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 June 30, 1995
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 JULY 31, 1995: 51,519,849 SHARES
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Note 1)
June 30, 1995 December 31,
(Unaudited) 1994
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 49,884 $ 27,531
Temporary investments 2,555 24,515
Accounts receivable, trade 12,169 11,371
Inventories 9,316 8,667
Prepaid expenses and other 13,516 7,468
-------- --------
Total current assets 87,440 79,552
Investments in affiliates 24,371 26,582
Property, plant and equipment, net 29,554 24,446
Intangible assets, net 49,487 46,099
Other assets 2,937 3,165
-------- --------
$193,789 $179,844
======== ========
See notes to consolidated financial statements.
2
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Note 1)
June 30, 1995 December 31,
(Unaudited) 1994
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 8,647 $ 12,490
Accrued expenses and other 16,440 12,315
Notes payable, banks and other 4,858 5,641
Current maturities, long-term debt 1,440 2,056
--------- ---------
Total current liabilities 31,385 32,502
--------- ---------
Long-term debt 39,689 29,396
Other noncurrent liabilities 271 198
Minority interest 572 392
Redeemable preferred stock 40,000 40,000
Commitments and Contingencies
Shareholders' equity:
Preferred stocks $.01 par value 5
Common stock, $.01 par value:
authorized 86,000,000; issued 51,592,000 and
50,869,000 respectively; outstanding
51,354,000 and 50,631,000, respectively 516 509
Capital in excess of par value 216,817 186,651
Foreign currency translation adjustment 1,220 767
Accumulated deficit (135,300) (109,185)
Treasury stock, at cost (1,386) (1,386)
--------- ---------
81,872 77,356
--------- ---------
$ 193,789 $ 179,844
========= =========
See notes to consolidated financial statements.
3
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
(Note 1)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------- --------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 24,962 $ 20,405 $ 12,685 $ 10,359
Service income 14,542 11,348 7,621 5,787
------------ ------------ ------------ ------------
Total revenues 39,504 31,753 20,306 16,146
------------ ------------ ------------ ------------
Costs and expenses:
Cost of goods sold 14,107 12,901 7,166 6,423
Cost of services 8,017 8,033 3,975 4,053
Research and development 14,644 9,540 6,059 4,793
Marketing 10,366 8,819 5,418 4,886
General and administrative 12,280 8,472 6,760 4,992
Amortization of intangibles 1,882 926 971 482
Equity in losses of investees 2,078 188 883 80
Interest expense (income), net and other 1,321 (982) 872 (514)
------------ ------------ ------------ ------------
Total costs and expenses 64,695 47,897 32,104 25,195
------------ ------------ ------------ ------------
Loss from operations before taxes
on income and minority interest (25,191) (16,144) (11,798) (9,049)
Taxes on income (744) (470)
Minority interest (180) (180) (125) (110)
------------ ------------ ------------ ------------
Net loss $ (26,115) $ (16,324) $ (12,393) $ (9,159)
------------ ------------ ------------ ------------
Preferred dividends (1,606) (999) (940) (505)
------------ ------------ ------------ ------------
Loss applicable to common stock $ (27,721) $ (17,323) $ (13,333) $ (9,664)
============ ============ ============ ============
Weighted average number of common shares
outstanding 51,450,000 49,173,000 51,534,000 49,207,000
============ ============ ============ ============
Per common share:
Net loss applicable to common shares $ (0.54) $ (0.35) $ (0.26) $ (0.20)
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the six months ended June 30, 1995
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
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, 1995 50,869 $ 509 $ 186,651 $ 767 $ (109,185) $ (1,386)
Issuance of common stock and
preferred stock:
Exercise of warrants and
options 324 3 715
Issuance of shares in
connection with research
and development project 250 3 2,029
Issuance of shares to
Vanguard pursuant to
management consulting
agreement 149 1 1,222
Issuance of warrants
in connection with
notes payable 1,800
Issuance of Series K
Preferred Stock 10,000
Issuance of Series L
Preferred Stock 531 $ 5 4,821
Issuance of Series M
Preferred Stock 1 11,185
Preferred dividend (1,606)
Changes in currency 453
Net Loss (26,115)
--- --- ------ ----- --------- ------- ---------- --------
Balances, June 30, 1995 532 $ 5 51,592 $ 516 $ 216,817 $ 1,220 $ (135,300) $ (1,386)
=== === ====== ===== ========= ======= ========== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
GEOTEK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
(Note 1)
Six Months Ended
June 30,
------------------
1995 1994
---- ----
Cash flows from operating activities:
Net loss $(26,115) $(16,324)
Adjustments to reconcile net
loss to net cash
used in operating activities:
Minority interest 180 180
Depreciation and amortization 4,613 2,979
Equity in net loss of investees 2,078 279
Non cash management consulting expense 1,263 1,061
Issuance of shares in connection with
research and development project 2,032
Changes in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable (798) (2,336)
Inventories (649) (3,790)
Prepaid expenses and other assets (1,411) (1,203)
Accounts payable and accrued expenses (334) 4,379
Other (35) (78)
-------- --------
Net cash used in operating activities (19,176) (14,853)
-------- --------
Cash flows from investing activities:
Acquisition of licenses (4,501) (7,151)
Net decrease in temporary investments 21,960 2,987
Acquisitions of property and equipment (7,288) (3,822)
Collection of notes receivable 199
Cash invested in acquisition
of subsidiaries, net (371) (1,034)
Contract deposits (4,637) (1,100)
Loans receivable and other (4,274)
-------- --------
Net cash provided by (used in)
investing activities 5,163 (14,195)
-------- --------
See notes to consolidated financial statements.
6
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Dollars in thousands)
(Unaudited)
(Note 1)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from financing activities:
Net repayments under line-of-credit agreements (784) (2,346)
Proceeds from issuance of senior secured
note and related warrants 36,000 24,511
Repayments of debt (25,000) (425)
Net proceeds from issuance of preferred stock 26,011 29,250
Exercise of warrants and options 678 1,857
Payment of preferred dividends (1,606) (627)
Other 1,165 (549)
------- -------
Net cash provided by financing activities 36,464 51,671
------- -------
Effect of exchange rate changes on cash (98) 88
------- -------
Increase in cash and equivalents 22,353 22,711
Cash and equivalents, beginning of period 27,531 51,686
------- -------
Cash and equivalents, end of period $49,884 $74,397
======= =======
Supplemental schedule of noncash
investing and financing activities:
Summary of acquired subsidiaries:
Fair value of assets acquired $937
Issuance of common stock to acquire
Bogen Corp. remaining minority interest $3,430
Conversion of Series A Preferred shares
to common shares $3
Management consulting fee paid in common stock $1,223
Issuance of shares in connection with research
and development project $2,032
Issuance of common stock to acquire additional
interest in GMSI $1,630
</TABLE>
See notes to consolidated financial statements.
