FORM 10-QSB - QUARTERLY REPORT
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] 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
(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
(Address of principal executive offices)
(954) 418-0101
(Issuer's telephone number, including area code)
Not applicable
(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 = 16,259,494 shares as of
October 29, 1999.
<PAGE>
SK TECHNOLOGIES CORPORATION
INDEX
FORM 10-QSB
SIX MONTHS ENDED SEPTEMBER 30, 1999
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements. . . . . . . . . . . 1
Consolidated Condensed Balance Sheet. . . 2-3
Consolidated Condensed Statements of
Operations. . . . . . . . . . . . . . . 4-5
Consolidated Condensed Statements of
Cash Flows . . . . . . . . . . . . . . 6
Notes to the Consolidated Condensed
Financial Statements. . . . . . . . . . 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . . 9-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . 12
Item 2. Changes in Securities . . . . . . . . . . 12
Item 3. Defaults Upon Senior Securities . . . . . 12
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . 12
Item 5. Other Information . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K. . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The interim financial information included herein
is unaudited. Certain information and footnote
disclosures normally included in the financial
statements have been condensed or omitted pursuant
to the rules and regulations of the Securities and
Exchange Commission, although the Company believes
that the disclosures made are adequate to make the
information presented not misleading. These
financial statements should be read in conjunction
with the financial statements and related notes
contained in the Company's 1999 Annual Report on
Form 10-KSB. Other than indicated herein, there
have been no significant changes from the financial
data published in said report. In the opinion of
management, such unaudited information reflects all
adjustments, consisting only of normal recurring
accruals and other adjustments as disclosed herein,
necessary for a fair presentation of the unaudited
information below.
Results for interim periods are not necessarily
indicative of results expected for the full year
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<TABLE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
September 30, 1999
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash $ 85,620
Trade accounts receivable, net of
allowance for doubtful accounts
of $35,723 26,382
Inventories 25,479
Other current assets 1,803
---------
Total Current Assets 139,284
Property and Equipment, Net 68,078
Other Assets:
Software development costs,
net of accumulated amortization
of $828,506 332,966
Other, net 20,400
---------
Total Other Assets 353,366
---------
$ 560,728
=========
(Continued on following page)
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</TABLE>
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<TABLE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (CONT'D)
September 30, 1999
<CAPTION>
LIABILITIES AND CAPITAL DEFICIENCY
<S> <C>
Current Liabilities:
Accounts payable $ 26,026
Accrued expenses 90,810
Due to shareholders/officers/directors 793,450
Current portion of notes payable to
shareholder 12,000
Current portion of capital lease
obligations 9,563
Deferred income 28,730
---------
Total Current Liabilities 960,579
Notes payable to shareholder 382,000
Capital lease obligations, less current portion 13,045
Capital Deficiency:
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
3,000 shares designated as Series D
Preferred Stock, 793 shares issued
and outstanding 1
Common stock, $.001 par value,
25,000,000 shares authorized,
16,259,494 shares issued and
outstanding 16,259
Additional paid-in capital 13,045,063
Accumulated deficit (13,856,673)
------------
Capital Deficiency (794,896)
------------
$ 560,728
============
See accompanying notes.
