WILTEK, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheet -
at July 31, 1997 3
Consolidated Statement of Operations and Accumulated Deficit
for the Three and Nine Months Ended July 31, 1997 and 1996 4
Consolidated Statement of Cash Flows
for the Nine Months Ended July 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 10
PART II. OTHER INFORMATION 11
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2
Wiltek, Inc.
Consolidated Balance Sheet
(Unaudited)
July 31,
1997
ASSETS
<S> <C>
Current Assets
Cash and cash equivalents $ 430,700
Accounts receivable, less
allowance for doubtful
accounts $34,200 869,800
Other current assets 107,500
Total Current Assets 1,408,000
Equipment, net 543,400
$1,951,400
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and
accrued expenses $ 693,400
Obligation under capital lease, current portion 77,000
Deferred income 5,000
Total Current Liabilities 775,400
Long Term Liabilities
Obligation under capital lease, less current portion 88,300
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:
4,836,693 1,612,200
Paid in capital 5,627,100
Deficit (4,803,800)
Less treasury stock at cost
1,100,244 shares (1,347,800)
Total Shareholders' Equity 1,087,700
$1,951,400
<FN>
See accompanying notes to consolidated financial statements.
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3
Wiltek, Inc.
Consolidated Statement of Operations and Accumulated Deficit
(Unaudited)
Three Months Ended Nine Months Ended
July 31 July 31
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Revenues
Communication services $1,512,000 $1,263,200 $4,437,600 $3,761,700
Costs and Expenses
Cost of communication services 857,900 648,100 2,457,500 1,933,600
Sales expense 280,100 256,600 827,000 746,300
General&administrative expenses226,100 183,200 653,400 606,500
Research and development 128,900 113,800 382,400 318,900
Interest expense 7,600 2,800 21,800 5,400
1,500,600 1,204,500 4,342,100 3,610,700
Net Income 11,400 58,700 95,500 151,000
Deficit at Beginning of Period(4,815,200) (4,897,300) (4,899,300) (4,989,600)
Deficit at End of Period ($4,803,800)($4,838,600)($4,803,800)($4,838,600)
Earnings Per Common Share:
Primary $.01 $.02 $.02 $.04
Fully Diluted $.01 $.02 $.02 $.04
Number of Shares used in
per share calculation:
Primary 3,992,576 3,913,211 3,992,576 3,913,211
Fully Diluted 4,031,188 3,913,211 4,031,188 3,913,211
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
4
Wiltek, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
July 31
<S> <C> <C>
1997 1996
Cash Flow from Operating Activities:
Net Income $95,500 $151,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 169,200 137,600
Issuance of treasury stock
as bonus 33,400
(Increase) in accounts
receivable and other current assets (91,400) (93,800)
(Decrease) in accounts payable
and accrued expenses (4,500) (89,000)
Total adjustments 106,700 (45,200)
Net cash provided by operating activities 202,200 105,800
Cash Flow from Investing Activities:
Capital expenditures (89,900) (107,300)
Net cash (used) in investing activities (89,900) (107,300)
Cash Flow from Financing Activities:
Proceeds from exercise of stock options 2,500 300
Payments under capital lease obligation (91,700) (67,700)
Net cash (used) in financing activities (89,200) (67,400)
Net increase (decrease) in cash and cash
Equivalents 23,100 (68,900)
Cash and cash equivalents
at beginning of period 407,600 444,200
Cash and cash equivalents at end of period $430,700 $375,300
Supplemental disclosure of cash flow information
Cash paid during the nine months for:
Interest 27,800 11,300
Income taxes 3,200 4,100
<FN>
Supplemental schedule of non-cash investing and financing activities
During 1997 and 1996, capital lease obligations for new equipment were incurred
in the amounts of $77,800, and $62,900 respectively. Capital expenditures in
accounts payable amount to $14,600 and
$4,100 in 1997 and 1996, respectively.
See accompanying notes to consolidated financial statements.
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5
WILTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet of July 31, 1997, and the related consolidated
statements of operations and accumulated deficit for the three and nine month
periods ended July 1997, and 1996 and the consolidated statement of cash flows
for the nine month periods ended July 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 July 31,1997 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-K for the
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
July 31, 1997 and July 31, 1996 these deposits amounted to $179,000 and $44,900
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 per common share were determined by dividing the net earnings by the
weighted average number of common and dilutive common equivalent shares
outstanding.
<NP>
6
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 created
against such deferred tax assets.To offset taxable income during the nine month
period ending July 31, 1997, the company used $84,500 and $87,600 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 $87,400.
Accounting for Stock-Based Compensation: In 1995, the Financial Accounting
Standards Board issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The statement defines a fair value based method
of accounting for an employee stock option. Companies may, however, elect to
adopt this new accounting rule through a pro forma disclosure option, while
continuing to use the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Under
disclosure option, companies must make pro forma disclosures of net income and
earnings per share, as if the fair value method of accounting described below
had been applied.
