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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended October 31, 1997
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 ( NO FEE REQUIRED)
For the transition period from to
Commission file number 0-2401
WILTEK, INC.
(Name of small business issuer in its charter)
CONNECTICUT 06-0625999
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
542 Westport Ave., Norwalk, CT 06851
(Address of principal executive offices) (Zip Code)
(203) 853-7400
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of registrant's
knowledge. In definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. ( )
The issuer's revenue for its most recent fiscal year was $6,036,700
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of December 29, 1997 was $2,090,446
THE ISSUER WAS NOT INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS
As of December 29, 1997, there were 3,805,056 shares of Common Stock, No Par
Value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Information with respect to Directors, Management Remuneration and Security
Ownership of Certain Beneficial Owners and Management are contained in the
Company's Proxy Statement for the 1998 Annual Meeting of Stockholders and
incorporated by reference in Part III
<PAGE>
Wiltek, Inc.
Form 10-KSB
PART I
Item 1. Business
General
Wiltek, Inc., (Wiltek or the "company") is a Connecticut corporation, which was
organized in 1947. The company's principal offices are located at 542 Westport
Avenue, Norwalk, CT 06851. Wiltek (UK) Ltd. is a wholly owned subsidiary,
which was organized in England in 1983, to provide Wiltek services to
international users. Wiltek (UK) Ltd. is located at 2 Apple Walk, Swindon,
England.
Wiltek provides outsourcing connectivity services to cos. migrating between
or coexisting with multiple disparate messaging platforms. Wiltek performs all
design required for the implementation and operation of its worldwide message
and data communication services. These services enable Wiltek's customers to
seamlessly communicate with electronic mail, among all intra- and inter-company
messaging systems both private and public. All issues of incompatible
applications, systems, platforms,networks, protocols and formats are eliminated
for Wiltek's customers and their respective trading partners.
An important feature provided to Wiltek's customers is directory
synchronization. Wiltek's directory synchronization services enable customers'
multiple internal messaging systems to have all user address
information presented in a complete,native format to all systems.
This service feature also allows ext. trading partner systems to participate
in the directory synchronization process.
Wiltek has developed a range of services, which allow customers to:
1. Connect dissimilar cpu based electronic mail systems such as IBM PROFS
r, Digital Equipment All-In-One r, Microsoft Exchange r and Microsoft Mail r,
Lotus Notes r and cc:Mail r, Groupwise, POP3, IMAP4, SMTP, etc. Generally these
systems operate within different divisions of the same company or in the
customers' trading partner facilities.
2. Communicate with public E-Mail services (AT&T Mail r, MCI Mail r, Advantis
(IBMMail r), Mercury, the Internet and X.400 services to allow users of host-
basedand client/server systems to correspond with E-Mail users outside of their
company.
3. Send to facsimile devices located throughout the world utilizing our
broadcast and customized facsimile delivery service based in the US and UK.
<PAGE>
In addition to the communication and directory synchronization services
described above, Wiltek has also developed a consulting and system integration
organization. This unit is chartered to assist customers in the movement to
Microsoft's client/server based electronic messaging and workgroup systems.
Wiltek is focusing on accounts that require assistance in the planning for, and
implementation of, Microsoft Exchange, Windows NT, IIS, SMS and SNA Server.
Wiltek is a Microsoft Solution Provider , is firmly committed to the Microsoft
Backoffice product line.
Microsoft has established itself as the growth arena for business information
systems needs. This growth is the direct result of marketing strategies and
product deliverables planned and recently executed by Microsoft. The sales and
support strategy deployed by Microsoft for business clients are
dependent upon the use of value added services by Solution Providers. The basis
for the Microsoft Backoffice suite of products is messaging technology.
1997 marked the initial large growth phase of Microsoft provided intranets,
based on the availability of products required by enterprise corp. computing
models. The corporate information systems model requires the availability of
decision-making data, open communications, and technology resource based
marketing and operating advantages. Wiltek also provides software engineering
via our consulting organization to design and develop workflow and routing
applications and forms.
Within the realm of messaging based technologies, use of messaging (e-mail, fax
and directory services) became a standard operating procedure for successful
large and medium organizations. Small organizations are just beginning to
establish business requirements for these applications, however, the technology
cost and benefit for small organizations does not yet fit the profile of an
attractive market. Wiltek's experience and expertise lands solidly in the
middle of the medium and large organization growth market.
Wiltek's Market
The market for Wiltek's electronic mail connectivity svcs. is a result of the
explosive growth in the installation of E-Mail systems throughout the world. In
its broadest sense, electronic mail or messaging includes the electronic
communication between individuals who use mainframe computers, mid-range
systems, client/server platforms, personal computers, public electronic mail,
facsimile or telex machines to send and/or receive information. The primary
information type communicated via electronic mail
was once text created by individuals. Today, the more prevalent information
profile includes attached files created by computer based applications such as
spreadsheets, database segments, executable code, video clips or formatted
documents such as purchase orders.
The other important segment of Wiltek's market is the need to collect text and
attached files from E-Mail users or from computer based data files and deliver
this information to facsimile machines. This market (sometimes referred to as
"desktop-to-fax") has grown dramatically with the worldwide acceptance and use
of services for broadcast distribution of application and E-mail generated
information destined for facsimile delivery. Application information includes
spreadsheets, word documents, images, etc. sent as
attachments by the user communities.
<PAGE>
The growth in the installed base of E-Mail systems and facsimile devices
represents a significant opportunity for providers of gateway or connectivity
software and services. Every time an E-Mail document or attached file needs to
move from one type of system to a different system, computer or device, it will
require some or all of the following translations:
Protocol conversion to change the transmission method, e.g. from an IBM SNA
protocol to the TCP/IP protocol.
Format conversion to accommodate the different structures of each E-Mail
system, e.g. IBM PROFS to Microsoft Exchange.
Transmission speed conversion because the sending systems operate at different
transmission speeds than the receiving devices.
Code conversion to convert from one encoding standard to another, e.g. ASCII
to EBCDIC.