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</TABLE>
<PAGE>
<TABLE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Equipment, software sales and
support $ 184,702 $ 233,378 $ 427,383 $ 398,933
Cost of Revenues:
Cost of equipment sold 15,842 36,246 35,620 61,769
Amortization of software development
costs 22,662 54,953 69,382 113,219
Research and development expenses 7,738 26,471 14,587 61,215
----------- ----------- ----------- -----------
46,242 117,670 119,589 236,203
----------- ----------- ----------- -----------
Gross Profit 138,460 115,708 307,794 162,730
Selling, General and Administrative
Expenses:
Compensation and payroll taxes 220,368 239,087 454,834 489,414
Other selling, general and
administrative expenses 86,491 112,656 180,648 213,313
----------- ----------- ----------- -----------
306,859 351,743 635,482 702,727
----------- ----------- ----------- -----------
Operating Loss (168,399) (236,035) (327,688) (539,997)
Other (Expenses) Income:
Gross profit on installment sale 4,011 4,011 16,045 20,056
Interest expense (10,402) (121,541) (129,179) (235,607)
Other, net (1,918) 52 (658) 534
----------- ----------- ----------- -----------
Total Other Expenses (8,309) (117,478) (113,792) (215,017)
----------- ----------- ----------- -----------
Loss Before Income Taxes and
Extraordinary Item (176,708) (353,513) (441,480) (755,014)
Income Tax Benefit - - 176,592 -
----------- ----------- ----------- -----------
Loss Before Extraordinary Item (176,708) (353,513) (264,888) (755,014)
(Continued on following page)
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</TABLE>
<PAGE>
<TABLE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (CONT'D)
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Extraordinary Item: Gain from
restructuring of debt (net
of income taxes of $2,196,542) - - 3,294,813 -
Benefit from utilization of net
operating loss carryforwards - - 2,019,950 -
----------- ----------- ----------- -----------
Net income (loss) $ (176,708) $ (353,513) $ 5,049,875 $ (755,014)
=========== =========== =========== ===========
Basic Earnings (Loss) Per
Common Share
Loss before extraordinary item $ (.01) $ (.06) $ (.02) $ (.12)
Extraordinary income (net,
plus tax benefit) - - .50 -
----------- ----------- ----------- -----------
Net Income (Loss) Per Common
Share $ (.01) $ (.06) $ .48 $ (.12)
=========== =========== =========== ===========
Diluted Earning (Loss) Per
Common Share
Loss before extraordinary item $ (.01) $ (.06) $ (.02) $ (.12)
Extraordinary income (net, plus
tax benefit) - - .50 -
----------- ----------- ----------- -----------
Net Income (Loss) Per Common
Share $ (.01) $ (.06) $ .48 $ (.12)
=========== =========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 14,162,537 6,357,828 10,621,689 6,357,828
=========== =========== =========== ===========
See accompanying notes.
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</TABLE>
<PAGE>
<TABLE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<CAPTION>
1999 1998
<S> <C> <C>
Net cash used in operating activities $ (298,513) $ (431,294)
Cash Flows From Investing Activities:
Additions to software development costs (98,651) (58,881)
Purchases of property and equipment (5,616) (372)
Net (increase) decrease in other assets (176) 2,429
----------- -----------
Net cash used in investing activities (104,443) (56,824)
Cash Flows From Financing Activities:
Proceeds from loans from
shareholders/directors 66,000 473,000
Principal payments on note payable to
shareholder (3,000) -
Principal payments on capital
lease obligations (8,612) (12,963)
Proceeds from issuance of Common Stock 405,000 -
----------- -----------
Net cash provided by financing
activities 459,388 460,037
----------- -----------
Increase (decrease) in cash 56,432 (28,081)
Cash at beginning of period 29,188 38,898
----------- -----------
Cash at end of period $ 85,620 $ 10,817
=========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
During the six months ended September 30, 1999, short term loans in
the amounts of $3,997,000 and $792,500, were converted to Common Stock and
Preferred Stock, respectively.
See accompanying notes.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1999
Note 1 - DEFERRED INCOME AND REVENUE RECOGNITION
Deferred income consists of $28,730 from support contracts to
be recognized ratably over the terms of the contracts.
NOTE 2 - STOCKHOLDERS' EQUITY
Preferred Stock
In July 1999, the Company filed a Certificate of Designation
with the State of Delaware authorizing the issuance of 3,000 shares
of Series D Redeemable Preferred Stock $.001 par value at $1,000
per share with cumulative dividends payable annually at the rate of
8% per annum.
Conversion of Short Term Loans
In June 1999 two shareholders/directors of the Company and
their related entities agreed to convert short term loans totaling
$3,997,000 to 6,661,666 shares of the Company's Common Stock at a
conversion rate of $.60 per share. One shareholder/director agreed
to convert loans totaling $792,500 to shares of the Series D 8%
Cumulative Preferred Stock.
Common Stock
One shareholder/director of the Company committed to provide
funding to the Company in the amount of $405,000, based on the
Company's projected cash deficiencies for the remainder of fiscal
2000, for shares of the Company's Common Stock at $.125 per share.
During the six months ended September 30, 1999, this
shareholder/director provided funding in the amount of $405,000 for
which he received 3,240,000 shares of the Company's Common Stock.
