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, 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 = 17,586,160 shares as of
January 31, 2000.
<PAGE>
SK TECHNOLOGIES CORPORATION
INDEX
FORM 10-QSB
NINE MONTHS ENDED December 31, 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 . . . . . . . . . . . . . 9-10
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 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
December 31, 1999
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash $ 147,688
Trade accounts receivable, net of
allowance for doubtful accounts
of $33,660 10,687
Inventories 26,525
Other current assets 1,332
---------
Total Current Assets 186,232
Property and Equipment, Net 64,103
Other Assets:
Software development costs,
net of accumulated amortization
of $858,378 355,638
Other, net 20,340
---------
Total Other Assets 375,978
---------
$ 626,313
=========
(Continued on following page)
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<TABLE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (CONT'D)
December 31, 1999
<CAPTION>
LIABILITIES AND CAPITAL DEFICIENCY
<S> <C>
Current Liabilities:
Accounts payable $ 23,826
Accrued expenses 94,237
Due to shareholders/officers/directors 793,425
Current portion of notes payable to
shareholder 12,000
Current portion of capital lease
obligations 9,564
Deferred income 31,650
-----------
Total Current Liabilities 964,702
Notes payable to shareholder 379,000
Capital lease obligations, less current portion 10,661
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,
17,586,160 shares issued and
outstanding 17,586
Additional paid-in capital 13,242,736
Accumulated deficit (13,988,827)
-----------
Capital Deficiency (728,050)
-----------
$ 626,313
===========
See accompanying notes.
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<TABLE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Equipment, software sales and
support $ 254,653 $ 181,008 $ 682,036 $ 579,941
Cost of Revenues:
Cost of equipment sold 20,128 36,021 55,748 97,790
Amortization of software development
costs 29,872 46,717 99,254 159,936
Research and development expenses 4,159 15,943 18,746 77,158
----------- ----------- ----------- -----------
54,159 98,681 173,748 334,884
----------- ----------- ----------- -----------
Gross Profit 200,494 82,327 508,288 245,057
Selling, General and Administrative
Expenses:
Compensation and payroll taxes 235,203 225,690 690,037 715,104
Other selling, general and
administrative expenses 87,283 112,487 267,931 325,800
----------- ----------- ----------- -----------
322,486 338,177 957,968 1,040,904
----------- ----------- ----------- -----------
Operating Loss (121,992) (255,850) (449,680) (795,847)
Other (Expenses) Income:
Gross profit on installment sale - 12,034 16,045 32,090
Interest expense (10,326) (125,109) (139,505) (360,716)
Other, net 165 218,435 (493) 218,969
----------- ----------- ----------- -----------
Total Other Income (Expenses) (10,161) 105,360 (123,953) (109,657)
----------- ----------- ----------- -----------
Loss Before Income Taxes and
Extraordinary Item (132,153) (150,490) (573,633) (905,504)
Income Tax Benefit - - 229,453 -
----------- ----------- ----------- -----------
Loss Before Extraordinary Item (132,153) (150,490) (344,180) (905,504)
(Continued on following page)
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<TABLE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (CONT'D)
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
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 - - 1,967,089 -
----------- ----------- ----------- -----------
Net income (loss) $ (132,153) $ (150,490) $ 4,917,722 $ (905,504)
=========== =========== =========== ===========
Basic Earnings (Loss) Per
Common Share
Loss before extraordinary item $ (.01) $ (.02) $ (.03) $ (.14)
Extraordinary income (net,
plus tax benefit) - - .42 -
----------- ----------- ----------- -----------
Net Income (Loss) Per Common
Share $ (.01) $ (.02) $ .39 $ (.14)
=========== =========== =========== ===========
Diluted Earning (Loss) Per
Common Share
Loss before extraordinary item $ (.01) $ (.02) $ (.03) $ (.14)
Extraordinary income (net, plus
tax benefit) - - .42 -
----------- ----------- ----------- -----------
Net Income (Loss) Per Common
Share $ (.01) $ (.02) $ .39 $ (.14)
=========== =========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 16,273,914 6,357,828 12,512,615 6,357,828
=========== =========== =========== ===========
See accompanying notes.
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SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
<CAPTION>
1999 1998
<S> <C> <C>
Net cash used in operating activities $ (375,572) $ (454,330)
Cash Flows From Investing Activities:
Additions to software development costs (151,195) (96,495)
Purchases of property and equipment (7,622) (372)
Net (increase) decrease in other assets (116) 2,629
----------- -----------
Net cash used in investing activities (158,933) (94,238)
Cash Flows From Financing Activities:
Proceeds from loans from
shareholders/directors 66,000 613,000
Principal payments on note payable to
shareholder (9,000) -
Principal payments on capital
lease obligations (7,995) (18,108)
Proceeds from issuance of Common Stock 604,000 -
----------- -----------
Net cash provided by financing
activities 653,005 594,892
----------- -----------
Increase in cash 118,500 46,324
Cash at beginning of period 29,188 38,898
----------- -----------
Cash at end of period $ 147,688 $ 85,222
=========== ===========
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SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
During the nine months ended December 31, 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
NINE MONTHS ENDED DECEMBER 31, 1999
Note 1 - DEFERRED INCOME AND REVENUE RECOGNITION
Deferred income consists of $31,650 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
During the nine months ended December 31, 1999, one
shareholder/director of the Company provided funding to the Company
in the amount of $604,000. This shareholder/director received
3,240,000 shares of Common Stock for funding of $405,000 at $.125
per share, plus 1,326,666 shares of Common Stock for funding of
$199,000 at $.15 per share. This shareholder/director agreed to
fund any additional cash deficiencies through March 31, 2000, for
shares of the Company's Common Stock at $.30 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 nine
months ended December 31, 1999 and consists of the following:
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<PAGE>
SK TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 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.
