FORM 10-QSB - QUARTERLY REPORT
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 0-18184
SK Technologies Corporation
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(Exact name of small business issuer as specified in its charter)
Delaware 52-1507455
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
500 Fairway Drive, Suite 104, Deerfield Beach, FL 33441
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(Address of principal executive offices)
(954) 418-0101
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(Issuer's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act during the past 12 months (or for such
shorter periods that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuer's classes of common equity as of the latest
practicable date.
Common Stock, $.001 Par Value = 6,357 828 shares as of
January 31, 1999.
<PAGE>
SK TECHNOLOGIES CORPORATION
INDEX
FORM 10-QSB
NINE MONTHS ENDED December 31, 1998
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements . . . . . . . . . . 1
Consolidated Condensed Balance Sheet . . 2-3
Consolidated Condensed Statements of
Operations . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of
Cash Flows . . . . . . . . . . . . . 5
Notes to the Consolidated Condensed
Financial Statements . . . . . . . . . . 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . 11
Item 2. Changes in Securities . . . . . . . . . 11
Item 3. Defaults Upon Senior Securities . . . . 11
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . 11
Item 5. Other Information . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The interim financial information included herein
is unaudited. Certain information and footnote
disclosures normally included in the financial
statements have been condensed or omitted pursuant
to the rules and regulations of the Securities and
Exchange Commission, although the Company believes
that the disclosures made are adequate to make the
information presented not misleading. These
financial statements should be read in conjunction
with the financial statements and related notes
contained in the Company's 1998 Annual Report on
Form 10-KSB. Other than indicated herein, there
have been no significant changes from the financial
data published in said report. In the opinion of
management, such unaudited information reflects all
adjustments, consisting only of normal recurring
accruals and other adjustments as disclosed herein,
necessary for a fair presentation of the unaudited
information below.
Results for interim periods are not necessarily
indicative of results expected for the full year.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
December 31, 1998
ASSETS
Current Assets:
Cash $ 85,222
Trade accounts receivable, net of
allowance for doubtful accounts
of $31,074 13,705
Inventories 28,031
Current portion of installment
accounts receivable 30,000
Other current assets 999
---------
Total Current Assets 157,957
Property and Equipment, Net 59,793
Other Assets:
Software development costs,
net of accumulated amortization
of $712,403 311,993
Other, net 20,363
---------
Total Other Assets 332,356
---------
$ 550,106
=========
(Continued on following page)
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (CONT'D)
December 31, 1998
LIABILITIES AND CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 79,726
Accrued expenses 106,650
Due to shareholders/officers/directors 1,806,845
Current portion of notes payable to
shareholder 13,680
Current portion of capital lease
obligations 8,123
Deferred income 24,445
Loans payable shareholders/directors 4,554,500
---------
Total Current Liabilities 6,593,969
Notes payable to shareholder 386,320
Deferred gross profit on installment sale 24,067
Capital Deficiency:
Convertible Preferred Stock, $.001
par value, 5,000,000 shares
authorized, 1,000,000 shares
designated as convertible Series B
Preferred Stock, 454,399 shares
issued and outstanding 454
Common stock, $.001 par value,
25,000,000 shares authorized,
6,357,828 shares issued and
outstanding 6,358
Additional paid-in capital 12,117,031
Accumulated deficit (18,578,093)
-----------
Capital Deficiency (6,454,250)
-----------
$ 550,106
===========
See accompanying notes.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
TABLE A Note: This is Part 1 of Table A.
(Part 2 to Follow.)
Three Months Three Months
Ended Ended
December 31, December 31,
1998 1997
Revenues:
Equipment, software sales and
support $ 181,008 $ 155,734
Cost of Revenues:
Cost of equipment sold 36,021 10,744
Amortization of software development
costs 46,717 67,664
Research and development expenses 15,943 18,570
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98,681 96,978
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Gross Profit 82,327 58,756
Selling, General and Administrative
Expenses:
Compensation and payroll taxes 225,690 258,897
Other selling, general and
administrative expenses 112,487 117,367
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338,177 376,264
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Operating Loss (255,850) (317,508)
Other Income (Expenses):
Gross profit on installment sale 12,034 12,033
Interest expense (125,109) (101,951)
Other, net 218,435 51
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Total Other Income (Expenses) 105,360 (89,867)
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Net Loss $ (150,490) $ (407,375)
============ ===========
Loss per Common Share $ (.02) $ (.07)
============ ===========
Weighted Average Number of
Common Shares Outstanding 6,357,828 6,357,828
TABLE A Note: This is Part 2 of Table A.