Directory synchronization to transform an individual id or name on one system
into a native appearance on another system. For example, a user's name on
Microsoft Exchange might be "Jay W. Fitzpatrick" but on a PROFS system the name
is limited to 8 characters and therefore might be presented to the PROFS user
community as "JWFITZFP."
Organizations who use electronic mail have the option of buying hardware and
software which they install and operate or connect their different systems to
a service provider like Wiltek to perform the functions outlined above. The
magnitude of the market for these connectivity capabilities has grown as
a result of the following factors:
1. The increased size of the E-Mail and fax installed base.
2. The number of companies using E-Mail is no longer limited to large
corporations.
3. The growing use of E-Mail systems as a transport vehicle.
4. Corporations are moving from large, mainframe based computers to PC's, LANs,
and client/server platforms.
5. The need to synchronize directories of users among dissimilar systems has
been more clearly recognized.
6. The use of E-Mail has grown from an intra-enterprise application to one that
crosses company boundaries to trading partners, i.e. suppliers and customers.
7. Further acceptance of the out-sourcing model.
Marketing Strategy and Target Customers
The company has traditionally targeted large multi-national companies that are
likely to have dissimilar computer systems and applications in multiple
locations. Such companies have been plagued with inter-divisional communication
problems because their computer strategies often differed from division to
division, resulting in computer systems that needed to communicate with each
other. Wiltek's customer list contains over 50 large corporations, most of
which are Fortune 500 companies.
As a result of the development by Wiltek of LAN connectivity and Directory
Synchronization services, as well as Microsoft Backoffice related consulting
services the company's potential market is expanding. Large corporations who
are migrating from mainframe computers to LAN and client/server based
systems need significantly more connectivity between the older legacy systems
and the new client/server messaging systems. To facilitate the transmission of
messages and files between those disparate messaging systems, users are
requiring directory services that incorporate the addresses of all of the
users on other systems into their individual local directories. This process,
known as Directory Synchronization is provided by Wiltek. In addition, the
lower cost of hardware and software for electronic messaging has broadened the
base of users from large, international corporations (typically the top 1,000
companies) to the much larger market represented by mid-size and small
companies. The downsizing of staff in large organizations and the relatively
unsophisticated technical capabilities of smaller companies also enhances the
attractiveness of using an outsourcing service like Wiltek rather than an in-
house hardware/software solution.
As an outgrowth of Wiltek's ability to connect to various computer systems, the
company recognized the need to offer computer to facsimile services. Wiltek's
Text-to-Fax and Host-to-Fax Services, which began in 1989, now generate more
than $2 million per year in revenue. For its facsimile services, Wiltek has
targeted customers who have high volume (in excess of 10,000 pages per month),
custom fax delivery requirements, or have the need to deliver various attached
files. An example client of these services is a food manufacturer who sends
shipping acknowledgments to its customers and a steel
company who transmits price quotes to its customers.
<PAGE>
New Services and Products
Wiltek's research and development activities are directed toward enhancing
existing services and creating new services to meet customers' data
communication needs. The company's research and development primarily involves
the creation of computer software and the customization and integration of
purchased software. The company's efforts are generally customer driven.
As requirements arise,Wiltek develops new software or adapts existing software
to provide a solution.
The company has installed new client/server communications applications
to enhance our service capabilities within the rapidly growing client/server
messaging segment of the market. In addition, the company has installed both
UNIX and NT based solutions to provide X.500 Directory
Services to its customers.
An additional feature added to our facsimile delivery service is the ability to
accept and deliver a customer's message text , attachments natively from their
electronic messaging platform. This service enhancement allows customers to
send faxes natively from Lotus Notes, Lotus cc:Mail, Groupwise, Microsoft Mail
Exchange, Microsoft Mail, etc. This solution does not require additional
hardware or software; it simply allows customer's to send faxes as if they were
sending a mail item and attachment(s) to another mail user. All document
conversions are transparent to the customer and are performed by the Wiltek
Facsimile delivery service.Supported attachments include MS Word, MS Excel, MS
Power Point, Word Perfect 5.0, Word Perfect 5.1 for DOS, Word Perfect 5.x for
Windows, Lotus 123, Lotus Freelance Graphics, Lotus AmiPro, TIFF, BMP, GIFF,
JPEG, RTF, HTML, and PostScript.
Wiltek presently has Microsoft Certified System Engineers and Microsoft Product
Specialists on staff certified in a variety of Microsoft product and technology
such as Windows NT Server, Windows NT Workstation, Microsoft Mail, Microsoft
Exchange, Microsoft SMS, TCP/IP, and Windows for Workgroups. Wiltek's certified
engineers and product specialists are located in both the Connecticut and
Swindon facilities. These individuals provide Wiltek's consulting customers
with Microsoft Backoffice planning and implementation assistance. Wiltek
concentrates efforts towards infrastructure and application design and
development within the Microsoft NT Server, Exchange and mail environments.
Application work includes software development (utilizing Visual languages) to
address application migration and workflow automation within large
organizations.
<PAGE>
Revenues
<TABLE>
<CAPTION>
Year Ended October 31,
1997 1996
(In thousands of dollars)
<S> <C> <C>
Communication Services $6,036.7 $5004.2
</TABLE>
Communications Services revenue increased by 20.6% in the fiscal year ended
October 31, 1997. An improved economic environment and new consulting services
resulted in increased revenue. Services customers are charged a flat fee and/or
on a usage sensitive basis, depending on the customers'contract, and consulting
customers are charged on a time and material basis.
Major Customers
During the fiscal year ended October 31, 1997, Sea-Land Service, Inc. accounted
for 15% of the company's total revenues. The company is dependent upon this
customer and the loss of this customer could adversely affect the business of
the company. In fiscal year 1996 two customers each accounted for over 10% of
total revenues. These customers were Ford Motor Company, and Sea-Land Service,
Inc. representing 32% of the company's total revenues.
Major Vendors
During the year ended October 31, 1997 and 1996, approximately 26% and 24.5%
respectively, of total purchases of the Company was made from two vendors.
Management thinks that there is a ready source of alternative suppliers should
a need arise and therefore loss of these suppliers would not cause a delay or
loss of sales.
