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  • Sparta Commercial Services Reinvents Itself 0 comments
    Mar 7, 2014 9:17 AM | about stocks: SRCO, LLY

    Sparta Commercial Services (OTCQB:SRCO) is a small-cap company in the middle of reinventing itself in an enticing market that doesn't carry a lot of competition. In this article, I am going to explain the two major markets the company is developing for itself as well as market potential. We will then look at company fundamentals and investment considerations.

    The Company

    The company can be divided into two parts:

    Specialty Reports, Inc. is the first segment of the company, which is a one stop, online source for truck, motorcycle, auto and RV vehicle title history reports. Secondly, the company markets two different mobile app billing platforms.

     

    1. Specialty Mobile Apps-- this is an app building tool for customized mobile apps for retail power sports, automotive, marine and recreational vehicle dealers. (www.specialtymobileapps.com)
    2. iMobile apps-- this is also an app building tool for a broad range of industries from restaurants, liquor stores and real estate agencies, to grocery stores, funeral homes, and other various markets. (www.imobileapp.com)

    Let's take a look at each of these segments, where the company is marketing, how it's growing and the market potential.

    Specialty Reports Inc.

    This segment generates revenue through vehicle history reports. It charges from $24.95 to $29.95 per report and $49.95 for three reports. The segment can be divided into four different industries:
     

    • (www.Truckchex.com) Users can access the most current title history information available on used trucks via a powerful network of data providers with current history historical title records and potential accident information on heavy-duty or commercial trucks.
    • (www.cyclechex.com) this is the industry's most trusted provider of motorcycle title history information with thousands of consumers and dealers using it each year. Using the unique 17 character vehicle identification number (VIN), the multistate title history report on the motorcycle includes the following types of information: reported theft records, odometer disclosures, salvage or rebuilt titles, flood damage, and manufacturer specifications and standard features.
    • (www.RVchecks.com) this contains information about the RV's title history including reported damage, salvage and other relevant information from both government and private agencies.
    • (www.CarVINreport.com) this product provides automotive title history reports, such as salvage or rebuilt title status, flood damage, recorded odometer reading as well as manufacturer's equipment and recalls….up & coming.

    Strengths of this Segment

    The company's greatest strengths right now lie in the Cyclechex and RVchecks industries. The company continues to look for an alliance to build its CarVinReport division.

    Market Analysis

    First, let's look at the size of the three industries.
     

    • According to information from "TruckIngo," there are 15.5 million trucks operating in the United States.
    • According to the Federal Highway Administration, there are just over 8.1 million registered motorcycles in the United States.
    • According to one statistic, one in 12 U.S. vehicles - owning households also owns an RV. Statistically that would mean about 8.2 million households


    In terms of total market, there are approximately 31.8 million vehicles between the company's three main industries.

    In any given year here are average sales statistics:

    According to a statistical average, just over 150,000 heavy-duty trucks are sold yearly.

    452,000 motorcycles were sold in the United States in 2012. Another statistical average gives us about 167,000 combination RV/towable sales. In any given year, we have a combination of 769,000 vehicles being bought new, and if we double that for used vehicles, we get a total of 2,307,000 vehicles changing hands yearly between these industries.

    There is something unique about this industry because it is becoming more popular for buyers to do their own vehicle checks because they are investing so much money. It is not uncommon for used vehicles to have a couple checks done before the vehicle is even looked at because of the personal investment.

    Because of this, if we take a factor of (1.50) instead of (2.00), just to be conservative and multiply it by the number of vehicles changing hands in the industry (keep in mind the average price of $24.95) we come up with a market potential of $86,339,475.00.

    SCRO has higher margins in the RV industry than it does any other and that seems to be picking up the fastest even though the motorcycle industry is what is really growing. There are no major motorcycle history report competitors in the industry right now.

    Every major auto OEM has a certified pre-owned program. Specialty Reports has a goal to make the Cyclechex history report become part of every certified pre-owned package. Presently, one doesn't exist in the motorcycle segment. The market could be huge:
     

    • Kawasaki
    • Honda
    • Yamaha
    • Harley Davidson
    • BMW
    • Suzuki

    The company just set up a marketing relationship with Allstate Insurance

    Allstate Insurance Company will make Cyclechex motorcycle history reports available to its customers and noncustomers who are considering the purchase of a pre-owned motorcycle. Those who are selling motorcycles and wish to provide assurance to potential buyers will also have access. At the same time Allstate will be able to offer insurance products to Cyclechex customers.

    Cyclechex will be prominently seen and recommended on the "Allstate Rider News" page while Allstate will also have a signature presence on the Cyclechex website.

    The auto industry is an even larger market yet to be tapped by the company. Obviously, there is greater competition in that arena with the two major players being CARFAX and

    AutoCheck. AutoCheck is about half the size of CARFAX and is mostly focused on dealers, presently working with over 13,000. CARFAX works more with the average Joe on the street.

    It is the used car industry that has the greatest potential for growth that SRCO has yet to enter. Certified used vehicles in the United States average just over 2 million a year, and that's not including private owner sales. This is a present price comparison between the two companies I have mentioned and SCRO:
     

    • AutoCheck: one report is $29.99. Unlimited reports are $44.99.
    • CARFAX: one report is $39.99; five is $49.95; Unlimited is $54.99
    • CarVinReport: one report is $24.95; three reports are $49.95

    Mobile Apps

    Specialty Mobile Apps is the company's main push with the iMobile Apps developing.

    This app helps the user perform single or multiple related tasks on a mobile handheld device like a smart phone. It provides a framework where clients can easily utilize and manage interactive customized mobile applications. There is also an online platform for dealers to manage its content. SRI and software development teams can manage licenses and easily retrieve reporting information.

