WILTEK, INC.
INDEX
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheet -
at April 30, 1996 3
Consolidated Statement of Operations and Accumulated Deficit
for the Three and Six Months Ended April 30, 1996 and 1995 4
Consolidated Statement of Cash Flows
for the Six Months Ended April 30, 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
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<TABLE>
Wiltek, Inc.
Consolidated Balance Sheet
(Unaudited)
April 30,
1996
ASSETS Unaudited
<S> <C>
Current Assets
Cash and cash equivalents $345,700
Accounts receivable, less
allowance for doubtful
accounts $35,000 782,200
Other current assets 87,800
----------
Total Current Assets 1,215,700
Equipment, net 462,700
----------
$1,678,400
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Obligation under capital lease, current portion $ 90,600
Accounts payable and
accrued expenses 617,000
Deferred income 7,100
----------
Total Current Liabilities 714,700
----------
Long-Term Liabilities
Obligation under capital lease, less current portion 19,200
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 (4,897,300)
Less treasury stock at cost
1,186,235 shares (1,452,700)
-----------
Total Shareholders' Equity 944,500
----------
$1,678,400
----------
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
Wiltek, Inc.
Consolidated Statement of Operations and Accumulated Deficit
(Unaudited)
Three Months Ended Six Months Ended
April 30 April 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Revenues
Communication services $1,258,200 $1,150,500 $2,498,500 $2,380,400
Costs and Expenses
Cost of communication services 668,400 779,300 1,285,500 1,563,700
Selling, general and
administrative expenses 457,400 460,600 913,000 924,400
Research and development 105,400 113,300 205,100 265,000
Interest and dividend
(expense),net 1,000 (2,200) 2,600 (4,500)
Loss on Sale of Equipment 552,300 543,100
Restructuring Expenses 227,800 227,800
--------- --------- --------- ---------
1,232,200 2,131,100 2,406,200 3,519,500
Net Income (Loss) 26,000 (980,600) 92,300 (1,139,100)
Deficit at Beginning of
Period (4,923,300) (4,278,100) (4,989,600) (4,119,600)
----------- ----------- ----------- -----------
Deficit at End of Period ($4,897,300) ($5,258,700) (4,897,300) (5,258,700)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Earnings (Loss) Per Common Share:
Primary $.01 ($.27) $.02 ($.32)
Fully Diluted $.01 $.02
Number of Shares used in
per share calculation:
Primary 4,081,932 3,577,258 4,081,932 3,577,258
Fully Diluted 4,123,487 4,123,487
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
Wiltek, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
April 30
1996 1995
<S> <C> <C>
Cash Flow from Operating Activities:
Net Income (Loss) $ 92,300 $(1,139,100)
--------- ------------
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 89,400 189,400
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 (24,900) (140,500)
Increase (decrease) in accounts payable
and accrued expenses (126,600) 542,100
--------- ----------
Total adjustments (62,100) 1,134,200
Net cash provided (used) in operating activities 30,200 (4,900)
Cash Flows from Investing Activities:
Capital expenditures (85,600) (157,000)
Proceeds from sale of investments 141,100
Proceeds from sale of fixed assets 167,500
--------- ----------
Net cash provided (used) in investing activities (85,600) 151,600
Cash Flows from Financing Activities:
Proceeds from exercise of stock options 300
Payment under capital lease obligation (43,400)
--------- ----------
Net cash (used) in financing activities (43,100)
--------- ----------
Net increase (decrease) in cash and
cash equivalents (98,500) 146,700
Cash and cash equivalents
at beginning of period 444,200 412,300
--------- ----------
Cash and cash equivalents at end of period $345,700 $559,000
--------- ----------
--------- ----------
Supplemental disclosure of cash flow information
Cash paid during the six months for:
Interest 7,000
Income taxes 3,100 2,100
Supplemental schedule of non-cash investing and financing activities
During the first quarter ending January 31, 1996, capital lease obligation
of $34,600 was incurred when the Company entered into a lease for new
equipment. Capital expenditures in accounts payable amount to $1,298.
During the second quarter ending April 30, 1995, the Capital Lease
obligation of $173,700. was incurred when the company entered into a
sale lease-back transaction for equipment.
See accompanying notes to consolidated financial statements.
WILTEK, INC.
<FN>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
The consolidated balance sheet as of April 30, 1996, and the related
consolidated statements of operations and accumulated deficit for the
three and six month periods ended April 1996, and 1995 and the consolidated
statement of cash flows for the six month periods ended April 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 April 30,1996 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, 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 the second quarter of 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 will facilitate
this new endeavor. Wiltek has made a decision to provide initial training
for the Microsoft BackOffice( registered trademark) product line.
