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, 1997
[ ] 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
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(Exact name of small business issuer as specified in its charter)
Delaware 52-1507455
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
500 Fairway Drive, Suite 104, Deerfield Beach, FL 33441
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(Address of principal executive offices)
(954) 418-0101
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(Issuer's telephone number, including area code)
Not applicable
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(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 = 6,357,828 shares as of October 31,
1997.
<PAGE>
SK TECHNOLOGIES CORPORATION
INDEX
FORM 10-QSB
SIX MONTHS ENDED September 30, 1997
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
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . . . 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . 9
Item 2. Changes in Securities . . . . . . . . . . 9
Item 3. Defaults Upon Senior Securities . . . . . 9
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . 9
Item 5. Other Information . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 10
<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 1997 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, 1997
ASSETS
Current Assets:
Cash $ 66,173
Trade accounts receivable, net of
allowance for doubtful accounts
of $28,505 20,923
Inventories 22,466
Other current assets 1,637
Current portion of installment
accounts receivable 60,000
---------
Total Current Assets 171,199
Property and Equipment, Net 95,382
Other Assets:
Software development costs,
net of accumulated amortization
of $519,046 425,821
Other, net 27,985
Installment accounts receivable,
less current portion 40,000
---------
Total Other Assets 493,806
---------
$ 760,387
=========
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (CONT'D)
September 30, 1997
LIABILITIES AND CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 60,818
Accrued expenses 92,525
Due to shareholders/officers/directors 1,317,683
Current portion of capital lease
obligations 14,891
Deferred income 114,089
Loans payable shareholders/directors 3,439,500
-----------
Total Current Liabilities 5,039,506
Notes payable to shareholder 400,000
Deferred gross profit on installment sale 80,223
Capital lease obligations, less current
portion 12,642
Capital Deficiency:
Convertible Preferred Stock, $.001
par value, 5,000,000 shares
authorized, 1,000,000 shares
designated as convertible Series B
Preferred Stock, 454,399 shares
issued and outstanding 454
Common stock, $.001 par value,
25,000,000 shares authorized,
6,357,828 shares issued and
outstanding 6,358
Additional paid-in capital 12,117,031
Accumulated deficit (16,895,827)
-----------
Capital Deficiency (4,771,984)
-----------
$ 760,387
===========
<PAGE>
<TABLE>
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,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Equipment, software sales and
support $ 215,167 $ 208,739 $ 451,556 $ 401,888
Cost of Revenues:
Cost of equipment sold 50,137 26,772 76,014 51,073
Amortization of software development
costs 58,557 57,142 118,168 89,761
Research and development expenses 34,924 42,418 58,985 90,017
------------ ----------- ----------- -----------
143,618 126,332 253,167 230,851
------------ ----------- ----------- -----------
Gross Profit 71,549 82,407 198,389 171,037
Selling, General and Administrative
Expenses:
Compensation and payroll taxes 275,245 244,070 557,440 515,569
Other selling, general and
administrative expenses 116,333 172,696 219,597 374,915
------------ ----------- ----------- -----------
391,578 416,766 777,037 890,484
------------ ----------- ----------- -----------
Operating loss (320,029) (334,359) (578,648) (719,447)
Other (Expenses) Income:
Gross profit on installment sale 12,034 - 60,168 -
Interest expense (95,553) (82,497) (185,040) (155,187)
Other, net 1,126 (6,754) 2,539 3,471
------------ ----------- ------------ -----------
Total Other Expenses (82,393) (89,251) (122,333) (151,716)
------------ ----------- ------------ -----------
Net loss $ (402,422) $ (423,610) $ (700,981) $ (871,163)
============ =========== ============ ===========
Loss per common share $ (.06) $ (.07) $ (.11) $ (.14)
============ =========== ============ ===========
Weighted Average Number of
Common Shares Outstanding 6,353,024 6,128,865 6,315,737 6,114,047
</TABLE>
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
Net cash used in operating activities $ (311,613) $ (579,250)
Cash Flows From Investing Activities:
Additions to software development costs (92,898) (128,962)
Purchases of property and equipment (4,681) (1,540)
Net (increase) decrease in other assets (42,779) 8,575
Proceeds from sale of property - 240,000
---------- -----------
Net cash (used in) provided by
investing activities (140,358) 118,073
Cash Flows From Financing Activities:
Proceeds from loans from shareholders/directors 421,500 800,000
Principal payments on bank mortgages - (200,377)
Principal payments on notes payable to
related parties/shareholders - (5,130)
Principal payments on capital lease obligations (6,672) (5,576)
