<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, 1998
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 GLOBAL 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.)
214 CARNEGIE CENTER, SUITE 304 08549-6237
PRINCETON, NEW JERSEY
WWW.INTEKGLOBAL.COM
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (609) 419-1222
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 8, 1998, is 41,902,430 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTEK GLOBAL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
March 31, September 30,
1998 1997
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,468 $ 1,909
Marketable securities - 8,148
Accounts receivable, net of allowance for
doubtful accounts of $820 in March 1998
and $863 in September 1997 5,572 6,488
Inventories 13,243 12,289
Taxation receivable from related parties 545 779
Amounts due from related parties 2,059 3,922
Prepaid expenses and other current assets 1,979 894
------------- -------------
Total current assets 24,866 34,429
------------- -------------
PROPERTY AND EQUIPMENT, NET 24,088 21,555
OTHER ASSETS:
Note receivable 440 556
Intangible assets, net 53,107 48,340
Inventory-long term 5,766 6,980
Other 772 705
------------- -------------
TOTAL ASSETS $ 109,039 $ 112,565
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
2
<PAGE>
INTEK GLOBAL CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
March 31, September 30,
1998 1997
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Bank overdraft $ 903 $ 120
Accounts payable 5,419 6,110
Amounts due to related parties 2,490 2,005
Accrued liabilities 5,993 3,762
Deferred income 279 977
Notes payable 3,026 -
Other 137 166
------------- -------------
Total current liabilities 18,247 13,140
------------- -------------
NOTES PAYABLE:
Related Party 16,015 24,223
Other 1,626 -
------------- -------------
Total notes payable 17,641 24,223
------------- -------------
CAPITAL LEASE LIABILITY 76 354
------------- -------------
PREFERRED STOCK-Mandatorily Redeemable
Of Parent Corporation 12,408 -
Of Subsidiary 21,867 20,559
------------- -------------
Total preferred stock 34,275 20,559
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $0.01 par value
Authorized - 60,000,000 shares
Issued - 42,905,012 at March 31, 1998 and
42,398,096 at September 30, 1997 429 424
Capital in excess of par value 107,097 106,220
Treasury stock, at cost
1,002,582 shares at March 31, 1998
and 465,582 shares at September 30, 1997 (2,099) (770)
Deficit (65,069) (50,199)
Accumulated other comprehensive loss (1,558) (1,386)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 38,800 54,289
------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 109,039 $ 112,565
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
3
<PAGE>
INTEK GLOBAL CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1996
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 3, 1996
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Net product sales $ 5,016 $ 10,314 $ 14,055 $16,844
Service income 3,027 197 3,228 401
------------- ------------- ------------- -------------
Total revenues 8,043 10,511 17,283 17,245
Costs and expenses:
Cost of goods sold 3,890 10,106 10,434 14,930
Cost of services sold 2,602 709 3,610 910
Sales and marketing 2,229 733 4,082 1,398
Research and development 532 855 1,165 1,713
General and administrative 3,937 4,233 7,948 6,728
Depreciation and amortization 1,619 1,228 2,948 1,879
------------- ------------- ------------- -------------
Operating loss (6,766) (7,353) (12,904) (10,313)
Other income (expense):
Interest (721) (1,180) (1,404) (1,750)
Gain on sale of long term assets - 39 - 795
Other 15 (38) 31 -
------------- ------------- ------------- -------------
Loss before income taxes (7,472) (8,532) (14,277) (11,268)
Income tax benefit (expense) - (3) - 630
------------- ------------- ------------- -------------
Net loss (7,472) (8,535) (14,277) (10,638)
Less preferred dividends (295) (400) (593) (400)
------------- ------------- ------------- -------------
Net loss applicable to Common
Shareholders $ (7,767) $ (8,935) $ (14,870) $ (11,038)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic and diluted net loss per share $ (0.18) $ (0.22) $ (0.35) $ (0.32)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of
common shares outstanding 42,201,852 40,194,470 42,128,258 34,707,337
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
4
<PAGE>
INTEK GLOBAL CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1996
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 3, 1996
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss applicable to common shareholders $ (7,767) $ (8,935) $ (14,870) $ (11,038)
Other Comprehensive Loss:
Foreign currency translation adjustments (171) (1,596) (172) (1,775)
------------- ------------- ------------- -------------
Comprehensive loss $ (7,938) $ (10,531) $ (15,042) $ (12,813)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
5
<PAGE>
INTEK GLOBAL CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1996
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 3, 1996
CONSOLIDATED STATEMENTS CASH FLOWS (Unaudited)
(Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating
activities:
Net loss $ (14,277) $ (10,638)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,948 1,876
Loss (gain) on sale of long term assets - (756)
Deferred income taxes - (633)
Imputed interest on convertible debt
Debt and warrants - 1,038
Interest added to principal 2,170 311
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 1,017 8,352
Amounts due from related parties 1,977 -
Notes receivable 33 (445)
Inventories 700 (1,273)
Income taxes receivable from related parties 261 -
Prepaid expenses and other current assets (409) (4,603)
Increase (decrease) in:
Accounts payable (161) 2,276
Amounts due to related parties 304 (2,485)
Accrued liabilities 1,709 (1,121)
Deferred income (724) 1,951
Taxes other than income taxes (18) 149
Other (39) (96)
------------- -------------
Total Adjustments 9,768 4,541
------------- -------------
Net cash used in operating
activities (4,509) (6,097)
</TABLE>
6
<PAGE>
INTEK GLOBAL CORPORATION
RADIOCOMS INCLUDED FROM OCTOBER 1, 1996
INTEK, ROAMER ONE, AND MIDLAND USA INCLUDED FROM DECEMBER 3, 1996
CONSOLIDATED STATEMENTS CASH FLOWS (Unaudited) (Continued)
(Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash Flows From Investing Activities:
Proceeds from sale of investments 7,458 -
Expenditures for property, plant & equipment, net (3,453) (2,333)
Expenditures for FCC licenses (5,707) (168)
Expenditures for other long term assets (222) (68)
Notes receivable 116 -
Proceeds from sale of long term assets - 2,200
------------- -------------
Net cash provided by (used in) investing activities (1,808) (369)
------------- -------------
Cash Flows From Financing Activities:
Net change in bank overdraft 893 (1,046)
Capital lease payments (277) -
Repurchase of shares (1,329) -
Proceeds from short term debt 2,915 -
Proceeds from long term debt-related party 2,000 4,781
Proceeds from long term debt-other 1,656 4,000
Repayment on long and short term debt - (1,346)
------------- -------------
Net cash provided by financing activities 5,858 6,389
------------- -------------
Effect of foreign exchange rates on cash 18 (434)
------------- -------------
Net decrease in cash and cash equivalents (441) (511)
Cash and cash equivalents at beginning of period 1,909 417
Cash acquired in reverse acquisition - 1,572
------------- -------------
Cash and cash equivalents at end of period $ 1,468 $ 1,478
------------- -------------
------------- -------------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 60 $ 126
Cash paid for income taxes $ - $ -
</TABLE>
The accompanying notes are an integral part of these consolidated statements
7
<PAGE>
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) PRESENTATION
The unaudited condensed consolidated financial statements included
herein have been prepared by Intek Global Corporation (the "Company" or
"Intek"), pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. These unaudited condensed consolidated financial
statements should be read in conjunction with the financial statements and
the notes thereto included in the Company's latest annual report on Form 10-K
for the period ended September 30, 1997.
These financial statements have been prepared in accordance with
Generally Accepted Accounting Principles ("GAAP") used in the United States
("U.S."). Such accounting principles differ in certain respects from GAAP
used in the United Kingdom ("U.K."), which is applied by the Company's
Securicor Radiocoms Limited ("Radiocoms") subsidiary for local and statutory
financial reporting purposes.
The information furnished herein reflects all adjustments which are, in
the opinion of management, necessary for 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) NEW ACCOUNTING POLICIES ADOPTED
During the current fiscal year, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") number 128, "Earnings
Per Share", SFAS number 129 "Disclosure Of Information About Capital
Structure," and SFAS number 130 "Reporting Comprehensive Income."
(3) RECLASSIFICATIONS
Certain reclassifications have been made in the 1997 financial
statements to conform to the 1998 presentation.
(4) FINANCIAL INSTRUMENTS
The Company may periodically hedge 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, 1998, the Company had outstanding hedge contracts of Japanese
Yen 260,000,000 to cover its firm foreign purchase commitments of Japanese
Yen 294,077,000, leaving an exposed position of Japanese Yen 34,077,000
equating to $256,000. Additionally, at March 31, 1998, the Company's hedge
contracts totaled $2,081,000 at the contracted rate and had a fair value of
$1,952,000. Gains and losses on foreign currency firm commitment hedges are
deferred and included in the basis of the transactions underlying the
commitments.
(5) MARKETABLE SECURITIES
During fiscal 1997, the Company received stock of Transcrypt
International in exchange for its investment in E.F. Johnson Company ("EFJ").
At September 30, 1997, this investment was classified as available for sale
and was recorded at its fair value at that date. During the first half of
fiscal 1998, the Company disposed of its investment in
8
<PAGE>
Transcrypt International, receiving net cash proceeds of approximately
$7,400,000. The difference between the proceeds and the carrying value of
$10,000,000 was reimbursed during the first half of fiscal 1998 by Securicor
Communications Limited ("Securicor").
(6) SUMMARY OF NON-CASH ACTIVITIES
The following summarizes the supplemental disclosure of non-cash
operating, investing and financing activities:
On December 4, 1997, the board of directors of the Company announced
that it had authorized management to expend up to $1,000,000 to acquire up to
one percent of the Company's approximately 42 million outstanding shares of
common stock of Intek, $0.01 par value ("Common Stock"). As of March 31,
1998, the Company had repurchased 184,500 shares in the open market at a cost
of $359,000. In March, 1998, Intek repurchased 352,500 shares at $2.75 per
share from Simmonds Capital Limited ("SCL") in a private transaction. Payment
for the shares was made through a combination of cash and notes. The
repurchase from SCL, part of a board-authorized expansion and completion of
the program, brings total shares repurchased to 537,000, at an average price
of $2.47 per share.
During the first half of fiscal 1998, the Company issued an aggregate of
506,916 shares of Common Stock for the acquisition of Federal Communications
Commission ("FCC") licenses as follows:
- The Company consummated two agreements with American Digital
Corporation and 22 holders of licenses of 220MHz FCC licenses. This
transaction is described fully in note 17, "Acquisition of New
Systems." During the first half of fiscal 1998, the Company issued
an aggregate of 465,484 shares of Common Stock for the acquisition
of those licenses, valued at $807,000 for financial reporting
purposes.
- The Company entered into purchase and sale agreements with 25
holders of 220MHz FCC licenses managed by the Company on behalf of
Pagers Plus Cellular, a California Corporation. This transaction is
described in note 17, "Acquisition of New Systems." During the
first half of fiscal 1998, the Company issued 41,432 shares of
stock as final payment for the acquisition of those licenses. The
value of $75,000 for financial reporting purposes was accrued as of
September 30, 1997.
