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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 DECEMBER 31, 1996
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 each of the issuer's classes of Common
Stock, $0.01 par value, as of February 14, 1997, is 40,291,136 shares.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTEK DIVERSIFIED CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1996 THROUGH DECEMBER 31, 1996
and OCTOBER 1, 1995 THROUGH DECEMBER 31, 1995 (PRE-REVERSE MERGER) AND
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 1, 1996 THROUGH
DECEMBER 31, 1996 (POST-REVERSE MERGER)
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Thousands, except share and per share amounts)
For the three month periods ended December 31, 1996 and 1995
Three Months Ended
December 30
------------------------
1996 1995
-------- --------
(Pre-Reverse
Merger-See
Note 1)
Net sales $ 6,734 $ 5,300
Cost of goods sold 4,901 4,872
-------- --------
Gross profit 1,833 428
Operating expenses:
Site 84 -
Selling 536 556
Engineering 910 815
General administrative 3,263 2,258
-------- --------
Operating loss (2,960) (3,201)
Other income (expense):
(Loss) gain on sale of
assets held for sale 756 -
Interest (570) -
Financing costs - (325)
-------- --------
Loss before taxes $ (2,774) $ (3,526)
Income tax benefit 1,506 1,215
Translation gain 38 29
-------- --------
Net Loss $ (1,230) $ (2,282)
-------- --------
-------- --------
Net loss per share $ (0.04) $ (0.09)
-------- --------
-------- --------
Weighted average number
of shares outstanding 29,346,064 25,000,000
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated statements
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INTEK DIVERSIFIED CORPORATION
CONSOLIDATED BALANCE SHEETS
RADIOCOMS ONLY AT SEPTEMBER 30, 1996 (PRE-REVERSE MERGER)
(Thousands)
ASSETS
December 31, 1996 (Unaudited) and September 30, 1996
UNAUDITED
December 31 September 30
1996 1996
-------- --------
(Post-Reverse (Pre-Reverse
Merger-See Merger-See
Note 1) Note 1)
CURRENT ASSETS:
Cash and cash equivalents $ 1,589 $ 417
Accounts receivable, net
of allowance for
doubtful accounts of $140
in December 1996 and $128
in September 1996 8,324 9,661
Note receivable, current
portion 158 -
Inventories 25,072 18,895
Prepaid expenses and
other current assets 6,952 4,464
-------- --------
Total current assets 42,095 33,437
-------- --------
PROPERTY AND EQUIPMENT, AT COST 20,632 8,084
Less-accumulated depreciation (4,136) (3,541)
-------- --------
16,496 4,543
EQUIPMENT FOR RENTAL 4,175 3,467
Less-accumulated depreciation (1,774) (1,371)
-------- --------
2,401 2,096
OTHER ASSETS:
Note receivable 479 -
Investment in EF Johnson, at cost 10,177 10,177
Trademark, Patents and goodwill 48,785 -
Investment in joint venture 125 -
-------- --------
TOTAL ASSETS $120,558 $ 50,253
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated balance sheets
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INTEK DIVERSIFIED CORPORATION
CONSOLIDATED BALANCE SHEETS
RADIOCOMS ONLY AT SEPTEMBER 30, 1996 (PRE-REVERSE MERGER)
(Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, 1996 (Unaudited) and September 30, 1996
UNAUDITED
December 31 September 30
1996 1996
-------- --------
(Post-Reverse (Pre-Reverse
Merger-See Merger-See
Note 1) Note 1)
CURRENT LIABILITIES:
Accounts payable $ 5,499 $ 5,711
Accrued liabilities 6,311 1,576
Deferred income - 760
Related party payable 176 29,345
Notes payable - 1,313
Licensee deposits 209 -
-------- --------
Total current liabilities 12,195 38,705
-------- --------
NOTES PAYABLE 13,001 32,837
-------- --------
PREFERRED STOCK OF SUBSIDIARY 20,000 -
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value
Authorized - 60,000,000 shares
Issued - 39,808,810 in
December 1996 and
25,000,000 in September 1996 406 150
Capital in excess of par value 100,881 -
Treasury stock, at cost-465,582
shares in 1996 and 1995 (770) -
Retained deficit (25,148) (21,611)
Currency translation adjustment (7) 172
-------- --------
TOTAL SHAREHOLDERS' EQUITY 75,362 (21,289)
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $120,558 $ 50,253
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated balance sheets
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INTEK DIVERSIFIED CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1996 THROUGH DECEMBER 31, 1996
and OCTOBER 1, 1995 THROUGH DECEMBER 31, 1995 AND
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 1, 1996 THROUGH
DECEMBER 31, 1996 (POST-REVERSE MERGER)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Thousands)
For the three month periods ended December 31, 1996 and 1995
Three Months Ended
December 31
------------------
1996 1995
-------- --------
Cash Flows From
Operating Activities:
Net loss $(1,230) $(2,282)
------- -------
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation and amortization 649 99
Provision for doubtful accounts 30
Gain on sale of assets held
for sale (756) -
Deferred taxes (633) -
Changes in assets and
liabilities:
Decrease (increase) in:
Accounts receivable 3,883 2,072
Notes receivable (454) -
Inventories (413) (2,301)
Prepaid expenses and
other current assets (1,127) (2,137)
Increase (decrease) in:
Accounts payable (1,341) (2,720)
Licensee deposits (50) -
Accrued liabilities (489) 190
Related Party Payable 12 -
Deferred income 1,354 2,448
Taxes other than income taxes 247 -
------- -------
Total Adjustments 882 (2,319)
------- -------
Net cash used in operating
activities (348) (4,601)
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Cash Flows From Investing
Activities:
Capital expenditures (1,971) 35
Reverse merger costs capitalized (43) -
Proceeds, net of note receivable,
from sale of assets held
for sale 2,200 11
Cash acquired in reverse merger 1,572 -
------- -------
Net cash provided by investing
activities 1,758 46
Cash Flows From Financing
Activities:
Bank overdraft (1,383) -
Loan proceeds 8,403 1,146
Repayment on long and short
term debt (7,258) -
Related party borrowings - 3,969
------- -------
Net cash (used in) provided by
financing activities (238) 5,115
------- -------
Effect of exchange rates on cash - (48)
------- -------
Net increase in cash and cash
equivalents 1,172 512
Cash and cash equivalents
at beginning of period 417 601
------- -------
Cash and cash equivalents
at end of period $ 1,589 $ 1,113
------- -------
------- -------
Supplemental disclosures of
cash flow information:
Cash paid for interest $ 404 $ 314
Cash paid for income taxes $ - $ -
Non-cash transactions (see Note 3b)
The accompanying notes are an integral part of these consolidated statements
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INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(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 not make the information presented misleading.
