<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ------------
Commission File Number 0-9160
INTEK DIVERSIFIED CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2450145
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
970 West 190th Street, Suite 720
Torrance, California 90502
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (310) 366-7735
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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
------ ------
The number of shares outstanding of each of the issuer's classes of Common
Stock, $0.01 par value, as of August 10, 1995, is 10,531,873 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1995, THE PERIOD
FROM INCEPTION (FEBRUARY 4, 1994) THROUGH JUNE 30, 1994, AND FOR THE
THREE MONTH PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- -------------------------
<S> <C> <C> <C> <C>
1995 1994 1995 1994
------------ ----------- ------------ -----------
Net Sales $ 1,213,290 $ - $ 1,520,338 $ -
Cost of goods sold 1,120,958 - 1,398,797 -
----------- ----------- ----------- -----------
Gross Profit 92,332 - 121,541 -
Selling, general
and administrative expense 819,771 410,563 1,594,935 463,864
----------- ----------- ----------- -----------
Operating loss (727,439) (410,563) (1,473,394) (463,864)
Other income (expense):
Interest (572,888) 2,079 (646,345) 2,079
Other (52) - 5,698 -
----------- ----------- ----------- -----------
Loss from continuing operations (1,300,379) (408,484) (2,114,041) (461,785)
Gain (loss) from sale of discontinued
operations (188,320) - 1,151,540 -
----------- ----------- ----------- -----------
Net loss $(1,488,699) $ (408,484) $ (962,501) $ (461,785)
=========== =========== =========== ===========
Per Share Data:
Continuing Operations $ (.14) $ (.14) $ (.23) $ (.16)
Discontinued Operations $ (.02) $ - $ .13 $ -
----------- ----------- ----------- -----------
Net loss per share $ (.16) $ (.14) $ (.10) $ (.16)
=========== =========== =========== ==========
Weighted average shares outstanding 9,069,227 2,817,249 8,993,658 2,817,249
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 4, 1994) THROUGH JUNE 30,1995
(UNAUDITED)
<TABLE>
<CAPTION>
February 4, 1994
Through
June 30, 1995
------------
<S> <C>
Net Sales $ 1,849,348
Cost of goods sold 1,691,273
-----------
Gross Profit 158,075
Selling, general
and administrative
expense 2,537,154
-----------
Operating loss (2,379,079)
Other income
(expense):
Interest (687,288)
Other 13,586
-----------
Loss from
continuing
operations (3,052,781)
Gain (loss) from
sale of
discontinued
operations 1,151,540
-----------
Net loss $(1,901,241)
===========
Per Share Data:
Continuing
Operations $ (.50)
Discontinued
Operations $ .19
-----------
Net loss per share $ (.31)
===========
Weighted average
shares outstanding 6,175,038
===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1995 (Unaudited) and December 31, 1994
ASSETS
<TABLE>
<CAPTION>
UNAUDITED
June 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,169,312 $1,557,363
Accounts receivable, net of allowance
for doubtful accounts of $35,287
in 1994 and $50,000 in 1995 386,666 921,538
Note receivable, current portion 429,793 67,500
Inventories 2,741,296 1,127,127
Prepaid expenses and
other current assets 198,434 483,389
Assets held for sale 1,537,165 4,334,183
----------- -----------
Total current assets 6,462,666 8,491,100
----------- -----------
EQUIPMENT, AT COST 3,688,840 794,217
Less--Accumulated Depreciation 61,081 22,642
----------- -----------
3,627,759 771,575
Investment in joint venture 125,000 0
----------- -----------
$10,215,425 $9,262,675
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1995 (Unaudited) and December 31, 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNAUDITED
June 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 332,296 $ 355,353
Accrued liabilities 1,058,341 1,733,932
Related party payable 170,975 1,292,078
Note payable 1,600,000 2,500,000
----------- -----------
Total current liabilities 3,161,612 5,881,363
DEFERRED INCOME TAXES 116,300 116,300
----------- -----------
SHAREHOLDERS EQUITY:
Common stock, $.01 par value
Authorized - 20,000,000 shares
Issued - 9,382,831 shares
in 1994 and 10,481,873 in 1995 104,818 93,825
Capital in excess of par value 9,504,327 4,880,318
Treasury stock, at cost - 465,582
shares in 1994 and 1995 (770,391) (770,391)
Deficit accumulated during development
stage (1,901,241) (938,740)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 6,937,513 3,265,012
