FORM 10-QSB - QUARTERLY REPORT
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 0-18184
SK Technologies Corporation
--------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 52-1507455
--------------------------- ------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1650 S. Dixie Highway, Boca Raton, FL 33432
---------------------------------------------------------------
(Address of principal executive offices)
(561) 393-7540
---------------------------------------------------------------
(Issuer's telephone number, including area code)
Not applicable
----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act
during the past 12 months (or for such shorter periods 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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity as of the latest practicable date.
Common Stock, $.001 Par Value = 6,113,828 shares as of July 31,
1996.
<PAGE>
SK TECHNOLOGIES CORPORATION
INDEX
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements . . . . . . . . . . . 1
Consolidated Condensed Balance Sheet . . . 2-3
Consolidated Condensed Statements of
Operations . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of
Cash Flows . . . . . . . . . . . . . . . 5
Notes to the Consolidated Condensed
Financial Statements . . . . . . . . . . . 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . . 8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities . . . . . 10
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . 10
Item 5. Other Information . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
The interim financial information included herein is
unaudited. Certain information and footnote disclosures
normally included in the financial statements have been
condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission, although the
Company believes that the disclosures made are adequate to
make the information presented not misleading. These
financial statements should be read in conjunction with the
financial statements and related notes contained in the
Company's 1996 Annual Report on Form 10-KSB. Other than
indicated herein, there have been no significant changes
from the financial data published in said report. In the
opinion of management, such unaudited information reflects
all adjustments, consisting only of normal recurring
accruals and other adjustments as disclosed herein,
necessary for a fair presentation of the unaudited
information below.
Results for interim periods are not necessarily indicative
of results expected for the full year.
Certain amounts in the prior periods' consolidated financial
statements have been reclassified to conform to the current
periods' presentation. These reclassifications do not
materially impact the prior periods' consolidated financial
statements.
- 1 -
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1996
ASSETS
Current Assets:
Cash $ 142,686
Trade accounts receivable, net of
allowance for doubtful accounts
of approximately $10,000 16,685
Inventories 21,814
Other current assets 1,748
----------
Total Current Assets 182,933
Property and Equipment, Net 541,261
Other Assets:
Software development costs,
net of accumulated amortization
of $253,540 494,123
Other, net 5,237
----------
Total Other Assets 499,360
----------
$1,223,554
==========
(Continued on following page)
- 2 -
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (CONT'D)
JUNE 30, 1996
LIABILITIES AND CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 71,840
Accrued expenses 125,459
Due to shareholders/officers/directors 863,512
Current portion of borrowings,
bank mortgages 189,618
Current portion of borrowing, notes
payable to related parties/shareholders 10,922
Current portion of capital lease
obligations 11,373
Deferred income 133,318
Loans payable shareholders/directors 2,215,000
------------
Total Current Liabilities 3,621,042
Borrowings, notes payable to related
parties/shareholders, less current portion 512,367
Capital lease obligations, less current
portion 21,539
Capital Deficiency:
Convertible Preferred Stock, $.001
par value, 50,000,000 shares
authorized, 10,000,000 shares
designated as convertible Series B
Preferred Stock, 688,401 shares
issued and outstanding 688
Common stock, $.001 par value,
45,000,000 shares authorized,
6,113,828 shares issued and
outstanding 6,114
Additional paid-in capital 12,108,041
Accumulated deficit (15,046,237)
------------
Capital Deficiency (2,931,394)
------------
$ 1,223,554
============
See accompanying notes.
- 3 -
<PAGE>
<TABLE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
<CAPTION>
1996 1995
<S> <C> <C>
Revenues:
Equipment, software sales and
support $ 193,149 $ 149,891
Development and other fees - 109,000
------------ -----------
193,149 258,891
Cost of Revenues:
Cost of equipment sold 24,301 15,889
Amortization of software development
costs 32,619 14,440
Research and development expenses 47,599 123,328
------------ -----------
104,519 153,657
------------ -----------
Gross Profit 88,630 105,234
Selling, General and Administrative
Expenses:
Compensation and payroll taxes 271,499 288,577
Other selling, general and
administrative expenses 202,219 261,585
------------ -----------
473,718 550,162
------------ -----------
Operating loss (385,088) (444,928)
Other (Expenses) Income:
Interest income 415 1,722
Interest expense (72,690) (27,945)
Other, net 9,810 1,560
------------ -----------
Total Other Expenses (62,465) (24,663)
------------ -----------
Net loss $ (447,553) $ (469,591)
============ ===========
Loss per common share $ (.07) $ (.08)
============ ===========
Weighted Average Number of
Common Shares Outstanding 6,098,773 5,991,530
</TABLE>
See accompanying notes.