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. and
Subsidiaries as of the end of the 1994 fiscal year has been derived
from the audited consolidated balance sheet contained in the Company's
Form 10-K/A 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. Certain 1994 amounts have been
classified to conform with 1995 presentation.
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 Form 10-K/A for
the most recent fiscal year and previously filed Form 10-Q's.
Note 2 Investments:
In June 1995, the Company sold its 49% investment in Protocall Ventures
Ltd. to the majority shareholder. There was no gain or loss associated
with the sale.
Note 3 Long Term Debt and Line of Credit:
In March 1995, the Company refinanced $25.0 million of Senior Secured
Notes, that were originally due in September 1995, with $36.0 million
of newly issued Senior Secured Notes (the "Replacement Notes"). At
closing, the Company received net proceeds of $11.0 million and issued
warrants to the purchaser to acquire 700,000 of the Company's common
shares at $8.125 per share. The warrants have been valued at $1.8
million, which amount has been recorded as a discount on the
Replacement Notes. The Replacement Notes are payable in three equal
installments fifteen, twenty four and thirty six months after the
closing. Interest at 14.75% is payable quarterly through the term of
the Replacement Notes. The Replacement Notes may be converted into
shares of the Company's common stock beginning six months after the
closing and ending 18 months after closing, subject to daily limits and
certain other restrictions, at 87.5% of the average trading price of
the Company's common stock on the respective conversion dates. See Note
8 for further discussion of the Replacement Notes.
In June 1995, Bogen Communications, Inc. ("Bogen") refinanced its line
of credit for up to $10.0 million based on 80% of Bogen's accounts
receivable and 50% of Bogen's finished goods inventory. The line of
credit is collateralized by all Bogen assets, has an interest rate of
Prime Plus 2.00% through 2.75% (based on loan balance), has a 2 year
term and is guaranteed by the Company.
8
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 Equity Transactions:
In April 1995, the Company completed the previously announced sale of
$10.0 million of Series K Cumulative Convertible Preferred shares to an
affiliate of the Company's partner in a joint venture which is
attempting to secure a license to provide wireless services in Korea.
The shares pay a dividend of 7% per annum for 5 years, carry a Common
Stock conversion premium and can be redeemed by the Company in certain
circumstances.
In May 1995, the Company sold 531,463 shares of its Series L Cumulative
Convertible Preferred Stock ("Series L Stock"), to Toronto Dominion
Investments, Inc. ("TDI") for an aggregate purchase price of $5.0
million. In connection with this transaction, Vanguard Cellular
Systems, Inc. ("Vanguard"), a stockholder of the Company, agreed to
purchase an additional 531,463 shares of Series L Stock on September 1,
1995 (the "Transaction Date") for an aggregate purchase price of $5.0
million. The shares pay a dividend of 7.5% per annum, contain a Common
Stock conversion premium and can be redeemed by the Company in certain
circumstances.
In connection with Vanguard's agreement to purchase of the Series L
Stock, the parties agreed to modify the terms of certain options (the
"Options") to purchase shares of the Company's Common Stock granted to
Vanguard pursuant the Stock Purchase Agreement between the Company and
Vanguard dated December 29, 1993. Pursuant to these modifications, the
total number of shares of Common Stock subject to the Options was
decreased from ten million shares to seven million shares and Vanguard
transferred certain of these remaining options to TDI. Of the remaining
Options, Options to purchase two million shares of Common Stock at
$15.00 per share and two million shares of Common Stock at $16.00 per
share expire on the first anniversary of the Transaction Date and
Options to purchase three million shares of Common Stock at $17.00 per
share expire on the second anniversary of the Transaction Date. After
giving effect to these modifications, Vanguard and TDI each hold
one-half of the options exercisable at $15.00 per share, Vanguard holds
six-sevenths of each of the Options exercisable at $16.00 and $17.00
per share, respectively and TDI holds one-seventh of each of the
options exercisable at $16.00 and $17.00 per share, respectively. Each
of Vanguard and TDI may, upon written notice to the company, extend the
expiration date of the Options exercisable at $16.00 and $17.00 per
share, respectively, for a period of six months, subject to certain
adjustments to the exercise price thereof.
In May 1995, the Company sold 1,162.5 shares of its Series M Cumulative
Convertible Preferred Stock ("Series M Stock"), to a group of investors
for an aggregate purchase price of $11,625,000. The shares pay a
dividend of 8.5% per annum, contain a Common Stock conversion premium
and can be redeemed by the Company in certain circumstances.
In May 1995, 15 shares of Series E Preferred Stock, par value $.01,
were canceled.
9
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 Commitments and Contingent Liabilities:
Government Participation in Research and Development Project
The Chief Scientist of the Israeli Ministry of Industry and Commerce
(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 without
interest only from revenues generated by PST from the product being
developed. Through June 30, 1995 cumulative participation amounted to
$6.8 million.
Manufacturing Commitments
The Company has contracted with Mitsubishi Consumer Electronics of
America to manufacture Commercial Subscriber Units on behalf of the
Company. An initial order has been placed for approximately $2.5
million.
In May 1995, the Company and Hughes Network Systems ("HNS"), a unit of
GM Hughes Electronics, entered into an agreement to develop a series of
subscriber terminals and equipment based on the Company's proprietary
technology. Under the terms of the agreement, HNS and the Company will
share equally the cost of developing a portable subscriber unit.
Guarantees of Debt of Equity Investees
The Company has guaranteed the repayment of certain debt of PBG, due in
1999, to the former owner of PBG, in the amount of DM 3.5 million plus
interest (approximately $2.5 million). A letter of credit has been
issued as collateral for this obligation.
The Company has guaranteed an obligation of approximately DM 3.8
million (approximately $2.8 million) of DBF pursuant to an equipment
leasing arrangement. The other shareholder of DBF guarantees an equal
amount under this arrangement. Following the Company's acquisition of
the remaining 50.1% of DBF (See Note 8) the Company provided the other
Shareholder with a counter-guarantee for the remaining DM 3.8 million.
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.