----------- -----------
$10,215,425 $9,262,675
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1995, THE PERIOD FROM
INCEPTION (FEBRUARY 4, 1994) THROUGH JUNE 30, 1994, AND FOR THE THREE
MONTH PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
<S> <C> <C> <C> <C>
1995 1994 1995 1994
----------- ----------- ----------- ----------
Cash Flows From
Operating Activities:
Net loss $(1,488,699) $(408,484) $ (962,501) $(461,785)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation 5,840 769 38,439 1,114
Loss (gain) from sale
of assets held for sale 188,320 - (1,151,540) -
Changes in assets
and liabilities:
Decrease (increase) in:
Accounts receivable 412,627 - 534,872 -
Inventories (1,582,790) - (1,614,169) -
Prepaid expenses and other
current assets (81,579) - 284,955 -
Increase (decrease) in:
Accounts payable (27,896) 27,217 (23,057) 60,559
Accrued liabilities (593,559) - (675,591) -
----------- --------- ----------- ---------
Total Adjustments (1,679,037) 27,986 (2,606,091) 61,673
----------- --------- ----------- ---------
Net cash used in
operating activities (3,167,736) (380,498) (3,568,592) (400,112)
Cash flows from investing activities:
Capital expenditures (2,061,944) (66,708) (2,894,623) (148,276)
Net change in assets held for sale 380,863 - 575,979 -
Proceeds from sale
of assets held for sale 686,267 - 3,372,579 -
Proceeds from notes receivable 9,535 - 24,535 -
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Notes receivable from sale of
discontinued operations (219,958) - (386,828) -
Investment in joint venture (125,000) - (125,000) -
----------- --------- ----------- ---------
Net cash provided by
(used in) investing activities (1,330,237) (66,708) 566,642 (148,276)
Cash flows from
financing activities:
Common stock issuance 4,635,002 - 4,635,002 500,000
Repayment of debt (900,000) - (900,000) -
Related party payable (1,119,970) 261,002 (1,121,103) 261,002
----------- --------- ----------- ---------
Net cash provided by financing activities 2,615,032 261,002 2,613,899 761,002
----------- --------- ----------- ---------
Net increase (decrease)
in cash and cash equivalents $(1,882,941) (186,204) $(388,051) 212,614
Cash and equivalents
at beginning of period 3,052,253 398,818 1,557,363 -
----------- --------- ----------- ---------
Cash and equivalents at end of period $ 1,169,312 $212,614 $ 1,169,312 $212,614
=========== ======== =========== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 4, 1994) THROUGH JUNE 30,1995
(UNAUDITED)
<TABLE>
<CAPTION>
February 4, 1994
Through
June 30, 1995
------------
<S> <C>
Cash Flows From
Operating Activities:
Net loss $(1,901,241)
Adjustments to
reconcile net loss
to net cash provided
by operating activities:
Depreciation 86,424
Loss (gain) from sale
of assets held
for sale (1,151,540)
Changes in assets
and liabilities:
Decrease (increase) in:
Accounts receivable 321,071
Inventory (2,741,296)
Prepaid expenses
and other current
assets (81,142)
Increase (decrease) in:
Accounts payable 332,297
Accrued liabilities (543,744)
-----------
Total Adjustments (3,777,930)
-----------
Net cash used in
operating activities (5,679,171)
Cash flows from
investing activities:
Capital expenditures (3,688,840)
Equity acquired in reverse
merger 3,227,866
Net change in assets acquired
in reverse merger (3,738,971)
Net change in assets
held for sale 575,979
Proceeds from sale
of assets held for
sale 3,372,579
Proceeds from notes
receivable 24,535
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Notes receivable
from sale of
discontinued
operations (386,828)
Investment in joint
venture (125,000)
-----------
Net cash provided by
(used in)investing
activities (738,680)
Cash flows from
financing activities:
Common stock issuance 5,135,002
Loan proceeds 2,500,000
Repayment of debt (900,000)
Related party payable 170,975
-----------
Net cash provided by
financing activities 6,905,977
-----------
Net increase (decrease)
in cash and cash
equivalents $488,126
Cash and equivalents
at beginning of period 427,218
Cash and equivalents
acquired in reverse merger 253,968
-----------
Cash and equivalents
at end of period $ 1,169,312
===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 (UNAUDITED)
(1) PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by INTEK Diversified Corporation (the "Company" or
"INTEK"), pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, and the Company believes that
the disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.
