<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 MARCH 31, 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 May 13, 1997, is 40,426,212 shares.
1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTEK DIVERSIFIED CORPORATION
RADIOCOMS FROM 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 six month periods ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Post-Reverse (Pre-Reverse (Post-Reverse (Pre-Reverse
Merger-See Merger-See Merger-See Merger-See
Note 1) Note 1) Note 1) Note 1)
<S> <C> <C> <C> <C>
Net sales $ 10,511 $ 7,211 $ 17,245 $ 12,511
Cost of goods sold 10,175 5,219 15,076 10,091
---------- ---------- ---------- ----------
Gross profit 336 1,992 2,169 2,420
Operating expenses:
Site and technical support costs 680 - 764 -
Selling 862 418 1,398 974
Research and development 803 639 1,713 1,454
General and administrative 4,104 2,652 6,728 4,526
Depreciation and amortization 1,240 355 1,879 739
---------- ---------- ---------- ----------
Operating loss (7,353) (2,072) (10,313) (5,273)
Other income (expense):
Interest (1,180) (446) (1,750) (771)
Gain on sale of assets held
for sale and other 39 - 795 -
---------- ---------- ---------- ----------
Loss before income taxes $ (8,494) $ (2,518) $ (11,268) $ (6,044)
Income tax benefit (expense) (3) (991) 630 224
Translation gain (38) (29) - -
---------- ---------- ---------- ----------
Net Loss $ (8,535) $ (3,538) $ (10,638) $ (5,820)
Less: Subsidiary Preferred Dividends (400) - (400) -
---------- ---------- ---------- ----------
Loss applicable to Common
Shareholders $ (8,935) $ (3,538) $ (11,038) $ (5,820)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per common share $ (0.22) $ (0.14) $ (0.32) $ (0.23)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of
common shares outstanding 40,194,470 25,000,000 34,707,337 25,000,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
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)
ASSETS
March 31, 1997 (Unaudited) and September 30, 1996
UNAUDITED
March 31 September 30
1997 1996
-------- -------
(Post-Reverse (Pre-Reverse
Merger-See Merger-See
Note 1) Note 1)
CURRENT ASSETS:
Cash and cash equivalents $1,478 $417
Accounts receivable, net
of allowance for
doubtful accounts of $100
in March 1997 and $128
in September 1996 6,138 9,661
Note receivable, current
portion 165 -
Inventories 24,976 18,895
Prepaid expenses and
other current assets 7,022 4,464
-------- -------
Total current assets 39,779 33,437
-------- -------
PROPERTY AND EQUIPMENT, AT COST 24,668 11,551
Less-accumulated depreciation (6,083) (4,912)
-------- -------
18,585 6,639
OTHER ASSETS:
Note receivable 463 -
Investment in E.F. Johnson,
at cost 10,177 10,177
Trademarks, patents and goodwill 48,175 -
Other 128 -
-------- -------
TOTAL ASSETS $117,307 $50,253
-------- -------
-------- -------
The accompanying notes are an integral part of these consolidated statements
3
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INTEK DIVERSIFIED CORPORATION
CONSOLIDATED BALANCE SHEETS
RADIOCOMS ONLY AT SEPTEMBER 30, 1996 (PRE-REVERSE MERGER)
(Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 1997 (Unaudited) and September 30, 1996
UNAUDITED
March 31 September 30
1997 1996
-------- --------
(Post-Reverse (Pre-Reverse
Merger-See Merger-See
Note 1) Note 1)
CURRENT LIABILITIES:
Accounts payable $6,249 $5,711
Accrued liabilities 5,971 1,576
Deferred income - 760
Related party payable - 29,345
Notes payable 328 1,313
Licensee deposits 163 -
-------- -------
Total current liabilities 12,711 38,705
-------- -------
NOTES PAYABLE
Third Party 7,220 -
Related Party 10,176 32,837
-------- -------
Total notes payable 17,396 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 - 40,426,212 at
March 31, 1997 and 25,000,000
at September 30, 1996 409 150
Capital in excess of par value 105,026 -
Treasury stock, at cost-465,582 shares (770) -
Retained deficit (35,862) (21,611)
Currency translation adjustment (1,603) 172
-------- -------
TOTAL SHAREHOLDERS' EQUITY 67,200 (21,289)
-------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $117,307 $50,253
-------- -------
-------- -------
The accompanying notes are an integral part of these consolidated statements
4
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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 six month periods ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
---------------------- ----------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash Flows From
Operating Activities:
Net loss $(8,535) $(3,538) $(10,638) $(5,820)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation and amortization 1,227 640 1,876 739
Provision for doubtful accounts - (30) - -
Gain on sale of assets held
for sale - (3) (756) (3)
Deferred taxes - - (633) -
Imputed interest on convertible
Debt and warrants 1,038 - 1,038 -
Interest added to principal 311 - 311 -
Changes in assets and
liabilities:
Decrease (increase) in:
Accounts receivable 4,469 44 8,352 2,116
Notes receivable 9 - (445) -
Inventories (860) (392) (1,273) (2,693)
Prepaid expenses and
other current assets (4,349) 2,239 (4,603) 102
Increase (decrease) in:
Accounts payable 3,617 516 2,276 (2,204)
Licensee deposits (46) - (96) -
Accrued liabilities (632) (1,172) (1,121) (982)
Related party payable (2,497) - (2,485) -
Deferred income 597 (2,703) 1,951 (255)
Taxes other than income taxes (98) (25) 149 (25)
------- ------- ------- -------