10
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
subsequently received limited information relating to the
recoverability of the loan, and Management does not expect to recover
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
available, it could not be determined the amount, if any, that will
ultimately be recovered; therefore, in 1994, the Company established a
reserve against the full amount of the loan.
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 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 results of operations or cash flows of the Company, if
disposed of unfa vorably.
Note 6 Interest Expense, Net
Interest expense for the six months ended June 30, 1995 and 1994,
amounted to $ 3,583,000 and $351,000, respectively. Interest income for
the six months ended June 30, 1995 and 1994, amounted to $1,193,000 and
$1,176,000 respectively.
11
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. For the six
months ended June 30, 1995 and 1994, Vanguard earned approximately
149,000 and 107,000 shares, respectively, pursuant to this agreement.
These shares have been recorded at approximately $1.2 million and $1.1
million, respectively, which amounts are included in marketing
expenses.
The Company incurred expenses of $150,000 in each of the six month
periods ended June 30, 1995 and 1994, pursuant to its consulting
agreement with the Soros Group, the holders of the Company's Series H
redeemable Preferred Shares and Series I Preferred Shares. As indicated
in Note 8, in August 1995, the Soros Group agreed to make an additional
investment in the Company.
PST has entered into a subcontractor agreement with Rafael under which
Rafael will be paid approximately $21 million in connection with the
development of the digital wireless communications system to be
deployed by the Company in the US. Research and development expense for
the six months ended June 30, 1995 and 1994, includes approximately
$1.9 million and $5.1 million, respectively, for research performed by
Rafael under this agreement. PST has also entered into agreements with
Rafael under which Rafael will manufacture the infrastructure equipment
to be used by the Company in its US network. In addition, through June
30, 1995 the Company had placed firm orders for equipment totaling
$24.9 million and has made advance payments (recorded in other current
assets) of $4.6 million to Rafael under these orders.
The Company issued 250,000 shares of common stock to Rafael Development
Corporation, the beneficial owner of 38% of PST, in connection with the
development of the digital wireless communications system. The shares
have been valued at $2.0 million, which amount has been recorded in
1995 as research and development costs.
Note 8 Subsequent Events
In August 1995, the Company signed a letter of intent with Rafael
Development Corporation ("RDC") whereby RDC will convert all the
principal and interest issued to it by Powerspectrum Technology Limited
("PST") into shares of PST representing its 38% interest in PST. Upon
conversion, Geotek shall issue to RDC 1.8 million shares of
unregistered Company common stock in exchange for RDC's shares of PST.
The Company does not expect to record a gain or loss on this
transaction. Additionally, the letter of intent calls for the purchase
by RDC of $3.0 million of Company common stock. These transactions are
subject to, among other things, execution of a definitive agreement,
regulatory approval and Board of Director approval for each of RDC and
the Company.
12
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In August 1995, European Gateway Acquisition Corporation ("EGAC")
shareholder approval was obtained for the previously announced
agreement to transfer the Company's interest in Speech Design GmbH and
Bogen to EGAC in exchange for $7.0 million in cash, $3.0 million in
convertible notes, approximately 65% of EGAC's common shares and
warrants to purchase 200,000 shares of EGAC common stock. The Company
will also be eligible to receive additional consideration if the future
earnings of both companies through July 1997 attain certain levels. The
Company does not expect this transaction to have a material effect on
its results from operations and will continue to control and
consolidate the entities. The existing EGAC shareholders hold 3,100,000
warrants to purchase one share of EGAC common stock for $5.50. These
warrants are callable upon certain events. In July 1995, the Company
issued, in private offering, $207.0 million aggregate principal amount
at maturity of 15% Senior Secured Discount Notes due July 15, 2005
("the Notes"). Gross proceeds of the Notes was approximately $100.0
million. The Notes were issued with 6,210,000 detachable warrants ("the
Warrants"). Each Warrant entitles the holder to purchase one share of
Company common stock at an exercise price of $9.90 per share. The
Warrants have been valued at $29.2 million and will be recorded as a
discount on the Notes.
The Notes will accrue interest until maturity at a rate of 15% per
annum. Interest on the Notes will be payable semi-annually, in cash, on
July 15 and January 15, commencing January 15, 2001. The Notes are
secured by a pledge of substantially all subsidiary capital stock owned
by the Company. Additionally, the Notes are fully and unconditionally
guaranteed, jointly and severally on a senior basis, by certain
subsidiaries of the Company.
Within 60 days of the issuance of the Notes and Warrants, the Company
intends to register through an exchange offer, the Notes and Warrants
under the Securities Act of 1933, as amended. The Notes include
covenants that put restrictions on the Company primarily related to
making certain investments and incurring additional debt.
Concurrently with the issuance of the Notes, the Company's indebtedness
under the Replacement Notes (See Note 3) was restructured in accordance
with the terms thereof by the grant to the lenders of a security
interest in a restricted cash account holding approximately $40.5
million. This amount will be separately stated on the balance sheet of
the Company, as restricted cash, and is expected to satisfy the
principal and total interest of the Replacement Notes. This security
interest will release the original collateral for the Replacement
Notes.
In August, in connection with the Notes, investors affiliated with
George Soros purchased approximately $21.0 million principal amount of
additional units consisting of 15% Senior Secured Discount Notes due
2005 and 621,000 ten year warrants to purchase shares of Company common
stock at $9.90 per share. Gross proceeds to the Company are
approximately $10.0 million, bringing total gross proceeds from the
issuance of the Notes to $110.0 million.
13
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In July 1995, the Company acquired the remaining 50.1% of the DBF
Bundelfunk network that it did not own for DM 9.0 million
(approximately $6.5 million). This acquisition was initiated by the
controlling shareholder's exercise of its option to sell its interest
in DBF to the Company as well as, receipt of regulatory approval for
the transfer of the shares. The Company currently accounts for DBF
using the equity method. However, the Company will begin to consolidate
the DBF financial statements in July 1995.
The Company continues to seek regulatory approval for the transfer of
the 51% of the PBG network it does not already own. Upon receipt of
such approval, the Company will obtain control of this network and will
begin to consolidate its financial statements, which is currently
accounted for using the equity method.
14
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 Supplemental Guarantor Financial Information:
In July and August 1995, the Company issued, in a private offering,
$227.7 million aggregate principal amount at maturity of 15% Senior
Secured Discount Notes due July 15, 2005 ("the Notes"). Gross proceeds
of the Notes was approximately $110.0 million. The Notes were issued
with 6,831,000 detachable warrants ("the Warrants"). Each Warrant
entitles the holder to purchase one share of Company common stock at an
exercise price of $9.90 per share. The Warrants have been valued at
approximately $32.1 million and have been recorded as a discount on the
Notes. The Notes accrue interest until maturity at a rate of 15% per
annum. Interest on the Notes will be payable semi-annually, in cash, on
July 15 and January 15, commencing January 15, 2001.
