Digital
Products Corporation (DIPC) Current Price $.50
On July 27, 1995,
our Super Fast Phone Service Investors were notified to purchase 5K of
DICP @ 7/16. This issue is highly speculative and risk is present. Only
geared toward investors who thrive on high risk and high reward. Digital Products Corporation (NASDAQ BB - DIPC) provides global
information management solutions to the criminal justice and corrections
industry, the construction trade and to multinational corporations.
The DPC Monitoring
Service, Inc. division provides electronic supervision. The HMO 4 home
monitoring unit uses radio frequency technology for active continuous
monitoring of the presence or absence of an offender from a prescribed
location. Other products include "Drive By II", a mobile RF device which
enables officers to detect the presence of any transmitter worn by an
offender. The "Cellulert", a peripheral device utilizing cellular
telephone technology to transmit voice and date. Other products include
"On Guard Wristlet/Verifier," "On Guard Plus", and "Alert Product line".
Again, all the above products are used to gather information and
presence of offenders under house arrest. Numerous software packages
have also been developed for this segment. The other two divisions, BGIS System Co, markets financial accounting,
crew equipment and material information management systems directed at
the highway and heavy utility sector of the construction and material
production industry. DPC/International Business Solutions, Inc. markets
software which is capable of processing multilingual, multi-currency
financial, accounting and tax information. From the above data one can
easily conclude that revenue growth continues quite nicely and losses
continue to be reduced. Since 1991 the company has lost sizable amounts
of green. We believe that this is about to change. Revenue for the
Criminal Justice Segment during fiscal 95 represented 70% of total
revenue and we anticipate that this trend will continue (think about the
current crime problems that sweep the U.S.). The software segment, other than the criminal justice segment, in
reality has been the drain on profitability. The criminal justice
division during fiscal 95 actually generated a $469K profit for the
recent fiscal year, compared to a loss of $7.1 million in the fiscal
year ended March 31, 1994. The software segment had an operating loss of
$1.87 mil versus $2.29 mil for fiscal 94. The obvious key to the
turnaround is either discontinue the separate software divisions or
finally turn a profit. In our opinion the software division is the key
to profitability. According to management, revenues for estimated fiscal
96 could approach $14 million. The real story is earnings. We believe
that they will turn positive and may be much better than expected, but
first quarter of fiscal 96, which is due out in days might show a loss.
Either way, in our
opinion, owning DIPC at the current price is worth the risk. If we take
a look at PSR (price to sale) and use the recommended price of 7/16 and
calculate it with respect to fiscal 95 and fiscal 96E, we get values of
.54 and .34, respectively. These values indicate a cheap stock. If DIPC
turns a profit and we use our .08/share value and base out PE on growth
rate (27%) and also a value of half that (13.5), then a share price
based upon those PE values would be $2.16 and $1.08, respectively.
Again, if profits come our way, this stock will "brake out" to the
upside. At present the book value is .16, LTD equals 1.4 million,
management controls 25 million shares and, believe it or not, there are
10,000 shareholders. This stock was once $15. It also has 24 million
operating loss carryforward. Bottom line: we like this situation. It is speculative - first quarter
is a toss-up! Huge upside potential exists. We intend to monitor 5,000
shares of DIPC in our model portfolio and 900# portfolio for percentage
gain performance. Corporate
number: 1-800-323-9476 - Florida 1-305-783-9600; Broker: Mike Chesler at
1-800-331-1355.
Select Financial Data - Year End March 31 1994A 1995A 1996E Revenue 8.9 mil 10.8 mil 13.5 mil Net Income/sh (Loss) (1.17) (.23) .08