-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EXLCzT5MK8sL+cAnJTDbWeOB9lP2MpXwmUdE9zM7zS/axN0y7maL/oErfk45BYNw pGyQrRz8Bq9jgb+3Mc4g3A== 0000950123-99-006758.txt : 19990723 0000950123-99-006758.hdr.sgml : 19990723 ACCESSION NUMBER: 0000950123-99-006758 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990722 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HITK CORP CENTRAL INDEX KEY: 0000716706 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 133159591 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11261 FILM NUMBER: 99668576 BUSINESS ADDRESS: STREET 1: PO BOX 233 CITY: HARRINGTON PARK STATE: NJ ZIP: 07640 BUSINESS PHONE: 2143617301 MAIL ADDRESS: STREET 1: PO BOX 233 CITY: HARRINGTON PARK STATE: NJ ZIP: 07640 FORMER COMPANY: FORMER CONFORMED NAME: HIGH TECHNOLOGY CAPITAL CORP DATE OF NAME CHANGE: 19600201 10-K 1 HITK CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] Annual Report Pursuant to 13 or 15(d) of the Securities and Exchange Act of 1934 For the Fiscal Year Ended Commission File Number February 28, 1999 2-82427-NY ----------------- ---------- OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 HITK CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3159591 (State or other jurisdiction of (I.R.S. Employer Identification incorporation of organization) Number) 68 Schraalenburg Road P. O. Box 233 Harrington Park, New Jersey 07640 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (201) 784 - 5190 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 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 ----------- ----------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this 10K or any amendment to this Form 10K. [ ] The aggregate market value of the voting stock held by non-affiliates (1) of the registrant based on no bid price of such stock, as of May 27, 1999 is $0. The number of shares outstanding of each of the registrant's classes of common stock, as of May 15, 1999 is 3,116,075 shares, all of one class of $.001 par value Common Stock. (1) Affiliated for purposes of this item refer to those persons who are currently officers, directors and/or owners of 5 percent or more of the Company's outstanding Common Stock. 2 DOCUMENTS INCORPORATED BY REFERENCE a. Registrant's Form S-18 Registration Statement and Exhibit Book under file #2-82427-NY as effective May 13, 1983, and Form N-2 Registration Statement under File #2-94660 as effective August 14, 1985. b. Forms 8-K dated October 21, 1988, April 15, 1988, January 11, 1988, October 30, 1987, August 31, 1987, April 29, 1987 and March 4, 1987 are incorporated by reference into Part II, Item 8 of this report. c. Third amended plan of reorganization under Chapter 11 filed on July 14, 1989 and confirmed on September 13, 1989 with the United States Bankruptcy Court for the District of Nevada is incorporated by reference into Part II, Item 8 of this report. d. Settlement agreement between HITK Corporation and Bell Atlantic Leasing International, Inc. is incorporated by reference. e. Order confirming plan of reorganization under Chapter 11, filed on September 13, 1989, with the United States Bankruptcy Court for the district of Nevada is incorporated by reference. (Balance of Page Left Intentionally Blank) -2- 3 HITK CORPORATION FORM 10-K FISCAL YEAR ENDED FEBRUARY 28, 1999 TABLE OF CONTENTS PAGE PART I Item 1 - Business 4 - 5 Item 2 - Properties 5 Item 3 - Legal Proceedings 5 Item 4 - Submission of Matters to a Vote of Security Holders 5 PART II Item 5 - Market for Registrant's Common Stock and Related Stockholder Matters 6 Item 6 - Selected Financial Data 7 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 8 - Financial Statements and Supplementary Data 9 - 19 Item 9 - Changes in and Disagreement with Accountants on Accounting and Financial Disclosure 20 PART III Item 10 - Directors and Executive Officers of the Registrant 21 - 22 Item 11 - Executive Compensation 22 Item 12 - Security Ownership of Certain Beneficial Owners and Management 23 Item 13 - Certain Relationships and Related Transactions 23 PART IV Item 14 - Exhibits, Financial Statements, Schedules, and Reports on Form 8-K 24 - 26 SIGNATURES 27 - 3 - 4 FORM 10-K PART I ITEM 1 - BUSINESS - -------------------- GENERAL DEVELOPMENT - ------------------- HITK Corporation (the "Company") was organized and incorporated on March 10, 1983 under the laws of the State of Delaware with authorized capital of 6,250,000 shares of Common Stock. In July 1986, the Company organized and incorporated two wholly-owned administrative subsidiaries named HITK Communications Group and HITK Financial Group, Inc. The Company commenced operations on June 1983. The Company was engaged in the following lines of business: consulting as to methods of obtaining financing and providing limited financing