<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
May 31, 1998 2-82427-NY
HITK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3159591
(State or other jurisdiction of (I.R.S. Employee Identification No.)
incorporation or organization)
68 Schraalenburg Road
Harrington Park, New Jersey 07640
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (201) 784-5190
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
The number of shares outstanding of each of the registrant's classes of common
stock, as of July 1, 1998, is 3,202,504 shares, all of one class of $0.001 par
value common stock.
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HITK CORPORATION
FORM 10-Q
QUARTER ENDED MAY 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- Consolidated Balance Sheet as of
May 31, 1998 and February 28, 1997 4
- Consolidated Statement of Operations for the
three months ended May 31, 1998 and 1997 5
- Consolidated Statement of Changes in Net Assets for
the three months ended May 31, 1998 and 1997 6
- Notes to Consolidated Financial Statements 7 - 10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of Security Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
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PART I. FINANCIAL INFORMATION
HITK CORPORATION
QUARTER ENDED MAY 31, 1998
The following financial information is submitted in response to the requirements
of Form 10-Q and does not purport to be financial statements prepared in
accordance with generally accepted accounting principles. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted, although the Company believes the disclosures that are made are
adequate to make the information presented not misleading. Further, in the
opinion of the management, the interim financial statements reflect fairly the
financial position and results of operations for the period indicated.
It is suggested that these interim consolidated financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's 1998 Annual Report on Form 10-K for the year ended February 28, 1998,
filed with the Securities and Exchange Commission.
The results of operations for the three months ended May 31, 1998, are not
necessarily indicative of results to be expected for the entire fiscal year
ending February 28, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
a. Registrant's Form S-18 Registration Statement and Exhibit Book under File
#2-82427-NY as effective May 13, 1983, and Form N-2 Registration Statement under
File #2-94660 as effective August 14, 1985, are incorporated by reference.
b. Forms 8-K dated September 12, 1989, October 21, 1988, April 15, 1988, January
11, 1988, October 30, 1987, August 31, 1987, April 28, 1987 and March 4, 1987
are incorporated by reference.
c. Third amended plan of reorganization under Chapter 11 filed on July 17, 1989,
with the United States Bankruptcy Court for the District of Nevada is
incorporated by reference.
d. Settlement agreement between HITK Corporation and Bell Atlantic Systems
Leasing International, Inc. is incorporated by reference.
e. Order confirming plan of reorganization under Chapter 11 filed on September
13, 1989 with the United States Bankruptcy Court for the District of Nevada is
incorporated by reference.
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HITK CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
May 31, 1998 February 28,
(Unaudited) 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalent $ 576,700 $ 568,800
Restricted Cash 26,100 25,900
Marketable Securities
(Cost $3,532 and $21,122, respectively) 3,500 29,700
Business Development Investments
(Cost $64,600 and $64,600 respectively) -- --
Note Receivable - Net 115,000 219,700
Other Current Assets -- 1,600
----------- -----------
Total Assets $ 721,300 $ 845,700
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 1,064,200 $ 1,036,300
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common Stock, Par Value $.001 per share
6,250,000 Shares Authorized
3,346,630 Shares Issued and Outstanding 3,400 3,400
Additional Paid-in Capital 5,622,600 5,622,600
Retained Earnings (5,057,400) (4,913,800)
Net Unrealized Appreciation (Depreciation)
on Investments (64,700) (56,000)
----------- -----------
Total 503,900 656,200
Less: Treasury Stock 144,126 Shares at Cost 846,800 846,800
----------- -----------
Total Stockholder's Equity (Deficit) (342,900) (190,600)
----------- -----------
Total Liabilities and Stockholder's Equity $ 721,300 $ 845,700
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
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HITK CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
REALIZED GAIN ON INVESTMENTS $ 800 $ --
--------- --------
OTHER INCOME:
Interest Income 13,100 27,900
--------- --------
Net Investment Income 13,900 27,900
--------- --------
EXPENSES:
Officer's Salary 30,000 30,000
Stockholder's Services and Reports 900 4,800
Professional Fees 19,700 3,600
Office 2,200 --
Bad Debt Expense 104,700 --
--------- --------