The information furnished herein reflects all adjustments which are, in
the opinion of management, necessary to a fair presentation of the
condensed consolidated financial statements for the interim periods
presented taken as a whole. These adjustments are of a normal and
recurring nature. The results of the interim periods are not necessarily
indicative of results to be expected for the entire year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
INTEK was incorporated in 1969 and was primarily engaged in the business
of molding, fabricating and selling plastic products through its wholly
owned subsidiary, Olympic Plastics Corporation ("Olympic").
On September 23, 1994, a newly formed, wholly-owned subsidiary of INTEK,
Romnet, Inc., a Delaware corporation, acquired all of the issued and
outstanding stock of Simrom, Inc. ("Simrom"), an Ohio corporation in
exchange for 6,000,000 shares of INTEK common stock. Effective September
23, 1994, Simrom merged with and into Romnet, Inc. (the "Merger"). After
the Merger, the surviving corporation changed its name to Roamer One,
Inc. ("Roamer One"). The Company subsequently decided to refocus its
resources to the development of the Roamer One business and the
telecommunications industry and to discontinue and divest the operations
of Olympic. Since the former shareholders of Roamer One retained more
than a 50 percent controlling interest in INTEK, the business
combination is being treated as a reverse merger for accounting
purposes, with Roamer One considered the acquiring company, although
INTEK is the surviving company under corporate law.
The consolidated financial statements for the six months ended June 30,
1995 include the accounts of INTEK, and its wholly-owned subsidiaries:
Olympic, Roamer One, IDC International Corporation ("IDC"), and IMCX
Corporation ("IMCX"). Olympics assets are reported as Assets Held for
Sale. The Consolidated Statement of Operations and the Condensed
Consolidated Statement of Cash Flows for the period from inception
(February 4, 1994) through June 30, 1994 include only the accounts of
Roamer One, consistent with the reverse merger accounting treatment. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
b. DESCRIPTION OF BUSINESS
The Company's principal subsidiary, Roamer One, is engaged in developing
and operating Specialized Mobile Radio ("SMR") systems within the United
States on the recently licensed 220 to 222 MHz ("220 MHz") narrowband
spectrum.
<PAGE>
c. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
d. INVENTORIES
Inventories are stated at the lower of cost or market.
e. EQUIPMENT, AT COST
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets which are five to ten years. The Companys
policy is to begin depreciating repeater site equipment at such time as
it begins to generate subscriber revenues. Normal maintenance and
repairs are charged to expense as incurred. Expenditures which increase
the useful lives of the assets are capitalized.
f. INCOME TAXES
There was no provision for income taxes for the six months ended June
30, 1995. The Company is expecting an "ordinary" loss for the current
fiscal year and this, combined with net operating loss carryforwards
from the previous years, are expected to offset any current tax
liability. Deferred income taxes remain unchanged from December 31,
1994.
The Company and its subsidiaries file consolidated Federal and combined
state income tax returns. Effective January 1, 1991, the Company adopted
Statement of Financial Accounting Standard No. 109 "Accounting for
Income Taxes" (SFAS 109). SFAS 109 requires, among other things, a
change to the liability method of computing deferred income taxes.
The Company provides for deferred income taxes relating to timing
differences in the recognition of income and expense items (primarily
relating to depreciation, amortization and certain leases) for financial
and tax reporting purposes. Such amounts are measured using current tax
laws and regulations in accordance with the provisions of SFAS 109.
g. NET PROFIT (LOSS) PER SHARE
The net profit (loss) per share for all periods shown is based upon the
weighted average number of shares outstanding for the periods. No common
stock equivalents are included in the calculation since they would have
an anti-dilutive effect.
h. RECLASSIFICATIONS
Certain amounts in the December 31, 1994 Consolidated Financial
Statements have been reclassified to conform with the current period
presentation.
(3) INVENTORIES
Inventories at June 30, 1995 consist of work in process and finished
goods. Inventories at December 31, 1994, consist of work in process.
(4) RELATED PARTY TRANSACTIONS
Pursuant to an agreement, INTEK pays an annual management fee of
$200,000 to Peter Paul Corporation, Inc., an affiliate of Anglo York, a
shareholder of the Company. Peter Paul Corporation, Inc. makes the
services of Mr. Vincent Paul, Vice Chairman of the Board of Directors of
INTEK, available to the Company without additional compensation. The
agreement expires on December 31, 1999. For the six months ended June
30, 1995, INTEK paid Peter Paul Corporation, Inc. $100,000.