Foreign and Domestic Operations and Export Sales
The company began foreign operations in 1983 in England to provide services to
its customers outside of the United States. Operations outside the United
States are subject to the usual risks and limitations attendant on investments
in foreign countries, as fluctuations in currency values, exchange control
regulations, wage price controls, employment regulations, effects of foreign
investment laws and other domestic and foreign governmental policies affecting
United States companies doing business abroad. 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 October 31, 1997 and
October 31, 1996 these deposits amount to $102,900 and $70,500 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. All
currency figures are expressed in US dollars.
<PAGE>
Information about the company's operation in different geographical areas:
<TABLE>
<CAPTION>
Year Ended October 31
(In thousands of dollars)
United
Domestic Kingdom Total
<S> <C> <C> <C>
1997
Revenues $5,020.9 $1,015.8 $6,036.7
Net Income (Loss) $ (26.3)$ 65.5 $ 39.2
Identifiable Assets $1,960.4 $ 409.1 $2,369.5
1996
Revenues $4,090.9 $ 913.3 $5,004.2
Net Income (Loss) $ 227.5 $ (137.2) $ 90.3
Identifiable Assets $1,391.8 $ 440.7 $1,832.5
<FN>
Included in the above are U.S. management costs allocated to U.K operations and
net interest expense charged to Wiltek (U.K.) Ltd. in the amount of $201,800 in
1997 and $265,500 in 1996.
</TABLE>
<PAGE>
Net Sales Backlog
The company believes that sales backlog is not meaningful indication of future
revenue because most of its revenue is derived from short-term contracts for
communications services which are generally initiated within 90 days of receipt
of an order.
Employees
The company and its subsidiary Wiltek (U.K.) Ltd. employed 49 full-time
employees as of October 31, 1997.
Competition
The office automation and communications field in which the company operates is
highly competitive and characterized by rapid changes due to technological
improvements and developments. Both low-cost commodity and high-cost custom
providers of services exist within the company's marketplace. Major service
competitors include Control Data Systems, AT&T r and Sprint r. Consulting
competitors are ill-defined due to the infancy of the Microsoft BackOffice r
product line from a corporate acceptance and implementation standpoint. Despite
the competition, the company believes that its high level of capability in
software development, network management and cost effectiveness make it
competitive in the industry.
Research and Development
The company's research and development activities are directed toward enhancing
existing services and creating new services, including consulting services for
networking and workflow automation to meet customers' data communication needs.
During fiscal years 1997 and 1996 Wiltek spent $519,400 and $459,100,
respectively, on research and software development.
Item 2. Properties
The company occupies a portion of a three-story building at 542 Westport Avenue
Norwalk, Connecticut, as a tenant under a lease expiring December 31, 1999. The
space consists of approximately 15,000 square feet and is utilized for offices
and a computer center. The Company also occupies 1,200 square feet at Building
101, Merritt 7 Corporate Park, Norwalk, Connecticut, as a tenant under a lease
expiring July 23, 2001. This space is primarily used for sales activities.
Additionally, the company is leasing approximately 3,500 square feet in Swindon
England for the Wiltek (U.K.) computer center under a lease, which expires
February 1, 1998.
Item 3. Legal Proceedings
The company is not involved in any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report through the solicitation of
proxies or otherwise.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
(a) The following table shows the range of closing bid prices for the Common
Stock, in the over-the-counter market for the fiscal quarters indicated, as
reported by NASDAQ. The quotations represent prices in the over-the-counter
market between dealers in securities, do not include retail markup,
markdown or commission and do not necessarily represent actual transactions:
<TABLE>
<CAPTION>
Bid Prices
1997 High Low
<S> <C> <C>
First Quarter 13/32 7/32
Second Quarter 27/32 13/32
Third Quarter 1 3/8 5/8
Fourth Quarter 27/32 7/16
1996
<CAPTION> High Low
<S> <C> <C>
First Quarter 9/16 5/16
Second Quarter 13/16 7/16
Third Quarter 13/16 7/16
Fourth Quarter 19/32 3/8
</TABLE>
(b) Approximate number of equity security holders:
<TABLE>
<CAPTION>
Approximate Number of
Record Holders as of
Title of Class December 29, 1997
<S> <C>
Common Stock, No Par Value 761
</TABLE>
(c) Dividends
The company has not paid cash dividends on its Common Stock. The payment of
dividends is at the discretion of Wiltek's Board of Directors. The company
plans to reinvest its cash flow in its business and does not anticipate payment
of cash dividends in the foreseeable future.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Summary
The following table sets forth for the periods indicated (i) percentages of
certain items to net revenue of the company and (ii) the percentage increases
(decreases) of such items as compared to the prior period:
<TABLE>
<CAPTION>
Relationship to Period to Period
Total Revenues Increase (Decrease)
Year Ended October 31, Years Ended
1997 1996 1996-97
<S> <C> <C> <C>
Net Revenues:
Communication Services 100.0% 100.0% 20.6%
Cost of Services 56.0 51.1 32.1
Gross Margin 44.0 48.9 8.6
Sales expense 18.7 20.8 8.6
General & administrative
Expenses 15.6 16.9 10.9
Research and Development 8.6 9.2 13.1
Interest expense .5 .2 NM
Net Income .6% 1.8% (56.6%)
<FN>
* NM - Not Meaningful
</TABLE>
<PAGE>
Net Revenues
Communication services increased by 20.6% versus 1.5% for the same period in
1996. This growth in revenue is from consulting services.
Cost of Services and Gross Profit Margins.
The cost of communication services increased by $821,200 in the current fiscal
year when compared to last year. Gross margins decreased from 48.9% to 44.0%
due to lower margins for our newly created consulting services organization.
Sales Expense
Although sales expenses grew by 8.6% form fiscal 1996 to 1997, it decreased as
percentage of revenue from 20.8% in 1996 to 18.7% in 1997 due to a higher rate
of revenue growth.
