-----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, JkzLTVg/bIOaM8ReY65f9jH1YQMhJD44DP+tjvd5mJLhDD8JveaI2atPq8jy1SoT fo2pQgCxP1iopyjSZnyVmw== 0000950147-99-000949.txt : 19990831 0000950147-99-000949.hdr.sgml : 19990831 ACCESSION NUMBER: 0000950147-99-000949 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990830 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: 99702366 BUSINESS ADDRESS: STREET 1: 7625 EAST REDFIELD ROAD, SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85260 BUSINESS PHONE: 6023689490 MAIL ADDRESS: STREET 1: 7625 EAST REDFIELD ROAD, SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85260 10QSB 1 QUARTERLY REPORT FOR PERIOD ENDED 7-31-1999 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 July 31, 1999. 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) 7625 E. REDFIELD RD., SCOTTSDALE, ARIZONA 85260 ----------------------------------------------- (Address of principal executive offices) (480) 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 August 30, 1999 latest practicable date: 4,551,064 shares of Common Stock, par value $0.01 per share. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] SC&T INTERNATIONAL, INC. AND SUBSIDIARY Page PART I FINANCIAL INFORMATION Item 1 Financial Information Consolidated Balance Sheet as of July 31,1999 3 Consolidated Statements of Operations for the Three Months Ended July 31,1999 and July 31, 1998 4 Consolidated Statement of Shareholders' Equity for the Three Months Ended July 31, 1999 5 Consolidated Statements of Cash Flows for the Three Months Ended July 31,1999 and July 31,1998 6 Notes to Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis 10 PART II OTHER INFORMATION Item 1 Litigation 14 Item 2 Change in Securities 15 Item 3 Defaults Upon Senior Securities 15 Item 4 Submission of Matters to a Vote of Security-Holders 15 Item 5 Other Information 16 Item 6 Exhibits & Reports on Form 8-K 16 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SC&T INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET JULY 31, 1999 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 20,765 Accounts receivable (net of $325,112 allowance) 195,792 Inventories 1,130,707 Prepaid expenses and other assets 102,725 ------------ Total current assets 1,449,989 PROPERTY AND EQUIPMENT, net 469,185 OTHER ASSETS 47,729 ------------ TOTAL ASSETS $ 1,966,903 ============ LIABITITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,100,170 Accrued liabilities 282,756 Advances from factor 28,628 Capital lease obligations - current portion 13,809 ------------ Total current liabilities 2,425,363 CAPITAL LEASE OBLIGATIONS - long-term portion 7,118 ------------ Total liabilities 2,432,481 ------------ STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 33,332,747 shares authorized, 4,551,064 issued and outstanding 45,512 Paid in capital 15,478,055 Currency translation 1,878 Accumulated deficit (15,991,023) ------------ Total stockholders' equity (465,578) ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,966,903 ============ The accompanying notes are an integral part of these financial statements 3 SC&T INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 31, 1999 AND JULY 31, 1998 (Unaudited) 1999 1998 --------- ----------- NET SALES $ 260,394 $ 1,079,982 COST OF SALES 287,522 950,840 --------- ----------- Gross profit (27,128) 129,142 --------- ----------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Salaries and benefits expense 244,142 325,464 Selling and promotion expense 119,069 215,535 Office and administrative expense 236,579 485,978 Research and development expense 214 21,952 Consulting fees 427 --------- ----------- Total selling, general and administrative expenses 600,004 1,049,356 --------- ----------- LOSS FROM OPERATIONS (627,132) (920,214) --------- ----------- OTHER (INCOME) AND EXPENSES Interest income (835) (3,720) Interest expense and factoring charges 7,393 595 Royalty income (36,388) Other income (8,479) --------- ----------- Total other (income)/expense (38,309) (3,125) --------- ----------- NET LOSS $(588,823) $ (917,089) ========= =========== NET LOSS PER COMMON SHARE $ (0.13) $ (0.08) ========= =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING $ (0.13) $ (0.08) ========= =========== The accompanying notes are an integral part of these financial statements 4 SC&T INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED JULY 31, 1999 (Unaudited)
Common Stock Additional ------------------- paid-in Currency Accumulated Shares Amount capital Translation deficit Total --------- ------- ----------- ----------- ----------- --------- Balance at April 30, 1999 3,351,064 $33,512 $15,478,055 $ 2,527 $15,402,200 $ 111,894 Issuance of common stock 1,200,000 12,000 12,000 Currency translation (649) (649) Net loss 588,823 588,823 --------- ------- ----------- ------- ----------- --------- Balance at July 31, 1999 4,551,064 $45,512 $15,478,055 $ 1,878 $15,991,023 $(465,578) ========= ======= =========== ======= =========== =========
