Sparta Comm Services (OOTC:SRCO), through its subsidiary, Specialty Reports, Inc., offers a one-stop online source for various types of vehicle history reports, including motorcycles, automobiles, and RVs.

Reasons for Tracking:

  • A 2010 acquisition transformed the company from a mundane financial service company (finance to the powersports industry) to an information technology company (providing vehicle history reports to consumers, powersports, recreational vehicle, and automotive dealerships).
  • The transition has improved the growth profile of the company and provides it with a more predictable revenue stream.
  • Investors may be attracted to the parallels of this company to that of Carfax, a recognizable multibillion business that was recently acquired. (Show me the Carfax!)
  • Revenue of its information technology business have growth steadily since 2010, from near $80 thousand to $413 thousand in 2013
  • The company claims that none of the large competitors in the space target the motorcycle market.
  • As the economy improves, demand for its RV services could grow.
  • Claims to have exclusive contracts with the government for the use of information to create its service platform.

Caveats:

  • Will need about $1.5 million in financing to execute growth plan for the next twelve months. (Looks like financing may be in place).
  • Has had to continually issue shares to finance growth
  • Will likely have to continue to raise funds to execute growth plan
  • Will Carfax attempt to enter its market?
  • We need to assess the size of the addressable market.
  • Losing money, a situation that will likely persist as marketing dollars are spent to grow brand awareness.

Commentary from the 8/13/2013 10-K:

“We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to develop profitable operations. We are devoting substantially all of our efforts to developing our business and raising capital. Our net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.”

“The primary issues management will focus on in the immediate future to address this matter include:

  • Seeking institutional investors for equity investments in our company; and
  • Initiating negotiations to secure short term financing through promissory notes or other debt instruments on an as needed basis.

“To address these issues, we are negotiating the potential sale of securities with investment banking companies to assist us in raising capital.”

“We estimate that we will need approximately $1,500,000 in addition to our normal operating cash flow to conduct operations during the next twelve months.  Based on the above, on capital received from equity financing to date, and certain indications of interest to purchase our equity, we believe that we have a reasonable chance to raise sufficient capital resources to meet projected cash flow deficits through the next twelve months.”