LT Lawrence & Co. Issues Report on Aim Smart Corporation
BW)(LT-LAWRENCE/AIM-SMART)(AIMS) LT Lawrence & Co. Issues Report on Aim Smart Corporation Business Editors NEW YORK--(BUSINESS WIRE)--June 2, 1998-- AIM SMART CORPORATION (OTC:AIMS) Initiating Strong Buy -- Growth May Accelerate Short-Term Rating: BUY Long-Term Rating: STRONG BUY Price Objective -- $12 - $15 per share Price: $8.00 52-Week Price Range $4.75 - $14.00 Shares Outstanding (MM) 27 MM Shares in the Float 858,000 Market Capitalization (MM) $216 MM Long Term Debt (3/31/98) none Book Value Per Share (3/31/98) n/a Dividend Per Share none Average Daily Volume 50,000 Insiders Holding 67% Institutional Ownership 0.36% Next Earnings Expected 8/15/98 Year Revenue Revenue Gross Operating Net Income EPS P/E EPS (Mar.) (MM) Growth Margin Margin (MM) Growth 2002E $462.0 43% 65% 45% $54.14 $2.00 20 43% 2001E $323.4 133% 62% 42% $37.90 $1.40 22 133% 2000E $138.6 131% 60% 40% $16.24 $.60 42 131% 1999E $60.00 333% 58% 38% $7.03 $.26 77 420% 1998E $13.86 6500% 56% 36% $1.39 $.05 300 n/a 1997E $.210 n/a 24% n/a ($2.6) ($.10) n/a n/a Investment Highlights -- Partnership with Microsoft has re-designed Internet Explorer 4.0 into The Smart Shopper Explorer and provides free Internet access to the millions of households within a 5 mile radius of 300+ shopping malls. -- Joint venture with Simon Brand Ventures, a division of The DeBartolo Group, providing The Smart Shopper Explorer / Smart Pavilion service to 240+ malls, 32 million households, and an eventual 100 million shoppers nationwide. 1 mall has been installed and the rollout is in progress. -- Joint venture with The Rouse Company providing The Smart Shopper Explorer / Smart Pavilion service to 59 malls. 8 malls have been installed and the rollout is in progress. -- Joint venture with Wells Park to provide Smart Shopper Explorer to 30 malls. -- Strategic relationship with major provider of Internet connectivity hardware solutions. -- Contract with WPP Group, the largest advertising and marketing company in the world. Fundamental Highlights -- AIM Smart completing $4 - $5 million private placement offering -- Internet companies receiving high valuations based upon projected earnings -- Hardware provider subsidizing rollout of kiosks ADDITIONAL INFORMATION IS AVAILABLE ON REQUEST. Copyright (C) 1998 by LT Lawrence & Co., Inc. All rights reserved. The information set forth herein was obtained from sources which we believe reliable, but we do not guarantee its accuracy or completeness. Neither the information, nor any opinion expressed, constitutes a solicitation by us for the purchase or sale of any securities. LT Lawrence & Co., Inc. and/or individual officers and/or employees and/or members of their families may have a position in the securities mentioned and may make purchases or sales of these securities from time to time in the open market. Company Description AIM Smart Corporation is a Microsoft Solution Provider and has developed the state-of-the-art interactive electronic marketing system called "The Smart Shopper Explorer." The Smart Shopper Explorer service is a joint venture with Microsoft's Internet Explorer 4.0 and allows users to surf the Internet free of charge using local shopping malls as their Internet Service Provider (ISP). Combined with the Smart Shopper Explorer is AIM Smart's "Smart Pavilion", an advanced multimedia kiosk based in shopping malls around the country. The system turns regional malls into Cybermalls. Shoppers are advised of special sales, promotions, entertainment and product offerings. Each Pavilion sits in the center court of a mall displaying 4 sides of touch screen displays and television monitors. Shoppers can find directions to stores, coupons, play games, enter contests, read horoscope, view online catalogs and much more at the touch of a button. Specialized commercials are played during each stop to the Pavilion indentifying which stores offer specific products. For those who wish to shop from home, the Smart Shopper Explorer provides free access to the mall and Internet. Mall stores can continuously update their sales, promotions and special offerings and can immediately notify their customers in the local community. This streamlines the entire advertising process and allows each store to interact with its customers electronically. The computer interface looks and acts just like a television. Advertisements stream across the computer screen while shoppers are browsing stores or going to their favorite places on the Internet. Customers can purchase products using a variety of payment methods and have the product delivered directly to their home or office in as little as one hour. Ease of use and simple installation makes the Smart Pavilion / Smart Shopper Explorer service an industry breakthrough. Price Objective $12 - $15 We have continued our coverage of AIM Smart Corp. with a BUY rating. Our 6 month price target of $15 per share is 88% above current levels. Our 12 month price target is $20. The new service capabilities and expanded reach of the Smart Shopper Explorer / Smart Pavilion combination should prove instrumental in boosting the company's revenues and earnings growth rate. Strong Competitive Advantage in the "E-tailing" Industry There are approximately 600 dominant shopping malls in the US. With DeBartolo Group, Rouse and Wells Park being the top mall owners in the US, AIM Smart is cornering the market on Cybermalls. While there is competition in the kiosk industry, there are no companies offering a fully integrated shopping / advertising / merchandising network like the Smart Shopper Explorer / Smart Pavilion service. Many E-tail companies are strictly web-based with one or two potential revenue streams. AIM Smart has a diverse revenue structure that is not dependent on the success of any one line of business. The shopping mall business paradigm lends itself to this unique revenue structure that includes the following: SMART SHOPPER EXPLORER / SMART PAVILION REVENUE STREAMS -- Mall owner / store owner contracts with AIM Smart to provide in-mall interactive directory and home shopping service. Contract is written as part of the store owner's lease with the mall owner. The two enter into a co-op advertising arrangement which provides AIM Smart with a monthly revenue stream from each store within the mall. -- Each store receives a service package which includes a listing on the kiosk and a webpage on the home shopping service. The store may purchase premium packages which may include kiosk infomercials, coupon printing, digital catalogs, kiosk print advertising, email features, special promotions -- AIM Smart receives 7 - 10% of gross sales from electronic commerce between stores and shoppers. -- The Smart Shopper Network offers advertising spots to in-mall stores, local and national advertisers. How Does it Work? The Smart Pavilion / Smart Shopper Explorer Service is physically installed in the center court of each shopping mall. AIM Smart employees meet with each store owner and design an online presence including digital pictures, prices, special coupons, advertisements, commercials etc. Approximately 100 stores per mall participate in the program. When shoppers enter the mall they are greeted by the Smart Pavilion. A Smart Pavilion representative guides shoppers to the kiosk and introduces its many features. Shoppers can browse the interactive mall directory, receive coupons, play games, read horoscopes etc. Then the representative offers the shopper a free Smart Shopper Explorer 4.0 CD-Rom and tells the shopper to load it onto their computer when they get home. The shopper may continue to browse the mall, visit stores and possibly purchase items from a store. Whenever a shopper buys goods or services from a store, the store clerk asks the shopper for their email address and whether or not the shopper is on the Smart Shopper Explorer home shopping service. If not, the store clerk will provide a free CD-Rom to the shopper. If so, the store clerk will book the customer's order and note the customer's email address. This data becomes very important as the store will then have an electronic connection to each of its shoppers. The shopper goes home, loads the Smart Shopper Explorer onto the computer, and the rest is history. Overview -- The Internet Retail Electronic Commerce Industry International Data Corp. estimates the total number of web users will grow from 28 million in 1996 to 175 million by 2001. IDC also estimates the dollar amount of transactions over the Internet will increase from $2.6 billion in 1996 to $220 billion by 2001. There is no doubt that the Internet has emerged as the next communications medium complementing radio, television and cable. There are several companies competing in the electronic retail industry ("E-tail"). These include Cendant, Amazon.com, Barnes & Noble, N2K, CDNow, Onsale, Cybershop, etc. While sales have been focused on books, music, finance and travel, more products and services are coming online daily. The key to "E-tail" can be broken into 9 categories: KEY CRITERIA TO SUCCESS IN INTERNET E-TAIL INDUSTRY Opportunity: the Internet is growing 5 times faster than radio, television and cable's early growth years. Brand: AIM Smart is the leading provider of free Internet and home shopping to shopping malls. Cost Structure: For every dollar spent on free Internet, $25 in advertising revenues will be generated. Information Database: WPP contract gives AIM Smart access to largest consumer database in the world. Fulfillment & Distribution: AIM Smart has no inventory. Local stores house and distribute products. Cutting Edge Technology: Microsoft Solution Provider for 11 years puts AIMS on top of technology. Sense of Community: Local shopping mall structure enhances neighborhood feel of Smart Shopper. Ease of Use: Microsoft Plug-n-Play technology makes Smart Shopper simple to install and use. Speedy Delivery: Products delivered within 1 hour to customers living in 5 mile radius of mall. Revenues AIM Smart has approximately 325 malls under contract with 194 malls earmarked for immediate rollout. The Company has been installing malls at a rate of 1 per week and is ramping up to 2 per week. There are 9 malls in operation with 4 additional malls in production. The main fee-for-service product is the IH-9 package which bills $300 per month per store and provides a video catalog and Internet presence. Premium packages are priced upwards of $1000 per month. Advertising revenues consist of print advertising on the outside of the kiosk, video advertisements in the Smart Shopper Explorer home service, infomercials on kiosk screens, coupons, special promotions, banner advertising, email campaigns etc. Electronic commerce revenues consist of AIM Smart receiving 7 - 10% of gross sales of products and services over the Smart Shopper network. Current revenues are at $30,000 per month per mall and are expected to ramp up to $64,000 per month per mall over the next 6 months. Our 1998 projection of $13.86 million in revenues is derived from a mean number of 18 malls fully operational for 12 months. Each mall will have approximately $770,000 in revenues for the 12 month period. Looking to 1999, we expect the Company to be installing 10 malls per month and have an average of 78 malls up and running for the full 12 month period. We have capped our $64,000 per month per mall revenue projection at this time and will adjust it as the business model progresses. We have also capped our kiosk deployment projection at 10 malls per month out to 2002. This will get AIM Smart to approximately 600 malls fully operational, which is our projected critical mass for the Smart Shopper Explorer service. Earnings Outlook We project AIM Smart to be profitable in its second full year of operation. 