WILTEK, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheet -
at January 31, 1998 3
Consolidated Statement of Operations and Accumulated Deficit
for the Three Months Ended January 31, 1998 and 1997 4
Consolidated Statement of Cash Flows
for the Three Months Ended January 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 9
PART II. OTHER INFORMATION 10
<PAGE>
<TABLE>
<CAPTION>
Wiltek, Inc.
Consolidated Balance Sheet
(Unaudited)
January 31,
1998
ASSETS Unaudited
<S> <C>
Current Assets
Cash and cash equivalents $ 461,100
Accounts receivable, less
allowance for doubtful
accounts $33,000 1,180,900
Other current assets 103,900
Total Current Assets 1,745,900
Equipment, net 895,500
$2,641,400
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Obligation under capital lease, current portion 131,500
Accounts payable and
accrued expenses $ 1,178,800
Billing in excess of cost & estimated earnings
on uncompleted contracts 17,900
Deferred income 5,000
Total Current Liabilities 1,333,200
Long Term Liabilities
Obligation under capital lease, less current portion 139,700
Commitments and Contingent Liabilities
Shareholders' Equity
Preferred Stock 1,000,000 shares authorized
and unissued
Common Stock, stated value $.33-1/3 per share,
9,000,000 shares authorized;
shares issued:
4,840,693 1,613,500
Paid in capital 5,595,500
Deficit (4,824,000)
Less treasury stock at cost
992,565 shares (1,216,500)
Total Shareholders' Equity 1,168,500
<FN> $2,641,400
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
3
<CAPTION>
Wiltek, Inc.
Consolidated Statement of Operations and Accumulated Deficit
(Unaudited)
Three Months Ended
January 31,
1998 1997
<S> <C> <C>
Net Revenues
Communication services $1,819,600 $1,520,800
Costs and Expenses
Cost of communication services 1,175,800 808,500
Sales expense 255,400 245,800
General & administrative expenses 249,300 199,000
Research and development 92,100 112,200
Interest expense 10,900 5,100
1,783,500 1,370,600
Net Income 36,100 150,200
Accumulated
Deficit at Beginning of Period (4,860,100) (4,899,300)
Accumulated
Deficit at End of Period ($4,824,000) ($4,749,100)
Earnings Per Common Share:
Basic $.01 $.04
Assuming Dilution $.01 $.04
Number of Shares used in
per share calculation:
Basic 3,862,577 3,657,347
Assuming Dilution 4,182,406 3,788,627
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
4
<CAPTION>
Wiltek, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
<S> <C> <C>
January 31,
1998 1997
Cash Flow from Operating Activities:
Net Income $36,100 $150,200
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 50,300 59,500
(Increase) in accounts
receivable and other current assets (72,600) (222,700)
Increase (decrease) in accounts payable
and accrued expenses 2,500 (26,800)
Issuance of treasury stock as bonus 37,400
Total adjustments 17,600 (190,000)
Net cash provided (used) by operating
activities 53,700 (39,800)
Cash Flow from Investing Activities:
Capital expenditures (87,600) (18,700)
Net cash (used) in investing activities (87,600) (18,700)
Cash Flow from Financing Activities:
Proceeds from exercise of stock options 1,000
Payments under capital lease obligation (32,700) (38,500)
Net cash (used) in financing activities (31,700) (38,500)
Net decrease in cash and cash equivalents (65,600) (97,000)
Cash and cash equivalents
at beginning of period 526,700 407,600
Cash and cash equivalents at end of period $461,100 $310,600
Supplemental disclosure of cash flow information
Cash paid during the three months for:
Interest 13,200 9,100
Income taxes 1,500 1,400
<FN>
Supplemental schedule of non-cash investing and financing activities
During the first quarter ending January 31, 1998, capital lease obligations of
$90,500 were incurred when the Company entered into leases for new equipment.
During the first quarter ending January 31, 1997, a capital lease obligation of
$63,000 was incurred when the Company entered into a lease for new equipment.
See accompanying notes to consolidated financial statements.
