Wiltek, Inc.
Index
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheet at April 30, 1998 3
Consolidated Statement of Operations and Accumulated Deficit
for the Three and Six Months Ended April 30, 1998 and 1997 4
Consolidated Statement of Cash Flows
for the Six Months Ended April 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION 11
Wiltek, Inc.
Consolidated Balance Sheet
(Unaudited)
April 30,
1998
ASSETS
Current Assets
Cash and cash equivalents
$ 346,400
Accounts receivable, less
allowance for doubtful accounts $33,200 1,272,200
Other current assets 113,000
Total Current Assets 1,731,600
Equipment, net 911,300
$ 2,642,900
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Obligation under capital lease, current portion $ 146,600
Accounts payable and accrued expenses 1,107,900
Deferred income 5,100
Total Current Liabilities 1,259,600
Long Term Liabilities
Obligation under capital lease, less current portion 135,400
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; 4,840,693 shares issued 1,613,500
Paid in capital 5,595,500
Accumulated Deficit (4,744,600)
Less treasury stock at cost: 992,565 shares (1,216,500)
Total Shareholders' Equity 1,247,900
$ 2,642,900
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,
1998 1997 1998 1997
Net Revenues
Communication services $1,954,500 1,404,800 $3,774,100 2,925,600
Costs and Expenses
Cost of communication
services 1,223,600 791,100 2,399,400 1,599,600
Sales expense 262,300 301,100 517,700 546,900
General & admini-
strative expense 275,900 228,300 525,200 427,300
Research and
Development 102,600 141,300 194,700 253,500
Interest expense 10,700 9,100 21,600 14,200
1,875,100 1,470,900 3,658,600 2,841,500
Net Earnings (Loss) 79,400 (66,100) 115,500 84,100
Accumulated Deficit at
Beginning of Period (4,824,000) (4,749,100) (4,860,100)(4,899,300)
Accumulated Deficit at
End of Period (4,744,600) (4,815,200) (4,744,600)(4,815,200)
Earnings Per Common Share:
Basic $ .02 $ (.02) $ .03 $ .02
Assuming Dilution $ .02 $ (.02) $ .03 $ .02
Number of shares used in
per share calculation:
Basic 3,823,661 3,663,764 3,831,816 3,670,180
Assuming Dilution 4,098,490 3,922,923 4,137,267 3,883,616
<FN>
See accompanying notes to consolidated financial statements.
Wiltek, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
April 30,
1998 1997
Cash Flow From Operating Activities:
Net Earnings $115,500 $84,100
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 102,800 121,400
(Increase) in accounts receivable and
other current assets (172,800) (301,700)
Increase (decrease) in accounts payable
and accrued expenses (67,200) 69,400
Issuance of treasury stock as bonus 37,400 8,300
Total adjustments (99,800) (102,600)
Net cash provided (used) by operating
Activities 15,700 (18,500)
Cash Flow Used in Investing Activities:
Capital expenditures (127,900) (27,100)
Net cash (used) in investing activities (127,900) (27,100)
Cash Flow Used in Financing Activities:
Proceeds from exercise of stock options 1,000
Payments under capital lease obligations (69,100) (72,900)
Net cash (used) in financing activities (68,100) (72,900)
Net decrease in cash and cash equivalents (180,300) (118,500)
Cash and cash equivalents at beginning of period 526,700 407,600
Cash and cash equivalents at end of period 346,400 289,100
Supplemental Disclosure of Cash Flow Information
Cash paid during the six months for:
Interest 29,500 18,300
Income taxes 2,600 3,200
Non-cash investing and financing activities:
Capital expenditures in accounts payable 131,900 11,400
Capital lease obligations incurred
for fixed asset acquisitions 136,800 71,400
<FN>
See accompanying notes to consolidated financial statements.
Wiltek, Inc.
Notes To Consolidated Financial Statements
The Consolidated Balance Sheet as of April 30, 1998, and the related
Consolidated Statements of Operations and Accumulated Deficit for the
three and six month periods ended April 30, 1998, and 1997 and the
Consolidated Statement of Cash Flows for the six month periods ended
April 30, 1998 and 1997 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 30,1998 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 the year ended October 31, 1997.
The accounting policies followed by the company with respect to the
unaudited interim financial statements are consistent with those
stated in the 1997 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 require-
ments of Wiltek (UK) Ltd. As of April 30, 1998 and April 30, 1997 these
deposits amounted to $155,000 and $49,200 respectively. The company
receives a portion of its revenue from foreign 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.
The company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("FAS 128") as of the first
quarter fiscal 1998. FAS 128 revised the standards for computation and
presentation of earnings per share ("EPS"), requiring the presentation
of both basic EPS and EPS assuming dilution. Basic EPS is based on the
weighted average shares outstanding during the applicable period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock. Prior periods have been restated to
conform with the provisions of FAS 128.