(7) INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
(Unaudited)
------------- -------------
<S> <C> <C>
Raw materials $ 8,826 $ 4,020
Work in progress 2,206 1,311
Finished goods 7,977 13,938
------------- -------------
Subtotal 19,009 19,269
Inventory not likely to be used
or sold within one year (5,766) (6,980)
------------- -------------
Total current inventories $ 13,243 $ 12,289
------------- -------------
------------- -------------
</TABLE>
9
<PAGE>
(8) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
(Unaudited)
------------- -------------
<S> <C> <C>
Land $ 416 $ 402
Buildings 3,145 3,008
Site equipment 14,932 13,206
Production & test equipment 3,959 3,843
Furniture, fixtures and computers 3,509 2,755
Equipment held for rental 5,466 4,163
------------- -------------
Total property and equipment, at cost 31,427 27,377
Less accumulated depreciation (7,339) (5,822)
------------- -------------
Net property and equipment $ 24,088 $ 21,555
------------- -------------
------------- -------------
</TABLE>
(9) INTANGIBLE ASSETS
Intangible assets consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
(Unaudited)
------------- -------------
<S> <C> <C>
Excess of cost over fair value of net
Midland USA, Inc. assets acquired $ 9,755 $ 9,755
Excess of cost over fair value of net
Intek assets acquired in the reverse acquisition $ 38,573 $ 38,573
FCC licenses and management agreements acquired
from third parties $ 9,320 $ 2,899
------------- -------------
Total intangibles 57,648 51,227
Less accumulated amortization (4,541) (2,887)
------------- -------------
Net intangibles $ 53,107 $ 48,340
------------- -------------
------------- -------------
</TABLE>
The excess of cost over fair value of net Intek assets acquired in the
reverse acquisition represents the intangible value of FCC licenses and
management agreements owned by Intek.
(10) BUSINESS SEGMENTS
On December 3, 1996, the Company consummated the acquisition of all the
issued and outstanding common stock of Radiocoms ("Radiocoms Acquisition"), a
wholly-owned subsidiary of Securicor. Prior to the Radiocoms Acquisition, the
operations of Radiocoms were reported as a single segment. However, since the
Radiocoms Acquisition, the Company has four reportable segments:
communications services, equipment distribution, technology, and
manufacturing. The communications services segment provides high quality
wireless voice and data
10
<PAGE>
communications services in the U.S. and the U.K. The equipment distribution
segment sells radio base stations, mobile radios, spare parts and accessories
manufactured by the Company and by third parties. The technology segment
conducts research and development for products and applications incorporating
linear modulation. The manufacturing segment produces proprietary products
incorporating linear modulation, and produces products and subassemblies on a
contract basis for third parties.
SUMMARIZED FINANCIAL INFORMATION BY BUSINESS SEGMENT (IN THOUSANDS):
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS:
Communications services $ 471 $ 401
Equipment distribution 11,759 10,895
Technology 10 -
Manufacturing 5,043 5,949
-------------- -------------
17,283 17,245
REVENUES FROM OTHER SEGMENTS:
Equipment distribution 1,117 -
Manufacturing 499 11,297
-------------- -------------
1,616 11,297
-------------- -------------
TOTAL REVENUES 18,899 28,542
-------------- -------------
INTER-SEGMENT ELIMINATIONS (1,616) (11,297)
-------------- -------------
CONSOLIDATED REVENUES $ 17,283 $ 17,245
-------------- -------------
-------------- -------------
<CAPTION>
Six Months Ended
March 31,
-------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
NET LOSS:
Communications services $ (7,558) $ (1,193)
Equipment distribution (1,182) (1,794)
Technology (2,172) (2,535)
Manufacturing (1,457) (1,927)
Other (1,980) (185)
-------------- -------------
TOTAL NET LOSS (14,349) (7,634)
-------------- -------------
INTER-SEGMENT ELIMINATIONS 72 (3,004)
-------------- -------------
CONSOLIDATED NET LOSS $ (14,277) $ (10,638)
-------------- -------------
-------------- -------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
DEPRECIATION AND AMORTIZATION:
Communications services $ 2,031 $ 71
Equipment distribution 453 1,422
Technology 154 50
Manufacturing 276 336
Other 34 -
-------------- -------------
TOTAL DEPRECIATION AND AMORTIZATION 2,948 1,879
-------------- -------------
INTER-SEGMENT ELIMINATIONS - -
-------------- -------------
CONSOLIDATED DEPRECIATION AND
AMORTIZATION $ 2,948 $ 1,879
-------------- -------------
-------------- -------------
<CAPTION>
Six Months Ended
March 31,
-------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
INTEREST EXPENSE:
Communications services $ (880) $ 9
Equipment distribution (463) (225)
Technology - -
Manufacturing (205) (473)
Other 144 (1,061)
-------------- -------------
TOTAL INTEREST EXPENSE (1,404) (1,750)
-------------- -------------
INTER-SEGMENT ELIMINATIONS - -
-------------- -------------
CONSOLIDATED INTEREST EXPENSE $ (1,404) $ (1,750)
-------------- -------------
-------------- -------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
INCOME TAX BENEFIT:
Communications services $ - $ -
Equipment distribution - -
Technology - -
Manufacturing - -
Other - 630
-------------- -------------
TOTAL INCOME TAX BENEFIT - 630
-------------- -------------
INTER-SEGMENT ELIMINATIONS - -
-------------- -------------
CONSOLIDATED INCOME TAX BENEFIT $ - $ 630
-------------- -------------
-------------- -------------
<CAPTION>
Six Months Ended
March 31,
-------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
EXPENDITURES TO ACQUIRE LONG-LIVED ASSETS:
Communications services $ 9,118 $ 38,825
Equipment distribution 1,333 (54)
Technology 172 685
Manufacturing 246 115
Other 5 -
-------------- -------------
TOTAL EXPENDITURES TO ACQUIRE
LONG-LIVED ASSETS 10,874 39,571
-------------- -------------
INTER-SEGMENT ELIMINATIONS - (272)
-------------- -------------
CONSOLIDATED EXPENDITURES TO ACQUIRE
LONG-LIVED ASSETS $ 10,874 $ 39,299
-------------- -------------
-------------- -------------
</TABLE>
13
<PAGE>
SEGMENT INFORMATION BY GEOGRAPHIC AREA:
Revenues are attributed to geographic area by destination of the goods
or services (e.g. U.K. revenues will comprise only those sales to U.K.
customers. Radiocoms sales to external U.S. customers will be U.S. sales).
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS:
United States $ 6,792 $ 6,549
United Kingdom 10,491 10,696
-------------- -------------
CONSOLIDATED REVENUES 17,283 17,245
-------------- -------------
REVENUES BETWEEN GEOGRAPHIC AREAS:
United States 1,616 11,297
-------------- -------------
ELIMINATIONS (1,616) (11,297)
-------------- -------------
$ 0 $ 0
-------------- -------------
-------------- -------------
<CAPTION>
March 31, September 30,
1998 1997
-------------- -------------
<S> <C> <C>
ASSETS:
Communications services $ 61,711 $ 54,247
Equipment distribution 33,181 32,641
Technology 1,645 1,218
Manufacturing 12,099 16,574
Other 3,375 10,930
-------------- -------------
TOTAL ASSETS 112,011 115,610
-------------- -------------
INTER-SEGMENT ELIMINATIONS (2,972) (3,045)
-------------- -------------
CONSOLIDATED ASSETS $ 109,039 $ 112,565
-------------- -------------
-------------- -------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
-------------- -------------
<S> <C> <C>
LONG-LIVED ASSETS:
Communications services $ 60,414 $ 53,114
Equipment distribution 18,581 20,515
Technology 1,283 1,218
Manufacturing 4,531 4,465
Other 1,574 1,519
-------------- -------------
TOTAL LONG-LIVED ASSETS 86,383 80,831
-------------- -------------
INTER-SEGMENT ELIMINATIONS (2,210) (2,695)
-------------- -------------
CONSOLIDATED LONG-LIVED ASSETS $ 84,173 $ 78,136
-------------- -------------
-------------- -------------
</TABLE>
The Company has applied the principles of SFAS 131 "Disclosures about
Segments of an Enterprise and Related Information" in the above presentation
of Segment and Geographic Information.
(11) RELATED PARTY TRANSACTIONS
Related parties of Intek include Securicor and its ultimate parent
company, the directors and officers of Intek and companies that are
affiliated with directors of the Company. John Simmonds, a director of the
Company is affiliated with SCL, Simmonds Mercantile and Management Inc.
("SMM") which is a company that is controlled by SCL and Midland
International Corporation ("MIC"), a wholly-owned subsidiary of SCL. Steven
Wasserman, a director and Secretary of the Company, is a partner of the law
firm Kohrman Jackson & Krantz. Robert Kelly, a director of the Company, is a
partner of the law firm Squire, Sanders & Dempsey L.L.P., which acquired the
practice of Kelly & Povich, P.C.
Directors are compensated for services at the rate of $4,000 per year
plus $500 per meeting up to a maximum of $10,000 per director. For the six
months ended March 31, 1998, the Company paid directors fees of $60,000.
On September 19, 1996, the Company's Midland USA, Inc. ("MUSA")
subsidiary entered into an agreement with MIC, whereby MIC agreed to permit
MUSA to make use of the services of the supplier liaison office maintained by
MIC in Japan and MIC's purchasing representative in Korea. During the six
months ended March 31, 1998, MUSA paid $56,000 to MIC. This agreement was
terminated by MUSA effective January 31, 1998.
Pursuant to a Support Services Agreement dated December 3, 1996, by and
between the Company and Securicor, the Company agreed, in connection with the
Radiocoms Acquisition, to obtain certain support and administrative services
for Radiocoms from Securicor and/or its affiliates for the purpose of
enabling the Company to manage an orderly transition in its ownership of
Radiocoms during fiscal 1997. As of March 31, 1998, $691,000 of support and
administrative service costs (including services of Edmund Hough, Intek's
former Chief Executive Officer) were included in amounts due to related
parties, but unpaid.
The law firm Kohrman Jackson & Krantz performs legal services for the
Company and its subsidiaries for which it received fees of $72,000 during the
first half of fiscal 1998. In addition, Mr. Wasserman receives $2,000 per
month as compensation for his services as the Secretary of the Company.
The law firm Kelly & Povich, P.C. performed legal services for the Company
and its subsidiaries as of December 1996. Mr. Kelly is a member of the Company's
Board of Directors. During the first half of fiscal 1998, Kelly & Povich, P.C.
received fees of approximately $91,000.
15
<PAGE>
In March 1998, Intek repurchased 352,500 shares at $2.75 per share from
SCL in a private transaction. Pursuant to the terms of the transaction, Intek
paid SCL cash in the amount of $528,750 and notes in the aggregate amount of
$440,625. The notes are non-interest bearing and are due and payable on
December 15, 1998.
The Company believes that the terms of the transactions and the
agreements described above are on terms at least as favorable as those which
it could otherwise have obtained from unrelated parties. On-going and future
transactions with related parties will be (1) on terms at least as favorable
as those which the Company would be able to obtain from unrelated parties;
(2) for bona fide business purposes; and (3) approved by a majority of the
disinterested and non-employee directors.
For details of related party borrowings, see note 15 "Related Party
Borrowings."
