<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 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 August 7, 1998, is 42,303,038 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTEK GLOBAL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
June 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,940 $ 1,909
Marketable securities - 8,148
Accounts receivable, net
of allowance for
doubtful accounts of $1,232
in June 1998 and $863
in September 1997 6,195 6,488
Inventories 14,548 12,289
Taxation receivable and amounts due from
due from related parties 704 4,701
Prepaid expenses and
other current assets 2,252 894
------------- -------------
Total current assets 25,639 34,429
------------- -------------
PROPERTY AND EQUIPMENT, NET 24,887 21,555
OTHER ASSETS:
Note receivable 575 556
Intangible assets, net 55,896 48,340
Inventory-long term 4,831 6,980
Other 640 705
------------- -------------
TOTAL ASSETS $ 112,468 $ 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)
June 30 September 30,
1998 1997
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable 5,256 6,110
Amounts due to related parties 1,108 2,005
Accrued liabilities 7,126 3,928
Deferred income 335 977
Notes payable 2,928 120
Restructuring reserve 1,613 -
------------- -------------
Total current liabilities 18,366 13,140
------------- -------------
NOTES PAYABLE:
Related Party 26,748 24,223
Other 1,347 -
------------- -------------
Total notes payable 28,095 24,223
------------- -------------
CAPITAL LEASE LIABILITY 347 354
------------- -------------
PREFERRED STOCK-Mandatorily Redeemable
Intek Global Corporation 12,408 -
Radiocoms 22,704 20,559
------------- -------------
Total preferred stock 35,112 20,559
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $0.01 par value
Authorized - 60,000,000 shares
Issued - 43,305,620 at June 30, 1998 and
42,398,096 at September 30, 1997 433 424
Capital in excess of par value 108,370 106,220
Treasury stock, at cost
1,002,582 shares at June 30, 1998
and 465,582 shares at September 30, 1997 (2,099) (770)
Deficit (74,412) (50,199)
Accumulated other comprehensive loss (1,744) (1,386)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 30,548 54,289
------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 112,468 $ 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 Nine Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Net product sales $ 7,292 $ 12,020 $ 21,347 $ 29,259
Service income 1,920 8 5,148 14
------------- ------------- ------------- -------------
Total revenues 9,212 12,028 26,495 29,273
Costs and expenses:
Cost of goods sold 5,132 8,345 15,566 23,421
Cost of services sold 1,772 526 5,382 1,290
Sales and marketing 2,659 1,269 6,741 2,667
Research and development 226 859 1,391 2,572
General and administrative 3,984 4,257 11,932 10,985
Depreciation and amortization 1,746 1,235 4,694 3,114
Restructuring charges 1,613 - 1,613 -
------------- ------------- ------------- -------------
Operating loss (7,920) (4,463) (20,824) (14,776)
Other income (expense):
Interest (1,076) (506) (2,486) (2,256)
Gain on sale of long term assets - 3 - 798
------------- ------------- ------------- -------------
Loss before income taxes (8,996) (4,966) (23,310) (16,234)
Income tax benefit - - - 630
Foreign exchange Loss (41) (169) (4) (169)
------------- ------------- ------------- -------------
Net Loss (9,037) (5,135) (23,314) (15,773)
Less: preferred dividends (306) (296) (899) (696)
------------- ------------- ------------- -------------
Net Loss applicable to Common
Shareholders $ (9,343) $ (5,431) $ (24,213) $ (16,469)
Basic and diluted net loss per share $ (0.22) $ (0.13) $ (0.58) $ (0.45)
Weighted average number of
common shares outstanding 42,034,600 40,426,212 42,097,043 36,613,628
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</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 Nine Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Loss applicable to common shareholders $ (9,343) $ (5,431) $ (24,213) $ (16,469)
Other Comprehensive Income (Loss) items:
Foreign currency translation adjustments (186) 1,262 (358) (513)
------------- ------------- ------------- -------------
Comprehensive Loss $ (9,529) $ (4,169) $ (24,571) $ (16,982)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</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 OF CASH FLOWS (Unaudited)
(Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (23,314) $ (15,773)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation and amortization 4,694 3,114
Loss (gain) on sale of long term assets - (756)
Deferred income taxes - (633)
Imputed interest on convertible debt,
debt and warrants 3,473 1,201
Interest added to principal - 563
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 390 (1,922)
Amounts due from related parties 3,578 -
Notes receivable 48 (437)
Inventories 314 (320)
Prepaid expenses and other current assets (60) 641
Increase (decrease) in:
Accounts payable (438) 2,559
Amounts due to related parties (423) 3,454
Accrued liabilities 1,178 138
Deferred income (668) (10)
Taxes other than income taxes 62 177
Restructuring reserve 1,613 -