1997 showed a loss of $2.6 million with nearly all of the loss attributed to accrued research and development expenses. 1998 will be the first year of profitability as the Company's revenues increase from $210,000 to $13.86 million and margins begin to increase. With 27 million shares outstanding we believe the Company will earn $.05 for 1998 and $.26 for 1999. Valuation 1998 has proven that Internet companies need revenues, not earnings, to receive strong valuations from Wall Street. EPS are out the window and price/sales ratios are in. With the field spanning from 5 - 50, many price/sales ratios are landing between 15 - 20. With $13.86 million in projected 1998 revenues, AIMS has a projected market cap between $208 million and $277 million. With 27 million shares outstanding we see a price range of $7.75 and $10.25. Looking to 1999, with $60 million in revenues AIM Smart should have a market cap between $800 million and $1.2 billion. The price is projected to exceed $30 per share if these price/sales valuations continue. Highlights AIM Smart has 50% of top shopping malls in exclusive contracts -- Between Simon DeBartolo Group, Rouse and Wells Park, AIM Smart has created a strong barrier to entry for competition in the shopping mall / Internet Retail industry. AIM Smart is aggressively pursuing the 600 top shopping malls and currently has contracts with 325 of them. Company well positioned to capitalize on rapidly growing trend -- According to a report conducted by Coopers & Lybrand, Internet advertising revenues continued their strong upward trend reaching nearly $1 Billion in 1997. "The industry saw continued spectacular growth ....placing the medium within the ranks of traditional media for the first time," states Rich LeFurgy, Senior VP ABC News/ESPN Internet Ventures. "We are witnessing the evolution of the Internet into a vitally important consumer advertising medium, with increased online spending and consumer usage, underscoring its value to advertisers," added Tom Hyland, Chairman, Coopers & Lybrand New Media. Internet E-tail drawing from the best of both worlds -- Internet Retail has become an entirely new industry drawing from the best of two worlds. Advertising and marketing on the Internet have exploded as highly efficient modes of customer attraction and retention. Coupled with the supply and distribution model of the retail industry, E-tail companies are able to deliver goods and services once the customer is in the door. Repeat purchases per customer are higher in E-tail than most other models. 50% of Internet users accessing local content -- over 24 million Internet users are surfing the web for local information, news and other content. AIM Smart is leveraging this need for local content by building 600 local communities with each shopping mall being at the center of the community. This trend is driving local advertisers to the Smart Shopper Network. This means that the appeal of the Smart Shopper service extends to both national and local advertisers. Free Internet expected to bring 5 million users to Smart Shopper Network -- If you build it, they will come. We've been talking about free Internet for 3 years. The time is now and advertising and electronic commerce are paying the bill. America Online has proven that having a controlled dedicated viewing audience is crucial to driving advertising. AOL is up to nearly $300 million in annual advertising revenues alone. AIM Smart expects to have about 1/3 the viewership of AOL and will aggressively pursue a similar advertising revenue structure. Cutting-edge proprietary systems -- AIM Smart has its team of Microsoft certified developers constantly programming and creating innovative solutions for both the retail and Internet industries. Competition is fragmented -- With less than 20 true players in the E-tail business, AIM Smart is competing against companies selling a limited variety of products or representing a small number of manufacturers and retailers. While one leader offers products from 300 - 400 suppliers, AIM Smart is building a network of 30,000 - 60,000 suppliers. This unparalleled selection and market share should be a strong backbone to AIM Smart's growth strategy. Barriers to quality competition -- The Smart Pavilion / Smart Shopper Explorer has been recognized by Microsoft at the National Retail Federation conference as the "best of breed" technology in two separate categories. With exclusive contracts already signed with 3 top mall owners and over 50% of the nation's top shopping malls, there is little opportunity for competitors to take market share from AIM Smart. In addition, the Company has spent many years developing the software / hardware platform which has a price tag of over $10 million in raw development cost. It is easier to partner with AIM Smart than it is to compete against the Company. Management has significant inside