- 4 -
<PAGE>
<TABLE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
<CAPTION>
1996 1995
<S> <C> <C>
Net cash used in operating activities $ (334,123) $ (176,124)
Cash Flows From Investing Activities:
Additions to software development costs (69,349) (79,841)
Purchases of property and equipment - (1,623)
Net decrease in other assets 7,866 1,211
Proceeds from sale of property 234,841 -
----------- -----------
Net cash provided by (used in)
investing activities 173,358 (80,253)
Cash Flows From Financing Activities:
Proceeds from loans from shareholders/directors 435,000 355,000
Principal payments on bank mortgages (200,377) (272,949)
Principal payments on notes payable to
related parties/shareholders (2,525) (2,230)
Principal payments on capital lease obligations (3,178) (2,305)
Proceeds from bank mortgage - 191,250
----------- -----------
Net cash provided by financing
activities 228,920 268,766
----------- -----------
Increase in cash 68,155 12,389
Cash at beginning of period 74,531 69,303
----------- -----------
Cash at end of period $ 142,686 $ 81,692
=========== ===========
</TABLE>
See accompanying notes.
- 5 -
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1 - PROPERTY AND EQUIPMENT
In May 1996, the fifth floor office space of 2,685 square feet, in the
condominium building where the Company's executive offices are located was
sold to an unrelated party at a gross selling price of $240,000 and the
Company vacated those premises on April 30, 1996. The Company received net
proceeds of $34,841, after payment of closing costs and settlement in full of
the mortgage on this property. The carrying value of the fifth floor was
adjusted to $236,818 and an impairment loss of $47,193 was recorded at March
31, 1996. Accordingly there was no loss on the sale of the fifth floor. In
July 1996, the Company entered into an agreement to sell the second and third
floor office space of 5,370 square feet, in this condominium building to
another unrelated party, at a gross selling price of $460,000, subject to
financing being obtained by the buyer, with a closing scheduled for September
10, 1996. The Company will vacate these premises within two to four months
after the closing, upon locating more suitable office space. The carrying
value of the second and third floors, was adjusted to $437,640, and an
impairment loss of $ 111,787 was recorded at March 31, 1996.
NOTE 2 - LOANS PAYABLE SHAREHOLDERS/DIRECTORS
Two shareholders/directors of the Company and their related entities
have provided short term loans to the Company totalling $2,215,000 through
June 30, 1996, of which $435,000 was received during the three months ended
June 30, 1996, $1,700,000 was received during fiscal 1996 and $80,000 was
received in March 1995. Additional loans of $115,000 were made to the Company
in July 1996. These loans accrue interest at the rate of 10% per annum,
$143,345 through June 30, 1996 of which $50,079 was accrued for the three
months ended June 30, 1996.
NOTE 3 - DEFERRED INCOME AND REVENUE RECOGNITION
Deferred income consists of maintenance and support revenues of $41,635
as such revenue is recognized ratably over the term of the contract, and a
$91,683 prepayment from an unrelated party for products to be shipped to
resellers of this unrelated party with revenues to be recognized as such
products are shipped. Pursuant to a 1994 agreement between the Company and
this unrelated party, this party agreed to purchase products from the Company
to a value of $500,000 with a provision for quarterly payments. At June 30,
1996, $367,573 is due to the Company pursuant to this agreement but is not
included in the consolidated balance sheet at June 30, 1996 since this party
has notified the Company of its intention to terminate the agreement. The
Company has communicated with this party in pursuit of an equitable settlement
in accordance with the Company's rights under the terms of the agreement.
NOTE 4 - BORROWINGS, BANK MORTGAGES
In May 1996, the mortgage of $200,000 which was collateralized by the
fifth floor, and a portion of the third floor office space was paid in full
upon the sale of the fifth floor office space.
In July 1996 the mortgage on the second floor office space in the amount
of $189,618, was extended to mature on September 30, 1996, with interest
payable monthly at a rate of 11.5% per annum. The Company has a contract to
sell this second floor office space. See Note 1.
- 6 -
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 5 - LIQUIDITY
Through June 30, 1996, the Company has incurred significant operating
losses and has a working capital deficiency. If additional funding is not
obtained through an offering or alternate sources of funding, of which none
are presently available, the Company will have to dramatically curtail
operations and/or take other actions. Based on these conditions, doubt exists
about the ability of the Company to continue as a going concern.
- 7 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
General
The Company is engaged in developing, manufacturing and marketing point-
of-sale and store management software. StoreKare, the Company's primary
product family, includes two versions - one designed for general and specialty
retailers (hard and soft goods merchants) and the other for Subway Sandwiches
and Salads ("Subway") fast food restaurants. The Company's goals are to
continue development of the StoreKare products which are currently in process
and to implement its plans to develop new technology if financing is secured
to meet the Company's long term needs.
