U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: MAY 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ________________ to __________________
COMMISSION FILE NUMBER 000-33231
HY-TECH TECHNOLOGY GROUP, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 95-4868120
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1840 BOY SCOUT DRIVE, FORT MYERS, FLORIDA 33907
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(Address of principal executive offices)
(239) 278-4111
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(Issuer's telephone number)
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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 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
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: 98,776,906 AS OF JULY 15, 2004
Transitional Small Business Disclosure Format (check one). Yes ____; No X
1
HY-TECH TECHNOLOGY GROUP, INC.
MAY 31, 2004
QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Page
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Special Note Regarding Forward Looking Statements..............................3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements...........................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................9
Item 3. Controls and Procedures.......................................11
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.....................11
Item 6. Exhibits and Reports on Form 8-K..............................12
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
To the extent that the information presented in this Quarterly Report
on Form 10-QSB for the quarter ended May 31, 2004, discusses financial
projections, information or expectations about our products or markets, or
otherwise makes statements about future events, such statements are
forward-looking. We are making these forward-looking statements in reliance on
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Although we believe that the expectations reflected in these
forward-looking statements are based on reasonable assumptions, there are a
number of risks and uncertainties that could cause actual results to differ
materially from such forward-looking statements. These risks and uncertainties
are described, among other places in this Quarterly Report, in "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
In addition, we disclaim any obligations to update any
forward-looking statements to reflect events or circumstances after the date of
this Quarterly Report. When considering such forward-looking statements, you
should keep in mind the risks referenced above and the other cautionary
statements in this Quarterly Report.
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
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Consolidated Balance Sheet as of May 31, 2004.......................5
Consolidated Statements of Operations for the three months
ended May 31, 2004 and May 31, 2003............................6
Consolidated Statements of Cash Flows for the three months
ended May 31, 2004 and May 31, 2003............................7
Notes to Consolidated Financial Statements..........................8
4
HY-TECH TECHNOLOGY GROUP, INC.
CONSOLIDATED BALANCE SHEET
MAY 31, 2004
(UNAUDITED)
ASSETS
Current assets
Cash $ 7,669
Accounts receivable, net of allowance of $381,975 12,412
Inventories 19,231
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Total current assets 39,312
Property and equipment, net 10,000
Other assets 524
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Total assets $ 49,836
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 2,097,524
Accrued expenses 448,523
Sales taxes payable 1,008
Loans payable 93,626
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Total current liabilities 2,640,681
Convertible debt-issued equity 733,300
Commitments and Contingencies
SHAREHOLDERS' DEFICIT:
Common stock 4,426,205
Accumulated deficit (7,750,350)
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Total Shareholders' Deficit (3,324,145)
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TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 49,836
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5
HY-TECH TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
May 31,
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2004 2003
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Net revenues $ 24,430 $ 3,996,330
Cost of revenues 36,409 3,602,353
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Gross margin (11,979) 393,977
General, administrative and selling 478,457 1,371,970
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Loss from operations (490,436) (977,993)
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Other income (expense)
Other income (expense) -- (16,497)
Gain on settlement of debt -- 1,665,810
Interest expense -- (7,062)
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-- 1,642,251
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Net income (loss) $ (490,436) $ 664,258
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Net income (loss) per share:
Net income (loss) - basic and diluted $ (0.01) $ 0.03
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Weighted average shares outstanding:
Basic and diluted 51,166,461 24,493,154
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6
HY-TECH TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
May 31,
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2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (490,436) $ 664,258
Adjustments to reconcile net loss to cash provided
by (used in) operating activities:
Gain on settlement of debt -- (1,655,601)
