FORM 10-KSB - ANNUAL REPORT
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-18184
SK TECHNOLOGIES CORPORATION
(Name of small business issuer in its charter)
Delaware 52-1507455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Fairway Drive, Suite 104, Deerfield Beach, FL 33441
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (954) 418-0101
Securities registered pursuant to Section 12(b) of the Exchange
Act:
Title of each class Name of each exchange on which registered
none
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period 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
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form, and
no disclosure will be contained in this form, and no disclosure
will be contained to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any other amendment to
this Form 10-KSB. X
State the Issuer's revenues for its most recent fiscal year.
$854,258
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such stock,
as of a specified date within 60 days.
The aggregate market value of the voting stock held by non-
affiliates of the Registrant at June 22, 1998 was $148,806.
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
As of June 22, 1998, 6,357,828 shares of Common Stock, par
value $.001 per share, were issued and outstanding.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS:
SK Technologies Corporation, a publicly-held Delaware
corporation (the "Company") was incorporated in September 1986. In
January 1989 the Company acquired SK Technologies Corp. which was
incorporated under the laws of the State of Florida in March 1985,
and the Company changed its name to SK Technologies Corporation.
Prior to this acquisition, the Company had limited operations.
BUSINESS OF ISSUER
The Company's Products
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 offer retailers an affordable, scalable, feature rich
application that runs in both Windows NT and DOS environments. The
Company's goals are to continue to enhance our StoreKare product
with additional customer requested modifications and continue the
integration of StoreKare with new Windows products.
The Company sold the StoreKare for Subway product to an
unrelated party in May 1997 and discontinued sales to Subway
Sandwich and Salads fast food restaurants.
StoreKare
The StoreKare Retail Management System Version 3.3 operates
with Windows NT as well as MS-DOS operating systems and PC
platforms. StoreKare provides a single screen user interface which
guides the user with high-lighted prompts and pop-up selections.
Users can access standard or customized help screens with a single
function key. The Point-Of-Sale module is the foundation of the
StoreKare system and features bar-code scanning, scale interface,
multiple tender types, major credit and debit card support,
discounts, mark-downs and mix and match pricing. StoreKare data
can be accessed by Windows based application packages, such as
Crystal Report Writer, Microsoft Access and Microsoft Excel, by
using the StoreKare Open Data Base Connectivity Interface for
Windows add-on module.
Other StoreKare modules available are, Purchasing and
Receiving, Sales and Profit Analysis, Layaways/Work Orders/Special
Orders, Deal Pricing, Dated Discounts, Time and Attendance, In-
House Accounts, Extended Payment Services, Third-Party Interface,
Report Generator and StoreAdministrator. The StoreKare Point-Of-
Sale module currently has a suggested retail price of $1,195 and
the StoreAdministrator module has a suggested retail price of
$1,995. Optional modules are offered at a suggested retail price
ranging from $100 to $715. To date, approximately 1,350 StoreKare
Retail Management Systems have been shipped nationwide, of which
approximately 350 were shipped during fiscal 1998, through the
Company's reseller network and through direct sales by the
Company's regional sales managers.
Business Ventures
Management believes that aligning the Company with one or more
major corporations will assist in the marketing of its products.
The Company has entered into formal agreements and/or business
alliances with such major companies as ScanSource, International
Business Machines Corp. ("IBM"), Omron Systems of America, Inc.
("Omron") and CompuRegister, which management believes will
increase the Company's visibility in the point-of-sale industry and
expand its market share. The Company believes that its StoreKare
family of products has fundamental features and functions desired
by many retailers in various segments of the retail industry and,
for this reason, it intends to continue to align itself with major
distribution companies.
ScanSource
ScanSource is the principal distributor for the IBM SureOne
and other IBM point-of-sale platforms and provides sales
development services on behalf of IBM, on the SureOne. The Company
is an authorized independent software vendor ("ISV") and reseller
of the SureOne product and is an invited participant in all
ScanSource sponsored trade shows and lead development activities.
IBM
The Company has been authorized as a Personal Computer Value-
Added Reseller in May 1996 and is also an IBM Business Partner.
The Company is also a participant in the IBM retail solutions
program which will provide the Company with access to IBM technical
information and new IBM hardware products prior to their release.
The Company is a participant in an ongoing IBM lead generation
program, in which more than 100,000 retailers are targeted. The
leads are distributed to IBM authorized resellers nationwide, that
are partnered with the Company and other software vendors.
Omron
The Company's relationship with Omron, pursuant to a May 1992
document of understanding which continues to be renewed annually,
consists primarily of marketing and distribution of StoreKare
products through the Omron reseller channel. Omron, a provider of
hardware, offers a PC based terminal product with a retail style
keyboard designed for the small to medium sized retail merchant.
The Company has access to new Omron hardware products prior to
their release which provides the opportunity for StoreKare to be
ported and offered as compatible with any newly released Omron DOS
based point-of-sale terminal. During fiscal 1998, the StoreKare
products have been displayed at the Omron booth with the Company's
personnel in support, at many retail industry shows where Omron
exhibits its products.
CompuRegister
In April 1994, the Company entered into a Software Partner
Program with CompuRegister. Through mailings and other
CompuRegister literature the Company expects that the StoreKare
products will be exposed to expanded markets.
Research and Development
The Company continues to develop enhancements and add-on
features for its existing StoreKare product line and performs
maintenance work when necessary to maintain the high quality of the
product. The Company also performs customized product development
and product enhancements on a customer funded contract basis for
chain store projects and end users. A software development project
was performed to identify and resolve all occurrences of the year
2000 date handling within StoreKare. The Company is currently
testing this year 2000 compliant product and expects the project to
be completed by December 31, 1998.
Research and development costs expensed in fiscal 1998 and
1997 were approximately $114,000 and $162,000, respectively. The
Company capitalized development costs of approximately $160,000 and
$232,000 during fiscal 1998 and 1997, respectively.
Typically, development cycles of software products are
lengthy, which results in an extended period of time between the
initiation of a development project for a product and its
production of revenue. During the development cycle of our
software products, features of the product are finalized,
specifications are developed, software code and support
documentation are written, and the product (software and
documentation) is tested in the Company's test lab and then at
selected customer test sites. Subsequently, the product goes
through the manufacturing process, resellers and the Company's
sales representatives receive product training, and the marketing
process then commences.
Inventory and Hardware
The Company manufactures its software products on an "as
needed" basis and has never experienced any difficulty in its
software manufacturing process. Due to the nature of the Company's
software products, orders are taken for currently available
products and reproduced to satisfy customer's orders. There is no
backlog of orders since all orders are fulfilled as they are
received.
The Company does not manufacture hardware. The Company
maintains a capital equipment inventory of terminals manufactured
by the major point-of-sale equipment manufacturers for testing its
products. The Company obtains SureOne product and IBM PCs on a
"just in time" basis from ScanSource for resale to direct
customers.
Marketing
The Company markets its products directly to retail store
chains using the IBM SureOne terminal, as well as through a
reseller network. Resellers handle specific geographic regions and
provide technical expertise to their customers. The Company
requires all resellers to attend a three day intensive training
class which is offered to resellers at the Company's offices or at
the reseller's locations. Additional programs for marketing and
technical support are offered to resellers.
The Company has also aligned itself with several major
corporations. Management believes that alliance agreements that the
Company has with such corporations as ScanSource, IBM, Omron and
CompuRegister will assist in the marketing of its products.
Service and Maintenance
The Company's success in marketing its software is dependent
upon its ability to provide technical support services to its
resellers and users at a higher level of quality than the industry
standard and at reasonable rates.
The Company warrants that the media on which software programs
are sold will be free from defects in materials and workmanship
under normal usage for 30 days from the date of delivery. A
comprehensive user manual is provided with complete instructions
for operation of the StoreKare system. The Company provides 9 hour
standard and 24 hour extended telephone support for its software.
