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, 1998
[ ] 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
incorporation or organization) No.)
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
July 31, 1998.
<PAGE>
SK TECHNOLOGIES CORPORATION
INDEX
FORM 10-QSB
THREE MONTHS ENDED June 30, 1998
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 . . . . . . . . . . . . 8-11
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
<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 1998 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.
-1-
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
June 30, 1998
ASSETS
Current Assets:
Cash $ 14,987
Trade accounts receivable, net of
allowance for doubtful accounts
of $35,677 76,582
Inventories 32,696
Other current assets 889
Current portion of installment
accounts receivable 50,000
---------
Total Current Assets 175,154
Property and Equipment, Net 74,389
Other Assets:
Software development costs,
net of accumulated amortization
of $610,733 345,530
Other, net 21,868
---------
Total Other Assets 367,398
---------
$ 616,941
=========
(Continued on following page)
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (CONT'D)
June 30, 1998
LIABILITIES AND CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 101,086
Accrued expenses 93,948
Due to shareholders/officers/directors 1,584,413
Current portion of capital lease
obligations 18,940
Deferred income 112,188
Loans payable shareholders/directors 4,215,500
-----------
Total Current Liabilities 6,126,075
Notes payable to shareholder 400,000
Deferred gross profit on installment sale 40,111
Capital lease obligations, less current
portion 1,000
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 (18,074,088)
-----------
Capital Deficiency (5,950,245)
-----------
$ 616,941
===========
See accompanying notes.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
1998 1997
Revenues:
Equipment, software sales and
support $ 165,555 $ 236,389
Cost of Revenues:
Cost of equipment sold 25,523 25,877
Amortization of software development
costs 58,266 59,611
Research and development expenses 34,744 24,061
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118,533 109,549
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Gross Profit 47,022 126,840
Selling, General and Administrative
Expenses:
Compensation and payroll taxes 250,327 282,195
Other selling, general and
administrative expenses 100,657 103,264
------------ -----------
350,984 385,459
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Operating Loss (303,962) (258,619)
Other (Expenses) Income:
Gross profit on installment sale 16,045 48,134
Interest expense (114,066) (89,487)
Other, net 482 1,413
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Total Other Expenses (97,539) (39,940)
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Net Loss $ (401,501) $ (298,559)
============ ===========
Basic Loss Per Common Share $ (.06) $ (.05)
============ ===========
Diluted Loss Per Common Share $ (.06) $ (.05)
============ ===========
Weighted Average Number of
Common Shares Outstanding 6,357,828 6,278,041
See accompanying notes.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
1998 1997
Net cash used in operating activities $ (264,010) $ (81,286)
Cash Flows From Investing Activities:
Additions to software development costs (28,362) (48,744)
Purchases of property and equipment (372) (3,865)
Net decrease (increase) in other assets 1,124 (52,476)
----------- -----------
Net cash used in investing activities (27,610) (105,085)
Cash Flows From Financing Activities:
Proceeds from loans from
shareholders/directors 274,000 172,500
Principal payments on capital
lease obligations (6,291) (2,454)
---------- ---------
Net cash provided by financing
activities 267,709 170,046
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Decrease in cash (23,911) (16,325)
Cash at beginning of period 38,898 103,316
---------- ----------
Cash at end of period $ 14,987 $ 86,991
=========== ===========
See accompanying notes.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1998
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 and an
additional $70,000 was received through June 30, 1998. Under the
agreement the Company will receive additional 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 $16,045 during the three months ended
June 30, 1998 as reflected on the Statement of Operations. At June
30, 1998 the Balance Sheet reflects installment accounts receivable
of $50,000 and deferred gross profit of $40,111 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 $4,215,500 through June 30, 1998 of which $274,000 was
received during the three months ended June 30, 1998. Additional
loans of $85,000 were made to the Company in July 1998. These
loans accrue interest at the rate of 10% per annum, $790,958 has
been accrued through June 30, 1998 of which $101,900 was accrued
during the three months ended June 30, 1998. 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 $20,505 from support contracts to
be recognized ratably over the terms of the contracts and a $91,683
prepayment from an unrelated party for products to be shipped to
resellers of this unrelated party. The Company is pursuing a
settlement regarding a 1994 agreement, between the Company and this
unrelated party, through arbitration. As of June 30, 1998, this
unrelated party has failed to make the payments due pursuant to the
terms of the 1994 Agreement, which total in excess of $300,000.
NOTE 4 - LIQUIDITY
Through June 30, 1998, the Company has incurred significant
operating losses and has a working capital deficiency. Since March
1995 through July 31, 1998 two majority shareholders/directors of
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1998
the Company and their related entities have provided funding to the
Company in the form of loans totalling $4,300,500 of which $274,000
was received during the three months ended June 30, 1998 and
$85,000 was received in July 1998. 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.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
General
The Company is a developer of retail store management software
for the specialty retail industry. The Company's StoreKare product
family is a modular system of information technology products,
which offers retailers an affordable, scalable, feature rich
application that runs in both Windows NT and DOS environments. The
goal of the Company has been to offer such a product that a retail
store owner with limited computer experience could learn and use
without extensive training and support. With the advancement of
the hardware technology (computers and cash registers) and
extensive reduction in cost, the small retailer can now afford a
complete business management system.
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.
Impact of the Year 2000
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the applicable
year. Some of the Company's older computer programs that have time
sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000.
The Company has assessed the existing software and hardware in
use in all departments of the Company and has determined that a
minimal amount of modifications or replacements of software and
hardware will be required so that its computer systems will
function properly with respect to dates in the year 2000 and
thereafter. Other equipment and systems in use by the Company,
such as the voice mail/telephone system and alarm system, have been
tested and/or have been certified by the vendor to be year 2000
compliant. The Company anticipates that the cost to be compliant
with the year 2000 will not be material during fiscal 1999 and
should not exceed $25,000.