Other (51) (79)
------------- -------------
Total Adjustments 13,710 7,690
------------- -------------
Net cash used in operating
activities (9,604) (8,083)
------------- -------------
</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 OF CASH
FLOWS (Unaudited) (Continued)
(Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash Flows From Investing Activities:
Proceeds from sale of investments 7,458 -
Expenditures for property, plant & equipment, net (4,964) (7,567)
Expenditures for FCC licenses (7,946) (168)
Expenditures for other long term assets (16) (93)
Notes receivable (19) -
Proceeds from sale of long term assets - 2,200
------------- -------------
Net cash provided by (used in) investing activities (5,487) (5,628)
------------- -------------
Cash Flows From Financing Activities:
Net change in bank overdraft 934 (928)
Capital lease payments (1) -
Proceeds from short term debt-third party 2,773 -
Proceeds from long term debt-related party 11,530 15,954
Proceeds from long term debt-other 1,312 4,763
Repayment on long and short term debt (5) (5,346)
Repurchase of shares (1,329) -
------------- -------------
Net cash provided by financing activities 15,214 14,443
------------- -------------
Effect of foreign exchange rates on cash (92) (18)
------------- -------------
Net decrease in cash and cash equivalents 31 714
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 $ 1,940 $ 2,703
------------- -------------
------------- -------------
Supplemental disclosures of
cash flow information:
Cash paid for interest $ 202 $ 237
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 (UNAUDITED)
(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 June 30, 1998, the Company had outstanding hedge contracts of Japanese Yen
275,000,000 to cover its firm foreign purchase commitments of Japanese Yen
343,635,000, leaving an exposed position of Japanese Yen 68,635,000 equating
to $494,000. Additionally, at June 30, 1998, the Company's hedge contracts
totaled $2,127,000 at the contracted rate and had a fair value of $1,979,000.
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. The Company disposed of its
investment in Transcrypt International in November 1997 and received 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 nine months
of fiscal 1998 by Securicor Communications Limited ("Securicor").
8
<PAGE>
(6) SUMMARY OF NON-CASH ACTIVITIES
The following summarizes the supplemental disclosure of non-cash
operating, investing and financing activities:
During the period December, 1997 through February, 1998. The Company
repurchased 184,500 shares of common stock of Intek, $0.01 par value ("Common
Stock") 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
During the first nine months 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 in note 17, "Acquisition of New Systems."
During the first nine months 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 nine months 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.
In May, 1998, the Company completed the stock acquisition of Mobile Data
Solutions, Inc. (" Data Express"), a developer and provider of wireless data
solutions for the mobile marketplace. Data Express's main product is a
satellite Global Positioning System based automatic vehicle location system
for mobile fleet operators. The system 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 issued 400,608 shares of
Common Stock in full payment for the stock of Data Express.
(7) INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited)
------------- -------------
<S> <C> <C>
Raw materials $ 3,477 $ 4,020
Work in progress 2,601 1,311
Finished goods 13,601 13,938
------------- -------------
Subtotal 19,679 19,269
Inventory not likely to be used or sold within one year (5,131) (6,980)
------------- -------------
Total current inventories $ 14,548 $ 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 $ 415 $ 402
Buildings 3,186 3,008
Site equipment 15,188 13,206
Production & test equipment 4,111 3,843
Furniture, fixtures and computers 3,605 2,755
Equipment held for rental 6,505 4,163
------------- -------------
Total property and equipment, at cost 33,010 27,377
Less accumulated depreciation (8,123) (5,822)
------------- -------------
Net property and equipment $ 24,887 $ 21,555
------------- -------------
------------- -------------
</TABLE>
(9) RESTRUCTURING
During the third quarter of fiscal 1998, the Company recorded a
restructuring charge of $1,613,000 related to planned staff reductions,
termination of lease costs associated with the consolidation of office space
and site leases, equipment removal costs, and a charge related to the
repositioning of selected products in its market channels.
In conjunction with the restructuring, the Company has decided to
eliminate and deconstruct certain sites that are not deemed essential to the
Company's growth strategy, consolidate office space and reduce the number of
associated sales force. In addition, the Company has elected to consolidate
financial and customer service functions at its headquarters in Kansas City,
Missouri to gain efficiencies and economies of scale.
