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, 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
October 31, 1998.
<PAGE>
SK TECHNOLOGIES CORPORATION
INDEX
FORM 10-QSB
SIX MONTHS ENDED September 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.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
September 30, 1998
ASSETS
Current Assets:
Cash $ 10,817
Trade accounts receivable, net of
allowance for doubtful accounts
of $33,997 77,718
Inventories 32,973
Current portion of installment
accounts receivable 45,000
---------
Total Current Assets 166,508
Property and Equipment, Net 67,082
Other Assets:
Software development costs,
net of accumulated amortization
of $665,686 321,096
Other, net 20,563
---------
Total Other Assets 341,659
---------
$ 575,249
=========
(Continued on following page)
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (CONT'D)
September 30, 1998
LIABILITIES AND CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 107,165
Accrued expenses 102,139
Due to shareholders/officers/directors 1,693,569
Current portion of capital lease
obligations 13,268
Deferred income 112,268
Loans payable shareholders/directors 4,414,500
---------
Total Current Liabilities 6,442,909
Notes payable to shareholder 400,000
Deferred gross profit on installment sale 36,100
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 (18,427,603)
-----------
Capital Deficiency (6,303,760)
-----------
$ 575,249
===========
See accompanying notes.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
TABLE A Note: This is Part 1 of Table A.
(Part 2 to Follow.)
Three Months Three Months
Ended Ended
September 30, September 30,
1998 1997
Revenues:
Equipment, software sales and
support $ 233,378 $ 215,167
Cost of Revenues:
Cost of equipment sold 36,246 50,137
Amortization of software development
costs 54,953 58,557
Research and development expenses 26,471 34,924
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117,670 143,618
------------ -----------
Gross Profit 115,708 71,549
Selling, General and Administrative
Expenses:
Compensation and payroll taxes 239,087 275,245
Other selling, general and
administrative expenses 112,656 116,333
------------ -----------
351,743 391,578
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Operating Loss (236,035) (320,029)
Other (Expenses) Income:
Gross profit on installment sale 4,011 12,034
Interest expense (121,541) (95,553)
Other, net 52 1,126
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Total Other Expenses (117,478) (82,393)
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Net Loss $ (353,513) $ (402,422)
============ ===========
Basic Loss Per Common Share $ (.06) $ (.06)
============ ===========
Diluted Loss Per Common Share $ (.06) $ (.06)
============ ===========
Weighted Average Number of
Common Shares Outstanding 6,357,828 6,353,024
TABLE A Note: This is Part 2 of Table A.
(Part 1 Above.)
Six Months Six Months
Ended Ended
September 30, September 30,
1998 1997
Revenues:
Equipment, software sales and
support $ 398,933 $ 451,556
Cost of Revenues:
Cost of equipment sold 61,769 76,014
Amortization of software development
costs 113,219 118,168
Research and development expenses 61,215 58,985
------------ -----------
236,203 253,167
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Gross Profit 162,730 198,389
Selling, General and Administrative
Expenses:
Compensation and payroll taxes 489,414 557,440
Other selling, general and
administrative expenses 213,313 219,597
------------ -----------
702,727 777,037
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Operating Loss (539,997) (578,648)
Other (Expenses) Income:
Gross profit on installment sale 20,056 60,168
Interest expense (235,607) (185,040)
Other, net 534 2,539
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Total Other Expenses (215,017) (122,333)
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Net Loss $ (755,014) $ (700,981)
============ ===========
Basic Loss Per Common Share $ (.12) $ (.11)
============ ===========
Diluted Loss Per Common Share $ (.12) $ (.11)
============ ===========
Weighted Average Number of
Common Shares Outstanding 6,357,828 6,315,737
See accompanying notes.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
Net cash used in operating activities $ (431,294) $ (311,613)
Cash Flows From Investing Activities:
Additions to software development costs (58,881) (92,898)
Purchases of property and equipment (372) (4,681)
Net decrease (increase) in other assets 2,429 (42,779)
----------- -----------
Net cash used in investing activities (56,824) (140,358)
Cash Flows From Financing Activities:
Proceeds from loans from
shareholders/directors 473,000 421,500
Principal payments on capital
lease obligations (12,963) (6,672)
---------- ---------
Net cash provided by financing
activities 460,037 414,828
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Decrease in cash (28,081) (37,143)
Cash at beginning of period 38,898 103,316
---------- ----------
Cash at end of period $ 10,817 $ 66,173
=========== ===========
See accompanying notes.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 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 $75,000 was received through September 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 $4,011 and $20,056 during the three and
six months ended September 30, 1998, respectively, as reflected on
the Statement of Operations. At September 30, 1998, the Balance
Sheet reflects installment accounts receivable of $45,000 and
deferred gross profit of $36,100 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 $4,414,500 through September 30, 1998 of which $199,000
and $473,000 was received during the three and six months ended
September 30, 1998, respectively. Additional loans of $60,000 were
made to the Company in October 1998. These loans accrue interest
at the rate of 10% per annum, $900,114 has been accrued through
September 30, 1998 of which $109,156 and $211,056 was accrued
during the three and six months ended September 30, 1998,
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 $20,585 from support contracts to
be recognized ratably over the terms of the contracts, and a
$91,683 prepayment from an unrelated party. The Company pursued a
settlement regarding a 1994 agreement between the Company and this
unrelated party through arbitration for which a mediation was held
on October 21, 1998. As a result of the mediation, a settlement of
$125,000 less legal fees will be paid to the Company. During the
third quarter of fiscal 1999, the deferred income from this
unrelated party will be reclassified as other income. (See Note 5).