Total Adjustments 2,786 (886) 4,541 (3,205)
------- ------- ------- -------
Net cash used in operating
activities (5,749) (4,424) (6,097) (9,025)
5
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Cash Flows From Investing
Activities:
Capital expenditures (362) (935) (2,333) (900)
Expenditures for FCC licenses (168) - (168) -
Reverse merger costs capitalized (25) - (68) -
Proceeds, net of note receivable,
from sale of assets held
for sale - 117 2,200 128
Cash acquired in reverse merger - - 1,572 -
------- ------- ------- -------
Net cash provided by investing
activities (555) (818) 1,203 (772)
Cash Flows From Financing
Activities:
Bank Overdraft 337 431 (1,046) 431
Proceeds from long term debt
Third Party 4,000 - 4,000 -
Related Party 2,290 5,053 4,781 9,022
Repayment on long and short term debt
Third Party - - 1,346 -
Related party - (1,146) - -
------- ------- ------- -------
Net cash provided by
financing activities 6,627 4,338 6,389 9,453
------- ------- ------- -------
Effect of exchange rates on cash (434) 33 (434) (15)
------- ------- ------- -------
Net increase in cash and cash
equivalents (111) (871) 1,061 (359)
Cash and cash equivalents
at beginning of period 1,589 1,113 417 601
------- ------- ------- -------
Cash and cash equivalents
at end of period $ 1,478 $ 242 $ 1,478 $ 242
------- ------- ------- -------
------- ------- ------- -------
Supplemental disclosures of
cash flow information:
Cash paid for interest $ 98 $ 231 $ 126 $ 545
Cash paid for income taxes $ - $ - $ - $ -
</TABLE>
The accompanying notes are an integral part of these consolidated statements
6
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INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(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. These condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K.
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.
On December 30, 1996, Intek approved the change of the Company's fiscal
year from December 31 to September 30. As a result of the change in the fiscal
year the Company filed an Annual Report on Form 10-K for the period from
January 1, 1996 to September 30, 1996.
(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").
On December 3, 1996, Intek consummated the acquisition of all the issued
and outstanding common stock of Securicor Radiocoms Ltd ("Radiocoms"), a
wholly owned subsidiary of Securicor Communications Limited ("Securicor
Communications") (the "Radicoms Acquisition"). 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 Intek Common Stock. The Radiocoms Acquisition, approved by the
stockholders of Intek at Intek's 1996 Annual Meeting held on December 3,
1996, was consummated on the same date, and was accounted for as a reverse
acquisition (see Company's report for the quarterly period ended December 31,
1996 filed on Form 10-Q for a more detailed explanation of the Radiocoms
Acquisition).
In addition, upon closing the Radiocoms 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
a post closing reduction to the purchase price of $833,125 or 155,000 shares
of Company Common Stock was made.
7
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a. The following unaudited proforma income statement information
includes Intek's historic results of operations and Radiocom's results of
operations as though the Radiocoms Acquisition had occurred on October 1,
1995:
Three Months Six Months Ended
Ended March 31 March 31
---------- -----------------------
1996 1997 1996
---------- ---------- ----------
Revenues $ 7,707 $ 19,433 $14,079
Net loss $(5,638) $(18,308) $(9,439)
Net loss per share $ (0.14) $ (0.52) $ (0.27)
Weighted average shares outstanding 39,808,810 35,173,342 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 Radiocoms Acquisition been consummated as of
the above date, nor is it necessarily indicative of future operating results.
b. The Radiocoms 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 Intek Common Stock issued and has
been allocated to the Radiocoms 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
-------
-------
8
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(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
Since Securicor Communications retains more than a 50 percent
controlling interest in Intek, the Radiocoms Acquisition 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 and six months ended
March 31, 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 March 31, 1996) and include the accounts of
Radiocoms from October 1, 1996 through March 31, 1997.
The accounts of Radiocoms include the combined results of Radiocoms and
its wholly owned subsidiaries.
All material intercompany transactions have been eliminated in
combination.
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
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
9
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to Regulation S under the Securities Act). In exchange for a further extension
to January 31, 1997, Intek issued MeesPierson 34,000 shares of Company Common
Stock (pursuant to Regulation S under the Securities Act). The Senior Debenture
was paid in full on December 31, 1996. See Item (2) -- Management's Discussion
and Analysis of Financial Condition and Results of Operations For the Six Month
Period Ended March 31, 1997 and For the Six Month Period Ended March 31, 1996 --
Liquidity and Capital Resources.
