<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, 1997
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) 366-7335
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 Registrant's Common Stock, $0.01 par
value, as of August 12, 1997, is 40,426,212 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTEK DIVERSIFIED CORPORATION
RADIOCOMS OCTOBER 1, 1995 AND
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 1, 1996
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Thousands, except share and per share amounts)
For the three and nine month periods ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
------------------------ -----------------------
1997 1996 1997 1996
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Net product sales $ 12,020 $ 6,727 $ 29,259 $ 19,238
Service income 8 - 14 -
-------- -------- -------- --------
Total revenues 12,028 6,727 29,273 19,238
Costs and expenses:
Cost of goods sold 8,345 5,702 23,421 15,793
Cost of services 526 - 1,290 -
Sales and marketing 1,269 507 2,667 1,481
Research and development 859 914 2,572 2,368
General and administrative 4,257 834 10,985 5,360
Depreciation and amortization 1,235 70 3,114 809
-------- -------- -------- --------
Operating loss (4,463) (1,300) (14,776) (6,573)
Other income (expense):
Interest (506) (450) (2,256) (1,221)
Gain on sale of assets held
for sale and other 3 - 798 -
-------- -------- -------- --------
Loss before income taxes $ (4,966) $ (1,750) $(16,234) $ (7,794)
Income tax benefit - 1,980 630 2,204
Foreign exchange loss (169) - (169) -
-------- -------- -------- --------
Net income (loss) $ (5,135) $ 230 $(15,773) $ (5,590)
Less preferred dividends (296) - (696) -
-------- -------- -------- --------
Loss applicable to Common
Shareholders $ (5,431) $ 230 $(16,469) $ (5,590)
======== ======== ======== ========
Net income (loss) per share $ (0.13) $ 0.01 $ (0.45) $ (0.22)
======== ======== ======== ========
Weighted average number of
common shares outstanding 40,426,212 25,000,000 36,613,628 25,000,000
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
1
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INTEK DIVERSIFIED CORPORATION
CONSOLIDATED BALANCE SHEETS
RADIOCOMS ONLY AT SEPTEMBER 30, 1996 (PRE-REVERSE MERGER)
(Thousands)
ASSETS
June 30, 1997 (Unaudited) and September 30, 1996
June 30 September 30
1997 1996
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 2,703 $ 417
Accounts receivable, net
of allowance for
doubtful accounts of $96
in June 1997 and $128
in September 1996 7,659 9,661
Note receivable, current
portion 173 -
Inventories 24,265 18,895
Prepaid expenses and
other current assets 5,001 4,464
-------- --------
Total current assets 39,801 33,437
-------- --------
PROPERTY AND EQUIPMENT, AT COST 27,787 11,551
Less-accumulated depreciation (6,668) (4,912)
-------- --------
21,119 6,639
OTHER ASSETS:
Note receivable 447 -
Investment in E.F. Johnson,
at cost 10,177 10,177
Trademarks, patents and goodwill 46,223 -
Other 151 -
-------- --------
TOTAL ASSETS $117,918 $ 50,253
======== ========
The accompanying notes are an integral part of these consolidated statements
2
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INTEK DIVERSIFIED CORPORATION
CONSOLIDATED BALANCE SHEETS
RADIOCOMS ONLY AT SEPTEMBER 30, 1996 (PRE-REVERSE MERGER)
(Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, 1997 (Unaudited) and September 30, 1996
June 30 September 30
1997 1996
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 6,621 $ 5,711
Accrued liabilities 6,086 1,576
Deferred income - 760
Related party payable - 29,345
Notes payable 454 1,313
Licensee deposits 180 -
-------- --------
Total current liabilities 13,341 38,705
-------- --------
NOTES PAYABLE-Related Party 22,429 32,837
-------- --------
PREFERRED STOCK OF SUBSIDIARY 20,000 -
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $0.01 par value
Authorized - 60,000,000 shares
Issued - 40,891,794 at
June 30, 1997 and 25,000,000
at September 30, 1996 409 150
Capital in excess of par value 103,309 -
Treasury stock, at cost-465,582
shares (770) -
Retained deficit (40,459) (21,611)
Currency translation adjustment (341) 172
-------- --------
TOTAL SHAREHOLDERS' EQUITY 62,148 (21,289)
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $117,918 $ 50,253
======== ========
The accompanying notes are an integral part of these consolidated statements
3
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INTEK DIVERSIFIED CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1995 AND
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 1, 1996
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Thousands)
For the three and nine month periods ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash Flows From
Operating Activities:
Net loss $ (5,135) $ 230 $(15,773) $ (5,590)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation and amortization 1,235 70 3,114 809
Provision for doubtful accounts - 62 - 62
Gain on sale of assets held
for sale - (9) (756) (12)
Deferred taxes - - (633) -
Imputed interest on convertible
Debt and warrants 163 - 1,201 -
Interest added to principal 252 - 563 -
Changes in assets and
liabilities:
Decrease (increase) in:
Accounts receivable (1,433) (2,190) (1,922) (74)
Notes receivable 8 - (437) -
Inventories 953 216 (320) (2,477)
Prepaid expenses and
other current assets 2,121 (1,263) 641 (1,161)
Increase (decrease) in:
Accounts payable 283 177 2,559 (2,027)
Licensee deposits 17 - (79) -
Accrued liabilities 1,262 2,335 138 1,353
Related Party Payable 221 - 3,454 -
Deferred income (1,961) (701) (10) (956)
Taxes other than income taxes 28 94 177 69
-------- -------- -------- --------
Total Adjustments 3,149 (1,209) 7,690 (4,414)
-------- -------- -------- --------
Net cash used in operating
activities (1,986) (979) (8,083) (10,004)
4
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Cash Flows From Investing
Activities:
Capital expenditures (5,234) 35 (7,567) (865)
Expenditures for FCC licenses - - (168) -
Reverse merger costs capitalized - - (68) -
Proceeds, net of note receivable,
from sale of assets held
for sale - (100) 2,200 28
Cash acquired in reverse merger - - 1,572 -
Investments and other long term
assets (25) (9,696) (25) (9,696)
-------- -------- -------- --------
Net cash provided by investing
activities (5,259) (9,761) (4,056) (10,533)
Cash Flows From Financing
Activities:
Bank overdraft 118 (651) (928) (220)
Proceeds from long term debt
Third Party 763 - 4,763 -
Related Party 11,173 11,323 15,954 20,345
Repayment on long and short
term debt
Third Party (4,000) - (5,346) -
Related Party - - - -
-------- -------- -------- --------
Net cash provided by
financing activities 8,054 10,672 14,443 20,125
-------- -------- -------- --------
Effect of exchange rates on cash 416 - (18) (15)
-------- -------- -------- --------
Net increase in cash and cash
equivalents 1,225 (68) 2,286 (427)
Cash and cash equivalents
at beginning of period 1,478 242 417 601
-------- -------- -------- --------
Cash and cash equivalents
at end of period $ 2,703 $ 174 $ 2,703 $ 174
======== ======== ======== ========
Supplemental disclosures of
cash flow information:
Cash paid for interest $ 111 $ 676 $ 237 $ 1,221
Cash paid for income taxes $ - $ 139 $ - $ 139
</TABLE>
The accompanying notes are an integral part of these consolidated statements
5
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INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) PRESENTATION
The unaudited 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. These
unaudited 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 for the period ended September 30,
1997.