Under the new fair value method compensation cost is measured at the grant date
based on the value of the award and is recognized over the service (or vesting)
period. Under the intrinsic value based method, compensation cost is the
excess, if any, of the quoted market price of the stock at grant date
over the amount an employee must pay to acquire the stock.
The adoption of this Statement is required, either through adoption or
disclosure in 1997. The Company has decided to follow the accounting prescribed
by APB opinion No. 25.
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 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 in the nine
month periods ended July 31, 1997 and 1996
were $400,500 and $462,400 respectively.
During the nine months ended July 31, 1997, one customer accounted for
approximately 19% of the Company's total revenues. During the nine months ended
July 31, 1996, two customers each account for more that 10% of the Company's
total revenues. These customers accounted for approximately
17% and 15%, respectively.
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8
WILTEK, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
Cash and cash equivalents have increased by $23,100 from $407,600 at October 31
1996 to $430,700 at July 31, 1997. The increase in cash was due to net income
of $95,500, adjusted for non cash items - depreciation of $169,200 and issuance
of treasury stock as bonus of $33,400. Cash provided from operations was offset
by capital expenditures and payments under capital lease obligations of
$89,900 and $91,700 respectively. Capital expenditures for the fourth quarter
are expected to be approximately $120,000. We expect that the existing cash
resources and cash flow from operations will meet the
capital requirements.
Results of Operations
Communications revenues for the three and nine months ended July 31, 1997, have
increased by $248,800 and $675,900 when compared to the three and nine months
ended July 31, 1996. An increase in consulting services resulted in increased
revenues.
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COMPARISON OF
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, 1997 AND 1996 JULY 31, 1997 AND 1996
<S> <C> <C> <C> <C>
Net Revenues $248,800 20% $675,900 18%
Cost of Services 209,800 32 523,900 27
Sales expense 23,500 9 80,700 11
General & administrative
Expense 42,900 23 46,900 8
Research and Development 15,100 13 63,500 20
Interest Expense 4,800 NM 16,400 NM
Net Income $(47,300) (81) $(55,500) (37)
<FN>
*NM - not meaningful.
</TABLE>
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Three Months Ended Nine Months Ended
July 31 July 31
1997 1996 1997 1996
<S>
Communication Services <C> <C> <C> <C>
Revenue $1,512,000 $1,263,200 $4,437,600 $3,761,700
Communication Services Costs 857,900 648,100 2,457,500 1,933,600
Gross Profits $ 645,100 $ 615,100 $1,980,100 1,828,100
Gross Profit Margins 43% 49% 45% 49%
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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 lower margins.
Sales expense: The company's selling expenses amounted to 18.5% of total
revenues in the third quarter of 1997 as compared to 20.3% during the same
period last year. The company's selling expenses for the nine months ending
July 31, 1997, amounted to 18.6% of total revenues compared to 19.8% in the
prior year. During the three and nine months ended July 31, 1997 compared to
the same periods last year, Sales expense increased 9% and 11% respectively.
The increase in Sales expense is due to the addition of sales personnel, sales
office space, telephone and depreciation expense.
General and Administrative expense: The increase in expense for the three and
nine months compared to the same period last year is the result of additional
administrative position and accrual of annual bonuses. The increase in general
and administrative expense is also due to higher travel and increased telephone
costs.
Research and Development expense: The increase in expense for the three and
nine months compared to the same periods last year is the result of addition
of one executive position. The increase in research and development is also due
to higher depreciation from new equipment purchases and
increased travel.
Interest expense: Due to current low rates available on cash balances, interest
income declined for the three and nine months ended July 31, 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 use of net loss carry forward for
the three and nine month periods, Federal or State income tax provisions are
not provided.
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10
PART II. OTHER INFORMATION
Item 6. Exhibits and 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. Carathanasis - Vice President, Service
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.
A form 8-K was filed on July 21, 1997, announcing Wiltek, Inc. has moved beyond
the letter of intent signed last May, and has signed an agreement with
SplinterCom, LLC, providing for a business combination between a newly formed
subsidiary of Wiltek, Inc. and SplinterCom. This agreement is subject to
SplinterCom's completion of financing for the proposed merger.
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: August 27, 1997 WILTEK, INC.
______________________________
David S. Teitelman
President & CEO
11
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-1-1996
<PERIOD-END> JUL-31-1997
<CASH> 431
<SECURITIES> 0
<RECEIVABLES> 904
<ALLOWANCES> 34
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1612
0
<COMMON> 0
<OTHER-SE> (525)
<TOTAL-LIABILITY-AND-EQUITY> 1951
<SALES> 4438
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