SK Credit Corporation
The Company formed a wholly-owned subsidiary, SK Credit
Corporation ("SK Credit"), to offer financing to customers of the
Company. SK Credit, which commenced operations in September 1990,
was primarily engaged in the financing of point-of-sale and other
value added computer systems developed by the Company to end users
who are franchisees and other multi-store business groups. SK
Credit is inactive.
Competition
Management believes that the principal competitive factors in
its market are product performance, functionality and reliability,
price, user friendliness, product availability, service and
support, marketing and promotion. Management of the Company
believes it competes favorably in all of these areas. In addition,
management believes that, due to the rapid technological changes
and advances in the computer industry generally, and the segment
thereof in which the Company operates, another major competitive
factor in its market is the ability to achieve technological
advances and enhancements comparable to and competitive with those
made by others in such industry segment. While the Company
believes that it presently competes favorably in this area and
intends to continue to do so, no assurances are given that the
Company will be able to adequately respond to product obsolescence
or effect advances in technology in a manner as to be commercially
feasible. The Company's plan for addressing this competitive
factor is to utilize industry standard personal computer compatible
hardware, and to continue to modify the Company's products to
function on revised and/or replacement hardware of manufacturers
who are viewed as industry leaders and who command the greatest
market share in the point of sale industry. Additionally, the
Company has estimated a three year life cycle for each version of
a product to be released by the Company. The Company's plan also
includes developing on-going upgrades and enhancements (new
versions) to its products and releasing such upgrades and
enhancements to the market place on an ongoing basis.
Since the Company's strategy is to provide software products
that function on industry standard operating systems (DOS and
Windows/NT), standard hardware (including but not limited to IBM,
Omron, and NCR manufactured hardware) and operate in a generic
point-of-sale environment, the Company is not dependent upon any
one hardware manufacturer or external application with one
exception. That exception is the operating systems (DOS and
Windows/NT) which are owned by Microsoft Corporation ("Microsoft")
and sold directly by Microsoft, as well as, licensed by Microsoft
to nearly all hardware manufacturers of IBM compatible computers.
In view of the perceived stability of Microsoft, as well as, the
license rights provided to multiple hardware manufacturers,
management of the Company does not view this dependency on
Microsoft as a material factor to the continued success of the
Company's products.
The Company's principal competitors in the point-of-sale
market include, but are not limited to, ARS, CAM Data, Infocorp,
MicroBiz Corp., PSI, RTI, Salepoint, STS, Synchronics and Virtual
Systems. Some of these competitors do not sell fully featured
point-of-sale systems. While some of the Company's competitors
have substantially greater financial, personnel and technological
resources than the Company, management believes that its point-of-
sale products have several advantages over competing products,
including distributed communications capabilities and the support
of a wide variety of point-of-sale hardware products from various
manufacturers. Additionally, in management's opinion the Company's
agreements and relationships with IBM and Omron, as well as its
other relationships give the Company a competitive edge in its
market.
Copyrights and Licenses
The Company has not sought patent protection for its products
but seeks to maintain its proprietary rights by a combination of
copyright and trade secret protection. The Company has obtained
statutory copyright protection for its Invisible Link and StoreKare
software, as well as federal trademark registration for its SK
Technologies and StoreKare names.
Personnel
The Company currently employs 24 persons as follows: executive
officers (four persons), customer service (three persons), sales
and marketing (seven persons), programming and quality assurance
(six persons), administration and finance (two persons),
technicians (one person),and operations (one person). The Company
also engages the services of two technical writers as needed, on an
independent contractor basis. The Company retains additional
sales, technical and customer support persons as it deems
necessary.
The Company is not a party to any collective bargaining
agreements and believes it has achieved harmonious employee
relations.
ITEM 2. DESCRIPTION OF PROPERTY:
The Company's principal executive offices are located at 500
Fairway Drive, Suite 104, Deerfield Beach, Florida 33441 where the
Company occupies 7,029 square feet of office space which is leased
from an unrelated entity, for $9,075 per month through January
1999, pursuant to a lease which expires January 31, 2002. This
amount includes rent of $5,512 per month which will increase 4.5%
annually for the next three years and additional rent of
approximately $5 per square foot for the Company's allocated share
of expenses for 1998. The expense allocation will be adjusted
annually. This office space is suitable for the Company's current
needs.
ITEM 3. 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"). On February 27, 1996, ICL advised the Company of its
intention to terminate the Agreement and has failed to make the
payments due pursuant to the terms of the Agreement which total in
excess of $300,000. A preliminary hearing is scheduled for August
18, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS:
Market Information
The Company's Common Stock is traded on the OTC Bulletin Board
under the symbol SKTC. The following table sets forth the high and
low bid quotations for the Common Stock for the periods indicated.
These quotations reflect prices between resellers and do not
include retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.
Common Stock
High Low
April 1, 1996 -
June 30, 1996 $ 0.8125 $ 0.09375
July 1, 1996 -
September 30, 1996 $ 0.3125 $ 0.125
October 1, 1996 -
December 31, 1996 $ 0.21875 $ 0.1875
January 1, 1997 -
March 31, 1997 $ 0.75 $ 0.1875
April 1, 1997 -
June 30, 1997 $ 0.375 $ 0.125
July 1, 1997 -
September 30, 1997 $ 0.125 $ 0.125
October 1, 1997 -
December 31, 1997 $ 0.40625 $ 0.07
January 1, 1998 -
March 31, 1998 $ 0.078125 $ 0.03125
April 1, 1998 -
June 22, 1998 $ 0.09375 $ 0.0625
On June 22, 1998, the closing bid price on the OTC Bulletin
Board of the Common Stock was $.0625
As of June 22, 1998, Common Stock was held by approximately
500 shareholders of record. The Company, however, believes that
the number of beneficial owners of its securities to be in excess
of such number.
As of the date hereof, the Company has never declared or paid
cash dividends on its Common Stock. As management of the Company
seeks growth and expansion of the Company's business through the
reinvestment of profits, if any, management does not anticipate the
Company will pay dividends in the foreseeable future.
<PAGE>
ITEM 6. 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-KSB 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:
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 July 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 $1,477,733 for the fiscal
year ended March 31, 1998. The Company's cash decreased from
$103,316 at March 31, 1997 to $38,898 at March 31, 1998. This was
mainly due to delays in collecting on certain direct sales that
were subsequently paid after year end. The working capital
deficiency increased from $(4,267,106) at March 31, 1997 to
$(5,579,205) at March 31, 1998. The increase in the working
capital deficiency was mainly due to the receipt of loans totaling
$923,500 during fiscal 1998 from two shareholders/directors of the
Company and their related entities and the accrued interest, on the
loans from these shareholders/directors, of $346,015 during fiscal
1998.
At March 31, 1998 and 1997, the Company's capitalized
expenditures for development were $927,901 and $892,326
respectively (accumulated amortization was $552,467 and $409,703 at
March 31, 1998 and 1997, respectively). The Company capitalized
development costs of $160,458 and $232,271 during fiscal 1998 and
1997 respectively. The Company, subject to the availability of
working capital, anticipates incurring a comparable amount of
development costs for the year ending March 31, 1999 as compared to
the development costs incurred during the year ended March 31, 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.
Through March 31, 1998, the Company has incurred significant
operating losses and has a working capital deficiency. During
fiscal 1998, the Company's principal source of funding was from
loans of $923,500 from two majority shareholders/directors of the
Company and their related entities. These loans accrue interest at
10% per annum, $346,015 was accrued during fiscal 1998. During
the period April 1, 1998 through May 13, 1998 the Company received
additional loans of $134,000 from these shareholders/directors and
their related entities. Since March 1995 through May 13, 1998, the
Company has received monthly funding in the form of loans totalling
$4,075,500 from these shareholders/directors and related entities,
which are payable on demand. 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. Based on these
conditions, doubt exists about the ability of the Company to
continue as a going concern. The financial statements for the year
ended March 31, 1998 do not include adjustments relating to the
recoverability and classification of the recorded carrying value of
assets or the amounts or classifications of liabilities that might
be necessary should the Company be unable to continue as a going
concern.