Year 2000 and StoreKare - StoreKare has been designed for use
in Point of Sale and Retail Management applications before, during
and beyond the year 2000. In addition to the many new features
added to StoreKare since version 3.0, StoreKare 3.3.20 provides
complete Year 2000 date processing capability for StoreKare data.
This date processing capability is summarized as follows:
-8-
<PAGE>
Enter and record dates in StoreKare records over the years
ranging from 1900 to 2259
Use a 2 digit year short cut data entry sliding window for the
current date -80 or +20 years
Handle calculations and sort records using dates that span the
range 1900 to 2259
Recognize the year 2000 as a leap year
Import and Export records with dates in either 2-digit or 4-
digit year representation
Authorize and settle credit and debit cards that expire beyond
December 31, 1999
Operate the StoreKare application over a date range of 1980 to
2099
All StoreKare 3.0C, 3.1 and 3.2 systems must be upgraded to
StoreKare 3.3.20 and all StoreKare 3.3 systems must be updated to
StoreKare 3.3.20 over the period August 1998 to December 1999 to
correctly process dated records across the 20th and 21st century
boundaries.
Liquidity and Capital Resources
The Company sustained a net loss of $401,501 and $298,559 for
the three months ended June 30, 1998 and 1997, respectively. The
Company's working capital deficiency increased from $(5,579,205) at
March 31, 1998 to $(5,950,921) at June 30, 1998. This increase was
mainly due to the receipt of short term loans of $274,000 and the
related interest of $101,900 accrued during the three months ended
June 30, 1998, from two shareholders/directors and their related
entities.
During the three months ended June 30, 1998 and 1997, the
Company capitalized $28,362 and $48,743, of development costs.
Amortization of development costs was $58,266 and $59,611, for the
three months ended June 30, 1998 and 1997, respectively. The
Company, subject to the availability of working capital,
anticipates incurring a comparable amount of development costs for
the remainder of fiscal 1998 as the Company continues the
development of a new StoreKare Windows/NT based product.
The Company's region managers are aggressively seeking to sell
and support the Company's products directly to specialty retail
store chains and continue to provide resellers with support,
training and the tools and incentives to sell the product on behalf
of the Company. The Company plans to continue to complete
development projects currently in process and implement its plans
to develop new technology if financing is secured to meet the
Company's long term capital needs. 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.
-9-
<PAGE>
Through June 30, 1998, the Company has incurred significant
operating losses and has a working capital deficiency. Since March
1995 through July 31, 1998 two majority shareholders/directors and
their related entities have provided funding to the Company in the
form of loans totalling $4,300,500, of which $274,000 was received
during the three months ended June 30, 1998 and $85,000 was
received in July 1998. The loans are due on demand and accrue
interest at 10% per annum. Through June 30, 1998 interest in the
amount of $790,958 has been accrued on these loans, of which
$101,900 was accrued during the three months ended June 30, 1998.
These two shareholders/directors are actively involved with
management of the Company. While no assurance 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 months ended June 30, 1998 and 1997, the Company
reported a net loss of $401,501 and $298,559, respectively.
Revenues for the three months ended June 30, 1998 were $165,555 and
$236,389 from equipment and software sales and support.
Amortization of software development costs was $58,266 and
$59,611, for the three months ended June 30, 1998 and 1997
respectively. In addition, the Company expensed $34,744 and
$24,061, respectively of research and development costs during the
three months ended June 30, 1998 and 1997, respectively.
Total selling, general and administrative expenses decreased
from $385,459 to $350,984 for the three months ended June 30, 1997
and 1998 respectively. There was a decrease of 11% in compensation
and payroll taxes due to a reduction in staffing. The Company
anticipates that total selling, general and administrative expenses
for the remainder of fiscal 1999 will remain consistent with the
first quarter of fiscal 1999.
The Company incurred interest expense of $114,066 and $89,487,
during the three months ended June 30, 1998 and 1997 respectively.
Interest expense was incurred on loans from shareholders/directors,
of $101,900 and $77,728, during the three months ended June 30,
1998 and 1997, respectively. As of June 30, 1998 and 1997, loans
from shareholders/directors were $4,215,500 and $3,190,500
respectively.
-10-
<PAGE>
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.
-11-
<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.
Not applicable
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
27. Financial Data Schedule for the quarterly period
ended June 30, 1998
b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the three months ended June 30, 1998.
-12-
<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 11, 1998 /s/ Calvin S. Shoemaker
President, Chief Executive Officer
Date: August 11, 1998 /s/ Melvin T. Goldberger
Treasurer, Principal Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 14,987
<SECURITIES> 0
<RECEIVABLES> 112,259
<ALLOWANCES> 35,677
<INVENTORY> 32,696
<CURRENT-ASSETS> 175,154
<PP&E> 245,450
<DEPRECIATION> 171,061
<TOTAL-ASSETS> 616,941
<CURRENT-LIABILITIES> 6,126,075
<BONDS> 400,000
454
0
<COMMON> 6,358
<OTHER-SE> (5,957,057)
<TOTAL-LIABILITY-AND-EQUITY> 616,941
<SALES> 165,555
<TOTAL-REVENUES> 165,555
<CGS> 25,523
<TOTAL-COSTS> 118,533
<OTHER-EXPENSES> 465,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (401,501)
<INCOME-TAX> 0
<INCOME-CONTINUING> (303,962)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (401,501)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