(Part 1 Above.)
Nine Months Nine Months
Ended Ended
December 31, December 31,
1998 1997
Revenues:
Equipment, software sales and
support $ 579,941 $ 607,290
Cost of Revenues:
Cost of equipment sold 97,790 86,758
Amortization of software development
costs 159,936 185,831
Research and development expenses 77,158 77,555
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334,884 350,144
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Gross Profit 245,057 257,146
Selling, General and Administrative
Expenses:
Compensation and payroll taxes 715,104 816,337
Other selling, general and
administrative expenses 325,800 336,964
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1,040,904 1,153,301
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Operating Loss (795,847) (896,155)
Other Income (Expenses):
Gross profit on installment sale 32,090 72,201
Interest expense (360,716) (286,992)
Other, net 218,969 2,590
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Total Other Income (Expenses) (109,657) (212,201)
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Net Loss $ (905,504) $(1,108,356)
============ ===========
Loss Per Common Share $ (.14) $ (.18)
============ ===========
Weighted Average Number of
Common Shares Outstanding 6,357,828 6,329,818
See accompanying notes.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
Net cash used in operating activities $ (454,330) $ (553,038)
Cash Flows From Investing Activities:
Additions to software development costs (96,495) (135,670)
Purchases of property and equipment (372) (4,681)
Net decrease (increase) in other assets 2,629 (22,786)
----------- -----------
Net cash (used in) provided by
investing activities (94,238) (163,137)
Cash Flows From Financing Activities:
Proceeds from loans from shareholders/directors 613,000 673,500
Principal payments on capital lease obligations (18,108) (10,476)
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Net cash provided by financing
activities 594,892 663,024
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Increase (decrease) in cash 46,324 (53,151)
Cash at beginning of period 38,898 103,316
---------- ----------
Cash at end of period $ 85,222 $ 50,165
=========== ===========
See accompanying notes.
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 1998
Note 1 - ACCOUNTS RECEIVABLE - INSTALLMENT SALE
On May 21, 1997 the Company entered into an Asset Purchase
Agreement (the "Agreement") with an unrelated party (the "Buyer"),
whereby the Buyer acquired from the Company, the StoreKare Software
for Subway (including the software source code) and certain other
related assets. The Company will receive a minimum of $175,000 of
which $55,000 was received upon signing the Agreement and an
additional $90,000 was received through December 31, 1998. Under
the Agreement, the Company will receive additional monthly payments
of, the greater of $5,000 or 10% of gross sales of the Buyer of any
software that is an associative or derivative of the software for
Subway. The sale is recorded as an installment sale with revenues
recognized over 24 months as cash is received. The Company
recognized gross profit of $12,034 and $32,090 during the three and
nine months ended December 31, 1998, respectively, as reflected on
the Statement of Operations. At December 31, 1998, the Balance
Sheet reflects installment accounts receivable of $30,000 and
deferred gross profit of $24,067 from this sale.
Note 2 - LOANS PAYABLE SHAREHOLDERS/DIRECTORS
Two shareholders/directors of the Company and their related
entities have provided short term financing to the Company totaling
$4,554,500 through December 31, 1998 of which $140,000 and $613,000
was received during the three and nine months ended December 31,
1998, respectively. Additional loans of $40,000 were made to the
Company in January 1999. These loans accrue interest at the rate
of 10% per annum, $1,013,275 has been accrued through December 31,
1998 of which $113,167 and $324,217 was accrued during the three
and nine months ended December 31, 1998, respectively. In December
1996, the Company collateralized these loans with the StoreKare
software and documentation.
Note 3 - DEFERRED INCOME AND REVENUE RECOGNITION
Deferred income consists of $24,445 from support contracts to
be recognized ratably over the terms of the contracts.