On February 6, 1997, the Company sold a series of 7.5% Convertible
Debentures (the "February 1997 Debentures") and separate offshore warrants (the
"February 1997 Warrants") to three purchasers pursuant to Regulation S under the
Securities Act. The February 1997 Debentures mature on February 6, 2000 and bear
interest at the rate of 7.5% per annum. All accrued interest is due and payable
at the time the February 1997 Debentures mature or upon their conversion to
Company Common Stock. Up to 33% of the February 1997 notes can be converted to
Company Common Stock after May 7, 1997; an additional 33% can be converted after
August 5, 1997 and the balance can be converted after November 3, 1997. The debt
conversion price is the lesser of $3.825 or 80% of the average closing bid price
for the 5 trading days prior to conversion. This $800,000 discount is being
amortized over the nine months ended October 1997. For the three and six month
periods ended March 31, 1997, the charge to interest expense related to the
discount was $326,000. The February 1997 Warrants became exercisable by the
holders thereof on April 7, 1997. Intek has the right, which may be exercised in
whole or in part on or after April 6, 1998, to require the holders to exercise
these Warrants. The Warrants are exercisable at $4.59 per share and are subject
to customary anti-dilution adjustments. The Warrants were estimated by the
broker to have a value of $100,000, which was included in interest expense for
the three and six month periods ended March 31, 1997.
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 progress and
10
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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
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 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 (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
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
11
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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 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 that approximate the rates in effect on the transaction dates. Gains
and losses resulting from this remeasurement process are recognized currently in
the accompanying 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 Company's investment in E. F. Johnson Company is stated at cost.
In the quarter ended December 31, 1996, Radiocoms agreed to accept
1,150,000 shares of common stock of American Digital Corporation ("ADC")
representing payment towards its accounts payable owing to Radiocoms totaling
$448,500. Given the significant reduction in the share price of ADC, the
investment has been fully reserved.
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 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. RECLASSIFICATIONS
Certain amounts reflected in the results of operations for the periods
ended March 31, 1996 have been reclassified to conform to the current period
presentation.
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m. RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as 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 communications systems is a new market with a limited number of customers
in an emerging domestic and overseas environment and consequently may involve
greater credit risks. Additionally, the Company has taken a variety of assets
as collateral for extension 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 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 hedge
contract amounts do not exceed the amounts of the underlying exposures. At March
31, 1997, the Company had no 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
six month periods ended March 31, 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 per share of Radiocoms Stock.
(4) INVENTORIES
Inventories at March 31, 1997 and September 30, 1996 consist of the
following (in thousands):
Mar. 31, Sept. 30,
1997 1996
-------- --------
Raw materials $7,801 $8,314
Work in progress 1,782 2,322
Finished goods 15,393 8,259
-------- --------
$24,976 $18,895
-------- --------
-------- --------
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(5) PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1997 and September 30, 1996 consists of
the following (in thousands):
Mar. 31, Sept. 30,
1997 1996
-------- --------
Land $ 522 $ 469
Buildings 2,399 2,329
Site equipment 10,673 -
Production & test equipment 5,352 4,731
Furniture and fixtures 1,257 555
Computers 366 -
Equipment held for rental 4,099 3,467
-------- --------
Total property and equipment, at cost 24,668 11,551
Less accumulated depreciation (6,083) (4,912)
-------- --------
Net property and equipment $18,585 $ 6,639
-------- --------
-------- --------
(6) COMMITMENTS
As of May 13, 1997, Roamer One had entered into 149 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 has also 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 March
31, 1997, total future minimum lease payments are as follows:
1997 $ 861,000
1998 1,193,000
1999 1,270,000
2000 740,000
2001 162,000
Thereafter 32,000
----------
$4,258,000
----------
----------
(7) ASSETS HELD FOR SALE
On December 3, 1996 the Company sold the Property for a gain of
$756,000. Proceeds from the sale were used to repay, in part, the $2,500,000
Debenture to MeesPierson. The Company
14
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funded the shortfall with working capital.
(8) SALE OF SECURITIES
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 March 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. This discount, in the amount of $907,000, was a
pre-reverse merger expense of Intek.
On November 1, 1996, the Company sold the November 1996 Notes. Net proceeds
to the Company, after fees and brokers commissions, were $1,995,000. The
November 1996 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 November
1996 Notes mature or upon the exercise of the warrants. As of 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
during the three months ended March 31, 1997.
On February 6, 1997, the Company sold 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 mature on February 6, 2000 and bear interest
at the rate of 7.5% per annum. All accrued interest is due and payable
at the time the February 1997 Debentures mature or upon their conversion to
Company Common Stock. Up to 33% of the February 1997 notes can be converted to
Company Common Stock after May 7, 1997; an additional 33% can be converted after
August 5, 1997 and the balance can be converted after November 3, 1997. The debt
conversion price is the lesser of $3.825 or 80% of the average closing bid price
for the 5 trading days prior to conversion. This $800,000 discount is being
amortized at the rate of one-third over three months, one-third over 6 months
and one-third over 9 months. For the three and six month periods ended March 31,
1997, the charge to interest expense related to the discount was $326,000.