General & Administrative Expenses
The company's general & administrative expenses amounted to 15.6% of total
revenues as compared to 16.9% during the same period last year. General &
administrative expense amounted to $941,000 and $848,200 for the years ended
October 31, 1997 and 1996, respectively. The increase in expense is due to
increased travel, telephone, and benefit expense.
Research and Development
Expenditures for research and development amounted to $519,400 and $459,100 for
the fiscal years ended October 31, 1997 and 1996, respectively. The increase in
expense of 13.1% for the fiscal year ended October 31, 1997, was due to
increased salaries, related benefits, and travel due to the addition of an
executive position.
Interest Expense
Interest and dividend expense was $31,100 and $11,100, for the fiscal years
ended October 31, 1997 and 1996, respectively. Lower amounts invested for the
period resulted in a decrease in interest income and additional lease
obligations resulted in increased interest expense.
Year 2000
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 / 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 complete by December 31, 1998, allowing
adequate time for testing.
<PAGE>
Liquidity and Cash Flow
Cash and cash equivalents as of Oct. 31 are presented in the following table:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash in banks $132,400 $176,300
Bank money market funds 394,300 231,300
$526,700 $407,600
</TABLE>
Cash and cash equivalents increased by $119,100 during fiscal 1997. The main
reasons for the increase in cash were net income of $39,200, depreciation of
$182,500, non-cash expenses for the issuance of stock and options of $96,100,
and an increase in accounts payable of $358,900 which were partially offset by
capital expenditures of $117,300, payments under capital lease obligations of
$116,500, and an increase in accounts receivable $326,300.
Cash and cash equivalents decreased by $36,600 during fiscal 1996. The main
cause of the decrease were capital expenditures of $132,400, payments under
capital lease obligations of $99,200 a decrease in accounts payable of $61,100,
and an increase in accounts receivable of $40,800, which were partially offset
by net income, depreciation, and issuance of stock as a bonus of $90,300,
$192,500 and $13,300 respectively.
The company currently has $3,202,300 in net operating loss carryforwards for
U.S. tax purposes, which will begin to expire in 1998. See note 8 to the
Consolidated Financial Statements for additional details. Wiltek (U.K.) Ltd.
has a tax loss carryforward of $784,600.
Capital expenditures in fiscal 1997 were $274,100. Purchases for computer
equipment amounted to $98,300, leased equipment amounted to $150,700, and the
remainder of purchases in the amount of $25,100 were for furniture and fixtures
leasehold improvements, and lab equipment.
Capital expenditures in fiscal 1996 were $300,800. Purchases for computer
equipment amounted to $99,000, leased equipment amounted to $159,800, and the
remainder of purchases in the amount of $42,000 were for furniture and fixtures
leasehold improvements, and lab equipment. Anticipated capital expenditures in
1998 will be approximately $375,000. We expect that existing cash resources and
cash flow from operations will meet these capital requirements.
The company entered into capital lease obligations totaling $150,700 and
$159,800 for the years ending October 31, 1997 and 1996, respectively. The
capital leases were primarily for new computer equipment.
Item 7. Financial Statements and Supplementary Data
See the Consolidated Financial Statements annexed hereto and Item 6 above.
Item 8. Disagreement on Accounting and Financial Disclosure
During the year ended October 31, 1998, or the twenty-four month period prior
thereto, there were no disagreements on accounting and financial disclosure
practices.
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant
(a) Identification of directors
Information with respect to the directors is contained in the company's
proxy statement for the 1997 Annual Meeting of Shareholders and is incorporated
herein by reference pursuant to General Instruction G (3).
(b) Identification of executive officers
The names, ages and positions of all executive officers of the company are
listed below along with a brief description of their business experience. All
officers are appointed by the Board annually to serve for the ensuing year.
<TABLE>
<CAPTION>
Name Age Positions and Offices
<S> <C> <C>
Jay W. Fitzpatrick 56 Chairman
David S. Teitelman 41 Director, President & CEO
Boris Frenkiel 58 Director
F. Spencer Pooley, Jr. 57 Director
William P. Bunce 51 Vice President
David Holst-Grubbe 40 Vice President
Kevin Carathanasis 29 Vice President
Mr. Fitzpatrick came to the company as Treasurer from Exxon Corporation in 1969
and was elected to the additional offices of Secretary in 1970 and Vice
President in 1971. He was elected President, Treasurer and Director in 1983 and
Chairman of the Board in 1994. Effective March 7, 1996, Mr. Fitzpatrick
resigned his positions of President, CEO and Treasurer for medical reasons and
retained his position as Chairman of the Board of Directors.
Mr. Teitelman came to the company in 1982 and served in a variety of positions
including software engineering, operations and systems engineering. He became
Director of Marketing and Systems Engineering in 1994. On April 1, 1995 he was
selected to become President and CEO of the company. He was appointed to
Wiltek's Board of Directors in 1997.
Mr. Frenkiel rejoined Wiltek as Vice President of Operations in 1983 after a
five year period during which time he was a Vice President of General DataCom
and National CSS corporations. Prior to that he was Vice President of Field
Services for Wiltek from 1973 until 1978 and Vice President of Engineering from
1970 to 1973. He was appointed to Wiltek's Board of Directors in 1994.
Effective March 21, 1997, Mr. Frenkiel has retired. He has retained his
position as director.
Mr. Pooley had been a Vice President of the company since 1970. He was employed
by AT&T Bell Laboratories from 1964 to 1969. He was appointed to Wiltek's Board
of Directors in 1994. Effective April 30, 1996, Mr. Pooley has retired. He has
retained his position as director.
Mr. Bunce joined Wiltek in 1994 as a regional sales manager, and he became
director of sales and marketing a year later. In January 1997 he was selected
to become Vice President, Marketing. Before joining Wiltek, he was director of
U.S./European Multinational Account Marketing for Meridian
Leasing Corporation. Mr. Bunce has wide experience in sales and marketing,
holding various positions in the information technology industry over the last
25 years. He began his career with IBM Corporation. He holds a Bachelor of
Arts in psychology from Bowling Green University and a master's
degree in business from DePaul University.