Results of Operations
For the years ended March 31, 1998 and 1997, the Company
reported a net loss of $1,477,733 and $1,596,166, respectively.
Revenues for the years ended March 31, 1998 and 1997, were $854,258
and $801,483, respectively.
Amortization of software development costs was $251,608 and
$207,042 for fiscal 1998 and 1997. In addition, the Company
incurred and expensed, research and development costs of $114,106
and $162,211, to maintain and improve the existing versions of the
StoreKare products.
Total selling, general and administrative expenses for fiscal
1998 decreased 11% from fiscal 1997. This decrease was due to
reductions in consulting fees, costs for office space and related
overhead costs. The Company anticipates that total selling,
general and administrative expenses will increase slightly during
fiscal 1999 as the Company continues to recruit additional
salespeople in various locations throughout the United States.
The Company reported gross profit on installment sales of
$84,235 during fiscal 1998, from the sale of the StoreKare for
Subway software and related assets. During fiscal 1999 and 2000,
the Company anticipates additional gross profit on this installment
sale of approximately $48,000 and $8,000, respectively, as the
remaining installment payments totalling $70,000 are received by
the Company.
The Company incurred interest expense of $393,699 and $326,752
during fiscal 1998 and 1997 respectively. This increase was due to
the increasing amount of interest, $346,015 and $249,777 for fiscal
1998 and 1997, respectively, accrued on the loans from two
shareholders/directors and their related entities.
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.
Inflation
The Company believes the impact of inflation has historically
been and will continue to be minimal.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants -
Ernst & Young LLP F-1
Consolidated Balance Sheet
March 31, 1998 F-2-3
Consolidated Statements of Operations
Years Ended March 31, 1998 and 1997 F-4
Consolidated Statements of Capital Deficiency
Years Ended March 31, 1998 and 1997 F-5
Consolidated Statements of Cash Flows
Years Ended March 31, 1998 and 1997 F-6
Notes to Consolidated Financial Statements
March 31, 1998 and 1997 F-7-21
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
SK Technologies Corporation
We have audited the accompanying consolidated balance sheet of
SK Technologies Corporation and subsidiaries as of March 31, 1998
and the related consolidated statements of operations, capital
deficiency and cash flows for each of the two years in the period
ended March 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of SK Technologies Corporation and subsidiaries
at March 31, 1998 and the consolidated results of their operations
and their cash flows for each of the two years in the period ended
March 31, 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared
assuming that SK Technologies Corporation and subsidiaries will
continue as a going concern. As more fully described in Note 13,
the Company has incurred recurring operating losses and has a
capital deficiency. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. The
financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may
result from the outcome of this uncertainty.
ERNST & YOUNG LLP
West Palm Beach, Florida
May 15, 1998
F-1
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
ASSETS
Current Assets:
Cash $ 38,898
Trade accounts receivable, net of
allowance for doubtful accounts
of approximately $37,000 79,836
Inventories 19,951
Current portion of installment
accounts receivable 60,000
----------
Total Current Assets 198,685
Property and Equipment, Net 82,131
Other Assets:
Software development costs, net
of accumulated amortization
of $552,467 375,434
Other, net 22,992
Installment accounts receivable,
less current portion 10,000
----------
Total Other Assets 408,426
----------
$ 689,242
==========
(Continued on following page.)
F-2
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONT'D)
MARCH 31, 1998
LIABILITIES AND CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 86,921
Accrued expenses 119,360
Due to shareholders/officers/directors 1,485,691
Current portion of capital lease obligations 22,296
Loans payable shareholders/directors 3,941,500
Deferred income 122,122
----------
Total Current Liabilities 5,777,890
Notes payable to shareholder 400,000
Deferred gross profit on installment sale 56,157
Capital lease obligations, less current portion 3,935
Capital Deficiency:
Convertible Preferred Stock, $.001 par
value, 5,000,000 shares authorized,
1,000,000 shares designated as
convertible Series B Preferred Stock,
of which 454,399 is 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 (17,672,583)
----------
Capital Deficiency (5,548,740)
----------
$ 689,242
==========
See accompanying notes.
F-3
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998 AND 1997
1998 1997
Revenues:
Equipment, software sales and $ 854,258 $ 801,483
support
Cost of Revenues:
Cost of equipment sold 129,882 85,321
Amortization of software
development costs 251,608 207,042
Research and development expense 114,106 162,211
----------- -----------
495,596 454,574
----------- -----------
358,662 346,909
Selling, General and Administrative
Expenses:
Compensation and payroll taxes 1,078,447 1,013,227
Other selling, general and
administrative expenses 445,854 705,262
----------- -----------
1,524,301 1,718,489
----------- -----------
Operating loss (1,165,639) (1,371,580)
Other (Expenses) Income:
Gross profit on installment sale 84,235 -
Interest expense (393,669) (326,752)
Other, net (2,660) 102,166
----------- -----------
Total Other Expenses (312,094) (224,586)
----------- -----------
Net loss $(1,477,733) $(1,596,166)
=========== ===========
Basic Loss Per Common Share $ (.23) $ (.26)
=========== ===========
Diluted Loss Per Common Share $ (.23) $ (.26)
=========== ===========
Weighted Average Number of
Common Shares Outstanding 6,336,724 6,127,235
=========== ===========
See accompanying notes.
F-4
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIENCY
YEARS ENDED MARCH 31, 1998 AND 1997
TABLE A Note: This is Part 1 of Table A.
Numbers will add up across in Part 1 and Part 2 (Part 2 to follow).
Preferred Stock Common Stock
Shares Amount Shares Amount
Balance at
March 31, 1996 705,066 $705 6,087,161 $6,087
Issuance of Common
Stock pursuant to
exercise of stock
options - - 10,000 10
Conversion of
Preferred Stock to
Common Stock (33,334) (33) 33,334 33
Issuance of Common
Stock for services - - 10,000 10
Value of options
pursuant to
settlement
agreements - - - -
Net Loss - - - -
Balance at ------- ---- --------- -----
March 31, 1997 671,732 672 6,140,495 6,140
Conversion of
Preferred Stock to
Common Stock (217,333) (218) 217,333 218
Net Loss - - - -
--------- ---- ------- ---
Balance at
March 31, 1998 454,399 $454 6,357,828 $6,358
======= ==== ========= ======
TABLE A Note: This is Part 2 of Table A.
Numbers add up across in Part 1 and Part 2 (Part 1 on previous page).
Additional
Paid-In Accumulated Capital
Capital Deficit Deficiency
Balance at
March 31, 1996 $12,107,951 $(14,598,684) $(2,483,941)
Issuance of Common
Stock pursuant to
exercise of stock
options 90 - 100
Conversion of
Preferred Stock to
Common Stock - - -
Issuance of Common
Stock for services 2,490 - 2,500
Value of options
pursuant to
settlement
agreements 6,500 - 6,500
Net Loss - (1,596,166) (1,596,166)
___________ _____________ ___________
Balance at
March 31, 1997 12,117,031 (16,194,850) (4,071,007)
Conversion of
Preferred Stock to
Common Stock - - -
Net Loss - (1,477,733) (1,477,733)
----------- ----------- -----------
Balance at
March 31, 1998 $12,117,031 $(17,672,583) $(5,548,740)
=========== ============= ============
See accompanying notes.