Pursuant to a 1994 agreement between the Company and an
unrelated party, a prepayment of $91,683 was included in deferred
income. The Company pursued a settlement regarding the 1994
agreement through arbitration. On October 21, 1998 a settlement of
$104,804 ($125,000 less legal fees and expenses of $20,196) was
paid to the Company and recorded as other income. According to the
settlement, the deferred income of $91,683, from the unrelated
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 1998
party, was reclassified as other income. As a result of this
settlement, a total of $196,487 is included in other income for the
nine months ended December 31, 1998, as reflected on the Statement
of Operations.
NOTE 4 - LIQUIDITY
Through December 31, 1998, the Company has incurred
significant operating losses and has a working capital deficiency.
Since March 1995 through January 31, 1999, two majority
shareholders/directors of the Company and their related entities
have provided funding to the Company in the form of loans totaling
$4,594,500 of which $140,000 and $613,000 was received during the
three and nine months ended December 31, 1998, respectively and
$40,000 was received in January 1999. These loans are due on
demand. If additional funding is not obtained from these two
shareholders/directors and their related entities, through an
offering or alternate sources of funding, of which none have
presently been identified, the Company would have to curtail
operations and/or take other actions.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
General
The Company is a developer of retail store management software
for the specialty retail industry. The Company's StoreKare product
family is a modular system of information technology products,
which offers retailers an affordable, scalable, feature rich
application that runs in both Windows NT and DOS environments. The
goal of the Company has been to offer such a product that a retail
store owner with limited computer experience could learn and use
without extensive training and support. With the advancement of
the hardware technology (computers and cash registers) and
extensive reduction in cost, the small retailer can now afford a
complete business management system.
Except for historical information contained herein, certain
matters set forth in this Form 10-QSB are forward looking and
involve a number of risks and uncertainties that could cause future
results to differ materially from these statements and trends.
Such factors include but are not limited to, significant changes in
economic conditions, competition in the Company's markets, changes
in technology and the continued availability of funding from third
parties.
Impact of the Year 2000
The year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable
year. Some of the Company's older computer programs that have time
sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000.
The Company has assessed the existing software and hardware in
use in all departments of the Company and has determined that a
minimal amount of modifications or replacements of software and
hardware will be required so that its computer systems will
function properly with respect to dates in the year 2000 and
thereafter. Other equipment and systems in use by the Company,
such as the voice mail/telephone system and alarm system, have been
tested and/or have been certified by the vendor to be year 2000
compliant. The Company anticipates that the cost to be compliant
with the year 2000 will not be material during fiscal 1999 and
should not exceed $25,000.
Year 2000 and StoreKare - StoreKare has been designed for use
in Point of Sale and Retail Management applications before, during
and beyond the year 2000. In addition to the many new features
added to StoreKare since version 3.0, StoreKare 3.3.20 provides
complete year 2000 date processing capability for StoreKare data.
This date processing capability is summarized as follows:
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<PAGE>
Enter and record dates in StoreKare records over the years
ranging from 1900 to 2259
Use a 2 digit year short cut data entry sliding window for the
current date -80 or +20 years
Handle calculations and sort records using dates that span the
range 1900 to 2259
Recognize the year 2000 as a leap year
Import and Export records with dates in either 2-digit or 4-
digit year representation
Authorize and settle credit and debit cards that expire beyond
December 31, 1999
Operate the StoreKare application over a date range of 1980 to
2099
All StoreKare 3.0C, 3.1 and 3.2 systems must be upgraded to
StoreKare 3.3.20 and all StoreKare 3.3 systems must be updated to
StoreKare 3.3.20 over the period August 1998 to December 1999 to
correctly process dated records across the 20th and 21st century
boundaries.
Liquidity and Capital Resources
The Company sustained a net loss of $150,490 and $905,504, and
$407,375 and $1,108,356, for the three and nine months ended
December 31, 1998 and 1997, respectively. The Company's working
capital deficiency increased from $(5,579,205) at March 31, 1998 to
$(6,436,012) at December 31, 1998. This increase was mainly due to
the receipt of short term loans of $613,000, and the related
interest of $324,217 accrued during the nine months ended December
31, 1998, from two shareholder/directors and their related
entities.