These financial statements have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") used in the United States. Such
accounting principles differ in certain respects from United Kingdom GAAP, which
is applied by the Radiocoms for local and statutory financial reporting
purposes.
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) BUSINESS ACQUISITIONS AND SIGNIFICANT ITEMS
On May 2, 1996, Intek formed Midland USA, Inc. ("MUSA"), a Delaware
corporation and wholly-owned subsidiary of Intek. Effective August 1, 1996,
MUSA, acquired from Midland International Corporation ("MIC"), a wholly-owned
subsidiary of Simmonds Capital Limited ("SCL"), its U.S. land mobile radio
distribution business and certain of its assets (the "Midland Transaction") in
exchange for 2,345,000 shares of Company Common Stock.
On December 3, 1996, Intek consummated the acquisition (the "Radiocoms
Acquisition") of all the issued and outstanding common stock of Securicor
Radiocoms Limited ("Radiocoms"), a wholly owned subsidiary of Securicor
Communications Limited ("Securicor"). Radiocoms designs, develops,
manufactures, distributes and installs a range of land mobile radio
equipment, including its own proprietary linear modulation technology
equipment. The purchase price for the Radiocoms Acquisition was 25,000,000
shares of Company Common Stock. The Radiocoms Acquisition, approved by the
stockholders of Intek at a Special Meeting held on December 3, 1996, was
consummated on the same date.
Upon the consummation of the Radiocoms Acquisition, the Company became a
vertically integrated provider of communications services and products. With the
exception of certain products distributed by MUSA, the communication services
and products of the Company utilize proprietary linear modulation technology
("LM Technology") developed by Radiocoms. Roamer One is a provider of
high quality wireless voice and data communications services in the United
States, operating on the 220-222 MHz ("220 MHz") frequency and Radiocoms is a
manufacturer of the systems and radios used by among others, the Roamer One
systems. In addition,
6
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Radiocoms, through its LMT division, is involved in the research and
development of products and other applications of LM Technology.
a. The following unaudited proforma income statement information is
presented as though the Radiocoms Acquisition had occurred on October 1, 1995:
Three Months Nine Months Ended
Ended June 30 June 30
----------- --------------------
1996 1997 1996
----------- --------- ---------
Revenues $ 5,012 $ 31,462 $ 19,241
Net loss $(5,002) $(21,718) $(15,390)
Net loss per share $ (0.13) $ (0.56) $ (0.40)
Weighted average shares
outstanding 38,435,553 40,041,467 38,057,959
The proforma financial information is presented for informational purposes
only and it is not necessarily indicative of the operating results that would
have occurred had the Radiocoms Acquisition been consummated as of the above
date, nor is it necessarily indicative of future operating results.
b. As discussed below, the Radiocoms Acquisition has been as accounted
for as a reverse acquisition, and the Company's financial statements have been
prepared as if Radiocoms acquired Intek under the purchase method. The excess of
cost over the fair value of net assets acquired at December 3, 1996 is being
amortized over 15 years. The purchase price was determined based on the fair
value of the Company Common Stock outstanding at the date of the Radiocoms
Acquisition and has been allocated to the Intek underlying assets and
liabilities based on fair values at the date of the Radiocoms Acquisition. A
summary of the purchase price allocation is as follows:
(in thousands)
--------
Net working capital $(1,138)
Excess of cost over fair value of
net assets acquired 37,073
Net property, plant & equipment 10,179
Other non-current assets 12,918
Other non-current liabilities (6,054)
--------
Total $52,978
========
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
Because Securicor acquired more than a 50 percent controlling interest
in Intek through the Radiocoms Acquisition, the Radiocoms Acquisition was
treated as a reverse acquisition for accounting purposes, with Radiocoms
considered the acquiring company, although Intek is the surviving company
under corporate law. Accordingly, the consolidated financial statements for
the three and nine months ended June 30, 1996 include only the accounts of
Radiocoms. Subsequent to the date of the Radiocoms Acquisition (December 3,
1996) the consolidated financial statements include the statements of Intek
and its wholly-owned subsidiaries, Roamer One, MUSA, Olympic Plastics
Company, Inc. ("Olympic"), IMCX Corporation ("IMCX"), and IDC International
Corporation ("IDC") (from December 3, 1996 through June 30, 1996) and include
the accounts of Radiocoms from October 1, 1996 through June 30, 1997.
The accounts of Radiocoms include the combined results of Radiocoms and
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its wholly owned subsidiaries.