F-5
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998 AND 1997
1998 1997
Cash Flows From Operating Activities:
Net loss $(1,477,733) $(1,596,166)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 34,893 57,668
Amortization 251,607 214,766
Disposal of fixed assets 41,702 4,742
Gain on settlement - (88,350)
Gain on sale of property - (10,612)
Changes in operating assets and liabilities:
Trade accounts receivable 13,650 (77,669)
Inventories (364) 4,230
Installment accounts receivable (70,000) -
Accounts payable 39,430 (27,560)
Accrued expenses 9,873 44,101
Due to shareholders/directors 329,083 395,675
Deferred income (19,880) 8,012
Deferred gross profit on installment sale 56,157 -
---------- -----------
Net cash used in operating
activities (791,582) (1,071,163)
Cash Flows From Investing Activities:
Purchases of property and equipment (39,260) (34,487)
Additions to software development costs (144,418) (232,271)
Net increase (decrease) in other assets 2,214 (19,827)
Proceeds on sale of property,net - 675,956
----------- -----------
Net cash (used in) provided by
investing activities (181,464) 389,371
Cash Flows from Financing Activities:
Proceeds from issuance of Common Stock - 100
Proceeds from loans from shareholders/directors 923,500 1,238,000
Principal payments on bank mortgages - (389,995)
Principal payments on notes payable to
related parties/shareholders - (125,813)
Principal payments on capital lease obligations (14,872) (11,715)
----------- -----------
Net cash provided by financing
activities 908,628 710,577
----------- -----------
(Decrease) increase in cash (64,418) 28,785
Cash at beginning of year 103,316 74,531
----------- -----------
Cash at end of year $ 38,898 $ 103,316
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 36,933 $ 80,259
=========== ===========
(Continued on following page.)
F-6
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONT'D)
YEARS ENDED MARCH 31, 1998 AND 1997
Supplemental Schedule of Non-Cash Investing and Financing
Activities
During fiscal 1998, the Company entered into capitalized lease
obligations amounting to $17,310.
During fiscal year 1998, the Company converted 217,333 shares
of preferred stock to 217,333 shares of Common Stock.
During fiscal 1997, accrued legal fees of $2,500 were
converted to Common Stock. During fiscal 1997 stock options valued
at $6,500 were granted as part of a settlement, where the Company
recognized a gain on the settlement in the amount of $88,350, which
is included in other income.
See accompanying notes.
F-7
<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
SK Technologies Corporation (the "Parent"), and its wholly
owned subsidiaries (collectively "the Company"), is engaged in
developing and marketing retail store management software for the
specialty retail industry. The Company's StoreKare product family
is a modular system of information technology products.
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 ("Subway") fast food restaurants (see
Note 2). During fiscal 1998 and 1997, Subway accounted for 5% and
17%, respectively, of the Company's revenues.
Principles of Consolidation
The consolidated financial statements include the accounts of
SK Technologies Corporation and its two wholly-owned subsidiaries,
SK Technologies Corp. and SK Credit Corporation. All significant
intercompany transactions and balances have been eliminated in
consolidation.
Revenues and Expense Recognition
In accordance with Statement of Position 97-2, "Software
Revenue Recognition" ("SOP 97-2"), the Company recognizes revenue
from software sales upon delivery, when the fees are fixed and
determinable and collectibility of the proceeds is probable. For
arrangements with multiple elements, revenues are allocated to the
various elements based on the separate prices as stated in the
contract. Revenue is recognized for each element when the above
requirements for revenue recognition exists. Equipment sales
revenue is recognized upon shipment.
Additionally, the Company performs various enhancements to
their basic software, which are retained by the Company, for which
they receive compensation from unrelated parties. Such revenues
and costs are recorded using the percentage of completion method.
Maintenance and support revenues are recognized ratably over
the term of the contract.
F-8
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less at the date of acquisition to be
cash equivalents. The concentration of credit risk associated with
cash and cash equivalents is considered low due to the credit
quality of the issuers of the financial instruments.
Trade Accounts Receivable
Trade accounts receivable are primarily from direct sales to
retail stores and store chains. The Company performs ongoing
evaluations of its significant customers and generally does not
require collateral. The Company maintains an allowance for
doubtful accounts at a level which management believes is
sufficient to cover potential credit losses.
Inventories
Inventories consist of component parts and support materials
used in the delivery of Company designed computer systems.
Inventories are stated at the lower of cost (first-in, first-out)
or market.
Property and Equipment
Property and equipment are recorded at cost and depreciated
using the straight-line method over their estimated useful lives.
Long-Lived Assets
Management periodically evaluates the Company's property and
equipment to determine if there has been any impairment other-than-
temporary in the carrying value of the assets. In March 1995, the
Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed of" ("Statement 121"), which requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to
be disposed of.
Software Development Costs
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for Costs of Computer Software to be
F-9
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
Sold, Leased or Otherwise Marketed," all direct software production
costs incurred to generate Production Masters after technological
feasibility has been established are capitalized and subsequently
amortized over the estimated product life cycles. Prior to
technological feasibility, software development costs are charged
to operations as incurred.
The amortization of capitalized computer software costs
commences when the Company's software development reaches a point
where its technology is economically feasible for effective market
distribution of the developed product.
Deferred Income and Revenue Recognition
Deferred income consists of $30,439 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.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
Advertising Costs
The Company expenses all advertising costs as incurred.
Earnings (Loss) Per Common Share
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per
Share. Statement 128 replaced the previously reported primary and
fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods presented were restated
to conform to the Statement 128 requirements. Basic and diluted
loss per Common Share is calculated by dividing net loss by the
weighted average Common Shares outstanding. The exercise of
options and warrants or conversion of convertible securities have
F-10
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
been excluded from the calculation of diluted loss per share since
the Company has a loss from continuing operations and the effect of
these potential shares on loss per Common Share is anti-dilutive.
Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," the adoption of which was required for
fiscal years beginning after December 15, 1995. The new standard
encourages companies to use the fair value method of accounting for
issuance of stock options and other equity instruments. Under the
fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. Pursuant to
SFAS No. 123, companies are also permitted to continue to account
for such transactions under Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," but are
required to disclose in a note to the financial statements pro
forma net income and per share amounts as if the Company had
applied the new method of accounting. Additionally, SFAS No. 123
requires increased disclosure for stock-based compensation
arrangements regardless of the method chosen to measure and
recognize compensation for employee stock-based arrangements.
The Company currently accounts for such transactions under APB
Opinion No. 25 and has elected not to change its method of
accounting for the issuance of stock options and other equity
instruments to the fair value method.
Income Taxes
Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to
reverse.
NOTE 2 - 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 $50,000 was received through March 31, 1998. Under the
agreement the Company will receive 14 additional monthly payments
of, the greater of $5,000 or 10% of gross sales of the Buyer of any
F-11
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
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 $84,235 during fiscal 1998, as reflected
on the Statement of Operations. At March 31, 1998 the Balance
Sheet reflects installment accounts receivable of $70,000 and
deferred gross profit of $56,157 from this sale.
NOTE 3 - PROPERTY AND EQUIPMENT
At March 31, 1998, property and equipment consists of the
following:
Useful
Life (years)
Furniture and equipment $242,098 5-10
Leasehold improvements 3,668 5
----------
245,766
Less accumulated depreciation
and amortization (163,635)
----------
$ 82,131
==========
During fiscal 1998, the Company entered into capitalized lease
obligations amounting to $17,310. Included in furniture and
equipment at March 31, 1998 is $47,007 under capital leases, net of
accumulated amortization of $16,625.
During fiscal 1998 and 1997 the Company examined the schedule
of furniture and equipment as compared to the assets still used by
the Company and determined that a total of $7,375 and 4,742, which
are net of accumulated depreciation, are no longer in use by the
Company and accordingly losses of $7,375 and $4,742 on disposal of
fixed assets are included in other expenses for fiscal 1998 and
1997, respectively.
The Company leases 7,029 square feet of office space from an
unrelated entity for $9,075 per month through January 1999,
pursuant to a lease which expires January 31, 2002. This amount
includes rent of $5,512 per month which will increase 4.5% annually
for the next three years and additional rent of approximately $5
per square foot for the Company's allocated share of expenses for
1998. The expense allocation will be adjusted annually. Rental
expenses were $110,847 and $35,140 in fiscal 1998 and 1997,
respectively.
F-12
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
Future minimum lease payments under noncancellable operating
leases at March 31, 1998 are as follows:
Fiscal Year Minimum Payment
1999 $ 101,288
2000 $ 104,240
2001 $ 107,333
2002 $ 110,566
---------
$ 423,427
=========
NOTE 4 - SOFTWARE DEVELOPMENT COSTS
The Company released versions 3.3 and 3.3.10 of its retail
product, during the second and fourth quarters of fiscal 1998,
respectively, and expects to release a new version of its retail
product during the second quarter of fiscal 1999.
