WILTEK, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheet -
at July 31, 1996 3
Consolidated Statement of Operations and Accumulated Deficit
for the Three and Nine Months Ended July 31, 1996 and 1995 4
Consolidated Statement of Cash Flows
for the Nine Months Ended July 31, 1996 and 1995 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
<PAGE>
<TABLE>
2
Wiltek, Inc.
Consolidated Balance Sheet
(Unaudited)
July 31,
1996
ASSETS
<S> <C>
Current Assets
Cash and cash equivalents $ 375,300
Accounts receivable, less
allowance for doubtful
ccounts $31,500 811,900
Other current assets 127,000
-----------
Total Current Assets 1,314,200
Equipment, net 467,500
$ 1,781,700
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and
accrued expenses $ 657,500
Obligation under capital lease, current portion 80,300
Deferred income 7,100
----------
Total Current Liabilities 744,900
Long Term Liabilities
Obligation under capital lease, less current portion 33,600
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:
4,824,593 1,608,200
Paid in capital 5,686,300
Deficit (4,838,600)
Less treasury stock at cost
1,186,235 shares (1,452,700)
-----------
Total Shareholders' Equity 1,003,200
-----------
$1,781,700
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
3
Wiltek, Inc.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended Nine Months Ended
July 31 July 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Revenues
Communication services $1,263,200 $1,271,800 $3,761,700 $3,652,200
Costs and Expenses
Cost of communication services 648,100 682,000 1,933,600 2,245,700
Selling, general and
administrative expenses 439,800 405,300 1,352,800 1,329,700
Research and development 113,800 96,700 318,900 361,700
Interest and dividend expense
(income), net 2,800 400 5,400 (4,100)
Loss on sale of equipment 543,100
Restructuring expenses 227,800
--------- --------- --------- ---------
1,204,500 1,184,400 3,610,700 4,703,900
--------- --------- --------- ---------
Net Income (Loss) 58,700 87,400 151,000 (1,051,700)
Deficit at Beginning of Period (4,897,300) (5,258,700) (4,989,600) (4,119,600)
--------- --------- --------- ---------
Deficit at End of Period ($4,838,600)($5,171,300)($4,838,600) ($5,171,300)
--------- --------- --------- ---------
Earnings (Loss) Per Common Share:
Primary $.01 $.02 $.04 ($.29)
Fully Diluted $.01 $.02 $.04
Number of Shares used in
per share calculation:
Primary 3,976,091 3,577,258 3,976,091 3,577,258
Fully Diluted 3,976,091 3,577,258 3,976,091
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
4
Wiltek, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
July 31
1996 1995
<S> <C> <C>
Cash Flow from Operating Activities:
Net Income (Loss) $151,000 $(1,051,700)
------- ---------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 137,600 230,800
Valuation adjustment of short-term investments 300
Loss on sale of fixed assets 551,500
Gain on sale of short term investments (8,600)
(Increase) in accounts
receivable and other current assets (93,800) (79,600)
Increase (decrease) in accounts payable
and accrued expenses (89,000) 365,500
-------- --------
Total adjustments (45,200) 1,059,900
-------- ---------
Net cash provided by operating activities 105,800 8,200
-------- ---------
Cash Flow from Investing Activities:
Capital expenditures (107,300) (394,200)
Proceeds from sale of investments 141,100
Proceeds from sale of fixed assets 167,500
-------- --------
Net cash (used) in investing activities (107,300) (85,600)
Cash Flow from Financing Activities:
Proceeds from exercise of stock options 300
Payment under capital lease obligation (67,700)
--------- ----------
Net cash (used) in financing activities (67,400)
--------- ----------
Net (decrease) in cash and cash equivalents (68,900) (77,400)
Cash and cash equivalents
at beginning of period 444,200 412,300
--------- ----------
Cash and cash equivalents at end of period $375,300 $334,900
--------- ----------
--------- ----------
Supplemental disclosure of cash flow information
Cash paid during the nine months for:
Interest 11,300 3,500
Income taxes 4,100 2,600
Supplemental schedule of non-cash investing and financing activities
During 1995 and 1996, capital lease obligations for new equipment were
incurred in the amounts of $173,700, and $62,944 respectively. Capital
expenditures in accounts payable amount to $4,112.
<FN>
</TABLE>
<PAGE>
See accompanying notes to consolidated financial statements.
5
WILTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of July 31, 1996, and the related
consolidated statements of operations and accumulated deficit for the three
and nine month periods ended July 1996, and 1995 and the consolidated
statement of cash flows for the nine month periods ended July 1996 and 1995
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 July 31,1996 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, 1995.
The accounting policies followed by the company with respect to the unaudited
interim financial statements are consistent with those stated in the 1995
Wiltek, Inc. Annual Report on Form 10-KSB.
During 1995,
Wiltek began the implementation of a restructuring plan due to
several years of continuous losses. The actions taken have been a workforce
reduction of approximately 15%, staff re-training, and capital expenditures
to provide the necessary training materials and environment. The plan's goals
were 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. Staff training and the creation and use of new marketing
materials has accompanied this new endeavor. Wiltek has made a decision to
provide consulting for the *Microsoftr BackOfficer 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 charge in the amount of
$552,300 for the quarter ending 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.