to prospective clients on a debt basis through the lending of Company funds; and taking equity positions in its clients. In accordance with the Investment Company Act of 1940 ("the 1940 Act") and as a consequence of the Company having investment security value in excess of 40% of the value of its own assets, the Company became a non-diversified closed-end investment company and elected to be treated as a "Business Development Company" under the 1940 Act. On November 9, 1984, the Company filed a notification of election to be treated as a Business Development Company under the 1940 Act. The 1940 Act restricts the Company's business purpose, its venture capital investment activities and the various types of companies in which it may invest. The Company must generally comply with these provisions in order to maintain its qualification to elect treatment as a Business Development Company. The investment objectives and policies may be changed by the Company's Board of Directors without prior approval of the holders of a majority of the outstanding voting securities, except for the Company's policies to operate as a Business Development Company under the 1940 Act, and its policies regarding leveraging its investment activities. INVESTMENT OBJECTIVES AND POLICIES - ---------------------------------- The primary investment objective of the Company was to seek long-term capital appreciation by making debt and equity investments in new and emerging companies which the Company believed would offer long-term growth possibilities. CURRENT STATUS OF OPERATIONS - ---------------------------- On October 21, 1988 the Company filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. On September 13, 1989, the United States Bankruptcy Court for the District of Nevada entered an order confirming the Company's plan of reorganization. Pursuant to the plan, the Company liquidated virtually all of its assets and escrowed the proceeds from such sale in a disbursement account from which the claims of its creditors were to be paid. In 1997, the Company settled all litigation in which it was involved and paid all bankruptcy claims according to the terms of its plan. In June, 1998, the bankruptcy court entered an order closing HITK's bankruptcy proceedings. - 4 - 5 EMPLOYEES - --------- On February 28, 1999, there were two people employed by the Company. ITEM 2. PROPERTIES - --------------------- Not Applicable. ITEM 3. LEGAL PROCEEDINGS - --------------------------- None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------- None. - 5 - 6 HITK 10-K PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------------------------ (a) Market Information - The Company's common stock (all of which is one class, $.001 par value) is traded in the pink sheets. There has been no closing bid price of the stock since June 24, 1993. Fiscal Years Ended ------------------
February 28, February 28, Quarter Ended 1999 1998 - ------------- ------------------------ ------------------------ High Low High Low ---- --- ---- --- May 31 No Bid No Bid No Bid No Bid August 31 No Bid No Bid No Bid No Bid November 30 No Bid No Bid No Bid No Bid February 28 No Bid No Bid No Bid No Bid
(b) Holders - The approximate number of holders of record of the Company's common stock as of February 28, 1999 amounts of 1,066 inclusive of those brokerage firms and/or clearing houses holding the Company's common stock for their clients (with each such brokerage and/or clearing house being considered as one holder). The Company believes the total number of stockholders to be approximately 3,000. (c) Dividends - The Company has not paid or declared any cash dividends upon its common stock since its inception, and by reason of its contemplated financial requirements, does not anticipate paying any cash dividends on its common stock in the near future. (Balance of Page Left Intentionally Blank) - 6 - 7 ITEM 6 - SELECTED FINANCIAL DATA - --------------------------------
FISCAL YEAR ENDED FEBRUARY 28, --------------------------------------------- 1997 1996 1995 1999 1998 ---- ---- ---- ---- ---- Gross Investment Income $ 92,400 $ 86,400 $ 113,100 $ 136,800 $ 94,200 Costs and Expenses 513,800 174,800 167,900 169,900 190,700 ----------- ----------- ----------- ----------- ----------- Net Investment Income (Loss) (421,400) (88,400) $ (58,100) $ (33,100) $ (96,500) ----------- ----------- ----------- ----------- ----------- Extraordinary Gain (Loss) 273,700 (780,300) -- (25,000) $ -- ----------- ----------- ----------- ----------- ----------- Unrealized Appreciation (Depreciation) on Investments (6,200) 8,600 -- -- $ (29,500) ----------- ----------- ----------- ----------- ----------- Increase (Decrease) in Net Assets Resulting from Investment Activities $ (153,900) $ (860,100) $ (54,800) $ (58,100) $ (126,000) ----------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Net Asset Value $ (153,900) $ (860,100) $ (54,800) $ (58,100) $ (126,000) ----------- ----------- ----------- ----------- ----------- Increase(Decrease)in Net Assets Per Share(1) $ (.05) $ (.27) $ (.01) $ (.02) $ (.04) ----------- ----------- ----------- ----------- ----------- Balance Sheet: Cash and Cash Equivalents $ 655,500 $ 568,800 $ 13,000 $ 12,200 $ 15,800 ----------- ----------- ----------- ----------- ----------- Restricted Cash -- 25,900 $ 1,854,100 $ 1,787,000 $ 1,682,600 ----------- ----------- ----------- ----------- ----------- Investments 13,300 249,400 $ 219,700 $ 219,700 $ 222,800 ----------- ----------- ----------- ----------- ----------- Total Assets 676,100 845,700 $ 2,086,800 $ 2,018,900 $ 1,921,200 ----------- ----------- ----------- ----------- ----------- Total Liabilities 1,020,600 1,036,300 $ 1,417,300 $ 1,294,600 $ 1,138,800 ----------- ----------- ----------- ----------- ----------- Net Assets Applicable to Outstanding Common Shares (1) (344,500) (190,600) $ 669,500 $ 724,300 $ 782,400 ----------- ----------- ----------- ----------- ----------- Net Tangible Book Value (344,400) (190,600) $ 669,500 $ 724,300 $ 782,400 ----------- ----------- ----------- ----------- ----------- Net Tangible Book Value Per Share (1) $ (.11) $ (.06) $ .21 $ .22 $ .24 ----------- ----------- ----------- ----------- ----------- (1) Number of Shares Outstanding at End of Period 3,116,075 3,202,504 3,202,504 3,202,504 3,202,504 =========== =========== =========== =========== ===========
- 7 - 8 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - -------------------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- RESULTS OF OPERATIONS - --------------------- For the year ended February 28, 1999, the Company had a net decrease in assets of $153,900 compared to a net decrease of $860,100 and $54,800 for the years ended February 28, 1998 and 1997. NET INVESTMENT INCOME - --------------------- In 1999, the Company recorded a realized gain on investments of $49,100. In 1999, the Company had interest and dividend income of $43,300 compared to $86,400 and $113,100 in 1998 and 1997. In October, 1997, the Company made payments of $1,237,000 which settled its litigation and bankruptcy claims. This reduced interest income in 1999 by $43,000 and in 1998 by approximately $21,000. In addition, interest payment on notes receivable ceased in August, 1998, further reducing interest income. In 1998, interest payments were in arrears and income was recorded only when payments were received. EXTRAORDINARY ITEMS - ------------------- In 1999, the Company recorded the following extraordinary items: (1) Gain on settlement of bankruptcy debts of $23,700, (2) Insurance proceeds of $150,000 from the settlement of an insurance claim related to the Bell Atlantic litigation, and (3) Forgiveness of $100,000 in debt due the CEO/President of the Company. In 1998, the extraordinary items were made up of two components relating to the Company settling its litigation with Bell Atlantic Systems Leasing International, Inc., for $955,300 and the Solar Age shareholders for $3,000, and the Bankruptcy Court approving settlement of all claims both disputed and undisputed, which resulted in a gain of $178,000. OPERATING EXPENSES - ------------------ Operating expenses for the three years ended February 28, 1999, were $513,800, $174,800 and $167,900, respectively. The increase in 1999, over 1998 and 1997, of approximately $340,000 was composed of two main components. The Company recorded an allowance for bad debt expense of $249,700 related notes receivable and additional professional fees and court costs in closing the bankruptcy of $70,000. Other operating expenses increased by approximately $20,000. LIQUIDITY AND WORKING CAPITAL - ----------------------------- As of February 28, 1999, the Company had a stockholders deficit of $344,500. This is a result of recurring operating losses and the extraordinary loss of $955,361 recorded from the settlement between Bell Atlantic and the Company. The Management of the Company intends to take the following actions to alleviate the continuing going concern problem. (A) Litigate collection on notes which are in default that the Company has recorded a 100% reserve. (B) Sell the Company shares in shell corporations which had previously been written off. (C) Negotiate a reduction of liabilities with certain creditors including $845,000 in deferred compensation to the CEO/President and $155,000 in legal fees to VP/Director of the Company. ITEM 8 - FINANCIAL STATEMENTS - ------------------------------- - 8 - 9 INDEPENDENT AUDITOR'S REPORT ---------------------------- The Board of Directors HITK Corporation 40 First Street Nanuet, New York 10954 I have