The Company capitalized approximately $160,000 and $232,000 of
software development costs during fiscal 1998 and 1997,
respectively.
Amortization of software development costs was approximately
$252,000 and $207,000 during fiscal 1998 and 1997, respectively.
NOTE 5 - NOTES PAYABLE TO SHAREHOLDER
At March 31, 1998 notes payable to shareholder consists of a
note payable to a shareholder in the amount of $400,000.
In November 1992 this shareholder advanced the Company
$500,000. In January 1997, the Company made a principal payment of
$100,000 on this loan. The agreement, as amended, between the
Company and the shareholder requires the Company to begin repayment
of this loan in November 1999 with monthly payments of principal
and interest over a four year period. The Company collateralized
this loan with the office furniture and equipment which the Company
owns (excluding leased equipment) which has a book value at March
31, 1998 of approximately $35,000.
At the lender's discretion, the interest may be paid in cash
or 50% in cash and 50% in Common Stock at a conversion rate of
$2.50 per share. This loan bears interest at 10% per annum which
is paid monthly. During fiscal 1998 and 1997 interest expense of
$40,000 and 49,041, respectively, was incurred on this note. None
of the interest was converted to stock.
F-13
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 6 - CAPITALIZED LEASE OBLIGATIONS
Furniture and equipment are leased under capital lease
agreements expiring through fiscal 2000 and are included in
furniture and equipment. Future minimum commitments by year under
noncancellable capital leases at March 31, 1998 are as follows:
Year Ended
March 31 Amount
1999 $ 30,291
2000 6,614
------
Total minimum lease payments 36,905
Less: Amount representing
interest (12%) and deferred
maintenance charges (10,674)
------
Present value of net minimum
lease payments 26,231
Less: current portion (22,296)
------
Long-term portion of capital
lease obligations $ 3,935
======
NOTE 7 - CAPITAL DEFICIENCY
At March 31, 1998 there were 490,070 private warrants
outstanding, which were issued pursuant to a private offering in
1993. Such warrants are convertible into 490,070 shares of Common
Stock at a conversion price of $1.00 per share and were extended to
expire in March 2000.
Common Stock
The number of shares of Common Stock reserved for future
issuance at March 31, 1998 and 1997 is summarized as follows:
1998 1997
Common Stock Purchase Warrants 490,070 490,070
Stock Options 1,643,669 1,803,669
Convertible Preferred Stock 454,399 671,732
--------- ---------
2,588,138 2,965,471
========= =========
F-14
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 8 - RELATED PARTY TRANSACTIONS
Pursuant to a May 1993 agreement between the Company and
Fundamental Management Corp. ("Fundamental"), a fee of $25,000 was
approved to be paid in installments to Fundamental based on
the amount of proceeds received from the 1993 Preferred
Stock offering. The first installment of $8,333 was paid in
May 1993 and $16,667 is included in accounts payable due to
shareholders/officers/directors, at March 31, 1998.
Two shareholder/directors of the Company and their related
entities have provided short term loans to the Company totalling
$3,941,500, of which $3,018,000 was received from March 1995
through March 31, 1997, and $923,500 was received during fiscal
1998. These loans accrue interest at 10% per annum, $689,058
through March 31, 1998 and are due on demand. During the period
April 1, through May 13, 1998 additional short term loans of
$134,000 were provided to the Company. In December 1996, the
Company collateralized these loans with the StoreKare software and
documentation.
Pursuant to a May 1993 Consulting agreement between the
Company and Capital Hill Group Inc. ("CHG"), the Company incurred
consulting fees to CHG of $5,550 per month, for a total of $236,500
through December 1996 when the agreement terminated. Of this
amount $225,500 has been accrued to date of which $49,500 was
accrued during fiscal 1997 and is included in other selling,
general and administrative expenses in the Statement of Operations
for the year ended March 31, 1997.
As additional compensation, in May 1993 the Company granted
CHG a five year option for 89,869 shares of common stock at an
exercise price of $.10 per share. Such option expires May 1998.
In connection with the Finder's agreement between the Company
and CHG the Company accrued finders fees of $493,000 through
December 1996 of which $100,500 was accrued during fiscal 1997 and
is included in other selling, general and administrative expenses
in the Statement of Operations for the year ended March 31, 1997.
NOTE 9 - INCOME TAXES
At March 31, 1998 the Company has net operating loss
carryforwards of approximately $16 million that can be used to
offset future taxable income, that expire in the years 2005 through
2013. In fiscal 1995, the Company had ownership changes as defined
under Internal Revenue Code Section 382 (Section 382). As such,
F-15
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
the availability to utilize the net operating losses that existed
as of this ownership change is limited.
Significant components of the Company's deferred tax assets as
of March 31, 1998 are as follows:
Software development costs $ 336,283
Deferred compensation 51,575
Net operating losses 5,509,464
Research and development costs 305,000
Accrued expenses 552,739
-----------
6,755,061
Valuation allowance (6,755,061)
-----------
$ -
===========
The net change in the valuation allowance during 1998 was
$223,061.
The reconciliation of income tax attributable to continuing
operations computed at the U.S. federal statutory tax rate of 34%
to loss before income taxes for the years ended March 31, 1998 and
1997 is as follows:
1998 1997
Tax at U.S. statutory rates $(264,270) $ (543,000)
Unrecognized benefit of net
operating losses 264,270 543,000
--------- -----------
$ - $ -
========= ===========
NOTE 10 - STOCK OPTIONS
1990 Company Stock Option Plan
On April 3, 1990, the Company adopted a Stock Option Plan (the
"1990 Option Plan") for its directors and employees, which provides
for the grant of options to purchase an aggregate 50,000 shares of
the Company's Common Stock. Of this amount, 45,000 shares may be
granted as incentive stock options.
The 1990 Option Plan is intended to qualify as an "Incentive
Stock Option Plan" under Section 422A of the Internal Revenue Code.
Under the 1990 Option Plan, incentive stock options may be granted
F-16
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
at not less than 100 percent of the fair market value of the
Company's Common Stock as determined by the Board of Directors on
the date of grant (110% of fair market value for 10% or greater
shareholders) and options granted to any one participant may not
exceed $100,000 in option price per year, plus certain carryovers
from prior years. Options must be granted within ten (10) years
from the adoption of the 1990 Option Plan. Each option granted
under the 1990 Option Plan must be exercised within ten (10) years
from the date of grant.
During both fiscal 1998 and 1997 there were 1,600 options
outstanding pursuant to the 1990 Option Plan. As of March 31, 1998
and 1997, 1,600 of the options through the 1990 Option Plan were
exercisable at an exercise price of $30.00 per share.
1995 Company Stock Option Plan
In November 1995, the Company adopted the 1995 Option Plan,
reserving 1,400,000 shares of Common Stock which may be purchased
pursuant to the exercise of options granted under this plan.
The 1995 Option Plan is also intended to qualify as an
"Incentive Stock Option Plan" under Section 422A of the Internal
Revenue Code. Under the Option Plan, incentive stock options may
be granted at not less than 100 percent of the fair market value of
the Company's Common Stock as determined by the Board of Directors
on the date of grant (110% of fair market value for 10% or greater
shareholders) and options granted to any one participant may not
exceed $100,000 in option price per year, plus certain carryovers
from prior years. Options must be granted within ten (10) years
from the adoption of the Option Plan. Each option granted under
the Option Plan must be exercised within five (5) years from the
date of grant. The Options issued pursuant to the 1995 Option Plan
may be Incentive Stock Options ("ISOs"), options which are not ISOs
("NSOs"), or "reload options", (as defined). On October 31, 1996
the 1995 Option Plan was approved by a majority of the shareholders
of the Company. In July 1997, the Company filed a registration
statement on Form S-8, with the Securities and Exchange Commission,
to register 1,400,000 shares of Common Stock which may be purchased
pursuant to the exercise of options under the 1995 Option Plan. As
of March 31, 1998, 881,250 options granted pursuant to this plan
are ISOs and 125,000 options granted pursuant to this plan are
NSOs.