* Microsoft and BackOffice are Registered Trademarks of Microsoft, Inc.
in Redmond, Washington
6
The company's restructuring program was 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.
<PAGE>
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 July 31, 1996 and July 31, 1995 these deposits amounted to $44,900
and $152,500 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.
Earnings (loss) per common share were determined by dividing the net earnings
(loss) by the weighted average number of common and common equivalent shares
outstanding.
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, 1996 and 1995 were $462,381 and
$754,900 respectively.
During the nine months ended July 1, 1996, two customers accounted for more
than 10% of the Company's total revenues. These customers accounted for 17.4%
and 14.7%. During the nine months ended July 31, 1995, three customers each
account for more that 10% of the Company's total revenues. These customers
accounted for 16.2%, 15.5% and 14.4% respectively.
7
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 $68,900 from $444,200 at October
31, 1995 to $375,300 at July 31, 1996. The decrease in cash was largely due
to payments of $67,700 for capital lease obligations and capital expenditures
of $107,300 which were partially offset by net cash of $105,800 from operating
activities. Capital expenditures for the fourth quarter are expected to be
approximately $40,000. We expect that the existing cash resources and funds
generated in future operating activities will meet our cash requirements.
Results of Operations
Communications revenues for the three months ended July 31, 1996, have
remained flat compared to the same period last year. This is a result of the
continuing downward price pressure on our facsimile service. Communication
revenues increased by $109,500 for the nine months ended July 31, 1996
when compared to the same period last year. New consulting services resulted
in increased gross revenues of $275,900.
For the nine months ended July 31, 1996, the Company has generated net income
of $151,000 compared to a net loss of $1,051,700 for the same period last
year. In the three months ended July 31, 1996, we incurred a net income of
$58,700 compared to $87,400 for the same period last year. In the prior year,
under 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 of $552,300. The Company
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. These actions were and are part of a
continuing effort to identify opportunities to improve its cost structure.
<TABLE>
COMPARISON OF
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, 1996 AND 1995 JULY 31, 1996 AND 1995
<S> <C> <C> <C> <C>
Net Revenues $(8,600) (1)% $109,500 3%
Cost of Services (33,900) (5) (312,100) (14)
Selling, General and
Administrative Expenses 34,500 9 23,100 2
Research and Development 17,100 18 (42,800) (12)
Interest and Dividend Expense
(Income), Net 2,400 NM 9,500 NM
Loss on Sale of Equipment (543,100) (100)
Restructuring Expense (227,800) (100)
---------- ---------
Net Income (Loss) $(28,700) (33) $1,202,700 NM
---------- -----------
---------- -----------
<FN>
NM MEANS NOT MEANINGFUL
</TABLE>
<TABLE>
<PAGE>
Three Months Ended Nine Months Ended
July 31 July 31
1996 1995 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Communication Services Revenue $1,263,200 $1,271,800 3,761,700 3,652,200
Communication Services Costs 648,100 682,000 1,933,600 2,245,700
Gross Profits $ 615,100 $ 589,800 $1,828,100 $1,406,500
Gross Profit Margins 49% 46% 49% 39%
</TABLE>
During the three and nine months ended July 31, 1996, gross profit margin
improved by 3% and 10%, respectively 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 last year's
restructuring plan.
Selling, General and Administrative Expense: There was no significant change
in expenses for the nine months ended July 31, 1996, compared to the same
period last year. Travel and advertising increased for the three months ended
July 31, 1996, due to increased activities in marketing and sales which
resulted in a 9% increase in this category compared to the same period in the
prior year.
Research and Development: The elimination of one executive position resulted
in a 12% decline in expenses for the nine months ended July 31, 1996. An
increase in salaries and employment fees resulted in an 18% increase in
expenses for the three months ended July 31, 1996, compared to the same
period last year.
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 three and nine months ended July 31, 1996 when
compared with the same periods last year. Interest income is offset by an
increase in interest expense due to the company entering into capital lease
obligations.
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 during the nine
months ended July 31, 1995.
Taxes: Due to losses in prior periods and the use of net loss carry forward
for the nine month periods,
Federal or State income tax provisions are not provided.
<PAGE>
9
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
b. Reports on Form 8-K - No reports of Form 8-K have been filed
during the nine months ended July 31,1996.
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, 1996 WILTEK, INC.
DAVID S. TEITELMAN
President & CEO
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> JUL-31-1996
<CASH> 375
<SECURITIES> 0
<RECEIVABLES> 844
<ALLOWANCES> 31
<INVENTORY> 0
<CURRENT-ASSETS> 1314
<PP&E> 1193
<DEPRECIATION> 725
<TOTAL-ASSETS> 1782
<CURRENT-LIABILITIES> 745
<BONDS> 0
<COMMON> 1608
0
0
<OTHER-SE> (664)
<TOTAL-LIABILITY-AND-EQUITY> 1782
<SALES> 3762
<TOTAL-REVENUES> 3762
<CGS> 3611
<TOTAL-COSTS> 3611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 151
<INCOME-TAX> 0
<INCOME-CONTINUING> 151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
