SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Form 10Q/A
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1994
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 0-17581
GEOTEK COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 22-2358635
(State or other jurisdiction (I.R.S. Employer Identification)
of incorporation or organization)
20 Craig Road, Montvale, New Jersey 07645
(Address of Principal Executive Office) (Zip Code)
(201) 930-9305
(Registrant's Telephone Number Including Area Code)
Indicate by check 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 12 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
--
COMMON STOCK OUTSTANDING AT NOVEMBER 7, 1994: 50,120,332 SHARES
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Note 1)
September 30, 1994 December 31,
(Unaudited) 1993*
ASSETS
Current Assets:
Cash and equivalents $ 47,217 $ 51,686
Temporary investments 7,873
Receivables, net 14,829 11,507
Inventories 9,818 6,468
Prepaid expenses and other assets 4,771 2,516
--------- ---------
Total current assets 76,635 80,050
Investments in affiliates and other
investments 26,330 1,973
Property, plant and equipment, net 22,529 17,536
Intangible assets, net 43,997 29,741
Other assets 6,084 6,344
--------- ---------
$ 175,575 $ 135,644
========= =========
See notes to consolidated financial statements.
*Amounts have been restated as a result of the pooling with Metro Net as more
fully described in Note 2.
2
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Note 1)
September 30,1994 December 31,
(Unaudited) 1993*
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, banks and other $ 6,383 $ 2,996
Current maturities, long-term debt 26,344 1,293
Accounts payable, trade 6,561 8,441
Accrued expenses and other 13,714 8,743
--------- ---------
Total current liabilities 53,002 21,473
Long-term debt 2,607 3,961
Other non-current liabilities 171 745
Minority interest 406 221
Redeemable preferred stock 40,000 40,000
Commitments and Contingent Liabilities
Shareholders' equity:
Preferred stock, $.01 par value 3
Common stock, $.01 par value:
authorized 86,000,000 and 58,000,000,
respectively; issued 50,061,000 and
45,989,000, respectively; outstanding
49,823,000 and 45,751,000, respectively 501 460
Capital in excess of par value 174,550 137,151
Foreign currency translation adjustment 932 (204)
Accumulated deficit (95,208) (66,780)
Treasury stock, at cost (1,386) (1,386)
--------- ---------
79,389 69,244
--------- ---------
$ 175,575 $ 135,644
========= =========
See notes to consolidated financial statements.
*Amounts have been restated as a result of the pooling with Metro Net as more
fully described in Note 2.
3
<PAGE>
<TABLE>
<CAPTION>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
(Note 1)
Nine Months Ended Three Months Ended
September 30, September 30,
1994 1993* 1994 1993*
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net sales $31,818 $26,510 $11,413 $10,299
Service income 17,569 6,354 6,221 5,066
-------- -------- -------- --------
Total revenues 49,387 32,864 17,634 15,365
-------- -------- -------- --------
Costs and expenses:
Cost of goods sold 19,897 18,179 6,996 7,200
Cost of services 12,548 4,392 4,515 3,640
Research and development 14,973 8,454 4,506 3,449
Research and development grants (3,444) (961) (2,028) (719)
Acquisition of minority interest of a subsidiary
assigned to a research and development project 33,581 33,581
Marketing 11,444 5,451 3,849 2,349
General and administrative 18,105 8,325 6,994 3,476
Interest expense, net and other 2,780 675 3,762 651
Equity in losses of investees 1,218 8 1,030 8
-------- -------- -------- --------
Total costs and expenses 77,521 78,104 29,624 53,635
-------- -------- -------- --------
Loss from continuing operations before
minority interest (28,134) (45,240) (11,990) (38,270)
Interest of others in consolidated subsidiaries (294) 1,532 ( 114) 329
-------- -------- -------- --------
Loss from continuing operations (28,428) (43,708) (12,104) (37,941)
Gain on disposal of discontinued operations 323
-------- --------
Loss before cumulative effect of accounting
change (28,428) (43,385) (12,104) (37,941)
Cumulative effect of change in fiscal year
of subsidiary ( 1,207)
-------- --------
Net loss $(28,428) $(44,592) $(12,104) $(37,941)
-------- -------- -------- --------
Preferred dividends and accretion (1,503) (141) ( 504) ( 32)
-------- -------- -------- --------
======== ======== ======== ========
Loss applicable to common stock $(29,931) $(44,733) $(12,608) $(37,973
Weighted average number of common shares
outstanding 49,317,000 31,744,000 49,383,000 41,226,000
Per common share:
Loss from continuing operations $(0.61) $(1.39) $(0.26) $(0.92)
Gain on disposal of discontinued operations 0.01
-------- --------
Loss before extraordinary item and
cumulative effect (0.61) (1.38) (0.26) (0.92)
Cumulative effect of change in fiscal year
of subsidiary (0.03)
Net loss applicable to common shares $(0.61) $(1.41) $(0.26) $(0.92)
====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
*Amounts have been restated as a result of the pooling with Metro Net as more
fully described in Note 2.