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 Diversified Corporation ("INTEK" or the "Company")
formed Midland USA, Inc. ("MUSA"), a Delaware corporation and wholly-owned
subsidiary of INTEK. On September 20, 1996, INTEK, through MUSA, acquired (the
"Midland Transaction") from Midland International Corporation ("MIC"), a
wholly-owned subsidiary of Simmonds Capital Limited ("SCL"), its U.S. land
mobile radio ("LMR") distribution business (the "U.S. LMR Distribution
Business"). The business consists of the import, distribution and value added
resale of two-way radio products for the U.S. professional LMR market. LMR
products are marketed for the commercial and professional LMR market in the U.S.
by MUSA through a national network of over 220 two-way radio dealers as well as
on a direct basis to larger accounts in the business and government sectors. In
connection with the Midland Transaction, Securicor Communications Limited, a
corporation organized under the laws of England and Wales ("Securicor
Communications"), which is a wholly owned subsidiary of Security Services plc, a
corporation organized under the laws of England and Wales and an indirect wholly
owned subsidiary of Securicor plc, a corporation organized under the laws of
England and Wales, extended a limited use $15 million line of credit to MUSA to
fund the operation of the U.S. LMR Distribution Business (the "MUSA Loan
Agreement").
On December 3, 1996, INTEK consummated the acquisition (the "Acquisition")
of all the issued and outstanding common stock (the "Radiocoms Stock") of
Securicor Radiocoms Limited, a wholly owned subsidiary of Securicor
Communications ("Radiocoms"). Radiocoms designs, develops and 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 Stock was 25,000,000 shares of INTEK's common stock, par value
US$0.01 per share ("Company Common Stock"). The Acquisition was approved by the
stockholders of INTEK at INTEK's 1996 Annual Meeting held on December 3, 1996
and consummated on the same date.
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The following proforma income statement information for INTEK is presented
as though the reverse acquisition had occurred on October 1, 1995:
QUARTER ENDED
Unaudited Unaudited
(in thousands, (in thousands,
except share except share
amounts) amounts)
12/31/96 12/31/95
-------- --------
Revenues $7,543 $6,522
Net loss $(5,356) $(3,652)
Net loss per share $(0.13) $(0.10)
Weighted average shares outstanding 39,808,810 35,173,342
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 reverse acquisition been consummated as of the above date,
nor is it necessarily indicative of future operating results.
The reverse acquisition was accounted for 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 issued and has been allocated to the
underlying assets and liabilities based on fair values at the date of the
reverse 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 37,075
Net property, plant & equipment 10,179
Other non-current assets 12,918
Other non-current liabilities (6,054)
--------
Total $52,980
--------
--------
In addition, upon closing the Acquisition, MIC received 1,695,000 shares of
Company Common Stock held in escrow pursuant to the terms of the Midland
Transaction. Pursuant to the terms of the Midland Transaction, the Company
anticipates that a post closing reduction to the purchase price of $833,125 or
155,000 shares of Company Common Stock will be made.
Simultaneous with the Acquisition, (i) Securicor Communications, INTEK and
MUSA entered into an Assumption and Release Agreement on December 3, 1996, under
which Securicor Communications agreed to release MUSA from its obligations under
the MUSA Loan Agreement and INTEK agreed to assume all of MUSA's obligations
outstanding pursuant to the restated loan agreement dated December 31, 1996 (the
"INTEK Loan Agreement"), whereby the MUSA Loan Agreement was amended and
restated to replace MUSA with INTEK as the Borrower under the INTEK Loan
Agreement. MUSA's obligations outstanding under the MUSA Loan Agreement were
assumed by INTEK under the INTEK Loan Agreement.
On December 30, 1996, the Company approved the change of the Company's
fiscal year from December 31 to September 30. As a result of the change in the
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fiscal year, the Company will file an Annual Report on Form 10-K for the period
from January 1, 1996 to September 30, 1996.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
Since the former shareholders of Radiocoms retain more than a 50 percent
controlling interest in the surviving company (INTEK), the business combination
is being treated as a reverse acquisition for accounting purposes, with
Radiocoms considered the acquiring company, although INTEK is the surviving
company under corporate law. The consolidated financial statements for the three
months ended December 31, 1995 include only the accounts of Radiocoms.
Subsequent to the date of the reverse acquisition (December 3, 1996) the
consolidated financial statements include the statements of INTEK and its
wholly-owned subsidiaries, Roamer One, MUSA, Olympic Plastics Corporation, Inc.
("Olympic"), IMCX Corporation ("IMCX"), and IDC International Corporation
("IDC") (from December 3, 1996 through December 31, 1996) and include the
accounts of Radiocoms from October 1, 1996 through December 31, 1996. Although
the operations of Radiocoms were not combined with those of the Company for a
period of 3 days after December 1, the Consolidated Statement of Operations
include the operations of INTEK and its wholly-owned subsidiaries, Roamer One,
MUSA, Olympic, IMCX, and IDC during this period.