    Basic Features:
     

    1. Content management system- this is a website that allows dealers to upload images to their app, change text content, colors, organize tabs and publish updates.
    2. Mobile client framework- software installed to the individuals mobile device. This is picked up through various distribution channels.
    3. Dealer-customer contact information- the dealer presents the customer with a registration screen upon startup. The customer gives information like name, email and telephone number for the purpose of pushing individual notification messages and other interactive communications.
    4. Multiple locations support- dealers will pay subscription fees based upon the number of store locations they wish to include in their app.
    5. Hours of operation- this information can be displayed to end-users even though store divisions may open at different times.
    6. Vehicle history reports- users will be able to request and retrieve vehicle history reports. They will use a (QR) quick response to a dimensional bar code to scan in the VIN numbers.

    We all know the culture is going from desktop to mobile, so this industry will continue to grow.

    Market Potential

    Automotive and motorcycle dealers like Harley Davidson know that the future to reaching their customers is through mobile apps. Specialty Mobile Apps is the preeminent provider of custom mobile apps for Harley-Davidson dealerships. Presently there are over 100 Harley-Davidson dealerships that partner with the company as well as other Powersports, RV, Marine and Auto dealers and other industries.

    The big thing about the mobile app industry is management and customer service. There are a lot of "mom-and-pop" mobile apps companies popping up but as they grow, they realize they cannot properly service the larger businesses. These small app shops don't have revenue, time, nor the manpower to properly service clients and manage the whole mobile marketing experience. This starts to consume their time and they don't have the ability to sell or build anymore and it drives them out of business.

    The future of the industry is in the commitment to the customer to provide training support and long term technology dedication. This is one of the reasons Specialty Mobile Apps continues to grow and bring on clients.

    This is where dealers should be, and will be investing in the future. Traditionally we have had radio, newspaper ads, TV and industry magazines. Even a website cannot compare to the power of "instant connectivity" to customers. With this move in technology, this is where the car and cycle companies will benefit:

    Increased Sales

    Sales staff will be able to communicate with interested clients, showing them new models and products while they're on the go. What the industry calls "door crasher deals" are promotions, which can also be sent via a mobile app, that are also time and date sensitive. QR codes can also be created and used linking manufacturer promotions for clients.

    Customer Service & Retention

    With the app, customers can easily connect with parts, service, body shop or even sales if they need to while they're on the go. It's not uncommon for a vehicle to breakdown while one is driving. If this happens, the consumer can easily contact the dealer's service department for help. Society continues to go mobile, and it is very important to have this access for the consumer.

    New & Used Sales Inventory

    Customers can have access to showcased vehicles 24 hours a day seven days a week on their mobile apps without having to drive to the dealership. A "dealer inventory feed" will make all information, including pictures, available to customers instantly.

    Since the company has platforms especially designed for the dealer industry, it is far more cost-effective for dealers to work with Specialty Mobile Apps. A dealership can decide to build everything in-house with a standalone generic app that can cost up to $20,000 to put together and maintain. Specialty Mobile Apps charges $1,999 for the app and then an average of $99 a month in a service fee. This is why dealerships continue to turn to them.

    Strategic Partnership with More than Rewards, LLC

    "More Then Rewards" is a leading web based provider of customer loyalty and rewards programs. Presently the company is working with 1900 motorcycle and power sports dealers. Specialty Mobile App dealers will be able to integrate a loyalty program in their mobile app. Consumers will benefit because they can check their rewards account through their mobile device at any time they wish, as well as receive instant rewards for any purchases. A customer will be able to walk into the store and instantly view any discounts because of their available rewards.

    Fundamentals

    As I have written earlier in this article, Sparta Commercial Services is a company remaking itself and in new stages of development. This can also be observed on its latest 10-Q statement.

    Where we start out looking at the company is important to understand what we start with as investors. The company's total assets were $437,722 and a majority of that was Accounts Receivable which is pretty healthy. The company's total liabilities were $4,496,726 most of which is privately held by shareholders with convertible options.

    What an investor needs to realize is this is what I would describe as "favorable debt" which means I highly doubt the company would be in jeopardy of not being able to pay the debt. Number one majority of it is owned by private shareholders that are behind the company. and number two the convertible options are well below the average price of the stock, so I doubt highly anything would be exercised.

    Revenue for the quarter was $118,047 and continues to grow in double digits and according to my interview with company management they expect that to continue.

    The bottom line is that the company's expenditures are still exceeding its revenue. The company slowly moving toward profitability but is not there yet. This is important to understand looking at the potential for investment with the company.

    Other Risk Considerations

    The company is in the middle of legal proceedings with a suit filed asserting claims against the former credit provider seeking substantial damages for the credit provider's alleged breach of fiduciary duties it owed the company. Whether the company wins this legal proceeding could make all the difference in the rate of the company's growth. There is no closing date for resolution settlement yet, but this is a consideration investors must keep in mind.

    The company has to be able to continue to raise funds to operate since its expenditures are larger than its revenue.

    Operating results may fluctuate significantly based upon certain factors outside the company's control. These things include: the demand for products and services; price changes and competition in the market; general economic conditions.

    Summary

    For a company in transition, Sparta Commercial Services has a lot of room to expand in the two industry segments that is focused on. We are not talking about multibillion dollar industries here, but what is unique is the scarcity of competition. This is what really opens the door for SRCO's potential for growth. I have spoken with management and I am pleased with their marketing strategy and organization. An investment in the company must be focused on the long term potential and not a short term quick profit.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: SRCO, LLY
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