(12) COMMITMENTS
The Company has entered into 240 site leases for the housing of radio
base station equipment and antenna systems related to the Roamer One Network.
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,
the Company has lease commitments for office space, vehicles and office
equipment. As of March 31, 1998, total future minimum lease payments are as
follows (in thousands):
<TABLE>
<S> <C>
1998 $ 1,056
1999 1,926
2000 1,016
2001 285
2002 77
Thereafter 29
--------
$ 4,389
--------
--------
</TABLE>
As of March 31, 1998, MUSA had a purchase commitment with its main
supplier of radios to purchase $2,880,000 of inventory, see note 4.
"Financial Instruments."
(13) EMPLOYMENT AGREEMENTS
The Company has employment agreements with various key employees. None
of these agreements have terms exceeding two years and these agreements have
varying expiration dates and provide for aggregate annual base compensation
of approximately $1,500,000.
(14) THIRD PARTY BORROWINGS
In December 1997, MUSA entered into a revolving credit agreement
("Credit Agreement") with a non-bank lender. The Credit Agreement makes
available $5,000,000 through December 1999. Borrowings under the Credit
Agreement are secured by the assets of MUSA and bear interest at 1 1/2% above
the lender's base rate (as defined). The Credit Agreement contains, among
other covenants, a covenant relating to leverage, limitations on MUSA's
ability to repay intercompany indebtedness and repayment provisions related
to change in control of MUSA. The Company intends to use the Credit Facility
for issuance of letter of credit commitments on behalf of MUSA, and for
borrowings for working capital. As of March 31, 1998, there was indebtedness
of $1,265,000 under this line of credit.
16
<PAGE>
(15) RELATED PARTY BORROWINGS
In December 1997, the Company entered into various agreements with
Securicor as follows:
a) A loan agreement ("December 1997 Facility"), which replaced the
prior agreements, provides the Company the ability to borrow up to
$29,500,000. The December 1997 Facility bears interest at 11 1/2%
per annum payable at June 30, 2003. Interest is accrued each month
and on June 30 of each year added to the principal amount
outstanding at such time. Principal payments will be $500,000 per
month for 12 months beginning July 1, 2001, $1,000,000 per month
for 11 months beginning July 1, 2002 with the remaining balance due
and payable on June 30, 2003. The obligations under the December
1997 Facility may be prepaid by the Company at any time in
$1,650,000 increments without penalty. The December 1997 Facility
must be repaid upon Securicor ceasing to be the beneficial owner of
more than 50% of the Common Stock as a result of any transaction
except the direct or indirect transfer of the Common Stock by
Securicor and also is subject to mandatory prepayments at the rate
of 50% of the net proceeds of any financing by the Company
exceeding $8,000,000. Subject to the release of Securicor from
certain letter of credit commitments, at March 31, 1998, the
Company had approximately $13,485,000 in availability for future
borrowings under the December 1997 Facility.
b) Effective March 1, 1998, Securicor purchased, pursuant to a
Preferred Stock Purchase Agreement dated December 29, 1997, 12,408
shares of Series A Convertible Preferred Stock (the "Series A
Preferred Stock") for $12,408,000. Proceeds from the sale of the
Series A Preferred Stock were applied against the principal balance
of the December 1997 Facility. The liquidation value of the Series
A Preferred Stock is $1,000 per share and par value is $.001 per
share. Dividends accrue at the rate of eleven and one-half (11 1/2%)
percent of the original issue price of $1,000 per share and are
cumulative. Dividend payments are due upon the conversion or
redemption of the Series A Preferred Stock. The holder of the
Series A Preferred Stock has the right to convert the Series A
Preferred Stock into shares of Common Stock if the market price of
Common Stock exceeds $6.00 for 20 consecutive trading days. Intek
may cause the Series A Preferred Stock to be converted if the
market price is or exceeds $9.00 for 20 consecutive trading days.
The holder of the Series A Preferred Stock has the right to convert
the Series A Preferred Stock into shares of Common Stock if Intek
does not redeem the Series A Preferred Stock by June 30, 2003. The
Series A Preferred Stock is subject to adjustments for stock
dividends, stock splits or share combinations of Common Stock or
distribution of a material portion of Intek's assets to the holders
of Common Stock. The Series A Preferred Stock does not have voting
power except as provided by Delaware corporate law.
As a result of the above agreements, the March 31, 1998 related party
borrowings will be repaid as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
--------------
<S> <C>
1998 $ -
1999 -
2000 -
2001 1,500
2002 7,500
Thereafter 7,015
------------
$ 16,015
------------
------------
</TABLE>
17
<PAGE>
(16) PREFERRED STOCK OF SUBSIDIARY
In December 1996, the Company consummated the Radiocoms Acquisition.
Prior to the consummation of this transaction, Securicor forgave
approximately $12,000,000 due it by Radiocoms and accepted 20,000 shares of
$1,000 par value per share of preferred stock from Radiocoms ("Radiocoms
Preferred Stock") for the remaining balance due. The preferred stock is
mandatorily redeemable on June 30, 2006 and bears a dividend rate of 6%.
(17) ACQUISITION OF NEW SYSTEMS
KRYSTAL SYSTEMS
On November 11, 1996, the Company entered into an agreement to acquire
from Krystal Systems, Inc. up to 25 constructed, but unloaded, 220MHz systems
and related FCC licenses ("Krystal Systems"). Through March 31, 1998, the
Company has paid $4,095,000 of the purchase price for 23 of the Krystal
Systems. The remaining balance of $45,000 was accrued at March 31, 1998 and
is due and payable upon receipt, and uncontested grant by the FCC, of the
licenses to Roamer One. Applications for such transfers have been filed with
the FCC and 22 assignments have been granted as of March 31, 1998.
Applications can typically take between 30-120 days for processing by the
FCC, however, no assurance can be made that the FCC will grant the remaining
pending applications.
AMERICAN DIGITAL CORPORATION
During 1997, the Company consummated two agreements with American
Digital Corporation ("ADC") and 22 holders of 220MHz FCC licenses. The
agreements provided for the Company to acquire the licenses from the
licensees and the equipment from ADC for total consideration equal to
$1,925,000. The purchase price paid by the Company was as follows: (a) return
of shares of ADC stock owned by the Company (valued for purposes of the
transaction at $84,000); (b) issuance of approximately 682,735 shares of
Common Stock (valued for purposes of the transaction at $1,250,000); (c)
transfer of all rights held by the Company to acquire 2,666,666 shares of
Ventel, Inc. ("Ventel"), a publicly traded company in Canada (valued for
purposes of the transaction at $301,000); (d) forgiveness of approximately
$95,000 of debt owed by ADC to Radiocoms; and (e) a cash payment of $119,000.
Closing of such transactions (and payment of the purchase price) was to occur
upon receipt of, and uncontested grant by the FCC of, the licenses to Roamer
One. During the first half of fiscal 1998, the Company issued an aggregate of
465,484 shares of Common Stock for the acquisition of those licenses, valued
at $807,000 for financial reporting purposes.
PAGERS PLUS
During the period July 12, 1997 through August 12, 1997, the Company
entered into purchase and sale agreements with 25 licensees of 220MHz FCC
licenses managed by the Company on behalf of Pagers Plus Cellular, a
California Corporation ("PPC"). The agreements provide that the Company will
acquire (subject to the satisfaction of certain conditions) 25 licenses for a
purchase price, in the aggregate, equal to 465,482 shares of Common Stock
(valued for purposes of the transaction at $938,000) plus cash payments
totaling $759,000. Closing of such transactions (and payment of the purchase
price) occurred upon receipt of the uncontested grant by the FCC of the
licenses to Roamer One. Such grants by the FCC occurred in late December
1997. During the first half of fiscal 1998, the Company issued 41,432 shares
of Common Stock as final payment for the acquisition of those licenses. The
value of $75,000 for financial reporting purposes was accrued as of September
30, 1997.
WIRELESS PLUS
During the first half of fiscal 1998, Intek, through its subsidiary
Roamer One, Inc. ("Roamer One") completed the acquisition of substantially
all the assets of Wireless Plus, Inc., a Hayward, California-based
Specialized Mobile Radio provider. The acquired assets include approximately
2,900 subscriber accounts, 19 five channel, FCC licenses for operation of 220
MHz frequencies, and 11 five-channel and eight single-channel management
agreements with third party licensees within the 220 MHz spectrum for total
consideration equal to $5,250,000. In addition, two licenses managed by
Wireless Plus were purchased directly from the licensees for a aggregate of
$106,406. The purchase price paid by the Company to Wireless Plus was as
follows: (a) $100,000 paid
18
<PAGE>
as a deposit in November, 1997, (b) $500,000 in cash on the closing date, (c)
$106,579 in cash for each license transfer granted by the FCC to be paid at
the time such transfer is completed, (d) a secured subordinated note in the
amount of $2,625,000 bearing interest at the rate of 8% per annum paid
annually. The note principal is payable in two equal annual installments due
in February 1999 and February 2000.
(18) LEGAL PROCEEDINGS
The Company, Mr. David Neibert, the Company's executive vice president
and Mr. Nicholas R. Wilson, a former Chairman of the Company ("Intek
Defendants") were named with forty other defendants in a complaint (Scott, et
al. Steingold, et al.) filed in U.S. District Court for the Northern District
of Illinois on November 12th, 1997. The lawsuit purports to allege claims
under the Racketeer Influenced Corrupt Organizations Act ("RICO"), the
Securities Exchange Act of 1934 and various common law state claims in
connection with the sale and marketing of interests in certain partnerships
formed to operate specialized mobile radio ("SMR") systems. Plaintiffs seek
rescissory damages with interest and punitive damages allegedly relating to
their purchases of SMR partnership interests. No specific amount of alleged
damages is mentioned in the complaint.
The plaintiffs also had filed, and have now withdrawn against the Intek
Defendants, a motion for a temporary restraining order and preliminary
injunction seeking to freeze the assets of all defendants. The Intek
Defendants filed a motion to dismiss the complaint on various grounds. In
response plaintiffs sought leave to file an amended complaint, which request
was granted by the court. Intek requested plaintiffs to withdraw all claims
against the Intek defendants on the grounds that they are frivolous. On
February 3, 1998, plaintiffs filed an amended complaint which purports to
allege claims under RICO, the Securities Act of 1933, the Securities Exchange
Act of 1934 and various common law state claims in connection with (i) the
sale and marketing of interests in certain SMR partnerships and (ii)
purported improper dissipation of assets of certain of the SMR partnerships.
Plaintiffs seek rescissory damages with interest and punitive damages
relating to such asserted claims. No specific amount of alleged damages is
mentioned in the amended complaint on the ground that it fails to state a
claim. The Intek Defendants have moved to dismiss the amended complaint. In
the opinion of the management of the Company, this lawsuit will not have a
material adverse affect on the Company.
On January 30, 1998, a related lawsuit was commenced in Illinois State
Court by Consulting 220, Inc., on behalf of the Los Angeles II SMR
Partnership (the "Partnership"), against Charlotte Scott (one of the
plaintiffs in the SCOTT ET AL. v. STEINGOLD ET AL. action), her attorneys
Gardiner, Koch & Hines and the Managing Partners of the Partnership alleging
that Scott and the Managing Partners breached fiduciary duties to the
Partnership and its partners by permitting Partnership money designated and
reserved for Partnership operations to be used for prosecution of the SCOTT
v. STEINGOLD action. Plaintiff seeks a constructive trust of the Partnership
monies allegedly provided to Scott's attorneys.