The accounts of Radiocoms include the combined results of Radiocoms and its
wholly owned subsidiaries: Private Mobile Radio Limited ("PMR") which was
acquired by Radiocoms on March 1, 1993; and SOCOM Group Limited ("SOCOM") which
was acquired by Radiocoms on June 30, 1993; Securicor Electronics Limited
("SEL") and Linear Modulation Technology Limited ("LMT"). Effective October 1,
1995, the assets and liabilities of SEL and LMT were transferred to Radiocoms at
historical value. All material intercompany transactions have been eliminated in
combination. 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.
b. CASH FLOW STATEMENT
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
The following summarizes the supplemental disclosure of non-cash investing
and financing activities:
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 Debenture was secured by land and
a building owned by Olympic (the "Property"). INTEK also issued 50,000 shares
of its Company Common Stock under Regulation S of the Securities Act of 1933, as
amended (the "Securities Act"), 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 pursuant to
Regulation S under the Securities Act, and issued 5,000 shares of Company Common
Stock to Octagon Capital Canada Corporation for an agent's fee (pursuant to
Regulation S under the Securities Act). In exchange for a further extension to
January 31, 1997,
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INTEK issued Mees Pierson 34,000 shares of Company Common Stock (pursuant to
Regulation S under the Securities Act). The Debenture was paid in full on
December 31, 1996. See Item 2 -- Senior's Discussion and Analysis of
Financial Condition and Results of Operations For the Three Month Period Ended
December 31, 1996 and For the Three Month Period Ended December 31, 1995 --
Liquidity and Capital Resources.
In connection with the Company's sale of a series of 6.5% Notes in the
aggregate principal amount of $5,000,000 (the "Notes"), maturing April 25, 1999,
as of December 31, 1996, 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.
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 includes 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
Property and equipment 3 to 10 years
Equipment for rental on operating leases 3 to 5 years
e. REVENUE RECOGNITION
For sales of systems and mobile radio equipment, revenue is recognized at
the time of title transfer, which ordinarily occurs at the time of shipment.
From time to time, customers request delayed shipment. If the Company's
substantial performance obligations otherwise have been fulfilled, revenue on
such delayed shipment transactions generally is recognized upon acceptance of
goods by the
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customer at the Company's facility. Revenue related to service activities is
recognized when the service has been performed. Revenue from long term contracts
is recognized as goods are shipped. For sales of repeater site equipment,
revenue is recognized when delivered. Subscriber revenue derived from management
agreements with options to purchase is recognized at the time subscribers are
billed as a percentage of subscriber billings per the terms of the management
agreements. Management fees related to agreements without options to purchase
are recognized at the time subscribers are billed based upon a percentage of
subscriber revenues per the terms of the management agreements.
f. INCOME TAXES
The Company and its subsidiaries 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.
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
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 warrant 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 is remeasured
into the U.S. dollar functional currency for consolidation and reporting
purposes. Current rates of exchange are used to remeasure monetary assets and
liabilities and historical rates of exchange are used for nonmonetary assets and
related elements of expense. Revenue and other expense elements are remeasured
at rates which approximate the rates in effect on the transaction dates. Gains
and losses resulting from this remeasurement process are recognized currently in
the consolidated statements of operations.
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 investment in E.F. Johnson Company ("EFJ") is stated at cost.
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In the quarter ended December 31, 1996, Radiocoms agreed to accept an
issuance of 1,150,000 shares of common stock of American Digital Corporation
("ADC") representing payment towards their account totalling $448,500. Given the
significant reduction in the share price of ADC, the investment has been fully
reserved.
k. AMORTIZATION OF TRADEMARKS AND GOODWILL
On September 19, 1996, the Company acquired various rights, permits and
trademarks as part of the assets acquired from MIC, see Note (2). 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).
On December 3, 1996, the Company purchased the stock of Radiocoms, see Note
(2). Intangible assets acquired as part of this purchase, including various
rights, permits, trademarks and patents, are amortized on a straight-line basis
over their legal or estimated useful lives, whichever is shorter (generally not
exceeding 15 years).
l. RECLASSIFICATIONS
Certain amounts in the December 31, 1995 financial statements have been
reclassified to conform with the current period presentation.
m. RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
n. CONCENTRATIONS OF CREDIT RISK
The equipment sales and contract manufacturing portions of the business
have a broad range of established customers. In contrast, the sales of
communications systems is a new market with a limited number of customers in an
emerging overseas environment and consequently may involve greater credit risks.
Additionally, the Company has taken a variety of assets as collateral for
extensions of credit. There is no assurance that the Company will be able to
collect on this collateral. The Company has derived a substantial amount of its
sales from related parties. No formal agreements with these parties are held to
allow trade to continue on the same terms or 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.
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 quarter ended
December 31, 1996 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
per share of Radiocoms Stock.
(4) INVENTORIES
Inventories at December 31, 1996 and September 30, 1996 consist of the
following (in thousands):
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1996
---------------------
Dec. 31 Sept. 30
-------- --------
Raw materials $ 11,794 $ 8,314
Work in progress 3,200 2,322
Finished goods 10,078 8,259
-------- --------
$ 25,072 $ 18,895
-------- --------
-------- --------
(5) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and September 30, 1996 consists
of the following (in thousands):
1996
---------------------
Dec. 31 Sept. 30
-------- --------
Land $ 548 $ 469
Buildings 2,520 2,329
Site equipment 9,336 -
Production & test equipment 6,391 4,731
Furniture and fixtures 1,516 555
Computers 321 -
-------- --------
Total property and equipment, at cost 20,632 8,084
Less accumulated depreciation (4,136) (3,541)
-------- --------
Net property and equipment $ 16,496 $ 4,543
-------- --------
-------- --------
(6) COMMITMENTS
As of December 31, 1996, Roamer One had entered into 134 site leases for
the housing of radio base station equipment and antenna systems related to 220
MHZ SMR systems managed by Roamer One. Under the terms of these management
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.