In August 1996 options for 714,450 shares of Common Stock at
an exercise price of $.50 per share, were cancelled and replaced
with options for 714,450 shares of Common Stock at an exercise
price of $.32 per share.
F-17
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
During fiscal 1998 and 1997 options for 36,000 and 63,300
shares of Common Stock were granted to employees and options for
25,000 and 210,000 shares of Common Stock were granted to officers
and directors of the Company. Such options are exercisable at $.32
and expire through December 2002, five years from the date of
grant. As of March 31, 1998, there are options for 987,750 shares
of Common Stock outstanding of which 841,388 are exercisable.
Other Stock Options
As of March 31, 1998 and 1997, other stock options of 193,669
and 353,669, respectively, were outstanding. Such options expire
through 2002. As of March 31, 1998 and 1997, 193,669 and 353,669
respectively, of the other stock options are fully vested.
Stock Based Compensation
As required by Statement No. 123, pro forma information
regarding net loss and loss per share has been determined as if the
Company had accounted for its employee stock options under the fair
value method of that statement. The fair value for these options
was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for
1998; risk-free rate of return of 6.00%; dividend yield of 0.000%;
volatility factor of the expected market price of the Company's
common stock of 1.228 and a weighted-average expected life of the
options of two to seven years.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the
Company's stock options have characteristics significantly
different from traded options, and because changes in the
subjective input assumptions can materially affect the fair value
estimate, the existing models, in management's opinion, do not
necessarily provide a reliable single measure of the fair value of
its stock options.
F-18
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
Information regarding stock options for the years ended March 31,
1998 and March 31, 1997 is summarized as follows:
Weighted Average
Number of Exercise Price
Shares Per Share
Outstanding at March 31, 1996 1,358,495 $1.48
Exercised (10,000) $ .00
Expired (125,276) $ .77
Forfeited - -
Cancelled (892,950) $ .33
Granted 1,012,750 $ .24
----------
Outstanding at March 31, 1997 1,343,019 $ .63
Exercised - -
Expired (160,000) $ .26
Forfeited - -
Cancelled (42,500) $ .01
Granted 61,000 $ .32
----------
Outstanding at March 31, 1998 1,201,519 $ .45
==========
Exercisable at March 31, 1998 1,036,657 $ .41
==========
Reserved for future option
grants at March 31, 1998 442,150
==========
For the purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options'
vesting period. The Company's 1998 and 1997 pro forma information
follows:
1998 1997
Net Loss $(1,509,867) $(1,716,219)
============ ============
Loss per common share $ (.24) $ (.28)
============ ============
The 1998 and 1997 pro forma effect on net loss is not
necessarily representative of the effect in the future years
because it does not take into consideration pro forma
compensation expense related to grants made prior to 1995.
F-19
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
The exercise price of options outstanding at March 31, 1998
ranged between $.10 and $30.00.
NOTE 11 - 401(K) PROFIT SHARING PLAN
The Company adopted a 401(K) Profit Sharing Plan (the "401(K)
Plan") effective January 1, 1995. All employees are eligible to
participate in the 401(K) Plan once they have satisfied the
eligibility requirements which are as follows: employees must be
21 years of age and have completed 3 months of service with the
Company. The 401(K) Plan is currently funded by employee
contributions only. Employees may elect to contribute up to, the
lesser of, 15% of their salary or $10,000 for 1998, as adjusted to
reflect annual federal cost of living increases, or such lesser
amount as determined by discrimination tests for the plan.
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company
in estimating its fair value disclosure for financial instruments:
Cash and Cash Equivalents: The carrying amounts reported in
the consolidated balance sheets for cash and cash equivalents
and restricted cash approximate their fair values.
Borrowings/Bank Mortgages: The fair value for borrowings/bank
mortgages is generally estimated using discounted cash flow
analyses, based on the Company's current incremental borrowing
rates for similar types of borrowing arrangements.
The carrying amounts and fair values of the Company's
significant financial instruments at March 31, 1998 are as follows:
Carrying
Amount Fair Value
Cash and cash $ 38,898 $ 38,898
equivalents
Loans payable to shareholders/ 4,341,500 (See below)
directors/related parties
It is impracticable to estimate the fair value of the loans
payable to shareholders/directors/related parties due to the
unavailability of information on comparable instruments.
F-20
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 13 - LIQUIDITY
Through March 31, 1998, the Company has incurred significant
operating losses and has a working capital deficiency. Since March
1995 through May 13, 1998 two majority shareholders/directors of
the Company and their related entities have provided funding to the
Company in the form of loans totalling $4,075,500 of which $923,500
was received during fiscal 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. Based on these conditions,
doubt exists about the ability of the Company to continue as a
going concern. The financial statements for the year ended March
31, 1998 do not include adjustments relating to the recoverability
and classification of the recorded carrying value of assets or the
amounts or classifications of liabilities that might be necessary
should the Company be unable to continue as a going concern.
F-21
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The following persons are the directors and executive officers
of the Company as of March 31, 1998. All directors are elected by
the shareholders to serve until the next meeting of shareholders or
until their successors are duly elected and qualified. Officers
are elected by the Board of Directors to serve at the pleasure of
the Board.
Name Age Position
Calvin S. Shoemaker 57 President/Chief Executive
Officer/Director
Melvin T. Goldberger 78 Treasurer/Director
Roger N. Oesterling 55 Executive Vice President
Douglas A. Beard 66 Executive Vice President
Susan L. Fedderman 45 Executive Vice President/
Secretary
Gary S. Spirer 53 Director
David H. Peipers 41 Director
C. Shelton James 58 Director
Michael P. Siewruk 41 Director
Calvin S. Shoemaker. Mr. Shoemaker has been an officer and
director of the Company since May 1993. Mr. Shoemaker was a
founder and President of Flashpoint Computer Corp. from 1986
through 1993. Mr. Shoemaker was with Northridge Corp. from 1984
through 1986; Vice President of Sales and Marketing of Timeplex
from 1983 through 1984 and Vice President of Sales and Marketing
for Gould Inc/SEL Computer Systems from 1971 through 1983. Mr.
Shoemaker earned a Bachelor of Science degree from Randolph Macon
College.
Melvin T. Goldberger. Mr. Goldberger has been an officer of
the Company since July 1993 and a director since January 1994. Mr.
Goldberger has been President of Seventh Investment Bancing Corp.
since 1972 to date and is also the President of MTG Development
Inc. From 1968 through 1971 he was Chairman of the Board of Vector
Company. Mr. Goldberger serves as a member of the Board of
Directors of Mae Volen Senior Citizen Center. He is also a member
of the Board of Governors of the Florida Philharmonic Orchestra.
Mr. Goldberger earned a Bachelor of Science degree from Ohio State
University.
Roger N. Oesterling. Mr. Oesterling has been an officer of
the Company since May 1993. Mr. Oesterling was Senior Engineering
Director of Racal Milgo Inc. from 1989 through 1991 and Senior
Director of Network Management from 1985 through 1989. He was a
business manager of Timeplex Inc. from 1984 through 1985 and held
various positions as director and manager of Gould Inc./SEL
Computer Systems from 1973 through 1984. Mr. Oesterling earned a
Bachelor of Science degree from Grove City College.
Douglas A. Beard. Mr. Beard has been an officer of the
Company since November 1993. From 1990 through 1991 Mr. Beard was
a Director of Atlantix Corporation. Mr. Beard was a Senior
Director of Gould Inc./SEL Computer Systems from 1985 through 1990
and held various positions including Director of World-Wide Support
Services, Director of Systems Engineering and Director of Sales
Support from 1972 through 1981. He was a Director of World-Wide
Customer Service for Modcomp from 1981 through 1985. Mr. Beard
attended Plymouth and Devonport College of Technology in the United
Kingdom and earned a Bachelor of Science degree.
Susan L. Fedderman Ms. Fedderman has been an officer of the
Company since December 1993. She has worked with the Company in
various financial positions since August 1988. From 1979 until
joining the Company Ms. Fedderman worked in public accounting. Ms.