4
<PAGE>
<TABLE>
<CAPTION>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
as of and for the Nine Months Ended September 30, 1994
(In Thousands)
(Unaudited)
Foreign
Capital in Currency
Preferred Stock
--------------- Common Stock Excess of Translation Accumulated Treasury
Shares Amount Shares Amount Par Value Adjustment Deficit Stock
------ ------ ------ ------ --------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994* 345 $3 45,989 460 $137,151 $ (204) $(66,780) $ (1,386)
Issuance of common stock and preferred
stock:
Exercise of warrants and options 664 7 1,889
Conversion of preferred stock (345) (3) 345 3
Issuance of shares in connection with
acquisition of additional interest
in Bogen 233 3 3,427
Issuance of shares to Vanguard pursuant
to stock purchase agreement 2,500 25 29,225
Issuance of shares to Vanguard pursuant
to management consulting agreement 180 2 1,807
Issuance of shares in connection with
acquisition of additional interest
in GMSI 150 1 1,629
Issuance of Siegler, Collery warrants 925
Preferred dividend (1,503)
Changes in currency 1,136
Net Loss (28,428)
----- ---- ------ ------ -------- -------- -------- --------
Balances, September 30, 1994 0 0 50,061 $ 501 $174,550 $ 932 $(95,208) $ (1,386)
===== ==== ====== ====== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
*Amounts have been restated as a result of the pooling with Metro Net as a more
fully described in Note 2.
5
<PAGE>
<TABLE>
<CAPTION>
GEOTEK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
(Note 1)
Nine Months Ended
September 30,
-------------
1994 1993*
-------- --------
Cash flows from operating activities:
<S> <C> <C>
Net loss $(28,428) $(44,592)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Minority interest 294 (1,532)
Depreciation and amortization 3,980 2,601
Equity in net loss of investees 1,218 8
Non-cash management consulting expense 1,808
Non-cash acquisition of minority interest
of a subsidiary assigned to a research
and development project 33,581
Cumulative effect on prior year of changing
the fiscal year end of a subsidiary 1,207
Gain on disposal of discontinued operations (323)
Bad debt reserve 3,500
Changes in operating assets and liabilities, net (5,814) 721
Other 107 (53)
-------- --------
Net cash used in operating activities (23,335) (8,382)
======== ========
Cash flows from investing activities:
Acquisition of licenses (9,812) (3,987)
Net decrease in temporary investments 7,873
Proceeds from sale of subsidiaries shares 5,207
Acquisitions of property and equipment (6,601) (1,626)
Collection of notes receivable 389
Cash invested in acquisition of
subsidiaries, net (23,400) (26,337)
Restricted cash - letters of credit (2,555)
Loans receivable and other (3,748) (40)
-------- --------
Net cash provided by (used in)
investing activities $(37,854) $(26,783)
-------- --------
</TABLE>
See notes to consolidated financial statements.
* Amounts have been restated as a result of the pooling with Metro Net as more
fully describedd in Note 2.
6
<PAGE>
<TABLE>
<CAPTION>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(Dollars in thousands)
(Unaudited)
(Note 1)
Nine Months Ended
September 30,
------------------
1994 1993*
---- -----
<S> <C> <C>
Cash flows from financing activities:
Net borrowing (repayments) under line-of-credit agreements $ 2,947 $ (1,339)
Proceeds from debt 394
Repayments of debt (644) (1,649)
Issuance of senior secured notes and warrants 24,511 12,000
Net proceeds from issuance of stock to Vanguard 29,250
Net proceeds from stock offerings 18,531
Investment by others in stock of subsidiary 2,181
Exercise of warrants and options 1,896 24,740
Payment of preferred dividends (1,503) (79)
Other (470)
--------- ---------
Net cash provided by financing activities 55,987 54,779
--------- ---------
Effect of exchange rate changes on cash 733
--------- ---------
Increase (decrease) in cash and equivalents (4,469) 19,614
Increase in cash due to a change in the fiscal
year end of a subsidiary 5,638
Cash and equivalents, beginning of period 51,686 3,025
--------- ---------
Cash and equivalents, end of period $ 47,217 $ 28,277
========= =========
Supplemental cash flow information:
Interest paid $ 1,961 $ 870
Supplemental schedule of non-cash
investing and financing activities:
Summary of acquired subsidiaries:
Fair value of assets acquired $ 4,217
Liabilities assumed $ 2,029
Minority interest $ 185
Stock issued $ 2,122
Issuance of common stock to acquire:
PowerSpectrum, Inc., minority interest $ 37,405
Bogen, Inc., remaining minority interest $ 3,430
Conversion of Series A Preferred shares to
common shares $ 3
Issuance of common stock to acquire additional
interest in GMSI $ 1,630
</TABLE>
See notes to consolidated financial statements.