(10) INTANGIBLE ASSETS
Intangible assets consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 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
Excess of cost over fair value of net
Data Express assets acquired 1,385 -
Trademarks and patents 770 -
FCC licenses and management agreements acquired
from third parties 10,892 2,899
------------- -------------
Total intangibles 61,375 51,227
Less accumulated amortization (5,479) (2,887)
------------- -------------
Net intangibles $ 55,896 $ 48,340
------------- -------------
------------- -------------
</TABLE>
10
<PAGE>
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 at the time of the reverse acquisition.
The intangible value of FCC licenses and management agreements acquired from
third parties represents assets acquired subsequent to the reverse
acquisition.
The Company's restructuring plans and changes in regulation may affect
the realizability of the intangibles. During the fourth quarter of the fiscal
year, the Company will evaluate the impact.
(11) 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 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) (UNAUDITED):
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
----------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS:
Communications services $ 874 $ 581
Equipment distribution 17,932 18,950
Technology 73 -
Manufacturing 7,616 9,742
-------------- -------------
26,495 29,273
REVENUES FROM OTHER SEGMENTS:
Equipment distribution 1,922 842
Manufacturing 896 12,672
-------------- -------------
2,818 13,514
-------------- -------------
TOTAL REVENUES 29,313 42,787
-------------- -------------
INTER-SEGMENT ELIMINATIONS (2,818) (13,514)
-------------- -------------
CONSOLIDATED REVENUES $ 26,495 $ 29,273
-------------- -------------
-------------- -------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
----------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
NET LOSS:
Communications services $ (11,811) $ (3,885)
Equipment distribution (2,262) (1,535)
Technology (3,086) (3,795)
Manufacturing (1,566) (5,315)
Other (4,589) (1,243)
-------------- -------------
TOTAL NET LOSS (23,314) (15,773)
-------------- -------------
INTER-SEGMENT ELIMINATIONS - -
-------------- -------------
CONSOLIDATED NET LOSS $ (23,314) $ (15,773)
-------------- -------------
-------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
----------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
DEPRECIATION AND AMORTIZATION:
Communications services $ 2,767 $ 1,604
Equipment distribution 1,218 926
Technology 240 75
Manufacturing 410 509
Other 59 -
-------------- -------------
TOTAL DEPRECIATION AND AMORTIZATION 4,694 3,114
-------------- -------------
INTER-SEGMENT ELIMINATIONS - -
-------------- -------------
CONSOLIDATED DEPRECIATION AND AMORTIZATION $ 4,694 $ 3,114
-------------- -------------
-------------- -------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
----------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
INTEREST EXPENSE:
Communications services $ (1,499) $ 13
Equipment distribution (711) (407)
Technology - -
Manufacturing (361) (534)
Other 85 (1,328)
-------------- -------------
TOTAL INTEREST EXPENSE (2,486) (2,256)
-------------- -------------
INTER-SEGMENT ELIMINATIONS - -
-------------- -------------
CONSOLIDATED INTEREST EXPENSE $ (2,486) $ (2,256)
-------------- -------------
-------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
----------------------------------
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
-------------- -------------
-------------- -------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
----------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
EXPENDITURES TO ACQUIRE LONG-LIVED ASSETS:
Communications services $ 10,511 $ 44,426
Equipment distribution 841 542
Technology 233 375
Manufacturing 216 484
Other 3,425 309
-------------- -------------
TOTAL EXPENDITURES TO ACQUIRE LONG-LIVED ASSETS 15,216 46,136
-------------- -------------
INTER-SEGMENT ELIMINATIONS -
-------------- -------------
CONSOLIDATED EXPENDITURES TO ACQUIRE LONG-LIVED ASSETS $ 15,216 $ 46,136
-------------- -------------
-------------- -------------
</TABLE>
SEGMENT INFORMATION BY GEOGRAPHIC AREA (UNAUDITED):
Revenues are attributed to geographic area by destination of the goods
or services (e.g. European revenues will comprise only those sales to
European customers. Radiocoms sales to external U.S. customers will be U.S.
sales).