In addition to those leases that have been executed in the name of the Company,
Roamer One also has assumed payment responsibility through a contractual
obligation with various licensees related to 66 220MHz systems for which Roamer
One has an option to purchase or has a related management agreement. As of
December 31, 1996, total future minimum lease payments which are contractual
obligations of Roamer One, together with building and auto leases are as
follows:
1997 $1,447,000
1998 1,122,000
1999 1,068,000
2000 555,000
2001 129,000
Thereafter 23,000
----------
$4,344,000
----------
----------
(7) ASSETS HELD FOR SALE
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On December 3, 1996 the Company sold the Property for $2.2 million,
netting a gain of $756,000. Proceeds from the sale were used to repay, in
part, the $2,500,000 Senior Debenture to MeesPierson. The Company funded the
shortfall with working capital.
(8) SALE OF SECURITIES
On November 1, 1996, the Company sold a series of 6.5% Notes, with
attached warrants (the "New Notes") to two purchasers through Brown Simpson,
LLC pursuant to Regulation S under the Securities Act. Net proceeds to the
Company, after fees and brokers commissions, were $1,995,000. The New Notes
mature on October 31, 1999 and bear interest at the rate of 6.5% per annum.
All accrued interest is due and payable at the time the New Notes mature or
upon exercise of the warrants. The warrants (pursuant to which the principal
amounts of the New Notes will be converted into shares of Company Common
Stock) became exercisable by the holder on December 31, 1996. The Company has
the right, which may be exercised in whole or in part on or after October 31,
1997, to require the holder to exercise the warrants. The principal amount of
the New Notes will be reduced by an amount equal to the exercise price of the
warrants multiplied by the number of shares of Company Common Stock issued
pursuant thereto. The warrants are exercisable at discounts (ranging from
0%-29%) from the market price of Company Common Stock on the exercise date.
As of February 13, 1997, holders of the New Notes had exercised warrants to
convert $1,600,000 of the New Notes into Company Common Stock at an average
discount of 27.0% below market price.
(9) RETIREMENT PLANS
Radiocoms contributes to the pension plan of Securicor plc, the ultimate
parent company, which maintains a defined benefit pension plan that covers
executives and selected other employees based on merit. The plan calls for
benefits to be paid to eligible employees at retirement based primarily upon
years of service with Radiocoms and compensation rates near retirement.
Contributions to the plan reflect benefits attributed to employees' services to
date, as well as services expected to be earned in the future.
The pension costs are assessed on the advice of independent qualified
actuaries using the projected unit credit method. The most recent actuarial
valuation was April 5, 1995. The assets of the plan are held in separate
trustee administered funds. Full particulars of the pension plan are disclosed
in the published accounts of Securicor plc.
(10) SUBSEQUENT EVENTS
On February 7, 1997, INTEK entered a convertible debenture purchase
agreement with Infinity Investors, Ltd., Fairway Capital Limited, and
Infinity Emerging Opportunities Limited, all of which corporations are
organized and existing under the laws of Nevis, West Indies, whereby the
Company issued a series of 7.5% convertible debentures due in 2000 (the
"Convertible Debentures") in the aggregate total of U.S. $4,000,000. The
Convertible Debentures were issued pursuant to Regulation S under the
Securities Act and are convertible into shares of the Company Common Stock.
The conversion in full of the Convertible Debentures in accordance with its
terms and issuance of all of the shares will constitute payment in full of
the outstanding principal amount of the Convertible Debentures.
Pursuant to an agreement (the "Krystal Agreement") between INTEK and
Krystal Systems, a Nevada corporation ("Krystal"), (a) INTEK agreed to purchase
up to 25 220MHz systems (the "Krystal Systems") (including all on-site hardware,
radio equipment, antenna combining equipment, computer software and other
14
<PAGE>
ancillary components to the 220MHz SMR base station operation), subject to
certain conditions (including, without limitation, completion of due diligence
by INTEK and receipt of all necessary consents and approvals of government
bodies) for a purchase price of $180,000 for each Krystal System and (b) Krystal
ordered (at a cost to Krystal of approximately $1 million), and agreed at its
sole expense to engage Roamer One to build out, 16 unconstructed base station
220MHz repeater assemblies. In addition to the base station hardware, Krystal
also will transfer its rights and privileges as afforded by agreements by and
between Krystal and various licensees of the base stations holding
authorizations granted by the FCC and Krystal will assign its authorizations
granted by the FCC as related to the base stations to INTEK. The Krystal
Agreement provides that INTEK will pay 75% of the purchase price for each
Krystal System upon completion of due diligence, and submission of FCC forms for
the transfer of licenses to INTEK, with respect to such Krystal System. The
balance of the purchase price is due upon the transfer of the FCC licenses for
such Krystal System to INTEK. On February 12, 1997, INTEK paid $2.7 million to
Krystal, representing 75% of the purchase price for 20 Krystal Systems. A
portion of the proceeds from the sale of the Convertible Debentures was used for
this payment. The balance of the obligations due pursuant to the Krystal
Agreement will be paid out of the working capital of INTEK. INTEK anticipates
that the completion of the purchase of the 20 Krystal Systems, and any other
Krystal Systems that may be purchased, may take several months to complete.