</TABLE>
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5
WILTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of January 31, 1998, and the related
consolidated statements of operations and accumulated deficit for the three
month periods ended January 31, 1998, & 1997 and the consolidated statement of
cash flows for the three month periods ended January 31, 1998 and 1997 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 January 31,1998 and for the three month periods
then ended should be read together with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended October 31, 1997.
The accounting policies followed by the company with respect to the unaudited
interim financial statements are consistent with those stated in the 1997
Wiltek, Inc. Annual Report on Form 10-KSB.
The company does not engage in a formal risk management program with respect to
foreign currencyexposure. Typically the company maintains cash balances in UK
banks to provide for the working capital requirements of Wiltek (UK) Ltd. As of
January 31, 1998 and January 31, 1997 these deposits amounted to $129,200 and
$45,600 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.
Earning Per Share: The company adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128") as of the first
quarter fiscal 1998. FAS 128 revised the standards for computation and
presentation of earnings per share ("EPS"), requiring the presentation of both
basic EPS and EPS assuming dilution. Basic EPS is based on the weighted average
shares outstanding during the applicable period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. Prior periods have
been restated to conform with the provisions of FAS 128.
For the periods presented in the Consolidated Statement of Operations and
Accumulated Deficit, the calculations of basic EPS and EPS assuming dilution
vary in that the weighted average shares outstanding assuming dilution includes
the incremental effect of stock options. Reconciliation of Basic and Diluted
EPS computations:
<TABLE>
<CAPTION>
Three Months Ended January 31,
1998 1997
Income Shares Per Share Income Shares Per Share
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available
to Common
Stockholders $36,100 3,862,577 $.01 $150,200 3,657,347 $.04
Effect of
Dilutive
Securities
Stock Options _______ 319,829 _______ 131,280
Diluted EPS
Income
available to
Common Stockholders
plus Assumed
Conversions $36,100 4,182,406 $.01 $150,200 3,788,627 $.04
</TABLE>
Options to purchase 185,000 shares of common stock 160,00 of which were
issued during the three months ended Jan 31, 1998 at prices ranging from $0,81
to $0.87 were outstanding during the three months ended January 31, 1998. These
options were not included in the computation of diluted EPS because the options
exercise price was greater than the average market price of the common shares.
The options, which expire March 24, 2007 to December 30, 2007 were still
outstanding at January 31, 1998.
Options to purchase 50,000 shares of common stock at $0.56 were outstanding
during the three months ended January 31, 1997. These options were not included
in the computation of diluted EPS because the options' exercise price was
greater than the average market price of the common shares. The options which
expire October 16, 2007 were still outstanding at January 31, 1997.
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. To offset taxable income
during the periods ending January 31, 1998, and January 31, 1997, the company
used $57,300 and $61,400 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 $20,500.
Major Vendors: During the three months ended January 31, 1998 and 1997,
approximately 12.6% and 32.4% respectively, of total purchases of the Company
were made from one vendor. Management believes that there is a ready source of
alternative suppliers should a need arise and therefore loss of this supplier
would not cause a delay or loss of sales.
In accordance with the terms of contracts with some of its customers, the
Company pays the common carrier communication costs incurred by the customers.
The Company is reimbursed by the customers for these costs. These
reimbursements are reflected as a reduction of expenses in the Company's
consolidated statement of operations and are not included in revenues. Amounts
billed to the Company and subsequently rebilled to the customers during the
three month periods ended January 31, 1998 and 1997 were $164,900 and $119,400
respectively.
During the quarter ended January 31, 1998,two customers accounted for more than
10% of the company's total revenues. These customers were Sea-Land and
Microsoft, representing 12.4% and 10.7% of revenues, respectively. During the
quarter ended January 31, 1997, one customer accounted for more than 10% of the
Company's total revenues. This customer accounted for 19.2% of revenues.
During the three months ended January 31,1998, four customers accounted for 10%
or more of the Company's total receivables. These customers were Mercury, Orion
Capital, Sea-Land and Microsoft Corporation with 15.5%, 12.0%, 11.1% and 10.2%,
respectively. During the three months ended January 31, 1997, two customers
accounted for 10% or more of the Company's total receivables. These customers
were Ford Motor Company and Sea-Land with 15.2% and 15.1%, respectively.
