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 September 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 = 6,140,495 shares as of October 31,
1996.
<PAGE>
SK TECHNOLOGIES CORPORATION
INDEX
FORM 10-QSB
THREE MONTHS ENDED SEPTEMBER 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.
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
Current Assets:
Cash $ 202,271
Trade accounts receivable, net of
allowance for doubtful accounts
of approximately $12,000 10,248
Inventories 23,437
Other current assets 1,768
----------
Total Current Assets 237,724
Property and Equipment, Net 527,264
Other Assets:
Software development costs,
net of accumulated amortization
of $310,682 496,595
Other, net 4,528
----------
Total Other Assets 501,123
----------
$1,266,111
==========
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (CONT'D)
SEPTEMBER 30, 1996
LIABILITIES AND CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 61,674
Accrued expenses 132,565
Due to shareholders/officers/directors 976,838
Current portion of borrowings,
bank mortgages 189,618
Current portion of borrowing, notes
payable to related parties/shareholders 11,267
Current portion of capital lease
obligations 11,073
Deferred income 126,721
Loans payable shareholders/directors 2,580,000
------------
Total Current Liabilities 4,089,756
Borrowings, notes payable to related
parties/shareholders, less current portion 509,417
Capital lease obligations, less current
portion 19,441
Capital Deficiency:
Convertible Preferred Stock, $.001
par value, 5,000,000 shares
authorized, 1,000,000 shares
designated as convertible Series B
Preferred Stock, 671,734 shares
issued and outstanding 672
Common stock, $.001 par value,
25,000,000 shares authorized,
6,140,495 shares issued and
outstanding 6,140
Additional paid-in capital 12,110,531
Accumulated deficit (15,469,846)
------------
Capital Deficiency (3,352,503)
------------
$ 1,266,111
============
<TABLE>
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Equipment, software sales and
support $ 208,739 $ 139,848 $ 401,888 $ 289,739
Development and other fees - - - 109,000
------------ ----------- ----------- -----------
208,739 139,848 401,888 398,739
Cost of Revenues:
Cost of equipment sold 26,772 13,718 51,073 29,607
Amortization of software development
costs 57,142 19,435 89,761 33,875
Research and development expenses 42,418 21,457 90,017 144,785
------------ ----------- ----------- -----------
126,332 54,610 230,851 208,267
------------ ----------- ----------- -----------
Gross Profit 82,407 85,238 171,037 190,472
Selling, General and Administrative
Expenses:
Compensation and payroll taxes 244,070 294,860 515,569 583,437
Other selling, general and
administrative expenses 172,696 242,056 374,915 503,641
------------ ----------- ----------- -----------
416,766 536,916 890,484 1,087,078
------------ ----------- ----------- -----------
Operating loss (334,359) (451,678) (719,447) (896,606)
Other (Expenses) Income:
Interest income 588 380 1,003 2,102
Interest expense (82,497) (46,832) (155,187) (74,777)
Other, net (7,342) (1,377) 2,468 183
------------ ----------- ------------ -----------
Total Other Expenses (89,251) (47,829) (151,716) (72,492)
------------ ----------- ------------ -----------
Net loss $ (423,610) $ (499,507) $ (871,163) $ (969,098)
============ =========== ============ ===========
Loss per common share $ (.07) $ (.09) $ (.14) $ (.18)
============ =========== ============ ===========
Weighted Average Number of
Common Shares Outstanding 6,128,865 5,409,664 6,114,047 5,409,664
</TABLE>
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
Net cash used in operating activities $ (579,250) $ (557,381)
Cash Flows From Investing Activities:
Additions to software development costs (128,962) (183,778)
Purchases of property and equipment (1,540) (12,290)
Net decrease in other assets 8,575 2,423
Proceeds from sale of property 240,000 -
----------- -----------
Net cash provided by (used in) 118,073 (193,645)
investing activities
Cash Flows From Financing Activities:
Proceeds from loans from shareholder/directors 800,000 850,000
Principal payments on bank mortgages (200,377) (273,057)
Principal payments on notes payable to
related parties/shareholders (5,130) (4,530)
Principal payments on capital lease obligations (5,576) (8,805)
Proceeds from bank mortgage - 191,250
----------- -----------
Net cash provided by financing
activities 588,917 754,858
----------- -----------
Increase in cash 127,740 3,832
Cash at beginning of period 74,531 69,303
----------- -----------
Cash at end of period $ 202,271 $ 73,135
=========== ===========
<PAGE>
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 September 1996, a July 1996 contingent contract to sell the second
and third floor was cancelled by the prospective buyer. In October 1996, the
Company entered into a new 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 $445,000, with a scheduled closing date of
December 31, 1996. If the Company is unable to vacate the premises by
December 31, 1996, the buyer will lease the space to the Company at a price
and length of time to be negotiated. 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 $2,580,000 through
September 30, 1996, of which $365,000 and $435,000 was received during the
three months ended September 30, and June 30, 1996, respectively, $1,700,000
was received during fiscal 1996 and $80,000 was received in March 1995.