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
----------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS:
United States $ 10,094 $ 11,653
Europe 16,328 17,620
Asia 73 -
-------------- -------------
CONSOLIDATED REVENUES 26,495 29,273
-------------- -------------
REVENUES BETWEEN GEOGRAPHIC AREAS:
United States 2,818 13,514
-------------- -------------
ELIMINATIONS (2,818) (13,514)
-------------- -------------
$ 0 $ 0
-------------- -------------
-------------- -------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
-------------- -------------
<S> <C> <C>
ASSETS:
Communications services $ 62,170 $ 54,247
Equipment distribution 34,223 32,641
Technology 1,736 1,218
Manufacturing 10,411 16,574
Other 6,219 10,930
-------------- -------------
TOTAL ASSETS 114,759 115,610
-------------- -------------
INTER-SEGMENT ELIMINATIONS (2,291) (3,045)
-------------- -------------
CONSOLIDATED ASSETS $ 112,468 $ 112,565
-------------- -------------
-------------- -------------
</TABLE>
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
-------------- -------------
<S> <C> <C>
LONG-LIVED ASSETS:
Communications services $ 60,875 $ 53,114
Equipment distribution 18,502 20,515
Technology 1,287 1,218
Manufacturing 3,734 4,465
Other 6,569 1,519
-------------- -------------
TOTAL LONG-LIVED ASSETS 90,967 80,831
-------------- -------------
INTER-SEGMENT ELIMINATIONS (4,138) (2,695)
-------------- -------------
CONSOLIDATED LONG-LIVED ASSETS $ 86,829 $ 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.
(12) 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 former 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. Mr.
Simmonds resigned from the Board of Directors in July, 1998. 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, other than Robert Shiver, Roger Wiggs, and Michael Wilkinson,
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 nine months ended
June 30, 1998, the Company paid directors fees of $60,000.
15
<PAGE>
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 nine
months ended June 30, 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 June 30, 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 $82,000 during the
first nine months 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 nine months of fiscal
1998, Kelly & Povich, P.C. received fees of approximately $137,000 and
Squire, Sanders & Dempsey L.L.P. has received no fees.
In March 1998, Intek repurchased 352,500 shares of Common Stock 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 16 "Related Party
Borrowings."
(13) COMMITMENTS
The Company has entered into 167 site leases for the housing of radio
base station equipment and antenna systems. 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 June 30, 1998, total
future minimum lease payments are as follows (in thousands):
<TABLE>
<S> <C>
1998 $701
1999 1,799
2000 940
2001 285
2002 77
Thereafter 29
--------
$3,831
</TABLE>
As of June 30, 1998, MUSA had a purchase commitment with its main
supplier of radios to purchase $2,473,000 of inventory, see note 4.
"Financial Instruments."
16
<PAGE>
(14) EMPLOYMENT AGREEMENTS
As of June 30, 1998, 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 $1,300,000.
(15) 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 uses the Credit Facility for
issuance of letter of credit commitments on behalf of MUSA, and for
borrowings for working capital. As of June 30, 1998, there was indebtedness
of $1,124,000 under this Credit Agreement.
(16) 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 June 30, 1998, the Company
had approximately $3,585,000 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.
17
<PAGE>
As a result of the above agreements, the June 30, 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 17,748
------------
$26,748
------------
------------
</TABLE>
c) 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 June 30, 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 June 30, 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 June 30, 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 nine months 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
18
<PAGE>
(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 nine months 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
In December 1997, Intek, through its subsidiary Roamer One, completed
the acquisition of substantially all the assets of Wireless Plus, Inc.
("Wireless Plus"), 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 an aggregate purchase price of $106,406. The
purchase price paid by the Company to Wireless Plus was as follows: (a)
$100,000 paid 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 payable annually. The note principal is payable in two equal
annual installments due in February 1999 and February 2000. During the first
nine months of fiscal 1998, the Company paid Wireless Plus a total of
$2,500,000.
(18) ACQUISITION OF MOBILE DATA SOLUTIONS
In May, 1998 the Company completed the acquisition of stock of Data
Express, a major developer and provider of wireless data solutions for the
mobile marketplace. The Company issued 400,608 shares of Common Stock as full
payment for the stock of Data Express.
(19) TECHNOLOGY AGREEMENTS
In the third quarter, the Company entered into a 5-year technology,
development and supply agreement between its Linear Modulation Technology
("LMT") subsidiary and Nokia Telecommunications OYJ ("Nokia"), a subsidiary
of Nokia Corporation. Nokia's Trans European Trunked Radio ("TETRA") product
lines proposes to incorporate key components of the Company's proprietary
linear modulation technology. The TETRA standard is the only European
standard for digital Professional Mobile Radio.