Common stock for services 359,819 132,000
Depreciation and amortization -- 102,868
Bad debt expense -- 20,000
Changes in assets and liabilities:
Accounts receivable 33,019 412,159
Inventories 37,637 447,079
Other receivables -- (2,500)
Prepaid expenses 12,351 (7,661)
Other assets -- --
Accounts payable (2,989) 228,024
Accrued expenses and sales taxes payable 58,268 (91,166)
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CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES 7,669 249,460
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures -- (19,375)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) on line of credit -- (1,210,385)
Proceeds from loans -- 1,050,000
Payments of loans payable -- (90,638)
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CASH FLOWS FROM FINANCING ACTIVITIES -- (251,023)
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NET INCREASE (DECREASE) IN CASH 7,669 (20,938)
Cash, beginning of period -- 165,149
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Cash, end of period $ 7,669 $ 144,211
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SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ -- $ 7,062
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Supplemental disclosure of non-cash transactions:
Conversion of convertible notes for common stock $ -- $ 250,898
Stock issued for advances $ -- $ 278,236
7
HY-TECH TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Presentation
The consolidated balance sheet of the Company as of May 31, 2004, the related
consolidated statements of operations for the three months ended May 31, 2004
and 2003 and the statements of cash flows for the three months ended May 31,
2004 and 2003 included in the consolidated financial statements have been
prepared by the Company without audit. In the opinion of management, the
accompanying condensed financial statements include all adjustments (consisting
of normal, recurring adjustments) necessary to summarize fairly the Company's
financial position and results of operations. The results of operations for the
three months ended May 31, 2004 are not necessarily indicative of the results of
operations for the full year or any other interim period. The information
included in this Form 10-QSB should be read in conjunction with Management's
Discussion and Analysis and Financial Statements and notes thereto included in
the Company's February 29, 2004 Form 10-KSB.
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the continuation of operations, realization of
assets and liquidation of liabilities in the ordinary course of business, and do
not reflect any adjustments that might result if the Company is unable to
continue as a going concern. At May 31, 2004, the Company had total assets of
$49,836 and total liabilities of $3,373,981. The Company's recent operations
consisted of administrative costs to maintain the Company, and identifying
potential investment and acquisition opportunities.
Although the Company's efforts to identify potential investment and acquisition
opportunities have not resulted in any consummated transactions to date, the
Company continues to seek opportunities. No assurances can be given that the
Company will be successful in identifying and consummating an investment or
acquisition transaction, or in obtaining other financing.
In February 2004, the Company announced its planned changes which included its
planned acquisition of Robotic Workspace Technologies (RWT) and the intended
divestiture of Hy-Tech Computer Systems (HTCS). Such changes support the
Company's plan to grow by acquisition and differentiate the company with unique
technologies, by converting to e-commerce selling and distribution techniques
and by adding complementary, higher margin services. The Company remains in
discussion with various financing sources to allow it access to the financing
needed to complement the use of its stock in achieving these plans. The Company
intends to raise additional working capital through private placements, public
offerings and/or bank financing.
Note 2 - Common Stock
During the three months ended May 31, 2004, the Company issued 15,381,250 shares
of common stock for services valued at $359,819.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND
We were formed in 1992 as a supplier to the information technology
business. In January 31, 2003, we completed a reverse acquisition into SRM
Networks, an Internet service provider, in which we were deemed the "accounting
acquirer". We have discontinued SRM Network's Internet business. In connection
with the transaction, SRM Networks, Inc. changed its name to Hy-Tech Technology
Group, Inc.
RESULTS OF OPERATIONS
During the three month period ended May 31, 2004 (the "2004 Period")
revenues were $24,430 compared to revenues of $3,996,330 during the three month
period ended May 31, 2003 (the "2003 Period").
Gross margins were ($11,979) during the 2004 Period compared to
$393,977 during the 2003 Period. The decrease in gross margins resulted in part
from the liquidation and sale of older and slower moving inventory.
General, administrative and selling expenses were $478,457 during the
2004 period compared to $1,371,970 during the 2003 period. The decrease in
general, administrative and selling expenses primarily resulted from the winding
down of its retail operations and reduction in workforce.
Interest expense was $0 during the 2004 Period and $7,062 during
the 2003 Period.
During the 2003 Period we had a gain on the settlement of debt of
$1,665,810, with no comparable gain during the 2004 Period. This gain arose from
the partial settlement of our debt with our primary lender, SunTrust Bank.