Fedderman earned an M.B.A. from Baruch College in New York and is
a certified public accountant, licensed in Florida and New York.
Gary S. Spirer. Mr. Spirer was elected as a director of the
Company on May 13, 1993. Prior to that date, he served as a member
of the Company's Advisory Board. Mr. Spirer is President of
Capital Hill Group, Inc. since 1981 which provides consulting
services to the Company. He is also a director of Buckeye
Communications Inc. Mr. Spirer holds a B.A. from New York
University where he graduated Magna Cum Laude and Phi Beta Kappa,
and he holds an M.B.A. from Columbia University. Mr. Spirer is the
sole shareholder of Capital Hill Investment Corporation, a real
estate investment company.
David H. Peipers. Mr. Peipers was elected as a director of
the Company on May 13, 1993. Among other activities, Mr. Peipers
is President of Peipers & Co. Inc., an investment firm dealing with
securities and venture capital, since 1982. He also has been a
general partner of the Winsome Limited Partnership, which makes
long term investments in the securities of both public and private
companies, since 1989. He is a founder and Chairman of Segrets,
Inc., a Beverly, Massachusetts-based women's sportswear
manufacturer, and Bedminster Bioconversion Corporation, an
environmental company based in Cherry Hill, New Jersey. Mr. Peipers
holds an A.B. from Harvard University (1978) and a J.D. from
Harvard Law School (1981).
C. Shelton James. Mr. James was elected as a director of the
Company on May 13, 1993. Prior to that date he served as a member
of the Company's Advisory Board. Mr. James is President of
Fundamental Management Corp. and Chairman and Chief Executive
Officer of Elcotel Inc. since May 1991. He was President of the
Computer Systems Division of Gould, Inc. from 1980 through 1989 and
Executive Vice President of Gould's Information System Business
Section from 1985 through 1989. He provides consulting services to
the Company pursuant to a May 1993 agreement. Mr. James has been a
director of NAI Inc. since 1990, Harris Computer Systems Inc. since
September 1994, CSPI since December 1994 and Group Long Distance
Inc. since October 1995. He earned a Bachelors of Business
Administration degree from Clarkson University and a Masters of
Business Administration from New York University.
Michael P. Siewruk Mr. Siewruk was elected as a director of
the Company in December 1997. Mr. Siewruk is President and CEO of
NetVital and previously was a subsidiary President with Quarterdeck
Corporation, a leading utility/internet/remote computing software
publisher. In 1989 Mr. Siewruk Co-founded Landmark Research an
international technology development and marketing company. Mr.
Siewruk earned a Bachelor of Science degree from Oakland
University, Rochester, Michigan.
Compliance with Section 16(A) of the Securities Exchange Act of
1934
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's directors and executive officers, and persons who own
more than ten percent of the Company's outstanding Common Stock, to
file with the Securities and Exchange Commission ("SEC") initial
reports of ownership and reports of changes in ownership of Common
Stock. Such persons are required by SEC regulation to furnish the
Company with copies of all such reports they file.
To the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written
representation that no other reports were required, all Section
16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners have been complied with.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION:
Annual Compensation
Other
Other Annual
Name and Fiscal Salary Bonus Compensa-
Position Year ($) ($) tion ($)
Calvin Shoemaker 1996 75,000 13,846 0
President/Chief 1997 75,000 13,047 0
Executive Officer 1998 75,000 13,245 0
All executive
officers as a 1996 263,334 38,496 0
group (four 1997 209,626 36,242 0
persons) 1998 262,500 39,734 0
Awards Payouts
Restricted All
Stock Options/ LTIP Other
Name and Awards SARs Payouts Compensa-
Position (# Shares)(1) (#) ($) tion ($)
Calvin Shoemaker 400,000 0 0 0
President/Chief 400,000 0 0 0
Executive Officer 0 0 0 0
All executive 785,000 0 0 0
officers as a 730,000 0 0 0
group (four (730,000) 760,000 0 0
persons)
(1) The number of shares granted as restricted stock awards
to executive officers in fiscal 1996 have been adjusted
since options for 400,000 shares for Calvin Shoemaker
and for 635,000 shares for all executive officers were
cancelled and replaced with new options in fiscal 1997.
The new options are included in the fiscal 1997
restricted stock awards.
In July 1997, the Company filed a registration statement
on Form S-8, with the Securities and Exchange
Commission, to register 1,400,000 shares of Common Stock
which may be purchased pursuant to the exercise of
options under the 1995 Option Plan. Accordingly
restricted stock awards were reclassified as options in
fiscal 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT:
The following table sets forth, as of June 22, 1998, certain
information regarding the amount and percentage of Common and
Preferred Stock beneficially owned by each person known by the
Company to own more than five percent of its outstanding Common and
Preferred Stock, each director of the Company and all officers and
directors as a group.
Amount of
Name and Address Beneficial Percentage
Beneficial Owner of Ownership of of Voting
Identity of Group Common Stock(1) Securities(1)
Calvin S. Shoemaker(4) 80,091 0.012%
500 Fairway Drive, Suite 104
Deerfield Beach, FL 33441
Gary S. Spirer(1)(5) 106,300 0.016%
150 E. 58th Street
New York, NY 10155
Capital Hill Group(5) 3,945 0.001%
Gary Spirer, President
150 E. 58th Street
New York, NY 10155
David H. Peipers(1)(3) 315,811 0.046%
888 Seventh Avenue
New York, NY 10106
Cornerhouse Ltd. Ptshp.(3) 837,294 0.123%
David Peipers, G.P.
888 Seventh Avenue
New York, NY 10106
Winsome Ltd. Ptshp(3) 603,909 0.089%
David Peipers, G.P.
888 Seventh Avenue
New York, NY 10106
Segrets, Inc.(3) 1,312,421 0.193%
David Peipers, Chairman
66 Cherry Hill Drive
Beverly, MA 01915
C. Shelton James(1)(6) 19,973 0.003%
4000 Hollywood Blvd.
Hollywood, FL 33021
Fundamental Management Corp.(6) 93 0.000%
C.S. James, President
4000 Hollywood Blvd.
Hollywood, FL 33021
Fundamental Active
Investors Ltd II(6) 1,190,014 0.175%
Fundamental Mgmt Corp., G.P.
4000 Hollywood Blvd.
Hollywood, FL 33021
Melvin Goldberger(1)(2) 20,333 0.003%
1761 W. Hillsboro Blvd.
Deerfield Beach, FL 33442
Seventh Investment
Bancing Corp.(2) 69,569 0.01%
Melvin Goldberger, President
1761 W. Hillsboro Blvd.
Deerfield Beach, FL 33442
All Directors and
Executive Officers as
a Group (9 persons) (7) 4,626,263 0.679%
____________________________
(1) Stock options were granted to five directors of the Company in
August 1996 and December 1997. Each director received an
option for 25,000 shares of Common Stock at an exercise price
of $.32 per share.
(2) Includes 78,869 shares of Common Stock and 11,033 shares of
Preferred Stock (held by Melvin Goldberger, trustee for the
Grace Goldberger Trust).
(3) Includes 2,886,101 shares of Common Stock and 183,334 shares
of Preferred Stock.
(4) Includes 63,424 shares of Common Stock and 16,667 shares of
Preferred Stock.
(5) Pursuant to a May 1993 agreement between the Company and
Capital Hill Group ("CHG") an option for 89,869 shares of
Common Stock was granted to CHG. Such option expired May 13,
1998.
(6) Pursuant to the Company's 1993 agreement with Fundamental
Management Corp. ("FMC") and its president, a stock option for
28,801 shares of Common Stock was granted 50% to FMC and 50%
to its president. Such options expired May 13, 1998.