(20) 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
19
<PAGE>
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.
(21) SUBSEQUENT EVENTS
The Company announced on July 27, 1998 that Robert M. Hardy was
appointed the President of Intek Global, USA, the combined operations of MUSA
and Roamer One.
The Company announced on July 29, 1998 that it has received official FCC
approval to market the first spectrum-efficient Very High Frequency ("VHF")
high band mobile radio system for frequencies between 150 and 162 MHz. The
VHF system is based on the Company's linear modulation technology.
The Company announced on August 4, 1998 that George A. Valenti was
appointed the Chief Financial Officer of the Company.
The Company announced on August 11, 1998 the appointments of Howard
Frank, Ph.D and Eli M. Noam Ph.D to the Board of Directors. The Company also
announced the resignation of John Simmonds from the Board of Directors.
The Company is presently in negotiations to sell certain assets of the
Equipment and Services Unit of Radiocoms for cash. The assets to be sold
relate to certain non-core business activities in the U.K. which include the
operation of a wireless business radio network, distribution of mobile radio
systems equipment and contract engineering support and equipment maintenance.
Management of the Company expects the transaction to be consummated in the
fourth quarter. The Company anticipates that it will receive approximately
$8,000,000 in proceeds.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion sets forth certain factors which produced
changes in the Company's results of operations during the nine months ended
June 30, 1998 as compared with the same period in 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 has developed and
continues to develop 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 has 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 will be September 15,
1998. This delay in the auction will significantly hinder the Company's
ability to reduce its inventory levels, especially through third party sales
in the near term.
The Company expects to incur operating losses and have a negative cash
flow from operations for at least 1 year. This mainly results from expenses
related to the roll-out of the Roamer One Network and the Company's
continuing investment in research and development related to LM Technology
and products.
21
<PAGE>
RESULTS OF OPERATIONS
Results of operations for the nine months ended June 30, 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, financial data for the first nine months of fiscal 1998 compared to
the first nine months of fiscal 1997, as a percentage of revenue.
<TABLE>
<CAPTION>
YTD YTD
Fiscal Fiscal
1998 1997
------ ------
<S> <C> <C>
Revenues:
Communications Services 3% 2%
Equipment Distribution 68% 65%
Technology - -
Manufacturing 29% 33%
------ ------
Consolidated 100% 100%
------ ------
Cost of Goods and Services Provided:
Communications Services 389% 203%
Equipment Distribution 65% 73%
Technology 77% -
Manufacturing 73% 99%
------ ------
Consolidated 79% 84%
------ ------
Other Operating Expenses:
Communications Services 574% 292%
Equipment Distribution 37% 28%
Technology - -
Manufacturing 37% 45%
Corporate - -
------ ------
Consolidated 82% 55%
------ ------
Operating Loss, before depreciation, and
amortization :
Communications Services (863%) (395%)
Equipment Distribution (17%) (1%)
Technology - -
Manufacturing (89%) (44%)
Corporate - -
------ ------
Consolidated (61%) (40%)
Depreciation and Amortization (18%) (10%)
------ ------
Operating Loss (79%) (50%)
------ ------
</TABLE>
22
<PAGE>
NINE MONTH PERIOD ENDED JUNE 30, 1998 COMPARED TO NINE MONTH PERIOD ENDED
JUNE 30, 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 nine months ended June 30, 1997 include the statements of Intek and its
wholly-owned subsidiaries, Roamer One and MUSA from December 3, 1996 through
June 30, 1997 and include the accounts of Radiocoms from October 1, 1996
through June 30, 1997. The consolidated statements for the nine months ended
June 30, 1998 include the accounts of Intek and all of its subsidiaries for
the entire nine 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 June 30, 1998, Roamer One had approximately 6,600
internally generated subscribers as well as approximately 2,600 subscribers
from the Wireless Plus acquisition for a total of approximately 9,200
compared to approximately 1,000 at September 30, 1997. Subscriber revenues
for the nine months ended June 30, 1998 were $444,000.
Subscribers to Relayfone, a public access mobile radio system operating
from 10 sites in the U.K., numbered approximately 1,360 at June 30, 1998
compared to approximately 1,800 at June 30, 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 $567,000 for the
first nine months of fiscal 1997 to $430,000 for the comparable period of
fiscal 1998.
