WILTEK, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheet -
at July 31, 1995 3
Consolidated Statement of Operations
for the Three and Nine Months Ended July 31, 1995 and 1994 4
Consolidated Statement of Cash Flows
for the Nine Months Ended July 31, 1995 and 1994 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
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<TABLE>
Wiltek, Inc.
Consolidated Balance Sheet
(Unaudited)
July 31,
1995
ASSETS
<S> <C>
Current Assets
Cash and cash equivalents $ 334,900
Accounts receivable, less
allowance for doubtful
accounts $35,000 828,900
Other current assets 101,800
Total Current Assets 1,265,600
Equipment under capitalized lease, Net 150,500
Equipment, net 256,700
$1,672,800
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and
accrued expenses $ 874,600
Obligation under capitalized lease agreement 86,800
Total Current Liabilities 961,400
Long Term Liabilities
Obligation under capitalized lease agreement 64,700
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:
4,813,493 1,604,500
Paid in capital 5,727,200
Deficit (5,171,300)
Less treasury stock at cost
1,236,235 shares (1,513,700)
Total Shareholders' Equity 646,700
$1,672,800
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
Wiltek, Inc.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended Nine Months Ended
July 31 July 31
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net Revenue
Communication services $1,271,800 $1,153,400 $3,652,200 $3,441,100
Costs and Expense
Cost of communication services 682,000 690,600 2,245,700 2,086,800
Selling, general and
administrative expenses 405,300 425,400 1,329,700 1,326,300
Research and development 96,700 127,700 361,700 439,000
Interest and dividend expense
(income), net 400 (4,100) (4,100)
(15,200)
(Gain) loss on sale of equipment
(200) 543,100 3,000
Restructuring expenses 227,800
1,184,400 1,239,400 4,703,900 3,839,900
Net Profit (Loss) 87,400 (86,000) (1,051,700)
(398,800)
Deficit at Beginning of Period (5,258,700) (3,885,500) (4,119,600)
(3,572,700)
Deficit at End of Period ($5,171,300) ($3,971,500) (5,171,300)
(3,971,500)
Per Common Share and Common
Equivalent Share:
Net Profit (Loss) $ .02 $ (.02) $ (.29) $ (.11)
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
Wiltek, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
July 31
1995 1994
<S> <C> <C>
Cash Flow from Operating Activities:
Net (Loss) $(1,051,700) $(398,800)
Adjustments to reconcile net (loss) to
net cash provided by operating activities:
Depreciation and amortization 230,800 305,800
Valuation adjustment of
short-term investments 300 (200)
Gain on sale of short term
investments (8,600)
Loss on sale of fixed assets 551,500 3,300
(Increase) in accounts
receivable and other current assets (79,600) (283,600)
Increase (decrease) in accounts payable
and accrued expenses 365,500 (15,300)
Total adjustments 1,059,900 10,000
Net cash provided (used) in operating activities 8,200 (388,800)
Cash Flow from Investing Activities:
Capital expenditures (394,200) (130,100)
Proceeds from sale of short term investments 141,100
Proceeds from sale of fixed assets 167,500 7,500
Net cash provided in investing activities (85,600) (122,600)
Net increase (decrease) in cash and
cash equivalents (77,400) (511,400)
Cash and cash equivalents
at beginning of period 412,300 915,700
Cash and cash equivalents at end of period $ 334,900 $ 404,300
<FN>
Supplemental Schedule of Non-Cash Investing
and Financial Activities:
A capital lease obligation of $173,700 was incurred when the company
entered into a sale lease-back transaction for equipment.
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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WILTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of July 31, 1995, and the related consolid.
statements of operation for the three and nine month periods ended July 1995,
and 1994 and the consolidated statement of cash flows for the nine month
ended July 1995 and 1994 are unaudited; in the opinion of management, all
adjustments necessary for a fair presentation of such financial statements are
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 July 31,1995 and for the three and nine 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, 1994.
The accounting policies followed by the company with respect to the unaudited
interim financial statements are consistent with those stated in the 1994
Wiltek, Inc. Annual Report on Form 10-KSB.
Due to several years of losses, Wiltek has implemented a recently developed
restructuring plan. During the last three months actions have been taken to
reduce the workforce by approximately 15%, staff re-training and capital
expenditures to provide the necessary training materials and environment for
the new business plan. The plan's goals are to provide overhead reduction,
stability, re-training and new business opportunity assessment. A new endeavor
beyond the traditional electronic message switching services, is consulting
services for networking and workflow automation. Wiltek has provided initial
training for the Microsoft BackOffice product line.
In accordance with a Restructuring Plan approved by the Board of Directors on
March 28, 1995, the Company sold a substantial portion of its fixed assets as
a "Capital Lease Transaction". This resulted in a net loss in the amount of
$552,300 for the fiscal quarter ended April 30, 1995. The terms of the
lease-back are for 24 months effective May 1, 1995, with a monthly payment of
$7,238. At the end of the lease the company, at its option, may purchase the
leased equipment for fair market value or a maximum of $23,726. The Company
also expensed $227,800 for severance pay and related employee benefits
associated with personnel reductions. $51,800 in payments have been made from
this amount during the reporting period. The company's restructuring program
is intended to strengthen the company's business, improve long-term
profitability and to enhance shareholder value. These actions are part of a
continuing effort to identify opportunities to improve its cost structure.