The accompanying notes are an integral part of these financial statements 5 SC&T INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JULY 31, 1999 AND JULY 31, 1998 (Unaudited) 1999 1998 --------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(588,823) $ (917,089) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 44,410 156,797 Non cash expenses 12,000 Changes in assets and liabilities: Accounts receivable 204,308 (320,026) Inventories 282,362 306,424 Prepaid expenses and other current assets 87,034 (30,548) Other assets (24,258) Accounts payable (165,702) (74,570) Accrued liabilities 24,961 (253,166) --------- ----------- Net cash (used in) provided by operating activities (123,708) (1,132,178) --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (19,100) --------- ----------- Net cash (used in) provided by investing activities (19,100) --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Currency translation (649) 58,782 Payment of capital lease obligations (2,867) Advances from (repayments to) factor (40,109) 225,364 --------- ----------- Net cash (used in) provided by financing activities (43,625) 284,146 --------- ----------- DECREASE IN CASH AND EQUIVALENTS (186,433) (848,032) CASH AND EQUIVALENTS, BEGINNING OF PERIOD 207,198 861,560 --------- ----------- CASH AND EQUIVALENTS, END OF PERIOD $ 20,765 $ 13,528 ========= =========== The accompanying notes are an integral part of these financial statements 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS I. INTERIM 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 July 31, 1998 is not necessarily indicative of the operating results that may be expected for the entire fiscal year ending April 30, 2000. RECLASSIFICATION Certain prior period amounts have been reclassified to conform to the current period presentation. COMMON STOCK On October 22, 1997, the Company's shares of common stock, which was traded under the symbol SCTI, were de-listed 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 since complied with all reporting requirements in a timely manner. The company has completed and filed its 10K report for the year ended April 30, 1999 PROXY APPROVAL 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 a reverse split. On April 23, 1999 The Company initiated a reverse stock split in a ratio of one (1) new share for eighteen (18) of its shares of common stock. COMMITMENTS AND CONTINGENCIES -- OPERATING LEASES In February 1999, the Company relocated operations to a new location. The Company has a three year lease on 8500 square feet of office and warehouse space located at Scottsdale Airpark in Scottsdale, Arizona. The lease commenced on March 1, 1999 and expires on February 28, 2002. 7 II. ORGANIZATION AND BASIS OF PRESENTATION SC&T International, Inc. (the "Company") was formed in 1993 for the purpose of developing and marketing accessory and peripheral products for the computer and video game industries. The Company's primary product line, steering wheels and foot controls for racing games, use infrared connections, eliminating the need for computer cable hook-up directly to the personal computers. Its products are compatible with SEGA, Nintendo and Sony Playstation games. The Company also markets audio speakers for PC's. The Company's customers include many of the major electronics retailers in the United States and overseas. A substantial portion of the Company's revenue is generated internationally. It has wholly owned subsidiaries in the United Kingdom and Hong Kong. III. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION - The consolidated financial statements include the accounts and activities of SC&T International, Inc. and its wholly owned subsidiaries, SC&T Europe, Limited (United Kingdom), SC&T Asia, Limited (Hong Kong) and SC&T Europe, NV (Belgium), SC&T America, Inc. All significant intercompany transactions and balances have been eliminated in consolidation. CASH AND CASH EQUIVALENTS includes all short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. INVENTORIES are stated at the lower of cost (first-in, first-out) or market. Allowances are made for returned inventory to reflect estimated net realizable value of those items. PROPERTY AND EQUIPMENT are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets ranging from 3 to 10 years. Depreciation expense is not recorded for tooling acquired and not yet been placed in service. REVENUE RECOGNITION - The Company recognizes revenue when the product is shipped. Products have warranties covering defects. Certain customers have arrangements that provide the right to return unsold merchandise. The Company provides an allowance to reflect estimated returns of product from customers and warranty costs. The Company may also provide price protection to certain customers. The Company records the price protection as a reduction of revenue at the time of the price reduction. RESEARCH AND DEVELOPMENT - The costs for new products are expensed as incurred. INCOME TAXES - The Company provides for income taxes based on the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, which among other things, requires that recognition of deferred income taxes be measured by the provisions of enacted tax laws in effect at the date of financial statements. 8 FOREIGN CURRENCY TRANSLATION - The foreign subsidiaries maintain their financial statements in the local currencies which have been determined to be the functional currencies. Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the rates in effect at the balance sheet date. Revenues and expenses are translated at average rates for the year. Related translation adjustments are reported as a separate component of stockholders' equity, whereas, gains and losses resulting from foreign currency transactions are included in the results of operations. FINANCIAL INSTRUMENTS - Financial instruments consist primarily of cash, accounts receivable, and obligations under accounts payable, accrued expenses, advances from factor, and capital lease instruments. The carrying amounts of cash, accounts receivable, accounts payable, accrued expenses and advances from factor approximate fair value because of the short maturity of those instruments. The carrying value of the Company's capital lease arrangements approximates fair value because the instruments were valued at the retail cost of the equipment at the time the Company entered into the arrangements. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. LOSS PER SHARE - Basic loss per share is computed using the weighted average number of shares of common stock outstanding for the period. Diluted loss per share is computed using the weighted average number of shares of common stock plus dilutive potential common shares outstanding for the period. IV. INVENTORIES Inventories consisted of the following at July 31, 1999: Finished goods $ 970,291 Advances on purchases of inventory 124,748 In-transit items 140,664 Allowance for obsolescence (104,996) ----------- Total inventory $ 1,130,707 =========== Advances on purchases of inventory are for inventory currently being manufactured or anticipated to be manufactured in the near future. The Company relies on a limited number of suppliers and one primary manufacturer for the production of its products. Its suppliers and manufacturer are located in Hong Kong, China and Taiwan. 9 V. PROPERTY AND EQUIPMENT Property and equipment consisted of the following at July 31, 1999: Office furniture and equipment $ 290,628 Tools, dies and molds 528,030 Computer equipment 172,838 Warehouse equipment 11,303 ---------- Total 1,002,799 Less accumulated depreciation and amortization 533,614 Property and equipment - net $ 469,185 ========== VI. ADVANCES FROM FACTOR The Company entered into a new factoring agreement in October 1998. The terms of the agreement provide for advances up to 75% of receivables factored and a 2% discount payable upon submission of invoices to factor. A discount fee of 10% per day up to 90 days is charged from date of advance until payment by customer. A 15% fee is charged for accounts unpaid after 90 days. Credit risk remains with the Company except for account debtor bankruptcy. The agreement is secured by all accounts receivable whether or not specifically purchased by the factor. The balance at July 31, 1999 of $28,628 represents funds advanced in excess of customer payments received by factor and allowance reserve maintained by factor. 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 Company's "expectations," "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 2000 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 assumes 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. 10 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 multimedia 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 by the Company. 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 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. 11 OPERATING RESULTS OF THE COMPANY FOR THE THREE MONTH PERIOD ENDED JULY 31,1999 AND 1998. NET SALES Net sales for the three months ended July 31,1999 decreased approximately $816,000 or 76% compared to the three months ended July 31,1998. The sales decrease is attributed to the Company's seasonal slow sales and decreased sales from the Company's UK subsidiary. GROSS PROFIT (LOSS) The Company's gross loss for the three months ended July 31, 1999 was approximately $27,000 in contrast to a gross profit of approximately $129,000 for the three months ended July 31, 1998. This gross loss is primarily due to a gross loss by the Company's UK subsidiary of approximately $90,000. Gross profit margins are affected by several factors, including the product mix between the Company's products. The Company anticipates 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 $325,000 for the three months ended July 31, 1998 to approximately $244,000 for the three months ended July 31, 1999. This reduction represents a 25% reduction in salaries and related expenses. The Company has continued to reduce personnel while increasing employee productivity. The Company is required to employ a base staff of qualified personnel to maintain its operations. SELLING AND PROMOTION The Company's selling and promotion expenses decreased from approximately $216,000 for the three months ended July 31, 1998 to approximately $119,000 for the three months ended July 31,1999. This decrease represents a 45% decrease from the same period ended July 31, 1998. OFFICE AND ADMINISTRATION The Company's office and administrative expenses decreased from approximately $486,000 for the three months ended July 31,1998 to approximately $237,000 for the three months ended July 31,1999, or approximately 51%. Major cost reductions were made in legal expense, occupancy costs, and general overhead expenses. RESEARCH, DEVELOPMENT AND CONSULTING FEES Expenses related to research, development and consulting fees decreased from approximately $23,000 for the three months ended July 31, 1998 to approximately $214 for the three month period ended July 31, 1999. This decrease represents a 99% decrease from the same period the prior year. 12 OTHER INCOME/EXPENSE Other income increased to approximately $38,000 for the three months ended July 31, 1999 from approximately $3000 for the same period ended July 31, 1998. This increase represents a $35,000 increase. This increase can be directly attributed directly to royalty income from the Company's multimedia-telephony keyboard technology. NET LOSS The Company experienced a net loss of approximately $588,000 for the three months ended July 31, 1999 compared to a net loss of approximately $917,000 for the three months ended July 31, 1998. This represents a decrease of approximately $329,000, or 36%. The decrease represents aggressive cost reductions made by management of the Company. Total operating expenses decreased from approximately $1,050,000 for the three months ended July 31, 1998 to only approximately $600,000 for the three months ended July 31, 1999. This represents a decrease of 43% for the three months ended July 31, 1999 from the same period ended July 31, 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital decreased from $1,122,000 for the three months ended July 31, 1998 to a deficit of $975,374 for the three months ended July 31, 1999. This decrease is due directly to the Company's net loss from operations. 