Additional loans of $90,000 were made to the Company in October 1996. These
loans accrue interest at the rate of 10% per annum, $203,671 through September
30, 1996 of which $60,326 and $50,079 was accrued for the three months ended
September 30, and June 30, 1996, respectively. The interest payable on these
loans is included in current liabilities, due to
shareholders/officers/directors.
Note 3 - DEFERRED INCOME AND REVENUE RECOGNITION
Deferred income consists of maintenance and support revenues of $35,038,
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 September
30, 1996, $367,573 is due to the Company pursuant to this agreement but is not
included in the consolidated balance sheet at September 30, 1996 since the
party has notified the Company of its intention to terminate the agreement.
On October 18, 1996 the Company filed a Demand for Arbitration in regard to
this agreement.
Note 4 - BORROWINGS, BANK MORTGAGES
In May 1996, a 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 1996, with interest
payable at a rate of 11.5% per annum. In October 1996 the bank agreed to
extend the mortgage again to mature on December 31, 1996 with interest at 2%
above prime. The Company has a contract to sell the second floor office
space, which is scheduled to close on or before December 31, 1996.
NOTE 5 - CAPITAL STOCK
On October 31, 1996 shareholders of the Company owning a majority in
interest of all the issued and outstanding shares of the Company's stock,
approved by written consent an adoption of an Amendment to the Certificate of
Incorporation as follows:
- Reduce the number of authorized shares of Convertible Preferred Stock,
par value $.001, from 50,000,000 shares to 5,000,000 shares with
1,000,000 shares designated as Series B Convertible Preferred Stock.
- Reduce the number of authorized shares of Common Stock, par value
$.001, from 45,000,000 shares to 25,000,000 shares.
Such amendment was filed with the State of Delaware on November 6, 1996.
NOTE 6 - LIQUIDITY
Through September 30, 1996, the Company has incurred significant
operating losses and has a working capital deficiency. During the six months
ended September 30, 1996 and in October 1996, the Company received funding
through short term loans of $800,000 and $90,000, respectively, from two
shareholders/directors of the Company and their related entities. If
additional funding is not obtained from these shareholders/directors or
through an offering or alternate source of funding, of which none are
presently available, the Company will have to dramatically curtail operations
and/or take other actions.
<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 for the retail industry. 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
to meet the Company's long term needs.
Liquidity and Capital Resources
The Company sustained a net loss of $423,610 and $871,163, and $499,507
and $969,098, for the three and six months ended September 30, 1996 and 1995,
respectively. The Company's working capital deficiency increased from
$(3,009,900) at March 31, 1996 to $(3,852,032) at September 30, 1996. This
increase was due to the receipt of short term loans of $800,000 during the six
months ended September 30, 1996, from two shareholders/directors and their
related entities.
During the three and six months ended September 30, 1996 and 1995, the
Company capitalized $59,613 and $128,961, and $103,936 and $183,777, of
development costs. Amortization of development costs was $57,142 and $89,761,
and $19,435 and $33,875, for the three and six months ended September 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 September 30, 1996, the Company has incurred significant
operating losses and has a working capital deficiency. During the six months
ended September 30, 1996 the Company received short term loans of $800,000
from two shareholders/directors of the Company and their related entities.