The February 1997 Warrants became exercisable by the holders thereof on April
7, 1997. Intek has the right, which may be exercised in whole or in part on
or after April 6, 1998, to require the holders to exercise the February 1997
Warrants. 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 for the three and six month periods ended March
31, 1997.
(9) ACQUISITION OF NEW SYSTEMS AND MANAGEMENT AGREEMENTS
KRYSTAL SYSTEMS
On November 11, 1996, Intek and Krystal Systems, a corporation formed and
existing under the laws of Nevada, entered into a Purchase and Sale Agreement
whereby Intek agreed to purchase and Krystal agreed to sell and convey to Intek,
up to twenty five (25) 220MHz Systems (including all on-site
15
<PAGE>
hardware, radio equipment, antenna combining equipment, computer software and
other ancillary components to the 220MHz SMR base station operation) together
with the authorization to operate those Systems as granted by the FCC. Upon
submission to the FCC of the documents required to effect transfer and
assignment of the FCC licenses from Krystal, and/or various licensees related to
the base stations, Intek agreed to pay to Krystal 75% of the purchase price for
each such System. The Systems are to be free of any and all liens and
encumbrances and the closing of the transaction is subject to final due
diligence and receipt of regulatory approvals as necessary.
On February 11, 1997 Intek, through its subsidiary Roamer One, paid
$2,700,000 to Krystal representing 75% of the purchase price related to 20
Systems. Roamer One has completed the legal and technical due diligence to its
satisfaction. The balance of the purchase price for the 20 Systems, $900,000, is
due and payable upon receipt, and uncontested grant, of the FCC licenses by
Roamer One. No action has been taken with regard to the remaining 5 Systems to
be purchased from Krystal.
PAGERS PLUS
During the months of December, January and February, Roamer One began a
process of acquiring, taking assignment of or renegotiating management
agreements and purchase agreements with Pagers Plus Cellular, ("PPC") a
California corporation, organized to provide construction and management
services to individual licensees in the 220MHz spectrum. For each such
reassignment of a management agreement from PPC to Roamer One, Roamer One
paid a brokerage fee to PPC of either $10,000 or $15,000. PPC sought to
negotiate purchase agreements related to certain completed Systems together
with licenses from individual licensees. As of February 10, 1997, PPC had
tentatively negotiated 16 purchase agreements with licensees. Under the terms
of the purchase agreements, Intek proposed to issue its Common Stock to the
licensees and other third parties to the agreements as payment of the
purchase price. PPC was paid a cash fee for services related to the
negotiation of the agreements. This fee was accounted for as contributing
towards payment of the purchase price. The individual acquisitions were
subject to due diligence, the release or negotiation of payment to the
satisfaction of Intek of any and all liens by creditors against System
hardware or operating revenues of the Systems, the approval of Intek's board
of directors, and receipt of regulatory approvals as needed.
During the months from November 1996 through March 1997 and as of May 9,
1997, the Company has paid $50,000 to PPC as brokerage fees in connection
with the assignment of management agreements and $285,000 as advance payments
on the completion of purchase agreements. As of April 1, 1997, all of the
purchase agreements automatically terminated pursuant to provisions contained
therein, however, the Company has retained management agreements for these
licenses. The Company is currently attempting to complete the purchase
agreements with the individual licensees and the equipment lien holder. No
assurances can be made that the Company, the licensees, or the lien holder
will be willing to enter into an agreement with respect to the systems or the
licenses.
(10) INVESTEMENTS
VENTEL, INC.
In May 1995, Intek contributed $125,000 for a one-third ownership
16
<PAGE>
interest in Brook SIG Corp., which was subsequently acquired in a stock
transaction by Ventel, Inc. ("Ventel"), a publicly traded company in Canada.
Ventel is in the business of providing financing to various 220 MHz SMR
management companies in the United States. SCL was also a one-third owner of
Brook SIG Corp. and subsequently became a shareholder in Ventel. Intek and SCL
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 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 September 30, 1996. Of these shares, 53% or
1,422,223 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
(11) SUBSEQUENT EVENTS
American Digital Communications, Inc.
On April 15, 1997, Intek entered into a non-binding Letter of Intent
with ADC, to acquire up to 23 constructed 220MHz base stations and the
related FCC licenses. Intek would make the payment for the Systems and the
license, in part, with a return of ADC stock held by Intek that was acquired
by Radiocoms as partial payment of equipment sold to ADC during 1996. Partial
payment would also be made by transfer of Intek's stock in Ventel to ADC. A
combination of cash and shares of Company Common Stock will comprise the
balance of the purchase price. The transaction remains subject to
satisfaction of technical, regulatory and legal due diligence in addition to
a number of other required consents including those of the respective boards
of directors, the FCC, other regulatory agencies, the licensees and any
equipment lien holder. An acquisition agreement must be negotiated and
executed and provides that the transaction must be consummated by September
30, 1997. The Letter of Intent expires on July 9, 1997.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED MARCH 31, 1997 AND FOR THE SIX
MONTH PERIOD ENDED MARCH 31, 1996
The following discussion and analysis sets forth certain factors which
produced changes in the Company's results of operations during the six months
ended March 31, 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.
