WILTEK, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheet -
at April 30, 1997 3
Consolidated Statement of Operations and Accumulated Deficit
for the Three and Six Months Ended April 30, 1997 and 1996 4
Consolidated Statement of Cash Flows
for the Six Months Ended April 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 9
PART II. OTHER INFORMATION 10
Wiltek, Inc.
Consolidated Balance Sheet
(Unaudited)
April 30,
1997
ASSETS Unaudited
Current Assets
Cash and cash equivalents $ 289,100
Accounts receivable, less
allowance for doubtful
accounts $34,200 1,099,300
Other current assets 88,200
Total Current Assets 1,476,600
Equipment, net 519,000
$1,995,600
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Obligation under capital lease, current portion $74,900
Accounts payable and
accrued expenses 762,100
Deferred income 7,100
Total Current Liabilities 844,100
Long-Term Liabilities
Obligation under capital lease, less current portion 102,800
Commitments and Contingent Liabilities
Shareholders' Equity
Preferred Stock 1,000,000 shares authorized
and unissued
Common Stock, stated value $.33-1/3 per share,
9,000,000 shares authorized;
shares issued:
4,826,693 1,608,900
Paid in capital 5,646,700
Deficit (4,815,200)
Less treasury stock at cost
1,136,235 shares (1,391,700)
Total Shareholders' Equity 1,048,700
$1,995,600
<FN>
See accompanying notes to consolidated financial statements.
Wiltek, Inc.
Consolidated Statement of Operations and Accumulated Deficit
(Unaudited)
Three Months Ended Six Months Ended
April 30 April 30
1997 1996 1997 1996
Net Revenues
Communication services $1,404,800 $1,258,200 $2,925,600 $2,498,500
Costs and Expenses
Cost of communication services 791,100 668,400 1,599,600 1,285,500
Sales expense 301,100 236,900 546,900 489,700
General and administrative
Expense 228,300 220,500 427,300 423,300
Research and development
Expense 141,300 105,400 253,500 205,100
Interest expense 9,100 1,000 14,200 2,600
1,470,900 1,232,200 2,841,500 2,406,200
Net Income (Loss) (66,100) 26,000 84,100 92,300
Deficit at Beginning of Period
(4,749,100) (4,923,300) (4,899,300)(4,989,600)
Deficit at End of Period
($4,815,200) ($4,897,300) ($4,815,200)($4,987,300)
Earnings (Loss) Per Common Share:
Primary( ($.02) $.01 $.02 $.02
Fully Diluted ($.02) $.01 $.02 $.02
Number of Shares used in
per share calculation:
Primary 3,675,458 3,934,399 3,964,887 3,934,399
Fully Diluted 3,675,458 3,934,399 3,964,887 3,934,399
<FN>
See accompanying notes to consolidated financial statements.
Wiltek, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
April 30
1997 1996
Cash Flow from Operating Activities:
Net Income $ 84,100 $92,300
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 121,400 89,400
Insurance of treasury
stock as bonus 8,300
(Increase) in accounts receivable
and other current assets (301,700) (24,900)
Increase (decrease) in accounts payable
and accrued expenses 69,400 (126,600)
Total adjustments (102,600) ( 62,100)
Net cash provided (used) in operating
activities ( 18,500) 30,200
Cash Flows from Investing Activities:
Capital expenditures (27,100) (85,600)
Net cash provided (used) in investing activities(27,100) (85,600)
Cash Flows from Financing Activities:
Proceeds from exercise of stock options 300
Payment under capital lease obligation (72,900) (43,400)
Net cash (used) in financing activities (72,900) (43,100)
Net increase (decrease) in cash and
cash equivalents (118,500) (98,500)
Cash and cash equivalents
at beginning of period 407,600 444,200
Cash and cash equivalents at end of period $289,100 $345,700
Supplemental disclosure of cash flow information
Cash paid during the six months for:
Interest 18,300 7,000
Income taxes 3,200 3,100
Supplemental schedule of non-cash investing and financing activities
During the first six months of fiscal 1997 capital lease obligations of $71,400
were incurred when the Company entered into leases for new equipment. Capital
expenditures in accounts payable amount to $11,367.
The second quarter ending April 30, 1996, includes a capital lease obligation
of
$34,600 which was incurred when the company entered into a lease for new
equipment.
<FN>
See accompanying notes to consolidated financial statements.
WILTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of April 30, 1997, and the related
consolidated statements of operations and accumulated deficit for the three and
six month periods ended April 1997, and 1996 and the consolidated statement of
cash flows for the six month periods ended April 1997, and 1996 are unaudited;
in the opinion of management, all adjustments necessary for a fair presentation
of such financial statements have been included. Such adjustments consisted
only of normal recurring items. Interim results are not necessarily indicative
of results for a full year.
The financial statements as of April 30,1997 and for the three and six month
periods then ended should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-KSB for
year ended October 31, 1996.
The accounting policies followed by the company with respect to the unaudited
interim financial statements are consistent with those stated in the 1996
Wiltek, Inc. Annual Report on Form 10-KSB.
The company does not engage in a formal risk management program with respect to
foreign currency exposure. Typically the company maintains cash balances in UK
banks to provide for the working capital requirements of Wiltek (UK) Ltd. As of
April 30, 1997 and April 30, 1996 these deposits amounted to $49,200 and
$114,100, respectively. The company receives a portion of its revenue from
foriegn revenue sources, incurs service costs in England denominated in UK
pounds and has assets and liabilities in the UK. These factors give rise to
currency risks which are dependent upon the fluctuation in exchange rates
between the US dollar and UK pound. Wiltek does not use derivative instruments
to hedge this risk.