All material intercompany transactions have been eliminated in
consolidation.
b. CONSOLIDATED CASH FLOW STATEMENT
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
c. INVENTORIES
Inventories are stated at the lower of cost or market and consist of radio
components, mobile radios and accessories, and repeater site receive/transmit
systems. Inventory cost is raw materials, work in process and finished goods
including purchased parts, labor and overhead.
d. PROPERTY AND EQUIPMENT, AT COST
Property and equipment are stated at cost. The Company's 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 assets are
capitalized. Depreciation is provided on the straight-line method over the
estimated useful lives of the assets as follows:
Buildings 11 to 50 years
Repeater site equipment 10 years
Manufacturing test and computer equipment 3 to 10 years
Equipment for rental on operating leases 3 to 5 years
Furniture and fixtures 3 to 10 years
e. REVENUE RECOGNITION
With respect to the sale of equipment, including systems and site
equipment, revenue is recognized upon delivery of the equipment or, when
appropriate, upon acceptance of the equipment by the customer. The Company
recognizes subscriber revenue from airtime billings upon provision of the
service. In those instances when subscribers are billed for airtime service
provided from sites managed by the Company, only the percentage of billings
applicable to the Company are included in revenue.
f. INCOME TAXES
The Company and its subsidiaries (except Radiocoms) file consolidated
Federal and combined state income tax returns. The Company accounts for income
taxes in accordance with Statement of Financial Accounting Standard No. 109
"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires, among other things,
the use of the liability method in computing deferred income taxes.
Radiocoms is a company organized under the laws of England and Wales and
files its tax returns with local UK tax agencies.
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.
In accordance with SFAS No. 109, the Company has recorded valuation
allowances against the realization of its deferred tax assets. The valuation
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allowance is based on management's estimates and analysis, which includes tax
laws which may limit the Company's ability to utilize its tax loss
carryforwards.
g. WARRANTY COSTS
The Company provides, by a current charge to income, an amount it estimates
will be needed to cover future warranty obligations for products sold during the
period. The accrued liability for warranty costs is included in the caption
"Accrued liabilities" in the accompanying consolidated balance sheets.
h. FOREIGN CURRENCY
The financial statements of the Company's foreign subsidiary are translated
into U.S. Dollars for consolidation and reporting purposes. Assets and
liabilities are translated into U.S. Dollars using the exchange rate at each
balance sheet date and a weighted average exchange rate for each period is used
for revenues and expenses. Translation adjustments are recorded as a separate
component of shareholders' equity.
i. NET LOSS PER SHARE
The net 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.
j. INVESTMENT
The Company's investment in E. F. Johnson Company is stated at cost (see
Note (9).
k. AMORTIZATION OF TRADEMARKS AND GOODWILL
As part of the Midland Transaction, the Company acquired various rights,
permits and trademarks. These intangible assets are amortized on a straight-line
basis over their legal or estimated useful lives, whichever is shorter
(generally not exceeding 15 years).
As a result of the Radiocoms Acquisition, intangible assets of Intek and
its subsidiaries prior to the Radiocoms Acquisition including various rights,
permits, trademarks and patents are being amortized on a straight-line basis
over their legal or estimated useful lives, whichever is shorter (generally
not exceeding 15 years).
l. RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
m. SUBSCRIBER ACQUISITION COSTS
Marketing and sales costs associated with obtaining new subscribers are
charged to income in the period incurred.
n. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The equipment sales and contract manufacturing portions of the Company's
business have a broad range of established customers. In contrast, the sales of
products utilizing LM Technology is a new market with a limited number of
customers in an emerging domestic and overseas environment and consequently may
involve greater credit risks. The Company has derived a substantial amount of
its sales from related parties. No formal agreements with these parties exist.
No assurance can be made that these arrangements will continue on the same terms
or at the same volume of business in the future. To the extent these sales do
not continue, it may adversely affect the Company's financial position and
results of operations.
The Company may periodically hedge firm foreign purchase commitments. The
Company regularly monitors its foreign currency exposures and ensures that
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hedge contract amounts do not exceed the amounts of the underlying exposures. At
June 30, 1997, the Company had outstanding hedge contracts to cover its firm
foreign purchase commitments.
o. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
p. WEIGHTED AVERAGE SHARES OUTSTANDING
The weighted average number of shares outstanding for the three and nine
month periods ended June 30, 1997 and the pro forma income statement disclosures
were restated to reflect the shares issued in connection with the reverse
acquisition based on the exchange ratio of the Company Common Stock issued in
exchange for each share of Radiocoms Stock.
(4) INVENTORIES
Inventories at June 30, 1997 and September 30, 1996 consist of the following
(in thousands):
June 30, Sept. 30,
1997 1996
-------- --------
Raw materials $ 7,030 $ 8,314
Work in progress 1,634 2,322
Finished goods 15,601 8,259
-------- --------
$ 24,265 $ 18,895
======== ========
(5) PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1997 and September 30, 1996 consists of
the following (in thousands):
June 30, Sept. 30,
1997 1996
-------- --------
Land $ 532 $ 469
Buildings 2,446 2,329
Site equipment 12,714 -
Production & test equipment 5,809 4,731
Furniture and fixtures 1,309 555
Computers 626 -
Equipment held for rental 4,351 3,467
-------- --------
Total property and equipment, at cost 27,787 11,551
Less accumulated depreciation (6,668) (4,912)
-------- --------
Net property and equipment $ 21,119 $ 6,639
======== ========
(6) COMMITMENTS
As of August 12, 1997, Roamer One had entered into 190 site leases for
the housing of radio base station equipment and antenna systems related to
systems operating on the 220 MHz frequencies that are managed or owned by
Roamer One. Under the terms of these management
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agreements, Roamer One assumes all responsibility for payment of the site leases
and related expenses. These leases may vary in term from 1 to 5 years with
provisions for subsequent extensions upon the mutual agreement of the parties.
As of August 12, 1997, total future minimum lease payments are as follows:
1997 $ 496,000
1998 1,513,000
1999 1,537,000
2000 931,000
2001 222,000
Thereafter 32,000
----------
$4,731,000
==========
(7) SALE OF SECURITIES
On February 29, 1996, the Company raised $2,500,000 through the issuance of
a Senior Secured Debenture ("Senior Debenture") to MeesPierson ICS Limited, a UK
limited liability company ("MeesPierson"). The Senior Debenture was secured by
land and a building owned by Olympic (the "Property"). Intek also issued 50,000
shares of Company Common Stock to MeesPierson as a closing fee for its
investment banking services. The Senior Debenture matured on August 31, 1996. In
exchange for an extension until the earlier of October 31, 1996 or the sale of
the Property, Intek paid to MeesPierson accrued interest through August 1, 1996,
issued 25,000 shares of Company Common Stock to MeesPierson and issued 5,000
shares of Company Common Stock to Octagon Capital Canada Corporation for an
agent's fee. In exchange for a further extension to January 31, 1997, Intek
issued MeesPierson 34,000 shares of Company Common Stock. The Senior Debenture
was paid in full on December 31, 1996.
