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 December 31, 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
- ------------------------------- ----------------------------
(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
January 31, 1998.
<PAGE>
SK TECHNOLOGIES CORPORATION
INDEX
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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 . . . . . . . . . . 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . 11
Item 2. Changes in Securities . . . . . . . . . 11
Item 3. Defaults Upon Senior Securities . . . . 11
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . 11
Item 5. Other Information . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 12
<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.
-1-
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
December 31, 1997
ASSETS
Current Assets:
Cash $ 50,165
Trade accounts receivable, net of
allowance for doubtful accounts
of $39,101 5,936
Inventories 22,380
Other current assets 1,823
Current portion of installment
accounts receivable 60,000
---------
Total Current Assets 140,304
Property and Equipment, Net 86,574
Other Assets:
Software development costs,
net of accumulated amortization
of $486,690 400,931
Other, net 22,992
Installment accounts receivable,
less current portion 25,000
---------
Total Other Assets 448,923
---------
$ 675,801
=========
(Continued on following page)
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (CONT'D)
December 31, 1997
LIABILITIES AND CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 44,073
Accrued expenses 102,835
Due to shareholders/officers/directors 1,404,384
Current portion of capital lease
obligations 14,720
Deferred income 120,449
Loans payable shareholders/directors 3,691,500
-----------
Total Current Liabilities 5,377,961
Notes payable to shareholder 400,000
Deferred gross profit on installment sale 68,190
Capital lease obligations, less current
portion 9,009
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 (17,303,202)
-----------
Capital Deficiency (5,179,359)
-----------
$ 675,801
===========
See accompanying notes.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Equipment, software sales and
support $ 155,734 $ 243,252 $ 607,290 $ 645,140
Cost of Revenues:
Cost of equipment sold 10,744 21,610 86,758 72,683
Amortization of software development
costs 67,664 57,142 185,831 146,903
Research and development expenses 18,570 51,610 77,555 141,627
------------- ------------ ------------ ------------
96,978 130,362 350,144 361,213
------------- ------------ ------------ ------------
Gross Profit 58,756 112,890 257,146 283,927
Selling, General and Administrative
Expenses:
Compensation and payroll taxes 258,897 225,218 816,337 740,787
Other selling, general and
administrative expenses 117,367 191,262 336,964 566,177
------------- ------------ ------------ ------------
376,264 416,480 1,153,301 1,306,964
------------- ------------ ------------ ------------
Operating loss (317,508) (303,590) (896,155) (1,023,037)
Other (Expenses) Income:
Gross profit on installment sale 12,033 - 72,201 -
Interest expense (101,951) (87,965) (286,992) (243,152)
Other, net 51 (3,161) 2,590 310
------------- ------------ ------------- ------------
Total Other Expenses (89,867) (91,126) (212,201) (242,842)
------------- ------------ ------------- ------------
Net loss $ (407,375) $ (394,716) $ (1,108,356) $(1,265,879)
============= ============ ============= ============
Loss per common share $ (.07) $ (.06) $ (.18) $ (.21)
============= ============ ============= ============
Weighted Average Number of
Common Shares Outstanding 6,357,828 6,140,495 6,329,818 6,122,895
</TABLE>
See accompanying notes.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net cash used in operating activities $ (553,038) $ (807,054)
Cash Flows From Investing Activities:
Additions to software development costs (135,670) (173,285)
Purchases of property and equipment (4,681) (20,903)
Net (increase) decrease in other assets (22,786) 8,743
Proceeds from sale of property - 240,000
----------- -----------
Net cash (used in) provided by
investing activities (163,137) 54,555
Cash Flows From Financing Activities:
Proceeds from loans from shareholders/directors 673,500 1,005,000
Principal payments on bank mortgages - (200,377)
Principal payments on notes payable to
related parties/shareholders - (7,817)
Principal payments on capital lease obligations (10,476) (7,828)
---------- ----------
Net cash provided by financing
activities 663,024 788,978
---------- ----------
(Decrease) increase in cash (53,151) 36,479
Cash at beginning of period 103,316 74,531
---------- ----------
Cash at end of period $ 50,165 $ 111,010
=========== ===========
</TABLE>
See accompanying notes.
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<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 $12,033 and
$72,201 during the three and nine months ended December 31, 1997,
respectively, as reflected on the Statement of Operations. At
December 31, 1997 the Balance Sheet reflects installment accounts
receivable of $85,000 and deferred gross profit of $68,190 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 $3,691,500 through December 31, 1997 of which $252,000
and $673,500 was received during the three and nine months ended
December 31, 1997, respectively. Additional loans of $120,000 were
made to the Company in January 1998. These loans accrue interest
at the rate of 10% per annum, $594,217 has been accrued through
December 31, 1997 of which $89,989 and $251,174 was accrued during
the three and nine months ended December 31, 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 $28,766, 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 December
31, 1997, $367,573 is due to the Company pursuant to this agreement
but is not included in the consolidated balance sheet at December
31, 1997 since the party has notified the Company of its intention
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<PAGE>
to terminate the agreement. On October 18, 1996 the Company filed
a Demand for Arbitration in regard to this agreement.