Earnings per common share were determined by dividing net earnings (loss) by
weighted average number of common and dilutive common equivalent shares
outstanding.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" which is effective for
financial statements issued after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and full diluted
earnings per share and requires presentation of basic and diluted earnings per
share together with disclosure of how the per share amounts were computed. The
effect of adopting this new standard is not expected to have a material impact
on the disclosure of earnings per share in the financial statements.
In accordance with the SFAS 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. However, in view of the
uncertainty as to whether the Company will produce sufficient taxable income to
utilize its deferred tax assets, 100% valuation allowance has been established
against such deferred tax assets. To offset taxable income during the period
ending April 30, 1997, the company used $136,100 and $139,200 in operating loss
carry forwards for federal and state tax purposes, respectively. This results
in a reduction of deferred tax assets in the amount of $25,500.
In accordance with the terms of contracts with some of its customers, the
Company pays the common carrier communication costs incurred by the customers.
The Company is reimbursed by the customers for these costs. The reimbursements
are reflected as a reduction of expenses in the Company's consolidated
statement
of operations and is not included in revenues. Amounts billed to the Company
and subsequently re-billed to the customers during the six month periods ended
April 30, 1997 and 1996 were $247,200 and $244,800, respectively.
During the quarter ended April 30, 1997, two customers accounted for more than
10% of the Company's total revenues. These customers accounted for 19.6% and
10.3% of total revenues.
During the six months ended April 30, 1996, two customers accounted for more
than 10% of the Company's total revenues. These customers accounted for 18.1%,
and 15.6%, of total revenues.
WILTEK, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
Cash and cash equivalents have decreased by $118,500 from $407,600 at October
31, 1996 The decrease in cash was due to net cash used in operating activities
of $18,500, capital expenditures during the period of $27,100 and payments for
capital lease obligations of $72,900. The main cause of the decrease in cash
from operating activities was the increase in accounts receivable of $301,700
which was partially offset by net income, depreciation, and an increase in
accounts payable in the amounts of $84,100, $121,400, and $69,400
respectively.
Capital expenditures for the third quarter are expected to be approximately
$122,000. We expect that existing cash resources and cash flow from operations
will meet these capital requirements.
Results of Operations
Communication revenues for the six months ended April 30, 1997, have increased
by $427,100 when compared to the six months ended April 30, 1996. Communication
revenues increased by $146,600 during the second quarter ended April 30, 1997
when compared to the same period last year. An increase in consulting services
resulted in increased revenues.
COMPARISON OF
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, 1997 AND 1996 APRIL 30, 1997 AND 1996
$ % $ %
Net Revenues 146,600 12 427,100 17
Cost of Services 122,700 18 314,100 24
Sales expense 64,200 27 57,200 12
General and administrative
Expenses 7,800 4 4,000 1
Research and development
Expense 35,900 34 48,400 24
Interest expense 8,100 NM 11,600 NM
Net Income (loss) (92,100) NM (8,200) (9)
<FN>
NM - Not Meaningful
Revenues from operations have increased by 17% for the six months ended April
30, 1997, and 12% for the quarter, respectively, versus the same periods last
year due to increased consulting services.
Three Months Ended Six Months Ended
April 30 April 30
1997 1996 1997 1996
Communication Services
Revenue $1,404,800 $1,258,200 $2,925,600 $2,498,500
Communication Services
Costs 791,100 668,400 1,599,600 1,285,500
Gross Profits $ 613,700 $589,800 $1,326,000 $1,213,000
Gross Profit Margins 44% 47% 45% 49%
The gross profit margin for Communication Services has decreased in both
comparative periods The decrease in the profit margin is a result of consulting
activities with reduced margins and re-negotiated communication services
agreements also with reduced margins.
Sales expense: The company's selling expenses amounted to 21.4% of total
revenues in the second quarter of 1997 as compared to 18.8% during the same
period last year. The company's selling expenses for the six months ending
April 30, 1997, amounted to 18.7% of total revenues compared to 19.6% in the
prior year. The increase in Sales expense is due to the addition of sales
personnel, sales office space and related expenses for telephone and new
equipment.
General and administrative expenses: There were no significant change in the
three and six months ended April 30, 1997, compared to the same periods last
year.
Research and development: The increase in expense for the three and six months
compared to the same periods last year is the result of the addition of one
executive position. The increase in research and development is also due to
increased depreciation from new equipment purchases.
Interest expense:Due to current low interest rates available on cash balances,
interest income declined for the three and six months ended April 30, 1997.
Interest income is offset by an increase in interest expense due to the Company
entering into capital lease obligations.
Taxes:Due to losses in prior periods and the use of net loss carry forward for
the three and six month periods, Federal or State income tax provisions are not
provided.
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
Reports on Form 8-K.
A form 8-K was filed on January 21, 1997, announcing Wiltek, Inc. has appointed
the following individuals as officers of the company:
David Peter Holst-Grubbe - Vice President, Sales
William P. Bunce - Vice President, Marketing
Kevin C. Carathansis - Vice President, Services
A form 8-K was filed on May 6, 1997, announcing Wiltek, Inc. has recently
entered into a letter of intent with SplinterCom, Inc. regarding a potential
financial arrangement between the two organizations.
SIGNATURE
Pursuant to the requirements 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.
Date: June 2, 1997 WILTEK, INC.
DAVID S. TEITELMAN
____________________________
David S. Teitelman
President