(19) SUBSEQUENT EVENTS
The Company announced on April 2, 1998 that it has signed a letter of
intent to acquire privately held Mobile Data Solutions Inc., operator of Data
Express, a major developer and provider of wireless data solutions for the
mobile marketplace. Data Express's main product is a satellite Global
Positioning System ("GPS") - based automatic vehicle location ("AVL") system
for mobile fleet operators. The system effectively provides real-time
information on the location of all fleet vehicles as well as a full tracking
history of any given vehicle's previous movements. The Company is negotiating
a definitive stock purchase agreement with the shareholders of Moble Data
Solutions, Inc. and anticipates closing the transaction in the third quarter.
The Company announced on April 22, 1998 that its Linear Modulation
Technology ("LMT") subsidiary and Nokia Telecommunications OYJ ("Nokia"), a
subsidiary of Nokia Corporation, have signed a 5-year technology, development
and supply agreement, which incorporates key components of Intek's
proprietary linear modulation ("LM") technology into Nokia's Trans European
Trunked Radio ("TETRA") product lines. The TETRA standard is the one and only
European standard for digital Professional Mobile Radio.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion sets forth certain factors which produced
changes in the Company's results of operations during the six months ended
March 31, 1998 (first half of fiscal 1998) as compared with the same period
in 1997 (first half of fiscal 1997) as indicated in the Company's
consolidated financial statements. The following should be read in
conjunction with the Financial Statements and related notes contained in Item
1 to this report and in conjunction with the financial statements and notes
thereto included in the Company's latest annual report on Form 10-K for the
year ended September 30, 1997 (the "Annual Report"). 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. The Annual Report contains a detailed description of
such 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.
OVERVIEW
The Company's mission is to create and supply spectrum efficient
wireless technologies, products and services worldwide and to establish the
Company as a dominant force in the communications business.
The Company provides two-way 220 MHz specialized mobile radio ("SMR")
services to its subscribers under the Roamer One-TM- brand name on systems
utilizing the Company's patented and proprietary linear modulation ("LM")
technology ("LM Technology"). The Company's SMR sites cover 130 markets and a
U.S. Population base of 175 million people and are referred to herein as the
Roamer One Network. The Company has devoted, and expects to continue to
devote, substantial financial and management resources to the development of
the Roamer One Network. Additionally, the Company also is developing new
products utilizing LM Technology for other frequency bands with a focus on
the world-wide need for spectrum efficiency. The Company, through its various
subsidiaries, designs, develops, manufactures and distributes land mobile
radio ("LMR") products including those utilizing LM Technology.
The Company presently has in inventory a substantial number of completed
220 MHz base stations and 220 MHz radios, as well as components for the
manufacture of additional base stations and radios. This inventory is
intended for sale to third parties and for utilization on the Roamer One
Network. Other than for holders of several national licenses and
non-nationwide systems within the American/Canadian border area as defined by
the FCC, the mandatory construction dates for Phase I licenses have expired
and the Company's marketing efforts for 220 MHz equipment in the U.S. are
limited to the aforementioned license holders of unconstructed systems,
currently licensed system operators who desire to upgrade their systems to
LM, and the public safety market which it is expected will shortly become
able, under FCC regulations, to construct 220 MHz systems. The Company
redirected its marketing campaign of the Roamer One Network from a national
campaign to a focused specific geographic campaign. The Company plans to
focus its direct sales effort in the top tier markets while developing
marketing relationships with dealers and others in the middle and lower
markets. The construction and expansion of the Roamer One Network, as well as
equipment sales to third parties has been, and may continue to be, impacted
by factors such as the Phase II licensing auction by the FCC of additional
220 MHz licenses. The FCC recently announced that the commencement date for
the Phase II licensing auction has been delayed pending the FCC's
reconsideration decision concerning the 220 MHz band Phase 2 service rules.
The Company expects the auction will not commence prior to August 1, 1998.
This delay in the auction will significantly hinder the Company's ability to
reduce these inventory levels, especially through third party sales in the
near term.
The Company expects to incur substantial operating losses and have a
negative cash flow from operations for approximately the next 2 years. This
mainly results from operating, sales, marketing and general and
administrative expenses related to the roll-out of the Roamer One Network as
well as the Company's continuing investment in research and development
related to LM Technology and products.
20
<PAGE>
RESULTS OF OPERATIONS
Results of operations for the six months ended March 31, 1997 (YTD
Fiscal 1997) include Radiocoms for the entire period but Roamer One, MUSA and
corporate are only included from December 3, 1996.
The following table sets forth, by the Company's various lines of
business for the first half of fiscal 1998 compared to the first half of
fiscal 1997, the percentage of total revenue represented by certain
Consolidated Statements of Operations data.
<TABLE>
<CAPTION>
YTD YTD
Fiscal Fiscal
1998 1997
------ ------
<S> <C> <C>
Revenues:
Communications Services 3% 2%
Equipment Distribution 68% 63%
Technology - -
Manufacturing 29% 35%
------ ------
Consolidated 100% 100%
------ ------
Cost of Goods and Services Provided:
Communications Services 500% 227%
Equipment Distribution 75% 71%
Technology - -
Manufacturing 91% 261%
------ ------
Consolidated 81% 92%
------ ------
Other Operating Expenses:
Communications Services 585% 155%
Equipment Distribution 37% 31%
Technology - -
Manufacturing 39% 48%
Corporate - -
------ ------
Consolidated 76% 57%
------ ------
Operating loss, before depreciation and
amortization:
Communications Services (985%) (182%)
Equipment Distribution (2%) (4%)
Technology - -
Manufacturing (20%) (39%)
Corporate - -
------ ------
Consolidated (58%) (49%)
Depreciation and Amortization (17%) (10%)
------ ------
Operating Loss (75%) (59%)
------ ------
</TABLE>
21
<PAGE>
SIX MONTH PERIOD ENDED MARCH 31, 1998 COMPARED TO SIX MONTH PERIOD ENDED
MARCH 31, 1997
Because Securicor acquired more than a 50 percent controlling interest
in Intek through the Radiocoms Acquisition, the Radiocoms Acquisition was
treated as a reverse acquisition for accounting purposes, with Radiocoms
considered the acquiring company, although Intek is the surviving company
under corporate law. Accordingly, the consolidated financial statements for
the six months ended March 31, 1997 include the statements of Intek and its
wholly-owned subsidiaries, Roamer One and MUSA from December 3, 1996 through
March 31, 1997 and include the accounts of Radiocoms from October 1, 1996
through March 31, 1997. The consolidated statements for the six months ended
March 31, 1998 include the accounts of Intek and all of its subsidiaries for
the entire six months.
REVENUES
COMMUNICATIONS SERVICES
The Company redirected its direct marketing campaign for the Roamer One
Network late in fiscal 1997 from a national campaign to a focused specific
geographic campaign beginning with targeted businesses in six wide-area
geographic markets. At March 31, 1998, Roamer One had approximately 4,600
internally generated subscribers as well as approximately 2,900 subscribers
from the Wireless Plus acquisition for a total of approximately 7,500
compared to approximately 1,000 at September 30, 1997. Subscriber revenues
for the six months ended March 31, 1998 were $180,000.
Subscribers to Relayfone, a public access mobile radio system operating
from 10 sites in the U.K., numbered approximately 1,700 at March 31, 1998
compared to approximately 1,900 at March 31, 1997. The decrease was mainly
due to the loss of a large Securicor affiliate account. The decrease in the
number of subscribers resulted in a decline in revenues from $395,000 for the
first half of fiscal 1997 to $291,000 for the comparable period of fiscal
1998.
EQUIPMENT DISTRIBUTION
Sales by the Company's U.S. equipment distribution business for the
first six months of fiscal 1998 were $7,102,000 of which $5,985,000 was to
external customers and $1,117,000 was to related parties. Third party sales
for the first half of fiscal 1998 were within 1% of the same period of fiscal
1997. Sales in fiscal 1997 were favorably impacted by improved deliveries of
products to fill accumulated backorders, whereas sales in first half of
fiscal 1998 returned to more normal levels. MUSA sales in the first quarter
of fiscal 1998 were negatively impacted by late deliveries of a new line of
radios from a major supplier. The supplier began to ship to MUSA on a timely
basis in late December 1997. Sales began to increase during the second
quarter of fiscal 1998 due to an improved supply of product and an aggressive
marketing campaign.
For first half of fiscal 1998, Radiocoms had revenues from equipment
distribution and related services of $5,645,000 a 30% increase from that
reported for the comparable period of fiscal 1997. The increase is due to a
more focused management of the sales team, together with the addition of new
Motorola hand-portable radios to the product line. Orders were obtained from
a range of industries including local governmental authorities, large retail
complexes, oil and gas.
Equipment sales by Roamer One during the first half of fiscal 1998 were
$129,000, compared to $542,000 for the comparable period of fiscal 1997. A
significant portion of sales for fiscal 1998 have been mobile radios while
most sales in fiscal 1997 were repeater site equipment. The buildout of Phase
I 220MHz licenses is essentially complete. Sales of 220 MHz repeater site
equipment will be minimal until after the Phase II Licensing auction by the
FCC, which has been delayed pending the FCC's release of the reconsideration
decision concerning the 220 MHz band Phase 2 service rules. The Company
expects the auction will not commence prior to August 1, 1998. While
marketing will commence after the Phase II auction, there is no assurance
that sales will be made to licensees.
TECHNOLOGY
South Korea's Kukjae Electronics, Ltd. Co. ("Kukjae"), one of
22
<PAGE>
Korea's leading manufacturers of mobile radio equipment, has agreed to adopt
the Company's patented LM Technology. The agreement will allow Kukjae to
manufacture and sell LM-compatible radio products and operate narrowband
radio networks based on LM Technology. Product distribution will include
Korea and potentially other Asian markets. Among other things, the agreement
calls for the Company to provide Kukjae with the equipment and technical
assistance needed to develop a demonstration system to introduce LM
Technology to Korean industry, academic and government authorities. Kukjae, a
subsidiary of Unimo Corporation, is a manufacturer and distributor of radio
and telecommunications equipment and a provider of system engineering
services. With six facilities in South Korea, including headquarters in
Seoul, Kukjae has offices in Tokyo, Los Angeles and Shenzhen, China. Its
major products include portable and mobile radios, trunked radios, radio
repeaters, closed-circuit TV and related systems, as well as secured
communications equipment for naval and military applications.
The Company's Linear Modulation Technology ("LMT") subsidiary and Nokia
Telecommunications OYJ ("Nokia"), a subsidiary of Nokia Corporation, have
signed a 5-year technology, development and supply agreement, which
incorporates key components of Intek's proprietary linear modulation ("LM")
technology into Nokia's Trans European Trunked Radio ("TETRA") product lines.
The TETRA standard is the one and only European standard for digital
Professional Mobile Radio.