audited the accompanying balance sheet of HITK Corporation as of February 28, 1999 and 1998, and the related statements of operations and changes in net assets for the three years then ended, and the schedule listed in the index at Item 14. These consolidated financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these consolidated financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HITK Corporation at February 28, 1999 and February 29, 1998, and the results of its operations and changes in its net assets for the years then ended in conformity with generally accepted accounting principles. The schedule referred to above presents fairly, in all material respects, when read in conjunction with the related consolidated financial statements, the information therein set forth. As discussed more fully in Notes to the Financial Statements, securities and note receivable amounting to $13,300 and $249,400 respectively (1.97% and 19.04% of total assets) have been valued at fair value as determined by the Board of Directors. I have reviewed the procedure applied by the directors in valuing such securities and have inspected underlying documentation; while in the circumstances the procedures appear to be reasonable and the documentation appropriate, determination of fair value involves subjective judgment which is not susceptible to substantiation by auditing procedures. - 9 - 10 The accompanying Financial Statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 6, the Company settled the litigation with Bell Atlantic Systems Leasing International, Inc., resulting in a loss of $955,361. As a result of this settlement and continuing losses from operations, the Company has a deficit stockholders equity of $(344,500). This condition raises substantial doubt about the Company's ability to continue as a going concern. Management's plan with regard to these matters are described in Note 9. These Financial Statements do not include any adjustments that might result. Respectfully submitted, /s/ Sanford Feibusch -------------------------- Sanford Feibusch Certified Public Accountant Monsey, New York May 20, 1999 - 10 - 11 HITK CORPORATION ---------------- BALANCE SHEET ------------- AS OF FEBRUARY 28, 1999 AND 1998 --------------------------------
ASSETS 1999 1998 ---- ---- CURRENT ASSETS: Cash and Cash Equivalents $ 655,500 $ 568,800 Restricted Cash -- 25,900 Marketable Securities (Cost $14,982 and $21,122, respectively) 5,600 29,700 Other Investments (Cost $52,900 and $64,600, respectively) -- -- Notes Receivable - Net of allowance for doubtful accounts of $319,500 and $69,700 respectively) 7,700 219,700 Other Current Assets 7,300 1,600 ----------- ----------- Total Assets $ 676,100 $ 845,700 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ CURRENT LIABILITIES: - -------------------- Accounts Payable and Accrued Expenses $ 1,020,600 $ 1,036,300 ----------- ----------- COMMITMENTS AND CONTINGENCIES - ----------------------------- STOCKHOLDER'S EQUITY (DEFICIT): - ------------------------------- Common Stock, Par Value $.001 Per Share 6,250,000 Shares Authorized 3,346,630 Shares Issued and Outstanding 3,400 3,400 Additional Paid-in Capital 5,622,600 5,622,600 Retained Earnings (5,061,500) (4,913,800) Net Unrealized Appreciation (Depreciation) on Investments (62,200) (56,000) ----------- ----------- Total 502,300 656,200 Less: Treasury Stock 230,105 Shares at Cost 846,800 846,800 ----------- ----------- Total Stockholder's Equity (Deficit) (344,500) (190,600) ----------- ----------- Total Liabilities and Stockholder's Equity $ 676,100 $ 845,700 =========== ===========
See Notes to Consolidated Financial Statements. - 11 - 12 HITK CORPORATION ---------------- STATEMENT OF OPERATIONS ----------------------- FOR THE YEARS ENDED ------------------- FEBRUARY 28, 1999, 1998 AND 1997 --------------------------------
1999 1998 1997 ---- ---- ---- Realized Gain (Loss) on Investments $ 49,100 $ -- $ -- --------- --------- --------- OTHER INCOME: - ------------- Interest and Dividends 43,300 86,400 113,100 --------- --------- --------- Net Investment Income (Loss) 92,400 86,400 113,100 --------- --------- --------- EXPENSES: - --------- Officer's Salary 120,000 120,000 120,000 Stockholder's Services and Reports 2,700 2,700 2,700 Other General and Administrative Expenses 141,400 52,100 45,200 Bad Debt Expense 249,700 -- -- --------- --------- --------- Total Expenses 513,800 174,800 167,900 --------- --------- --------- Net Income(Loss) from Operations (421,400) (88,400) (54,800) --------- --------- --------- EXTRAORDINARY ITEMS: - -------------------- Loss on Settlement of Litigation -- (958,300) -- Gain Settlement Bankruptcy Debts 23,700 178,000 -- Forgiveness of Debt 100,000 -- -- Insurance Proceeds 150,000 -- -- --------- --------- --------- Total Extraordinary Items 273,700 (780,300) -- --------- --------- --------- UNREALIZED APPRECIATION (DEPRECIATION) - -------------------------------------- ON INVESTMENTS -------------- Marketable Securities (9,400) 8,600 -- Other Investments 3,200 -- -- --------- --------- --------- Total (6,200) -- -- --------- --------- --------- Increase (Decrease) in Net Assets Resulting from Operations $(153,900) $(860,100) $ (54,800) ========= ========= =========