Mr.Holst-Grubbe joined Wiltek in 1996 and was selected as Vice President, Sales
in January 1997. Mr. Holst-Grubbe previously served in a variety of sales,
marketing and engineering capacities in communications services, systems and
systems integration fields over the last 20 years at Control Data, USSprint and
General Datacom. He holds a bachelor's degree from Shepherd College in West
Virginia.
Mr. Carathanasis joined Wiltek in 1996 as director of Messaging Services, he is
responsible for overall development of services strategy, revenue attainment,
and messaging services management. In January 1997, he was selected to become
Vice President, Services. He holds a Bachelor of Science degree in computer
science from Eckerd College in St. Petersburg, FL. Prior to joining Wiltek,
Kevin Carathanasis was employed by IBM where he held various positions in
electronic messaging, participating in the development, launch, marketing, and
support of electronic messaging services.
Item 10. Management Remuneration and Transactions
The information required by this item is contained in the company's proxy
statement for the 1998 Annual Meeting of Shareholders and is incorporated here
by reference pursuant to General Instruction G(3).
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is contained in the company's proxy
statement for the 1998 Annual Meeting of Shareholders and is incorporated here
by reference pursuant to General Instruction G(3).
Item 12. Certain Relationships and Related Transactions
Not applicable.
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The consolidated financial statements filed as part of this
report are as listed in the Index to Financial Statements on
page 19 which immediately precedes such statements.
(2) Exhibits
A list of the exhibits required by Item 601 of Regulation S-K
filed as part of this report is set forth in the Index to Exhibits
on page 33, which immediately precedes such exhibits and is
incorporated herein by reference.
(b) 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, Services
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 was subject to
SplinterCom's completion of financing for the proposed merger. This agreement
was terminated on September 17, 1997.
Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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.
WILTEK, INC.
<PAGE> By:
_____________________________________
David S. Teitelman
President & CEO
Date: January 15, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
___________________________________ Date: January 15, 1998
Jay W. Fitzpatrick
Chairman
___________________________________ Date: January 15, 1998
David S. Teitelman
President and Chief Executive Officer
___________________________________ Date: January 15, 1998
Boris Frenkiel
Director and Secretary
___________________________________ Date: January 15, 1998
F. Spencer Pooley
Director
___________________________________ Date: January 15, 1998
Graeme MacLetchie
Director
___________________________________ Date: January 15, 1998
William P. Bunce
Vice President, Marketing
___________________________________ Date: January 15, 1998
David Holst-Grubbe
Vice President, Sales
___________________________________ Date: January 15, 1998
Kevin Carathanasis
Vice President, Services
<PAGE>
Wiltek, Inc.
Index to Financial Statements
Covered by Report of Independent Accountants
Page Reference
Report of Independent Certified Public Accountants 20
Consolidated Balance Sheet at October 31, 1997 21
Consolidated Statements of Operations and Deficit for the Years
Ended October 31, 1997 and 1996 22
Consolidated Statements of Cash Flows for the Years Ended
October 31, 1997 and 1996 23
Notes to the Consolidated Financial Statements 24
Index to Exhibits 34
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Wiltek, Inc.
Consolidated Balance Sheet
October 31,
1997
<S> <C>
ASSETS
Current assets
Cash and cash equivalents $526,700
Accounts receivable, less allowance for
doubtful accounts - $35,000 1,099,500
Other current assets 112,700
Total current assets 1,738,900
Equipment, net 630,600
Total assets $2,369,500
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Obligation under capital lease,
current portion $101,300
Accounts payable and accrued expenses 958,700
Billing in excess of cost and estimated
earnings on uncompleted contracts 98,000
Deferred income 5,300
Total current liabilities 1,163,300
Long term liabilities
Obligation under capital lease,
less current portion 112,100
Commitments and contingencies
Shareholders' equity
Preferred stock, 1,000,000 shares authorized and unissued
Common stock, stated value $.33-1/3 per share,
common shares authorized 9,000,000;
shares issued 4,836,693 1,612,200
Paid-in capital 5,611,000
Accumulated deficit (4,860,100)
Less treasury stock, at cost
1,035,637 shares (1,269,000)
Total shareholders' equity 1,094,100
Total liabilities and shareholders' equity $2,369,500
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Wiltek, Inc.
Consolidated Statements of Operations and Deficit
<TABLE>
<CAPTION>
Year Ended October 31,1997
<S> <C> <C>
Net Revenues
Communication services $6,036,700 $5,004,200
Costs and Expenses
Cost of communication services 3,379,500 2,558,300
Sales expense 1,126,500 1,037,200
General and administrative expenses 941,000 848,200
Research and development 519,400 459,100
Interest expense 31,100 11,100
5,997,500 4,913,900
Net Income 39,200 90,300
Deficit at Beginning
of Year (4,899,300) (4,989,600)
Deficit at End of Year $(4,860,100) $(4,899,300)
Earnings Per Common Share:
Primary $.01 $.02
Fully Diluted $.01 $.02
Number of Shares used in per share calculation:
Primary 3,913,375 3,890,382
Fully Diluted 3,964,404 3,914,115
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Wiltek, Inc.
Consolidated Statements of Cash Flows
Year Ended October 31,1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 39,200 $ 90,300
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 182,500 192,500
Issuance of treasury stock as bonus 78,600 13,300
Issuance of non-employee stock option 17,500
(Increase) in accounts
receivable and other current assets (326,300) (40,800)
Increase (decrease) in accounts
payable and accrued expenses 358,900 (61,100)
Total adjustments 311,200 103,900
Net cash provided
by operating activities 350,400 194,200
Cash flows from investing activities:
Capital expenditures (117,300) (132,400)
Net cash used in investing activities (117,300) (132,400)
Cash flow from financing activities:
Proceeds from exercise of stock options 2,500 800
Payments under capital lease obligation (116,500) (99,200)
Net cash used in financing activities (114,000) (98,400)
Net increase (decrease) in cash and
cash equivalents 119,100 (36,600)
Cash and cash equivalents at
beginning of year 407,600 444,200
Cash and cash equivalents at end of year $526,700 $407,600
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 3,200 $ 5,100
Interest expense $ 39,300 $ 18,800
Noncash investing and financing activities:
Capital expenditures in accounts payable $ 14,700 $ 8,600
Capital lease obligations incurred
for fixed asset acquisitions $150,700 $159,800
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> Wiltek, Inc.