Since Securicor Communications retains more than a 50 percent
controlling interest in Intek, the Radiocoms Acquisition 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 six months ended March 31,
1996 include only the accounts of Radiocoms. The consolidated financial
statements for the six months ended March 31, 1997 include the statements of
Intek and its wholly-owned subsidiaries, Roamer One, MUSA, Olympic, IMCX, and
IDC (subsequent to the Radiocoms Acquisition on December 3, 1996) and include
the accounts of Radiocoms from October 1, 1996 through March 31, 1997.
Although the operations of Radiocoms were 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.
18
<PAGE>
RESULTS OF OPERATIONS - SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS
ENDED MARCH 31, 1996
CONSOLIDATED
Results of Operations for the six months ended March 31, 1997 include
Radiocoms for the entire six month period and Intek, Roamer One and MUSA for the
four months then ended. Results of operations for the six months ended March 31,
1996 include only Radiocoms.
<TABLE>
<CAPTION>
% of
6 Months Ended Related % Change
March 31, 1997 Revenue 97 vs. 96
-------------- ------- ---------
<S> <C> <C> <C>
Net Sales
Roamer $ 548 3.2% N/A
MUSA 6,001 34.8 N/A
Radiocoms 10,696 62.0 (14.5)%
-------- -----
Consolidated $17,245 100.0% 37.82%
-------- -----
-----
Cost of Sales
Roamer $ 512 93.4% N/A
MUSA 4,225 70.4 N/A
Radiocoms 10,339 96.7 2.5%
--------
Consolidated $15,076 87.4 49.4%
--------
Operating Expenses
Corporate $ 549 N/A N/A
Roamer 1,386 252.9% N/A
MUSA 1,909 31.8 N/A
Radiocoms 6,759 63.2 49.1%
--------
Consolidated $10,603 61.5% 133.9%
--------
Depreciation and Amortization
Corporate $ 857 N/A N/A
Roamer 28 5.1% N/A
MUSA 206 3.4 N/A
Radiocoms 788 7.4 6.6%
Intercompany elimination - N/A N/A
--------
Consolidated $1,879 10.9% 154.3%
--------
Operating Loss
Corporate $ (1,406) N/A N/A
Roamer (1,378) (251.5)% N/A
MUSA (339) (5.7) N/A
Radiocoms (7,190) (67.2) 36.4%
--------
Consolidated $(10,313) (59.8)% (95.6)%
-------- -------- --------
-------- -------- --------
</TABLE>
GAIN OF SALE OF ASSETS HELD FOR SALE. During the month of December, 1996,
Olympic Plastics (a discontinued operation) sold the Property for a gain of
$762,000.
INTEREST EXPENSE. Consolidated interest expense for period ended March
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<PAGE>
31, 1997 was $1,750,000. Of this $461,000 related to borrowings from third
parties, $311,000 related to the borrowings from Securicor Communications,
$552,000 related to the conversion of the November 1996 Notes, $326,000
related to the convertibility feature of the February 1997 Debentures, and
$100,000 related to the issuance of the February 1997 Warrants. Pursuant to
the terms of the Radiocoms Acquisition, $20 million of intercompany balances
between Radiocoms and the former shareholders of Radiocoms 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 BEFORE TAXES. Consolidated losses before tax for the period ended
March 31, 1997 was $11,268,000.
INCOME TAX BENEFIT. Consolidated tax benefits for the period ended March
31, 1997 were $630,000.
NET LOSS. The consolidated net loss after taxes for the period ended
March 31, 1997 was $10,638,000. After deducting accrued dividends on
preferred stock of Radiocoms held by Securicor Communications related to the
Radiocoms Acquisition, the Loss Applicable to Common Shareholders was
$11,038,000.
LIQUIDITY AND CAPITAL RESOURCES
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,
obtaining vendor financing, and borrowing from related parties. For the six
months ended March 31, 1997, the Company used $6,874,000 in cash for
operating. $2,296,000 was spent for capital expenditures. Through its
financing activities, the Company raised approximately $8,781,000 in gross
proceeds. The Company also retired $1,346,000 in previous borrowings. Cash
for the six months ended March 31, 1997 increased $1,061,000 over the
year-end balance as a result of the Radiocoms Acquisition.
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 the
purchase of various systems it has contracted to purchase. 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.