See Notes to Consolidated Financial Statements. - 12 - 13 HITK CORPORATION ---------------- STATEMENT OF CHANGES IN NET ASSETS ---------------------------------- FOR THE YEARS ENDED ------------------- FEBRUARY 28, 1999, 1998 AND 1997 --------------------------------
1999 1998 1997 ---- ---- ---- INCREASE IN NET ASSETS RESULTING - -------------------------------- FROM INVESTMENT ACTIVITIES: --------------------------- Net Income(Loss) from Operations $(421,400) $ (88,400) $ (54,800) Extraordinary Items 273,700 (780,300) -- Net Unrealized Appreciation (Depreciation) on Investments (6,200) 8,600 -- --------- --------- --------- Increase (Decrease) in Net Assets (153,900) (860,100) (54,800) Net Assets - Beginning of Year (190,600) 669,500 724,300 --------- --------- --------- Net Assets - End of Year $(344,500) $(190,600) $ 669,500 ========= ========= =========
See Notes to Consolidated Financial Statements. - 13 - 14 HITK CORPORATION ---------------- STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY -------------------------------------------- FOR THE YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997 ----------------------------------------------------
Net Unrealized Number of Additional Appreciation Total Shares Common Paid-In Retained (Depreciation) Treasury Stockholder's Issued Stock Capital Earnings on Investments Stock Equity --------- ----------- ------------ -------- -------------- ----------- -------------- Balance-March 1, 1996 3,346,630 $ 3,400 $ 5,622,600 $(3,990,300) $ (64,600) $ 846,800 $ 724,300 Net (Loss) for the Year Ended February 28, 1997 (54,800) (54,800) --------- ----------- ----------- ----------- ----------- ----------- ----------- 3,346,630 3,400 5,622,600 (4,045,100) (64,600) 846,800 669,500 Net (Loss) for the Year Ended February 28, 1998 (868,700) 8,600 (860,100) --------- ----------- ----------- ----------- ----------- ----------- ----------- 3,346,630 3,400 5,622,600 (4,913,800) (56,000) 846,800 (190,600) Net (Loss) for the Year Ended February 28, 1999 (147,700) (6,200) (153,900) --------- ----------- ----------- ----------- ----------- ----------- ----------- Balance February 28, 1999 3,346,630 $ 3,400 $ 5,622,600 $(5,061,500) $ (62,200) $ 846,800 $ (344,500) ========= =========== =========== =========== =========== =========== ===========
See Notes to Consolidated Financial Statements. - 14 - 15 HITK CORPORATION ---------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- FEBRUARY 28, 1999 ----------------- NOTE 1 - ORGANIZATION - --------------------- HITK Corporation (formerly High Technology Capital Corporation) (the "Company") was organized and incorporated on March 10, 1983, under the laws of the State of Delaware. The Company has authorized capital of 6,250,000 shares of common stock, par value $.001 per share. The Company has registered under the Investment Company Act of 1940 and has elected to be treated as a "Business Development Company." NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- VALUATION OF ASSETS - Management has valued all securities and receivables at what they consider to be their net realizable value. An allowance will be recorded when value of the asset has been impaired. INCOME TAXES - Deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end. The tax benefit to operating losses and tax credit carryforwards are recognized if management believes, based on available evidence, that is more likely than not that they will be realized. Investment tax credits are accounted for under the flow-through method. CONCENTRATION OF CREDIT RISK - Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents in excess of FDIC limits. ANTICIPATED EFFECT OF RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS - The Company does not expect the effect of recently issued accounting standards, when adopted, to have a material impact on its financial position and results of operations. CASH AND CASH EQUIVALENTS - Cash equivalents include all highly liquid investments with an original maturity of three months or less. - 15 - 16 HITK CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) FEBRUARY 28, 1999 NOTE 3 - NOTES RECEIVABLE Note receivable at February 28, 1999 and 1998, in the amount of $7,700 and $219,700 respectively, has been valued by management at what they consider to be the net realizable value. The Company has