Notes to Consolidated Financial Statements
Note 1 - Accounting Policies and Practices
General: The Company operates exclusively in one industry segment (line of
business)-the design and management of data communication networks and services
During the fiscal year ended October 31, 1997, one customer accounted for more
than 10% of the Company's total revenues. This customer was Sea-Land Services,
Inc. (15.4%). The Company is dependent upon this customer and the loss of this
customer could adversely affect the business of the company. Two customers
accounts receivable balances are more than 10% of the outstanding accounts
receivable. These customers in aggregate amount to 27.2% of the accounts
receivable balance.
During the fiscal year ended October 31, 1996, two customers each accounted for
more than 10% of the Company's total revenues. These customers were Ford Motor
Company (14.3%) and Sea-Land Services, Inc. (17.7%). The Company is dependent
upon these two customers and the loss of any one of these customers could
adversely affect the business of the Company. Three customers' accounts
receivable balances are more that 10% of the outstanding accounts receivable.
These customers in aggregate amount to 48% of the accounts receivable balance.
The Company began foreign operations in 1983 when it established its computer
center in London, England. During fiscal year 1997, the U.K. operation's total
revenues were $1,015,800 with net income of $65,500. Included in the above are
$161,400 in U.S. management costs allocated to U.K. operations and intercompany
net interest expense charged to Wiltek (U.K.) Ltd. in the amount of $40,400.
Identifiable total assets amounted to $409,100. The U.S. dollar is the
functional currency of the U.K. operation.
Consolidation: The accompanying consolidated financial statements include the
accounts of the Company and its subsidiary, Wiltek (U.K.) Ltd. All significant
intercompany transactions have been eliminated in consolidation.
Cash Equivalents: For purposes of the statement of cash flows, the Company
considers all highly liquid instruments including money market funds and
certificates of deposit with original maturities of three months or less to be
cash equivalents. The Company currently has on deposit approximately $266,800
which is subject to concentration of credit risk as it is not insured. Funds on
deposit in the U.K. in the amount of $102,900 are not insured.
Revenue Recognition: Customers are invoiced at the beginning of the month for
fixed rate services and at the end of the month for usage sensitive services.
Revenue is recognized when services are performed. Fixed fee contracts are
accounted for on percentage of completion basis.
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 reimbursement
is 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 the customers during the fiscal years ended October
31, 1997 and 1996 were $738,400 and $718,900, respectively.
Equipment: Equipment is carried at cost. Major renewals and betterments are
charged to the equipment accounts while replacements, maintenance and repairs
which do not improve or extend the life of the respective assets are expensed
currently. The Company follows the policy of providing for depreciation of
equipment over the estimated useful lives: computer equipment - 5 years;
furniture and fixtures - 8 to 10 years; automobile - 4 years; leasehold
improvements over the remaining life of the lease. Fixed assets under capital
lease obligations are depreciated over five years.
Equipment (cont'd.): When equipment is retired or otherwise disposed of, the
related cost and accumulated depreciation and amortization are eliminated from
the accounts and the resulting profit or loss is credited or charged to income.
Research and Development: The Company's research and development activities are
directed toward enhancing existing services and creating new services to meet
customers' data communication needs. During fiscal years 1997 and 1996, Wiltek
spent $519,400 and $459,100, respectively, on research and software development.
Taxes: The Company follows the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109).
Earnings Per Share: Earnings per share is based on the weighted average number
of common and dilutive common equivalent shares outstanding during fiscal 1997.
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.
Use of Estimates: In preparing the Company's financial statements, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities, and disclosures of contingent assets and liabilities
at the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The following item is based on an estimate which is
particularly sensitive to change in the near term: the valuation allowance for
the deferred tax asset. It is possible that changes in this estimate will occur
and the effect of such change may be significant to the financial statements of
the Company.
Advertising Costs: Advertising costs are expensed when incurred.
Fair Value of Financial Instruments: Based on borrowing rates currently
available to the Company for capital leases with similar terms and maturities,
the fair value of the Company's capital leases approximates the carrying value.
The carrying values of all other financial instruments potentially subject to
valuation risk, principally cash, accounts receivable and accounts payable,also
approximate fair value because of short-term maturities of these investments
<PAGE>
Impairment of Long-Lived Assets: Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS No. 121") establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets. Under provisions of the Statement, impairment
losses are recognized when expected future cash flows are less than the assets'
carrying value. Accordingly, when indicators of impairment are present, the
Company will evaluate the carrying value of property, plant and equipment in
relation to the operating performance and future undiscounted cash flows of the
underlying business. SFAS No. 121 requires analysis of each item on an
individual asset-by-asset basis, where applicable. The amount of the impairment
loss is the excess of the carrying amount of the impaired asset over the fair
value of the asset. Generally, fair value represents the expected future cash
flows from the use of the asset or group of assets, discounted at an interest
rate commensurate with the risks involved.
Accounting for Stock-Based Compensation: In 1996, 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 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.
Employee Benefit Plan
The Company has established a 401(k) Profit Sharing Plan covering substantially
all eligible employees. An eligible employee may elect to reduce the employee's
compensation and have the amount of any such reduction contributed to the Plan
on the employee's behalf. The Company may also make a discretionary matching
contribution to the Plan. During the fiscal years ended 1997 and 1996, the
Company's matched contribution was 15% and 10% respectively.
An eligible employee may elect to reduce 15% (but not more than $9,500 per year
or such greater amount as may be set by the Internal Revenue Service). The
amount of the reduction is called Elective Deferral. The Company will then
contribute the Elective Deferral to the Plan on the employee's behalf. The
Company, in its sole discretion, may also make a matching contribution to the
Plan each year. However, this matching contribution will not exceed an amount
equal to 66.66% of the employee's Elective Deferral. The Company's contribution
to the plan for the years ended October 31, 1997 and 1996, were $21,600 and
$7,900 respectively.