In connection with the Note offering, PowerSpectrum, Inc. and its U.S.
Domestic Subsidiaries as well as MetroNet Systems, Inc. (collectively
referred to as the "Guarantor Subsidiaries") fully and unconditionally
guarantee such Notes jointly and severally. The Guarantor Subsidiaries
are wholly owned by the Company. In addition, the Notes are
collateralized by a pledge of the capital stock owned by the Company in
National Band Three Ltd., PowerSpectrum, Inc. and Subsidiaries,
MetroNet Systems, Inc., Geotek Communications GmbH and EGAC, the entity
through which, effective August 1995, the Company owns its interests in
Bogen Communications, Inc. and Speech Design GmbH.
Within 60 days of the issuance of the Notes and Warrants, the Company
filed registration statements to commence the process to register
through an exchange offer, the Notes and Warrants under the Securities
Act of 1933, as amended. It is expected that such registration
statements will be effective within 120 days of the Note offering. The
Supplemental Combining Financial Information of Geotek Communications,
Inc. and Subsidiaries has been presented on pages 16 through 22 in
order to present the Guarantor Subsidiaries pursuant to the Guarantor
relationship. The Supplemental Combining Financial Information is
presented as management does not believe that separate financial
statements of the Guarantor Subsidiaries would be meaningful. This
supplemental financial information should be read in conjunction with
the Consolidated Financial Statements. The Notes include covenants that
put restrictions on the Company primarily related to making certain
investments and incurring additional debt.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
Note 9 Supplemental Guarantor Financial Information: continued
Notes to Supplemental Guarantor Financial Information: continued
Basis of Presentation - To conform with the terms and conditions of
the Notes, the combining financial statements of the Guarantor
Subsidiaries are presented on the following basis:
(1) Geotek Communications, Inc. -Investments in consolidated subsidiaries are
(Parent Company) accounted for by the Parent Company on the cost
basis for purposes of the supplemental
combining presentation. Operating results of
Subsidiaries are therefore not reflected in the
Parents investment accounts or earnings.
(2) PSI (Guarantor) -For purposes of the supplemental combining
financial statement information, PowerSpectrum,
Inc. ("PSI") includes all U.S. wireless
subsidiaries of PSI combined with MetroNet
Systems, Inc. and ANSA Communications, Inc.,
both direct wholly owned subsidiaries of the
Parent Company. For purposes of the
supplemental combining financial statement
information, PSI does not contain the
consolidated financial statements of PST, a
subsidiary of PSI, since PST is not a Guarantor
Subsidiary. Such statements of PST are included
with Non-Guarantor Subsidiaries. The assets and
liabilities of PST are not material in relation
to PSI.
(3) Non-Guarantor Subsidiaries -This includes the Company's subsidiaries that
are not Guarantor Subsidiaries.
(4) Reclassification and -Certain reclassifications were made to conform
Eliminations all of the financial information to the
financial presentation of the Company's
consolidated financial statements. The
principal elimination entries eliminate
investments in subsidiaries and intercompany
balances and transactions.
16
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Supplemental Guarantor Financial Information: continued
SUPPLEMENTAL COMBINING BALANCE SHEET
As of June 30, 1995
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarantor Reclassifications Comm,Inc.
Comm,Inc. PSI Subsidiaries & Eliminations & Subsidiaries
--------- --- ------------ ----------------- --------------
ASSETS (1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 46,142 $ 397 $ 3,345 $ 49,884
Temporary investments 2,555 2,555
Accounts receivable net 61 12,566 $(458) 12,169
Inventories 109 9,301 (94) 9,316
Prepaid expenses and other assets 299 3,208 10,009 13,516
-------- ------- ------- -------- --------
Total current assets 48,996 3,775 35,221 (552) 87,440
-------- ------- ------- -------- --------
Inter-company account 92,889 27,855 (120,744)
Investments in affiliates 1,332 23,039 24,371
Property, plant and equipment,
net 128 6,206 23,548 (328) 29,554
Intangible assets, net 5,310 22,610 21,557 10 49,487
Other assets 771 4,751 3,741 (6,326) 2,937
Investments in subsidiaries,
at cost 76,479 (76,479)
-------- ------- ------- -------- --------
Total Assets 225,905 65,197 107,106 (204,419) 193,789
======== ======= ======= ========= ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable - trade 288 326 8,491 (458) 8,647
Accrued expenses and other 2,364 2,223 16,508 (4,656) 16,440
Notes payable, banks and other 5,068 (210) 4,858
Current maturities, long-term debt 1,440 1,440
-------- ------- ------- -------- --------
Total current liabilities 4,092 2,549 30,067 (5,324) 31,385
-------- ------- ------- -------- --------
Inter-company account 82,171 38,574 (120,744)
Long-term debt 33,604 2,829 31,615 (28,359) 39,689
Other non current liabilities 49 1,385 (1,163) 271
Minority interest 592 (20) 572
Redeemable preferred stock 40,000 40,000
Shareholders' equity:
Preferred stocks, $.01 par value 5 5
Common stock, $.01 par value: 516 516
Capital in excess of par value 179,637 43,140 42,398 (48,360) 216,817
Foreign currency translation
adjustment 1,220 1,220
Accumulated deficit (31,204) (65,492) (38,133) (469) (135,300)
Treasury stock, at cost (1,386) (1,386)
-------- ------- ------- -------- --------
147,568 (22,352) 5,485 (48,829) 81,872
-------- ------- ------- -------- --------
$225,905 $65,197 $107,106 $(204,419) $193,789
======== ======= ======= ========= ========
</TABLE>
17
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Supplemental Guarantor Financial Information: continued
SUPPLEMENTAL COMBINING BALANCE SHEET
As of December 31, 1994
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarantor Reclassifications Comm.,Inc.