On April 26, 1996, The Company sold a series of 6.5% Notes in the aggregate
principal amount of $5,000,000 (the "Notes"), maturing April 25, 1999. During
fiscal 1997, holders of the Notes exercised warrants to convert all $5,000,000
of the Notes into Company Common Stock at an average discount of 18% below
market price. This discount, in the amount of $907,000, was a pre-reverse
acquisition expense of Intek.
On November 1, 1996, the Company sold a series of 6.5% Notes in the
aggregate principal amount of $2,000,000 (the "November 1996 Notes") maturing on
October 31, 1999. Net proceeds to the Company, after fees and brokers
commissions, were $1,995,000. All accrued interest is due and payable at the
time the November 1996 Notes mature or upon the exercise of the warrants. During
the quarter ended March 31, 1997, holders of the Notes exercised warrants to
convert all $2,000,000 of the Notes into Company Common Stock at an average
discount of 28% below market price. This discount, in the amount of $552,000 was
charged to interest expense in the quarter ended March 31, 1997.
On February 6, 1997, the Company sold a series of 7.5% Convertible
Debentures (the "February 1997 Debentures") and (the "February 1997 Warrants")
to three purchasers. Net proceeds to the Company, after fees and brokers
commissions, were $3,990,000. The February 1997 Debentures matured on February
6, 2000 and bear interest at the rate of 7.5% per annum. All accrued interest
was due and payable at the time the February 1997 Debentures mature or upon
their conversion to Company Common Stock. The debt conversion price was the
lesser of $3.825 or 80% of the average closing bid price for the 5 trading days
prior to conversion resulting in a discount of $800,000. In May 1997 the
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Company redeemed the February 1997 Debentures in exchange for a cash payment
equal to the principal amount of the debentures plus a redemption premium of 10
percent and all accrued and unpaid interest. Since the Company had recorded
$326,000 of such discount during the quarter ended March 31, 1997, the
redemption resulted in a reduction of the aggregate discount on this transaction
and additional interest expense of $74,000 was recorded in the quarter ended
June 30, 1997.
The February 1997 Warrants became exercisable by the holders thereof on
April 7, 1997 and remain outstanding. The February 1997 Warrants are exercisable
at $4.59 per share and are subject to customary anti-dilution adjustments. The
February 1997 Warrants were estimated by the broker to have a value of $100,000,
which was included in interest expense in the quarter ended March 31, 1997.
In connection with the Radiocoms Acquisition, Securicor made available to
the Company a $15 million line of credit (the "September 1996 Facility") to fund
Intek's working capital needs. Drawdowns against this line have been $9 and $1
million respectively in December 1996 and August 1997. The remaining balance of
this line supports a letter of credit line utilized by the Company in connection
with purchases made by MUSA from third party suppliers. The September 1996
Facility may be drawn upon by Intek so long as it maintains a net worth of at
least $20,000,000. The September 1996 Facility bears interest at the rate of
prime (to be defined to the average of prime rates announced by certain
specified banks) plus 1% through December 31, 1997 and thereafter interest will
accrue at the rate of 11% compounded annually on the outstanding principal
balance, payable upon the repayment in full of the outstanding principal balance
but no later than June 30, 2001. The obligations under the September 1996
Facility may be prepaid at any time without any penalty. The September 1996
Facility must be redeemed upon a change of control of Intek or upon the sale of
the majority of its assets. Intek may redeem the September 1996 Facility, at par
plus accrued interest, subject to restrictions contained in any senior debt
facility it may obtain, in increments of $500,000.
During the quarter ended June 30, 1997 the Company borrowed $6 million for
working capital purposes from Securicor. The borrowings are evidenced by an 11%
note payable due the earlier of (1) the receipt of funds by Intek from a private
or public offering of Intek shares; and (2) October 18, 1998. Additionally,
during May 1997 the Company borrowed $4.5 million from Securicor to retire
the February 1997 Debentures. This loan bears interest at 12% and is
repayable under the same terms as the 11% note payable. Interest on these two
notes is due upon maturity of the notes.
(8) ACQUISITION OF NEW SYSTEMS AND MANAGEMENT AGREEMENTS
KRYSTAL SYSTEMS
On November 11, 1996, the Company entered into an agreement (the "Krystal
Agreement") to acquire from Krystal Systems, Inc. ("Krystal") up to 25
constructed, but unloaded, 220MHz systems and related FCC licenses ("Krystal
Systems".) Through June 30, 1997, the Company has paid $3,690,000 of the
purchase price for 22 of the Krystal Systems. The remaining balance of
$270,000 is due and payable upon receipt, and uncontested grant by the FCC,
of the licenses to Roamer One. Application for such transfers have been filed
with the FCC and 17 assignments have been granted as of August 12, 1997.
Applications typically can take between 30-120 days for processing by the
FCC, however, no assurance can be made that the FCC will grant the remaining
pending applications. This transaction has been recorded in the Company
financial statements.
AMERICAN DIGITAL COMMUNICATIONS
12
<PAGE>
On May 31, 1997 and July 10, 1997, the Company entered into two agreements
with American Digital Corporation ("ADC") and 22 holders of 220MHz FCC
licenses. The agreements provide that the Company will acquire the licenses
from the licensees and the equipment from ADC for total consideration equal
to $3,696,000. The purchase price will be paid by the Company as follows:
(a) return of 1,150,000 shares of ADC stock owned by the Company (valued for
purposes of the transaction at $448,500); (b) issue approximately 746,134
shares of Company Common Stock (valued for purposes of the transaction at
$3.80 per share); (c) transfer all rights held by the Company to acquire
2,666,666 shares of Ventel, Inc. ("Ventel"), a publicly traded company in
Canada (valued for purposes of the transaction at $448,500); (d) retire
approximately $44,000 of debt owed by ADC to third parties; (e) pay, as
described below, approximately $1,441,149 of debt owed by ADC to Ventel; and
(f) pay $75,000 to ADC upon execution of the agreements. Closing of such
transactions (and payment of the purchase price) will occur upon receipt of,
and uncontested grant by the FCC, of the licenses to Roamer One. Applications
have been filed for such transfers with the FCC and applications typically
can take between 30-120 days for processing by the FCC. Such transactions
will be recorded in the period in which they close.