<PAGE>
For the six months ended June 30, 1995, INTEK incurred and paid $60,000
to Roamer One Holdings, Inc., a shareholder of INTEK and a company
controlled by Nicholas R. Wilson, Chairman of the Board of INTEK. In
addition, the Company paid $30,000 to Roamer One Holdings, Inc. that had
been accrued as of December 31, 1994.
For the six months ended June 30, 1995, INTEK incurred and paid $60,000
to Simmonds Communications Ltd ("SCL"), a shareholder of the Company,
for management services. In addition, the Company paid $30,000 to SCL
that had been accrued as of December 31, 1994.
On April 18, 1995, Roamer One and Midland International Corporation of
Kansas City ("Midland"), a subsidiary of SCL, entered into a Memorandum
of Understanding granting Midland exclusive sales and distribution
rights for all Roamer One private branded 220 MHz radio product in the
United States. Midland will be paid a commission on sales of such
radios. Roamer One also entered into an agreement with Linear
Modulation Technology Limited ("LMT"), a division of Securicor Group,
plc ("Securicor"), whereby LMT will supply Securicor radios bearing the
Roamer One logo. Pursuant to the agreement, an initial order of 3,600
units is being shipped directly to Midland for distribution throughout
the network of Roamer One 220 MHz dealers.
On June 30, 1995, the Company entered into a Purchase Agreement with SCL
pursuant to which the Company will acquire certain assets and
subsidiaries of SCL (including Midland) relating to SCL's wireless
communications business, including substantially all of SCL's two-way
radio equipment and systems integration business. Under the terms of the
Purchase Agreement, INTEK will acquire such assets in exchange for the
issuance to SCL of 15 million shares of INTEK common stock. The
transaction is expected to close in the fourth quarter of 1995. Under
the terms of the proposed transaction, SCL will sell to INTEK all of its
wireless communications business including Midland, the operating assets
of Midland International Limited, and SCL Systems. Midland is a
distributor and value added reseller of wireless communication products
for the professional land mobile radio market and the consumer citizen
band and marine radio markets. Midland International Limited is a
Canadian corporation which distributes Midland wireless communication
products in Canada and internationally. SCL Systems is a systems
integrator for large, wide-area wireless communications networks. The
transaction is subject to the approval of the Boards of Directors of SCL
and INTEK, due diligence, regulatory approval, and shareholder approval.
Pursuant to a Financing Agreement and related agreements between INTEK,
Roamer One, LMT and SCL, LMT has delivered approximately $4,000,000
worth of base station equipment and mobile radios in exchange for
937,042 shares of the Company's common stock to Securicor International
Limited, a wholly-owned subsidiary of Security Services, plc, of which
Securicor is a majority owner. Pursuant to the Financing Agreement, the
shares were issued at a share price of $4.26875. The Financing
Agreement provides that approximately $3,000,000 in additional equipment
will be financed by LMT over a period of 12 months upon the delivery of a
$3,000,000 letter of credit by INTEK to LMT.
The law firm of Kohrman Jackson & Krantz, of which Steven L. Wasserman
is a Principal, renders legal services to INTEK and its subsidiaries for
which it received fees of $43,381.44 during the six months ended June
30, 1995 from INTEK. Mr. Wasserman is a member of the Board of
Directors of INTEK.
For the six months ended June 30, 1995, Roamer One was invoiced
$5,563,799 for radio equipment and installation services from SCL.
Previous accounts payable for equipment totaled $1,212,300. During the
six months ended June 30, 1995, Roamer One made payments to SCL totaling
$6,649,902 leaving an ending accounts payable balance of $126,197. This
amount is included in
<PAGE>
related party payable.
(5) INVESTMENT IN JOINT VENTURE
In May 1995, the Company contributed $125,000 for a 50% interest in SLW
Properties, Ltd., an Ohio limited liability company ("SLWLLC"). The
assets of SLWLLC consist of twenty-five percent (25%) of the outstanding
shares of common stock of Pagers Plus Cellular, a California corporation
("PPC"), a $250,000 secured promissory note issued by PPC to SLWLLC on
May 9, 1995, a security interest in certain assets of PPC, the right to
appoint a director to PPCs Board of Directors, and the right to assume
PPCs rights under certain management and joint venture agreements if
PPC fails to repay the note by November 11, 1995.
