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.
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(Exact name of small business as specified in its charter)
ARIZONA 86-0737579
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(State or other jurisdiction of (IRS Employer Identification)
incorporation or organization)
7625 E. REDFIELD RD., SCOTTSDALE, ARIZONA 85260
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(Address of principal executive offices)
(480) 368-9490
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(Registrant's telephone number, including area code)
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(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]
<PAGE>
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
<PAGE>
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
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Total current assets 1,449,989
PROPERTY AND EQUIPMENT, net 469,185
OTHER ASSETS 47,729
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TOTAL ASSETS $ 1,966,903
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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
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Total current liabilities 2,425,363
CAPITAL LEASE OBLIGATIONS - long-term portion 7,118
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Total liabilities 2,432,481
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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)
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Total stockholders' equity (465,578)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,966,903
============
The accompanying notes are an integral part of these financial statements
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SC&T INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1999 AND JULY 31, 1998
(Unaudited)
1999 1998
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NET SALES $ 260,394 $ 1,079,982
COST OF SALES 287,522 950,840
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Gross profit (27,128) 129,142
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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
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Total selling, general and administrative
expenses 600,004 1,049,356
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LOSS FROM OPERATIONS (627,132) (920,214)
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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)
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Total other (income)/expense (38,309) (3,125)
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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
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SC&T INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------------- paid-in Currency Accumulated
Shares Amount capital Translation deficit Total
--------- ------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
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)
========= ======= =========== ======= =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
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SC&T INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 31, 1999 AND JULY 31, 1998
(Unaudited)
1999 1998
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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)
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Net cash (used in) provided by operating
activities (123,708) (1,132,178)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (19,100)
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Net cash (used in) provided by investing
activities (19,100)
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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
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Net cash (used in) provided by financing
activities (43,625) 284,146
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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
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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.
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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.
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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)
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Total inventory $ 1,130,707
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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
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<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
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0
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