These loans accrue interest at the rate of 10% per annum, $60,326 and $110,405
was accrued for the three and six months ended September 30, 1996 and $93,266
was accrued during fiscal 1996. During October 1996, the Company has received
additional loans of $90,000 from these shareholders/directors and their
related entities. If additional funding is not obtained from these
shareholders/directors or 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.
<PAGE>
Results of Operations
For the three and six months ended September 30, 1996 and 1995, the
Company reported a net loss of $423,610 and $871,163,and $499,507 and
$969,098, respectively. Revenues for the three and six months ended September
30, 1996 were $208,739 and $401,888 from equipment and software sales and
support. For the three and six months ended September 30, 1995 revenues were
$139,848 and $398,739 which included equipment and software sales and support
revenues of $139,848 and $289,739 for the three and six months ended September
30, 1995 and development fees of $109,000 during the three months ended June
30, 1995.
Amortization of software development costs was $57,142 and $89,761, and
$19,435 and $33,875, for the three and six months ended September 30, 1996 and
1995, respectively. In addition, the Company expensed $42,418 and $90,017,
and $21,457 and $144,785 of research and development costs during the three
and six months ended September 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 from
$1,087,078 to $890,484 for the six months ended September 30, 1995 and 1996,
respectively. There was a 12% decrease in compensation and payroll taxes due
to a small reduction in staffing and a decrease of 26% 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 $82,497 and $155,187, and
$46,832 and $74,777, during the three and six months ended September 30, 1996
and 1995 respectively. Interest expense was incurred on loans from
shareholders/directors, of $60,326 and $110,405, during the three and six
months ended September 30, 1996 as compared to $15,173 and $20,766, for the
three and six months ended September 30, 1995. As of September 30, 1996 and
1995, loans from shareholders/directors were $2,580,000 and $930,000
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.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On October 18, 1996 the Company filed a Demand for Arbitration of a
dispute arising out of a contract dated September 16, 1994 (the
"Agreement") between the Company and Fujitsu-ICL Systems, Inc. ("ICL").
Pursuant to the terms of the Agreement $367,573 is due to the Company
from ICL. On February 27, 1996, ICL advised the Company of its
intention to terminate the Agreement and has failed to make any payments
to the Company for the $367,573 balance which is presently due and
outstanding.
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.
On October 31, 1996, shareholders of the Company owning 4,264,515 of the
6,795,562 shares of the Company's Common and Preferred Stock issued and
outstanding as of October 4, 1996, representing a majority in interest
of all the issued and outstanding shares of the Company's stock,
approved by written consent the following:
1. The Company's 1995 Stock Option Plan.
2. An adoption of an amendment to the Certificate of
Incorporation reducing the number of authorized shares of
Common Stock to 25,000,000 and reducing the number of
authorized shares of Preferred Stock to 5,000,000.
On October 9, 1996 an Information Statement was sent to the Company's
shareholders of record to notify them of this action.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
27. Financial Data Schedule for the quarterly period ended
September 30, 1996.
b) The Company did not file any reports on Form 8-K during the three
months ended September 30, 1996.
<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: November 12, 1996 /s/ Calvin S. Shoemaker
President, Chief Executive Officer
Date: November 12, 1996 /s/ Melvin T. Goldberger
Treasurer, Principal Accounting Office
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10 QSB
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 202,271
<SECURITIES> 0
<RECEIVABLES> 22,464
<ALLOWANCES> 12,216
<INVENTORY> 23,437
<CURRENT-ASSETS> 237,724
<PP&E> 918,839
<DEPRECIATION> 391,575
<TOTAL-ASSETS> 1,266,111
<CURRENT-LIABILITIES> 4,089,756
<BONDS> 528,858
672
0
<COMMON> 6,140
<OTHER-SE> (3,359,315)
<TOTAL-LIABILITY-AND-EQUITY> 1,266,111
<SALES> 401,888
<TOTAL-REVENUES> 401,888
<CGS> 51,073
<TOTAL-COSTS> 230,851
<OTHER-EXPENSES> 890,484
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155,187
<INCOME-PRETAX> (871,163)
<INCOME-TAX> 0
<INCOME-CONTINUING> (719,447)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (871,163)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