(6) NOTE PAYABLE
In November 1994, INTEK borrowed $2,500,000 (the "Loan") against a
short-term promissory note from Noramco Mining Corporation, now known as
Quest Capital Corporation ("Quest"), bearing interest at the rate of
twelve percent (12%) per annum. The Loan was originally due in
installments of $1,000,000 on December 30, 1994 and $1,500,000 on March
31, 1995. Quest has agreed to extend the term of the Loan until the
earlier of December 15, 1995, the sale of the Property (as defined
below) or closing of any equity financing by INTEK, in exchange for
162,000 shares of common stock of INTEK. The cost of $532,500 for
142,000 shares was amortized over the first six months of 1995 and is
included as a component of interest expense on the Condensed
Consolidated Statement of Operations. The Loan is secured by a first
mortgage on the real property owned by Olympic (the "Property") and a
guarantee from SCL. In return for its guarantee, INTEK has agreed to
provide SCL with a pledge of Olympics outstanding common shares and a
second mortgage on the Property. Approximately $1,600,000 remains
outstanding on the loan.
(7) COMMITMENTS
As of June 30, 1995, Roamer One has entered into 65 site leases to
permit installation, operation, and maintenance of
transmission/reception equipment facilities in connection with the SMR
systems. These leases generally have a five year term, with three
consecutive five-year extension periods upon the mutual agreement of the
parties.
As of June 30, 1995, future minimum lease payments are as follows:
1995 $ 443,468
1996 479,660
1997 447,813
1998 350,743
1999 304,447
----------
$2,026,131
==========
In November 1994, INTEK entered into a management services agreement
with Quest for corporate finance and managing corporate restructuring
services. In consideration for these services, INTEK paid $1,000 and
issued 100,000 shares of its common stock. In connection with the
issuance of stock, INTEK entered into a registration rights agreement
pursuant to which Quest is entitled to certain registration rights.
(8) MAJOR CUSTOMERS
Roamer One has commenced construction and management of 220 MHz
Specialized Mobile Radio systems pursuant to Management Agreements. Of
<PAGE>
these agreements, 161 obligate the licensee to provide the funds for
system construction and operating costs. During the six months ended
June 30, 1995, billing for site equipment, construction and installation
accounted for 100% of consolidated net sales. The Company expects to
deliver at least 50 systems to its major customer, Voice Data
Communication, ("VDC") prior to the deadline of the Federal
Communications Commission ("FCC") of December 31, 1995. As of June 30,
1995, a total of 34 systems had been delivered and invoiced to VDC at a
gross profit of $105,965.
(9) DISCONTINUED OPERATIONS
Subsequent to the Merger, the Company redirected its business from
fabricating and selling plastic products, primarily by injection and
compression molding of various plastic resins, to customers in the
electronics aerospace and commercial aircraft markets to the business of
developing and managing a SMR Network in the United States utilizing the
recently licensed 220 MHz narrowband spectrum. Consequently, during the
first half of 1995, the Company entered into agreements to sell its
machinery, equipment and inventory to four separate buyers.
As of June 30, 1995, the Company completed four sales totaling
$4,022,407 for equipment and inventory. The Company received cash of
$3,576,235 and three notes in the aggregate amount of $446,172. One
note is a non-interest bearing note in the amount of $166,870 with
monthly payments and a maturity date of September, 1995. As of June 30,
1995 the balance on this note was $107,526. The second note, in the
principal amount of $175,000, bears interest at the rate of ten percent
(10%) per annum with monthly principal and interest payments and a
maturity date of July, 1998. The first three payments under this note
were interest only. The third note, in the principal amount of $104,302
bears interest at the rate of 10% per annum with three payments of
principal and interest in July, August, and September of 1995.
Of the proceeds from these sales, $263,000 was applied against a note
payable secured by Olympic's assets, $900,000 was repaid to Quest under
the Loan and the remainder was used for working capital.
(10) DIRECTOR COMPENSATION
On June 20, 1995, the Board of Directors approved a resolution that
directors will be compensated for services at the rate of $4,000 per
year plus $500 per meeting, retroactive to January 1, 1995. The
Company has accrued $48,000 for unpaid directors fees.
(11) SUBSEQUENT EVENTS
At the Annual Meeting of Shareholders held on July 5, 1995, the
shareholders voted to approve the 1994 Stock Option Plan which provides
for the granting of options of up to 600,000 shares of the Companys
Common Stock. The 1994 Plan provides for the granting of "incentive
stock options" within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended ( the "Code"), and "nonqualified stock
options", which are not intended to qualify under any provision of the
Code. Each grant shall specify the number of shares of Common Stock to
which it pertains; provided, however, that no optionee may be granted
stock options for more than 60,000 shares in any fiscal year of the
Company.