If actual cash deficiencies exceed the projected amount, this
shareholder/director agreed to fund any additional cash
deficiencies through March 31, 2000, for shares of the Company's
Common Stock at $.15 per share.
NOTE 3 - EXTRAORDINARY INCOME
In June 1999, two shareholders/directors of the Company and
their related entities agreed to convert short term loans in the
amount of $4,789,500 to Common and Preferred Stock and to forgive
accrued interest on these loans in the amount of $1,234,789. These
transactions meet the criteria for trouble debt restructuring and
accordingly the gain, in the amount of $5,491,355, is recorded as
extraordinary income in the Statement of Operations, for the six
months ended September 30, 1999 and consists of the following:
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1999
Forgiveness of debt/Accrued interest $1,234,789
Difference of .$52 per share, between
the conversion prices of Common
Stock and the market value of
the Common Stock 3,464,066
Amount converted to Preferred Stock 792,500
----------
Total Extraordinary Income $5,491,355
==========
Through March 31, 1999, the Company has net operating loss
carryforwards of approximately $18 million, which expire in the
years 2004 through 2013, that can be used to offset future taxable
income. In fiscal 1995, the Company had ownership changes as
defined under Internal Revenue Code Section 382. As such the
availability to utilize the net operating losses that existed as of
this ownership change is limited.
The related deferred tax on these gains, for federal and state
taxes, at a combined rate of 40% would be $2,196,542 and is offset
by the Company's deferred tax assets for the unrecognized benefit
of net operating losses.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
General
The Company is a developer of retail store management software
for the specialty retail industry. The Company's StoreKare product
family is a modular system of information technology products,
which offers retailers an affordable, scalable, feature rich
application that runs in both Windows and DOS environments. The
goal of the Company has been to offer such a product that a retail
store owner with limited computer experience could learn and use
without extensive training and support. With the advancement of
the hardware technology (computers and cash registers) and
extensive reduction in cost, the small retailer can now afford a
complete business management system.
Except for historical information contained herein, certain
matters set forth in this Form 10-QSB are forward looking and
involve a number of risks and uncertainties that could cause future
results to differ materially from these statements and trends. Such
factors include but are not limited to, significant changes in
economic conditions, competition in the Company's markets, changes
in technology and the continued availability of funding from third
parties.
Impact of the Year 2000
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the applicable
year. Some of the Company's older computer programs that have time
sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000.
The Company has assessed the existing software and hardware in
use in all departments of the Company and has determined that a
minimal amount of modifications or replacements of software and
hardware will be required so that its computer systems will
function properly with respect to dates in the year 2000 and
thereafter. Other equipment and systems in use by the Company,
such as the accounting system, 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 2000 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, and later
versions, provide complete Year 2000 date processing capability for
StoreKare data. This date processing capability is summarized as
follows:
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<PAGE>
Enter and record dates in StoreKare records over the years
ranging from 1900 to 2259
Use a 2 digit year short cut data entry sliding window for the
current date -80 or +20 years
Handle calculations and sort records using dates that span the
range 1900 to 2259
Recognize the year 2000 as a leap year
Import and Export records with dates in either 2-digit or 4-
digit year representation
Authorize and settle credit and debit cards that expire beyond
December 31, 1999
Operate the StoreKare application over a date range of 1980 to
2099
All StoreKare 3.0C, 3.1 and 3.2 systems must be upgraded to
StoreKare 3.3.2X and all StoreKare 3.3 systems must be updated to
StoreKare 3.3.2X 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 had a net loss, before income taxes and
extraordinary items, of $176,708 and $441,480, and $353,513 and
$755,014, for the three and six months ended September 30, 1999 and
1998 respectively. For the six months ended September 30, 1999,
the Company had an extraordinary gain of $5,491,355 from
restructuring debt, which resulted in net income of $5,049,875 for
the six months then ended. The debt restructuring was due to two
shareholders/directors of the Company and their related entities
converting short term loans totaling $4,789,500 to Common and
Preferred Stock. Interest on these loans in the amount of
$1,234,789 was forgiven. Accordingly, the Company's working
capital deficiency decreased from $(6,762,102) at March 31, 1999 to
$(821,295) at September 30, 1999.