Total Expenses 157,500 38,400
--------- --------
Net Income (Loss) from Operations (143,600) (10,500)
--------- --------
UNREALIZED APPRECIATION (DEPRECIATION)
ON INVESTMENTS
Marketable Securities (8,700) --
--------- --------
Increase (Decrease) in Net Assets
Resulting from Operations $(152,300) $(10,500)
========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
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HITK CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE THREE MONTHS ENDED MAY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CHANGES IN NET ASSETS RESULTING FROM
INVESTMENT ACTIVITIES
Net Income (Loss) from Operations $(143,600) $ (10,500)
--------- ---------
Net Unrealized Appreciation (Depreciation)
on Investments (8,700) --
--------- ---------
Increase (Decrease) in Net Assets (152,300) (10,500)
Net Assets - Beginning of Period (190,600) 669,500
--------- ---------
Net Assets - End of Period $(342,900) $ 659,000
========= =========
Net Asset Value Per Outstanding
Share of Common Stock $ (.11) $ .21
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
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HITK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998
NOTE 1 - ORGANIZATION
HITK Corporation (formerly High Technology Capital Corporation) (the "Company")
was organized and incorporated on March 10, 1983, under the laws of the State of
Delaware with authorized capital of 6,250,000 shares of common stock, par value
$.001 per share, after giving effect to a 1:4 reverse stock split effective
December 2, 1986. The Company has registered under the Investment Company Act of
1940 and has elected to be treated as a "Business Development Company".
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, HITK Financial Group,
Inc. All intercompany transactions have been eliminated.
VALUATION OF ASSETS - Management has valued all securities and receivables at
what they consider to be their net realizable value. An allowance will be
recorded when value of the asset has been impaired.
INCOME TAXES - Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year end. The tax
benefit to operating losses and tax credit carryforwards are recognized if
management believes, based on available evidence, that is more likely than not
that they will be realized. Investment tax credits are accounted for under the
flow-through method.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially subject
the Company to a concentration of credit risk principally consist of cash and
cash equivalents in excess of FDIC limits.
ANTICIPATED EFFECT OF RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING
STANDARDS - The Company does not expect the effect of recently issued accounting
standards, when adopted, to have a material impact on its financial position and
results of operations.
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HITK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1998
NOTE 3 - NOTE RECEIVABLE
Note receivable at May 31, 1998 and February 28, 1998, in the amount of $115,000
and $219,700 respectively, has been valued by management at what they consider
to be the net realizable value. For the period ended May 31, 1998, the Company
set up an additional reserve for bad debt of $104,700. The principal amount of
the note is $570,000. Monthly payments include interest only at an annual
interest rate of 5%, or 5% of the annual gross revenue of the borrower,
whichever is less. All unpaid interest and principal is due June 24, 2015.
NOTE 4 - CASH AND CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with an original maturity
of three months or less. Cash and cash equivalents consist of:
<TABLE>
<CAPTION>
May 31, 1998 February 28, 1998
------------ -----------------
<S> <C> <C>
Cash in Banks $ 576,700 $ 568,800
---------- ----------
</TABLE>
NOTE 5 - RESTRICTED CASH
In accordance with the Third Amended Plan of reorganization filed under Chapter
11 of the Bankruptcy Code, all proceeds from the sale of plan assets are to be
deposited in an interest bearing disbursement account from which the Company
shall make payments on all allowed claims only upon order of the Bankruptcy
Court. The balance in this disbursement account at May 31, 1998 and February 27,
1998 was $26,100 and $25,900, respectively (See Note 8.)
NOTE 6 - INCOME TAXES
The Company filed a consolidated Federal Income Tax Return which included its
wholly owned subsidiaries.
For tax purposes, the Company has a net operating loss carryforward of
approximately $ 7,885,000 which expires as follows:
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HITK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1998
NOTE 6 - INCOME TAXES (CONTINUED)
<TABLE>
<S> <C> <C>
December 31, 2002 $ 3,250,000
2003 605,000
2004 2,480,000
2005 225,000
2006 105,000
2007 65,000
2008 85,000
2009 100,000
2010 55,000
2011 55,000
2012 860,000
------------
Total $ 7,885,000
============
</TABLE>
In addition, the Company has a capital loss carryforward in excess of
$5,260,000.