Upon the consummation of the Radiocoms Acquisition, Securicor
Communications agreed to make available to Intek an amount up to $15,000,000
to fund Intek's working capital needs (the "Intek Loan Agreement"). The Intek
Loan Agreement may be drawn upon by Intek so long as it maintains a net worth
of at least $20,000,000. The Intek Loan Agreement 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
20
<PAGE>
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 Intek Loan Agreement may be
prepaid at any time without any penalty. The Intek Loan Agreement must be
redeemed upon a change of control of Intek or upon the sale of the majority of
its assets. Intek may redeem the Intek Loan Agreement, at par plus accrued
interest, subject to restrictions contained in any senior debt facility it may
obtain, in increments of $500,000. If such redemptions are made prior to
December 31, 1997, the availability under the Intek Loan Agreement will be
reduced accordingly. As of May 9, 1997, the amount outstanding under the Intek
Loan Agreement was $9,171,000. In addition, letter of credit guarantees for
inventory purchases by MUSA in the amount of $5,878,000 were outstanding. While
the guarantees are not loans and do not accrue interest, such guarantees do
reduce the amount available under the Intek Loan Agreement for future
borrowings.
Securicor Communications agreed to provide to Intek an unsecured line of
credit in the amount of $6 million. The outstanding balance under the line of
credit bears an annual interest rate of 11%. The amount outstanding under
such line of credit is due the earlier of: (1) The receipt of funds by Intek
from a private or public offering of Intek shares; or (2) October 18, 1998.
As of May 13, 1997, Securicor Communications advanced $3,500,000 to Intek
pursuant to the line of credit.
To fund the Company's consolidated cash needs, the Company is
considering a number of financing alternatives. The Company is pursuing asset
based financing with a third party lender and the Company may pursue a
financing involving a private or public placement of its securities.
Management believes that through a combination of the arrangement with
Securicor Communications, a new facility with a third party lender and a
private or public placement of its securities, adequate financing
arrangements will be arranged to meet the Company's near term cash needs.
BORROWINGS.
On November 1, 1996, the Company sold the November 1996 Notes. Net proceeds
to the Company, after fees and brokers commissions, were $1,995,000. The
November 1996 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 November
1996 Notes mature or upon the exercise of the warrants. As of 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 included in interest expense for the
three and six month periods ended March 31, 1997.
On February 6, 1997, the Company sold the February 1997 Debentures and the
February 1997 Warrants. Net proceeds to the Company, after fees and brokers
commissions, were $3,990,000. The February 1997 Debentures mature on February 6,
2000 and bear interest at the rate of 7.5% per annum. All accrued interest is
due and payable at the time the February 1997 Debentures mature or upon their
conversion to Company Common Stock. Up to 33% of the February 1997 notes can be
converted to Company Common Stock after May 7, 1997; an additional 33% can be
converted after August 5, 1997 and the balance can be converted after November
3, 1997. The debt conversion price is the lesser of $3.825 or 80% of the average
closing bid price for the 5 trading days prior to conversion. This $800,000
discount is being amortized at the rate of one-third over three months, one-
third over 6 months and one-third over 9 months. For the three and six month
periods ended March 31, 1997, the charge to interest expenses related to the
discount was $326,000. The February 1997 Warrants became exercisable by the
holders thereof on April 7, 1997. Intek has the right, which may be
21
<PAGE>
exercised in whole or in part on or after April 6, 1998, to require the holders
to exercise the February 1997 Warrants. The February 1997 Warrants are
exercisable at $4.59 per share and are subject to customary anti-dilution
adjustments.
SALES OF ASSETS. The Company sold the Property owned by Olympic on
December 3, 1996 for a gain of $758,000. Proceeds from the sale were used to
repay, in part, the $2,500,000 Debenture to MeesPierson. The Company funded
the shortfall with working capital.
RADIOCOMS - SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED
MARCH 31, 1996
NET SALES. Net sales consists principally of third party revenues from
the sale of products manufactured by Radiocoms, resale of products purchased
from other companies, rental of equipment, maintenance and support of
systems, system design and consulting and technology license fees. During
1996 and 1997, a significant portion of Radiocoms sales were made to Roomer
One and MUSA. However, the intercompany sales and related costs were
eliminated in the consolidated financial statements of Intek for 1997 due to
the Radiocoms Acquisition.
Net sales decreased 14.5% ($1,815,000) to $10,696,000 for the six months
ended March 31, 1997 from $12,511,000 for the six months ended March 31, 1996.
Sales decreased 23.9% ($1,722,000) to $5,489,000 for the three months ended
March 31, 1997 compared to $7,211,000 for the three months ended March 31, 1996.
Technology license fees from E. F. Johnson were $477,000 for the six months
ended March 31, 1996 and no such license fees were received for the six months
ended March 31, 1997.
COST OF SALES. 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 from 80.7% for the six months ended March 31,
1996 to 96.7% for the six months ended March 31, 1997. Cost of sales
increased to $10,339,000 for the six months ended March 31, 1997 from
$10,091,000 for the six months ended March 31, 1996. For the fiscal quarter
ended March 31, 1997, cost of sales increased to $6,560,000 (119.5% sales)
from $5,219,000 (72.4% of 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.