*Amounts have been restated as a result of the pooling with Metro Net as more
fully described in Note 2.
7
<PAGE>
GEOTEK COMMUNICATIONS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 Basis of Presentation:
The consolidated balance sheet of Geotek Communications Inc. (formerly
Geotek Industries, Inc.) as of the end of the 1993 fiscal year has
been derived from the audited consolidated balance sheet as restated
for the merger of Metro Net Systems Inc. (see Note 2) in the Company's
Form 8-K, filed May 19, 1994, and is presented for comparative
purposes. All other financial statements are unaudited. In the opinion
of Management, all significant adjustments and normal recurring
adjustments necessary to present fairly the financial position,
results of operations, and cash flows for all periods presented have
been made. The results of operations for interim periods are not
necessarily indicative of the operating results for the full year.
Footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been omitted in accordance with the published rules and
regulations of the Securities and Exchange Commission. These
condensed, consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included
in the Company's aforementioned Form 8-K and previously filed reports
on Form 10-Q.
Note 2 Acquisitions and Investments:
In January 1994 the Company completed a tender offer, whereby its
interest in Bogen increased from 91% to 99% in exchange for 230,293
shares of the Company's common stock. The shares have been valued at
$3.4 million, which amount has been recorded as additional goodwill.
In January 1994 the Company acquired through a merger all of the
outstanding stock of Metro Net Systems Inc. ("Metro Net") in
consideration for the issuance of 3,112,500 common shares of the
Company. The merger has been accounted for as a pooling of interests,
and accordingly, the Company's consolidated financial statements have
been restated for all periods prior to the transaction to include the
results of operations, financial positions, and cash flows of Metro
Net. Metro Net is a provider of wide-area SMR services in the New York
City area.
In January 1994 the Company acquired a 49% interest in Protocall
Ventures Ltd. ("Protocall") for $3.0 million. Protocall owns 25% of
the nationwide license for trunked radio service in Portugal and has
an interest in two regional public access mobile radio companies in
Germany. In July 1994 Protocall was granted ownership interests in
certain private radio licenses in Spain, and in accordance with the
terms of the purchase agreement, additional consideration of $0.8
million was paid. In the event Protocall is not granted permanent
licenses for certain temporary licenses it holds, a portion of the
purchase price (currently held in escrow) will be returned to the
Company.
8
<PAGE>
EOTEK COMMUNICATIONS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Acquisitions and Investments (contd):
In April 1994 the Company's interest in its GMSI subsidiary (formerly
known as Gandalf Mobile Systems, Inc.) increased from 66% to 76% upon
the exercise of an option held by the former owner of GMSI to transfer
its remaining interest in GMSI to the Company in exchange for 150,000
shares of the Company's common stock. The shares have been valued at
$1.6 million, which amount has been recorded as additional goodwill.
In July 1994 the Company acquired 49% of Preussag Bundelfunk GmbH
("PBG") for approximately $14.0 million in cash. PBG is a provider of
mobile radio services in Germany, with licenses covering a territory
with a population totaling approximately 8.1 million. The Company does
not have a controlling interest in PBG and accounts for its investment
under the equity method. Under the terms of its investment, the
Company has agreed to fund PBG and, after PBG's capital is exhausted,
will record 100% of PBG's losses as its share under the equity method.
Due to regulatory restrictions regarding the transfer of mobile radio
licenses, the Company cannot control PBG at this time. If and when
regulatory approval is obtained, the remaining 51% of PBG will be
transferred to the Company for no additional consideration and the
Company will consolidate the results of PBG in its financial
statements. The Company has guaranteed the repayment of certain debt
of PBG, due in 1999, to the seller, Preussag Mobilefunk GmbH ("PMG"),
of DM 3.5 million plus interest (approximately $2.4 million). This
guarantee has been secured by a letter of credit.
In August 1994 the Company acquired 49.9% of DBF Bundelfunk GmbH & Co.