MANUFACTURING
U.K. contract manufacturing revenues were $5,542,000 for the six months
ended March 31, 1998, of which $5,043,000 was attributed to external
customers and $499,000 was attributed to related parties. This was a decline
of 32% in total sales and 15% in third party sales over the comparable period
of fiscal 1997. This shortfall was primarily due to lack of sales of LM
products to related parties. During the first six months of fiscal 1997, the
Company had related party sales of $11,309,000 of LM equipment for Phase I
220 MHz license construction and had $580,000 of such sales during the first
half of fiscal 1998. The decrease is attributed to the fact that the
mandatory construction dates for Phase I licenses expired prior to fiscal
1998. As of March 31, 1998, the third party order backlog was $6,904,000 due
to normal production lead times.
COST OF GOODS AND SERVICES PROVIDED
COMMUNICATIONS SERVICES
Cost of services includes site and certain technical and customer
support expenses, net of reimbursement received from the owners of licenses
managed by the Company. Site expenses are primarily tower lease, telephone,
and insurance. Technical support includes consulting fees, travel and
equipment rental required for optimizing and supporting the network of base
stations. Customer support includes phone-based assistance to subscribers.
For the first half of fiscal 1998, Roamer One's site and technical support
expenses were $2,210,000, compared to $764,000 for the first half of the
prior year. This increase is due to the fact that Roamer One was only
consolidated for 1 month in the quarter ended December 31, 1996, and is also
due to the incremental cost of additional sites, the cost of networking sites
together and the cost of supporting subscribers.
Relayfone's cost of service for the first half of fiscal 1998 was
$146,000, which is exactly the same as for the first half of fiscal 1997.
Costs include licenses and site rentals which are fixed in nature and are not
volume related.
EQUIPMENT DISTRIBUTION
For the first half of fiscal 1998, the Company's U.S. equipment business
had a cost of sales of $4,751,000 (69% of sales) compared to 70% of sales for
the first half of fiscal 1997. Cost of sales as a percentage of sales was
favorably impacted by the growing strength of the U.S. Dollar against the
Japanese Yen, providing reductions in the cost of products purchased in Japan.
Radiocoms' cost of sales of $3,925,000 for the first half of fiscal 1998
was 70% of sales, compared to 48% for the comparable period of fiscal 1997.
The increase was due to the mix of products sold and a low margin government
contract and did not represent an overall cost increase.
23
<PAGE>
MANUFACTURING
Cost of sales consists of raw materials, labor and factory associated
overhead. The percentage of cost of sales to net sales decreased to 83% for
the first half of fiscal 1998, compared to 90% for the comparable half of
fiscal 1997. More aggressive purchasing activities have been instigated to
reduce future cost of sales.
OTHER OPERATING EXPENSES
COMMUNICATIONS SERVICES
Roamer One sales and marketing expenses are primarily salaries, travel,
preparation of promotional material and trade shows. The selling expenses for
the first half of fiscal 1998 were $1,920,000. Sales and marketing expenses
are increasing monthly due to the creation of a sales organization in
connection with the loading of the Roamer One Network. Roamer One general and
administrative expenses generally consist of salaries, consultants, office
rent, insurance, and recruiting to support the management of the Roamer One
Network. General and administrative expenses for the first half of fiscal
1998 were $836,000.
EQUIPMENT DISTRIBUTION
MUSA selling expenses are primarily sales staff salaries and bonuses,
travel, advertising promotion, and trade shows. Selling expenses for the
first half of fiscal 1998 were $1,438,000 (20% of related sales). General and
administrative expenses are salaries, facilities costs, data processing
charges and insurance. General administrative expenses for the first half of
fiscal 1998 were $1,717,000 (24% of related sales). The Company anticipates
that selling and general and administrative expenses, as a percentage of
sales, will increase in fiscal 1998 as a result of its LM product sales and
support efforts.
Selling expenses at Radiocoms were $380,000 for the first half of fiscal
1998 or 21% lower than for the comparable half of fiscal 1997 as the sales
staff headcount has declined and commission programs have been restructured.
General and administrative expenses were $831,000 for the first half of
fiscal 1998 compared to $973,000 for the first half of fiscal 1997.
MANUFACTURING
Combined selling, general and administrative expenses totaled $1,955,000
for the first half of fiscal 1998, compared to $2,844,000 for the comparable
half of fiscal 1997. The reduction was due to headcount reductions during the
second half of fiscal 1997 and associated reduction of overhead.
TECHNOLOGY
Research and development expenses of $1,152,000 for the first half of
fiscal 1998 were 33% lower than for the comparable half of fiscal 1997. This
reduction was due to an increased focus on high priority projects and a
reduction in use of sub-contract and consulting labor. General and
administrative expenses increased to $876,000 for the first half of fiscal
1998 from $775,000 for the comparable half of fiscal 1997.
CORPORATE
Corporate expenses include salaries, consulting and management fees,
legal and audit costs and the cost of maintaining a corporate office. General
and administrative expenses for the six months ended March 31, 1998 were
$2,090,000.
OPERATING LOSS, BEFORE DEPRECIATION AND AMORTIZATION
COMMUNICATIONS SERVICES
Roamer One's loss during first half of fiscal 1998 was $4,786,000. This
loss results from current subscriber count not being sufficient to offset the
cost of the Roamer One Network's infrastructure and subscriber acquisition
cost.
Relayfone achieved a profit of $145,000 during the first half of fiscal
1998. This was a decline of $104,000 compared to a profit of $249,000 during
the comparable period of fiscal 1997 as a result of the decline in average
subscriber count on a high fixed cost base.
24
<PAGE>
EQUIPMENT DISTRIBUTION
For the first half of fiscal 1998, the operating loss was $804,000 for
the Company's U.S. equipment distribution business or 13% of related sales.
This compares to an operating loss of $133,000 or 2% of sales for the
comparable half of fiscal 1997.
MANUFACTURING
For the first half of fiscal 1998, the operating loss was $1,017,000 or
20% of sales, compared to an operating loss of $1,118,000 or 19% of sales for
the comparable half of fiscal 1997.
TECHNOLOGY
For the first half of fiscal 1998, the operating loss was $2,018,000 on
sales revenue of $10,000 For the comparable period of fiscal 1997, the
operating loss was $2,485,000 and there were no license fees earned.
DEPRECIATION AND AMORTIZATION
Depreciation of fixed assets and amortization of the intangible assets
related to the Radiocoms Acquisition and Midland Transaction were $2,948,000
and $1,879,000, respectively, for the first half of fiscal years 1998 and
1997. The 57% increase in depreciation expense for fiscal 1998 from that
reported in the same period of the prior fiscal year results from the
inclusion of Roamer One and MUSA plant and equipment in the fiscal 1998
calculation, together with the amortization of the intangible assets related
to the Radiocoms Acquisition which did not begin until December 3, 1996.
OTHER INCOME (EXPENSE)
INTEREST
Interest expense for the first half of fiscal 1998 was $1,533,000 which
was offset by interest income of $129,000 for net interest expense of
$1,404,000 compared to $1,750,000 for the first half of fiscal 1997. Of the
interest expense, $94,000 related to borrowings from third parties and
$1,439,000 related to borrowings from Securicor (of which $325,000 was added
to principal and the balance is accrued).
OTHER
Other income of $37,000 is a realized exchange gain of $37,000 offset by
$6,000 of state franchise tax expense.
NET LOSS
The consolidated net loss for the first half of fiscal 1998 was
$14,349,000. For the first half of fiscal 1997, the net loss was $10,638,000.
However, fiscal 1997 included Radiocoms for the entire period but Roamer One,
MUSA and corporate were only included for one month.
PREFERRED DIVIDENDS
Pursuant to the terms of the Radiocoms Acquisition, $20,000,000 of
intercompany balances between Radiocoms and Securicor were converted into
20,000 shares of Radiocoms preferred stock with a par value of $1,000 per
share. The intercompany balance in excess of the redemption value of the
Radiocoms preferred stock was contributed to the capital account of
Radiocoms. The preferred stock must be redeemed on June 30, 2006 and bear a
dividend rate of 6%. Dividends of $1,000,000 relating to 1997 will be paid
through the issuance of additional shares of preferred stock.
LOSS APPLICABLE TO COMMON SHAREHOLDERS
After deducting unpaid dividends on preferred stock of Radiocoms held by
Securicor related to the Radiocoms Acquisition, the loss applicable to common
stockholders for first half of fiscal 1998 was $14,942,000.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Radiocoms Acquisition, the Company's primary historical
sources of cash were selling shares of Common Stock and other securities,
borrowing against the Company's assets, selling the assets relating to
25
<PAGE>
discontinued operations, and obtaining vendor financing. Subsequent to the
Radiocoms Acquisition, the Company's primary source of cash has been
borrowings from Securicor.
For the first half of fiscal 1998, the Company used $4,509,000 in cash
for operating activities, $3,453,000 was spent for capital expenditures and
$5,707,000 was spent for FCC licenses. Through its financing activities, the
Company raised approximately $2,000,000 in gross proceeds from Securicor. The
Company also borrowed $893,000 through a bank overdraft facility. The Company
incurred $2,915,000 of short term debt, of which $1,594,000 was capital
leases and bank lines of credit and $1,321,000 was related to the acquisition
of the Wireless Plus assets. $1,321,000 of the $1,656,000 increase in long
term debt also related to the acquisition of the Wireless Plus assets while
the balance was capital leases. The Company received proceeds of $7,458,000
from the sale of its investment in EFJ and repurchased $1,329,000 in treasury
stock.
The Board of Directors of the Company also adopted a share repurchase
plan whereby the officers of the Company were authorized to expend up to
$1,000,000 to acquire up to 1% of the outstanding shares of Common Stock. As
of March 31, 1998, the Company had repurchased 184,500 shares in the open
market at a cost of $359,000. In March, 1998, Intek repurchased 352,500
shares at $2.75 per share from Simmonds Capital Limited ("SCL") in a private
transaction. Intek paid SCL cash in the amount of $528,750 and non-interest
bearing notes due December 15, 1998 in the aggregate amount of $440,625. The
repurchase from SCL, part of a board-authorized expansion which completed the
program, brings total shares repurchased to 537,000, at an average price of
$2.47 per share.
The Company has invested a significant portion of its capital in the
equipment and licenses necessary to construct the Roamer One Network.
Additionally, the Company has invested significantly in inventory for the 220
MHz market either for sale to third parties or to be used to expand the
Roamer One Network.
In the future, the Company will require capital to link sites into the
Roamer One Network and perform other upgrading functions to the current
Roamer One Network and to fund operating expenses. The Company may build out
the Roamer One Network through the acquisition of additional licenses through
direct purchase of existing licenses (see Note 19 of Item 1), participation
in the Phase II licensing auction and the development of marketing
relationships with dealers and others. The requirement for future working
capital will be driven and highly dependent on the rate of loading
subscribers (with mobile radios) onto the Roamer One Network and the capital
requirements of the Company's distributing, manufacturing and research and
development subsidiaries.
The Company is considering consolidating certain of its sales,
accounting, finance and administrative activities of its U.S. operations to
reduce costs and to achieve greater efficiencies. No assurance can be made
that such consolidation efforts will be successful or that costs will be
reduced.