Liquidity and Capital Resources
The Company had a net loss, before income taxes and
extraordinary items, of $132,153 and $573,633, and $150,490 and
$905,504, for the three and nine months ended December 31, 1999 and
1998 respectively. For the nine months ended December 31, 1999,
the Company had an extraordinary gain of $5,491,355 from
restructuring debt, which resulted in net income of $4,917,722 for
the nine 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
$(778,470) at December 31, 1999.
During the nine months ended December 31, 1999, one
shareholder/director of the Company provided funding to the Company
in the amount of $604,000. This shareholder/director received
3,240,000 shares of Common Stock for funding of $405,000 at $.125
per share, plus 1,326,666 shares of Common Stock for funding of
$199,000 at $.15 per share. This shareholder/director agreed to
fund any additional cash deficiencies through March 31, 2000, for
shares of the Company's Common Stock at $.30 per share.
During the three and nine months ended December 31, 1999 and
1998 the Company capitalized $52,544 and $151,195, and $37,614 and
$96,495, respectively of development costs. Amortization of
- 9 -
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development costs was $29,872 and $99,254, and $46,717 and
$159,936, for the three and nine months ended December 31, 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 $132,153 and $573,633, and $150,490 and
$905,504, for the three and nine months ended December 31, 1999 and
1998 respectively. For the nine months ended December 31, 1999,
the Company had an extraordinary gain of $5,491,355 from
restructuring debt, which resulted in net income of $4,917,722 for
the nine months then ended. Revenues for the three and nine months
ended December 31, 1999 and 1998 were $254,653 and $682,036, and
$181,008 and $579,941, respectively, from equipment and software
sales and support.
Amortization of software development costs was $29,872 and
$99,254, and $46,717 and $159,936, for the three and nine months
ended December 31, 1999 and 1998, respectively. In addition the
Company incurred and expensed, research and development costs of
$4,159 and $18,746, and $15,943 and $77,158, during the three and
nine months ended December 31, 1999 and 1998, respectively, to
maintain and improve the existing versions of StoreKare products.
Total selling, general and administrative expenses for the
nine months ended December 31, 1999 decreased 8% to $957,968 from
$1,040,904 for the nine months ended December 31, 1998. The
Company anticipates that total selling, general and administrative
expenses will increase slightly during the last quarter of fiscal
2000, as the Company expands its sales staff.
The Company incurred interest expense of $10,326 and $139,505,
and $125,109 and $360,716, during the three and nine months ended
December 31, 1999 and 1998, respectively. Interest expense was
incurred on loans from shareholders/directors and their related
entities, of $0 and $107,333, and $113,167 and $324,217, during the
three and nine months ended December 31, 1999 and 1998,
respectively. 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
On December 13, 1999, shareholders of the Company owning
12,882,928 of the 16,713,893 shares of the Company's Common
and Series B Preferred Stock, with one vote per share and 793
shares which represent 100% of the Series D Preferred Stock,
issued and outstanding, in total representing a majority in
interest of all the issued and outstanding shares of the
Company's stock, approved by written consent the following
amendment to the Company's 1995 Stock Option Plan (the
"Plan"):
- to increase the number of shares of Common Stock which
may be issued upon the exercise of options granted
through the Plan from 1,400,000 to 3,700,000.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27. Financial Data Schedule for the nine months ended
December 31, 1999
b) Reports on Form 8-K
On December 22, 1999 the Company filed a report on Form 8-
K with the Securities and Exchange Commission and reported
that on December 16, 1999, Michael Siewruk resigned as a
director of the Company to pursue other business
interests. There were no disagreements between Mr.
Siewruk and the Company on any matters.
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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 8, 2000 /s/ Calvin S. Shoemaker
President, Chief Executive Officer
Date: February 8, 2000 /s/ Melvin T. Goldberger
Treasurer, Principal Accounting Officer
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10 QSB
FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 147,688
<SECURITIES> 0
<RECEIVABLES> 44,347
<ALLOWANCES> 33,600
<INVENTORY> 26,525
<CURRENT-ASSETS> 186,232
<PP&E> 258,653
<DEPRECIATION> 194,550
<TOTAL-ASSETS> 626,313
<CURRENT-LIABILITIES> 964,702
<BONDS> 379,000
0
455
<COMMON> 17,586
<OTHER-SE> (746,091)
<TOTAL-LIABILITY-AND-EQUITY> 626,313
<SALES> 682,036
<TOTAL-REVENUES> 682,036
<CGS> 55,748
<TOTAL-COSTS> 173,748
<OTHER-EXPENSES> 1,097,473
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (573,633)
<INCOME-TAX> 0
<INCOME-CONTINUING> (344,180)
<DISCONTINUED> 0
<EXTRAORDINARY> 5,491,355
<CHANGES> 0
<NET-INCOME> 4,917,722
<EPS-BASIC> 0.39
<EPS-DILUTED> 0.39
</TABLE>