GROSS PROFIT. Gross profit decreased $2,063,000 to $357,000 and the margin
decreased to 3.3% sales for the six months ended March 31, 1997 from $2,420,000
(19.3% sales) for the six months ended March 31, 1996. For the fiscal quarter
ended March 31, 1997, gross profit decreased 3,063,000 to a loss of
$1,071,000 (19.5% sales)
22
<PAGE>
from $1,992,000 (27.6% sales) for the quarter ended March 31, 1997 as a
result of the aforementioned write-off of capitalized development costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 6.5% ($406,000) to $5,834,000 (54.5% sales)
for the six months ended March 31, 1997 from $6,239,000 (49.9% sales) for the
six months ended March 31, 1996. For the fiscal quarter ended March 31, 1997,
selling, general and administrative expenses decreased 14.1% ($487,000) to
$2,959,000 (53.9% sales) from $3,446,000 (47.8% sales) for the quarter ended
March 31, 1996. The reduction in selling, general and administrative expenses in
absolute terms was due to efforts to make the operations more efficient. The
significant improvement as a percentage of sales was a direct result of the
increase in sales, notably base station sales made to MUSA in March 1997.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
17.8% ($259,000) to $1,713,000 (16.0% sales) for the six months ended March 31,
1997 from $1,454,000 (11.6% sales) for the six months ended March 31, 1996. For
the fiscal quarter ended March 31, 1997, research and development expenses
increased 32.7% ($209,000) to $848,000 (15.4% sales) from $639,000 (8.9% sales)
for the quarter ended March 31, 1996. Research and development expenses in the
six months ended March 31, 1996 related primarily to Linear Modulation mobile
radio products designed for the 220MHz market in which Roamer One participates,
with expenses during the six months ended March 31, 1997 related primarily to
development of a hand portable radio for the same market.
INTEREST EXPENSE. Interest expense decreased 38.7% ($299,000) to $473,000
for the six months ended March 31, 1997 from $1,454,000 for the six months
ended March 31, 1996. For the fiscal quarter ended March 31, 1997, interest
expense decreased to $65,000 from $1,129,000 for the quarter ended March 31,
1996, due to the recapitalization of related party debt in connection with the
Radiocoms Acquisition.
NET LOSS. Net loss decreased 19.9% ($1,161,000) to $4,659,000 for the six
months ended March 31, 1997 from $5,820,000 for the six months ended March 31,
1996 as a result of the aforementioned sale of base stations to MUSA. For the
three months ended March 31, 1997, the net loss was $1,594,000, down from loss
of $3,538,000 for the three months ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES Radiocoms incurred losses of $3,447,000
and $5,820,000 for the six months ended March 31, 1997 and 1996 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 used in operating activities for
the six months ended March 31, 1997 was $2,190,000, compared to net cash used in
operating activities for the six months ended March 31, 1996 which was
$9,025,000. Radiocoms has financed its operations and capital expenditures by
23
<PAGE>
an aggregate of $47,525,000 of loans from Securicor Communications and Securicor
plc, and a loan of $2,109,000 from Intek. As of December 3, 1996, $20,000,000 of
the $47,525,000 loan from Securicor Communications was converted to preference
share capital, the balance of the loan being forgiven by Securicor
Communications.
ROAMER ONE - FOUR MONTHS ENDED MARCH 31, 1997
NET SALES. Subscriber loading commenced on a limited basis during the
three months ended December 31, 1996. During the four months ended March 31,
1997, billings to licensees for site equipment, construction and installation
resulted in consolidated equipment sales of $495,000, sales of mobile radios of
$47,000 and subscriber revenues of $6,000 for a total of $548,000. For the three
months ended March 31, 1997, equipment sales were $54,000, mobile radio sales
were $45,000 and subscriber revenues were $45,000 for a total of $144,000.
COST OF GOODS. Cost of was $512,000 (93.4% sales) for the four months
ended March 31, 1997. For the fiscal quarter ended March 31, 1997, cost of sales
was $164,000 (113.9% sales).
SITE EXPENSES 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 from the Corporate
office. For the four months ended March 31, 1997, site and support expenses
were $735,000 (134.1% sales) and $646,000 (461.4% sales) for the fiscal
quarter ended March 31, 1997.
SELLING EXPENSES. Selling expenses are primarily salaries, travel
and preparation of promotional material. The selling expenses for the four
months ended March 31, 1997 were $184,000 (33.6% sales) and $142,000
(101.4%) for the fiscal quarter ended March 31, 1997. Selling expenses are
increasing due to the creation of a sales organization for the commencement
of subscriber loading.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses have historically been salaries, consultants, office rent and
insurance to support the management of the systems. General and
administrative expenses for the four months ended March 31, 1997 were
$438,000 (79.9% sales) and $330,000 (229.2% sales) for the fiscal quarter
ended March 31, 1997.
DEPRECIATION. Depreciation expense for fixed assets was $28,000
for the four months ended March 31, 1997 and $21,000 for the fiscal quarter
ended March 31, 1997.