Note 2 - Restructuring Plan
The Company began working on a restructuring program during the fiscal year 95
second quarter. The restructuring charge consists of severance and related
costs in connection with the reduction of approximately 15% of the Company's
workforce or 6 salaried jobs. A Vice President originally considered as part of
the restructuring plan, in the fourth quarter of 1995 accepted a reduced salary
and responsibilities in lieu of retiring.
The status of the restructuring provision follows:
<TABLE>
<S> <C>
Initial provision $227,800
1995 activity (73,100)
Reversal of Officer severance
and related employee benefits (76,600)
Balance at October 31, 1995, included in
accrued severance pay 78,100
1996 activity (53,500)
Balance at October 31, 1996, included in
accrued severance pay 24,600
1997 activity (24,600)
Balance at October 31, 1997 -0-
</TABLE>
<PAGE>
Note 3 - Equipment
<TABLE>
<CAPTION>
Oct 31, 1997
<S> <C>
Lab equipment $ 47,700
Automobile 4,000
Capital leases 468,700
Furniture and fixtures 20,800
Computer equipment 691,300
Leasehold improvements 360,700
1,593,200
Less: accumulated depreciation
and amortization 962,600
TOTAL $ 630,600
</TABLE>
<TABLE>
<CAPTION>
Note 4 - Accounts Payable and Accrued Expense
October 31, 1997
<S> <C>
Accounts payable $ 591,100
Accrued bonus 123,600
Accrued payroll, vacations and employee benefits 86,800
Accrued commissions 25,800
Accrued professional fees 37,500
Other accrued expenses 86,300
Accrued taxes payable 7,600
Total accounts payable and
accrued expenses $ 958,700
</TABLE>
Note 5 - Obligation Under Capital Lease
During the fiscal years ended October 31, 1997 and 1996, the Company entered
into several capital lease agreements for new computers and furniture totaling
$150,700 and $159,800, respectively. The lease terms vary from three to five
years, with interest rates between 11.13% and 35.08%.
Accumulated depreciation amounted to $256,200 and $139,000 for the fiscal years
ended 1997 and 1996, respectively.
The related future lease minimum payments as of October 31, 1997, are as
follows:
<TABLE>
<CAPTION>
Year Ending October 31
Capital Leases
<S> <C>
1998 $131,000
1999 108,500
2000 36,400
2001 5,900
Net minimum lease payment 281,800
Amount representing interest 68,400
Obligation under capital lease $213,400
</TABLE>
<PAGE>
Note 6 - Changes in Shareholders' Equity and Options
Set forth below is a summary of changes in shareholders' equity for the two
years ended October 31, 1997.
<TABLE>
<CAPTION>
Common Treasury Stock
Shares Common Paid-In Accumulated
Issued Stock Capital Deficit Cost Shares
<S> <C> <C> <C> <C> <C>
Balance at 10/31/95
4,823,493 $1,607,800 $5,686,400 $(4,989,600) 1,452,700) 1,186,235
Treasury stock as bonus (35,500) 48,800 (40,000)
Exercise of Stock Options
3,200 1,100 (300)
Net Income 90,300
Balance at 10/31/96
4,826,693 1,608,900 5,650,600 (4,899,300) (1,403,900) 1,146,235
Issuance of Treasury Stock as bonus
(56,300) 134,900 (110,598)
Issuance of Non-employee Stock Option
17,500
Exercise Of Stock Options
10,000 3,300 ( 800)
Net Income 39,200
Balance at 10/31/97
4,836,693 $1,612,200 $5,611,000 $(4,860,100) $1,269,000 1,035,637
</TABLE>
<PAGE>
Note 7 - Stock Options
The maximum number of shares which may have been awarded under 1983 and 1988
stock option plans to employees was 500,000 and 400,000, respectively. No
shares are available for future grants under these plans, at October 31, 1997.
The 1994 Stock Option Plans for employees (750,000 shares) and non-employees
(100,000 shares) were approved. An aggregate of 850,000 shares were authorized
under this plan.
At October 31, 1997, 207,000 and 30,000 shares are available for future grants
to employees and non-employees, respectively.
None of the above option prices were less then fair market value at the date of
grant. The options are exercisable beginning at the date of grant. The maximum
term of the grant is ten years. The following table summarizes the options
granted under the plan for the two years ended October 31, 1997:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
<S> <C> <C>
Outstanding at 11/1/95 745,500 $.52
Granted 50,000 $.56
Exercised ( 3,200) $.25
Expired (86,000) $.38
Outstanding at 10/31/96 706,300 $.54
Granted 125,000 $.42
Exercised (10,000) $.25
Expired (112,000) $.52
Total 709,300 $.53
Non-Employees
Weighted Average
Shares Exercise Price
Outstanding at 11/1/95 35,000 $.25
Outstanding at 10/31/96 35,000 $.25
Granted 35,000 $.56
Total 70,000 $.41
</TABLE>
Compensation expense, which the Company records for options granted to non-
employees, was $17,500 in the year ended October 31, 1997.
The Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The
Company accounts for its option plan under APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations and, accordingly, no
compensation cost has been recognized for the stock option plan. Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant date for awards net income and earnings per share
would have been reduced as follows:
<TABLE>
<CAPTION>
Year ended October 31,
Net Income 1997 1996
<S> <C> <C>
As reported $39,200 $90,300
Pro Forma ($10,800) $62,300
Earnings Per Share
As reported $.01 $.02
Pro Forma ($.01) $.02
<FN>
These pro forma amounts may not be representative of future disclosures because
they do not take into effect pro forma compensation expense related to grants
made before 1996. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions for grants in 1997 and 1996: expected volatility
of 200%; weighted average risk-free rate of 6.8%; and weighted average expected
life of 8 years.
The weighted average grant date fair value of options granted during 1997 and
1996 was $0.56 and $0.40, respectively.
</TABLE>
<TABLE>
<CAPTION>
The following table summarizies information about the stock options at October
31, 1997.