PAGERS PLUS
In December 1996 and January and February 1997, Roamer One renegotiated
certain management and purchase agreements that Pagers Plus Cellular ("PPC")
had with licensees holding 220MHz FCC licenses. PPC was paid approximately
$335,000 for services related to the negotiation of such agreements. As of
April 1, 1997, all such agreements automatically terminated due to certain
conditions not being met. Upon the termination of such agreements, the
Company has reversed the previously recorded effects of the original
arrangements (I.E. $2,070,000 of property and equipment, $1,150,000 of other
assets and $3,220,000 long term debt) in the June 30, 1997 financial
statements. As a result of such termination, PPC owes the Company $335,000 if
the transaction in the subsequent paragraph does not close. Such amount will
be offset against amounts payable by the licensees to PPC in the event of a
sale of such licenses. The Company, however, continues to manage such systems
on behalf of PPC.
During the period July 12, 1997 through August 12, 1997, the Company
entered into purchase and sale agreements with 25 licensees of 220MHz FCC
licenses managed by the Company on behalf of PPC. The agreements provide that
the Company will acquire (subject to the satisfaction of certain conditions) 25
licenses for a purchase price, in the aggregate, equal to 475,424 shares of
Company Common Stock. Closing of such transactions (and payment of the purchase
price) will occur upon receipt of, and the uncontested grant by the FCC of, the
licenses to Roamer One. Applications will be filed for such transfers with the
FCC. Applications can take 30-120 days for processing by the FCC. Such
transactions will be recorded in the period in which they close.
VENTEL, INC.
In May 1995, Intek contributed $125,000 for a one-third ownership interest
in Brook SIG Corp., which was subsequently acquired in a stock transaction by
Ventel. Ventel is in the business of providing financing to various 220MHz SMR
management companies in the United States. Intek and SCL (also a shareholder of
Ventel) entered into separate management services agreements with Ventel to
provide certain management services and technical expertise for the development
and implementation of Ventel's ongoing business strategy. John Simmonds (a
director of Intek) is the Chairman of the Board of Directors of Ventel. To date,
Intek has received 2,666,667 shares of the common stock of Ventel which
represents 9.3% of the outstanding shares of Ventel at June 30, 1996. Of these
shares, 55.8% or 1,488,889 are held in escrow. One half of the shares will be
automatically released from escrow on September 20, 1997 and the balance on
September 20, 1998. The receipt of shares of common stock of Ventel has not been
accounted for in these financial statements due to the market volatility and the
lack of historical operating results which make it impractical to accurately
value the stock at this time.
13
<PAGE>
On May 28, 1997, the Company entered into an agreement with Ventel (the
"Ventel Agreement"), which provides for the sale and transfer of certain
outstanding loans, security agreements, and the rights related to the collateral
for such security agreements from Ventel to the Company. Such loans were made by
Ventel to PPC and ADC for the purpose of constructing 220MHz systems. These
systems are the subject of purchase agreements (described above) between various
licensees, ADC, PPC and the Company. The Ventel Agreement provides that the
Company will acquire the security agreements and rights to the collateral in
exchange for a payment to Ventel of 787,921 shares of Company Common Stock and
$100,000 in cash. The Ventel Agreement was approved of Intek's Board of
Directors and Intek's majority shareholder, Securicor, on July 10, 1997. The
closing (and payment of the purchase price) will occur upon receipt by the
Company of signed and duly executed purchase agreements from each of the
licenses for the operation of the equipment subject to the Ventel liens.
(9) SUBSEQUENT EVENTS
On July 31, 1997 the Company entered into a Purchase Agreement with
Transcrypt International Inc. ("Transcrypt") whereby the Company exchanged its
investment in E.F. Johnson ("EFJ") for 375,000 unregistered shares of Transcript
common stock (the "Transcrypt Shares"). The book value of the Company's
investment in EFJ (the "EFJ Shares") was approximately $10 million. The fair
market value of the Transcrypt Shares is approximately $4.2 million. Under the
terms of the Radiocoms Acquisition, the Company has been indemnified by
Securicor for any loss attributable to or resulting from the transfer of the EFJ
Shares to Radiocoms. Further, the Company may utilize securities, properties or
other rights or instruments into which the EFJ Shares are converted (to be
valued at a price determined by an independent expert) to redeem $10 million of
preferred stock of Radiocoms held by Securicor (the "Securicor Put"). The
Company may utilize the Securicor Put on or after March 15, 2000. The Company
believes the full book value of the EFJ investment (i.e. $10 million) at June
30, 1997 will be realized through a combination of the proceeds of the
Transcrypt Shares and the reduction of the Securicor preferred stock liability,
through the utilization of the Securicor Put or demand for indemnification. This
transaction will be recognized in the fourth quarter.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion sets forth certain factors which produced changes
in the Company's results of operations during the nine months ended June 30,
1997 and as compared with the same period in 1996 as indicated in the Company's
consolidated financial statements. The following should be read in conjunction
with the Financial Statements and related notes. Historical results of
operations are not necessarily indicative of results for any future period. All
material intercompany transactions have been eliminated in the results presented
herein.
Certain matters discussed in this Quarterly Report may constitute forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Reform Act") and as such may involve risks and
uncertainties. These forward-looking statements relate to, among other things,
expectations of the business environment in which the Company operates,
projections of future performance, perceived opportunities in the market and
statements regarding the Company's mission and vision. The Company's actual
results, performance or achievements may differ significantly from the results,
performance, or achievements expressed or implied in such forward-looking
statements.