For the periods presented in the Consolidated Statement of Operations and
Accumulated Deficit, the calculations of basic EPS and EPS assuming dilution
vary in that the weighted average shares outstanding assuming dilution
includes the incremental effect of stock options.
Reconciliation of Basic and Diluted EPS computations:
Three Months Ended April 30,
1998 1997
Income Shares Per Share Income Shares Per Share
Basic EPS
Income available to Common Stockholders
$ 79,400 3,823,661 $.02 $(66,100) 3,663,764 $(.02)
Effect of Dilutive Securities
Stock Options
_______ 274,829 _______ 259,159
Diluted EPS
Income available to Common Stockholders
plus assumed conversions
$ 79,400 4,098,490 $.02 $(66,100) 3,922,923 $(.02)
Six Months Ended April 30,
1998 1997
Income Shares Per Share Income Shares Per Share
Basic EPS
Income available to Common Stockholders
$115,500 3,831,816 $.03 $84,100 3,670,180 $.02
Effect of Dilutive Securities
Stock Options
_______ 305,451 _______ 213,436
Diluted EPS
Income available to Common Stockholders
plus assumed conversions
$ 115,500 4,137,267 $.03 $84,100 3,883,616 $.02
Options to purchase 349,500 shares of common stock, 160,000 of which were
issued during the six months ended April 30, 1998, at prices ranging from
$0.81 to $2.94 were outstanding during the six months ended April 30, 1998.
These options were not included in the computation of diluted EPS because
the options' exercise price was greater than the average market price
of the common shares. The options, which expire June 7, 1998, to
December 15, 2007 were still outstanding at April 30, 1998.
Options to purchase 264,500 shares of common stock, 25,000 of which were
issued during the six months ended April 30, 1997, at prices ranging
from $0.56 to $$2.94 were outstanding during the six months ended
April 30, 1997. These options were not included in the computation
of diluted EPS because the options' exercise price was greater than the
average market price of the common shares. The options, which expire
June 7, 1998 to March 27, 2008, were still outstanding at April 30, 1997
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,
a 100% valuation allowance has been established against such deferred
tax assets. To offset taxable income during the six months ending April
30, 1998, the Company used $202,500 and $206,600 in operating loss carry
forwards for federal and state tax purposes, respectively. This resulted
in a reduction of deferred tax assets in the amount of $67,200. To
offset taxable income during the six months 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 resulted in a
reduction of deferred tax assets in the amount of $25,500.
During the six months ended April 30, 1998 and 1997, approximately
14.7% and 31.5% respectively, of total purchases of the Company
were made from one vendor. Management believes that there is a
ready source of alternative suppliers should a need arise. Therefore,
loss of this supplier would not cause a delay or loss of sales.
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.
These reimbursements are reflected as a reduction of expenses in the
Company's Consolidated Statement of Operations and are not included in
revenues. Amounts billed to the Company and subsequently re-billed to
customers during the six month periods ended April 30, 1998 and 1997
were $327,000 and $345,400, respectively.
During the six months ended April 30, 1998, two customers accounted for
more than 10% of the Company's total revenues. These customers were
Microsoft and Sea-Land, representing 11.5% and 11.2% of revenues,
respectively. During the six months ended April 30, 1997, two customers
accounted for more than 10% of
the Company's total revenues. These customers were Sea-Land and Ford Motor
Company, representing 18.1% and 15.6% of revenues, respectively.
During the six months ended April 30, 1998, two customers accounted for
10% or more of the Company's total receivables. These customers were
Cable & Wireless and Hoechst Marion Roussel with 12.3%, and 11.3%,
respectively. During the six months ended April 30, 1997, four
customers accounted for 10% or more of the Company's total receivables
These customers were Omnes, Sea-Land, ESPN, and Ford Motor Company
with 15.9%, 14.5%, 13.7% and 12.2%, respectively.
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. Software failures
due to processing errors potentially arising from calculations using
the year 2000 date are a known risk. The Company is addressing this risk
to the availability and integrity of financial systems and the reliability
of operational systems. The Company has established processes for
evaluating and managing the risks and costs associated with this problem.
This issue has been addressed with respect to the Company's financial
software. Operations is currently addressing Year 2000 issues to ensure
that all computers and
programs will be free from software failure. Operations
is utilizing internal resources to identify, correct or reprogram, and test
the systems for the year 2000 compliance. It is anticipated
that all reprogramming efforts will be
completed by December 31, 1998, allowing
adequate time for testing.