Liquidity and Capital Resources
The Company sustained a net loss of $447,553 and $469,591 for the three
months ended June 30, 1996 and 1995, respectively. The Company's working
capital deficiency increased from $(3,009,900) at March 31, 1996 to
$(3,438,109) at June 30, 1996. This increase was due to the receipt of short
term loans of $435,000 during the three months ended June 30, 1996, from two
shareholders/directors and their related entities.
During the three months ended June 30, 1996 and 1995, the Company
capitalized $69,349 and $79,841 of development costs. Amortization of
development costs was $32,619 and $14,440 for the three months ended June 30,
1996 and 1995, respectively. The Company, subject to the availability of
working capital, anticipates incurring a comparable amount of development
costs for the remainder of fiscal 1996 as it continues to develop new features
for the StoreKare retail point-of-sale and back office module products and
begins development of new technology software.
The Company principally markets its products on a nonexclusive basis
through a reseller network and other business relationships. The Company's
region managers continue to support the existing resellers and pursue
opportunities to recruit new resellers. In addition, the region managers are
seeking retail chains, co-ops, and franchises as customers, to sell and
support the Company's products directly to retailers. The Company has aligned
itself and participates in various programs with several major corporations
including ScanSource, International Business Machines Corp., Omron Systems of
America, Inc., and CompuRegister Corporation. The Company believes that such
alliances assist in the marketing of its products.
The Company has formed an alliance with Retail Business Systems Inc.
("RBS"), the primary supplier of cash registers to Subway. RBS will market
and sell the StoreKare products jointly with its efforts to market and sell
cash registers to Subway customers. The Company will continue to be
responsible for technical support and future development of the StoreKare
product for Subway.
Through June 30, 1996, the Company has incurred significant operating
losses and has a working capital deficiency. During the three months ended
June 30, 1996 the Company received short term loans of $435,000 from two
shareholders/directors of the Company and their related entities. These loans
accrue interest at the rate of 10% per annum; $50,079 was accrued for the
three months ended June 30, 1996 and $93,266 was accrued during fiscal 1996.
During July 1996, the Company has received additional loans of $115,000 from
these shareholders/directors and their related entities. If additional
funding is not obtained through an offering or alternate sources of funding,
of which none are presently available, the Company will have to dramatically
curtail operations and/or take other actions.
Results of Operations
For the three months ended June 30, 1996 and 1995, The Company reported
a net loss of $447,553 and $469,591, respectively. Revenues for the three
months ended June 30, 1996 were $193,149 from equipment and software sales and
- 8 -
<PAGE>
support. For the three months ended June 30, 1995, revenues were $258,891
which included equipment and software sales and support revenues of $149,891
and $109,000 of development fees.
Amortization of software development costs was $32,619 and $14,440 for
the three months ended June 30, 1996 and 1995, respectively. In addition, the
Company expensed $47,599 and $123,328 respectively of research and
development costs during the three months ended June 30, 1996 and 1995,
respectively. Included in expenses and in connection with the development of
the Kodak product, costs aggregating $74,360 have been expensed during the
three months ended June 30, 1995, to match such costs against fees of $109,000
received from Kodak during the three months ended June 30, 1995.
Total selling, general and administrative expenses decreased to
$473,718, from $550,162 for the three months ended June 30, 1996 and 1995,
respectively. There was a 6% decrease in compensation and payroll taxes due
to a small reduction in staffing and a decrease of 23% in other selling,
general and administrative expenses, which can be attributed to a reduction in
legal fees, marketing, travel expenses and other overhead costs. The Company
anticipates that total selling, general and administrative expenses will
remain the same or decrease slightly during the remainder of fiscal 1997.
The Company incurred interest expense of $72,690 and $27,945 during the
three months ended June 30, 1996 and 1995 respectively. Interest expense was
incurred on loans from shareholders/directors of $50,059 during the three
months ended June 30, 1996 as compared to $5,566 for the three months ended
June 30, 1995. As of June 30, 1996 and 1995, loans from
shareholders/directors were $2,215,000 and $435,000 respectively.
Seasonality
The Company believes that seasonality has not historically had any
material impact on its business. However, during the winter holiday season
retail businesses typically delay the installation and/or purchase of any
capital assets such as our StoreKare products.
- 9 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable
Item 2. Changes in Securities.
Not applicable
Item 3. Defaults Upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
Not applicable
b) The Company did not file any reports on Form 8-K during the three
months ended June 30, 1996.
- 10 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, SK
Technologies Corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SK Technologies Corporation
(Registrant)
Date: August 9, 1996 /s/ Calvin S. Shoemaker
President, Chief Executive Officer
Date: August 9, 1996 /s/ Melvin T. Goldberger
Treasurer, Principal Accounting Officer
- 11 -