GENERAL
The Company has devoted, and expects to continue to devote, substantial
financial and management resources to the development of the Roamer One
systems utilizing the Company's proprietary "LM Technology". Additionally,
the Company is also developing new products utilizing LM Technology in other
frequency bands with a focus on the world-wide need for spectrum efficiency
and also intends to develop other wireless communications networks
internationally. The Company, through its various subsidiaries, designs,
develops, manufactures and distributes land mobile radio products including
those utilizing LM Technology.
The Company presently has in inventory a substantial number of completed
220MHz base stations and 220MHz radios, as well as components for the
manufacture of additional base stations and radios. This inventory is intended
for sale to third parties and for utilization on the Roamer One network of
systems. The Company has recently commenced the loading of the Roamer One
network of systems and also intends to continue to expand that network over
the next several years. The construction and expansion of a Roamer One
network of systems, as well as equipment sales to third parties has been, and
may continue to be, impacted by factors such as pending auctions by the FCC
of additional 220MHz licenses. In the opinion of Company management, the FCC
auctions may occur in the next six to nine months. A delay in the auctions
would significantly hinder the Company's ability to reduce these inventory
levels, especially through third party sales in the near term.
The Company expects to incur substantial operating losses and have a
negative cash flow from operations for the foreseeable future, mainly resulting
from operating, sales, marketing and general and administrative expenses related
to the roll-out of the Roamer One network of systems as well as its
continuing investment in research and development related to LM Technology.
Results of Operations for the nine months ended June 30, 1997 include
Radiocoms for the entire nine month period and, Roamer One, MUSA and Corporate
for the seven months then ended.
15
<PAGE>
% Of
9 Months Ended Related % Change
June 30, 1997 Revenue 97 vs. 96
------------- ------- ---------
Revenues
Roamer $ 867 3.0% N/A
MUSA 10,785 36.8 N/A
Radiocoms 17,621 60.2 (8.4)%
------- -----
Consolidated $29,274 100.0% 52.2%
------- -----
Cost of Goods and Services
Roamer $ 966 111.4% N/A
MUSA 7,462 69.2 N/A
Radiocoms 14,992 85.1 (5.1)%
-------
Consolidated $23,420 80.0 48.3%
-------
Other Operating Expenses
Roamer $ 2,645 305.1% N/A
MUSA 3,464 32.1 N/A
Radiocoms 10,232 58.1 11.1%
Corporate 1,174 N/A N/A
-------
Consolidated $17,515 59.8% 90.2%
-------
Depreciation and Amortization
Roamer $1,538 177.4% N/A
MUSA 381 3.5 N/A
Radiocoms 1,195 6.8 47.7%
Corporate - N/A N/A
------
Consolidated $3,114 10.6% 284.9%
------
Operating Loss
Roamer $ (4,282) (493.9)% N/A
MUSA (522) (4.8) N/A
Radiocoms (8,798) (49.9) 33.9%
Corporate (1,174) N/A N/A
--------
Consolidated $(14,776) (50.5)% (124.8)%
-------- ----- ------
-------- ----- ------
ROAMER ONE -SEVEN MONTHS ENDED JUNE 30, 1997
REVENUES
Subscriber loading commenced on a limited basis during late calendar 1996.
At June 30, 1997, Roamer One has less than 1,000 subscribers compared to less
than 100 at June 30, 1996. Subscriber revenues for the seven months ended June
30, 1997 were $14,000 including $8,000 for the three months then ended.
During the seven months ended June 30, 1997, billings to licensees for site
equipment, construction and installation and the sale of mobile radios resulted
in equipment revenues of $854,000 including similar sales of $312,000 for the
three months then ended.
Because of the reverse acquisition, comparable revenues and expenses for
the prior fiscal year are not provided herein.
COST OF GOODS AND SERVICES
Cost of equipment sold was $966,000 (113.1% of related sales) for the seven
months ended June 30, 1997. For the fiscal quarter ended June 30, 1997, cost of
equipment sales was $454,000 (145.5% of related sales). Cost of sales was
abnormally high due to a $176,000 write-down of mobile radio inventories.
Initial purchases of mobile radios had been at a price that reflected low
production volumes and correspondingly high per unit costs. Without the write-
down, cost of equipment sold was $790,000 (92.5% of related sales) for the seven
months ended June 30, 1997 and $278,000 (89.1% of related sales) for the
quarter.
16
<PAGE>
Cost of services relates to site expense and technical support. Site
expenses are primarily tower lease, telephone, and insurance. Technical support
includes consulting fees, travel and equipment rental required to optimize and
support the network of repeater sites, together with telephone support to
Subscribers from the Roamer office. For the seven months ended June 30, 1997,
site and support expenses were $1,290,000 (921.4% of related sales) and $526,000
(657.5% of related sales) for the fiscal quarter ended June 30, 1997.
OTHER OPERATING EXPENSES
Sales and marketing expenses are primarily salaries, travel and preparation
of promotional material. The selling expenses for the seven months ended June
30, 1997 were $623,000 (71.2% sales) and $439,000 (137.2%) for the fiscal
quarter ended June 30, 1997. Sales and marketing expenses are increasing due to
the creation of a sales organization in connection with the loading of the
Roamer One network of systems.
General and administrative expenses generally consist of salaries,
consultants, office rent and insurance to support the management of the systems.
General and administrative expenses for the seven months ended June 30, 1997
were $732,000 (84.3% sales) and $294,000 (91.9% sales) for the fiscal quarter
then ended.
DEPRECIATION AND AMORTIZATION
Depreciation of fixed assets and amortization of the intangibles related
to the Radiocoms Acquisition were $38,000 and $1,500,000, respectively, for
the seven months ended June 30, 1997 and $10,000 and $643,000, respectively,
for the fiscal quarter then ended.
OPERATING LOSS
For the sevens months ended June 30, 1997, the operating loss was
$2,781,000 and $1,404,000 for the fiscal quarter then ended. This loss is a
result from current subscriber count not being sufficient to offset the cost
of the network's infrastructure and subscriber acquisition cost.