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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)
As of July 31, 1995 and July 31, 1994 these deposits amounted to $152,500 and
$142,300 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.
Loss per share is computed by dividing the net loss by the weighted average
number of common shares. Common share equivalents are omitted since the effect
is antidilutive.
Effective November 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). The effect of the adoption of this standard on the Company's
financial statements was insignificant.
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.
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 rebilled to the customers during the
nine month periods ended July 31, 1995 and 1994 were $754,900 and $775,300
respectively.
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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 $77,400 from $412,300 at
October 31, 1994 to $334,900 at July 31, 1995. Capital expenditures during
the period amounted to $394,200 which was largely offset by the proceeds from
the sale of short term investments $141,100 and from the sale of fixed assets
$167,100. We expect that the existing resources and funds generated in future
operating activities will meet our cash requirements.
Results of Operations
For the nine months ended July 31, 1995, the Company incurred a net loss of
$1,051,700 compared to a net loss of $398,800 for the same period last year.
Included in the loss are expenses recorded in the second quarter, in accordance
with the company's Restructuring Plan approved by the Board of Directors on
March 28, 1995. During that period the company sold fixed assets as a
"Capital Lease Transaction" resulting in a net loss of $552,300, and also
expensed $227,800 for severance pay and related employee benefits associated
with personnel reductions. The company's restructuring program is intended to
strengthen the company's business, improve long-term profitability and to
enhance shareholder value. Subsequently for the three months ended
July 31, 1995, due to increased revenues and cost reductions, the company
realized a net income of $87,400 versus a loss of $86,000 for the same period
last year.
<TABLE>
COMPARISON OF
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, 1995 AND 1994 JULY 31, 1995 AND 1994
$ % $ %
<S> <C> <C> <C> <C>
Net Revenues 118,400 10 211,100 6
Cost of Services (8,600) (1) 158,900 8
Selling, General and
Administrative Expenses (20,100) (5) 3,400 3
Research and Development (31,000) (24) (77,300) (18)
Interest and Dividend Expense
(Income), Net 4,500 11,100 73
Other Expense (Income) 200 540,100
Restructuring Expense 227,800
Net Profit (Loss) 173,400 (652,900)
</TABLE>
<TABLE>
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Revenues have increased by 10% and 6% during the three and nine months ended
July 31, 1995, when compared to the same periods last year.
<CAPTION>
Three Months Ended Nine Months Ended
July 31 July 31
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Communication Services Revenue $1,271,800 $1,153,400 $ 3,652,200 $
3,441,100
Communication Services Costs 682,000 690,600 2,245,700
2,086,800
Gross Profits $ 589,800 $ 462,800 $1,406,500
$1,354,300
Gross Profit Margins 46% 40% 39% 39%
</TABLE>
During the three months ended July 31, 1995, gross profit margin improved by
6% versus the comparative period last year. The increase in profit margin was
primarily due to higher revenues and reductions in salary and depreciation
expenses following the sale of equipment due to the company's restructuring
plan. For the nine month period, higher revenues were offset by increased
communications costs resulting in no change in the gross profit margin
percentage.
Selling, General and Administrative Expense: Lower salaries resulted in a 5%
savings in this category for the three months ended July 31, 1995. There was
no significant change in expenses for the nine months ended July 31, 1995,
when it is compared to the same period of last year.
Research and Development: The elimination of one executive position resulted
in a 24% and 18% decline in expenses for the three and nine month periods ended
July 31, 1995 respectively.
Interest and Dividend Expense (Income): Due to current low interest rates
available on short-term investments, and lower investment balances, interest
income declined for the nine months ended July 31, 1995 when compared with the
same period last year. Due to capitalized lease obligations during the three
months ended July 31, 1995, interest expense exceeded income earned on short
term investments.
Loss on Sale of Equipment: This category included the loss on the sale and
lease-back of fixed assets of $552,300 for the nine months ended July 31, 1995.
Restructuring Expense: In accordance with the Restructuring Plan, $227,800 was
accrued for severance pay and related employee benefits. $51,800 in payments
have been made from this amount during the reporting period.
Taxes: Due to a loss during the nine month period and the use of net loss carr
forward for the three month period, Federal or State income tax provisions
are not required.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
b. Reports on Form 8-K - A Form 8-K was filed on March 8, 1995, giving notice
that Jay W. Fitzpatrick left his positions as President and Treasurer for
medical reasons, and will continue to serve as Chairman of the Board of
Directors. Boris Frenkiel assumed Mr. Fitzpatrick's responsibilities.
A Form 8-K was filed on March 30, 1995, announcing that David S. Teitelman
has assumed the positions of President and CEO effective March 29, 1995.
Boris Frenkiel who had been Wiltek's interim President since March 8, 1995
returned to his position as Vice President.
No reports of Form 8-K has been filed in the three months ended July 31,95
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: September 6, 1995 WILTEK, INC.
______________________________
DAVID S. TEITELMAN
President & CEO
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