The shareholders also voted to approve the 1994 Directors' Stock Option
Plan (the "Directors' Plan") which provides for the granting of options
of up to 300,000 shares of the Company's Common Stock. Under the terms
of the Directors' Plan, each member of the Stock Option Committee
received an option to purchase 40,000 shares of Common Stock on
September 24, 1994. In addition, each director who is not a director on
September 23, 1994 will receive, on the date of his or her initial
election as a director,
<PAGE>
an option to purchase 20,000 shares of Common
Stock. Options are exercisable on the first anniversary of the date of
grant, provided the optionee remains a director on such anniversary. No
person may receive an option pursuant to the Directors Plan more than
once.
A summary of the Company's Stock Option Plans is as follows:
<TABLE>
<CAPTION>
OPTION
PRICE PER
1988 Plan SHARES SHARE
--------- -------- ---------
<S> <C> <C>
Shares granted:
January 1, 1987 155,000 $1.75
Shares terminated (90,000) 1.75
--------
Shares under option 65,000
1994 Stock Option Plan
----------------------
Shares granted:
September 23, 1994 50,000 $2.75
September 23, 1994 330,000 3.75
--------
Shares under option 380,000
1994 Directors' Stock Option Plan
---------------------------------
Shares granted:
September 23, 1994 120,000 $3.75
--------
Total shares under option 565,000
========
</TABLE>
As of June 30, 1995, options available for future grant were as follows:
<TABLE>
<S> <C>
1988 Plan 345,000
1994 Stock Option Plan 220,000
1994 Directors Plan 180,000
-------
745,000
=======
</TABLE>
As of June 30, 1995, no options were exercised.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995 AND
FOR THE PERIOD FROM INCEPTION (FEBRUARY 4, 1994) THROUGH JUNE 30, 1994
The following discussion and analysis sets forth certain factors which
produced changes in the Company's results of operations during the six
months ended June 30, 1995 and as compared with the same period in 1994
as indicated in the Company's consolidated financial statements in
accordance with reverse merger accounting treatment.
RESULTS OF TWO QUARTERS ENDED JUNE 30, 1995 COMPARED TO THE PERIOD FROM
INCEPTION (FEBRUARY 4, 1994) THROUGH JUNE 30, 1994:
On September 23, 1994, a newly formed, wholly owned, subsidiary of the
Company, Romnet, Inc., a Delaware corporation, merged with Simrom, an
Ohio corporation (the "Merger"), whose principal assets were certain
rights relating to licenses granted by the Federal Communications
Commission ("FCC") for the 220 MHz to 222 MHz narrow band spectrum.
After the Merger, the surviving corporation changed its name to Roamer
One, Inc. ("Roamer One"). The Company has now refocused its business
from fabricating and selling plastics products primarily from injection
and compression molding of various plastic resins to customers in the
electronics, aerospace and commercial aircraft markets (the "Plastic
Business") to a development stage enterprise of developing, constructing
and managing a Specialized Mobile Radio ("SMR") network in the United
States utilizing 220 MHz narrowband spectrum. The Company has disposed
of a substantial portion of the assets relating to the Plastics
Business. See Financial Footnote 8--"Discontinued Operations".
Roamer One currently holds management agreements, containing an option
to purchase the license together with the system, covering 261 sites.
The systems require a capital investment of approximately $75,000 per
site to construct. The option to purchase the system from the licensee
can be exercised at any time after construction is complete for a
nominal sum. Prior to exercise of the option, Roamer One retains all
proceeds from operation of the system until such time as its capital
costs are recovered. In addition to sites for which it holds options to
purchase, Roamer One has entered into management agreements with
licensees who provide for the construction and operating expenses on
their own behalf. These licensees account for an additional 187 systems
to be built without need of Roamer One funding. The equipment is to be
purchased from Roamer One and incremental profits will be realized by
the company.
Roamer One plans to provide services related to its systems as well as
to outside licensees under management contract that would include:
1.) System design and construction
2.) Market demographics
3.) Advertising
4.) Subscriber acquisition and loading
5.) Dealer network establishment
6.) Subscriber billing and tracking
7.) Budget administration
8.) System management, maintenance, and repair
The management fees charged to licensees range from 20% to 40% of gross
revenues derived from system operations. The company will withhold its
fees prior to disbursement of revenues to the licensee.