During the months of December 1996, and January and February of 1997,
Roamer One began a process of acquiring (through purchase or assignment), and
renegotiating management agreements with Pagers Plus Cellular, a California
corporation organized to provide construction and management services to
individual licensees in the 220MHz spectrum. For each assignment of a management
agreement from Pagers Plus Cellular to Roamer One, Roamer One paid a brokerage
fee to Pagers Plus Cellular of an amount equal to $10,000 or $15,000. In
addition to an assignment of the agreement, Roamer One attempted to negotiate a
purchase of the completed system and the license from the individual licensees
of the base stations. As of February 10, 1997, Roamer One negotiated 16 such
purchase agreements with licensees. Under the terms of the purchase agreements,
INTEK will issue Company Common Stock to the licensees as payment of the
purchase price. The price per share will be determined by calculating the
average trading price on the NASDAQ Small Cap Market for Company Common Stock
during the immediately preceding 10 days from the date of closing of the
acquisition by Roamer One. The individual acquisitions are subject to due
diligence, the release or negotiation of payment to the satisfaction of INTEK of
any and all liens by creditors against the acquiree's assets, the approval of
INTEK's board of directors, and receipt of regulatory approvals as needed. As of
February 10, 1997, the Company paid $290,000 to Pagers Plus Cellular as
brokerage fees in connection with the assignment of management agreements.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1996 AND FOR THE
THREE MONTH PERIOD ENDED DECEMBER 31, 1995
The following discussion and analysis sets forth certain factors which produced
changes in the Company's results of operations during the three months ended
December 31, 1996 and as compared with the same period in 1995 as indicated in
the Company's consolidated financial statements.
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.
Since the former shareholders of Radiocoms retain more than a 50 percent
controlling interest in the surviving company (INTEK), the business combination
is being treated as a reverse acquisition for accounting purposes, with
Radiocoms considered the acquiring company, although INTEK is the surviving
company under corporate law. The consolidated financial statements for the three
months ended December 31, 1995 include only the accounts of Radiocoms.
Subsequent to the date of the reverse acquisition (December 3, 1996) the
consolidated financial statements include the statements of INTEK and its
wholly-owned subsidiaries, Roamer One, MUSA, Olympic, IMCX and IDC (from
December 3, 1996 through December 31, 1996) and include the accounts of
Radiocoms from October 1, 1996 through December 31, 1996. Although the
operations of Radiocoms were not combined with those of the Company for a period
of 3 days after December 1, the Consolidated statements of operations include
the operations of INTEK and its wholly-owned subsidiaries, Roamer One, MUSA,
Olympic, IMCX, and IDC during this period. For sake of clarity, separate
discussions are provided herein for Radiocoms, INTEK/Roamer, and MUSA.
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE
MONTHS ENDED DECEMBER 31, 1995
CONSOLIDATED
NET SALES. Consolidated sales for the three months ended December 31,
1996 for Radiocoms and the one month ended December 31, 1996 for INTEK and its
wholly-owned subsidiaries, Roamer One, MUSA, Olympic, IMCX, and IDC were
$6,734,000.
COST OF GOODS SOLD. Consolidated cost of goods sold as a percentage
of sales for the period ended December 31, 1996 was 72.8%.
SITE EXPENSES. Site expenses for Roamer One over the one month ended
December 31, 1996 were $84,000
SELLING EXPENSES. Consolidated selling expenses for the period ended
December 31, 1996 were $536,000.
ENGINEERING EXPENSES. Consolidated engineering expenses (which
includes research and development for Radiocoms as well as technical support to
the Roamer One network) for the period ended December 31, 1996 were $910,000.
GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated general and
administrative expenses for the period ended December 31, 1996 were $3,263,000.
OPERATING LOSS. The consolidated operating loss for the period ended
December 31, 1996 was $2,960,000.
16
<PAGE>
GAIN OF SALE OF ASSETS HELD FOR SALE. During the month of
December, 1996, Olympic (a discontinued operation) sold the Property for a
gain of $756,000.
INTEREST EXPENSE. Consolidated interest expense for the period ended
December 31, 1996 was $570,000. Of this interest, $115,000 related to the
borrowings from the former shareholders of Radiocoms, and $455,000 related to
borrowings from third parties.
LOSS BEFORE TAXES. Consolidated losses before tax for the period
ended December 31, 1996 was $2,774,000.
INCOME TAX BENEFIT. Consolidated tax benefits for the period ended
December 31, 1996 were $1,506,000.
TRANSLATION GAIN. Radiocoms foreign currency translation gains for
the period ended December 31, 1996 were $38,000.
NET LOSS. The consolidated net loss after taxes for the period ended
December 31, 1996 was $1,230,000.
Liquidity and Capital Resources
The Company's primary source of cash historically since September
1994, has been selling shares of Company Common Stock, borrowing against the
Company's assets, selling the assets relating to discontinued operations,
obtaining vendor financing, and borrowings from related parties. For the period
ended December 31, 1996, the Company generated $348,000 in cash from operating
activities after paying employees, vendors and site expenses. $1,971,000 was
spent for capital expenditures. Through its financing activities, the Company
raised approximately $8,403,000 in gross proceeds. The Company also retired
$8,641,000 in previous borrowings. Cash for the three months ended December 31,
1996 increased $1,172,000 over the year-end balance.
As of February 14, 1996, the amount outstanding under the INTEK
Loan Agreement was $8,531,000. In addition, letter of credit guaranties for
inventory purchases by MUSA in the amount of $5,879,000 were outstanding.
While the guarantees are not loans and do not accrue interest, such
guaranties do reduce the amount available under the INTEK Loan Agreement. As
of February 14, 1997, $590,000 was available under the INTEK Loan Agreement
for future borrrowings. See note (2) of the Consolidated Financial Statements
for a discussion of the INTEK Loan Agreement.
The Company has invested a significant portion of its capital in the
equipment necessary to build out those sites for which it holds an option to
purchase. Additional capital will be required to complete the build-out of the
220MHz SMR systems, to fund the administrative costs of the Company prior to its
generation of recurrent revenues on a consistent basis and to complete purchase
of the Krystal Systems. See note (10) of the Consolidated Financial Statements
for a discussion of the Krystal Systems. The requirement for future working
capital will be driven and highly dependent on the rate of loading subscribers
(with mobile radios) onto the Roamer 220 MHz SMR Systems. Therefore, any delay
on the timing of loading subscribers will place a working capital burden on the
Company.