("DBF") for approximately $5.3 million in cash. In addition, the
Company and the seller, Quante A.G., have each committed to contribute
DM 5.0 million (approximately $3.2 million) to DBF at predefined
intervals over the next year. DBF is a provider of mobile radio
services in Germany, holding licenses in territories complementary to
that of PBG, covering a population of approximately 22.0 million. The
Company and Quante were granted call and put options, respectively,
for the remaining 50.1% of DBF held by Quante. Upon the exercise of
either such option, the Company will pay additional consideration of
between DM 9.0 million and DM 12.0 million. The Company does not have
a controlling interest in DBF and will account for its investment
under the equity method.
Summarized combined financial information for affiliated companies
accounted for under the equity method is shown below on a 100 percent basis (in
thousands).
9
<PAGE>
GEOTEK COMMUNICATIONS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Results of Operations for the nine months ended September 30, 1994:
Gross revenues $ 1,753
Loss from operations and net loss 2,777
Financial position as of September 30, 1994:
Current assets $ 4,171
Non-current assets 15,673
Current liabilities 6,108
Non-current liabilities 3,999
Note 3 Long-Term Debt:
In June 1994 the Company issued and sold senior secured notes, due
September 1995, in the aggregate principal amount of $25.0 million
(the "Notes"), and five-year warrants to purchase 300,000 shares of
the Company's common stock at an exercise price of $7.875 per share
(the "Warrants"). The aggregate net proceeds to the Company from the
issuance and sale of the Notes and Warrants was $24.5 million,
of which $0.9 million has been allocated to the Warrants as well as
recorded as a discount on the Notes. The Notes bear interest at the
rate of 14.0% per annum, payable monthly until maturity. The Company's
obligations under the Notes are secured by a pledge of the Company's
shares in, and/or joint and several guarantees of, certain of the
Company's subsidiaries, including PowerSpectrum Inc., National Band
Three Limited, Metro Net Systems Inc., and Bogen Corporation. The
proceeds were used to fund the Company's acquisitions in Germany (see
Note 2).
Note 4 Commitments and Contingencies:
Digital Wireless Communication System:
The Company has committed to fund the development of the digital
wireless communication system being developed by PowerSpectrum
Technologies Ltd. ("PST"), its joint venture with Rafael Development
Corporation ("RDC"). This commitment is limited to approximately $28.4
million, less funds received from the Chief Scientist of the Israeli
Ministry of Industry and Commerce ("Chief Scientist"). Through
September 30, 1994, the Company had funded approximately $17.4 of such
amount. PST has placed an order with Rafael Armament Development
Authority of approximately $9.4 million for base stations to be used
in its U.S. digital wireless communications system, of which $1.5
million has been paid as of September 30, 1994.
10
<PAGE>
GEOTEK COMMUNICATIONS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Government Participation in Research and Development Project:
The Chief Scientist has agreed to fund certain eligible expenditures
related to the development of the digital wireless communication
system by PST. Funding received from the Chief Scientist is repayable
only from revenues generated by the product being developed. Such
participation amounted to $6.2 million from inception of the project
through September 30, 1994.
Forward Transactions:
In order to protect itself from losses which may arise from
differences between obligations denominated in foreign currencies and
dollar-denominated assets, the Company has entered into a series of
forward (hedging) transactions. As of September 30, 1994, the
aggregate value of these contracts was approximately $4.1 million.
Acquisition of Licenses:
The Company has entered into various agreements and letters of intent
to acquire SMR licenses and options to acquire such licenses. The
Company's aggregate contingent liability for license acquisition is
approximately $2.4 million at September 30, 1994.
FCC Waiver:
The Company has applied for and received a waiver by the FCC to
construct and activate certain systems it has acquired. In the event
the Company fails to construct or activate such systems in accordance
with the dates set forth in the waiver, the Company could lose the
waiver and lose all of the frequencies covered by such waiver to the
extent the systems have not been constructed or activated.