---------- -----------
Net cash provided by financing
activities 414,828 588,917
---------- -----------
(Decrease) increase in cash (37,143) 127,740
Cash at beginning of period 103,316 74,531
---------- -----------
Cash at end of period $ 66,173 $ 202,271
=========== ===========
<PAGE>
Note 1 - ACCOUNTS RECEIVABLE - INSTALLMENT SALE
On May 21, 1997 the Company entered into an Asset Purchase Agreement
(the "Agreement") with an unrelated party (the "Buyer"), whereby the Buyer
acquired from the Company, the StoreKare Software for Subway (including the
software source code) and certain other related assets. The Company will
receive a minimum of $175,000 of which $55,000 was received upon signing the
Agreement. The Company will receive 24 monthly payments of, the greater of
$5,000 or 10% of gross sales of the Buyer of any software that is an
associative or derivative of the software for Subway. The sale is recorded as
an installment sale with revenues recognized over 24 months as cash is
received. The Company recognized gross profit of $12,034 and $60,168 during
the three and six months ended September 30, 1997, respectively, as reflected
on the Statement of Operations. At September 30, 1997 the Balance Sheet
reflects installment accounts receivable of $100,000 and deferred gross profit
of $80,223 from this sale.
Note 2 - LOANS PAYABLE SHAREHOLDERS/DIRECTORS
Two shareholders/directors of the Company and their related entities
have provided short term financing to the Company totalling $3,439,500 through
September 30, 1997 of which $249,000 and $421,500 was received during the
three and six months ended September 30, 1997, respectively. Additional loans
of $80,000 were made to the Company in October 1997. These loans accrue
interest at the rate of 10% per annum, $504,228 has been accrued through
September 30, 1997 of which $83,457 and $161,185 was accrued during the three
and six months ended September 30, 1997, respectively. In December 1996, the
Company collateralized these loans with the StoreKare software and
documentation.
Note 3 - DEFERRED INCOME AND REVENUE RECOGNITION
Deferred income consists of maintenance and support revenues of $22,406,
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, 1997, $367,573 is due to the Company pursuant to this agreement but is not
included in the consolidated balance sheet at September 30, 1997 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 - LIQUIDITY
Through September 30, 1997, the Company has incurred significant
operating losses and has a working capital deficiency. Since March 1995
through October 31, 1997, two majority shareholders/directors of the Company
and their related entities have provided funding to the Company in the form of
loans totalling $3,519,500 of which $249,000 and $421,500 was received during
the three and six months ended September 30, 1997, respectively, and $80,000
was received in October 1997. These loans are due on demand. If additional
funding is not obtained from these two shareholders/directors and their
related entities, through an offering or alternate sources of funding, of
which none have presently been identified, the Company would have to 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 develops and markets retail store management software for
the specialty retail industry. The Company's StoreKare product family is a
set of modular information technology products, which offer retailers an
affordable, scalable, feature rich application in both Windows and DOS
environments.
Except for historical information contained herein, certain matters set
forth in this Form 10-QSB are forward looking and involve a number of risks
and uncertainties that could cause future results to differ materially from
these statements and trends. Such factors include but are not limited to,
significant changes in economic conditions, competition in the Company's
markets, changes in technology and the continued availability of funding from
third parties.
Liquidity and Capital Resources
The Company sustained a net loss of $402,422 and $700,981, and $423,610
and $871,163, for the three and six months ended September 30, 1997 and 1996,
respectively. The Company's working capital deficiency increased from
$(4,267,106) at March 31, 1997 to $(4,868,307) at September 30, 1997. This
increase was mainly due to the receipt of short term loans of $421,500 and the
related interest of $161,185 accrued during the six months ended September
30, 1997, from two shareholder/directors and their related entities.
During the three and six months ended September 30, 1997 and 1996, the
Company capitalized $44,154 and $92,898, and $59,613 and $128,962,
respectively, of development costs. Amortization of development costs was
$58,557 and $118,168, and $57,142 and $89,761, for the three and six months
ended September 30, 1997 and 1996, respectively. Subject to the availability
of working capital, the Company anticipates incurring a comparable amount of
development costs for the remainder of fiscal 1998 as it continues to develop
new features for the StoreKare retail point-of-sale and back office module
products and continues the development of the new StoreKare Windows/NT based
product.