EQUIPMENT DISTRIBUTION
Sales by the Company's U.S. equipment distribution business for the
first nine months of fiscal 1998 were $9,455,000. Sales for the first nine
months of fiscal 1998 were 13% lower than for 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 1998 returned to
more normal levels. 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 selected products on a timely basis in late
December 1997. Sales began to increase during the second and third quarters
of fiscal 1998 due to an improved supply of product and an aggressive
marketing campaign.
For first nine months of fiscal 1998, Radiocoms had revenues from
equipment distribution and related services of $8,282,000 a 13% increase from
that reported for the comparable period of fiscal 1997. The increase is due
to a more focused management of the sales team. 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 nine months of fiscal
1998 were $195,000, compared to $853,000 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 220MHz repeater
site equipment will be minimal until after the Phase II Licensing auction by
the FCC, which has been delayed and is now scheduled to commence to September
15, 1998. While marketing will commence after the Phase II auction, there is
no assurance that sales will be made to licensees.
TECHNOLOGY
In the third quarter, the Company entered into a 5-year technology,
development and supply agreement between its Linear Modulation Technology
("LMT") subsidiary and Nokia Telecommunications OYJ ("Nokia"), a subsidiary
of Nokia Corporation. Nokia's Trans European Trunked Radio ("TETRA") product
lines proposes to incorporate key components of the Company's proprietary
linear modulation technology. The TETRA standard is
23
<PAGE>
the only European standard for digital Professional Mobile Radio. The Company
received progress payments of $73,000 from Nokia during the nine months ended
June 30, 1998.
South Korea's Kukjae Electronics, Ltd. Co. ("Kukjae"), one of Korea's
leading manufacturers of mobile radio equipment, agreed in February, 1998, to
adopt the Company's patented LM Technology. The agreement, which was entered
into in February, 1998 allows 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.
Pursuant to the agreement, the Company provided Kukjae with the equipment and
technical assistance needed to develop a demonstration system to introduce LM
Technology to Korean industry, academic and government authorities. The
demonstration period has not yet been sufficient to determine the financial
impact of this agreement on the Company. 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.
MANUFACTURING
U.K. contract manufacturing revenues were $7,533,000 for the nine months
ended June 30, 1998. This was a decline of 23% over the comparable period of
fiscal 1997. As of June 30, 1998, the order backlog was $6,923,000 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 nine months of fiscal 1998, Roamer One's site and technical
support expenses were $3,193,000, compared to $946,000 for the first nine
months 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 nine months of fiscal
1998 was $210,000, down slightly from $231,000 for the same period in fiscal
1997. Costs include licenses and site rentals which are fixed in nature and
are not volume related.
EQUIPMENT DISTRIBUTION
For the first nine months of fiscal 1998, the Company's U.S. equipment
business had a cost of sales of $5,682,000 (60% of sales) compared to 72% of
sales for the same period 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 $5,743,000 for the first nine months of
fiscal 1998 was 69% of sales, which is an improvement over 70% for the
comparable period of fiscal 1997.
For the first nine months of fiscal 1998, Roamer One had a cost of sales
of $186,000 (60% of sales) compared to 113% of sales for the same period of
fiscal 1997. Sales in 1997 were primarily repeater site equipment while sales
in 1998 were mobile radios.
MANUFACTURING
Cost of sales consists of raw materials, labor and factory associated
overhead. The percentage of cost of sales to net sales decreased to 73% for
the first nine months of fiscal 1998, compared to 99% for the comparable
period of fiscal 1997. More aggressive purchasing activities have been
instigated to reduce future cost of sales.
24
<PAGE>
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 nine months of fiscal 1998 were $3,021,000. Sales and marketing
expenses have been 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
nine months of fiscal 1998 were $1,157,000.
EQUIPMENT DISTRIBUTION
MUSA selling expenses are primarily sales staff salaries and bonuses,
travel, advertising promotion, and trade shows. Selling expenses for the
first nine months of fiscal 1998 were $2,243,000 (20% of related sales).
General and administrative expenses are salaries, facilities costs, data
processing charges and insurance. General and administrative expenses for the
first nine months of fiscal 1998 were $2,502,000 (22% 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 $607,000 (7% of related sales) for
the first nine months of fiscal 1998, an improvement over $715,000 (10% of
related sales) for the comparable nine months of fiscal 1997 as the sales
staff headcount has declined and commission programs have been restructured.
General and administrative expenses were $1,239,000 for the first nine months
of fiscal 1998 compared to $1,427,000 for the same period of fiscal 1997.