Litigation:
In June 1994 the Company filed a lawsuit against Harris Adacom
Corporation B.V. ("Harris"), a Dutch corporation, to enforce its
rights under a loan agreement between the parties. The Company is
seeking repayment of a $3.5 million loan made to Harris in January
1994 in connection with a potential purchase transaction between the
Company and Adacom Technologies Ltd. ("ATL"), an affiliate of Harris
and an Israeli publicly traded company. The loan was collateralized by
stock owned by Harris in ATL. At the time of the loan, the collateral
had a market value in excess of $10 million and the total market value
of ATL was in excess of $100 million. The purchase transaction was not
consummated. In May 1994 the market value of ATL dropped dramatically
and ATL became insolvent, thereby reducing the value of the collateral
to practically zero. At or about the same time, creditors placed
Harris into bankruptcy proceedings in the Netherlands. The Company
11
<PAGE>
EOTEK COMMUNICATIONS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Litigation (continued):
has recently received limited information relating to the
recoverability of the loan, and Management does not expect to recover
the full amount of the loan. The Company is aggressively pursuing its
rights under the loan in Dutch bankruptcy court and is awaiting
additional information on the assets and creditors of Harris. Based
upon the information currently available, it cannot be determined the
amount, if any, that will ultimately be recovered; therefore,
Management has decided to establish a reserve against the full amount
of the loan. Accordingly, the September 30, 1994, financial statements
include a charge of $3.5 million to establish this reserve.
In response to the Company's lawsuit, Harris and its subsidiaries
filed a lawsuit against the Company in the courts of the State of
Israel, requesting a declaratory judgment that the Company entered
into a binding agreement for the purchase by the Company of a
significant interest in certain wireless communication business assets
owned by ATL and subsequently breached such agreement. The plaintiffs
in such action have stated an intention to file a separate claim for
monetary damages and have estimated their losses to be several million
dollars. The Company believes none of plaintiffs' claims in such
action have any merit and are only an attempt to delay efforts to
collect Harris's debt to the Company. The Company intends to defend
such action vigorously.
The Company is subject to various other legal proceedings arising in
the ordinary course of business. In the opinion of Management, all
such matters are without merit or are of such kind or involve such
amounts as would not have a significant adverse effect on the
financial position or results of operations of the Company if disposed
of unfavorably.
Note 5 Preferred Stock:
At September 30, 1994, there were 15 shares of Series E Preferred
Stock issued and outstanding. At December 31, 1993, there were 345,000
of Series A Preferred Stock and 30 shares of Series E Preferred Stock
issued and outstanding. In February 1994 all of the Series A Preferred
shares then outstanding were converted into an equal number of common
shares.
Common Stock:
In February 1994 the Company sold 2.5 million shares of common stock
to Vanguard Cellular Systems Inc. ("Vanguard") for a total of $30
million (before expenses of $800,000). Pursuant to the stock purchase
agreement, Vanguard was also granted the right to invest up to an
additional $167 million in a series of related non-transferable
12
<PAGE>
GEOTEK COMMUNICATIONS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
options ("Options") to purchase up to 10 million additional shares of
common stock. The Options provide that in the event any of the Options
expire without exercise, the remaining Options terminate immediately.
Vanguard has agreed, for a period of three years after the initial
purchase, not to acquire securities of the Company if such acquisition
would result in Vanguard holding in excess of 20.1% of the outstanding
voting securities of the Company on a fully diluted basis, provided,
however, that Vanguard may acquire not more than an additional 5% if
all unexpired Options are out-of-the-money.
Note 6 Interest Expense, Net and Other:
Interest expense for the nine months ended September 30, 1994 and
1993, amounted to $1,457,000 and $1,761,000, respectively. Interest
income for the nine months ended September 30, 1994 and 1993, amounted
to $1,730,000 and $347,000, respectively. Interest paid to and
received from related parties is not significant. Included in the
September 30, 1994, financial statements is a charge of $3.5 million
for a reserve against a loan receivable (see Note 4).
Note 7 Certain Related Party Transactions:
In connection with the issuance of common shares and options to
Vanguard in February 1994, the Company entered into a five-year
management consulting agreement with Vanguard, pursuant to which
Vanguard will provide operational and marketing support to the Company
for an aggregate of 1.5 million shares of common stock. Such
management consulting agreement will terminate upon Vanguard's failure
to exercise any of the Options. For the period ended September 30,
1994, Vanguard earned approximately 180,000 shares pursuant to this
agreement, which have been recorded at approximately $1.8 million.
For the nine months ended September 30, 1994, the Company incurred
expenses of $225,000 pursuant to its consulting agreement with the
Soros Group, who are the holders of the Company's Series H redeemable
preferred shares.
Note 8 Subsequent Events:
The Company has executed two separate agreements to issue a total of
40 shares of Series I Convertible Preferred Stock at a price of
$500,000 per share or total consideration of $20.0 million. The Soros
Group (currently holders of 100% of the Company's Series H Cumulative
13
<PAGE>
GEOTEK COMMUNICATIONS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Subsequent Events (continued):
Convertible Preferred Stock) has agreed to purchase 20 shares, and the
Company's partner in a Korean joint venture has agreed to purchase 20
shares. The shares bear a dividend, payable quarterly in either cash
or common shares, for five years at a rate of 7% per annum and carry a
conversion premium. The shares are redeemable by the Company (in
either cash or common shares) if the price of the Company's common
stock exceeds 150% of the conversion price for any 20 days within a
period of 30 consecutive days. Closing of the transaction with the
Korean joint-venture partner is subject to certain regulatory
approvals.