a note receivable with a principal amount of $570,000 which they had acquired for $289,500 and had previously set up a reserve for $69,800. In August, 1998, the borrower ceased making payment, and collection of the principal and unpaid interest cannot be determined. The Company has recorded an allowance of $219,700 in 1999, for the principal not previously reserved. The note is due June 24, 2015, with an annual interest rate of 9.5%. In July, 1998, the Company loaned $30,000 payable in twelve monthly installments of $2,630.13, including principal and interest at 9.5%, the final payment due September 1, 1999. None of the payments were made and the Company has recorded an allowance for bad debts of $30,000 since collection of the principal and interest cannot be determined. In May, 1998, the Company loaned $15,000 payable in twelve monthly installments, interest of 10.5% only for three months, eight monthly installments of $1,322.23 with a balloon payment of $5,220.49 due May 25, 1999. NOTE 4 - RESTRICTED CASH In accordance with the Third Amended Plan of reorganization filed under Chapter 11 of the Bankruptcy Code, all proceeds from the sale of plan assets were deposited in an interest bearing disbursement account from which the Company was to make payments on all allowed claims only upon order of the Bankruptcy Court. The balance in this disbursement account at February 28, 1998 was $25,900. The account was closed in 1998. NOTE 5 - INCOME TAXES The Company filed a consolidated Federal Income Tax Return which included its wholly owned subsidiaries. For tax purposes, the Company has a net operating loss carryforward of approximately $ 7,208,000 which expires as follows: - 16 - 17 HITK CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) FEBRUARY 28, 1999 NOTE 5 - INCOME TAXES (CONTINUED) December 31, 2002 $ 3,250,000 2003 605,000 2004 2,480,000 2005 225,000 2006 105,000 2007 65,000 2008 85,000 2009 100,000 2010 55,000 2011 55,000 2012 860,000 2013 97,000 ------------ Total $ 7,208,000 ============
NOTE 6 - SETTLEMENT OF LITIGATION In March, 1997, subject to Bankruptcy Court approval, the Company and Bell Atlantic Systems Leasing International, Inc. (Bell Atlantic) entered into a settlement agreement pursuant to which Bell Atlantic agreed to compromise its claims against the Company which were in excess of $4,000,000 for payment of the sum of $955,361. In addition, the Company and Bell Atlantic released all claims as against the other. In October, the Bankruptcy Court entered an order approving the settlement and authorized the Company to pay Bell Atlantic the settlement amount, which has been recorded in the financial statements as an extraordinary loss resulting from settlement of litigation. In 1997, the Bankruptcy Court also approved the settlement agreement between the Company and the Solar Age shareholders which was the subject of the litigation entitled HITK Corporation v. Allen Schwanke, et.al., pursuant to which the Solar Age shareholders compromised their claims as against the Company for the payment of $3,000. In September, 1998, the Company settled a claim with its insurance company and collected $150,000 related to the Bell Atlantic litigation. - 17 - 18 HITK CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) FEBRUARY 28, 1999 NOTE 7 - BANKRUPTCY On October 21, 1988, as a result of Bell Atlantic obtaining an order freezing all of HITK's assets, the Company was forced to file a voluntary petition under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court, District of Nevada. On September 13, 1989, the Unites States Bankruptcy Court confirmed HITK's plan of reorganization terminating the bankruptcy proceedings. In October, 1997, the Bankruptcy Court approved the settlement entered into between the Company and Bell Atlantic, and approved the payment to Bell Atlantic of $955,361 from the disbursement account. During 1997, pursuant to objections filed by the Company, the Bankruptcy Court entered a series of orders which disposed of all but one of the disputed claims. The total amount disbursed by the Company on the claims of all creditors other than the claim of Bell Atlantic and the one remaining disputed claimant was $283,532, which was less than the amount previously recorded, and resulted in an extraordinary gain of $178,000 on the settlement of these claims. In 1998, the remaining disputed claim was dismissed and the Company recorded an extraordinary gain on the settlement of bankruptcy debts. In June, 1998, an order was entered by the Bankruptcy Court closing the bankruptcy proceedings. NOTE 8 - RELATED PARTY TRANSACTIONS On January 3, 1999, the Company entered into an agreement with Mr. Robert N. Schuck, Chief Executive Officer and President of the Company, whereby Mr. Schuck forgave $100,000 of indebtedness