NOTE 7 - BANKRUPTCY
On October 21, 1988, as a result of Bell Atlantic obtaining an order freezing
all of HITK's assets, the Company was forced to file a voluntary petition under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court, District of Nevada. On September 13, 1989, the Unites States Bankruptcy
Court confirmed HITK's plan of reorganization terminating the bankruptcy
proceedings.
In October, 1997, the Bankruptcy Court approved the settlement entered into
between the Company and Bell Atlantic, and approved the payment to Bell Atlantic
of $955.361. from the disbursement account. During 1997, pursuant to objections
filed by the Company, the Bankruptcy Court entered a series of orders which
disposed of all but one of the disputed claims of creditors of the bankruptcy
estate, either sustaining the Company's objections and dismissing the claims or
approving the compromise and settlement of those claims. As a result of the
Company's ability to dispose of all of the disputed claims, with the exception
of one outstanding claims, the Company was able to pay all undisputed creditors
in full with interest according to the terms of its plan of reorganization. The
total amount disbursed the Company on the claims of all creditors other than the
claim of Bell Atlantic and the one remaining disputed claimant was $283,532,
which was less than the amount previously recorded, and resulted in an
extraordinary gain of $178,000 on the settlement of these claims. The Company
has been ordered to retain $25,533 in the disbursement account for one claims
which has not been settled. The remaining
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balance in the disbursement account in excess of the $25,533, has been invested
in short term certificates of deposit.
HITK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1998
NOTE 8 - GOING CONCERN
As a result of the settlement of litigation between the Company and Bell
Atlantic, the Company recorded an extraordinary loss from this settlement of
$955,361. The 1998 loss left the Company with liabilities exceeding assets by
$190,600. At May 31, 1998, liabilities exceeded assets by $342,900.
The management of the Company intends to take the following actions to alleviate
the going concern problem: (A) Pursue claims arising out of the Bell Atlantic
litigation; (B) Liquidate certain assets; and (C) Negotiate reduction of
liabilities with certain creditors, including $895,000 of deferred compensation
to the CEO/President and $113,000 in legal fees to a Director of the Company.
NOTE 9 - SUBSEQUENT EVENTS
In June, 1998, the last remaining disputed claim against HITK was dismissed by
the Bankruptcy Court removing the restriction on $26,100 remaining in the
restricted cash account. This, effectively, closed the bankruptcy proceedings.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
For the three months ended May 31, 1998, the Company had a net loss from
operations of $143,600 compared to a loss of $10,500 for the three months ended
May 31, 1997. Interest income decreased by $14,800. In October, 1997, the
Company made payments of $1,237,000 in
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settlement of litigation and bankruptcy claims. This is the primary reason for
the decrease in interest income in 1998.
Operating expenses for the three months ended May 31, 1998 were $157,500
compared to $38,400 for the three months ended May 31, 1997, an increase of
$143,100. Professional fees, including court costs, accounted for $16,100 of the
increase in finalizing the bankruptcy. The Company also increased the allowance
for bad debt on the note receivable by $104,700. For the three months ended May
31, 1998, the Company realized a gain of $800 on the sale of marketable
securities and an unrealized loss of $8,700 reversing the fourth quarter of
fiscal 1998 gain.
LIQUIDITY AND WORKING CAPITAL
At May 31, 1998, the Company had a working capital deficit of $342,900. This is
an increase of $156,400 from February 28, 1998, due to the loss in the three
month period ended May 31, 1998.
The Company's ability to continue as a going concern are dependent on several
factors. (A) The Company intends to pursue claims arising out of Bell Atlantic
litigation. (B) Liquidate certain assets, and (C) Negotiate reduction of
liabilities with certain creditors, including $875,000 of deferred compensation
to the CEO/President of the Company, and $113,000 in legal fees to a Director
and Officer of the Company.
11
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HITK CORPORATION
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
12
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HITK CORPORATION
By: /S/ Robert N. Schuck
-------------------------------
Robert N. Schuck
Chief Executive Officer
and President
Dated: August 7, 1998
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<CASH> 602,800
<SECURITIES> 3,500
<RECEIVABLES> 115,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 721,300
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 721,300
<CURRENT-LIABILITIES> 1,064,200
<BONDS> 0
0
0
<COMMON> 3,400
<OTHER-SE> (339,500)
<TOTAL-LIABILITY-AND-EQUITY> 721,300
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 157,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (143,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> (143,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (143,600)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
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