14
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
Over the past two years, the Company has aggressively restructured its
business operations to reflect its strategic focus on wireless communications.
To accomplish this, the Company has divested certain businesses and has
consummated various transactions to develop its wireless communications
business. Due to these transactions, it is difficult to compare the Company's
results of operations from period to period. In addition, the Company's past
operating results may not be indicative of the Company's future results of
operations because of the Company's decision to become a wireless communications
company. Although Management believes its current strategy will have a positive
effect on the Company's results of operations in the long term, this strategy is
expected to have a substantial negative effect on the Company's results of
operations in the short term. The Company expects to incur substantial losses in
1994 and for the foreseeable future, attributable in part to a high investment
in research and development related to its wireless communications activities.
The Company currently groups its operations primarily into two types of
activities: wireless communications and communications products. The Company's
wireless communications subsidiaries are engaged primarily in providing trunked
mobile radio services utilizing analog equipment, developing and selling
wireless data solutions, and developing a digital wireless communications system
to provide integrated wireless communications services. The Company's
communications products subsidiaries are primarily engaged in the development,
manufacturing, and marketing of telephone and facsimile peripherals and sound
and communications equipment.
The Company's merger with Metro Net Systems Inc. ("Metro Net") in January
1994 was accounted for as a pooling of interests; therefore, the Company's 1993
financial statements have been restated to include the results of Metro Net. All
amounts referred to in the following analysis include the results of Metro Net
for both 1994 and 1993.
Consolidated revenues for the nine months ended September 30, 1994,
amounted to $49.4 million, an increase of $16.5 million or 50% above
consolidated revenues for the same period of 1993. Revenues for wireless
communications activities were $18.3 million in 1994 and $6.8 million in 1993.
Revenues for communications products activities were $30.6 million in 1994 and
$20.1 million in 1993. Other activities generated revenues of $0.5 million in
1994 and $6.0 million in 1993.
During the nine months ended September 30, 1994, the Company posted a net
loss from continuing operations before minority interest of $28.1 million
compared to a loss of $45.2 million in 1993. The decrease in net loss from
continuing operations of $17.1 million in 1994 is primarily attributable to a
non-cash charge of $33.6 million recorded in 1993 for the purchase of incomplete
research and development in connection with the acquisition of a minority
interest in the Company's
15
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
continued
U.S. wireless subsidiary. In 1994 the Company continued to experience an
increase in costs associated with its focus on wireless communications,
including increases of $4.6 million of research and development and $6.8 million
of preparatory costs for the rollout of U.S. network (including general and
administrative costs). In addition, the Company recorded a charge of $3.5
million as a reserve against a loan receivable (see Note 4 to the accompanying
financial statements).
Wireless Communications Activities
Revenues from wireless communications activities for the nine months ended
September 30, 1994, were $18.3 million, an increase of $11.5 million from 1993.
Year-to-year comparisons are not meaningful, due to the acquisition of National
Band Three Ltd. ("NBTL") on July 1, 1993, and GMSI Inc. ("GMSI") on May 1, 1993.
The Company's 1993 results include the results of these subsidiaries from their
date of acquisition forward, while the results for 1994 include the results of
these subsidiaries for nine months. On a pro forma basis, however, assuming each
of the acquisitions had occurred January 1, 1993, revenues increased by 15.8%
from $15.8 million in 1993 to $18.3 million in 1994. The increase in pro forma
revenues is primarily attributable to an increase in the number of subscribers
using the NBTL network.
The wireless activities generated a loss before net interest expense and
amortization for the nine months ended September 30, 1994, of $23.8 million
compared to a loss of $44.1 million in 1993. Of the loss in 1994, $15.0 million
was related to research and development, which was partially offset by grants of
$3.4 million, and $10.3 million was attributable to operating, premarketing, and
general and administrative expenses associated with the rollout of the U.S.
network. For the nine months ended September 30, 1994, the Company's share of
the losses of its recently acquired networks in Germany, Protocall Ventures Ltd.
and other wireless ventures, totaled $1.2 million. These networks have only
recently begun operations and subscriber revenues do not cover operating
expenses. It is expected that these networks will continue to generate losses in
the near term. A substantial portion of these losses will be funded by the
Company.