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. The Company has been unable to attract additional sources of capital due to it's de-listing and must rely on factoring of it's accounts receivable which dramatically increase costs and reduces working capital. BUSINESS OUTLOOK AND RISK FACTORS SC&T management will continue a major cost reduction program which will be maintained into 2000. These 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 adversely 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. 13 The Company believes the accessory and peripheral products markets for the personal computer and video gaming industries 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 discussed 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 30,1999 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. PART II - OTHER INFORMATION ITEM I. LITIGATION PENDING OR THREATENED LITIGATION a. Home Arcade v. the Company In September of 1997, Home Arcade filed suit in San Jose, California, against the Company re a license dispute. The Company has denied breaching the contract and instructed counsel to vigorously defend the case. Due to the recent filing of the case, counsel has not yet been able to develop an opinion with regard to the timing or likely results of this litigation. However, management believes it has committed no wrongdoing. The company is preparing for litigation at this time. b. Jack Of All Games v. the Company In June of 1997, Jack Of All Games Entertainment, Inc., sued the Company in Cincinnati, Ohio, for breach of contract regarding a purchase order for 5,000 steering wheels. Jack Of All Games is seeking $179,272.80, plus interest and attorneys fees. Management intends to vigorously defend this case or settle it based on the provision of replacement product. The parties had previously agreed to a product exchange and the Company expects a product exchange to occur. This litigation should be concluded within the year, and if settled through arbitration, the maximum exposure to the company would be reduced to $ 100,000. c. The Company v. Toback & Company In June 1999 SC&T filed suit against Toback & Company seeking substantial damages for the firms untimely resignation in September of 1997. These actions caused the de-listing of SC &T's shares from the NASDAQ Stock Exchange. The Company alleges Toback's actions were premeditated and unnecessary, causing severe damage to the Company. The Company is seeking damages against Toback & Company in this regard. The Company believes it will prevail in it's action against Toback & Company. 14 d. The Company v. Santiago Villa SC&T has filed suit against its former landlord seeking to collect approximately $20,000 in escrow funds not disbursed to the Company when it vacated it's former offices. The Company believes it will prevail in this action. UNASSERTED CLAIMS and ASSESSMENTS The Company has a wheel product which includes "force-feedback" technology as a new version to its racing wheel. The Company has been contacted by Atari. Atari expressed a desire to evaluate the Company's force-feedback technology to determine whether it violates a patent possessed by Atari. The Company is presumptively protected under the circumstances because the Company obtained a license for the force-feedback technology from another company, Immersion Corporation. Immersion Corporation has indemnified the Company for patent infringement liability. However, should Atari successfully enjoin Immersion, sales of the Company's force-feedback racing wheel would be impacted, or the Company might have to seek a license from Atari. 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. 15 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. As a direct result of this concern the Company has upgraded all hardware and software to be Y2K compliant. Management has taken these measures to insure all computer hardware and software will be able to function as the year 2000 approaches. However, there is no assurance all the suppliers and vendors of the Company are Y2K compliant, and therefore it is possible some business interruption may occur as a result. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Reports on Form 8-K; On June 17, 1998, the Registrant filed with the Securities and Exchange Commission a Report on Form 8-K dated June 17, 1998, to change the Company's fiscal year from March 31 to April 30. On April 30, 1999, the registrant filed with the Securities and Exchange Commission a Report on Form 8-K dated April 30, 1999 which reported the engagement of King, Weber & Associates, P.C. as its new audit firm. On April 23, 1999, the registrant filed with the Securities and Exchange Commission a report on Form 8-K, dated April 23, 1999, which reported a reverse stock split in a ratio of one (1) new share for eighteen (18) of its shares of common stock. 16 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. SIGNATURE CAPACITY DATE - --------- -------- ---- SC&T INTERNATIONAL, INC. /s/ James Copland Chairman of the Board August 30, 1999 - ----------------------------- and Chief Executive Officer James Copland /s/ Ricky S. Greenberg Director of Finance August 30, 1999 - ----------------------------- Ricky S. Greenberg 17 EX-27 2 SC&T INTERNATIONAL, INC.
5 U.S. DOLLARS 3-MOS APR-30-2000 MAY-01-1999 JUL-31-1999 1 20,765 0 520,004 325,112 1,130,707 1,449,989 1,002,799 533,614 1,966,903 2,425,363 0 0 0 45,512 (511,090) 1,966,903 260,394 260,394 287,522 287,522 0 0 7,393 (588,823) 0 (588,823) 0 0 0 (588,823) (.13) 0
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