended October 31,1997 to 20% for the three months ended October 31,1998. Approximately 60% of the decrease was in travel expense and the balance was due to the discontinuance of sponsorship expenses of Kool Toyota Racing Series. The Company maintains a personal services agreement with its driver which allows the Company to utilize his figure and involvement in motor sports racing on its line of Per4mer racing products. OFFICE AND ADMINISTRATION The Company's office and administrative expenses decreased from approximately $432,000 for the three months ended October 31,1997 to approximately $242,000 for the three months ended October 31,1998, or approximately 44%. As a percentage of net sales, office and administrative expenses decreased from 32% to 13%. Major cost reductions were made in legal expense $140,000 and general office overhead expenses $50,000. 11 DEVELOPMENT COST AMORTIZATION Development cost amortization decreased from approximately $72,000 for the three months ended October 31, 1997 to $15,000 for the three month period ended October 31, 1998. Development cost amortization represents amortization of costs associated with development of new products. Such costs are amortized over a 12 month period commencing with the first sale of the product. NET PROFIT The Company experinced its first profitable quarter since the inception of the business. in 1995. Operating profir were $68,000 or 3.7%. This compares favorably to operating losses of $1,184,000 for the quarter ended October 31,1997 and $917,000 operating loss for the quarter ended July 31,1998. Major reasons for the operating improvement are attributable to the increase in gross margins, ten percent reduction in overhead expenses, royalty income of $112,000 and a prior year adjustment for an over accrual of vendor royalty costs of $231,000. LIQUIDITY AND CAPITAL RESOURCES As a result of the Company's initial public offering, and its private placement of Series A Preferred Stock in June 1996, the Company's working capital improved to approximately $3,635,084 at September 30, 1997. The Company is required to pay the costs of stocking inventory before the Company receives orders and payment from its customers. Typically, the Company's customers do not pay the Company for its products until approximately 60 days following delivery and billing. As a result, the receipt of cash from operations typically lags substantially behind the payment of the costs for purchase and delivery of the Company's products. Through July 1996, the Company financed operations by factoring its United States receivables. Historically, the Company's European subsidiary financed operations through a line of credit of approximately $182,000 denominated in Belgian francs. In addition, to raise funds to meet its expenses, the Company obtained inventory financing in April and May 1995 for an aggregate of $1,000,000, completed a private placement in April 1995 of $1,500,000 for 2,000,000 shares of Common Stock, completed a private placement in September 1995 of $875,000 of 8% Subordinated Debentures. In December 1995, the Company used approximately $1,875,000 of the $4,500,000 gross proceeds of its initial public offering to repay the inventory financing and the 8% Subordinated Debentures. In June 1996 the Company received gross proceeds of $10,510,000 for an issuance of 1,051 shares of Series A Preferred Stock. The preferred shareholders earn 8% accretion per annum up to the date of conversion. BUSINESS OUTLOOK AND RISK FACTORS SC&T Has implemented a major cost reduction program which will be maintained into 1999. These initial efforts have already improved the Company's operations. Management believes there is a growing acceptance in the global marketplace for the Company's expanding product line. SC&T Products are currently sold in over 25 countries worldwide. The Company plans four to six new product introductions by the end of 1999, which will expand its current line up of Per4mer products. Management is working on new programs. They are designed to increase profit opportunities for its customers, and SC&T is hopeful that it will enhance sales revenues, while reducing future operating expenses. The Company has developed new manufacturing alliances which has reduced costs due to increased volumes and economies of scale. The Company expects further cost reductions throughout this year. Total revenue and product mix could be materially and adversly affected by many factors some of which are beyond the control of the Company. Those factors include, but are not limited to, turnover in the Company's sales force, competition from existing or new products, production delays, the Company's ability to penetrate new markets and attract new customers, unexpected postponement or cancellation of significant orders, lack of market acceptance of the Company's products, manufacturing defects and seasonality of sales and general economic conditions. 