due him in exchange for shares of stock in several dormant companies for which there is no bid price, and which the Company had previously written off as worthless securities. - 18 - 19 HITK CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) FEBRUARY 28, 1999 NOTE 9 - GOING CONCERN As of February 28, 1999, the Company had a stockholders deficit of $344,500. This is a result of recurring operating losses and the extraordinary loss of $955,361 recorded from the settlement between Bell Atlantic and the Company. The Management of the Company intends to take the following actions to alleviate the continuing going concern problem. (A) Litigate collection on notes which are in default that the Company has recorded as 100% reserve. (B) Sell the Company's shares in corporations which had previously been written off. (C) Negotiate a reduction of liabilities with certain creditors, including $845,000 in deferred compensation to the CEO/President and $155,000 in legal fees to VP/Director of the Company. - 19 - 20 ITEM 9. - CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. (Balance of Page Left Intentionally Blank) - 20 - 21 HITK 10-K PART III ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Identification of Directors
Name Age Director Since ---- --- -------------- Robert N. Schuck 62 1986 Herbert Maslo 61 1990 John Gitlin 56 1997
Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and have qualified. (b) Identification of Executive Officers
Name Age Office Officer Since ---- --- ------ ------------- Robert N. Schuck 62 C.E.O./President 1987/1986 John Gitlin 56 V. President 1997
Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of stockholders and until the successors have been elected and have qualified. (c) The following is a brief account of the business experience of each officer and/or director of the Company during the past ten years. Robert N. Schuck has been an officer of the Company since September, 1985. In May, 1986, he was elected President and a director of the Company. In addition, Mr. Schuck is an officer and/or director of various affiliates of the Company. Mr. Schuck has been a director of Power Tech Systems, Inc. since September, 1988. Mr. Schuck had been Executive Vice President and a director of Executive Telecard Ltd. from 1989 to 1997, and is President and a director of Cathel Partners, Inc., a publicly-held corporation in which HITK is 53.27% stockholder. Herbert Maslo has been a director of the Company since March, 1990. In March, 1990, he became a director and President of Power Tech Systems, Inc. Prior to that, Mr. Maslo had retired from New York Telephone, a division of Nynex, after 23 years where he held various engineering positions including central office planning, installations and engineering as a project manager. Mr. Maslo holds a B.A. Degree in Mechanical Engineering from the Newark College of Engineering. - 21 - 22 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED) John Gitlin has been a director of the Company since January, 1997, and an Officer since October, 1997. From 1978 to 1982, Mr. Gitlin held the position of staff attorney with the United States Department of Justice, Antitrust Division. From 1982 through April of 1994, Mr. Gitlin was a partner in the law firm of Fischer, Gitlin & Sanger in Dallas, Texas. From May, 1994, to 1997, Mr. Gitlin held the position of Secretary with Executive Telecard, Ltd. ITEM 11 - EXECUTIVE COMPENSATION The following represents a schedule of the most highly compensated executive officers or directors of the Company to whom the total remuneration required to be disclosed exceeds $60,000. and all directors and officers of the Company as a group.
Name of Individual Capacities in Cash and Equivalent or Persons in Group Which Served Forms of Compensation ------------------- ------------ --------------------- All Officers as a group (1 person) N/A None.
(a) Stock Options During the fiscal year 1999, there were no options available for the directors and officers listed as a group in the Executive Compensation Table. (b) Termination of Employment and Change of Control Arrangement The Company has no compensatory plan or arrangement with respect to any individual named in the Executive Compensation Table (Item 11) which results or will result from the resignation, retirement or any other termination of such individual's employment with the Company or from a change in control of the Company or a change in the individual's responsibilities following a change in control. - 22 - 23 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The individuals listed below are known to the Company to be beneficial owners of more than 5% of the 3,116,075 shares of the Company's outstanding common stock (all of which are $.001 par value) as of February 28, 1999.