MUSA - SEVEN MONTHS ENDED JUNE 30, 1997
REVENUES
Net sales for the seven months ended June 30, 1997 were $10,786,000. Sales
for the three months ended June 30, 1997 were $4,785,000, compared to $4,917,000
for the quarter ended March 31, 1997. Sales for the quarter ended March 31, 1997
were slightly higher due to filling of orders that had been previously
backordered by the prior owner because of working capital limitations.
MUSA was not a subsidiary of Intek prior to August, 1996 and
consequently, comparative revenues and expenses are not provided herein.
COST OF GOODS AND SERVICES
For the seven months ended June 30, 1997, MUSA had cost of sales of
$7,462,000 (69.2% sales). For the fiscal quarter ended June 30, 1997, cost of
sales was $3,237,000 (67.6% sales). This represented a combination of sales of
inventory acquired from MIC that was priced at replacement cost value, and new
product purchases from primary overseas vendors. Since much of the product
purchase orders are denominated in Japanese Yen, the steady trend of
strengthening in the U.S. Dollar against the Japanese Yen during the
reporting period has improved gross margins and lowered product costs.
OTHER OPERATING EXPENSES
17
<PAGE>
Selling expenses are primarily travel, advertising and promotion, trade
shows and the maintenance of a sourcing office in Asia. The selling expenses for
the seven months ended June 30, 1996 were $684,000 (6.3% sales) and $330,000
(6.9% sales) for the fiscal quarter ended June 30, 1997. This increase in
selling expense as a percentage of sales results primarily from trade show
expense.
General administrative expenses are salaries, facilities costs, data
processing charges and insurance. General administrative expenses for the seven
months ended June 30, 1997 were $2,780,000 (25.8% sales) and $1,224,000 (25.6%
sales) for the fiscal quarter then ended.
DEPRECIATION AND AMORTIZATION
Depreciation of fixed assets and amortization of the intangible related to
the acquisition of MUSA were $27,000 and $354,000 respectively for the seven
months ended June 30, 1997 and $15,000 and $160,000 respectively for the fiscal
quarter then ended.
OPERATING LOSS
For the seven months ended June 30, 1997, the operating loss was $521,000
and $182,000 for the fiscal quarter ended June 30, 1997. The primary cause for
this loss is attributable to current sales volumes and related gross profits
being insufficient to offset fixed sales and marketing and general
administrative expenses.
RADIOCOMS - - NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO NINE MONTHS
ENDED JUNE 30, 1996
REVENUES
Revenues are principally derived from the Radiocoms contract
manufacturing business and to a lesser extent from the resale of products
purchased from other companies, rental of equipment, maintenance and support
of non-LM communications systems, system design and consulting and LM
technology license fees. During 1996 and 1997, a significant portion of
Radiocoms sales were made to Roamer One and MUSA. These intercompany sales
and related costs were eliminated in the consolidated financial statements of
Intek for 1997 although included in the fiscal 1996 Radiocoms sales.
Product sales increased 0.8%% ($146,000) to $17,621,000 for the nine months
ended June 30, 1997 from $17,475,000 for the nine months ended June 30, 1996
(including $1,783,000 in sales to Roamer One and MUSA). Sales increased 39.5%
($1,962,000) to $6,926,000 for the three months ended June 30, 1997 compared
to $4,964,000 for the three months ended June 30, 1996.
Technology license fees from EFJ were $477,000 for the nine months ended
June 30, 1996 and no such license fees were received for the nine months ended
June 30, 1997.
COST OF GOODS AND SERVICES
Cost of sales consists principally of costs of raw materials, labor and
factory associated overhead. The percentage of cost of sales to net sales
increased for the nine months ended June 30, 1997 from 80.3% for the nine months
ended June 30, 1996 to 85.9%. Cost of sales increased to $15,133,000 for the
nine months ended June 30, 1997 from $14,030,000 for the nine months ended June
30, 1996. For the fiscal quarter ended June 30, 1997, cost of sales increased to
$4,798,000 (69.3% sales) from $3,939,000 (70.4% sales) for the comparable
quarter in 1996. The increase in the percentage of cost of sales to sales was
largely due to a write-off of previously capitalized mobile radio development
costs and to costs related to certain contracts, which costs are not anticipated
to be recovered in the future
18
<PAGE>
OTHER OPERATING EXPENSES
Selling expenses are primarily travel, advertising and promotion, and trade
shows. The selling expenses for the nine months ended June 30, 1996 were
$1,360,000 (7.7% sales) and $500,000 (7.2% sales) for the fiscal quarter ended
June 30, 1997.
General administrative expenses are salaries, facilities costs, data
processing costs and insurance. General administrative expenses for the nine
months ended June 30, 1997 were $6,300,000 (35.8% sales) and $2,114,000 (30.5%
sales) for the fiscal quarter ended June 30, 1997.
Research and development expenses increased 8.6% ($204,000) to $2,572,000
(14.6% sales) for the nine months ended June 30, 1997 from $2,368,000 (13.6%
sales) for the nine months ended June 30, 1996. For the fiscal quarter ended
June 30, 1997, research and development expenses decreased 6% ($55,000) to
$859,000 (12.4% sales) from $914,000 (18.4% sales) for the quarter ended June
30, 1996. Research and development expenses in the nine months ended June 30,
1996 related primarily to LM mobile radio products designed for the 220MHz
market in which Roamer One participates, with expenses during the nine months
ended June 30, 1997 related primarily to development of a hand portable radio
for the same market.
DEPRECIATION AND AMORTIZATION
Depreciation expense for fixed assets was $1,195,000 for the nine months
ended June 30, 1997 and $407,000 for the fiscal quarter ended June 30, 1997.
This is an increase from $809,000 for the nine months ended June 30, 1996 and
$70,000 for the fiscal quarter ended June 30, 1996.
OPERATING LOSS
For the nine months ended June 30, 1997, the operating loss was $5,937,000
and $1,751,000 for the fiscal quarter ended June 30, 1997, compared to a loss of
$6,573,000 for the nine months ended June 30, 1996 and $1,300,000 for the fiscal
quarter ended June 30, 1996. The primary cause for this loss is attributable to
current sales volumes and related gross profits not being sufficient to offset
fixed research and development, and general and administrative expenses.