While Roamer One has a long term focus on the revenues derived from air
time billing, management realizes the need to insure that a sufficient
distribution channel to market exists to provide subscriber equipment to
the end-user. Midland International Corporation of Kansas City
("Midland") has entered into a Memorandum of Understanding with Roamer
One. Midland is a wholly-owned subsidiary of Simmonds Communications
Ltd. ("SCL"), one of INTEK's major shareholders. Midland is rated as the
fourth largest
<PAGE>
distributor of land mobile radio products in the United
States. Through agreements with major vendors, Roamer One will be
supplied with subscriber product bearing the Roamer One name and logo.
Midland will warehouse, distribute, and service the product throughout
the growing 220 MHz dealer network. This "private labeling" of radio
equipment will help establish Roamer One name recognition in the
marketplace and create a value added incentive for dealers to offer
activation on the Roamer One North American Wireless Network of systems.
Roamer One will augment sales by telemarketing, direct mail, and
personal calls to larger accounts in the transportation, public
utilities, and service industries. The initial radios will be of
traditional voice dispatch variety and management estimates indicate
that a subscriber population of approximately 100 units per system will
be required for the Company to realize a positive cash flow from
operations. All additional subscribers, including eventual data users,
will add revenues to the Company without further contribution of capital
for equipment or increase in cost of goods sold.
On June 30, 1995, INTEK entered into a Purchase Agreement with Simmonds
Communications Ltd. ("SCL") pursuant to which the Company will acquire
certain assets and subsidiaries of SCL relating to SCL's wireless
communications business including substantially all of SCL's two-way
radio equipment and systems integration business. Under the terms of the
Purchase Agreement, INTEK will acquire such assets in exchange for
issuance to SCL of 15 million shares of INTEK common stock. The
transaction is expected to close in the fourth quarter of 1995. Under
the terms of the proposed transaction, SCL will sell to INTEK all of its
wireless communications business including Midland, the operating assets
of Midland International Limited, and SCL Systems. Midland is a
distributor and value added reseller of wireless communication products
for the professional land mobile radio market and the consumer citizen
band and marine radio markets. Midland International Limited is a
Canadian corporation which distributes Midland wireless communication
products in Canada and internationally. SCL Systems is a systems
integrator for large, wide area wireless communications networks. The
transaction is subject to the approval of the Boards of Directors of SCL
and INTEK, due diligence, regulatory approval, and shareholder approval.
As of June 30, 1995, the Company completed construction of 72 systems
pursuant to its Management Agreements. Of its Management Agreements, 161
obligate the licensee to provide the funds for system construction and
operating costs. During the six months ended June 30, 1995, billings to
licensees for site equipment, construction and installation resulted in
equipment sales of $1,520,338.
Cost of goods sold as a percentage of net equipment sales was 92%.
Selling, general and administrative expense increased by $1,131,071 over
the same period last year since the 1994 expenses include only Roamer
One expenses. The expansion of Roamer Ones activities since June, 1994
has increased operating expenses for repeater sites including tower
leases, utilities, and depreciation. INTEK has incurred significant
expenses for professional fees related to audits, regulatory reporting,
the proposed merger and its financing activities.
Net Interest Expense of $646,345, related primarily to the short-term
promissory note from Quest. See Financial Footnote 5--"Note Payable."
The loss from continuing operations was $1,652,256 greater than last
year due to the increase in selling, general and administrative expenses
and the interest costs related to the extension of the maturity date of
the Quest Loan (as defined below).
Liquidity and Capital Resources.
<PAGE>
At June 30, 1995, working capital was $3,301,054. Approximately $1.6
million remains outstanding on the loan (the "Loan") from Quest in the
original principal amount of $2.5 million. The Loan was originally due
in installments of $1,000,000 on December 30, 1994 and $1,500,000 on
March 31, 1995. See Financial Footnote 6--"Note Payable." Quest agreed
to extend the term of the outstanding amount under the Loan until the
earlier of December 15, 1995, the sale of the Property (as defined
below) or closing of any equity financing by INTEK, unless an extension
is obtained. Quest agreed to the extension in exchange for 162,000
shares of common stock of INTEK. The cost of $532,500 for 142,000
shares was amortized over the first six months and is included as a
component of interest expense on the Condensed Consolidated Statements
of Operations.