Options outstanding Options exercisable
Range of Number Weighted average Weighted Number Weighted
exercise outstanding at remaining average exercisable at average
prices 10/31/97 contractual life exercise price 10/31/97 exercise
price
<S> <C> <C> <C> <C> <C>
$ 0 to $.25 419,800 7.48 $.25 419,800 $ .25
$.5 to $.56 75,000 9.08 $.54 75,000 $ .54
$.83 to $1.28 208,000 1.68 $1.01 208,000 $.1.01
$2.94 6,500 2.60 $2.94 6,500 $ 2.94
709,300 5.9 $.53 709,300 $ .53
</TABLE>
<TABLE>
<CAPTION>
Note 8 - Income Taxes
Deferred income taxes reflect the tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. In accordance with 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. The
Company anticipates utilizing its deferred tax assets only to the extent of its
deferred tax liabilities. Therefore, the Company has established a valuation
allowance to reduce its net deferred tax asset to zero at October 31, 1997. The
Company accounts for the investment tax credit by the flow-through method. In
fiscal years ended 1997 and 1996, included in sales, general and administrative
expenses, is tax expense of $3,800 and $2,900, respectively. Significant
components of the Company's deferred tax assets as of October 31, 1997 are as
follows:
Deferred tax assets:
<S> <C>
Net operating loss carryforward $1,564,000
Investment tax credit carryforward 59,100
Deferred tax asset 1,623,100
Less valuation allowance 1,623,100
Net deferred tax assets $ 0
</TABLE>
Net income (loss) before and after income taxes for the two fiscal-year periods
was as follows:
<TABLE>
<CAPTION>
DOMESTIC UNITED KINGDOM TOTAL
<S> <C> <C> <C>
1997 $ (26,300) $ 65,500 $ 39,200
1996 $ 227,500 $ (137,200) $ 90,300
</TABLE>
At October 31, 1997, the Company's U.S. operating loss carryforwards for
financial accounting and Federal tax purposes approximated $3,202,300 and
$2,012,300 for state tax purposes. The Company used $20,700 and $25,200 in loss
carryforwards for federal and state tax purposes, respectively. The loss
carryforward for alternative minimum tax purposes amounts to $3,227,700. The
Company used $18,600 in alternative minimum tax loss carryforwards in the year
ended October 31, 1997. The Company's U.K. operating loss carryforwards are
approximately $784,600 for tax purposes as of October 31, 1997. The expected
Federal Statutory rate is 34%. This has been reduced by the use of net
operating loss carryforwards by 34%.
At October 31, 1997, investment tax credits of approximately $59,100 are
available to reduce future taxes on taxable income after future tax benefits
arising from existing operating loss carryforwards have been realized.
According to the provisions of the Tax Reform Act of 1986 this carryforward was
reduced by 35% effective July 1, 1987. The U.S. tax loss carryforwards and
investment tax credit carryforwards expire as follows:
<TABLE>
<CAPTION>
Tax Loss Investment Tax
Expiration Carryforwards Credit Carryforwards
<S> <C> <C>
1998 $ 565,100 $ 22,400
1999 354,900 18,400
2000 14,400
2001 3,900
2007 404,400
2008 628,100
2009 474,800
2010 775,000
$ 3,202,300 $ 59,100
</TABLE>
The Tax Reform Act of 1986 enacted complex set of rules (Internal Revenue Code
Section 382) limiting the utilization of net operating loss carryforwards to
offset future taxable income following a corporate "ownership change."
Generally, this occurs when there is a greater than 50% change in ownership.
Note 9 - Commitments and Contingent Liabilities
There are in effect annual employment agreements with four officers of the
Company which call for a base compensation be mutually agreed upon at renewal
and upon failure to reach agreement will terminate with the officer, in certain
circumstances, being entitled to a severance payment in an amount equal to one-
quarter to one-half of their then current annual base compensation. The minimum
aggregate pay-outs under such contracts approximate $127,500.
Total rental expenses for office space, equipment and automobiles included in
the results of operations for fiscal years ended October 31, 97 and 1996, were
$311,500 and $278,500 respectively. Minimum rental commitments under non-
cancelable leases covering space and equipment are as follows:
<TABLE>
<CAPTION>
Fiscal Year Rental Commitments
<S> <C>
1998 $205,800
1999 181,400
2000 58,200
2001 22,800
$468,200
</TABLE>
Note 10 - Related Party Transaction
During the current fiscal year, 5,108 shares of common stock held as treasury
stock were awarded to one of the officers. During the fiscal year ended October
31, 1996, 40,000 shares of common stock held as treasury stock were granted by
the Board of Directors to one of the officers.
<PAGE>
WILTEK, INC.
Index to Exhibits
<TABLE>
<CAPTION>
Sequential Page
Exhibit No. Description Number
<C> <S>
22 Subsidiary 35
24/a Consent of independent certified
public accountants 36
</TABLE>
<PAGE>
Exhibit 22
WILTEK, INC.
Subsidiary
Jurisdiction of
Name Incorporation
Wiltek (U.K.) Ltd. United Kingdom
The corporation listed is a direct subsidiary of Wiltek, which owns 100% of the
voting securities. The subsidiary is included in the consolidated financial
statements.
<PAGE>
Report of Independent Certified Public Accountants
EXHIBIT 99
To the Board of Directors and Shareholders of Wiltek, Inc.
We have audited the accompanying consolidated balance sheet of Wiltek, Inc. and
Subsidiary (the "Company") as of October 31, 1997, and the related consolidated
statements of operations and deficit and cash flows for each of the two years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Wiltek, Inc. and
Subsidiary as of October 31, 1997, and the consolidated results of their
operations and their consolidated cash flows for each of the two years then
ended, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
December 22, 1997
EXHIBIT 24
Exhibit 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We have issued our report dated December 22, 1997,accompanying the consolidated
financial statements incorporated by reference or included in the Annual Report
of Wiltek, Inc. and subsidiary on Form 10-KSB for the year ended October 31,
1997. We hereby consent to the incorporation by reference of said report in the
Registration Statement of Wiltek, Inc. on Form S-8 (Reg. No. 33-7271).
GRANT THORNTON LLP
New York, New York
December 22, 1997
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