12 BUSINESS OUTLOOK AND RISK FACTORS, CONTINUED The Company believes the accessory and peripheral products markets for the personal computer and video gaming indutries has a strong outlook. These markets are characterized by sales growth, rapid technological change, frequent introduction of new products, product upgrades and evolving industry standards. The Company strives to provide market-leading solutions that address the personal computer user interested in upgrading existing equipment. Due to the risk factors discused and to other factors that generally affect high technology companies, there can be no assurance that the Company will be able to successfully penetrate these markets in the future. The Company's 10K report for the year ended April 30,1998 contained a going concern qualification. The Company does not dispute this qualification. Without a substantial increase in revenues the Company will require additional working capital through external sources to continue to fund its operations. Management plans to actively explore debt and equity financing as well as holding discussions with potential merging partners to obtain required financing. 13 PART II - OTHER INFORMATION ITEM 1. LITIGATION Pending or Threatened Litigation A. Home Arcade v SC&T In 1997, Home Arcade filed suit for breach of a license agreement, a suit which alleges bad faith and fraud claims. Home Arcade has amended its complaint to assert that SC&T has violated Home Arcade's trade name to performer wheel. SC&T has vigorously asserted that the trade name was transferred to SC&T along with the sale of the tooling. The compliant seeks damages in excess of $900,000, however, the principal amounts are far less. The requested relief includes trebling and punitive damages. Management has positively evaluated the issues of breach and strongly disputes the principal amount. Management intends to vigorously defend the case. Further, management is in the process of filing counterclaims alleging that SC&T, among other things, actually incurred significant losses as a result of Home Arcade's misrepresentations and breach of the licensing agreement. The litigation is pending in Santa Clara County, San Jose, California. It is expected to last approximately two years. B. SC&T V. Brian Johnson In 1998 SC&T filed suit against a former sales person for recovery of moving expenses pursuant to the moving expense agreement. These expenses became due when Mr. Johnson resigned prior to one year from the agreement. SC&T , also, alleges that Mr. Johnson submitted fraudulent reimbursement vouchers. Mr. Johnson filed a counterclaim alleging he did not receive full compensation during his tenure. Mnagement has evaluated the claims and intends to vigorously prosecute its claims against Mr. Johnson and expects a positive judgment within one year. C. Jack of All Games v. SC&T In June, 1997 Jack of All Games Entertainment, Inc., sued the Company in Hamilton County, Ohio for breach of contract regarding the purchase of 5,000 steering wheel accessories. Jack of All Games is seeking approximately $180,000 in damages. Plaintiff claims the steering wheels it received were not merchantable for the purpose for which they were intended The Company has answered the compliant and denied all material allegations. It is anticipated that the litigation of these issues will be concluded within one year. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY-HOLDERS In July, 1998 Shareholders approved a motion to issue an additional 50,000,000 common stock from 25,000,000 to 75,000,000 and to allow the Company to reverse common stock outstanding at a time deemed necessary by the Board of Directors. 14 ITEM 5. OTHER INFORMATION Year 2000 Readiness Statement The year 2000 (Y2K) is an issue putting at risk systems, products and specialized hardware utilizing date sensitive computer chips or software with two-digit date fields will fail to properly recognize the year 2000. Such failures could result in interruptions of the Company's business which could have a material adverse impact on the Company. In response to the Y2K issue, The Company will upgrade its current Platinum System 4.1A to 4.5A. The upgraded system is fully Y2K ready and will be installed by June 30, 1999. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K On June 17,1998 the registrant filed with the Securities Exchange Commission to change its fiscal year from March 31 to April 30. 15 SIGNATURES In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. SC&T INTERNATIONAL, INC. Signature Capacity Date --------- -------- ---- /s/ James L. Copland Chairman of the Board November 14, 1997 - ------------------------- and Chief Executive Officer James L. Copland /s/ Richard W. Elwood Director of Finance November 14, 1997 - ------------------------- Richard W. Elwood 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 6-MOS APR-30-1999 MAY-01-1998 OCT-31-1998 1 74,997 0 1,962,069 393,119 1,765,252 4,143,130 986,132 399,574 4,874,195 3,305,753 0 0 1,500,000 236,189 102,036 4,874,195 1,846,697 1,846,697 1,145,391 1,145,391 0 393,119 4,059 (162,493) 0 (162,493) 0 230,711 0 68,218 0 0
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