One shareholder/director of the Company committed to provide
funding to the Company in the amount of $405,000, based on the
Company's projected cash deficiencies for the remainder of fiscal
2000, for shares of the Company's Common Stock at $.125 per share.
During the six months ended September 30, 1999, this
shareholder/director provided funding in the amount of $405,000 for
which he received 3,240,000 shares of the Company's Common Stock.
If actual cash deficiencies exceed the projected amount, this
shareholder/director agreed to fund any additional cash
deficiencies through March 31, 2000, for shares of the Company's
Common Stock at $.15 per share.
During the three and six months ended September 30, 1999 and
1998 the company capitalized $48,116 and $98,651, and $30,520 and
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<PAGE>
$58,881, respectively, of development costs. Amortization of
development costs was $22,662 and $69,382, and $54,953 and
$113,219, for the three and six months ended September 30, 1999 and
1998, respectively. The Company anticipates incurring a comparable
amount of development costs for the remainder of fiscal 2000 as the
Company continues its efforts to offer Windows products.
Results of Operations
The Company had a net loss, before income taxes and
extraordinary items, of $176,708 and $441,480, and $353,513 and
$755,014, for the three and six months ended September 30, 1999 and
1998 respectively. For the six months ended September 30, 1999,
the Company had an extraordinary gain of $5,491,355 from
restructuring debt, which resulted in net income of $5,049,875 for
the six months then ended. Revenues for the three and six months
ended September 30, 1999 and 1998 were $184,702 and $427,383, and
$233,378 and $398,933, respectively, from equipment and software
sales and support.
Amortization of software development costs was $22,662 and
$69,382, and $54,953 and $113,219, for the three and six months
ended September 30, 1999 and 1998, respectively. In addition the
Company incurred and expensed, research and development costs of,
$7,738 and $14,587, and $26,471 and $61,215, during the three and
six months ended September 30, 1999 and 1998, respectively, to
maintain and improve the existing versions of the StoreKare
products.
Total selling, general and administrative expenses for the six
months ended September 30, 1999 decreased 10% to $635,482 for the
six months ended September 30, 1999 from $702,727 for the six
months ended September 30, 1998. The Company anticipates that
total selling general and administrative costs for the remainder of
fiscal 2000 will increase slightly from the first six months of
fiscal 2000, as the Company expands its sales staff.
The Company incurred interest expense of $10,402 and $129,179,
and $121,541 and $235,607, during the three and six months ended
September 30, 1999 and 1998, respectively. Interest expense was
incurred on loans from shareholders/directors and their related
entities, of $0 and $107,333, and $109,156 and $211,056, during the
three and six months ended September 30, 1999 and 1998. Since
these loans were converted to Common and Preferred Stock in June
1999, interest was accrued through June 21, 1999 only.
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
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27. Financial Data Schedule for the six months ended
September 30, 1999
b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the three months ended September 30, 1999.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, SK Technologies Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SK Technologies Corporation
(Registrant)
Date: November 5, 1999 /s/ Calvin S. Shoemaker
President, Chief Executive Officer
Date: November 5, 1999 /s/ Melvin T. Goldberger
Treasurer, Principal Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10 QSB
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 85,620
<SECURITIES> 0
<RECEIVABLES> 62,105
<ALLOWANCES> 35,723
<INVENTORY> 25,479
<CURRENT-ASSETS> 139,284
<PP&E> 256,647
<DEPRECIATION> 188,569
<TOTAL-ASSETS> 560,728
<CURRENT-LIABILITIES> 960,579
<BONDS> 382,000
0
455
<COMMON> 16,259
<OTHER-SE> (811,610)
<TOTAL-LIABILITY-AND-EQUITY> 560,728
<SALES> 427,383
<TOTAL-REVENUES> 427,383
<CGS> 35,620
<TOTAL-COSTS> 119,589
<OTHER-EXPENSES> 764,661
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (441,480)
<INCOME-TAX> 0
<INCOME-CONTINUING> (264,888)
<DISCONTINUED> 0
<EXTRAORDINARY> 5,491,355
<CHANGES> 0
<NET-INCOME> 5,049,875
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.48
</TABLE>