(7) As part of the units sold in a September 1993 offering,
warrants for 447,138 shares of Common Stock at an exercise
price of $1.00 per share are held by certain of these
executive officers and directors.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Pursuant to a May 1993 agreement between the Company and
Fundamental Management Corp. ("Fundamental"), a fee of $25,000 was
approved to be paid in installments to Fundamental based on
the amount of proceeds received from the 1993 Preferred
Stock offering. The first installment of $8,333 was paid in
May 1993 and $16,667 is included in accounts payable due to
shareholders/officers/directors, at March 31, 1998.
Two shareholder/directors of the Company and their related
entities have provided short term loans to the Company totalling
$3,941,500, of which $3,018,000 was received from March 1995
through March 31, 1997, and $923,500 was received during fiscal
1998. These loans accrue interest at 10% per annum, $689,058
through March 31, 1998 and are due on demand. During the period
April 1, through May 13, 1998 additional short term loans of
$134,000 were provided to the Company. In December 1996, the
Company collateralized these loans with the StoreKare software and
documentation.
Pursuant to a May 1993 Consulting agreement between the
Company and Capital Hill Group Inc. ("CHG"), the Company incurred
consulting fees to CHG of $5,550 per month, for a total of $236,500
through December 1996 when the agreement terminated. Of this
amount $225,500 as been accrued to date of which $49,500 was
accrued during fiscal 1997 and is included in other selling,
general and administrative expenses in the Statement of Operations
for the year ended March 31, 1997.
As additional compensation, in May 1993 the Company granted
CHG a five year option for 89,869 shares of common stock at an
exercise price of $.10 per share. Such option expired in May 1998.
In connection with an agreement between the Company and CHG
the Company accrued finders fees of $493,000 through December 1996
of which $100,500 was accrued during fiscal 1997 and is included in
other selling, general and administrative expenses in the Statement
of Operations for the year ended March 31, 1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K:
The following documents are filed as part of this report:
(a) Exhibits
Exhibit # Description of Exhibit
3.1 Certificate of Incorporation, as amended, through
September 19, 1992, is incorporated herein by
reference to the Registration Statement on Form
S-18, File No. 33-27977-A, as declared effective
on July 10, 1989, as amended by Post-Effective
Amendment No. 1 declared effective on September
12, 1990, as amended by Post-Effective Amendment
No. 2 declared effective on November 15, 1991
(collectively, the "Registration Statement"), the
Annual Report on Form 10-K for the fiscal year
ended March 31, 1990, File No. 0-18184 filed June
29, 1990 2("1990 10-K"), and the Annual Report on
Form 10-K for the fiscal year ended March 31,
1991, File No. 0-18184 filed July 13, 1991 ("1991
10-K").
3.2 Amended Certificate of Designation of Preferences
Right and Limitations dated November 1, 1991 is
incorporated herein by reference to the
Registration Statement on Form S-1, as amended,
File No. 33-44402, declared effective by the
Commission on May 15, 1992 ("Form S-1").
3.3 The Bylaws are incorporated herein by reference
to the Registration Statement.
3.4 Certificate of Amendment of the Certificate of
Incorporation dated November 4, 1996 is
incorporated herein by reference to schedule 14C
filed on November 5, 1996.
4.1 Warrant Agreement between the Registrant and
Interwest Transfer Company is incorporated herein
by reference to the 1990 10-K.
4.2 Certificates of Designations, Preferences Rights
and Limitations - Series B Convertible Redeemable
Preferred Stock dated February 17, 1993 and
amended April 14, 1993 is incorporated herein by
reference to the 1993 10-KSB.
4.3 Amended Certificate of Designation of Preferences
Right and Limitations Series B Convertible
Redeemable Preferred Stock dated March 23, 1993
is incorporated by reference to the 1993 10-KSB.
10.1 May 13, 1993 Financial Consulting Agreement
between the Registrant and Capital Hill Group,
Inc. ("Financial Consulting Agreement") is incor-
porated herein by reference to the 1991 10-K.
10.2 Amendment to Financial Consulting Agreement dated
May 13, 1993 is incorporated herein by reference
to the 1993 10-KSB.
10.3 Option for Capital Hill Group, Inc. to Purchase
Common Stock is incorporated by reference to the
1991 10-K.
10.4 Finder's Agreement between the Registrant and
Capital Hill Group, Inc. ("Finder's Agreement")
is incorporated by reference to the 1991 10-K.
10.5 Amendment to Finder's Agreement, dated May 13,
1993 is incorporated by reference to the 1993 10-
KSB.
10.8 Agreement dated September 16, 1994 between
Fujitsu-ICL Systems, Inc. and the Registrant
(confidential treatment has been granted for por-
tions of this exhibit) is incorporated by
reference to the 1995 10-KSB.
10.9 Solution Provider agreement between NCR Corpor-
ation and the Registrant dated February 7, 1994
is incorporated herein by reference to the 1994
10-KSB.
10.10 Common Stock Purchase Warrant between the Company
and Gary S. Spirer, dated May 13, 1993 is
incorporated herein by reference to the 1993 10-
KSB.
10.11 Consulting Agreement between the Company and C.
Shelton James and Fundamental Management
Corporation, dated May 13, 1993 is incorporated
herein by reference to the 1993 10-KSB.
10.12 Promissory Note dated November 7, 1992, as a-
mended March 9, 1993 and April 7, 1993, with
Baron Coleman as Holder and the Company as Maker
is incorporated herein by reference to the 1993
10-KSB.
10.14 Letter of Understanding between the Company and
Omron Systems of America dated April 29, 1992 is
incorporated herein by reference to the 1993 10-
KSB.
10.16 1995 Company Stock Option Plan is incorporated
herein by reference to the 1996 10-KSB.
21. Subsidiaries of the Registrant is incorporated by
reference to the 1991 10-K.
22. Information Statement sent on October 9, 1996, to
notify shareholders of the Company's intention to
file a certificate of Amendment to its Cer-
tificate of Incorporation, decreasing the amount
of authorized shares of Common Stock and
Preferred Stock, is herein incorporated by refer-
ence to Schedule 14C filed on November 5, 1996.
23. Consent of Ernst & Young LLP.
27. Financial Data Schedule for the Year Ended March
31, 1998
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the three months ended March 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, SK Technologies Corporation has
duly caused this report to be signed on its behalf by the under-
signed, thereunto duly authorized.
SK TECHNOLOGIES CORPORATION,
a Delaware corporation
Date: June 29, 1998 By: /s/ Calvin S. Shoemaker
Calvin S. Shoemaker, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Calvin S. Shoemaker President/Chief June 29, 1998
Calvin S. Shoemaker Executive Officer/
Director
/s/ Melvin T. Goldberger Treasurer/Director/ June 29, 1998
Melvin T. Goldberger Principal Accounting
Officer
/s/ C. Shelton James Director June 29, 1998
C. Shelton James
/s/ David H. Peipers Director June 29, 1998
David H. Peipers
/s/ Michael Siewruk Director June 29, 1998
Michael Siewruk
Gary Spirer Director
Exhibit 23
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-50042 and No. 333-30541) pertaining to
the Amended and Restated 1990 Stock Option Plan and the Amended and
Restated 1995 Stock Option Plan of SK Technologies Corporation of
our report dated May 15, 1998, with respect to the consolidated
financial statements of SK Technologies Corporation included in
this Annual Report (Form 10-KSB) for the year ended March 31, 1998.
West Palm Beach, Florida
June 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from form 10 KSB
for the year ended March 31, 1998 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 38,898
<SECURITIES> 0
<RECEIVABLES> 176,867
<ALLOWANCES> 37,031
<INVENTORY> 19,951
<CURRENT-ASSETS> 198,685
<PP&E> 245,766
<DEPRECIATION> 163,635
<TOTAL-ASSETS> 689,242
<CURRENT-LIABILITIES> 5,777,890
<BONDS> 400,000
454
0
<COMMON> 6,358
<OTHER-SE> (5,555,552)
<TOTAL-LIABILITY-AND-EQUITY> 689,242
<SALES> 854,258
<TOTAL-REVENUES> 854,258
<CGS> 129,882
<TOTAL-COSTS> 495,596
<OTHER-EXPENSES> 1,917,970
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,477,733)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,477,733)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,477,733)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