The Company anticipates financing future operating activities as it
has done in the past, through a combination of operating revenue and private
or public offerings of its securities. The Company has had preliminary
discussions with Securicor Communications to obtain additional financing from
17
<PAGE>
Securicor Communications. No assurance can be made that the Company will
obtain such financing or sufficient capital to support the ongoing business.
BORROWINGS. In connection with the Company's sale of the Notes, as of
December 31, 1996, 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.
Net proceeds to the Company, after fees and brokers commissions, from the
sale of the New Notes on November 1, 1996 were $1,995,000. See Note (3) of the
Consolidated Financial Statements for a discussion of the New Notes. As of
February 14, 1996, holders of the New Notes exercised warrants to convert
$1,600,000 of the New Notes into Company Common Stock at an average discount of
27.0% below market price.
SALES OF ASSETS. On December 3, 1996 the Company sold the Property owned
by Olympic for a sales price of $2.2 million resulting in a gain of $756,000.
Proceeds from the sale were used to repay, in part, the Senior Debenture to
MeesPierson on December 31, 1996. See Note (7)of the Consolidated Financial
Statements.
RADIOCOMS - THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1995
The following is a discussion of the financial condition and results of
operations of the Radiocoms Business for the three month periods ended December
31, 1996 and 1995. 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.
On December 3, 1996, the Acquisition was consummated which was accounted
for as a reverse acquisition. See Note (2)of the Consolidated Financial
Statements. As part of the Acquisition, intercompany loans of Radiocoms were
used as payment for the issuance of preference shares in Radiocoms to
recapitalize its balance sheet. For the periods ended December 31, 1996 and
1995, Radiocoms' results of operations include the results of Radiocoms and its
wholly owned subsidiaries (from date of acquisition): PMR, SOCOM combined with
the results of SEL and LMT, each of which was an affiliate of Radiocoms prior to
September 30, 1995. Effective October 1, 1996, the assets and liabilities of SEL
and LMT were transferred to Radiocoms at historical value. All material
intercompany transactions have been eliminated in the results presented herein.
Radiocoms manufactures and sells products to affiliates of INTEK and
Securicor, and to unaffiliated third parties. Comparing the three month periods
to December 31, sales to affiliated companies have declined by 10.8% to 32.6%,
primarily as a result of increased sales efforts directed to unaffiliated
companies. Radiocoms believes that all sales to affiliated companies were made
on an arms length basis on terms comparable to those available for unaffiliated
companies.
Radiocoms' functional currency is pounds sterling, however as a result of
the Acquisition, the financial statements presented herein have been translated
into US dollars and are prepared in accordance with US GAAP.
NET SALES. Net sales consists principally of revenues from the sale of
products manufactured by Radiocoms, resale of products purchased from other
18
<PAGE>
companies, rental of equipment, maintenance and support of systems, system
design and consulting and technology license fees.
Net sales increased 3.5% ($185,000) to $5,485,000 for the three months
ended December 31, 1996 from $5,300,000 for the three months ended December 31,
1995. This is due primarily to fluctuations in the dollar exchange rate between
the two periods. At December 31, 1996, the pound to dollar exchange rate stood
at $1.65 compared to $1.57 for the corresponding period December 31, 1995. In
sterling terms, net sales have decreased marginally by 1.3% (L45,000).
Technology license fees from EFJ were $477,000 for the three
months ended December 30, 1995. No such license fees were received for the three
months ended December 30, 1996.
COST OF SALES. Cost of sales consists principally of costs of raw
materials, labor and factory associated overhead. Cost of sales decreased 17.9%
($872,000) to $4,000,000 for the three months ended December 31, 1996 from
$4,872,000 for the three months ended December 31, 1995. The percentage of cost
of sales to net sales decreased from 91.9% for the three months to December 31,
1995 to 72.9% for the three months ended December 31, 1996.
GROSS PROFIT. Gross profit increased 246.2% ($1,056,000) to $1,485,000 for
the three months ended December 31, 1996 from $429,000 for the three months
ended December 31, 1995. The gross profit margin increased to 27.1% in the three
months ended December 31, 1996 from 8.1% in the three months ended December 31,
1995. The increase in Radiocoms' gross profit margin is due to several factors,
the prior year comparatives for the three months ended December 31, 1995
included stock provisions of $677,000 and linear modulation ("LM") start up
costs of $220,000 which considerably reduced the gross profit margin reported
for the quarter. The fluctuation in the dollar exchange rates between the two
periods also has led to an improved gross profit margin.
Gross margins on Radiocoms' Systems Sales Unit business have declined
slightly to 36% for the three months ended December 31, 1996 from 38% for the
three months ended December 31, 1995. Gross margins on the Equipment Sales Unit
sales have improved slightly to 33% for the three months ended December 31, 1996
from 32% for the three months ended December 31, 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 2.9% ($82,000) to $2,875,000 for the three
months ended December 31, 1996 from $2,793,000 for the three months ended
December 31, 1995. This increase is due in the main to dollar exchange rate
fluctuations. The percentage of operating expenses to sales remained similar
being 52.7% for the three months ended December 31, 1995 and 52.4% for the three
months ended December 31, 1996.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 6.1%
($50,000) to $865,000 for the three months ended December 31, 1996 from $815,000
for the three months ended December 31, 1995. The percentage of research and
development expenses to sales remained similar, being 15.4% for the three months
ended December 31, 1995 and 15.8% for the three months ended December 31, 1996.
Research and development expenses in the three months ended December 31, 1995
related primarily to LM products, with expenses during the three months ended
December 31, 1996 related primarily to development of a hand portable version of
the current mobile radio. Volume production of such radio may commence as early
as second quarter 1997.