TECHNOLOGY
Research and development expenses of $1,360,000 for the first nine
months of fiscal 1998 were 47% lower than for the comparable period 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 $1,503,000 for the first nine months of
fiscal 1998 from $1,151,000 for the comparable period of fiscal 1997.
MANUFACTURING
Combined selling, general and administrative expenses totaled $2,846,000
for the first nine months of fiscal 1998, compared to $4,370,000 for the
comparable period of fiscal 1997. The reduction was due to headcount
reductions and associated reduction of overhead.
CORPORATE
Corporate expenses include salaries, consulting and management fees,
legal, audit, public relations and shareholder relations costs, and the cost
of maintaining a corporate office. General and administrative expenses for
the nine months ended June 30, 1998 were $3,186,000.
RESTRUCTURING CHARGES
During the third quarter of fiscal 1998, the Company recorded a
restructuring charge of $1,613,000 related to planned staff reductions,
termination of lease costs associated with the consolidation of office space
and site leases, equipment removal costs, and a charge related to the
repositioning of selected products in its market channels.
In conjunction with the restructuring, the Company has decided to
eliminate and deconstruct certain sites that are not deemed essential to the
Company's growth strategy, consolidate office space and reduce the number of
associated sales force. In addition, the Company has elected to consolidate
financial and customer service functions at its headquarters in Kansas City,
Missouri to gain efficiencies and economies of scale.
25
<PAGE>
OPERATING LOSS, BEFORE DEPRECIATION AND AMORTIZATION
COMMUNICATIONS SERVICES
Roamer One's loss during first nine months of fiscal 1998 was
$9,639,000. 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. As described below under "Reserve for
restructuring", the Company has begun the process of consolidating the Roamer
One accounting and billing functions into the Company's operations in Kansas
City, Missouri. The Company has terminated employees who perform duplicate
functions and sales personnel whose regions are not deemed critical to the
Company's near-term subscriber loading strategy. The Company has begun to
deconstruct certain sites that are not deemed to be essential to the
Company's growth plans.
Relayfone achieved a profit of $165,000 during the first nine months of
fiscal 1998. This was a decline of $105,000 compared to a profit of $270,000
during the comparable period of fiscal 1997 as a result of the decline in
average subscriber count on a high fixed cost base.
EQUIPMENT DISTRIBUTION
For the first nine months of fiscal 1998, the operating loss was
$1,611,000 for the Company's U.S. equipment distribution business or 17% of
related sales. This compares to an operating loss of $521,000 or 5% of sales
for the comparable period of fiscal 1997.
For the first nine months of fiscal 1998, Radiocoms earned an operating
profit of $99,000 (1% of related sales). This is an improvement over the loss
of $493,000 (7% of related sales) for the comparable period of fiscal 1997.
TECHNOLOGY
For the first nine months of fiscal 1998, the operating loss was
$3,086,000 on sales revenue of $73,000. For the comparable period of fiscal
1997, the operating loss was $3,795,000 and there were no license fees earned.
MANUFACTURING
For the first nine months of fiscal 1998, the operating loss was
$795,000 (10% of sales), compared to an operating loss of $4,781,000 (49% of
sales) for the comparable period of fiscal 1997.
RESTRUCTURING CHARGES
During the third quarter of fiscal 1998, the restructuring charge
increased the operating loss by $1,613,000.
DEPRECIATION AND AMORTIZATION
Depreciation of fixed assets and amortization of the intangible assets
related to the Radiocoms Acquisition and Midland Transaction were $4,694,000
and $3,114,000, respectively, for the first nine months of fiscal years 1998
and 1997. The 51% 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 nine months of fiscal 1998 was $2,623,000
which was offset by interest income of $137,000 for net interest expense of
$2,486,000 compared to $2,256,000 for the first nine months of fiscal 1997.
Of the interest expense, $208,000 related to borrowings from third parties
and $2,415,000 related to borrowings from Securicor (of which $2,170,000 was
added to principal and the balance is accrued).
26
<PAGE>
NET LOSS
The consolidated net loss for the first nine months of fiscal 1998 was
$23,314,000. For the first nine months of fiscal 1997, the net loss was
$15,773,000. 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
stock holders for first nine months of fiscal 1998 was $24,213,000.