Net loss for the 2004 Period was $490,436 compared to a net income
of $664,258 for the 2003 Period, due to the factors described above including
the gain on settlement of debt.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 2004, we had cash of $7,669, current assets of $39,312
and current liabilities of $2,640,681. At May 31, 2004, we had negative working
capital of $2,601,369.
On April 29, 2003, we settled the claims of our primary lender,
SunTrust Bank pursuant to a Settlement Agreement for aggregate payments of $1.5
million. Under the terms of the Settlement Agreement, we delivered $1 million
dollars to SunTrust on April 29, 2003. This $1 million represented all of the
proceeds of the sale of a convertible debenture that was issued to a private
investor. We also paid SunTrust three installments of $65,000 each in June, July
and August. The balance of $305,000 was settled in 2003.
9
In February 2004, the Company announced its planned changes which
included its planned acquisition of Robotic Workspace Technologies (RWT) and the
intended divestiture of Hy-Tech Computer Systems (HTCS). Such changes support
the Company's plan to grow by acquisition and differentiate the company with
unique technologies, by converting to e-commerce selling and distribution
techniques and by adding complementary, higher margin services. The Company
remains in discussion with various financing sources to allow it access to the
financing needed to complement the use of its stock in achieving these plans.
The Company intends to raise additional working capital through private
placements, public offerings and/or bank financing.
There are no assurances that Hy-Tech will be able to obtain
additional financing through private placement, public offerings and/or bank
financing necessary to support Hy-Tech's plan. No assurance can be given that
financing will be available, or if available, will be on terms acceptable to
Hy-Tech. If adequate financing is not available Hy-Tech may be required to
curtail its operations. These conditions raise substantial doubt about Hy-Tech's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might be necessary should Hy-Tech be unable to continue as a going concern.
We cannot guaranty that additional funding will be available on
favorable terms, if at all. If we are unable to obtain debt and/or equity
financing upon terms that our management deems sufficiently favorable, or at
all, it would have a materially adverse impact upon our ability to pursue our
business strategy and maintain our current operations.
10
ITEM 3. CONTROLS AND PROCEDURES
Our principal executive officer and principal financial officer
evaluated the effectiveness of the Company's disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended) as of the end of the period covered by this report. Based
on this evaluation, the Company's principal executive officer and principal
financial officer have concluded that the Company's controls and procedures are
effective in providing reasonable assurance that the information required to be
disclosed in this report has been recorded, processed, summarized and reported
as of the end of the period covered by this report.
During the period covered by this report, there have not been any
significant changes in our internal controls or, to our knowledge, in other
factors that could significantly affect our internal controls.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
On April 26, 2004, the Company issued 156,250 shares of common stock
to Edward R. Pekarek in connection with a settlement of certain claims Mr.
Pekarek had asserted against the Company.
On April 27, 2004, the Company issued 7,500,000 shares to Robotic
Workspace Technologies, Inc. ("RWT"), in consideration for RWT agreeing that for
a period of ninety (90) days following the issuance, RWT will shall not seek or
solicit any offers to engage in a transaction, or negotiate the terms of any
transaction, that would supersede an acquisition transaction that was proposed
between the Company and RWT.
These securities were sold under the exemption from registration
provided by Section 4(2) of the Securities Act. Neither the Registrant nor any
person acting on its behalf offered or sold the securities by means of any form
of general solicitation or general advertising. All purchasers represented in
writing that they acquired the securities for their own accounts and without a
view to distribution. A legend was placed on the stock certificates stating that
the securities have not been registered under the Securities Act and cannot be
sold or otherwise transferred without an effective registration or an exemption
therefrom.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal
Executive Officer
31.2 Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal
Financial Officer
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
(b) Reports on Form 8-K
NONE.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized.
Hy-Tech Technology Group, Inc.
Dated: July 21, 2004 By: /s/ Martin Nielson
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Martin Nielson
Chief Executive Officer