In December 1997, MUSA entered into a revolving credit agreement
("Credit Agreement") with a non-bank lender. The Credit Agreement makes
available $5,000,000 through December 1999. Borrowing under the Credit
Agreement is secured by the assets of MUSA and bears interest at 1 1/2% above
the lender's base rate (as defined). The Credit Agreement contains, among
other covenants, a covenant relating to leverage, limitations on MUSA's
ability to repay intercompany indebtedness and repayment provisions related
to change in control of MUSA. The Company intends to use borrowings under
this Credit Agreement as security for letter of credit commitments on behalf
of MUSA, thereby eliminating the use of the December 1997 Facility (defined
in note 15) for letters of credit on behalf of MUSA and allowing availability
under the 1997 December Facility to be used for general corporate cash flow
requirements. As of March 31, 1998, there was indebtedness of $1,265,000
under this new line of credit.
In December 1997, the Company entered into various agreements with
Securicor as follows:
A) A loan agreement ("December 1997 Facility"), which replaced the
prior agreements, provides the Company the ability to borrow up to
$29,500,000. The December 1997 Facility bears interest at 11 1/2%
per annum payable at June 30, 2003. Principal payments will be
$500,000 per month for 12 months beginning July 1, 2001, $1,000,000
per month for 11 months beginning July 1, 2002 with the remaining
balance due and payable on June 30, 2003. The obligations under the
December 1997 Facility may be prepaid by the Company at any time in
$1,650,000 increments without penalty. The December 1997 Facility
must be repaid upon Securicor ceasing to be the beneficial owner of
more than 50% of the Common Stock as a result of any transaction
except the direct or indirect transfer of the Common Stock by
Securicor and also is subject to mandatory prepayments at the rate
of 50% of the net proceeds of any financing by the Company
exceeding $8,000,000. Subject to the release of Securicor from
certain letter of credit
26
<PAGE>
commitments, at March 31, 1998, the Company had approximately
$13,485,000 in availability for future borrowings under the
December 1997 Facility.
B) Effective March 31, 1998, Securicor purchased, pursuant to a
Preferred Stock Purchase Agreement dated December 29, 1997, 12,408
shares of Series A Convertible Preferred Stock (the "Series A
Preferred Stock") for $12,408,000. Proceeds from the sale of the
Series A Preferred Stock were applied against the principal balance
of the December 1997 Facility. The liquidation value of the Series
A Preferred Stock is $1,000 per share and par value is $.001 per
share. Dividends accrue at the rate of eleven and one-half (11
1/2%) percent of the original issue price of $1,000 per share and
are cumulative. The holder of the Series A Preferred Stock has the
right to convert the Series A Preferred Stock into shares of Common
Stock if the market price of Common Stock exceeds $6.00 for 20
consecutive trading days. Intek may cause the Series A Preferred
Stock to be converted if the market price is or exceeds $9.00 for
20 consecutive trading days. The holder of the Series A Preferred
Stock has the right to convert the Series A Preferred Stock into
shares of Common Stock if Intek does not redeem the Series A
Preferred Stock by June 30, 2003. The Series A Preferred Stock is
subject to adjustments for stock dividends, stock splits or share
combinations of Common Stock or distribution of a material portion
of Intek's assets to the holders of Common Stock. The Series A
Preferred Stock does not have voting power except as provided by
Delaware corporate law.
C) During fiscal 1997, the Company received stock of Transcrypt
International in exchange for its investment in E.F. Johnson
Company ("EFJ"). At September 30, 1997, this investment was
classified as available for sale and was recorded at its fair value
at that date. During the first quarter of fiscal 1998, the Company
disposed of its investment in Transcrypt International, receiving
net cash proceeds of approximately $7,400,000. The difference
between the proceeds and the carrying value of $10,000,000 was
reimbursed during the second quarter of fiscal 1998 by Securicor.
Additional funding will be required by the Company in fiscal 1998 for
its fiscal year operating budget and for acquisition of additional licenses
for the Roamer One Network through cash purchases from other 220 MHz licenses
holders and/or through the FCC auction process. The Company is considering a
number of financing alternatives, including strategic partners, joint
ventures, and, if market conditions permit, a financing involving a private
or public placement of its or an affiliate's securities. While the Company
does need additional financing, there can be no assurance that the Company
will be able to obtain additional financing on a timely basis or on
acceptable terms.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
27
<PAGE>
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
The Company, Mr. David Neibert, the Company's executive vice president
and Mr. Nicholas R. Wilson, a former Chairman of the Company ("Intek
Defendants") were named with forty other defendants in a complaint (Scott, et
al. Steingold, et al.) filed in U.S. District Court for the Northern District
of Illinois on November 12th, 1997. The lawsuit purports to allege claims
under the Racketeer Influenced Corrupt Organizations Act ("RICO"), the
Securities Exchange Act of 1934 and various common law state claims in
connection with the sale and marketing of interests in certain partnerships
formed to operate specialized mobile radio ("SMR") systems. Plaintiffs seek
rescissory damages with interest and punitive damages allegedly relating to
their purchases of SMR partnership interests. No specific amount of alleged
damages is mentioned in the complaint.
The plaintiffs also had filed, and have now withdrawn against the Intek
Defendants, a motion for a temporary restraining order and preliminary
injunction seeking to freeze the assets of all defendants. The Intek
Defendants filed a motion to dismiss the complaint on various grounds. In
response plaintiffs sought leave to file an amended complaint, which request
was granted by the court. Intek requested plaintiffs to withdraw all claims
against the Intek defendants on the grounds that they are frivolous. On
February 3, 1998, plaintiffs filed an amended complaint which purports to
allege claims under RICO, the Securities Act of 1933, the Securities Exchange
Act of 1934 and various common law state claims in connection with (i) the
sale and marketing of interests in certain SMR partnerships and (ii)
purported improper dissipation of assets of certain of the SMR partnerships.
Plaintiffs seek rescissory damages with interest and punitive damages
relating to such asserted claims. No specific amount of alleged damages is
mentioned in the amended complaint. The Intek Defendants moved to dismiss the
amended complaint on the ground that it fails to state a claim. In the
opinion of the management of the Company, this lawsuit will not have a
material adverse affect on the Company.
On January 30, 1998, a related lawsuit was commenced in Illinois State
Court by Consulting 220, Inc., on behalf of the Los Angeles II SMR
Partnership (the "Partnership"), against Charlotte Scott (one of the
plaintiffs in the SCOTT ET AL. v. STEINGOLD ET AL. action), her attorneys
Gardiner, Koch & Hines and the Managing Partners of the Partnership alleging
that Scott and the Managing Partners breached fiduciary duties to the
Partnership and its partners by permitting Partnership money designated and
reserved for Partnership operations to be used for prosecution of the SCOTT
v. STEINGOLD action. Plaintiff seeks a constructive trust of the Partnership
monies allegedly provided to Scott's attorneys.
Item 2. Changes In Securities.
(a) None.
(b) None.
(c) Recent Sales of Unregistered Securities
None.
(d) Not applicable.
Item 3. Defaults Upon Securities. None
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On February 18, 1998, the Company held its annual meeting of
stockholders.
(b) At the annual meeting, the following directors were elected:
Robert J. Shiver, Michael J. Wilkinson, Roger Wiggs, Steven L.
Wasserman, Robert Kelly, John G. Simmonds.
(c) The following proposals were considered
Proposal #1 - Election of Directors
<TABLE>
<CAPTION>
For Withheld
---------- --------
<S> <C> <C>
Robert J. Shiver 39,833,965 32,750
28
<PAGE>
<S> <C> <C>
Michael G. Wilkinson 35,833,965 32,750
Roger Wiggs 35,833,965 32,750
Steven L. Wasserman 39,810,965 46,750
Robert Kelly 39,828,058 38,657
John G. Simmonds 39,833,965 32,750
</TABLE>
Proposal #2A. Approve an amendment to the Company's Restated
Certificate of Incorporation to change the Company's name from "Intek
Diversified Corporation" to "Intek Global Corporation".
<TABLE>
<S> <C>
39,833,583 For
25,000 Against
8,132 Abstain
</TABLE>
Proposal #2B. Approve an amendment to the Company's Restated
Certificate of Incorporation to authorize 1,000,000 shares of "blank Check"
Preferred Stock. The amendment gives the Board of Directors authority to
designate one or more series of preferred stock. The provisions are often
referred to as "blank check" provisions since the Board of Directors has the
flexibility, at any time and without stockholder approval, to determine the
designations, preferences and limitations of each such series.
<TABLE>
<S> <C>
29,186,969 For
5,160,154 Against
22,107 Abstain
</TABLE>
Proposal #2C. Approve an amendment to the Company's Restated
Certificate of Incorporation to permit the exchange of two shares of the
Company's outstanding shares of common stock for one post-split share of
common stock.
<TABLE>
<S> <C>
11,719,220 For
28,128,111 Against
19,384 Abstain
</TABLE>
Proposal #2D. Approve an amendment to the Company's Restated
Certificate of Incorporation to amend the voting requirement for actions
taken by stockholders without a meeting, requiring only the written consent
of holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted, rather
than the written consent of holders of all outstanding shares.
<TABLE>
<S> <C>
31,016,904 For
31,900 Against
41,426 Abstain
</TABLE>
Proposal #3. Approve the 1997 Performance and Equity Incentive Plan
which authorizes the issuance of awards to certain employees, nonemployee
directors and independent contractors selected by the compensation committee
to receive such awards. The 1997 Performance and Equity Incentive Plan
authorizes the following awards based upon Intek common stock: stock options,
stock appreciation rights, stock awards, stock units, performance shares,
performance units and cash awards.
<TABLE>
<S> <C>
34,140,171 For
208,848 Against
20,211 Abstain
</TABLE>
Proposal #4. Approve amendment to the 1988 Key Employee Incentive
Stock Option Plan to provide Intek flexibility to grant further options to
employees.
29
<PAGE>
<TABLE>
<S> <C>
34,216,545 For
179,960 Against
29,102 Abstain
</TABLE>
Proposal #5. Approve the appointment of Arthur Andersen LLP as
independent accountants for the Company in the fiscal year ending September
30, 1998.
<TABLE>
<S> <C>
39,806,204 For
42,325 Against
18,186 Abstain
</TABLE>
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
(a)
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C> <C>
3.1(i) Articles of Incorporation of Intek Global Corporation
(the "Registrant"). (1)
3.1(ii) By-Laws of the Registrant. (2)
10 Material contracts (3)
11 Statement re computation of per share earnings. (3)
12 Statement re computation of ratios. (3)
15 Letter re unaudited interim financial information (3)
21 Subsidiaries (4)
22 Published Report regarding matters submitted to vote of
security holders (3)
27 Financial Data Schedule (1)
</TABLE>
(1) Included in this Report.
(2) This exhibit is contained in the Registrant's Annual Report on Form 10K
for the year ended December 31, 1994, filed with the Commission on April
17, 1995 (Commission File No. 0-9160), and incorporated herein by
reference.
(3) Not Required
(4) This exhibit is contained in the Registrant's Annual Report for the year
ended September 30, 1997, filed with the Commission on January 13, 1998
(Commission File No. 0-9160), and incorporated herein by reference.
(b) Reports on Form 8-K.