Comm,Inc. PSI Subsidiaries & Eliminations & Subsidiaries
--------- --- ------------ --------------- --------------
ASSETS (1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 21,222 $ 418 $ 5,891 $ 27,531
Temporary investments 24,515 24,515
Accounts receivables trade, net 79 11,714 $(422) 11,371
Inventories 116 8,711 (162) 8,667
Prepaid expenses and other assets 939 174 6,387 (32) 7,468
-------- ------- ------- --------- --------
Total current assets 46,676 787 32,703 (616) 79,552
Inter-Company account 64,313 18,359 (82,672)
Investments in affiliates 4,481 22,101 26,582
Property, plant and equipment, net 100 2,245 22,100 24,446
Intangible assets, net 4,885 18,616 22,589 9 46,099
Other assets 412 2,027 3,871 (3,145) 3,165
Investments in subsidiaries, at cost 73,275 (73,275)
-------- ------- ------- --------- --------
$194,142 $42,034 $103,364 $(159,699) $179,844
======== ======= ======== ========= ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $496 $414 $13,902 $(2,322) $12,490
Accrued expenses and other 436 1,271 10,606 12,315
Notes payable, banks and other 5,641 5,641
Current maturities, long-term debt 2,056 2,056
-------- ------- ------- --------- --------
Total current liabilities 2,988 1,685 30,149 (2,322) 32,502
-------- ------- ------- --------- --------
Inter-company account 53,830 28,842 (82,672)
Long-term debt 23,304 2,838 30,005 (26,751) 29,396
Other non current liabilities 49 802 (653) 198
Minority interest 406 (14) 392
Redeemable preferred stock 40,000 40,000
Shareholders' equity:
Preferred stocks, $.01 par value
Common stock, $.01 par value 509 509
Capital in excess of par value 153,414 38,592 41,736 (47,094) 186,651
Foreign currency translation adjustment 767 767
Accumulated deficit (25,142) (54,911) (28,923) (207) (109,185)
Treasury stock, at cost (1,386) (1,386)
-------- ------- ------- ---------- --------
127,395 (16,319) 13,580 (47,301) 77,356
-------- ------- ------- ---------- --------
$194,142 $42,034 $103,364 $(159,699) $179,844
======== ======= ======== ========== ========
</TABLE>
18
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Supplemental Guarantor Financial Information: continued
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1995
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarantor Reclassifications Comm.,Inc.
Comm,Inc. PSI Subsidiaries & Eliminations & Subsidiaries
--------- --- ------------ ----------------- --------------
REVENUES: (1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Net sales $49 $26,828 $(1,915) $24,962
Service income 1,089 13,453 14,542
-------- ------- ------- --------
Total revenues 1,138 40,281 (1,915) 39,504
-------- ------- ------- --------
Costs and expenses:
Cost of goods sold 41 15,719 (1,653) 14,107
Cost of services 466 7,551 8,017
Research and development $316 5,286 9,042 14,644
Marketing 150 1,778 8,438 10,366
General and administrative 3,558 4,335 4,347 40 12,280
Amortization of intangibles 323 505 1,054 1,882
Equity in losses of investees 410 2,306 (638) 2,078
Interest expense (income), net
and other 1,119 (692) 296 598 1,321
------- -------- ------- ------- --------
Total Costs and expenses 5,876 11,719 48,753 (1,653) 64,695
Loss from continuing operations
before Taxes on income and
minority interest (5,876) (10,581) (8,472) (262) (25,191)
Taxes on income (744) (744)
Minority interest (186) 6 (180)
------- -------- ------- ------- --------
Net loss $(6,062) $(10,581) $(9,210) $ (262) $(26,115)
======= ======== ======= ======= ========
</TABLE>
19
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Supplemental Guarantor Financial Information: continued
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1994
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarantor Reclassifications Comm.,Inc.
Comm,Inc. PSI Subsidiaries & Eliminations & Subsidiaries
--------- --- ------------ ----------------- --------------
REVENUES: (1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Net sales $ 248 $ 20,487 $ (330) $ 20,405
Service income 1,056 10,292 11,348
-------- -------- ------ --------
Total revenues 1,304 30,779 (330) 31,753
-------- -------- ------ --------
Costs and expenses:
Cost of goods sold 173 13,040 (312) 12,901
Cost of services 720 7,313 8,033
Research and development 2,633 6,907 9,540
Marketing $1,224 1,374 6,221 8,819
General and administrative 1,727 2,535 4,210 8,472
Amortization of intangibles 270 229 427 926
Equity in losses of investees 188 188
Interest expense (income), net
and other (1,379) (98) 495 (982)
------ ------- ------- --------
Total Costs and expenses 2,030 7,566 38,613 (312) 47,897
------- ------- ------- ----- --------
Loss from continuing operations
before Taxes on income and
minority interest (2,030) (6,262) (7,834) (18) (16,144)
Minority interest (180) (180)
------- ------- ------- ----- --------
Net loss $(2,210) $(6,262) $(7,834) $ (18) $(16,324)
======= ======= ======= ===== ========
</TABLE>
20
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Supplemental Guarantor Financial Information: continued
SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1995
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarantor Reclassifications Comm., Inc.
Comm,Inc. PSI Subsidiaries & Eliminations & Subsidiaries
--------- --- ------------ ----------------- --------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(6,062) $(10,581) $(9,210) $(262) $(26,115)
Adjustment to reconcile net loss to net
cash used in operating activities:
Minority interest 186 (6) 180
Depreciation & amortization 340 865 2,771 637 4,613
Equity in net loss of investees 409 2,306 (637) 2,078
Non cash management consulting expense 41 1,222 1,263
Issuance of stock for management
consulting fee 2,032 2,032
Changes in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable 18 (816) (798)
Inventories 8 (919) 262 (649)
Prepaid expenses and other assets 679 (3,034) 944 (1,411)
Accounts payable & accrued expenses 1,719 (864) (1,189) (334)
Other (2,734) 2,699 (35)
------- ------- ------ --------- -------
Net cash (used in) operating activities (2,688) (13,068) (3,420) -- (19,176)
------- ------- ------ --------- -------
Cash flows from investing activities:
Acquisition of licenses (4,499) (2) (4,501)
Net decrease in temporary investments 21,960 21,960
Acquisitions of property & equipment (45) (4,329) (2,914) (7,288)
Cash invested in acquisition of subsidiaries,
net (371) (3,330) 3,330 (371)
Contract deposits (4,637) (4,637)
------- ------- ------ --------- -------
Net cash provided by (used in)
investing activities 21,544 (13,465) (6,246) 3,330 5,163
------- ------- ----- --------- -------
Cash flows from financing activities:
Net borrowings, (repayments) under
line of credit agreements (784) (784)
Proceeds from issuance of senior
secured note & related warrants 36,000 36,000
Repayments of debt (25,000) (25,000)
Net proceeds from issuance of
preferred stock 26,011 26,011
Exercise of warrants & options 678 678
Payment of preferred dividends (1,606) (1,606)
Capital contributed from parent (31,184) 26,512 8,002 (3,330)
Other 1,165 1,165
Net cash provided by (used in) ------- ------- ------ --------- -------
financing activities 6,064 26,512 7,218 (3,330) 36,464
------- ------- ------ --------- -------
Effect of exchange rate changes on cash (98) (98)
Increase (decrease) in cash & equivalents 24,920 (21) (2,546) 22,353
Cash & equivalents, beginning of year 21,222 418 5,891 27,531
------- ------- ------ --------- -------
Cash & equivalents, end of year $46,142 $397 $3,345 -- $49,884
======= ======= ====== ========= =======
</TABLE>
21
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Supplemental Guarantor Financial Information: continued
SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1994
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Geotek
Geotek Non-Guarantor Reclassifications Comm., Inc.