In the first quarter of 1993, the Company's PowerSpectrum Inc. subsidiary
("PSI") changed its fiscal year end to December 31. This change was accounted
for as a change in accounting principle and as such recorded a charge of $1.2
million. Minority interest in the losses of PSI amounted to $1.2 million for the
nine months ended September 30, 1993.
16
<PAGE>
GEOTEK COMMUNICATIONS, INC., AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
continued
Communications Products Activities
Revenues from the sale of communications products in the nine months ended
September 30, 1994, were $30.6 million, which represented an increase of 52%
compared to revenues of $20.1 million in 1993. Income from continuing operations
before net interest expense, amortization expense, and minority interest for the
nine months ended September 30, 1994, was $1.4 million compared to income of
$0.6 million in 1993. The increase in revenues of $10.5 million is attributable
primarily to sales by the Company's Bogen Communications subsidiary ("Bogen") of
products introduced in the second half of 1993 as well as increased sales by the
Company's Speech Design subsidiary.
Cost of goods sold for the nine months ended September 30, 1994, amounted
to $18.3 million or 59.9% of sales compared to $12.0 million or 59.8% of sales
in 1993. The new products introduced by Bogen are typically sold at a lower
margin than Bogen's traditional products, causing a reduction of the average
gross margin. This factor was offset in the first half of 1994 by higher margins
on Speech Design's products, therefore, overall margins remained relatively
constant. Marketing expenses amounted to $6.9 million in 1994, an increase of
$2.7 million or 63% over expenses of $4.2 million in 1993. The increase is
largely the result of higher revenue levels in general and higher distribution
costs for Bogen's new products. General and administrative expenses increased by
29% from $2.0 million in 1993 to $2.6 million in 1994. The increases in general
and administrative expenses are directly related to the higher revenue levels at
both Bogen and Speech Design.
Other Activities
The Company's other activities generated a loss before net interest
expense, amortization, and other charges for the nine months ended September 30,
1994, of $1.1 million compared to a loss of $0.4 million for the same period in
1993. Revenues from these activities were $0.5 million in 1994, compared to
revenues of $6.0 million in 1993. The decrease in revenues is primarily caused
by the disposal by the Company of Oram Electric Industries Ltd., Oram Power
Supplies (1990) Ltd., and Geopower Inc. In 1993 these entities generated a net
loss of $0.3 million. Operating losses at the Company's Geotest subsidiary
increased from $0.6 million in 1993 to $1.4 million in 1994. In addition, the
Company recorded a charge of $3.5 million as a reserve against a loan receivable
(see Note 4 to the accompanying financial statements).
On a consolidated basis, interest expense decreased and interest income
increased because the Company's improved cash position allowed for the repayment
of debt and the investment of excess cash. Amortization expense increased from
$0.6 million in 1993 to $1.9 million in 1994 because of the Company's 1993
acquisitions.
17
<PAGE>
GEOTEK COMMUNICATIONS, INC., AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
continued
Liquidity and Capital Resources
The Company requires significant capital to implement its wireless
communications strategy. In order to effect its strategy, the Company increased
its debt borrowing and entered into a series of transactions, including the sale
of equity, mainly to strategic partners. At September 30, 1994, the Company had
$47.4 million of cash, equivalents, and temporary investments. Based upon
current operating plans, the Company believes it has sufficient funds to meet
its needs for the next 12 months. Nevertheless, additional acquisitions of
spectrum or businesses may create the need foradditional capital. On a long-term
basis, the Company will require additional capital to complete the planned
rollout of its wireless communications service ("GEONET") in 35 cities in the
United States by the end of 1997, to upgrade and expand NBTL's network in the
United Kingdom, to repay debt, to fund its recently acquired German wireless
networks, and to make acquisitions of businesses in the fields of communications
and spectrum in the United States and internationally.
The following discussion of liquidity and capital resources, among other
things, compares the Company's financial and cash position as of September 30,
1994, to the Company's financial and cash position as of December 31, 1993,
adjusted for the transaction with Metro Net.
During the nine months ended September 30, 1994, cash, equivalents, and
temporary investments decreased by $12.3 million to $47.2 million, while working
capital decreased by $35.0 million to $23.6 million as of September 30, 1994.
Cash utilized in connection with continuing operating activities for the
nine months ended September 30, 1994, amounted to $23.3 million.