During the three and nine months ended December 31, 1998 and
1997, the Company capitalized $37,614 and $96,495, and $42,722 and
$135,670, respectively, of development costs. Amortization of
development costs was $46,717 and $159,936, and $67,664 and
$185,831, for the three and nine months ended December 31, 1998 and
1997, respectively. The Company subject to the availability of
working capital, anticipates incurring a comparable amount of
development costs for the remainder of fiscal 1999 as the Company
continues the development of a new StoreKare Windows/NT based
product.
Results of Operations
For the three and nine months ended December 31, 1998 and
1997, the Company reported a net loss of $150,490 and $905,504, and
$407,375 and $1,108,356, respectively. Revenues for the three and
nine months ended December 31, 1998 and 1997 were $181,008 and
$579,941, and $155,734 and $607,290, respectively, from equipment
and software sales and support.
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<PAGE>
Amortization of software development costs was $46,717 and
$159,936, and $67,664 and $185,831, for the three and nine months
ended December 31, 1998 and 1997, respectively. In addition, the
Company expensed $15,943 and $77,158, and $18,570 and $77,555, for
the three and nine months ended December 31, 1998 and 1997,
respectively.
Total selling, general and administrative expenses decreased
from $1,153,301 for the nine months ended December 31, 1997 to
$1,040,904 for the nine months ended December 31, 1998. There was
a decrease of 3% in other selling, general and administrative
expenses, and a decrease of 12% in compensation and payroll taxes,
from December 31, 1997 to December 31, 1998 which can be attributed
to a small reduction in staffing. The Company anticipates that
total selling, general and administrative costs for the remainder
of fiscal 1999, will remain consistent with the first nine months
of fiscal 1999.
The Company incurred interest expense of $125,109 and
$360,716, and $101,951 and $286,992 during the three and nine
months ended December 31, 1998 and 1997, respectively. Interest
expense was incurred on loans from shareholders/directors of
$113,167 and $324,217, during the three and nine months ended
December 31, 1998 as compared to interest expense of $89,989 and
$251,174 for the three and nine months ended December 31, 1997,
respectively.
Seasonality
The Company believes that seasonality has not historically had
any material impact on its business. However, during the winter
holiday season retail businesses typically delay the installation
and/or purchase of any capital assets such as our StoreKare
product.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In October 1996, the Company filed a Demand for Arbitration of
a dispute arising out of a contract dated September 16, 1994
(the "Agreement") between the Company and Fujitsu-ICL Systems,
Inc. ("ICL"). On February 27, 1996, ICL advised the Company
of its intention to terminate the Agreement and failed to make
the payments due pursuant to the terms of the Agreement. On
October 21, 1998, a mediation was held in this matter. ICL
paid the Company a settlement of $125,000 and both parties
signed mutual releases.
Item 2. Changes in Securities.
Not applicable
Item 3. Defaults Upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Item 5. Other Information.
The Company did not file any reports on Form 8-K during the
three months ended December 31, 1998.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
27. Financial Data Schedule for the nine months ended
December 31, 1998
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, SK Technologies Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SK Technologies Corporation
(Registrant)
Date: February 10, 1999 /s/ Calvin S. Shoemaker
President, Chief Executive Officer
Date: February 10, 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 NINE MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 85,222
<SECURITIES> 0
<RECEIVABLES> 44,779
<ALLOWANCES> 31,074
<INVENTORY> 28,031
<CURRENT-ASSETS> 157,957
<PP&E> 245,450
<DEPRECIATION> 185,657
<TOTAL-ASSETS> 550,106
<CURRENT-LIABILITIES> 6,593,969
<BONDS> 400,000
454
0
<COMMON> 6,358
<OTHER-SE> (6,461,062)
<TOTAL-LIABILITY-AND-EQUITY> 550,106
<SALES> 579,941
<TOTAL-REVENUES> 579,941
<CGS> 97,790
<TOTAL-COSTS> 334,884
<OTHER-EXPENSES> 1,401,620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (905,504)
<INCOME-TAX> 0
<INCOME-CONTINUING> (795,847)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (905,504)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