19
<PAGE>
INTEREST EXPENSE. Interest expense increased 25.5% ($83,000) to $408,000
for the three months ended December 31, 1996 from $325,000 for the three months
ended December 31, 1995. This increase primarily results from a significant
increase in debt due to Securicor Communications to fund investments, and to
provide additional funding for increased inventories, manufacturing and office
equipment and LM development costs. Interest payable to Securicor Communications
was $391,000 in the three months ended December 31, 1996 and $321,000 in the
three months ended December 31, 1995, calculated on a daily basis at 1% above
the prevailing U.K. bank base rate.
INCOME TAX. Radiocoms received a tax benefit of $873,000 for the three
months ended December 31, 1996, down from $1,215,000 for the three months ended
December 31, 1995
The tax benefit was due in part to tax laws in the United Kingdom that
permit the exchange of taxable income and losses between companies within a
group provided that 75% or more of the ordinary shares of the companies are
under common control. No such tax benefit will be available in the future unless
75% of the Company Common Stock is owned by Securicor.
NET LOSS. Net loss decreased 18.8% ($429,000) to $1,853,000 for the three
months ended December 31, 1996 from $2,282,000 for the three months ended
December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES Radiocoms incurred losses of $1,853,000
and $2,282,000 for the three months ended December 31, 1996 and 1995
respectively. These losses have related primarily to costs of developing LM
technology and commercial applications therefore and costs of increasing
marketing, administrative and manufacturing capacity to support anticipated
increases in sales volumes. Radiocoms completed its first commercial sales of LM
products at the end of 1994 and began manufacturing the products in January
1995. To date, Radiocoms cash flow from operations has not been sufficient to
fund its operations and capital expenditures. Net cash provided by operating
activities for the three months ended December 31, 1996 was $1,005,000. However,
net cash used in operating activities for the three months ended December 31,
1995 was $5,259,000. During the three months ended December 31, 1996, Radiocoms
invested $544,000 in American Digital Corporation (ADC). Radiocoms has financed
its operations and capital expenditures by an aggregate of $47,525,000 of loans
from Securicor Communications Limited and Securicor plc, and a loan of
$1,510,000 from INTEK (through a draw down under the INTEK Loan Agreement). As
at December 3, 1996 $20,000,000 of the $47,525,000 loan from Securicor
Communications Limited was converted to preference share capital, the balance of
the loan being forgiven by Securicor.
INTEK AND ROAMER ONE - ONE MONTH ENDED DECEMBER 31, 1996
NET SALES. As of December 31, 1996, Roamer One completed construction
of 200 systems, representing an increase of 20 systems from September 30, 1996.
Of these systems, 134 were constructed pursuant to agreements that provide the
Company with rights to acquire the licenses of such systems. Subscriber loading
commenced on a limited basis during the three months ended December 31, 1996.
During the one month ended December 31, 1996, billings to licensees for site
equipment, construction and installation resulted in consolidated equipment
sales of $441,000, sales of mobile radios of $2,000 and subscriber revenues of
$1,000 for a total of $444,000. While not included in the consolidated results
due to the rules of reverse acquisition accounting, equipment sales for the
three months ended December 31, 1996 were $1,054,000,
20
<PAGE>
sales of mobile radios were $19,000 and subscriber revenues were $4,000 for a
total of $1,077,000. Site equipment sales for the three months ended December
31, 1995 were $1,121,000 and there were no sales of mobile radios.
COST OF GOODS. Cost of goods sold for site equipment, construction
and installation as a percentage of net equipment sales was 78.8% for the month
of December 31, 1996. For the three months ended December 31, 1996, the cost of
goods sold as a percentage of net equipment sales was 78.9%.
SITE EXPENSES. Site expenses are primarily tower lease, telephone
(for modem access), and insurance. For the one month ended December 31, 1996,
site expenses were $84,000. For the three months ended December 31, 1996, site
expenses were $2,310,000. These expenses included a reserve of $1,871,000
against equipment that has proven incompatible with the Securicor Systems
utilized by the Company and which equipment must be replaced before individual
sites can be networked together. Site expenses for the three months ended
December 31, 1996 net of reserves was $439,000, up from $71,000 for the same
period in 1995. The increased expenses were required to support the additional
systems that were constructed after December 31, 1995.
SELLING EXPENSES. Selling expenses are primarily salaries, travel and
preparation of promotional material. The selling expenses for the one month
ended December 31, 1996 were $42,000. For the three months ended December 31,
1996, selling expenses were $170,000, an increase of $102,000 over the same
period last year due to the creation of a Roamer One sales organization and a
large advertising mailing.
ENGINEERING EXPENSES. Engineering expenses are primarily consulting
fees, travel and equipment rental required to optimize and support the repeater
sites. The engineering expenses for the one month ended December 31, 1996 was
$45,000. For the three months ended December 31, 1996, engineering expenses were
$141,000. No expenses were incurred in this category in 1995 as all engineering
functions were performed by Simmonds Communications Limited.
GENERAL ADMINISTRATIVE EXPENSES. General administrative expenses have
historically been salaries, consulting and management fees, legal and audit
costs to support the management of the systems, together with the efforts to
raise capital. General and administrative expenses for the one month ended
December 31, 1996 were $401,000. For the three months ended December 31, 1996,
general and administrative expenses were $843,000, up from $703,000 in 1995.
This increase was due to amortization of the intangibles related to the
Acquisition. Excluding amortization, general and administrative expenses
decreased in 1996 from the comparative period in 1995.
OPERATING PROFIT (LOSS). For the one month ended December 31, 1996,
the operating loss was $477,000. For the three months ended December 31, 1996,
the operating loss was $3,115,000, compared to a loss of $794,000 for the same
period in 1995. This was due to the cost of the infrastructure to manage the
licenses and sell services to subscribers, and amortization of the intangibles
related to the Acquisition.