The Company is pursuing the sale of the remaining non-performing assets
of Olympic which consist of land and a building (the "Property"). The
Company anticipates that such a sale will yield gross proceeds in the
aggregate of approximately $2 million. The Company has not received any
offers on such assets. The Company has signed an Exclusive Authorization
to Sell with Daum Commercial Industrial Real Estate. The agreement
grants the broker an exclusive right to sell the building for the 120
days from June 20, 1995 through October 18, 1995. If the Company is
successful in selling such assets (which assets are encumbered by a lien
in favor of Quest), the loan to Quest will be repaid with the proceeds
of such sale. Any remaining proceeds will be used for working capital.
Pursuant to a Financing Agreement and related agreements between INTEK,
Roamer One, LMT and SCL, LMT has delivered approximately $4,000,000
worth of base station equipment and mobile radios in exchange for
937,042 shares of the Companys common stock to Securicor International
Limited, a wholly-owned subsidiary of Security Services, plc, of which
Securicor is a majority owner. Pursuant to the Financing Agreement the
shares were issued at a share price of $4.26875. The Financing
Agreement provides that approximately $3,000,000 in additional equipment
will be financed by LMT over a period of 12 months upon the delivery of a
$3,000,000 letter of credit from INTEK to LMT.
The Company is contemplating the raising of additional capital through a
private placement of its securities. No assurance can be made that the
Company will successfully complete such an offering or that adequate
funds will be raised to fund its working capital needs.
The ratio of current assets to current liabilities as of June 30, 1995
was 2.0 to 1, compared to 1.4 to 1 as of December 31, 1994. Cash
decreased by $263,051 while Assets Held for Sale decreased by $2,797,018
due to the sale of a portion of Olympics assets. See Financial Footnote
9--"Discontinued Operations".
RESULTS OF THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO PRIOR YEAR:
During the three months ended June 30, 1995, billings to licensees for
site equipment, construction and installation resulted in equipment
sales of $1,213,290.
Cost of goods sold as a percentage of net equipment sales was 92%.
Selling, general and administrative expense increased by $409,208 over
the same period last year since the 1994 expenses include only Roamer
One expenses. The expansion of Roamer Ones activities since June, 1994
has increased operating expenses for repeater sites. INTEK has incurred
significant expenses for professional fees related to audits, regulatory
reporting, the proposed merger and its financing activities.
Net Interest Expense of $572,888, related primarily to the short-term
promissory note from Quest. See Financial Footnote 6--"Note Payable"
<PAGE>
The loss from continuing operations was $891,895 greater than last year
due to the increase in selling, general and administrative expenses and
the interest costs related to the extension of the maturity date of the
Quest's Loan.
PART II.
OTHER INFORMATION.
Item 1. Legal Proceedings. None
Item 2. Changes In Securities.
Item 3. Defaults Upon Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information. None
<PAGE>
Item 6. Exhibits and Reports on FORM 8-K.
a. Exhibits
Exhibit 27.1 Financial Data Schedule.
b. Reports on Form 8-K
The Registrant filed one report on Form 8-K during the second
quarter of 1995. The report, filed on July 11, 1995, related to the
announcement of the execution by the Company of a Purchase Agreement
between the Company and SCL dated June 30, 1995 pursuant to which the
Company will acquire certain assets and subsidiaries of SCL relating to
SCL's wireless communications business. The report was filed pursuant
to Item 5 on Form 8-K.
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
June 30, 1995
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 hereunto duly authorized.
DATED: August 14, 1995
INTEK DIVERSIFIED CORPORATION
By: /s/ Peter A. Heinke
---------------------------------------
Peter A. Heinke
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and Chief
Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 669312
<SECURITIES> 500000
<RECEIVABLES> 436666
<ALLOWANCES> 50000
<INVENTORY> 2741296
<CURRENT-ASSETS> 6565166
<PP&E> 3688840
<DEPRECIATION> 61081
<TOTAL-ASSETS> 10317925
<CURRENT-LIABILITIES> 3161612
<BONDS> 0
<COMMON> 8941254
0
0
<OTHER-SE> (1901241)
<TOTAL-LIABILITY-AND-EQUITY> 10317925
<SALES> 1213290
<TOTAL-REVENUES> 1213290
<CGS> 1120958
<TOTAL-COSTS> 1120958
<OTHER-EXPENSES> 819771
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 572888
<INCOME-PRETAX> (1488699)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1300379)
<DISCONTINUED> (188320)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1488699)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