The Registrant filed a report on Form 8-K on March 26, 1998,
announcing that it has begun trading under its new NASDAQ ticker
symbol: IGLC. The report was filed pursuant to Item 5 of Form 8-K.
30
<PAGE>
INTEK GLOBAL CORPORATION AND SUBSIDIARIES
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 15, 1998
INTEK GLOBAL CORPORATION
By: /s/ D. Gregg Marston
---------------------------------------
D. Gregg Marston
Vice President, Finance
31
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
INTEK DIVERSIFIED CORPORATION
* * * * *
The present name of the corporation is Intek Diversified
Corporation. The corporation was incorporated under the name Intek
Diversified Corporation by the filing of its original Certificate
of Incorporation with the Secretary of State of the State of
Delaware on August 24, 1988. This Restated Certificate of
Incorporation of the corporation, which both restates and further
amends the provisions of the corporation's Certificate of
Incorporation, was duly adopted in accordance with the provisions
of Sections 242 and 245 of the General Corporation Law of the State
of Delaware. The Certificate of Incorporation of the corporation
is hereby amended and restated to read in its entirety as follows:
1. NAME. The name of the Corporation is Intek Global
Corporation.
2. REGISTERED OFFICE AND AGENT. The registered office in
the State of Delaware is Corporation Trust Center, 1209 Orange
Street, in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust
Company.
3. PURPOSES. The nature of the business or purposes to be
conducted or promoted is to engage in any lawful act or activity
for which corporations may be organized under the General
Corporation Law of the State of Delaware.
4. CAPITAL STOCK.
A. The total number of shares of all classes of stock
which the corporation shall be authorized to issue is 61,000,000
shares, divided into 60,000,000 shares of Common Stock, par value
$.01 per share (herein called "Common Stock"), and 1,000,000 shares
of Preferred Stock, par value $.001 per share (herein called
"Preferred Stock").
B. The Board of Directors of the corporation (the
"Board of Directors") is hereby expressly authorized, by resolution
or resolutions thereof, to provide, out of the unissued shares of
Preferred Stock, for series of Preferred Stock and, with respect to
each such series, to fix the number of shares constituting such
series and the designation of such series, the voting powers (if
any) of the shares of such series, and the preferences and
relative, participating, optional or other special rights, if any,
and any qualifications, limitations or restrictions thereof, of the
shares of such series. The powers, preferences and relative,
participating, optional and other special rights of each series of
1
<PAGE>
Preferred Stock, and the qualifications, limitations or
restrictions thereof, if any, may differ from those of any and all
other series at any time outstanding.
C. Except as may otherwise be provided in this Restated
Certificate of Incorporation (including any certificate filed with
the Secretary of State of the State of Delaware establishing the
terms of a series of Preferred Stock in accordance with Section B
of this Article 4) or by applicable law, each holder of Common
Stock, as such, shall be entitled to one vote for each share of
Common Stock held of record by such holder on all matters on which
stockholders generally are entitled to vote, and no holder of any
series of Preferred Stock, as such, shall be entitled to any voting
powers in respect thereof.
D. Subject to applicable law and the rights, if any, of
the holders of any outstanding series of Preferred Stock, dividends
may be declared and paid on the Common Stock at such times and in
such amounts as the Board of Directors in its discretion shall
determine.
E. Upon the dissolution, liquidation or winding up of
the corporation, subject to the rights, if any, of the holders of
any outstanding series of Preferred Stock, the holders of the
Common Stock shall be entitled to receive the assets of the
corporation available for distribution to its stockholders ratably
in proportion to the number of shares held by them.
5. EXISTENCE. The Corporation is to have perpetual
existence.
6. COMPROMISE OR AGREEMENT. Whenever a compromise or
arrangement is proposed between this Corporation and its creditors
or any class of them and/or between this Corporation and its
shareholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application
in a summary way of this Corporation or of any creditor or
shareholder thereof or on the application of any receiver or
receivers appointed for this corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279
of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the shareholders or class of
shareholders of this corporation, as the case may be, to be
summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or
class of creditors, and/or of the shareholders or class of
shareholders of this Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the
said compromise or arrangement and the said reorganization shall,
if sanctioned by the court to which the said application has been
made, be binding on all creditors or class of creditors, and/or
shareholders or class of shareholders of this Corporation, as the
case may be, and also on this Corporation.
7. POWERS OF BOARD OF DIRECTORS. In furtherance and not in
limitation of the powers conferred by statute, the Board of
Directors is expressly authorized to make, alter or repeal the
By-Laws of the Corporation.
2
<PAGE>
8. ELECTION OF DIRECTORS. Elections of directors need not
be by written ballot unless the By-Laws of the Corporation shall so
provide.
9. ACTION BY CONSENT OF STOCKHOLDERS. Any action that may
be taken at any annual or special meeting of the stockholders may
be taken without a meeting, without prior notice and without a
vote, by written consent of holders of outstanding stock having not
less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
10. LIABILITY OF DIRECTORS. The personal liability of the
directors of the corporation is hereby eliminated to the fullest
extent permitted by paragraph (7) of subsection (b) of Section 102
of the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended and supplemented.
IN WITNESS WHEREOF, the undersigned has executed this Restated
Certificate of Incorporation this 18th day of February, 1998.
By: /s/ Robert J. Shiver
-----------------------------------
Name: Robert J. Shiver
Office: Chairman and
Chief Executive Officer
3
<PAGE>
INTEK GLOBAL CORPORATION
Certificate of Designations, Powers,
Preferences and Rights of the
Series A Convertible
Preferred Stock, $.001 par value
___________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
___________
INTEK GLOBAL CORPORATION, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), the
restated certificate of incorporation of which was filed in the
office of the Secretary of State of Delaware on February 18, 1998,
does, by its Chairman and Chief Executive Officer, the undersigned,
hereby certify that the following resolution has been duly adopted
by the Board of Directors of the Corporation:
Resolved, that, pursuant to the authority expressly
granted to and vested in the Board of Directors of
the Corporation (the "Board of Directors") by the
provisions of the Restated Certificate of
Incorporation (the "Certificate of Incorporation")
of the Corporation, there hereby is created, out of
the 1,000,000 shares of Preferred Stock of the
Corporation authorized in Article 4 of its
Certificate of Incorporation (the "Preferred
Stock"), a series of 12,408 shares, which series
shall have the following designations, powers,
preferences, rights, qualifications, limitations
and restrictions (in addition to the designations,
powers, preferences, rights, qualifications,
limitations and restrictions set forth in the
Certificate of Incorporation which are applicable
to the Preferred Stock).
A. DESIGNATION; NUMBER OF SHARES; STATED VALUE.
The designation of said series of the Preferred Stock shall be
Series A Convertible Preferred Stock (the "Series A Preferred
Stock"). The number of shares of Series A Preferred Stock shall be
12,408. The liquidation value of the Series A Preferred Stock shall
be $1,000.00 per share (the "Original Issue Price"). The shares of
Series A Preferred Stock shall be issued as full shares and shall
have a par value of $.001 per share.
B. SENIOR RIGHT TO DIVIDENDS. The holders of Series A
Preferred Stock shall be entitled to a cumulative annual dividend.
Dividends shall accrue annually on the first business day
1
<PAGE>
of October of each year. Dividends shall accrue at the rate of eleven and one
half (11 1/2%) percent of the Original Issue Price of $1,000.00 per share
(that is, $115.00 per share per annum) and shall be cumulative. Subject to
any limitations under the General Corporation Law of the State of Delaware
("GCL") and except as otherwise provided in Sections C and D below, dividend
payments will be due upon the conversion or redemption of the Series A
Preferred Stock or such earlier date as shall be declared by the Corporations
Board of Directors. As used herein, the first "Dividend Year" shall be the
period beginning on the date of original issuance of the particular shares of
Series A Preferred Stock and ending on September 30, 1998, and the successive
Dividend Years shall be the successive periods beginning October 1 and ending
on September 30 of the next calendar year. Dividends may be paid in any year
to holders of any "Junior Stock," subject to all of the preferential rights
of the holders of any other Preferred Stock then outstanding, and only after
the Corporation shall have paid or provided for the payment of dividends on
all Series A Preferred Stock, including any amounts that may have been
accrued but not declared or not paid for each Dividend Year from the date of
issuance to and including the Dividend Year in question. The term "Junior
Stock" shall mean shares of Common Stock of the Corporation (the "Common
Stock") and each series of Preferred Stock ranking junior to the Series A
Preferred Stock as to dividends or distribution of assets on liquidation,
dissolution or winding up. Holders of Series A Preferred Stock shall not be
entitled to any cash or other dividend other than as provided in this Section
B.
C. SENIOR RIGHTS IN DISSOLUTION AND DISTRIBUTION OF ASSETS. Upon
liquidation, dissolution, or winding up of the Corporation, holders of Series
A Preferred Stock shall be entitled to receive, on a pro rata basis, prior to
any distribution to holders of any Junior Stock, a liquidation preference of
$1,000.00 per share plus all dividends accrued but unpaid to the date such
payment is made available to such holders of Series A Preferred Stock.
Holders of Series A Preferred Stock shall not be entitled to any further
payment as dividends in liquidation or otherwise. After payment to the
holders of the Series A Preferred Stock, the holders of shares of Common
Stock, subject to all of the preferential rights of the holders of the
Preferred Stock, shall be entitled to receive, ratably, all remaining assets
of the Corporation. A consolidation or merger of the Corporation with or into
any other corporation or corporations shall not be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section C.
D. CONVERSION. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
1. RIGHT TO CONVERT.
(a) Each record holder of Series A Preferred Stock shall
be entitled to convert the shares of Series A Preferred Stock
held by such holder, at such holder's option, at any time the
Market Price (defined below) of Common Stock equals or exceeds
$6.00 for 20 consecutive trading days and in the manner
specified in Section D (2) below, into that number of
fully-paid and non-assessable shares of Common Stock
determined as follows: Each share of Series A Preferred Stock
so surrendered for conversion shall be converted
2
<PAGE>
into that number of shares of Common Stock derived by dividing
(a) the Original Issue Price by (b) the "Conversion Rate". As
used herein, the "Conversion Rate" shall be the average "Market
Price" (defined below) of the Corporation's Common Stock for
the twenty (20) consecutive trading days ending the day before
the "Conversion Date" (as defined below); provided, however,
that the minimum Conversion Rate shall be $6.00. Following any
such conversion, the Corporation shall, as soon as reasonably
practicable thereafter, make provisions for payment of any
dividends accrued but unpaid, through the Conversion Date, on
any shares of Series A Preferred Stock so surrendered,
provided that such payment may be made, at the Corporation's
sole election, in a number of shares of the Corporation's
Common Stock determined in accordance with the provisions of
this Section D(1).