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
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 nine months of fiscal 1998, the Company used $9,604,000 in
cash for operating activities, $4,964,000 was spent for capital expenditures
and $7,946,000 was spent for FCC licenses. Through its financing activities,
the Company raised approximately $11,530,000 in gross proceeds from
Securicor. The Company also borrowed $934,000 through a bank overdraft
facility in the U.K. The Company incurred $2,773,000 of short term debt, of
which $1,194,000 was capital leases and bank lines of credit and $1,579,000
was related to the acquisition of the FCC licenses and Wireless Plus assets.
The $1,312,000 increase in of 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 Common Stock in the public market and in a private
transaction.
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 17 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.
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
27
<PAGE>
MUSA's ability to repay intercompany indebtedness and repayment provisions
related to change in control of MUSA. The Company uses borrowings under this
Credit Agreement as security for letter of credit commitments and working
capital on behalf of MUSA. As of June 30, 1998, there was indebtedness of
$1,124,000 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 commitments, at June 30, 1998, the Company
had approximately $3,585,000 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 (111/2%)
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 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.
The Company is presently in negotiations to sell certain assets of the
Equipment and Services Unit of Radiocoms for cash. The assets to be sold
relate to certain non-core business activities in the U.K. which include the
operation of a wireless business radio network, distribution of mobile radio
systems equipment and contract engineering support and equipment maintenance.
Management of the Company expects the transaction to be consummated in the
fourth quarter. The Company anticipates that it will receive approximately
$8,000,000 in proceeds.
Additional funding will be required by the Company in fiscal 1999 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 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,
28
<PAGE>
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.
29
<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
During the third quarter of fiscal 1998, the Company issued an aggregate
of 400,608 shares of Common Stock for the acquisition of stock of Data
Express from its 12 shareholders. This transaction is described in Item
1. FINANCIAL STATEMENTS. Note 18, "Acquisition of Mobile Data Solutions."
During the third quarter of fiscal 1998, the Company issued, under Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"), an
aggregate of 400,608 shares of Common Stock for the acquisition of those
shares of Data Express.
(d) Not applicable.
Item 3. Defaults Upon Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
30
<PAGE>
Item 5. Other Information.
Recently, the SEC amended its rule governing a company's ability to use
discretionary proxy authority with respect to shareholder proposals which
were not submitted in time by the shareholders to be included in the proxy
statement. As a result of that rule change, in the event a shareholder
proposal is not submitted to the Company prior to December 14, 1998, the
proxy to be solicited by the Board of Directors for the 1999 Annual Meeting
of Shareholders will confer authority on the holders of the proxy to vote the
shares in accordance with their best judgment and discretion if the proposal
is presented at the 1999 Annual Meeting of Shareholders without any
discussion of the proposal in the proxy statement for such meeting.
Item 6. Exhibits and Reports on Form 8-K.
(a) None
<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)
4 Instruments defining rights of security holders (3)
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)
18 Letter re change in accounting principles (3)
19 Report furnished to security holders (3)
21 Subsidiaries (4)
22 Published Report regarding matters submitted to vote of security
holders (3)
23 Consents (3)
24 Power of Attorney (3)
27 Financial Data Schedule (5)
</TABLE>
(1) This exhibit is contained in the Registrant's Quarterly Report on Form 10Q
for the quarter ended March 31, 1998, filed with the Commission on May 15,
1998 (Commission File No. 0-9160) and incorporated herein by reference.
(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
31
<PAGE>
(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.
(5) Included in this report.
(b) Reports on Form 8-K.
None.
32
<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: August 14, 1998
INTEK GLOBAL CORPORATION
By: /s/ George A. Valenti
---------------------------------
George A. Valenti
Chief Financial Officer
33
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,940,000
<SECURITIES> 0
<RECEIVABLES> 7,427,000
<ALLOWANCES> 1,232,000
<INVENTORY> 14,568,000
<CURRENT-ASSETS> 25,639,000
<PP&E> 33,010,000
<DEPRECIATION> 8,123,000
<TOTAL-ASSETS> 112,468,000
<CURRENT-LIABILITIES> 18,366,000
<BONDS> 0
106,704,000
0
<COMMON> 35,112,000
<OTHER-SE> (76,156,000)
<TOTAL-LIABILITY-AND-EQUITY> 112,468,000
<SALES> 21,347,000
<TOTAL-REVENUES> 26,495,000
<CGS> 15,566,000
<TOTAL-COSTS> 20,948,000
<OTHER-EXPENSES> 26,971,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,486,000)
<INCOME-PRETAX> (23,310,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,314,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,314,000)
<EPS-PRIMARY> (.58)
<EPS-DILUTED> (.58)
</TABLE>