New Accounting Pronouncements:
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130
("SFAS No. 130"), "Reporting Comprehensive
Income," governing the reporting and display of comprehensive income
and its components, and Statement of Financial Accounting Standards
No. 131 ("SFAS No. 131"), "Disclosures About Segments of an Enterprise
and Related Information," requiring that all public businesses report
financial and descriptive information about their reportable operating
segments. Both statements are applicable to fiscal years
beginning after December 15, 1997. The
impact of adopting SFAS No. 130 is not expected
to be material to the consolidated financial statements or notes
to the consolidated financial
statements. Management is currently evaluating
the effect of SFAS No. 131 on consolidated financial statement
disclosures.
Wiltek, Inc.
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
Financial Condition and Liquidity
Cash and cash equivalents decreased during the six months ended April 30, 1998
by $180,300 from $526,700 at October 31, 1997. The decrease in cash was
mainly due to net cash provided by operating activities of $15,700,
offset by capital expenditures
during the period of $127,900 and payments under capital
lease obligations of $69,100. The main cause of the increase in cash provided
by operating activities was net earnings, depreciation and issuance of
Treasury Stock as bonuses of $115,500, $102,800, and $37,400, respectively.
These amounts were partially offset by an increase in accounts receivables and
a decrease in payables and other current liabilities of $172,800 and $67,200,
respectively. The Company anticipates additional capital expenditures for the
third and fourth quarters approximating $40,000. We expect that existing cash
resources and external financing will meet these capital requirements.
Results of Operations
The period to period increases (decreases) in the principal items included
in the Consolidated Statement of Operations and Accumulated Deficit
is summarized below:
Comparison of Increases (Decreases) for
Three Months Ended Six Months Ended
April 30, 1998 and 1997 April 30, 1998 and 1997
Net Revenues $ 549,700 39% $ 848,500 29%
Cost of Services 432,500 55% 799,800 50%
Sales Expense (38,800) (13%) (29,200) (5%)
General & Admin-
istrative Expense 47,600 21% 97,900 23%
Research and
Development (38,700) (27%) (58,800) (23%)
Interest Expense 1,600 18% 7,400 52%
Net Earnings $ 145,500 220% $ 31,400 37%
<FN>
Communications services revenues increased by $549,700 (39%) and $848,500
(29%) during the three and six months ended April 30, 1998, respectively,
when compared to the same periods last year.
The increases resulted from expansion of our consulting
services.
Gross Profit Margins: Period to period comparisons in Gross Profit Margins
are summarized below:
Three Months Ended Six Months Ended
April 30, April 30,
1998 1997 1998 1997
Communication Services
Revenue $ 1,954,500 $ 1,404,800 $ 3,774,100 $ 2,925,600
Communication Services
Costs 1,223,600 791,100 2,399,400 1,599,600
Gross Profits $ 730,900$ 613,700 $ 1,374,700 $ 1,326,000
Gross Profit Margins 37% 44% 36% 45%
Gross Profit Margin for Communication Services has decreased in the
comparative periods. The decreases are primarily a result of increased
revenue from the consulting services component of Communication
Services with reduced margins and secondarily due to re-negotiated
communication services agreements also with lower margins. The Company
anticipates margins on consulting activities will improve as new
consulting employees have been hired which will reduce the need to
use higher cost subcontract consultants on various consulting
engagements and as new contracts are signed at a higher standard
billing rate schedule which was implemented in March.
Sales Expense: The Company's Selling expenses were 13% and 14% of total
revenues for the three and six months ended April 30, 1998,
respectively compared to 21% and 19%
during the same respective periods last year.
Sales expense of $262,300 and $517,700 decreased by 13% and 5% during the
three and six months ended April 30, 1998, respectively compared to
$301,100 and $546,900 during the same respective periods last year.
The decreases in sales expenses are primarily due to lower marketing costs.
General and Administrative Expense: The increases in expenses for the three
and six months ended April 30, 1998 compared to the same periods last year
are primarily the result of a new executive administrative position
and secondarily due to higher
travel and increased telephone costs.
Research and Development Expense: The decreases in R&D expense for
the three and six months ended April 30, 1998 compared to the same
periods last year are the result of lower salaries and benefits due to
fewer people working on R&D projects and lower travel expenses.
Interest Expense (net of interest income): Current low interest rates
available on cash balances combined with lower cash balances due to
increased capital spending, resulted in lower interest income for
the three and six months ended April 30, 1998. Also, interest income
was offset by increases in interest expense due to increased capital
lease obligations.
Taxes: Due to the use of net tax loss carry forwards resulting from
losses in prior years, Federal and 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 - There were no reports on Form 8-K filed for the six
months ended April 30, 1998.
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 10, 1998 WILTEK, INC.
______________________________
David S. Teitelman
President & CEO