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 dte
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 and programs will be free from softw.
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 completed by December 31, 1998, allowing
adequate time for testing.
7
WILTEK, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
Cash and cash equivalents have decreased by $65,600 from $526,700 at October 31
1997. The decrease in cash was mainly due to net cash provided by operating
activities of $53,700, offset by capital expenditures during the period of
$87,600 and payments under capital lease obligations of $32,700. The main cause
of the increase in cash provided by operating activities was an increase in
accounts receivable of $72,600 which was offset by net income, depreciation and
issuance of Treasury Stock as bonus in the amounts of $36,100, $50,300, and
$37,400, respectively. Capital expenditures for the second quarter are expected
to increase approximately $75,000. We expect that existing cash resources and
external financing will meet these capital requirements.
Results of Operations
Communications services revenues increased by $298,800 during the first quarter
ended January 31, 1998 when compared to the same period last year. Expansion of
our consulting services resulted in increased revenues.
The period to period increases (decreases) in the principal items included in
the Consolidated Statement of Operations and Accumulated Deficit is summarized
below:
<TABLE>
<CAPTION>
COMPARISON OF
THREE MONTHS ENDED
January 31, 1998 and 1997
<S> <C> <C>
Net Revenues $298,800 20%
Cost of Services 367,300 45%
Sales expense 9,600 4%
General & administrative
Expense 50,300 25%
Research and Development (20,100) (18%)
Interest Expense 5,800 114%
Net Income $(114,100) (76%)
8
<FN>
Revenues from operations have increased by 20% during the three months ended
January 31, 1998, versus the same period last year due to new consulting
services.
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1998 1997
<S> <C> <C>
Communication Services Revenue $1,819,600 $1,520,800
Communication Services Costs 1,175,800 808,500
Gross Profits $ 643,800 $ 712,300
Gross Profit Margins 35.4% 46.8%
</TABLE>
The gross profit margin for Communication Services has decreased in the
comparative periods. The decrease in the profit margin is primarily a result of
increased consulting activities with reduced margins and secondarily due to re-
negotiated communication services agreements also with lower margins. The
Company anticipates margins on consulting activities will improve as new
consulting employees have been hired which will reduce the need to use
subcontract consultants on various consulting engagements.
Sales expense: The company's Selling expenses amounted to 14.0% of total
revenues in the first quarter of 1998 as compared to 16.2% during the same
period last year. Sales expense increased by 3.6% during the three months ended
January 31, 1998 compared to the same period last year. The decrease in Sales
expense as a % of revenue is due to a small increase in Sales expense with
a significant increase in revenues.
General and Administrative expense: The increase in expense for the 3 months
compared to the same period last year is the result of an additional executive
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 decrease in expense for the three months
compared to the same period last year is the result of lower salaries and
benefits and lower travel expenses.
Interest expense: Due to current low rates available on cash balances, interest
income declined for the three
months ended January 31, 1998. 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 the use of net loss carry forward for
the three month period, Federal or State income tax provisions are not provided
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
Reports on Form 8-K - There were no reports on Form 8-K filed for the
three months ended January 31, 1998.
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: March 10, 1998 WILTEK, INC.
______________________________
David S. Teitelman
President & CEO
10
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<S> <S>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-1-1997
<PERIOD-END> JAN-31-1998
<CASH> 461
<SECURITIES> 0
<RECEIVABLES> 1214
<ALLOWANCES> 33
<INVENTORY> 0
<CURRENT-ASSETS> 1746
<PP&E> 1908
<DEPRECIATION> 1013
<TOTAL-ASSETS> 2641
<CURRENT-LIABILITIES> 1333
<BONDS> 0
1614
0
<COMMON> 0
<OTHER-SE> (446)
<TOTAL-LIABILITY-AND-EQUITY> 2641
<SALES> 1820
<TOTAL-REVENUES> 1820
<CGS> 1784
<TOTAL-COSTS> 1784
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 36
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