Comm,Inc. PSI Subsidiaries & Eliminations & Subsidiaries
--------- --- ------------ ----------------- --------------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(2,210) $(6,262) $(7,834) $(18) $(16,324)
Adjustments to reconcile net loss to
net cash used in operating activities:
Minority interest 180 180
Depreciation & amortization 278 281 2,511 (91) 2,979
Equity in losses of investees 188 91 279
Non cash management consulting expense 1,061 1,061
Changes in operating assets & liabilities:
Accounts receivable (6) (2,331) (2,336)
Inventories 11 (3,819) 18 (3,790)
Prepaid expenses and other assets (450) (79) (674) (1,203)
Accounts payable & accrued expenses 126 213 4,040 4,379
Other 154 (232) (78)
--- ------ ----- ------- ----
Net cash (used in) operating activities (1,734) (4,781) (8,339) - (14,853)
------ ------- ----- ------- -------
Cash flows from investing activities:
Acquisition of licenses (7,197) 105 (59) (7,151)
Net increase in temporary investments (457) 3,444 2,987
Acquisitions of property & equipment (24) (608) (3,190) (3,822)
Collection of notes receivable 199 199
Investment in intangibles (59) 59
Cash invested in acquisition of subsidiaries,
net (1,034) (1,034)
Contract deposits (1,100) (1,100)
Other (4,686) (24) 436 (4,274)
------- ---- ----- ------ -------
Net cash (used in) investing activities (5,167) (5,485) (3,543) - (14,195)
------- ------- ----- ------ --------
Cash flows from financing activities:
Net repayments under line of credit
agreements (2,346) (2,346)
Proceeds from issuance of senior
secured note & related warrants 24,511 24,511
Repayments of debt (104) (321) (425)
Proceeds from issuance of stock &
warrants to Vanguard 29,250 29,250
Proceeds from exercise of warrants
& options 1,857 1,857
Payment of preferred dividends (627) (627)
Capital contributed from parent (21,242) 5,901 15,341
Other 112 (660) (549)
Net cash provided by ------ ----- ------ ------
financing activities 33,645 6,013 12,014 51,671
------ ----- ------ ------
Effect of exchange rate changes on cash 88 88
Increase (decrease) in cash & equivalents 26,744 (4,253) 220 22,711
Cash & equivalents, beginning of year 42,861 4,637 4,188 51,686
------ ----- ------- ------ ------
Cash & equivalents, end of year $69,605 $384 $4,408 - $74,397
======= ==== ====== ====== =======
</TABLE>
22
<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 three 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. 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
for the foreseeable future, attributable primarily to the operating, sales,
marketing and general and administrative expenses relating to the roll out of
the Company's digital wireless network in the US as well as 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 currently 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 is presently in the process of commencing the rollout of its U.S.
digital wireless network ("The US Network") to provide integrated voice and data
solutions to businesses. 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.
Summary of Operations
The Summary of Operations provides an analysis of the three month and six
month periods ended June 30, 1995, compared to the same periods in 1994. For
purposes of this discussion, year to date represents the six month period ended
June 30.
Consolidated
Consolidated revenues increased by 28% and 24% in the second quarter and
year to date, respectively, principally due to subscriber growth of the National
Band Three Network and higher revenues from the communications products segment
Consolidated operating expenses increased by 17% and 24% in the second
quarter and year to date, respectively, principally due to increased research
and development activities associated with the Company's digital wireless
communications system, costs related to the rollout of the US Network and volume
growth of the communications product segment.
Consolidated losses from operations increased by $3.2 million in the second
quarter to $12.4 million and for the year to date increased $9.8 million to
$26.1 million.
23
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Continued
Wireless Communications Activities
Revenues from wireless communications activities increased by $1.9 million,
or 31% to $7.9 million for the quarter ended June 30, 1995. Revenues from
wireless communications activities increased by $3.3 million, or 28%, to $15.1
million in sixth months ended June 30, 1995, primarily due to a 20% increase in
the number of subscribers (which totaled approximately 52,400 and 43,800 at June
30, 1995 and 1994, respectively) using the Company's National Band Three Limited
("NBTL") Network combined with a 6% appreciation in the British pound versus the
U.S. dollar. Average revenue per subscriber (in British pounds) was unchanged
from 1994 to 1995. The increase in the subscriber count resulted from the
continuation of the focused marketing effort that was begun in 1994.
Operating expenses increased by $3.1 million or 31% for the quarter ended
June 30, 1995. Operating expenses increased by $9.2 million or 33% for the six
months ended June 30, 1995. Expenses at NBTL increased by $1.2 million for year
to date 1995, comprised of a $0.1 million increase related to network operating
costs to service the larger subscriber base and approximately a $1.1 million
increase of additional marketing and general costs. Research and development
expenses (net of grants) related to the digital wireless system and subscriber
unit increased by $4.8 million or 56% for year to date 1995. The Company expects
significant research and development expenses to continue in the future in
connection with enhancements made to the system and development of the portable
subscriber unit. The Company is presently in the process of commencing wireless
service over its proprietary network and accordingly has begun to put in place
its marketing, engineering, operations and administrative staff and systems.
Costs related to these activities totaled $9.8 million for year to date 1995, an
increase of $3.1 million or 46% over 1994.
The Company's equity in the losses of less than 50% owned entities
increased to $2.1 million for year to date in 1995 from $0.2 million in 1994 due
to the inclusion of losses of $1.7 million from the investments in two wireless
networks in Germany acquired in June and July of 1994. In July 1995, the Company
acquired the remaining interest in one of these networks. The Company expects to
acquire, subject to regulatory approval, the remaining interest in the other
network in 1995. 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 future.