The Company is continuing to cultivate its reseller base by providing
the resellers with support, training and the tools and incentives to sell the
product on behalf of the Company. The Company's regional managers support the
existing resellers and pursue opportunities to sell the Company's products
directly to retail chains and franchises. In May 1997 the Company sold the
StoreKare for Subway software and related assets to an unrelated party and
discontinued sales to Subway Sandwich and Salads fast food restaurants.
Through September 30, 1997, the Company has incurred significant
operating losses and has a working capital deficiency. Since March 1995
through October 31, 1997, two majority shareholders/directors and their
related entities have provided funding to the Company in the form of loans
totalling $3,519,500, of which $249,000 and $421,500 was received during the
three and six months ended September 30, 1997, respectively, and $80,000 was
received in October 1997. The loans are due on demand and accrue interest at
10% per annum. Through September 30, 1997 interest in the amount of $504,228
has been accrued on these loans, of which $83,457 and $161,185 was accrued
during the three and six months ended September 30, 1997, respectively. These
two shareholders/directors are actively involved with management of the
Company. While no assurances can be made, the Company believes that these
shareholders/directors and their related entities will continue to fund the
Company. However, if additional funding is not obtained from these
shareholders/directors and their related entities, the Company would have to
seek other sources of funding of which none have presently been identified, or
the Company would have to curtail operations and/or take other actions.
Results of Operations
For the three and six months ended September 30, 1997 and 1996, the
Company reported a net loss of $402,422 and $700,981, and $423,610 and
$871,163, respectively. Revenues for the three and six months ended September
30, 1997 and 1996 were $215,167 and $451,556, and $208,739 and $401,888,
respectively, from equipment and software sales and support.
Amortization of software development costs was $58,557 and $118,168, and
$57,142 and $89,761, for the three and six months ended September 30, 1997 and
1996, respectively. In addition, the Company expensed $34,924 and $58,985,
and $42,418 and $90,017 for the three and six months ended September 30, 1997
and 1996, respectively.
Total selling, general and administrative expenses decreased from
$890,484 for the six months ended September 30, 1996 to $777,037 for the six
months ended September 30, 1997. There was a decrease of 41% in other
selling, general and administrative expenses from September 30, 1996 to
September 30, 1997 which can be attributed to a reduction in consulting, legal
and other fees, travel, telephone and other overhead costs. The Company
anticipates that total selling, general and administrative costs for the
remainder of fiscal 1998, will remain consistent with the first six months of
fiscal 1998.
The Company incurred interest expense of $95,553 and $185,040, and
$82,497 and $155,187 during the three and six months ended September 30, 1997
and 1996, respectively. Interest expense was incurred on loans from
shareholders/directors of $83,457 and $161,185 during the three and six months
ended September 30, 1997 as compared to interest expense of $60,326 and
$110,405 for the three and six months ended September 30, 1996, 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 product.
<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.
The Company did not file any reports on Form 8-K during the three months
ended September 30, 1997.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
27. Financial Data Schedule for the quarterly period ended
September 30, 1997.
<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 10, 1997 /s/ Calvin S. Shoemaker
President, Chief Executive Officer
Date: November 10, 1997 /s/ Melvin T. Goldberger
Treasurer, Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 66,173
<SECURITIES> 0
<RECEIVABLES> 49,428
<ALLOWANCES> 28,505
<INVENTORY> 22,466
<CURRENT-ASSETS> 171,199
<PP&E> 321,234
<DEPRECIATION> 225,852
<TOTAL-ASSETS> 760,387
<CURRENT-LIABILITIES> 5,039,506
<BONDS> 427,533
454
0
<COMMON> 6,358
<OTHER-SE> (4,778,796)
<TOTAL-LIABILITY-AND-EQUITY> 760,387
<SALES> 451,556
<TOTAL-REVENUES> 451,556
<CGS> 76,014
<TOTAL-COSTS> 253,167
<OTHER-EXPENSES> 777,037
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,040
<INCOME-PRETAX> (700,981)
<INCOME-TAX> 0
<INCOME-CONTINUING> (578,648)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (700,981)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