OPERATING PROFIT (LOSS). For the fours months ended March 31,
1997, the operating loss was $1,378,000 and $1,192,000 for the fiscal quarter
ended March 31, 1997. This was due to the cost of the infrastructure to
manage the licenses and sell services to subscribers.
24
<PAGE>
MUSA - FOUR MONTHS ENDED MARCH 31, 1997
NET SALES. Net sales for the four months ended March 31, 1997 were
$5,926,000. Sales for the three months ended March 31, 1997 were $4,866,000, an
improvement over recent quarters. The improvement is attributable to improved
inventory availability. MUSA was not a subsidiary of Intek prior to August 1996
and consequently, comparative revenues and expenses are not provided herein.
COST OF GOODS. For the four months ended March 31, 1997, MUSA had
cost of sales of $4,225,000 (71.3% sales). For the fiscal quarter ended March
31, 1997 cost of sales was 43,451,000 (70.9% 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 is purchased in Japan, 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.
SELLING EXPENSES. Selling expenses are primarily travel, advertising
and promotion, trade shows and the maintenance of a sourcing office in Asia. The
selling expenses for the four months ended March 31, 1996 were $354,000 (6.0%
sales) and $288,000 (5.9% sales) for the fiscal quarter ended March 31, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General administrative
expenses are salaries, facilities costs, data processing charges insurance,
depreciation and amortization. General administrative expenses for the four
months ended March 31, 1997 were $1,555,000 (26.2% sales) and $1,176,000
(24.2% sales) for the fiscal quarter ended March 31, 1997.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation of fixed
assets and amortization of the intangible related to the acquisition of MUSA
were $206,000 for the four months ended March 31, 1997 and $170,000 for the
fiscal quarter ended March 31, 1997.
OPERATING PROFIT (LOSS). For the four months ended March 31, 1997,
the operating loss was $339,000 and $169,000 for the fiscal quarter ended
March 31, 1997.
CORPORATE - FOUR MONTHS ENDED MARCH 31, 1997
GENERAL AND ADMINISTRATIVE EXPENSES. General administrative
expenses have historically been salaries, consulting and management fees,
legal and audit costs. General and administrative expenses for the four
months ended March 31, 1997 were $548,000 and $472,000 for the second fiscal
quarter ended March 31, 1997.
AMORTIZATION. Amortization of the intangibles related to the
Radiocoms Acquisition was $857,000 for the four months ended
March 31, 1997 and $643,000 for the second fiscal quarter ended March 31,
1997.
GAIN ON SALE OF ASSETS HELD FOR SALE. During the four months ended
March 31, 1997, Olympic sold the Property for a net profit of $758,000. This was
the sole remaining fixed asset of the discontinued operation.
25
<PAGE>
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.
26
<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 February 6, 1997, announcing
that it had sold a series of 7.5% Convertible Debentures Due 2000 and Offshore
Warrants to purchase up to an aggregate of 425,000 shares of Intek Common Stock
to three purchasers. The report was filed pursuant to Item 5 of Form 8-K.
The Registrant filed a report on Form 8-K on February 18, 1997, including
the audited Balance Sheets of Radiocoms as of September 30, 1996 and 1995 and
related statements of Operations and Cash Flows for the years ended
September 30, 1996, 1995, and 1994; and
Pro forma Combined Balance Sheet of Intek and Radiocoms dated September 30,
1996; and
Pro forma Statements of Operations of Intek and Radiocoms for the twelve
months ended September 30, 1996, based on Statements of Operations of Intek for
the twelve-month period ended September 30, 1996 and on Statement of Operations
for Radiocoms for the year ended September 30, 1996. The report was filed
pursuant to Item 1 of Form 8-K.
27
<PAGE>
INTEK DIVERSIFIED CORPORATION AND SUBSIDIARIES
March 31, 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: May 14, 1997
INTEK DIVERSIFIED CORPORATION
By: /s/ D. Gregg Marston
---------------------------------------
D. Gregg Marston
Chief Accounting Officer
28
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,478,000
<SECURITIES> 0
<RECEIVABLES> 6,238,000
<ALLOWANCES> 100,000
<INVENTORY> 24,976,000
<CURRENT-ASSETS> 40,991,000
<PP&E> 24,668,000
<DEPRECIATION> 6,083,000
<TOTAL-ASSETS> 118,519,000
<CURRENT-LIABILITIES> 12,711,000
<BONDS> 0
104,665,000
0
<COMMON> 20,000
<OTHER-SE> (36,253,000)
<TOTAL-LIABILITY-AND-EQUITY> 118,519,000
<SALES> 17,245,000
<TOTAL-REVENUES> 17,245,000
<CGS> 15,076,000
<TOTAL-COSTS> 15,076,000
<OTHER-EXPENSES> 12,482,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,750,000)
<INCOME-PRETAX> (11,268,000)
<INCOME-TAX> (630,000)
<INCOME-CONTINUING> (10,638,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,638,000)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
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