NOTE 4 - LIQUIDITY
Through December 31, 1997, the Company has incurred
significant operating losses and has a working capital deficiency.
Since March 1995 through January 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
$3,811,500 of which $252,000 and $673,500 was received during the
three and nine months ended December 31, 1997, respectively, and
$120,000 was received in January 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.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
General
The Company is a retail store management software developer
that markets 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 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.
Impact of 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 is currently assessing the existing software used
in all departments of the Company to determine what modifications
or replacements of software will be required so that its computer
systems will function properly with respect to dates in the year
2000 and thereafter.
A software development project has been initiated which will
identify and resolve all occurrences of the Year 2000 date handling
error within StoreKare. Although no assurances can be made, the
Company will begin testing April 1, 1998 and expects this project
to be completed by December 31, 1998.
Liquidity and Capital Resources
The Company sustained a net loss of $ 407,375 and $1,108,356,
and $394,716 and $1,265,879, for the three and nine months ended
December 31, 1997 and 1996, respectively. The Company's working
capital deficiency increased from $(4,267,106) at March 31, 1997 to
$(5,237,657) at December 31, 1997. This increase was mainly due to
the receipt of short term loans of $673,500 and the related
interest of $251,174 accrued during the nine months ended December
31, 1997, from two shareholder/directors and their related
entities.
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<PAGE>
During the three and nine months ended December 31, 1997 and
1996, the Company capitalized $42,772 and $135,670, and $44,324 and
$173,285, respectively, of development costs. Amortization of
development costs was $67,664 and $185,831, and $57,142 and
$146,903, for the three and nine months ended December 31, 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 region 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 December 31, 1997, the Company has incurred
significant operating losses and has a working capital deficiency.
Since March 1995 through January 31, 1998, two majority
shareholders/directors and their related entities have provided
funding to the Company in the form of loans totalling $3,811,500,
of which $252,000 and $673,500 was received during the three and
nine months ended December 31, 1997, respectively, and $120,000
was received in January 1998. The loans are due on demand and
accrue interest at 10% per annum. Through December 31, 1997
interest in the amount of $594,217 has been accrued on these loans,
of which $89,989, and $251,174, was accrued during the three and
nine months ended December 31, 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 Operation
For the three and nine months ended December 31, 1997 and
1996, the Company reported a net loss of $407,375 and $1,108,356,
and $394,716 and $1,265,879, respectively. Revenues for the three
and nine months ended December 31, 1997 and 1996 were $155,734 and
$607,290, and $243,252 and $645,140, respectively, from equipment
and software sales and support.
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<PAGE>
Amortization of software development costs was $67,664 and
$185,831, and $57,142 and $146,903, for the three and nine months
ended December 31, 1997 and 1996, respectively. In addition, the
Company expensed $18,570 and $77,555, and $51,610 and $141,627 for
the three and nine months ended December 31, 1997 and 1996,
respectively.
Total selling, general and administrative expenses decreased
from $1,306,964 for the nine months ended December 31, 1996 to
$1,153,301 for the nine months ended December 31, 1997. There was
a decrease of 40% in other selling, general and administrative
expenses from the nine months ended December 31, 1996 to the nine
months ended December 31, 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 nine months of
fiscal 1998.
The Company incurred interest expense of $101,951 and
$286,992, and $87,965 and $243,152, during the three and nine
months ended December 31, 1997 and 1996, respectively. Interest
expense was incurred on loans from shareholders/directors of
$89,989 and $251,174 during the three and nine months ended
December 31, 1997 as compared to interest expense of $67,564 and
$177,970 for the three and nine months ended December 31, 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.
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<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 December 31, 1997.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
27. Financial Data Schedule for the quarterly period
ended December 31, 1997.
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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: February 12, 1998 /s/ Calvin S. Shoemaker
President, Chief Executive Officer
Date: February 12, 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 NINE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 50,165
<SECURITIES> 0
<RECEIVABLES> 45,037
<ALLOWANCES> 39,101
<INVENTORY> 22,380
<CURRENT-ASSETS> 140,304
<PP&E> 321,234
<DEPRECIATION> 234,660
<TOTAL-ASSETS> 675,801
<CURRENT-LIABILITIES> 5,377,961
<BONDS> 423,729
454
0
<COMMON> 6,358
<OTHER-SE> (5,186,171)
<TOTAL-LIABILITY-AND-EQUITY> 675,801
<SALES> 607,290
<TOTAL-REVENUES> 607,290
<CGS> 86,758
<TOTAL-COSTS> 350,144
<OTHER-EXPENSES> 1,153,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 286,992
<INCOME-PRETAX> (1,108,356)
<INCOME-TAX> 0
<INCOME-CONTINUING> (896,155)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,108,356)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