Number of Shares Name and Address Owned of Record Percent of Common of Beneficial Owner and Beneficially Stock Outstanding ------------------- ---------------- ----------------- Deborah Isaacson 395,500 12.35% ------ Robert N. Schuck 587,891 18.87% ------
(B) SECURITY OWNERSHIP OF MANAGEMENT The table presented below represents the number of shares and percentage of common stock outstanding of the Company owned by each of the Directors and Officers of the Company as of the year ended February 28, 1999.
Name and Address Shares Owned of Percent of Common of Beneficial Owner Record and Beneficially Stock Outstanding ------------------- ----------------------- ----------------- Robert N. Schuck 68 Schraalenburg Road 587,891 18.87% Harrington Park, NJ 07640
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS No additional information other than that already indicated in this 10-K and those documents incorporated by reference herein. - 23 - 24 FORM 10-K PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K
PAGE ---- (a)(1) The following financial statements and schedules are included in Part II, Item 8: Report of Independent Certified Public Accountants 9 - 10 Financial Statements: Consolidated Balance Sheet as of February 28, 1999 and 1998 11 Consolidated Statement of Operations for the three years ended February 28, 1999. 12 Consolidated Statement of Changes in Net Assets for the three years ended February 28, 1999. 13 Consolidated Statement of Changes in Stockholders' Equity for the three years ended February 28, 1999. 14 Notes to Consolidated Financial Statements. 15 - 19 (a)(2) The following financial schedules for the year 1999 are submitted herewith: Schedule I - Investment in Securities of Affiliated and Unaffiliated Issuers 25
All other schedules are omitted as they are note applicable or are not required, or the information is given in the financial statements. - 24 - 25 HITK CORPORATION INVESTMENTS IN SECURITIES OF AFFILIATES AND UNAFFILIATED ISSUERS FEBRUARY 28, 1999 SCHEDULE I
NUMBER OF SHARES OF FAIR VALUE ACQUISITION COMMON STOCK ---------------------- AFFILIATES DATE OWNED PER SHARE TOTAL COST - ---------- ---- ----- --------- ----- ---- NONRESTRICTED SHARES PUBLIC COMPANIES: Cathel Partners, Inc. (previously, B. C. Communications) February 1987 250,055 $ - $ - $52,800 Total $52,800 ======= NON AFFILIATES NONRESTRICTED SHARES PUBLIC COMPANIES: PTI Holdings, Inc. April 1998 2,000 2.813 5,626 14,982 Total Value of Affiliates and Nonaffiliates $5,626 $67,782 ========= =======
- 25 - 26 INVESTMENT CHARACTERISTICS DISCLOSURE STATEMENT Pursuant to Section 64(b) (1) of the Investment Company Act of 1940, a business development company is required to describe the risk factors involved in an investment in the securities of such company due to the nature of its investment portfolio. Accordingly, the Company states that: The fundamental earnings object is dependent upon the growth in value of the usually small and/or immature companies in which the Company invests. The Company's investment portfolio includes securities which, in addition to being unable to pay dividends, are subject to legal or contractual restrictions on resale, which restrictions adversely affect the liquidity and marketability of such securities. The Company's Business Development Investments were, in the main, planned to take several years (4 to 7) to mature with the result that common stock stockholders may not experience in the next few years, if ever, any gain (whether through stock price appreciation or dividend distribution) on their investment. - 26 - 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HITK CORPORATION Dated: July 7, 1999 BY: /S/ Robert N. Schuck Robert N. Schuck Chief Executive Officer President and a Director Pursuant to requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dated indicated. Dated: July 7, 1999 BY: /S/ Robert N. Schuck Robert N. Schuck Chief Executive Officer President and a Director Dated: July 7, 1999 BY: /S/ Herbert Maslo Herbert Maslo Director Dated: July 7, 1999 BY: /S/ John Gitlin John Gitlin Director - 27 - EX-27 2 FINANCIAL DATA SCHEDULE
5 YEAR FEB-28-1999 MAR-01-1998 FEB-28-1999 655,500 5,600 0 0 0 676,100 0 0 0 1,020,600 0 0 0 (344,500) 0 676,100 0 92,400 0 0 513,800 0 0 0 0 (421,400) 0 273,700 (6,200) (153,900) (.05) (.05)
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