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1998
NOTE 4 - LIQUIDITY
Through September 30, 1998, the Company has incurred
significant operating losses and has a working capital deficiency.
Since March 1995 through October 31, 1998, two majority
shareholders/directors of the Company and their related entities
have provided funding to the Company in the form of loans totalling
$4,474,500 of which $199,000 and $473,000 was received during the
three and six months ended September 30, 1998, respectively, and
$60,000 was received in October 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.
NOTE 5 - SUBSEQUENT EVENTS
On October 21, 1998, a mediation was held regarding a dispute
between the Company and an unrelated party. As a result of the
mediation, a settlement of $125,000 less legal fees will be paid to
the Company. During the third quarter of fiscal 1999, the Company
will report this settlement as other income in the amount of
$125,000 less legal fees and deferred income of $91,683 from this
unrelated party will be reclassified as other income.
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<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:
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<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 $353,513 and $755,014, and
$402,422 and $700,981, for the three and six months ended September
30, 1998 and 1997, respectively. The Company's working capital
deficiency increased from $(5,579,205) at March 31, 1998 to
$(6,276,401) at September 30, 1998. This increase was mainly due
to the receipt of short term loans of $473,000, and the related
interest of $211,056 accrued during the six months ended September
30, 1998, from two shareholder/directors and their related
entities.
During the three and six months ended September 30, 1998 and
1997, the Company capitalized $30,520 and $58,881, and $44,154 and
$92,898, respectively, of development costs. Amortization of
development costs was $54,953 and $113,219, and $58,557 and
$118,168, for the three and six months ended September 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 1999 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
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<PAGE>
unrelated party and discontinued sales to Subway Sandwich and
Salads fast food restaurants.
Through September 30, 1998, the Company has incurred
significant operating losses and has a working capital deficiency.
Since March 1995 through October 31, 1998, two majority
shareholders/directors and their related entities have provided
funding to the Company in the form of loans totalling $4,414,500,
of which $199,000 and $473,000 was received during the three and
six months ended September 30, 1998, respectively, and $60,000 was
received in October 1998. The loans are due on demand and accrue
interest at 10% per annum. Through September 30, 1998 interest in
the amount of $900,114 has been accrued on these loans, of which
$109,156 and $211,056 was accrued during the three and six months
ended September 30, 1998, 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, 1998 and
1997, the Company reported a net loss of $353,513 and $755,014, and
$402,422 and $700,981, respectively. Revenues for the three and
six months ended September 30, 1998 and 1997 were $233,378 and
$398,933, and $215,167 and $451,556, respectively, from equipment
and software sales and support.
Amortization of software development costs was $54,953 and
$113,219, and $58,557 and $118,168, for the three and six months
ended September 30, 1998 and 1997, respectively. In addition, the
Company expensed $26,471 and $61,215, and $34,924 and $58,985 for
the three and six months ended September 30, 1998 and 1997,
respectively.
Total selling, general and administrative expenses decreased
from $777,037 for the six months ended September 30, 1997 to
$702,727 for the six months ended September 30, 1998. There was a
decrease of 3% in other selling, general and administrative
expenses, and a decrease of 12% in compensation and payroll taxes,
from September 30, 1997 to September 30, 1998 which can be
attributed to a small reduction in staffing. The Company
anticipates that total selling, general and administrative costs
for the remainder of fiscal 1999, will remain consistent with the
first six months of fiscal 1999.
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<PAGE>
The Company incurred interest expense of $121,541 and
$235,607, and $95,553 and $185,040 during the three and six months
ended September 30, 1998 and 1997, respectively. Interest expense
was incurred on loans from shareholders/directors of $109,156 and
$211,056 during the three and six months ended September 30, 1998
as compared to interest expense of $83,457 and $161,185 for the
three and six months ended September 30, 1997, 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.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In October 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"). On February 27, 1996, ICL advised the Company
of its intention to terminate the Agreement and failed to make
the payments due pursuant to the terms of the Agreement. On
October 21, 1998, a mediation was held in this matter. ICL
agreed to pay the Company a settlement of $125,000 and both
parties agreed to sign mutual releases.
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, 1998.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
27. Financial Data Schedule for the six months ended
September 30, 1998
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<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, 1998 /s/ Calvin S. Shoemaker
President, Chief Executive Officer
Date: November 10, 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 SIX MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 10,817
<SECURITIES> 0
<RECEIVABLES> 111,715
<ALLOWANCES> 33,997
<INVENTORY> 32,973
<CURRENT-ASSETS> 166,508
<PP&E> 245,450
<DEPRECIATION> 178,368
<TOTAL-ASSETS> 575,249
<CURRENT-LIABILITIES> 6,442,909
<BONDS> 400,000
454
0
<COMMON> 6,358
<OTHER-SE> (6,310,572)
<TOTAL-LIABILITY-AND-EQUITY> 575,249
<SALES> 398,933
<TOTAL-REVENUES> 398,933
<CGS> 61,769
<TOTAL-COSTS> 236,203
<OTHER-EXPENSES> 938,334
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (755,014)
<INCOME-TAX> 0
<INCOME-CONTINUING> (539,997)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (755,014)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