Cash outflows from investing activities were $37.9 million. The Company
invested $15.4 million in the acquisition and subsequent funding of a 49%
interest in Preussag Bundelfunk GmbH ("PBG") and $6.8 million in the acquisition
and funding of a 49.9% interest in DBF Bundelfunk GmbH & Co. ("DBF"). PBG and
DBF are providers of private mobile radio services in Germany, holding licenses
in territories covering a population of approximately 30 million. The Company
has agreed to fund the operating and capital needs of PBG. In addition, the
Company and the seller of DBF have each committed to invest approximately $3.2
million in DBF over the next year, of which $1.3 million had been invested as of
September 30, 1994. The Company has guaranteed an obligation of PBG, due in
1999, to the seller of approximately $2.4 million. This guarantee is supported
by a letter of credit. Cash of $2.6 million has been restricted as collateral
for letters of credit and other bank transactions.
18
<PAGE>
GEOTEK COMMUNICATIONS, INC., AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
continued
The Company expended $6.6 million on acquisitions of property and equipment
and $9.8 million on SMR licenses in the United States and extended a loan of
$3.5 million to Harris Adacom Corporation B.V. in January 1994. (See Note 4 to
the accompanying financial statements.)
In January 1994 the Company acquired all the outstanding shares of Metro
Net in exchange for 3,112,500 shares of Common Stock. The Company did not pay
cash in connection with this acquisition (except for related expenses).
The Company's financing activities provided cash of $56.0 million. In
February 1994 the Company completed the sale of 2.5 million shares of Common
Stock to Vanguard. Net proceeds of the sale were $29.2 million. The Company also
granted Vanguard the right to invest up to an additional $167.0 million through
a series of related nontransferable options to purchase up to an additional 10
million shares of Common Stock. Additionally, the Company received net proceeds
from the exercise by various parties of warrants and options of approximately
$1.9 million in the nine months ended September 30, 1994.
In June 1994 the Company issued and sold senior secured notes, due in
September 1995, with an aggregate principal amount of $25.0 million and warrants
to purchase 300,000 shares of the Company's Common Stock. Net proceeds from the
sale amounted to $24.5 million and were used to finance the Company's
acquisitions in Germany.
Net borrowings under the short-term lines of credit were $2.9 million. In
August 1994 the Company's Bogen subsidiary completed negotiations on the
establishment of a one-year $10 million working capital line. Dividends of $1.5
million were paid on the Series H redeemable Convertible Preferred Stock.
The Company has reached agreement for the private placement of Cumulative
Convertible Preferred Shares in consideration for $20.0 million. The shares will
pay a dividend of 7% per annum for five years, carry a conversion premium, and
be redeemable by the Company under certain circumstances. Closing of one of the
transactions is subject to regulatory approval. It is anticipated that the
transactions will be consummated in December 1994.
The Company has entered into various agreements and letters of intent to
acquire SMR licenses and options to acquire such licenses in the 900 MHz band.
As of September 30, 1994, the Company's contingent liability relating to such
purchases and option agreements was approximately $2.4 million.
19
<PAGE>
GEOTEK COMMUNICATIONS, INC., AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
continued
The Company has committed to fund the development of the digital
wireless communication system being developed by its joint venture with RDC.
This commitment is limited to approximately $28.4 million, less funds received
from the Chief Scientist of the Israeli Ministry of Industry and Commerce.
Through September 30, 1994, the Company had funded $17.4 million of such amount.
Participation of the Chief Scientist from inception of the development project
amounted to $6.2 million. The Company has placed an order with Rafael Armament
Development Authority of approximately $9.4 million for base stations to be used
in its U.S. digital wireless communications system, of which $1.5 million has
been paid as of September 30, 1994.
20
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -- None
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by the Company during the
third quarter of 1994:
(i) Current Report on Form 8-K, filed July 19, 1994, reporting (a) the
consummation of the Company's acquisition of a 49% interest in
Preussag Bundelfunk GmbH ("PBG") for approximately $14.0 million in
cash, and (b) the Company's acquisition of a 49.9% interest in DBF
Bundelfunk GmbH & Co. ("DBF") for approximately $8.5 million in
cash, of which approximately $3.2 million will be invested in DBF.
Both PBG and DBF provide wireless communication services in
Germany.
(ii) Current Report on Form 8-K, filed August 16, 1994, reporting the
consummation of the Company's acquisition of DBF.
(iii) Amendment 1 on Form 8-K/A, filed September 14, 1994, to the
Current Report on Form 8-K, filed July 19, 1994, amending Item 7
thereof. Reported therein is the acquisition of a 49% interest in
PBG. Filed pursuant to Item 7 therewith were financial statements
and pro forma information in connection with the transaction.
21
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 26, 1995 GEOTEK COMMUNICATIONS, INC.
/s/ Yoram Bibring
-----------------
Yoram Bibring
Executive Vice President,
Chief Financial Officer, and
Chief Operating Officer
22
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