ownership -- The two founding senior managers collectively own approximately 67% of the shares outstanding. Additional insiders own another 10% leaving 23% to outside ownership. Management is highly capable of running a publicly traded company as referenced herein: -- Robert Van Duren (age 42) President and Chief Executive Officer is principally employed as the President and CEO of AIM Smart Corporation and WinPoint Retail Consulting. Mr. Van Duren has 16 years experience as an officer, director and manager of various public and private companies. He was formerly president of LifeSoft Corporation as well as a real estate development company. He also spent several years as a financial and management consultant to rapidly growing small business. Mr. Van Duren has a Bachelor's degree in Economics and a Masters Degree in Administration from Central Michigan University. -- Garry Eberhardt (age 42) Chief Operating Officer and Executive Vice President of Operations for AIM Smart and WinPoint Retail Consulting. Mr. Eberhardt is the corporate visionary and technical expert. He is chiefly responsible for new product development and product rollout. Garry has been involved in the development and design of software products since 1978. He was formerly president of LifeWare Systems Designer Team, Inc., a company involved in the sales of transaction-based, backoffice solutions for the stock brokerage industry. He attended the University of Lund in Sweden where he received an education equivalent to a Masters degree in Business Administration and a Masters degree in Computer Science. -- George Winslow -- President of The Winslow Group Consultants has been retained by the Company to provide new business development and sales staff development services to AIM Smart. George Winslow, formerly Vice President/Director of New Business Development for Turner Broadcast Systems, Inc, began his media sales career in the broadcast industry in 1959. At Turner Broadcasting, Winslow pioneered innovative marketing concepts, secured millions in incremental sales and focused in large part on national and regional retailers. -- Peter Gaskins -- Owner of Clarion and Associates. Peter was an Institutional Investor All Star Analyst in the 1970's with Paine Webber, a money manager in the early 1980's, co-founder and CEO of NatWest Securities in the late 1980's and a venture investor consultant in the 1990's. Peter advises AIM Smart on investment banking and strategic planning issues. Risk Factors The Company's strategy is to continue its internal growth and, as strategic opportunities arise, to consider acquisitions of, or relationships with, other companies in related lines of business. As a result, the Company is subject to certain growth-related risks, including the risk that it will be unable to retain personnel or acquire other resources necessary to service such growth adequately. Expenses arising from the Company's efforts to increase its market penetration may have a negative impact on operating results. In addition, there can be no assurance that any suitable opportunities for strategic acquisitions or relationships will arise, or if they do, that the transactions contemplated thereby could be completed. IF such a transaction does occur, there can be no assurance that the Company will be able to integrate effectively any acquired businesses into the Company. In addition, any such transactions would be subject to various risks associated with the acquisition of businesses, including the financial impact of expenses associated with the integration of businesses. There can be no assurance that any future acquisition or strategic relationship will not have an adverse impact on the Company's business, financial condition or results of operations. As suitable opportunities arise, the Company anticipates that it would finance such transactions, as well as internal growth, through working capital or in certain instances, through debt or equity financing. There can be no assurance however, that such debt or equity financing would be available to the Company on acceptable terms when and if suitable strategic opportunities arise. Summary We have continued coverage of AIM Smart Corporation with a BUY rating. AIM Smart has quickly become the leading Internet Retailer associated with shopping malls and their affiliated stores. Through contractual agreements with Simon DeBartolo Group, Rouse, Wells Park, WPP and a strong relationship with Microsoft, AIM Smart is aggressively executing its contracts to immediately rollout 194 - 325 shopping malls with a target of 600 malls by 2002. AIM Smart is effectively leveraging new technologies and older proven marketing methods to bring home shopping and 1 hour product delivery to the masses. Parallel to the direct marketing, mail order catalog and infomercial industries, AIM Smart expects strong growth over the next 5 - 10 years as America's love affair with computers and the Internet grows stronger and stronger. In our opinion, AIM Smart has a 5 year window to aggressively complete their 600 mall home shopping network. This will bring nearly 60,000 retail stores to desktops across the United States and enable households to shop from home, receive their products in 1 hour or less, videoconference, browse the Internet free of charge etc. With 5 million users on the Smart Shopper Network, AIM Smart will have created a niche in the Internet market that should lead to a highly profitable interactive merchandising and advertising network.
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