CORPORATE - SEVEN MONTHS ENDED JUNE 30, 1997
OTHER OPERATING EXPENSES
General administrative expenses include salaries, consulting and management
fees, legal and audit costs. General administrative expenses for the seven
months ended June 30, 1997 were $1,167,000 and $619,000 for the quarter then
ended. Salary and office expenses are expected to continue to increase since
during the third quarter of 1997, the Company added a Senior Vice President
of Corporate Development, and a Chief Operating Officer. The Company has also
entered into a lease for a small corporate office to be occupied during the
fourth quarter of 1997 in Princeton, NJ.
OTHER INCOME (EXPENSE) - SEVEN MONTHS ENDED JUNE 30, 1997
19
<PAGE>
INTEREST EXPENSE
Consolidated interest expense for period ended June 30, 1997 was $2,312,000
and was offset by $56,000 in interest income for a net of $2,256,000. Of the
interest expense, $237,000 related to borrowings from third parties, $874,000
related to borrowings from Securicor (of which $563,000 was added to
principal and the balance is accrued), and $1,201,000 was imputed interest on
convertible debt and warrants.
GAIN ON SALE OF ASSETS HELD FOR SALE AND OTHER.
During the month of December, 1996, Olympic (a discontinued operation) sold
the Property for a gain of $756,000. Subsequent to that date, interest on a note
related to the sale of the Property has increased the gain to $766,000. Other
royalty income was $33,000.
INCOME TAX
In December, 1996, Intek reversed deferred taxes totaling $633,000. In
1995, deferred tax liabilities were created by timing differences relating to
depreciation and amortization. In December 1996, the amortization expired and
the depreciable assets were sold; therefore, in 1997 the Company no longer has a
deferred liability.
NET LOSS
The consolidated net loss after taxes for the period ended June 30, 1997
was $15,773,000 and was $5,135,000 for the quarter ended June 30, 1997. For the
nine months ended June 30, 1996 the net loss(attributable only to Radiocoms) was
$5,590,000. For the fiscal quarter ended June 30, 1996, Radiocoms earned a
profit of $230,000.
PREFERRED DIVIDENDS
Pursuant to the terms of the Radiocoms Acquisition, $20 million of
intercompany balances between Radiocoms and Securicor were converted into
20,000 shares of Radiocoms Preferred Shares with a par value of $1 thousand
per share. The intercompany balance in excess of the redemption value of the
Radiocoms Preferred Shares was contributed to the capital account of
Radiocoms. The Preferred Shares are manditorily redeemable on June 30, 2006
and bear a dividend rate of 6%.
LOSS APPLICABLE TO COMMON SHAREHOLDERS
After deducting accrued dividends on preferred stock of Radiocoms held by
Securicor related to the Radiocoms Acquisition, the loss applicable to common
shareholders for the nine months ended June 30, 1997 was $16,469,000 and
$5,431,000 for the fiscal quarter then ended.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Radiocoms Acquisition, the Company's primary source of cash
historically has been selling shares of Company Common Stock and other
securities, borrowing against the Company's assets, selling the assets relating
to discontinued operations, and obtaining vendor financing. Subsequent to the
Radiocoms acquisition, the Company's primary source of cash has been borrowings
from Securicor. For the nine months ended June 30, 1997, the Company used
$12,043,000 in cash for operating expenses. $3,607,000 was spent for capital
expenditures. Through its financing activities, the Company raised approximately
$20,717,000 in gross proceeds. The Company also retired $6,274,000 in previous
borrowings. Cash for the nine months ended June 30, 1997 increased by $2,286,000
due to the Radiocoms Acquisition.
20
<PAGE>
The Company has invested a significant portion of its capital in the
equipment necessary to construct the current Roamer One network of systems
including sites for which it holds options to purchase. Additionally, the
Company has invested significantly in inventory for the 220MHz market either
for sale to third parties or to be used to expand the Roamer One network of
systems.
In the future, the Company will require capital to interconnect sites and
perform other upgrading functions to the current Roamer One network of
systems as well as to fund operating expenses. In addition, it is the
intention of the Company to continue to build out the Roamer One network of
systems through the acquisition of additional sites whether through direct
purchase of existing licenses or through participation in planned FCC 220MHz
auctions. The requirement for future working capital will be driven and
highly dependent on the rate of loading subscribers (with mobile radios) onto
the Roamer 220MHz SMR Systems as well as the capital requirements of the
Company's distributing, manufacturing and research and development
subsidiaries. Therefore, any delay on the timing of loading subscribers will
place a working capital burden on the Company.
At August 12, 1997, the Company has fully utilized its various lines of
credit from Securicor and it is having negotiations with Securicor as to the
funding of next year's operations. To fund the Company's consolidated cash
needs, the Company is considering a number of financing alternatives,
including, if market conditions permit, a financing involving a private or
public placement of its securities. Management believes that through a
combination of the arrangement with Securicor, a new facility with a third
party lender and/or a private or public placement of its securities, adequate
financing arrangements will be available to meet the Company's near term cash
needs.
21
<PAGE>
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings. None
Item 2. Changes In Securities. None
Item 3. Defaults Upon Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports on FORM 8-K.
Exhibits
A. None.
b. Reports on Form 8-K.
The Registrant filed a report on Form 8-K on June 12, 1997 announcing it
had redeemed its 7.5% convertible debentures due 2000. The report was filed
pursuant to Item 5 of Form 8-K.
22
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
June 30, 1997
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, 1997
INTEK DIVERSIFIED CORPORATION
By: /s/ D. Gregg Marston
---------------------------------------
D. Gregg Marston
Chief Accounting Officer
23
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<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,703,000
<SECURITIES> 0
<RECEIVABLES> 7,755,000
<ALLOWANCES> 96,000
<INVENTORY> 24,265,000
<CURRENT-ASSETS> 43,491,000
<PP&E> 27,787,000
<DEPRECIATION> 6,668,000
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<CURRENT-LIABILITIES> 13,341,000
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<COMMON> 120,648,000
<OTHER-SE> (40,800,000)
<TOTAL-LIABILITY-AND-EQUITY> 117,918,000
<SALES> 29,259,000
<TOTAL-REVENUES> 29,273,000
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