Microsoft and Backoffice are registered trademarks of Microsoft, Inc.
located in Redwood, Washington.
In accordance with a Restructuring Plan approved by the Board of Directors
on March 28, 1995, the Company sold all of its fixed assets as a "Capital
Lease Transaction". This resulted in a net change 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. 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 April 30, 1996 and April 30, 1995 these deposits amounted to
$114,100 and $315,200, 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.
Earnings (loss) per common share were determined by dividing 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. 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 rebilled to the customers during the
six month periods ended April 30, 1996 and 1995 were $244,800 and $529,600,
respectively.
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%. During the six months ended April 30, 1995, four customers
each account for more than 10% of the Company's total revenues. These
customers accounted for 10.1%, 16.9%, 10.9%, and 15.9%, repectively.
<PAGE>
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 $98,500 from $444,200 at
October 31, 1995 to $345,700 at April 30, 1996. The decrease in cash was
largely due to net cash used in financing activities of $43,100 and capital
expenditures during the period of $85,600. Capital expenditures for the
third quarter are expected to be approximately $44,000. We expect that
existing cash resources will meet these capital requirements.
Results of Operations
Communications revenues for the six months ended April 30, 1996, have increased
by $118,100 when compared to the six months ended April 30, 1995.
Communication revenues increased by $107,700 during the second
quarter ended April 30, 1996 when compared to the same period last year.
An improved economic environment and new consulting services resulted in
increased revenues.
For the six months ended April 30, 1996, the Company has incurred a net income
of $92,300 compared to a net loss of $1,139,100 for the same period last year.
In the three months ended April 30, 1996, we incurred a net income of $26,000
versus a loss of $980,600 last year. In the prior year, a Restructuring Plan
was approved by the Board of Directors on March 28,1995, as part of the Plan,
the Company sold a substantial portion of
its fixed assets as a "Capital Lease Transaction". This resulted in a net
loss of $552,300 for the quarter. 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. 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 SIX MONTHS ENDED
APRIL 30, 1996 AND 1995 APRIL 30, 1996 AND 1995
$ % $ %
<S> <C> <C> <C> <C>
Net Revenues 107,700 9 118,100 5
Cost of Services (110,900) (14) (278,200) (18)
Selling, General and
Administrative Expenses (3,200) (1) (11,400) (1)
Research and Development (7,900) (7) (59,900) (23)
Interest and Dividend NM 7,100 NM
Expense (income) Net
Loss on sale of equipment (552,300) (100) (543,100) (100)
Restructuring Expense (227,800) (100) (227,800) (100)
Net Income 1,006,600 NM 1,231,400 NM
<FN>
NM means Not Meaningful
</TABLE>
<TABLE>
<PAGE>
Revenues from operations have increased by 9% for the six months ended
April 30, 1996, and 5% for the quarter, respectively, versus the same periods
last year.
<CAPTION>
Three Months Ended Six Months Ended
April 30 April 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Communication Services Revenue $1,258,200 $1,150,500 2,498,500 2,380,400
Communication Services Costs 668,400 779,300 1,285,500 1,563,700
---------- ---------- ---------- ----------
Gross Profits $ 589,800 $ 371,200 $1,213,000 $ 816,700
Gross Profit Margins 47% 32% 49% 34%
</TABLE>
The gross profit margin for Communication Services has increased in both
comparative periods. The increase in the 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 Expenses: There was no significant change
in the three and six months ended April 30, 1996, compared to the same periods
last year.
The company's SG&A expenses amounted to 36.4% of total revenues in the second
quarter of 1996 as compared to 40% during the same period last year. The
company's SG&A expenses for the six months ending April 30, 1996, amounted to
36.5% compared to 38.8% in the prior year. These percentages are higher than
that of other large companies in the industry. As revenue grows the company's
goal will be to bring these costs in line with industry standards.
Research and Development: The reduction in expense for the six months
compared to the same period last year is the result of the elimination of one
executive position.
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 six months ended April 30, 1996. Wiltek did
not receive dividends due to the sale of investments during the first quarter
of 1995.
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 three months ended
April 30, 1995.
Restructuring Expense: In accordance with the Restructuring Plan, $227,800
was accrued for severance pay and related employee benefits during the
quarter ending April 30, 1995.
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.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
b. Reports on Form 8-K - There were no reports on Form 8-K filed for the six
months ended April 30, 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: June 14, 1996 WILTEK, INC.
DAVID S. TEITELMAN
______________________________
David S. Teitelman
President
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