The wireless activities generated a loss before net interest expense and
amortization of $11.0 million for the quarter ended June 30, 1995 compared to a
loss of $5.0 million in 1994. The wireless activities generated a loss before
net interest expense and amortization of $23.9 million for year to date in 1995
compared to a loss of $12.1 million in 1994 due to the factors discussed above.
Included in the 1995 year to date loss were $13.5 million of research and
development costs related to the digital wireless communications system and $9.8
million of rollout costs related to the US network (including approximately $1.2
million relating to shares of common stock issued to Vanguard in consideration
for management consulting services).
24
<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 communications products activities increased by $1.7 million,
or 17% to $11.7 million for the quarter ended June 30, 1995. Revenues from
communications products activities for year to date 1995 increased by $2.8
million, or 14% to $22.5 million. Sales at the Company's subsidiary Bogen
Communications ("Bogen") decreased by $0.6 million, due to lower sales from its
Office Automation line of products offset by higher sales of its traditional
line of products. Speech Design's 1995 sales (in U.S. dollars) increased by $3.4
million, or 118%. Approximately 34% of the U.S. dollar increase in sales is
attributable to the appreciation of the German Mark against the dollar. Cost of
goods sold for the quarter ended June 30, 1995 amounted to $6.4 million or 56%
of sales compared to $6.0 million or 59% of sales in 1994. Cost of goods sold
for year to date 1995, amounted to $12.6 million or 56% of sales compared to
$11.8 million or 60% of sales in 1994. This increase in gross profit as a
percentage of sales in 1995 reflects the change in Bogen's product mix and
consistently higher margins on Speech Design's products.
Marketing expenses for the quarter ended June 30, 1995 amounted to $2.5
million or 21% of sales, compared to $2.4 million or 25% of sales in 1994.
Marketing expenses for year to date 1995 amounted to $4.8 million or 21% of
sales, compared to $4.7 million or 24% of sales in 1994. General and
administrative expenses for the quarter ended June 30, 1995 were $1.1 million or
9.5% of sales, compared to $0.8 million or 8.4% of sales in 1994. General and
administrative expenses for year to date 1995 were $2.2 million or 9.6% of
sales, compared to $1.6 million or 8% of sales in 1994. This year to date
increase of $0.6 million in general and administrative expenses is directly
related to the higher revenue levels at Speech Design. Income before interest
expense, amortization expense and minority interest from the Company's
Communications Products activities amounted to $0.7 million in the quarter ended
June 30, 1995 compared to $0.2 million in 1994. This amount was $1.4 million for
year to date 1995 compared to $0.7 million for the same period in 1994.
In August 1995, European Gateway Acquisition Corporation ("EGAC") received
shareholder approval for the previously announced agreement to transfer the
Company's interest in Speech Design GmbH and Bogen Communications, Inc. to EGAC
in exchange for $7.0 million in cash, $3.0 million in convertible notes
receivable, approximately 65% of EGAC common shares and warrants to purchase
200,000 shares of EGAC common stock. The Company will also be eligible to
receive additional consideration if the future earnings of both companies
through July 1997 attain certain levels. The Company will continue to
consolidate these entities.
Other Activities
The Company's other activities generated a profit before net interest
expense, amortization, and other charges of $0.1 million for year to date 1995,
and no profit or loss for the quarter ended June 30, 1995, compared to a loss of
$0.8 and $0.3 million for the same periods, respectively, in 1994. Revenues from
these activities were $1.9 million for year to date 1995, compared to revenues
of $0.3 million for the same period in 1994.
25
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Continued
On a consolidated basis, interest expense increased in 1995 due to a higher
level of debt outstanding during the period. Interest income increased in 1995
due to higher rates earned on invested funds. Amortization expense increased
from $0.9 million in the six months ended June 30,1994 to $1.9 million in 1995
due to of the Company's 1994 acquisitions.
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 and debt, mainly to strategic partners. At June 30, 1995, the Company
had $52.4 million of cash, equivalents, and temporary investments.
The Company's short term cash needs are primarily for capital expenditures
related to the digital FHMAtm system which the Company's US network is beginning
to deploy and the cost of rolling out the U.S. network. One of the advantages of
the Company's FHMAtm system is its modularity, which allows the Company to
execute a flexible roll out plan requiring a relatively low investment in
infrastructure in a given geographical area (compared to other wireless
communications systems) which is sufficient to provide commercial service.
Additionally as the Company expects to serve customers which require primarily
local or regional coverage, management believes therefore that the Company has
additional flexibility in controlling its resources by accelerating or slowing
down the rate at which various cities are rolled out without impacting the
business results of its then operating city or regional networks in a material
way.
The Company estimates that a minimum average investment of approximately $5
million is required to roll out an average city. Additional expenditures will be
required later if and when increased subscriber capacity or coverage is needed.
In addition, the Company estimates that it will continue its present level of
research and development expenses during the next 12 months in connection
primarily with enhancements to the system and the development of a portable
subscriber unit and other related projects.
In July 1995, the Company issued, in private offering, $207.0 million
aggregate principal amount at maturity of 15% Senior Secured Discount Notes due
July 15, 2005 ("the Notes"). Gross proceeds of the Notes was approximately
$100.0 million. The Notes were issued with 6,210,000 detachable warrants ("the
Warrants"). Each Warrant entitles the holder to purchase one share of Company
common stock at an exercise price of $9.90 per share. The Warrants have been
valued at $29.2 million and will be recorded as a discount on the Notes.
The Notes will accrue interest until maturity at a rate of 15% per annum.
Interest on the Notes will be payable semi-annually, in cash, on July 15 and
January 15, commencing January 15, 2001. The Notes are secured by a pledge of
substantially all subsidiary capital stock owned by the company. Additionally,
the Notes are fully and unconditionally guaranteed, jointly and severally on a
senior basis, by certain subsidiaries of the Company.
26
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GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Continued
Within 60 days of the issuance of the Notes and Warrants, the Company
intends to register through an exchange offer, the Notes and Warrants under the
Securities Act of 1933, as amended. The Notes include covenants that put
restrictions on the Company primarily related to making certain investments and
incurring additional debt.
In August, in connection with the Notes, investors affiliated with George
Soros agreed to purchase approximately $21.0 million principal amount of
additional units consisting of 15% Senior Secured Discount Notes due 2005 and
621,000 ten year warrants to purchase shares of Company common stock at $9.90
per share. Gross proceeds to the Company are approximately $10.0 million,
bringing the total gross proceeds from the issuance of the Notes to $110.0
million.
