I have finally digested the filing and while I am still disappointed I do believe this is still a good investment and eventually shareholders will be rewarded.
It is taking longer than thought for revenue to show up from the new licensees but it will eventually. IMO
Pretax net profit margin is over 50%. That is unreal.
Most similar pink sheet companies trading in this range are borrowing money or worse, signing onto notes that result in death spiral dilution.
SCRH is so profitable they are able to loan money. The loan has already been paid off and they even earned some interest.
"On July 27, 2015 the Company entered into a ninety day renewable note receivable with Metropolitan Lumber Hardware and Building Supplies, Inc., which is solely owned by Robert M. Gans, the Company’s majority shareholder. The Company loaned Metropolitan Lumber Hardware and Building Supplies, Inc. $200,000 with 5% interest due October 27, 2015. The Company is owed $201,806 as of September 30, 2015. The loan was renewed, and thereafter the principal plus accrued interest of $2,750 was paid on November 4, 2015."
This will be the first year they have revs over a mil and should end the year with assets over a mil too. And this is based on only 11 licensees. They now have 20 and will likely have more when the annual report is reported.
The tax thing threw me for a loop and it looks especially bad this q with a 61% tax rate.
I went back and read the 10K's for the last few years. They have a huge accumulated deficit but it appears that by changing ownership they don't get the benefit of all of the NOL's. I always thought that was a benefit of buying a company with nol's. You get to use them to offest the taxes. It appears that there is some type of limit to that.
This is from the last 10K.
The Company has net operating loss carryforwards of approximately $4,675,000, which expire in the years 2018 through 2034. The related deferred tax asset of approximately $4,675,000 has been offset by a valuation allowance. The Company’s net operating loss carryforwards have been limited, pursuant to the Internal Revenue Code Section 382, as to the utilization of such net operating loss carryforwards due to changes in ownership of the Company over the years. We have determined the Company has lost $1,450,000 of net operating loss carryforwards or $635,000 of the deferred tax asset due to the change in ownership in 2001. The Company is currently undertaking a study to determine the value of the Company at a second ownership change in 2009. Upon finalization of the study we will determine how much of a deferred tax asset should be recorded from the remaining net operating loss carryforwards.
They were still showing a NOL carryforward of 1.85 mil in the table.
Page F-7 of the 2014 10K. I guess their study concluded that they no longer had nol's. If someone else understands this better than me, I would love to hear about it. The tax they paid this q would be the tax on 225K net profit so I guess their calculation determined that they started the year with a nol of about 180K.
They should only be paying a tax rate of 34% going forward. Investors have a tendency to discount the value of a stock that is not paying taxes anyway with the realization that some point in the future they will have to start paying them. This could be the reason SCRH has been trading at a low P/E around 10 instead of a loftier P/E that it deserves with the growth and balance sheet that it has.
The 2015 annual report should show record highs for SCRH in several different categories. Revenue, Assets, Shareholder equity and most importantly net profit.
2016 shld show more improvement. The growth story is still intact. It is just taking longer than I had hoped.
There is no way of knowing how many of the 20 licensees will contribute in the 4th q(At least that I know of) but anything more than 11 will result in higher revs and net profits. Plus the Detroit award might appear in there too. And cash shld increase by 202K plus whatever the net profit is.
The 1st q surprised to the downside. The 2nd q surprised to the upside. The 3rd q surprised to the downside. The 4th q could be a big surprise to the upside.
This stock is currently worth more than it has ever been worth and the value is sure to increase going forward. Meanwhile it is trading closer to alltime lows than it is to alltime highs.
I think patient investors will do well here. I am in the "I want it all and I want it now club" but I am going to hang in here because the story is too good and the growth is coming.
AI