(b) "Market Price", when used with reference to shares
of Common Stock or other securities on any date, shall mean
the closing price per share of Common Stock or such other
securities on such date and, when used with reference to
shares of Common Stock or other securities for any period
shall mean the average of the daily closing prices per share
of Common Stock or such other securities for such period. If
the Common Stock or such other securities are listed or
admitted to trading on a national securities exchange, the
closing price shall be the last sale price, regular way, or,
in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case
as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted
to trading on the New York Stock Exchange or, if the Common
Stock or such other securities are not listed or admitted to
trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with
respect to securities listed on the principal national
securities exchange on which the Common Stock or such other
securities are listed or admitted to trading or, if the Common
Stock or such other securities are not so listed on any
national securities exchange, as reported in the transaction
reporting system applicable to securities designated as a
"national market system security" or "small cap market
security" on NASDAQ. If the Common Stock or such other
securities are not publicly held or so listed or designated,
"Market Price" shall mean the fair market value per share of
Common Stock or of such other securities as determined in good
faith by the Board of Directors based on an opinion of an
independent investment banking firm with an established
national reputation with respect to the valuation of
securities.
2. Mechanics of Conversion.
(a) In order to convert Series A Preferred Stock into
shares of Common Stock, the holder shall (i) fax or otherwise
deliver a copy of the fully executed notice of conversion in
the form attached to the Preferred Stock Purchase Agreement
between the Corporation and the initial registered holder of
the Series A Preferred Stock ("Notice of Conversion") to the
Corporation at the office of the Corporation and of its
designated Transfer Agent for the Common Stock that the holder
elects to convert the same, which
3
<PAGE>
notice shall specify the number of shares of Series A Preferred
Stock to be converted, the applicable conversion price and a
calculation of the number of shares of Common Stock issuable
upon such conversion (together with a copy of the first page
of each certificate to be converted) prior to Midnight,
New York City time (the "Conversion Notice Deadline") on the
date of conversion specified on the Notice of Conversion
(the "Conversion Date") and (ii) surrender the original
certificates representing the shares of Series A Preferred
Stock being converted (the "Preferred Stock Certificates"),
duly endorsed, along with a copy of the Notice of Conversion
(together with the Preferred Stock Certificates, the "Conversion
Documents") no later than Midnight, New York City time the next
business day, to a common courier for either overnight or 2-day
delivery to the office of the Corporation or the Transfer Agent
for the Common Stock. The Corporation shall issue and deliver
within three (3) business days after delivery to the Corporation
of the facsimile copies of such Notice of Conversion and such
Preferred Stock Certificates to such holder at the address of
the holder on the books of the Corporation (or such other
address as may be specified by such holder), a certificate or
certificates for the number of shares of Common Stock issuable
upon such conversion; provided, however, that the Corporation
shall not be obligated to issue certificates evidencing the
shares of Common Stock unless either the original Preferred
Stock Certificates have been received by the Corporation or
its Transfer Agent, or the holder notifies the Corporation or
its Transfer Agent, or the holder delivers to the Corporation
an affidavit and indemnification to the effect that such
certificates have been lost, stolen or destroyed.
(b) The registered holder of Series A Preferred Stock
may convert a portion of such shares. In the event of a
partial conversion, the Corporation shall issue to the
registered holder a new certificate representing the shares of
Series A Preferred Stock which were not converted.
3. Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of the shares of
the Series A Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to
effect the conversion of all then outstanding shares of the
Series A Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding
shares of the Series A Preferred Stock, the Corporation shall
take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number
of shares as shall be sufficient for such purpose.
4. Mandatory Conversion. At the Corporation's sole
option, if the Market Price of Common Stock equals or exceeds
$9.00 for 20 consecutive trading days, the Corporation may
call each share of Series A Preferred Stock outstanding for
conversion into Common Stock on such date at the Conversion
Rate then in effect as provided in Section D(1) above.
4
<PAGE>
5. Corporate Change. The Conversion Rate shall be
appropriately adjusted to reflect, as deemed equitable and
appropriate by the Board of Directors, any stock dividend,
stock split or share combination of the Common Stock or any
distribution of a material portion of the Corporation's assets
to the holders of Common Stock. In the event of a merger,
reorganization, recapitalization or similar event of or with
respect to the Corporation (a "Corporate Change") (other than
a Corporate Change in which the Corporation is the surviving
entity or in which all or substantially all of the
consideration received by the holders of the Corporation's
capital stock upon such Corporate Change consists of cash or
assets other than securities issued by the acquiring entity or
any affiliate thereof), this Series A Preferred Stock shall be
assumed by the acquiring entity and thereafter this Series A
Preferred Stock shall be convertible into such class and type
of securities as the holder would have received had the holder
converted this Series A Preferred Stock immediately prior to
such Corporate Change.
E. REDEMPTION.
1. REDEMPTION.
(a) The Corporation may at any time or from time to
time redeem Series A Preferred Stock in amounts of not
less than 1,000 shares for $1,065 per share, plus accrued
and unpaid dividends (the "Optional Redemption Price").
(b) Subject to the GCL, the Corporation shall be
bound to redeem all the Series A Preferred Stock in issue
on June 30, 2003, for the Original Issue Price plus
accrued and unpaid dividends (the "Mandatory Redemption
Price").
2. MECHANICS OF REDEMPTION. The following procedures
shall apply to all redemptions of Series A Preferred Stock
under Section E(1):
(a) The Corporation shall send a notice of
redemption (the "Redemption Notice") to each holder of
record of shares to be redeemed by facsimile, with the
original to follow by 2-day courier addressed to the
holder at such holder's address appearing on the books of
the Corporation or given by the holder to the Corporation
for the purpose of notice, or if there is no such
address, at the principal executive offices of the
Corporation. The Redemption Notice shall include the date
of redemption (the "Redemption Date"), the Optional
Redemption Price or the Mandatory Redemption Price, as
the case may be, the number of shares of Series A
Preferred Stock to be redeemed, and the place at which
the shareholders may obtain payment of the Redemption
Price upon surrender of their share certificates.
(b) If funds are legally available for such
redemption on the date fixed in the Redemption Notice,
then, whether or not the share certificates are
5
<PAGE>
surrendered for payment of the Optional Redemption Price
or the Mandatory Redemption Price, as the case may be,
the shares redeemed shall no longer be outstanding and
the holders thereof shall cease to be shareholders of the
Corporation with respect to the shares redeemed on and
after the date fixed for redemption and shall be entitled
only to receive the Optional Redemption Price or the
Mandatory Redemption Price, as the case may be, without
interest upon surrender of the share certificate. If less
than all of the shares represented by one certificate are
to be redeemed, the Corporation shall issue a new share
certificate for the shares not redeemed.
(c) On the Redemption Date the Corporation shall be
entitled and (upon delivery to the Corporation of the
relevant share certificate) bound to redeem the shares of
Series A Preferred Stock the subject of the notice, and
shall on the Redemption Date pay to the holder thereof
the amounts paid up or credited as paid up on such shares
together with a sum equal to all arrears and accruals (if
any) of the preferential dividend thereon irrespective of
whether or not such dividend has been declared or earned
or become due and payable, to be calculated down to and
including the Redemption Date. Following such Redemption
Date, the preferential dividend on any Series A Preferred
Stock to be redeemed shall cease to accrue, except in
relation to any such shares in respect of which payment
of the redemption monies is not made (for whatever
reason) on the Redemption Date, in which case the
preferential dividend shall continue to accrue down to
and including the actual date of payment in full of such
Optional Redemption Price or Mandatory Redemption Price,
as the case may be.
(d) Certificates for shares of Series A Preferred
Stock shall be deemed to have been canceled to the extent
appropriate on the date on which payment is full is made
of the redemption monies in respect of the shares to
which the certificate relates. Following any redemption
of part only of the shares of Series A Preferred Stock in
issue, certificates (if any) which then relate to
Series A Preferred Stock which have not been redeemed
shall be delivered up to the Corporation and, subject
only to such delivery up, the Corporation shall issue
without payment new definitive certificates in respect of
these shares of Series A Preferred Shares which have not
been redeemed.
(e) If on the Redemption Date the Corporation is
prohibited by law from redeeming all of the Series A
Preferred Stock then required to be redeemed, it shall on
such date redeem such number of the same as it may then
lawfully redeem and shall redeem the balance as soon
thereafter as it is not so prohibited. If the Corporation
fails to make any partial redemption of the Series A
Preferred Stock on any Redemption Date, then any
subsequent redemptions of Series A Preferred Stock shall
be deemed to be of those shares of Series A Preferred
Stock which first became due for redemption. In addition,
in the event the Corporation is
6
<PAGE>
prohibited by law from redeeming, or otherwise unable to
redeem, any of the Series A Preferred Stock then required
to be redeemed on the Redemption Date the holder shall,
in addition to the rights set forth in Section D above,
have the option of converting the shares of Series A
Preferred Stock not redeemed into shares of the Corporation's
Common Stock. Each share of Series A Preferred Stock so
surrendered for conversion shall be converted into that
number of shares of Common Stock determined by dividing
the original Issue Price by the average market price of
the Corporation's Common Stock for the 20 consecutive trading
days beginning on the Redemption Date.
(f) All references to payment in this Article E.2.
are exclusive of any associated tax credit.
F. VOTING RIGHTS. Except as otherwise provided by the GCL,
the holders of the Series A Preferred Stock shall have no voting
power whatsoever, and no holder of Series A Preferred Stock shall
vote or otherwise participate in any proceeding in which actions
shall be taken by the Corporation or the shareholders thereof or be
entitled to notification as to any meeting of the Board of
Directors or the shareholders.
To the extent that under the GCL the vote of the holders of
the Series A Preferred Stock, voting separately as a class, is
required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority
of the outstanding shares of the Series A Preferred Stock shall
constitute the approval of such action by the class. To the extent
that under the GCL the holders of the Series A Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting
together as one class, each share of Series A Preferred Stock shall
be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record
date for the taking of such vote of stockholders as the date as of
which the Conversion Rate is calculated. Holders of the Series A
Preferred Stock shall be entitled to notice of all shareholder
meetings or written consents with respect to which they would be
entitled to vote, which notice shall be provided pursuant to the
Corporation's Bylaws and applicable statutes.
G. PROTECTIVE PROVISIONS. So long as shares of Series A
Preferred Stock are outstanding, the Corporation shall not without
first obtaining the approval (by voting or written consent, as
provided by Delaware law) of the holders of at least 90% of the
then outstanding shares of Series A Preferred Stock:
1. alter or change the rights, preferences or
privileges of the shares of Series A Preferred Stock;
2. create any new class or series of stock having a
preference over the Series A Preferred Stock with respect to
any dividends or distributions under any circumstances; or
7
<PAGE>
3. do any act or thing not authorized or contemplated
by this Certificate of Designation which would result in
taxation of the holders of shares of the Series A Preferred
Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended).
H. STATUS OF REDEEMED OR CONVERTED STOCK. In the event any
shares of Series A Preferred Stock shall be converted pursuant to
Section D hereof, the shares so converted shall be canceled, shall
return to the status of authorized but unissued Preferred Stock of
no designated class or series, and shall not be issuable by the
Corporation as Series A Preferred Stock.
I. PREFERENCE RIGHTS. Subject to Section G above, the Board
of Directors shall not otherwise be prevented from issuing one or
more series of Preferred Stock with such preferences as may be
determined by the Board of Directors, in its discretion.
IN WITNESS WHEREOF, Intek Global Corporation has caused this
Certificate to be duly executed this 14th day of April, 1998.
INTEK GLOBAL CORPORATION
By: /s/ Robert J. Shiver
-----------------------------------
Robert J. Shiver
Chairman, Chief Executive Officer
8
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