GAIN ON SALE OF ASSETS HELD FOR SALE. During the one month ended
December 31, 1996, Olympic sold the Property for a net profit of $756,000. The
Property was the sole remaining fixed asset of the discontinued operation.
INCOME TAX. During the one month ended December 31, 1996, INTEK
reversed deferred taxes totaling $633,000. In 1995, deferred tax liabilities
were created by timing differences relating to depreciation and amortization. In
21
<PAGE>
1996, the amortization expired and the depreciable assets were sold; therefore,
in 1996 the Company no longer has a deferred liability.
MIDLAND RADIO - ONE MONTH ENDED DECEMBER 31, 1996
NET SALES. For the one month ended December 31, 1996, mobile radio
sales by MUSA were $1,084,000. For the three months ended December 31, 1996,
mobile radio sales were $2,639,000. MUSA was not a subsidiary of INTEK during
1995 and consequently, comparative 1995 revenues and expenses are not provided
herein.
COST OF GOODS. For the one month ended December 31, 1996, MUSA had
cost of sales of 71.4%. For the three months ended December 31, 1996, cost of
sales was 70.7% 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 is purchased in Japan,
the steady trend of strengthening in the U.S. Dollar against the Japanese Yen
has improved gross margins and lowered product costs.
SELLING EXPENSES. Selling expenses are primarily travel, advertising
and promotion, trade shows and the maintenance of a sales office in Asia. The
selling expenses for the one month ended December 31, 1996 were $66,000. For the
three months ended December 31, 1996, selling expenses were $121,000.
GENERAL ADMINISTRATIVE EXPENSES. General administrative expenses are
salaries, facilities costs, data processing charges insurance, depreciation and
amortization. General and administrative expenses for the one month ended
December 31, 1996 were $414,000. For the three months ended December 31, 1996,
general and administrative expenses were $1,335,000.
OPERATING PROFIT (LOSS). For the one month ended December 31, 1996,
the operating loss was $170,000. For the three months ended December 31, 1996,
the operating loss was $489,000.
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings. None
Item 2. Changes In Securities.
(c) Recent sales of unregistered securities
1. On December 3, 1996, 2.375 million shares of Company Common
Stock were released from escrow to Midland International Corporation, a Delaware
corporation ("MIC"), a wholly owned subsidiary of Simmonds Capital Limited. The
shares comprised the purchase price for the U.S. land mobile radio distribution
business sold to INTEK by MIC on September 20, 1996. The shares were being held
in escrow pursuant to the terms of the sale which conditioned the release of the
shares upon consummation of the Acquisition. The shares were
issued pursuant to Section 4(2) of the Securities Act.
2. On December 3, 1996, 25,000,000 shares of Company Common
Stock were issued to Securicor Communications as consideration for the purchase
by INTEK of Radiocoms. The shares were issued pursuant to Section 4(2) of the
Act.
Item 3. Defaults Upon Securities. None
22
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On December 3, 1996, the Company held its annual meeting of
stockholders.
(b) At the annual meeting, the following directors were elected:
Nicholas R. Wilson, John G. Simmonds, Harry Dunstan, Peter A. Heinke,
Christopher Branston, David Neibert and Steven L. Wasserman.
(c ) The following proposals were considered at the annual meeting and the
number of shares voting for or against such proposals are listed below.
Proposal #1 - Election of Directors
For Against
Nicholas R. Wilson 12,412,795 27,832
John G. Simmonds 12,412,795 27,832
Harry Dunstan 12,412,795 27,832
Peter A. Heinke 12,412,795 27,832
Christopher Branston 12,412,795 27,832
David Neibert 12,412,795 27,832
Steven L. Wasserman 12,412,795 27,832
Proposal #2 - Approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of the Company's
common stock $0.01 par value (the "Company Common Stock") from 20,000,000 shares
to 60,000,000 shares.
13,299,216 For
53,411 Against
Proposal #3 - Approve adopt the Stock Purchase Agreement dated as of June
18, 1996, as amended by Amendment No. 1 to the Stock Purchase Agreement, dated
as of September 19, 1996 between the Company and Securicor Communications
pursuant to which the Company will acquire all of the issued and outstanding
common stock of Radiocoms from Securicor Communications in exchange for the
issuance of 25,000,000 shares of Company Common Stock.
13,299,216 For
53,411 Against
Proposal #4 - Approve the appointment of Arthur Andersen LLP as independent
accountants for the Company in the fiscal year ending December 31, 1996.
12,412,795 For
0 Against
Item 5. Other Information. None
Item 6. Exhibits and Reports on FORM 8-K.
a. Exhibits. None
b. Reports on Form 8-K
The Registrant filed a report on Form 8-K on November 15, 1996, announcing
that the sale of the New Notes to two
23
<PAGE>
purchasers at an aggregate purchase price of $1,995,000 net to INTEK. The report
was filed pursuant to Item 5 of Form 8-K.
The Registrant filed a report on Form 8-K on December 18, 1996, announcing
that as a result of the consummation of the Acquisition, Securicor
Communications owns directly or indirectly through its affiliates, approximately
65.0% of the issued and outstanding Company Common Stock. The report was filed
pursuant to Item 1 of Form 8-K.
The Registrant filed a report on Form 8-K on December 30, 1996, announcing
the change of the Registrant's fiscal year from December 31 to September 30. The
report was filed pursuant to Item 8 of Form 8-K.
24
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
December 31, 1996
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: February 14, 1996
INTEK DIVERSIFIED CORPORATION
By: /s/ D. Gregg Marston
---------------------------------------
D. Gregg Marston
Interim Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and Chief
Accounting Officer)
25
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<CGS> 4901000
<TOTAL-COSTS> 4901000
<OTHER-EXPENSES> 4793000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 570000
<INCOME-PRETAX> (2774000)
<INCOME-TAX> (1506000)
<INCOME-CONTINUING> (1230000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1230000)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