The following discussion of liquidity and capital resources, among other
things, compares the Company's financial and cash position as of June 30, 1995,
to the Company's financial and cash position as of December 31, 1994.
During the first six months of 1995, cash, equivalents, and temporary
investments increased by $0.4 million to $52.4 million, while working capital
increased by $9.0 million to $56.1 million as of June 30 1995.
Cash utilized in connection with continuing operating activities for the
six ended June 30, 1995, amounted to $19.2 million.
Cash outflows from investing activities, exclusive of decrease in temporary
investments of $22.0 million, were $16.8 million. The Company expended $7.3
million on acquisitions of property and equipment and $4.5 million on SMR
licenses in the United States.
The Company's financing activities provided cash of $36.5 million. In March
1995 the Company refinanced the $25.0 million of Senior Secured Notes, that were
originally due in September 1995, with $36.0 million of newly issued Senior
Secured Notes ("Replacement Notes"). At closing, the Company received net
proceeds of $11.0 million and issued warrants to the purchaser to acquire
700,000 of the Company's common shares at $8.125 per share. The Replacement
Notes are payable in three equal installments fifteen, twenty four and thirty
six months after the closing. Interest at 14.75% is payable quarterly through
the term of the Notes. The Notes may be converted into shares of the Company's
common stock beginning six months after the closing and ending 18 months after
closing, subject to daily limits and certain other restrictions, at 87.5% of the
average trading price of the Company's common stock on the respective conversion
dates. As a result of the issuance of the aforementioned Notes in July 1995, the
Company's indebtedness under the Replacement Notes was restructured in
accordance with the terms thereof by the grant to the lenders of a security
interest in a restricted cash account holding approximately $40.5 million. This
amount will be separately stated on the balance sheet of the Company, as
restricted cash, and is expected to satisfy the principal and total interest of
the Replacement Notes. This security interest will release the original
collateral for the Replacement Notes.
27
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Continued
The Company paid cash dividends totaling $1.6 million on its outstanding
preferred stocks. Proceeds from the exercise of warrants and options totaled
approximately $0.7 million in 1995.
In May 1995, the Company sold 531,463 shares of its Series L Cumulative
Convertible Preferred Stock ("Series L Stock"), to Toronto Dominion Investments,
Inc. ("TDI") for an aggregate purchase price of $5.0 million. In connection with
this transaction, Vanguard Cellular Systems, Inc. ("Vanguard"), a stockholder of
the Company, agreed to purchase an additional 531,463 shares of Series L Stock
on September 1, 1995 (the "Funding Date") for an aggregate purchase price of
$5.0 million. The shares pay a dividend of 7.5% per annum, contain a conversion
premium and can be redeemed by the Company in certain circumstances.
In connection with Vanguard's purchase of the Series L Stock, the parties
agreed to modify the terms of certain options (the "Options") to purchase shares
of the Company's common stock granted to Vanguard pursuant the Stock Purchase
Agreement between the Company and Vanguard dated December 29, 1993. Pursuant to
these modifications, the total number of shares of Common Stock subject to the
Options was decreased from ten million shares to seven million shares. Of the
remaining Options, Options to purchase two million shares of common Stock at
$15.00 per share and two million shares of Common Stock at $16.00 per share
expire on the first anniversary of the Funding Date and Options to purchase
three million shares of Common Stock at $17.00 per share expire on the second
anniversary of the Funding Date. After giving effect to these modifications,
Vanguard and TDI each hold one-half of the options exercisable at $15.00 per
share, Vanguard holds six-sevenths of each of the Options exercisable at $16.00
and $17.00 per share, respectively and TDI holds one-seventh of each of the
options exercisable at $16.00 and $17.00 per share, respectively. Each of
Vanguard and TDI may, upon written notice to the company, extend the expiration
date of the Options exercisable at $16.00 and $17.00 per share, respectively,
for a period of six months, subject to certain adjustments to the exercise price
thereof.
In May 1995, the Company sold 1,162.5 shares of its Series M Cumulative
Convertible Preferred Stock ("Series M Stock"), to a group of investors for an
aggregate purchase price of $11,625,000. The shares pay a dividend of 8.5% per
annum, contain a conversion premium and can be redeemed by the Company in
certain circumstances.
In April 1995, the Company completed the previously announced sale of $10.0
million of Series K Cumulative Convertible Preferred shares to the Company's
partner in a joint venture which is attempting to secure a license to provide
wireless services in Korea. The shares pay a dividend of 7% per annum for 5
years, carry a conversion premium and can be redeemed by the Company in certain
circumstances.
In July 1995, the Company acquired the remaining 50.1% of the DBF
Bundelfunk network that it did not own for DM 9.0 million (approximately $6.5
million). The Company continues to seek regulatory approval for the transfer of
the 51% of the PBG network it does not already own. Upon receipt of such
approval, the Company will own 100% of this network. In the near term these
networks will require additional funding as subscriber revenue does not cover
operating costs and capital needs. The Company is seeking outside sources of
funding for the networks.
28
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
Part II. Other Information
Item 6. 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 second quarter of 1995:
(i) Current Report on Form 8-K/A filed June 27, 1995 reporting
the execution of the June 8, 1994 agreement for the
manufacture and supply of FHMA(TM) Commercial Subscriber
Units, by and between the Company and Mitsubishi Consumer
Electronics America, Inc. as well as, the FHMA(TM) Portable
Subscriber Unit Agreement dated May 19, 1995, by and between
the Company and Hughes Network Systems, Inc.
(ii) Current Report on Form 8-K filed May 25, 1995 reporting the
sale of the Series L Cumulative Convertible Preferred Stock,
$.01 par value per share on May 25, 1995 as well as, the sale
of Series M Cumulative Convertible Preferred Stock, $.01 par
value per share on May 26, 1995.
(iii) Current Report on Form 8-K/A, Amended Form 8-K, filed May 25,
1995 reporting the financial statements of business acquired
for DBF Bundelfunk GmbH & Co. and Betriebs KG ("DBF").
29
<PAGE>
GEOTEK COMMUNICATIONS, INC.
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.
GEOTEK COMMUNICATIONS, INC.
/s/ Michael R. Mc Coy
Date: September 20, 1995 ------------------------------
Michael R. Mc Coy
Chief Financial Officer
/s/ Michael H. Carus
Date: September 20, 1995 ------------------------------
Michael H. Carus
Chief Accounting Officer and
Corporate Controller
30
